The Compensation Committee has reviewed and discussed the following Compensation Discussion and Analysis with the Company’s management. Based upon such review and discussion, the Compensation Committee recommends to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s 20192021 Proxy Statement, and incorporated by reference in the Company’s Annual Report on Form 10-K for the year ended September 30, 2018.2020.
M.K. O’Brien, Chairperson
A. Garcia-Tunon
D.W. Quigley, Jr.
The Company's executive compensation policies are administered by the Compensation Committee of the Board of Directors. The Compensation Committee consists of three independent directors: Mr. O’Brien (Chairperson), Mr. Garcia-Tunon, and Mr. Quigley. Compensation for the Company's CEO, Chief Financial Officer, and the three other most highly compensated executives is presented in the Summary Compensation Table.
Continuous improvement in operating results and the creation of shareholder value are key elements of the compensation philosophy of Matthews International Corporation.Matthews. This philosophy serves as the framework for the Company’s executive compensation program. Our program is designed to provide incentive arrangements that reward executives for improvement in the Company’s operating results and appreciation in our stock value.
To underscore the importance of “pay-for-performance” in our compensation philosophy and our Company’s culture, our Compensation Committee (referred to throughout this section as the Committee) has developed incentive arrangements based on rigorous performance standards. Our annual incentive compensation plan rewards executives for the achievementattainment of operating profit (or earningsadjusted EBITDA (earnings before interest, income taxes, depreciation and amortization ("EBITDA")) and, economic value added targets whileand operating cash flow targets. Adjusted net income is utilized instead of adjusted EBITDA for Corporate participants. For purposes of our long-termannual incentive plan, rewards for the achievement of earnings per share targets and appreciation in our stock price. “Economic“economic value added” is the measure of operating profitadjusted EBITDA (or adjusted net income for Corporate participants) compared to the cost of the capital utilized to generate this profit.income. Our long-term incentive plan rewards participants for the achievement of earnings per share targets and return on invested capital ("ROIC").
The principal objectives of the Company’s executive compensation program for the Company’s named executive officers ("NEOs") and other executive officers, are to:
The Company seeks to accomplish these objectives by maintaining a compensation philosophy that emphasizes rigorous performance-based programs. The foundation of its philosophy is to:
The following executive compensation practices and policies have been adopted by the Committee to ensure sound corporate governance and alignment of the interests of executives and the Company’s shareholders. Many of these policies and practices have been adopted to discourage excessive risk-taking by our executive team.
The pie charts below show the mix of target compensation provided to our CEO and other NEOs in fiscal 2018.2020. Variable, at-risk compensation accounted for 83%80% of our CEO’s target compensation and 66%65% of our other NEOs compensation on average.
The consultant evaluated each performance metric independently relative to the Peer Group for the three-year period 20152017 through 2017,2019, and the five-year period 20132015 through 2017.2019. The relative ranking of each performance metric was averaged to form a composite ranking. The Company’s relative composite performance ranking was aligned with the Peer Group as follows:
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Grant | Performance Measure | Grant Value | Grant Date Stock Price | Vesting Thresholds | Percent of Shares Earned | Forfeiture Date |
2014 | Non-GAAP EPS | $ | 427,770 |
| | $ | 40.74 |
| | $ | 2.69 |
| | $ | 2.94 |
| | $ | 3.14 |
| | 100.0 | % | | 2017 |
2014 | Stock Price | 558,810 |
| | 40.74 |
| | 42.78 |
| | 46.85 |
| | 50.93 |
| | 100.0 | % | | 2019 |
2015 | Non-GAAP EPS | 499,200 |
| | 46.08 |
| | 2.88 |
| | 3.11 |
| | 3.36 |
| | 100.0 | % | | 2018 |
2015 | Stock Price | 591,012 |
| | 46.08 |
| | 48.39 |
| | 53.00 |
| | 57.60 |
| | 100.0 | % | | 2020 |
2016 | Non-GAAP EPS | 850,403 |
| | 57.50 |
| | 3.25 |
| | 3.51 |
| | 3.79 |
| | 100.0 | % | | 2019 |
2016 | Stock Price | 790,585 |
| | 57.50 |
| | 60.38 |
| | 66.13 |
| | 71.88 |
| | 100.0 | % | | 2021 |
2017 | Non-GAAP EPS | 985,295 |
| | 66.61 |
| | 3.65 |
| | 3.94 |
| | 4.26 |
| | 66.7 | % | | 2020 |
2017 | Stock Price | 912,594 |
| | 66.61 |
| | 69.91 |
| | 76.61 |
| | 83.27 |
| | 66.7 | % | | 2022 |
2018 | Non-GAAP EPS | 802,265 |
| | 57.05 |
| | 3.89 |
| | 4.20 |
| | 4.54 |
| | 33.3 | % | | 2021 |
2018 | Stock Price | 751,220 |
| | 57.05 |
| | 59.91 |
| | 65.61 |
| | 71.32 |
| | 33.3 | % | | 2023 |
| Total | | | | | | 76.7 | % | | |
Base Salaries
The Compensation Committee determines and approves the base salaries of the Company’s executives, including the CEO, and considers recommendations from the CEO with respect to the other executives. The Compensation Committee employs the same principles that are applied in developing the base salaries of all employees. Base salary ranges are determined for each executive position based on their level, responsibilities and complexity using the 50th percentile survey data for similar positions at comparable companies. A base salary market median amount is determined for each position based on this competitive data and ranges are established to provide that the Company’s salary levels are managed between 80% and 120% of such market median.
In determining base salary adjustments for each executive, the Compensation Committee considers the individual’s performance evaluation, the level of responsibility for the position, an individual’s current base salary in relation to market median and industry competition for executive talent. As discussed earlier, the Compensation Committee’s philosophy is to target fixed base salaries at the median of market levels. On this basis, base salaries were increased for calendar 20182020 as follows:
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| | | | |
NEO | Percent Increase |
Mr. Bartolacci | 4.5% |
Mr. Babe | 8.4%3.0% |
Mr. Dunn | 4.5%3.0% |
Mr. Gackenbach | 3.0% |
Mr. Nicola | 4.5%3.0% |
Mr. SchawkWalters | 3.0%4.0% |
As a result of these adjustments, the calendar 20182020 base salaries of each NEO approximated market median, except Mr. Schawk. Mr. Schawk’s base salary is above median due to his former position as CEO of Schawk, Inc., prior to its acquisition in 2014 (see “Employment and Severance Agreements” below).median.
Executives are also subject to an annual individual performance evaluation. The evaluations are designed to rate each executive on various criteria, both objective and subjective, including the areas of leadership, technical expertise, initiative, judgment and personal development. An overall rating is assessed to each individual from these evaluations and is an important element in determining annual adjustments to base salaries. The rating levels include: Distinguished (highest rating), Commendable, Competent, Adequate and Provisional (lowest rating). The Compensation Committee conducts an evaluation of the CEO’s performance and the CEO conducts an evaluation of each executive officer’s performance. Each of the NEOs was rated at either the CommendableCompetent level or Distinguished levels.greater.
Annual Incentive Compensation
The Company’s 2015 Incentive Compensation Plan (the “2015 Incentive Plan”) covers the annual incentive compensation to be paid to key managers of the Company, including the NEOs. The 2015 Incentive Plan provides an incentive arrangement based on the achievement of annual goals reflective of the Company’s business plan. The objective of the program is to promote the Company’s goal of increasing shareholder value. The Company believes that two of the key elements in the creation of shareholder value are:
•growth in operating profit (or EBITDA);adjusted EBITDA; and
•improvement in operating profitadjusted EBITDA greater than the cost of the capital utilized to generate this profitadjusted EBITDA (referred to as “economic value added”).
Accordingly, the 2015 Incentive Plan was designed to motivate management to achieve levels of operating profit (or EBITDA)adjusted EBITDA and economic value added reflective of the Company’s business plan.
Designated managers within each of the Company’s business segments participate in the incentive program for their respective business unit. IncentiveFor fiscal 2020, incentive compensation for these participants (except the SGK Brand Solutions segment) iswas calculated based on the achievement of operating profit andadjusted EBITDA, economic value added, and operating cash flow targets established for their individual business unit. Economic value added for business units is defined as the unit’s operating profitadjusted EBITDA less its cost of capital (cost of capital is determined based on a pre-tax rate of 12%14% multiplied by net controllable assets, which is estimated to beexceed the Company’sCompany's weighted average pre-tax cost of capital). Operating cash flow for business units for the purposes of incentive compensation is defined as adjusted EBITDA less capital expenditures plus/minus changes in working capital. Incentive compensation for SGK Brand Solutions participants iswas calculated based on the achievement of adjusted EBITDA and operating cash flow targets established for this business unit.
Incentive compensation for corporate executives iswas calculated based on the achievement of pre-established targets for adjusted net income, and economic value added, and operating cash flow performance of the Company on a consolidated basis. Corporate economic value added is defined as the Company’s adjusted net income less its after-tax cost of capital (with cost of capital based on an after-tax rate of 8%, which is estimated to beapproximate the Company’s weighted average after-tax cost of capital).
Operating profit,Adjusted EBITDA, adjusted net income and economic value added targets are established at the beginning of the fiscal year by the Committee. In determining these targets for fiscal 2018,2020, the Committee considered the long-term growth objectives of the Company; fiscal 20182020 operating budgets approved by the Company’s Board of Directors; and current economic, industry and competitive market conditions.
In response to the impact of COVID-19, the Committee took the following actions to the annual incentive compensation program for fiscal 2020:
•No adjustments were made to the performance metrics and target amounts necessary to achieve 100% of target payouts even though they were established prior to the pandemic at the beginning of the fiscal year. The Committee felt that economic value added (adjusted EBITDA above our cost of capital) and adjusted net income for corporate executives and adjusted EBITDA for business unit executives continued to appropriately focus executives on driving shareholder value creation
•However, due to the additional emphasis on cash flow preservation/generation as a result of the uncertainties of the pandemic, the Committee implemented operating cash flow as an additional performance metric. For this purpose, the Committee utilized operating cash flow targets established in connection with the Company’s fiscal 2020 budgeting process, which were developed prior to the pandemic.
•Additionally, since the pandemic essentially rendered our performance targets for adjusted EBITDA and economic value added unachievable for Corporate and most business unit participants, the Committee approved the following:
◦Lowered the minimum performance threshold for adjusted EBITDA from 80% of target to 60% of target; and
◦Lowered the minimum performance threshold for economic value added to require positive economic value added performance (initially required 75% of established target).
Fiscal 20182020 performance targets established for the respective business units of the NEO’s were as follows:
Corporate (Mr. Bartolacci, Mr. Babe,Nicola and Mr. Nicola)Walters)
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| Adjusted Net Income | Economic Value Added | Operating Cash Flow | Relative Incentive % |
Target | | $ | 109,000 | | | | $ | 51,070 | | | $ | 226,115 | | | 100 | % | |
Minimum | 65,400 | | | — | | | 135,669 | | | — | % | |
Maximum | 130,800 | | | 76,605 | | | 316,561 | | | 200 | % | |
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| Net Income | Economic Value Added | Relative Incentive % |
Target | | $ | 87,700 |
| | | $ | 22,168 |
| | 100 | % | |
Minimum | 78,930 | | | 16,626 | | | 50 | % | |
Maximum | 96,470 | | | 27,710 | | | 200 | % | |
Industrial Technologies / Environmental Solutions (Mr. Dunn)
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| Adjusted EBITDA | Economic Value Added | Operating Cash Flow | Relative Incentive % |
Target | | $ | 48,664 | | | | $ | 15,562 | | | $ | 49,153 | | | 100 | % | |
Minimum | 29,198 | | | — | | | 29,492 | | | — | % | |
Maximum | 58,397 | | | 23,343 | | | 68,814 | | | 200 | % | |
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| Operating Profit | Economic Value Added | Relative Incentive % |
Target | | $ | 27,073 |
| | | $ | 7,826 |
| | 100 | % | |
Minimum | 21,658 | | | 5,409 | | | 50 | % | |
Maximum | 32,488 | | | 10,243 | | | 200 | % | |
Memorialization (excluding Environmental Solutions) (Mr. Gackenbach)
SGK Brand Solutions (Mr. Schawk) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjusted EBITDA | Economic Value Added | Operating Cash Flow | Relative Incentive % |
Target | | $ | 126,326 | | | | $ | 40,474 | | | $ | 122,126 | | | 100 | % | |
Minimum | 75,796 | | | — | | | 73,276 | | | — | % | |
Maximum | 151,591 | | | 60,711 | | | 170,976 | | | 200 | % | |
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| | | | | | | | |
| Adjusted EBITDA | Relative Incentive % |
Target | | $ | 148,070 |
| | 100 | % | |
Minimum | 133,263 | | | 50 | % | |
Maximum | 177,684 | | | 200 | % | |
Corporate amounts were based on consolidated net income and economic value added of the Company and required growthCompany. The consolidated adjusted net income target for fiscal 2020 was $109.0 million, compared to actual fiscal 2019 consolidated adjusted net income of 17.9% and 20.9%, respectively, over$104.4 million. The consolidated economic value added target for fiscal 20172020 was $51.1 million, compared to achieve target payout.actual fiscal 2019 economic value added of $38.5 million. Industrial Technologies / Environmental Solutions amounts were based on the combined operating profitadjusted EBITDA and economic value added for these businesses. SGK Brand Solutions amounts were based on adjusted EBITDA for this business unit. The performance targets for Industrial Technologies / Environmental Solutions and SGK Brand Solutions also required growth over actual fiscal 2017 results to achieve target payout.
The attainment of target performance levels resultresults in an earned incentive equivalent to the participant’s target incentive amount (discussed below). No incentive amounts are earned for operating results that do not achieve the defined minimum performance levels. Incentive amounts cannot exceed the defined maximum percentage of the participant’s target incentive amount. Earned incentive percentages are interpolated within the ranges.
For the NEOs for fiscal 2018, except Mr. Schawk, one-half2020, 40% of the participant’s incentive compensation opportunity was based on the achievement of operating profit targets (net income in the case of Corporate participants), with the remaining portion based on the achievement of economic value added targets. Mr. Schawk’sannual incentive compensation opportunity was based on the achievement of adjusted EBITDA targets (adjusted net income in the case of Corporate participants), 40% was based on the achievement of economic value added targets, and the remaining 20% was based on the achievement of operating cash flow targets. To better align business unit performance with the Company’s consolidated objectives, 25% of the annual incentive compensation opportunities for Mr. DunnGackenbach and Mr. SchawkDunn were based on the achievement of the Company’s consolidated results.
The target incentive amount is expressed as a percentage of the participant’s base salary and based upon the executive’s position and the industry recommended percentage target for the position as provided to the Company by Pay Governance, LLC. Target, minimum and maximum incentive award opportunities for the CEO and other NEOs are included in the table below.
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Named Executive Officer | Target Incentive Award as a Percent of Base Salary | Minimum Incentive Award as a Percent of Base Salary | Maximum Incentive Award as a Percent of Base Salary |
J.C. Bartolacci | 100% | 50% | 200% |
B.J. Dunn | 55% | 27.5% | 110% |
S.D. Gackenbach | 55% | 27.5% | 110% |
S.F. Nicola | 70% | 35% | 140% |
B.D. Walters | 50% | 25% | 100% |
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| | | |
Named Executive Officer | Target Incentive Award as a Percent of Base Salary | Minimum Incentive Award as a Percent of Base Salary | Maximum Incentive Award as a Percent of Base Salary |
J.C. Bartolacci | 100% | 50% | 200% |
G.S. Babe | 60% | 30% | 120% |
B.J. Dunn | 55% | 27.5% | 110% |
S.F. Nicola | 70% | 35% | 140% |
D.A. Schawk | 75% | 37.5% | 150% |
Actual results for fiscal 20182020 compared to target levels were as follows. ActualAdjusted EBITDA and net income amounts reflect the following adjustments as pre-approved by the Committee: acquisition-related costs, restructuring costs, asset (including goodwill) impairments, ERP implementation costs, intangible amortization expense, and certain other non-GAAP adjustments as presented in the Company’s quarterly and annual earnings reports.
Corporate
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| Actual | Target | Relative Incentive % | Allocation | Incentive Earned |
Adjusted net income | | $ | 93,890 | | | | $ | 109,000 | | | 65 | % | | 40 | % | | 26 | % | |
Economic value added | 42,061 | | | 51,070 | | | 82 | % | | 40 | % | | 33 | % | |
Operating cash flow | | 231,739 | | | | 226,115 | | | 106 | % | | 20 | % | | 21 | % | |
Total | | | | | 80 | % | |
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| Actual | Target | Relative Incentive % | Allocation | Incentive Earned |
Net income | | $ | 89,093 |
| | | $ | 87,700 |
| | 116 | % | | 50 | % | | 58 | % | |
Economic value added | 22,305 | | | 22,168 | | | 102 | % | | 50 | % | | 51 | % | |
Total | | | | | 109 | % | |
Industrial Technologies / Environmental Solutions
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| Actual | Target | Relative Incentive % | Allocation | Incentive Earned |
Adjusted EBITDA | | $ | 29,604 | | | | $ | 48,664 | | | 12 | % | | 40 | % | | 5 | % | |
Economic value added | (1,785) | | | 15,562 | | | — | % | | 40 | % | | — | % | |
Operating cash flow | | 24,780 | | | | 49,153 | | | — | % | | 20 | % | | — | % | |
Total | | | | | 5 | % | |
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| Actual | Target | Relative Incentive % | Allocation | Incentive Earned |
Operating profit | | $ | 27,752 |
| | | $ | 27,073 |
| | 133 | % | | 50 | % | | 67 | % | |
Economic value added | 4,163 | | | 7,826 | | | — | % | | 50 | % | | — | % | |
Total | | | | | 67 | % | |
Memorialization (excluding Environmental Solutions)
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| Actual | Target | Relative Incentive % | Allocation | Incentive Earned |
Adjusted EBITDA | | $ | 139,434 | | | | $ | 126,326 | | | 152 | % | | 40 | % | | 61 | % | |
Economic value added | 55,579 | | | 40,474 | | | 175 | % | | 40 | % | | 70 | % | |
Operating cash flow | | 156,545 | | | | 122,126 | | | 170 | % | | 20 | % | | 34 | % | |
Total | | | | | 165 | % | |
SGK Brand Solutions
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| Actual | Target | Incentive Earned |
Adjusted EBITDA | | $ | 132,025 |
| | | $ | 148,070 |
| | — | % | |
Based on actual results, the calculation of the earned incentive amounts were as follows:
| | Named Executive Officer | Base Salary | Target Incentive | Target Incentive Amount | Earned Incentive | Earned Incentive Amount | Named Executive Officer | Base Salary | Target Incentive | Target Incentive Amount | Earned Incentive | Earned Incentive Amount |
J.C. Bartolacci | | $ | 884,540 |
| | 100 | % | | | $ | 884,540 |
| | 109 | % | | | $ | 965,741 |
| | J.C. Bartolacci | | $ | 930,000 | | | 100 | % | | | $ | 930,000 | | | 80 | % | | | $ | 747,255 | | |
G.S. Babe | 440,000 | | | 60 | % | | 264,000 | | | 109 | % | | 288,235 | | | |
B.J. Dunn | 410,000 | | | 55 | % | | 225,500 | | | 67 | % | | 193,712 | | | B.J. Dunn | 430,500 | | | 55 | % | | | 236,775 | | | 5 | % | | 118,388 | | |
S.D. Gackenbach | | S.D. Gackenbach | 431,500 | | | 55 | % | | | 237,325 | | | 165 | % | | 340,811 | | |
S.F. Nicola | 525,000 | | | 70 | % | | 367,500 | | | 109 | % | | 401,237 | | | S.F. Nicola | 551,500 | | | 70 | % | | | 386,050 | | | 80 | % | | 310,191 | | |
D.A. Schawk | 651,000 | | | 75 | % | | 488,250 | | | — | % | | 133,268 | | | |
B.D. Walters | | B.D. Walters | 393,500 | | | 50 | % | | | 196,750 | | | 80 | % | | 158,089 | | |
Note: 25% of the target incentive amounts for Mr. DunnGackenbach and Mr. SchawkDunn were based on the achievement of the Corporate results.
Incentive amounts are subject to reduction at the discretion of the Compensation Committee based on the performance of the NEO relative to pre-established, quantifiable personal goals. Each incentive compensation plan participant develops personal goals, which are subject to review and approval by the business unit President or CEO, as appropriate. The personal goals of the CEO are reviewed and approved by the Compensation Committee. The Compensation Committee may use discretion to decrease calculated awards based on the participant’s performance relative to the quantifiable individual goals. No such adjustments were made in fiscal 2018.2020.
Long-Term Incentive Compensation
Long-term incentive compensation for fiscal 2018 was provided to key managers and executives under the Company’s 2012 Equity Incentive Plan (the “2012 Equity Plan”). In February 2018, the Company’s shareholders approved the 2017 Equity Incentive Plan (the “2017 Equity Plan”). Accordingly, future awards will be provided under the 2017 Equity Plan and no further awards will be made under the 2012 Equity Plan.
The 2012 Equity Plan and the 2017 Equity Plan are equity compensation plans designed to directly align the interests of employees with the Company’s shareholders. The plans are intended to encourage eligible employees to increase their efforts to make the Company more successful, to provide an additional inducement for such employees to remain with the Company, to reward such employees by providing an opportunity to acquire shares of the Company’s common stock on favorable terms and to provide a means through which the Company may attract able persons to enter the employ of the Company. The eligible employees are those employees of the Company or any subsidiary who share responsibility for the management, growth or protection of the business of the Company.
Under the 2012 Equity Plan and the 2017 Equity Plan, equity grants can be made in the form of:
Stock options;Ownership Guidelines
Restricted share awards;
Restricted share units (including performance-based share units);
Stock appreciation rights; and
Other stock-based awards.
The Company has generally issued restricted shares with time and performance-vesting provisions. In November 2018 (fiscal 2019)established guidelines for stock ownership by management, which are intended to promote the awards were in the formalignment of restricted share units with time and performance vesting provisions.
The Committee believes that the use of stock-based compensation provides a strong link in aligning the interests of management with the Company’s shareholdersshareholders. As more fully described under “Compensation Discussion and Analysis” of this Proxy Statement, the guidelines provide for ownership by incentivizingmanagement of shares of the Company’s Common Stock with a minimum market value ranging up to six times base salary depending upon the individual’s position with the Company. Individuals are expected to achieve compliance with these guidelines within a reasonable period of time after appointment to their respective positions.
For purposes of these guidelines, stock ownership includes all shares directly owned (including shares held under the Employee Stock Purchase Plan and time-vesting restricted share units or shares), but does not include outstanding stock options or unvested performance-based restricted share units or shares. Immediate compliance with these guidelines is not mandatory; however, individuals are expected to undertake a program to achieve compliance within five years of their hire date or promotion to their respective position. The ownership policy mandates that at least 50% of the after-tax shares realized upon an option exercise or vesting of restricted stock or restricted share units must be retained until the ownership guideline is met. Compliance with these ownership guidelines is one of the factors considered by the Compensation Committee in determining eligibility for participation in the Company’s equity compensation programs. As of November 30, 2020, all NEOs (as defined below) exceeded the Company’s stock ownership guidelines.
The Company has also adopted guidelines for stock ownership by non-employee directors, which require that each director maintain ownership of shares of the Company’s Common Stock (either directly, through restricted shares or restricted share units issued under the Company’s Director Fee Plan or through shares held in a deferred stock compensation account for the benefit of the director under the Company’s Director Fee Plan) with a market value approximating five times the current annual retainer ($85,000). Directors are expected to achieve compliance with these guidelines within a reasonable period of time after becoming a director. As of November 30, 2020, all of the directors had met or exceeded the Company’s stock ownership guidelines or are within the reasonable time period for compliance.
EXECUTIVE COMPENSATION AND RETIREMENT BENEFITS
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the following Compensation Discussion and Analysis with the Company’s management. Based upon such review and discussion, the Compensation Committee recommends to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s 2021 Proxy Statement, and incorporated by reference in the Company’s Annual Report on Form 10-K for the year ended September 30, 2020.
Submitted by:
The Compensation Committee of the Board of
Directors of Matthews International Corporation
M.K. O’Brien, Chairperson
A. Garcia-Tunon
D.W. Quigley, Jr.
Compensation Discussion and Analysis
Matthews International Corporation’s Named Executive Officers in Fiscal 2020
| | | | | |
Joseph C. Bartolacci | President & Chief Executive Officer |
Brian J. Dunn | Executive Vice President, Strategy & Corporate Development |
Steven D. Gackenbach | Group President, Memorialization |
Steven F. Nicola | Chief Financial Officer & Secretary |
Brian D. Walters | Senior Vice President and General Counsel |
The Company's executive compensation policies are administered by the Compensation Committee of the Board of Directors. The Compensation Committee consists of three independent directors: Mr. O’Brien (Chairperson), Mr. Garcia-Tunon, and Mr. Quigley. Compensation for the Company's CEO, Chief Financial Officer, and the three other most highly compensated executives is presented in the Summary Compensation Table.
Executive Summary
| | |
Compensation Philosophy and Objectives |
Continuous improvement in operating results and the creation of shareholder value creation. In keeping withare key elements of the Committee’scompensation philosophy of providing performance-based incentives,Matthews. This philosophy serves as the restricted shares awarded in November 2017 generally contained performance-vesting provisionsframework for one-half of the shares granted. Further, in order to enhance the Company’s retention objectives,executive compensation program. Our program is designed to provide incentive arrangements that reward executives for improvement in the remaining one-halfCompany’s operating results and appreciation in our stock value.
To underscore the importance of “pay-for-performance” in our compensation philosophy and our Company’s culture, our Compensation Committee (referred to throughout this section as the shares granted contain a time-vesting feature in which such shares vest three years from the grant date subject to continued employment of the executive by the Company.
For the November 2017 (fiscal 2018) grant, the Company established two criteriaCommittee) has developed incentive arrangements based on rigorous performance standards. Our annual incentive compensation plan rewards executives for the performance-vesting shares, with each criteria further containing three separate, pro-rated performance requirements:
One-half (50%) of the performance-vesting shares (i.e., 25% of the overall award) vest upon the attainment of non-GAAPadjusted EBITDA (earnings before interest, income taxes, depreciation and amortization ("EBITDA")), economic value added and operating cash flow targets. Adjusted net income is utilized instead of adjusted EBITDA for Corporate participants. For purposes of our annual earnings per shareincentive plan, “economic value added” is the measure of $3.89, $4.20 and $4.54; and
One-half (50%)adjusted EBITDA (or adjusted net income for Corporate participants) compared to the cost of the performance-vesting shares (i.e., 25%capital utilized to generate this income. Our long-term incentive plan rewards participants for the achievement of the overall award) vest upon the attainment of appreciation in the Company’s stock price to $59.91, $65.61 and $71.32.
Failure to achieve the earnings per share targets within three yearsand return on invested capital ("ROIC").
The principal objectives of the dateCompany’s executive compensation program for the Company’s named executive officers ("NEOs") and other executive officers, are to:
•Attract, retain and motivate highly qualified executives;
•Reward continuous improvement in operating results and the creation of grant orshareholder value; and
•Align the stock price hurdles within five yearsinterests of the dateCompany’s executives with our shareholders.
The Company seeks to accomplish these objectives by maintaining a compensation philosophy that emphasizes rigorous performance-based programs. The foundation of grant will resultits philosophy is to:
•Emphasize rigorous performance-based compensation elements in forfeitureour pay mix while providing total compensation opportunities commensurate with market levels;
•Provide retirement and health benefits that are competitive with market levels; and
•De-emphasize the use of perquisites except for business purposes.
Our compensation philosophy targets the applicable portionmarket median for all elements of the respective performance-share awards.compensation.
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Response to 2020 Say on Pay Vote and Investor Engagement Efforts |
In response to lower shareholder support (approximately 69%) at our 2018 annual meeting, the Committee adopted significant changes to our executive compensation program design effective beginning in fiscal 2019. As a result, at the annual meeting held in February 2020, approximately 92% of votes cast were in support of the compensation of our NEOs. Given this increased level of support, the Committee is satisfied that the changes made more appropriately link our executive compensation to the performance of the Company and better reflect contemporary practices. The Committee is committed to routinely reviewing and updating our executive compensation program as appropriate.
In addition, the Committee routinely evaluates responses from the Company’s ongoing outreach efforts with its largest shareholders and, consistent with fiscal 2019, deemed that the current executive compensation design aligns with the expectations of our shareholders. Therefore, based on the results of our latest Say-on-Pay vote and feedback from investors, the Committee maintained its recently-adopted changes to the core executive compensation design. A summary of our shareholders,executive compensation program for fiscal 2020 is included in the table below.
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Executive Compensation Elements for Fiscal 2020 |
Our executive compensation program is comprised of the following key elements. Each is designed to meet the objectives of our executive compensation program as established by the Committee:
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Compensation Element | Form and Key Characteristics | Description and Performance Metrics |
Base Salary | - Fixed cash component - Reviewed annually and adjusted as appropriate
| - Positioned competitively to attract and retain executive talent - Considers scope and complexity of the role as well as individual performance and experience |
Annual Incentive Compensation | - Variable cash compensation component - Performance-based opportunity | '- Executives other than SGK Brand Solutions: - 40% weighting assigned to adjusted net income (corporate executives) or adjusted EBITDA (business unit executives) - 40% weighting assigned to economic value added (improvement in adjusted EBITDA greater than the cost of the capital utilized to generate this adjusted EBITDA) - 20% weighting assigned to adjusted operating cash flow - SGK Brand Solutions executives: 80% weighting assigned to adjusted EBITDA and 20% weighting assigned to adjusted operating cash flow |
Long-Term Incentive Compensation | - Variable equity-based compensation component - 65% performance units - 35% time-based units | '- Performance units earned at the end of the three-year performance period: - Upon the attainment of non-GAAP annual earnings per share - Upon the attainment of ROIC Goals - Time-based units vest 100% on the third anniversary of the grant |
Change in Control Severance Policy | - Compensation and benefit continuation in the event of involuntary or good reason termination and a change in control of the Company | - Cash severance equal to 2 times base salary and target bonus - Acceleration of unvested or unearned equity awards (“double trigger”) - Health care benefit continuation over the severance period (2 years) |
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Executive Compensation Governance Practices |
The following executive compensation practices and policies have been adopted by the Committee to ensure sound corporate governance and alignment of the interests of executives and the Company’s shareholders. Many of these policies and practices have been adopted to discourage excessive risk-taking by our executive team.
What We Do:
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ü | Designate a non-executive board chair to provide effective independent board leadership and oversight of management |
ü | Review risks associated with our compensation arrangements and adopt mitigating features, practices, and policies |
ü | Engage in a rigorous CEO performance evaluation process |
ü | Employ shareholder-value creating metrics and challenging targets such as adjusted EBITDA, adjusted net income, economic value added and operating cash flow in our annual incentive plan, and earnings per share and return on invested capital within our long-term incentive plan |
ü | Cap annual and long-term incentive payouts |
ü | Maintain significant stock ownership guidelines for both executives and directors |
ü | Require both a qualified change in control and termination of employment (“Double Trigger”) in order to receive cash severance benefits and for unvested equity awards to accelerate |
ü | Maintain a “clawback” policy that provides for the recoupment of incentive awards under certain conditions in the event of a financial restatement |
ü | Retain an independent compensation consultant who regularly provides advise to the compensation committee on matters pertaining to executive compensation |
What We Don’t Do:
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û | Enter into individual employment contracts with our executives, except in an instance where an agreement is assumed as part of an acquisition |
û | Allow hedging or pledging of the Company's common stock |
û | Provide excise tax gross-ups related to change in control terminations |
û | Allow repricing or exchanging of stock options or other equity awards without shareholder approval |
û | Provide excessive perquisites and tax gross-up perquisites |
In response to the impact of COVID-19, the Committee made no changes to the base salary and long-term incentive plan components of executive compensation for fiscal 2020. For the annual incentive compensation program, the Committee took the following actions for fiscal 2020:
•No adjustments were made to the performance metrics and target amounts necessary to achieve 100% of target payouts even though they were established prior to the pandemic at the beginning of the fiscal year. The Committee felt that economic value added (adjusted EBITDA above our cost of capital) and adjusted net income for corporate executives and adjusted EBITDA for business unit executives continued to appropriately focus executives on driving shareholder value creation.
•However, due to the additional emphasis on cash flow preservation/generation as a result of the uncertainties of the pandemic, the Committee implemented operating cash flow as an additional performance metric. For this purpose, the Committee utilized operating cash flow targets established in connection with the Company’s fiscal 2020 budgeting process which were developed prior to the pandemic.
•Additionally, since the pandemic essentially rendered the performance targets for adjusted EBITDA and economic value added unachievable for Corporate and most business unit participants, the Committee approved the following:
◦Lowered the minimum performance threshold for adjusted EBITDA from 80% of target to 60% of target; and
◦Lowered the minimum performance threshold for economic value added to require positive economic value added performance (initially required 75% of established target).
•The Committee felt these changes provided the best incentive to drive focus and executive behaviors through the period impacted by the pandemic without significantly altering the plan design. The Committee also believed that maintaining objective performance metrics and goals was a better approach for the Company then using its discretion to reward for qualitative achievements over the fiscal year. The Committee also considered that at the time of the approved changes, the likelihood of a payout at target or above as a result of the changes was highly unlikely.
No other changes were made to fiscal 2020 executive compensation as a result of COVID-19.
For the annual incentive program for fiscal 2021, the Committee maintained the additional performance metric of operating cash flow but reinstated the previous minimum performance thresholds for adjusted EBITDA and economic value added to 80% of target and 50% of target, respectively.
With respect to the Company’s long-term incentive plan, the Committee did not make any changes to its methodology in determining target awards to plan participants. Target amounts for the November 2018 (fiscal 2019) grant, the Company established the following two criteria2020 annual awards were maintained at market median levels. The allocation of restricted share units was set at 50% performance units and 50% time-based units. This allocation between time and performance vesting is currently only intended for the performance-vesting units, representing 60%fiscal 2021 in consideration of the units subject to such award, to be measured three years followingpandemic. In addition, the award:three-year performance targets were established as follows:
•One-half (50%) of the performance-vesting units (i.e., 30%25% of the overall award) are based upon the attainment of compounded annual growth in non-GAAP annual earnings per sharethe Company’s stock price of 6%40%, 3%20%, and 11%60%, respectively, to earn 100%, 50% and 200% of the award; and
•One-half (50%) of the performance-vesting units (i.e., 30%25% of the overall award) are based upon the attainment of return on invested capital of 14%12%, 12%10%, and 16%14%, respectively, to earn 100%, 50% and 200% of the award.
The utilization of stock price as a performance goal is temporary in consideration of the pandemic and is intended to better align the interests of participants with the Company’s shareholders. The Committee established the minimum threshold ROIC goal of 10% to exceed the Company’s estimated cost of capital.
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CEO Compensation Decisions for Fiscal 2020 |
The Compensation Committee approved the following compensation changes based on an evaluation of factors including: overall company and business unit performance, performance against pre-established personal objectives and goals, execution of business strategy, and consideration of the competitive market.
•Base Salary: Mr. Bartolacci’s base salary for calendar 2020 was increased 3% to approximate the market median.
•Annual Incentive Compensation The Committee approved a payout under this program for Mr. Bartolacci for fiscal year 2020 performance equal to 80% of target based upon performance against pre-established adjusted net income, economic value added and operating cash flow performance goals.
•Long-Term Incentive Compensation: Mr. Bartolacci received an annual equity award for fiscal year 2020 equal to $2,847,903, representing a decrease when compared to his grant of $2,874,161 the previous year.
•Change in Pension Value: Mr. Bartolacci’s Change in Pension Value shown in the Summary Compensation Table declined from $3,008,481 for fiscal 2019 to $1,864,250 in fiscal 2020. The change was primarily due to a reduction in the discount rate assumption from 3.06% to 2.48% for fiscal 2020, compared to the impact of a reduction in the discount rate assumption from 4.18% to 3.06% for the previous year.
As further emphasis on the Committee’s philosophy to align long-term incentive compensation with the Company’s performance, the actual realized portion of the performance-based long-term incentive compensation awards that were granted over the past five years for the Company's CEO was 39.5% (see table on page 29).
Mr. Bartolacci and the Committee have mutually agreed to cap Mr. Bartolacci’s accumulated benefit obligation (“ABO”) under the supplemental retirement plan at the actuarial present value as of September 30, 2020, thus generally foregoing any future increases to his ABO. Accordingly, Mr. Bartolacci will no longer have any further standard compensation in connection with this plan.
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Fiscal 2020 Target Compensation Mix |
The pie charts below show the mix of target compensation provided to our CEO and other NEOs in fiscal 2020. Variable, at-risk compensation accounted for 80% of our CEO’s target compensation and 65% of our other NEOs compensation on average.
Compensation Committee Administration
The principal function of the Compensation Committee is to review the Company’s compensation and benefit programs, including executive compensation and benefits, to ensure that total compensation is appropriate, competitive and consistent with the Company’s compensation philosophy. In performing its duties, the Compensation Committee consults with the Company’s CEO, the Company’s Senior Vice President, Human Resources and various independent external advisors. In fiscal 2020, the Compensation Committee consulted principally with Pay Governance, LLC, an independent executive compensation consulting firm. Pay Governance, LLC does not perform any other services for the Company and reports directly to the Compensation Committee. The Compensation Committee has full authority to retain external advisors, consultants and agents, as necessary, in the fulfillment of its responsibilities. The Compensation Committee reviews the performance and the fees of the independent consultant each year and determines whether to retain such consultant for the upcoming year.
Among its other duties, the Compensation Committee has responsibility for setting executive base salary levels and administering the terms and policies of the following key executive benefit plans:
•2015 Incentive Compensation Plan;
•2017 Equity Incentive Plan;
•Supplemental Retirement Plan ("SERP"); and
•Officers Retirement Restoration Plan ("ORRP").
In general, the Compensation Committee’s desire to align the Company's executive compensation program with market levels drives the allocation between short-term and long-term compensation, as well as cash and equity components. The Compensation Committee believes that the level of compensation provided to an executive should be based on success against pre-established performance goals that drive the creation of shareholder value. To achieve this objective, the Company has built its current annual cash incentive
plan based on achievement of adjusted EBITDA, economic value-added and operating cash flow targets. For this measurement,the long-term plan, the Compensation Committee provided equity awards in fiscal 2020 (November 2019) with vesting provisions dependent on time and service (35%) and the achievement of earnings per share (32.5%) and return on invested capital (32.5%) targets. The Company has no formal policy regarding the allocation of variable and fixed compensation for its NEOs.
The Compensation Committee has considered whether its executive compensation program promotes risk taking at levels that are unacceptable to the Company. The Compensation Committee considered the following factors related to risk:
•Compensation philosophy that targets salaries and incentives at the market median;
•Annual incentive design that caps maximum awards for the achievement of adjusted EBITDA and economic value-added targets reflective of the Company’s business plan;
•Long-term incentives with performance and time-based vesting criteria;
•Stock ownership guidelines; and
•Incentive compensation recoupment policy.
The Compensation Committee believes that the above factors as well as the overall executive compensation design, policies and mix of compensation serve to manage risk in a manner that is acceptable to the Company and its shareholders.
The Compensation Committee makes decisions regarding executive compensation with input from its independent consultant. When making decisions regarding compensation for the CEO, the Compensation Committee has a process in which it considers comparative market data provided by its independent consultant and the CEO’s performance assessment prepared by the Company’s Board of Directors. When making decisions regarding compensation for executives other than the CEO, the Compensation Committee considers comparative market data and seeks input and evaluates recommendations from the CEO. In order to obtain comparative market data for evaluating executive compensation, the Company, through its independent consultant, utilizes compensation data published by Willis Towers Watson. The Company targets industrial and manufacturing companies of similar size, complexity, employment region and performance in developing this set of comparative data. Because data sample sizes for these types of companies may not be sufficient, the Company supplements such data with broader and more general industry data to develop its market data.
In evaluating compensation for fiscal 2020, the Compensation Committee’s independent consultant developed a group of peer companies to make assessments of market compensation and to determine the alignment of compensation earned relative to Company and peer performance. The peer group targeted industrial/manufacturing companies of similar size, complexity, employment region and performance. The peer group of companies used in evaluating compensation (“Peer Group”) for 2020 was:
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Barnes Group Inc. | Deluxe Corp. | EnPro Industries Inc. |
Graco Inc. | Hillenbrand Inc. | ICF International, Inc. |
InnerWorkings, Inc. | John Wiley & Sons, Inc. | Kaman Corporation |
MDC Partners, Inc. | Meredith Corporation | Minerals Technologies Inc. |
MSA Safety Incorporated | Moog, Inc. | Schweitzer-Mauduit Intl. |
Service Corp. International | Standex International Corp. | Teledyne Technologies, Inc. |
TriMas Corporation | Viad Corporation | Woodward, Inc. |
The Compensation Committee does not consider amounts from prior performance-based compensation, such as prior bonus awards or realized or unrealized equity compensation gains, in its decisions to increase or decrease compensation in the current year. The Compensation Committee believes that this would not be in the best interest of retaining and motivating the executive.
Pay-for-Performance Alignment
The Compensation Committee believes there are different ways of assessing whether compensation paid to executives aligns with the performance of the Company. For the Compensation Committee’s consideration in understanding the Company’s pay-for-performance alignment, the Compensation Committee’s compensation consultant examined the relationship of the Company's CEO’s realizable compensation and the Company’s performance relative to the CEO compensation and performance of the Peer Group. Performance was defined as the relative ranking of the following four performance metrics:
•Net sales growth;
•Return on invested capital;
•Growth in earnings before interest, taxes, depreciation and amortization (EBITDA); and
•Total shareholder return (stock price appreciation plus dividends).
The consultant evaluated each performance metric independently relative to the Peer Group for the three-year period 2017 through 2019, and the five-year period 2015 through 2019. The relative ranking of each performance metric was averaged to form a composite ranking. The Company’s relative composite performance ranking was aligned with the Peer Group as follows:
•2017 through 2019: 10th percentile
•2015 through 2019: 42nd percentile
For the three-year period 2017 through 2019, the CEO’s three-year realizable compensation relative to the Peer Group ranked at the 27th percentile while the Company’s performance composite ranked at the 10th percentile of the Peer Group. Realizable compensation includes base salary, actual bonuses paid, the intrinsic value of equity awards at the fiscal year-end 2019 stock price and performance shares earned or expected to be earned.
For the five-year period 2015 through 2019, the CEO’s five-year realizable compensation relative to Peer Group ranked at the 39th percentile while the Company’s performance composite ranked at the 42nd percentile of the Peer Group.
The Compensation Committee evaluated this information and concluded that the Company’s relative performance was aligned with the relative realizable value of compensation paid to the CEO on a three-year and five-year basis.
As further emphasis on the Compensation Committee’s philosophy to align long-term incentive compensation with the Company’s performance, below is a table which reflects, as of September 30, 2020, the actual realized portion of the performance-based long-term incentive compensation awards that were granted over the past five fiscal years for the Company's CEO:
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Grant | Performance Measure | Grant Value | Grant Date Stock Price | Vesting Thresholds | Percent of Shares Earned | Expiration Date | Forfeited Share Value (1) |
2016 | Non-GAAP EPS | $ | 850,403 | | | $ | 57.500 | | | $ | 3.25 | | | $ | 3.51 | | | $ | 3.79 | | | 100.0 | % | | 2019 | $340,170 |
2016 | Stock Price | $ | 790,585 | | | $ | 57.500 | | | $ | 60.38 | | | $ | 66.13 | | | $ | 71.88 | | | 100.0 | % | | 2021 | — |
2017 | Non-GAAP EPS | $ | 985,295 | | | $ | 66.610 | | | $ | 3.65 | | | $ | 3.94 | | | $ | 4.26 | | | 66.7 | % | | 2020 | $749,363 |
2017 | Stock Price | $ | 912,594 | | | $ | 66.610 | | | $ | 69.91 | | | $ | 76.61 | | | $ | 83.27 | | | 66.7 | % | | 2022 | — |
2018 | Non-GAAP EPS | $ | 802,265 | | | $ | 57.050 | | | $ | 3.89 | | | $ | 4.20 | | | $ | 4.54 | | | 33.3 | % | | 2021 | — |
2018 | Stock Price | $ | 751,220 | | | $ | 57.050 | | | $ | 59.91 | | | $ | 65.61 | | | $ | 71.32 | | | 33.3 | % | | 2023 | — |
2019 | Non-GAAP EPS | $ | 862,248 | | | $ | 42.205 | | | $ | 4.33 | | | $ | 4.72 | | | $ | 5.42 | | | — | % | | 2022 | — |
2019 | ROIC | $ | 862,248 | | | $ | 42.205 | | | 12 | % | | 14 | % | | 16 | % | | — | % | | 2022 | — |
2020 | Non-GAAP EPS | $ | 925,586 | | | $ | 35.290 | | | $ | 3.62 | | | $ | 3.94 | | | $ | 4.53 | | | — | % | | 2023 | — |
2020 | ROIC | $ | 925,551 | | | $ | 35.290 | | | 12 | % | | 14 | % | | 16 | % | | — | % | | 2023 | — |
| Total | | | | | | 39.5 | % | | | |
(1) The forfeited share value represents the number of shares forfeited multiplied by the grant date stock price. The 2017 shares were forfeited on November 19, 2020.
The unvested restricted shares awarded in fiscal 2017 and fiscal 2018 subject to the non-GAAP EPS performance measure have expired and, accordingly, were forfeited.
Base Salaries
The Compensation Committee determines and approves the base salaries of the Company’s executives, including the CEO, and considers recommendations from the CEO with respect to the other executives. The Compensation Committee employs the same principles that are applied in developing the base salaries of all employees. Base salary ranges are determined for each executive position based on their level, responsibilities and complexity using the 50th percentile survey data for similar positions at comparable companies. A base salary market median amount is determined for each position based on this competitive data and ranges are established to provide that the Company’s salary levels are managed between 80% and 120% of such market median.
In determining base salary adjustments for each executive, the Compensation Committee considers the individual’s performance evaluation, the level of responsibility for the position, an individual’s current base salary in relation to market median and industry competition for executive talent. As discussed earlier, the Compensation Committee’s philosophy is to target fixed base salaries at the median of market levels. On this basis, base salaries were increased for calendar 2020 as follows:
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NEO | Percent Increase |
Mr. Bartolacci | 3.0% |
Mr. Dunn | 3.0% |
Mr. Gackenbach | 3.0% |
Mr. Nicola | 3.0% |
Mr. Walters | 4.0% |
As a result of these adjustments, the calendar 2020 base salaries of each NEO approximated market median.
Executives are also subject to an annual individual performance evaluation. The evaluations are designed to rate each executive on various criteria, both objective and subjective, including the areas of leadership, technical expertise, initiative, judgment and personal development. An overall rating is assessed to each individual from these evaluations and is an important element in determining annual adjustments to base salaries. The rating levels include: Distinguished (highest rating), Commendable, Competent, Adequate and Provisional (lowest rating). The Compensation Committee conducts an evaluation of the CEO’s performance and the CEO conducts an evaluation of each executive officer’s performance. Each of the NEOs was rated at either the Competent level or greater.
Annual Incentive Compensation
The Company’s 2015 Incentive Compensation Plan (the “2015 Incentive Plan”) covers the annual incentive compensation to be paid to key managers of the Company, including the NEOs. The 2015 Incentive Plan provides an incentive arrangement based on the achievement of annual goals reflective of the Company’s business plan. The objective of the program is to promote the Company’s goal of increasing shareholder value. The Company believes that two of the key elements in the creation of shareholder value are:
•growth in adjusted EBITDA; and
•improvement in adjusted EBITDA greater than the cost of the capital utilized to generate this adjusted EBITDA (referred to as “economic value added”).
Accordingly, the 2015 Incentive Plan was designed to motivate management to achieve levels of adjusted EBITDA and economic value added reflective of the Company’s business plan.
Designated managers within each of the Company’s business segments participate in the incentive program for their respective business unit. For fiscal 2020, incentive compensation for these participants (except the SGK Brand Solutions segment) was calculated based on the achievement of adjusted EBITDA, economic value added, and operating cash flow targets established for their individual business unit. Economic value added for business units is defined as the unit’s adjusted EBITDA less its cost of capital (cost of capital is determined based on consolidateda pre-tax rate of 14% multiplied by net controllable assets, which is estimated to exceed the Company's weighted average pre-tax cost of capital). Operating cash flow for business units for the purposes of incentive compensation is defined as adjusted EBITDA divided by average investedless capital (net debt plus shareholders' equity)expenditures plus/minus changes in working capital. Incentive compensation for SGK Brand Solutions participants was calculated based on the achievement of adjusted EBITDA and operating cash flow targets for this business unit.
Incentive compensation for corporate executives was calculated based on the achievement of pre-established targets for adjusted net income, economic value added, and operating cash flow performance of the Company.Company on a consolidated basis. Corporate economic value added is defined as the Company’s adjusted net income less its after-tax cost of capital (with cost of capital based on an after-tax rate of 8%, which is estimated to approximate the Company’s weighted average after-tax cost of capital).
EveryAdjusted EBITDA, adjusted net income and economic value added targets are established at the beginning of the fiscal year by the Committee. In determining these targets for fiscal 2020, the Committee determines individual grant levels through consultation withconsidered the independent compensation advisor. The Committee is provided grant guidelines by Pay Governance, LLC, which provide recommended grant award ranges based on current market thresholds.
For the November 2017 and prior awards, the recommended ranges provide a minimum, maximum and target grant award for each position / salary level. The grant ranges were developed such that the minimumlong-term growth objectives of the range aligned withCompany; fiscal 2020 operating budgets approved by the Company’s Board of Directors; and current economic, industry and competitive market 50conditions.
In response to the impact of COVID-19, the Committee took the following actions to the annual incentive compensation program for fiscal 2020:
•th percentile, the maximum of the range aligned with the market 75th percentile and the target level in the range represented the average of the market 50th and 75th percentile opportunity. However, the grantsNo adjustments werecapped at the number of shares awarded on the date of grant and require achievement of all performance thresholds to be fully earned. Grants made to the NEOs in November 2017performance metrics and target amounts necessary to achieve 100% of target payouts even though they were withinestablished prior to the above range.
As noted earlier, in response to feedback frompandemic at the Company’s shareholders, beginning with the November 2018 awards, the target level of grants represent the market median (50th percentile). The relative recommended grant ranges have been developed such that the minimum of the range is set at 20% below the market medianfiscal year. The Committee felt that economic value added (adjusted EBITDA above our cost of capital) and the maximum of the range is set at 20% above the market median.adjusted net income for corporate executives and adjusted EBITDA for business unit executives continued to appropriately focus executives on driving shareholder value creation
Grant recommendations are developed using a valuation model consistent with accounting policies for stock-based compensation and is based on the fair market value of the Company’s common stock on the dates of grant. Grants to executive officers are generally made only once a year in the Company’s first fiscal quarter (usually at the November meeting of the Committee), except for new hires and promotions. The Company does not time the release of material non-public information around the granting of equity compensation awards.
Restricted shares may also vest under certain change-in-control circumstances. Effective with the November 2018 awards, restricted share units are subject to double-trigger change-in-control provisions which require a change in control and involuntary or good reason employment termination (see “Employment and Severance Agreements” below).
Beginning with the November 2018 awards, the minimum vesting period, in general, for all restricted share units (time and performance-based) is three years. For the November 2017 and prior awards, performance-based restricted shares cannot vest earlier than one year from the date of grant and expire on the earlier of three or five years (depending on the vesting criteria) from the date of grant, upon employment termination, or within specified time limits following voluntary employment termination (with consent of the Company), retirement or death.
The minimum holding periods for vested restricted share awards are governed by the Company’s stock ownership guidelines, which provides that at least 50% of the after-tax shares realized upon vesting of restricted stock must be retained until the ownership guideline is met.
Dividends are not paid on unvested restricted shares. Dividends associated with unvested restricted shares only become payable if and upon the vesting of the restricted shares. Accordingly, dividends will not be paid if the restricted shares do not become vested and are instead forfeited.
Adjustments or Recovery of Prior Compensation
The Sarbanes-Oxley Act of 2002 requires the CEO and Chief Financial Officer to reimburse the Company for any awards received following the release of financial results that subsequently require an accounting restatement•However, due to noncompliance with a material financial reporting requirementthe additional emphasis on cash flow preservation/generation as a result of misconduct. Additionally, our 2015 Incentive Plan has a recoupment provision under whichthe uncertainties of the pandemic, the Committee hasimplemented operating cash flow as an additional performance metric. For this purpose, the Committee utilized operating cash flow targets established in connection with the Company’s fiscal 2020 budgeting process, which were developed prior to the pandemic.
•Additionally, since the pandemic essentially rendered our performance targets for adjusted EBITDA and economic value added unachievable for Corporate and most business unit participants, the Committee approved the following:
◦Lowered the minimum performance threshold for adjusted EBITDA from 80% of target to 60% of target; and
◦Lowered the minimum performance threshold for economic value added to require positive economic value added performance (initially required 75% of established target).
Fiscal 2020 performance targets established for the respective business units of the NEO’s were as follows:
Corporate (Mr. Bartolacci, Mr. Nicola and Mr. Walters)
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| Adjusted Net Income | Economic Value Added | Operating Cash Flow | Relative Incentive % |
Target | | $ | 109,000 | | | | $ | 51,070 | | | $ | 226,115 | | | 100 | % | |
Minimum | 65,400 | | | — | | | 135,669 | | | — | % | |
Maximum | 130,800 | | | 76,605 | | | 316,561 | | | 200 | % | |
Industrial Technologies / Environmental Solutions (Mr. Dunn)
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| Adjusted EBITDA | Economic Value Added | Operating Cash Flow | Relative Incentive % |
Target | | $ | 48,664 | | | | $ | 15,562 | | | $ | 49,153 | | | 100 | % | |
Minimum | 29,198 | | | — | | | 29,492 | | | — | % | |
Maximum | 58,397 | | | 23,343 | | | 68,814 | | | 200 | % | |
Memorialization (excluding Environmental Solutions) (Mr. Gackenbach)
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| Adjusted EBITDA | Economic Value Added | Operating Cash Flow | Relative Incentive % |
Target | | $ | 126,326 | | | | $ | 40,474 | | | $ | 122,126 | | | 100 | % | |
Minimum | 75,796 | | | — | | | 73,276 | | | — | % | |
Maximum | 151,591 | | | 60,711 | | | 170,976 | | | 200 | % | |
Corporate amounts were based on consolidated net income and economic value added of the Company. The consolidated adjusted net income target for fiscal 2020 was $109.0 million, compared to actual fiscal 2019 consolidated adjusted net income of $104.4 million. The consolidated economic value added target for fiscal 2020 was $51.1 million, compared to actual fiscal 2019 economic value added of $38.5 million. Industrial Technologies / Environmental Solutions amounts were based on the combined adjusted EBITDA and economic value added for these businesses.
The attainment of target performance levels results in an earned incentive equivalent to the participant’s target incentive amount (discussed below). No incentive amounts are earned for operating results that do not achieve the defined minimum performance levels. Incentive amounts cannot exceed the defined maximum percentage of the participant’s target incentive amount. Earned incentive percentages are interpolated within the ranges.
For the NEOs for fiscal 2020, 40% of the participant’s annual incentive compensation opportunity was based on the achievement of adjusted EBITDA targets (adjusted net income in the case of Corporate participants), 40% was based on the achievement of economic value added targets, and the remaining 20% was based on the achievement of operating cash flow targets. To better align business unit performance with the Company’s consolidated objectives, 25% of the annual incentive compensation opportunities for Mr. Gackenbach and Mr. Dunn were based on the achievement of the Company’s consolidated results.
The target incentive amount is expressed as a percentage of the participant’s base salary and based upon the executive’s position and the industry recommended percentage target for the position as provided to the Company by Pay Governance, LLC. Target, minimum and maximum incentive award opportunities for the CEO and other NEOs are included in the table below.
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Named Executive Officer | Target Incentive Award as a Percent of Base Salary | Minimum Incentive Award as a Percent of Base Salary | Maximum Incentive Award as a Percent of Base Salary |
J.C. Bartolacci | 100% | 50% | 200% |
B.J. Dunn | 55% | 27.5% | 110% |
S.D. Gackenbach | 55% | 27.5% | 110% |
S.F. Nicola | 70% | 35% | 140% |
B.D. Walters | 50% | 25% | 100% |
Actual results for fiscal 2020 compared to target levels were as follows. Adjusted EBITDA and net income amounts reflect the following adjustments as pre-approved by the Committee: acquisition-related costs, restructuring costs, asset (including goodwill) impairments, ERP implementation costs, intangible amortization expense, and certain other non-GAAP adjustments as presented in the Company’s quarterly and annual earnings reports.
Corporate
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| Actual | Target | Relative Incentive % | Allocation | Incentive Earned |
Adjusted net income | | $ | 93,890 | | | | $ | 109,000 | | | 65 | % | | 40 | % | | 26 | % | |
Economic value added | 42,061 | | | 51,070 | | | 82 | % | | 40 | % | | 33 | % | |
Operating cash flow | | 231,739 | | | | 226,115 | | | 106 | % | | 20 | % | | 21 | % | |
Total | | | | | 80 | % | |
Industrial Technologies / Environmental Solutions
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| Actual | Target | Relative Incentive % | Allocation | Incentive Earned |
Adjusted EBITDA | | $ | 29,604 | | | | $ | 48,664 | | | 12 | % | | 40 | % | | 5 | % | |
Economic value added | (1,785) | | | 15,562 | | | — | % | | 40 | % | | — | % | |
Operating cash flow | | 24,780 | | | | 49,153 | | | — | % | | 20 | % | | — | % | |
Total | | | | | 5 | % | |
Memorialization (excluding Environmental Solutions)
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| Actual | Target | Relative Incentive % | Allocation | Incentive Earned |
Adjusted EBITDA | | $ | 139,434 | | | | $ | 126,326 | | | 152 | % | | 40 | % | | 61 | % | |
Economic value added | 55,579 | | | 40,474 | | | 175 | % | | 40 | % | | 70 | % | |
Operating cash flow | | 156,545 | | | | 122,126 | | | 170 | % | | 20 | % | | 34 | % | |
Total | | | | | 165 | % | |
Based on actual results, the calculation of the earned incentive amounts were as follows:
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Named Executive Officer | Base Salary | Target Incentive | Target Incentive Amount | Earned Incentive | Earned Incentive Amount |
J.C. Bartolacci | | $ | 930,000 | | | 100 | % | | | $ | 930,000 | | | 80 | % | | | $ | 747,255 | | |
B.J. Dunn | 430,500 | | | 55 | % | | | 236,775 | | | 5 | % | | 118,388 | | |
S.D. Gackenbach | 431,500 | | | 55 | % | | | 237,325 | | | 165 | % | | 340,811 | | |
S.F. Nicola | 551,500 | | | 70 | % | | | 386,050 | | | 80 | % | | 310,191 | | |
B.D. Walters | 393,500 | | | 50 | % | | | 196,750 | | | 80 | % | | 158,089 | | |
Note: 25% of the target incentive amounts for Mr. Gackenbach and Mr. Dunn were based on the achievement of the Corporate results.
Incentive amounts are subject to reduction at the discretion of the Compensation Committee based on the performance of the NEO relative to adjust forpre-established, quantifiable personal goals. Each incentive compensation plan participant develops personal goals, which are subject to review and approval by the recoverybusiness unit President or CEO, as appropriate. The personal goals of previously paidthe CEO are reviewed and approved by the Compensation Committee. The Compensation Committee may use discretion to decrease calculated awards from any participant, where appropriate, inbased on the event of restatement of prior financial statements.participant’s performance relative to the quantifiable individual goals. No such adjustments have been necessary under these provisions.were made in fiscal 2020.
The 2015 Incentive Plan, the 2017 Equity Plan and the 2012 Equity Plan provide the Committee with the discretion over the three-year period following the grant of awards to cancel, suspend or require repayment to the Company of outstanding awards if the participant (i) competes with the Company or its subsidiaries, (ii) violates solicitation provisions with customers or employees, or (iii) defames or disparages the Company, its subsidiaries or certain related persons.
Stock Ownership Guidelines
The Company has established guidelines for stock ownership by management, which are intended to promote the alignment of the interests of management with the Company’s shareholders. As more fully described under “Compensation Discussion and Analysis” of this Proxy Statement, the guidelines provide for ownership by management of shares of the Company’s Common Stock with a minimum market value ranging up to six times base salary depending upon the individual’s position with the Company. Individuals are expected to achieve compliance with these guidelines within a reasonable period of time after appointment to their respective positions.
For purposes of these guidelines, stock ownership includes all shares directly owned (including shares held under the Employee Stock Purchase Plan and time-vesting restricted share units or shares), but does not include outstanding stock options or unvested performance-based restricted share units or shares. Immediate compliance with these guidelines is not mandatory; however, individuals are expected to undertake a program to achieve compliance within five years of their hire date or promotion to their respective position. The ownership policy mandates that at least 50% of the after-tax shares realized upon an option exercise or vesting of restricted stock or restricted share units must be retained until the ownership guideline is met. Compliance with these ownership guidelines is one of the factors considered by the Compensation Committee in determining eligibility for participation in the Company’s equity compensation programs. As of November 30, 2020, all NEOs (as defined below) exceeded the Company’s stock ownership guidelines.
The Company has also adopted guidelines for stock ownership by non-employee directors, which require that each director maintain ownership of shares of the Company’s Common Stock (either directly, through restricted shares or restricted share units issued under the Company’s Director Fee Plan or through shares held in a deferred stock compensation account for the benefit of the director under the Company’s Director Fee Plan) with a market value approximating five times the current annual retainer ($85,000). Directors are expected to achieve compliance with these guidelines within a reasonable period of time after becoming a director. As of November 30, 2020, all of the directors had met or exceeded the Company’s stock ownership guidelines or are within the reasonable time period for compliance.
EXECUTIVE COMPENSATION AND RETIREMENT BENEFITS
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the following Compensation Discussion and Analysis with the Company’s management. Based upon such review and discussion, the Compensation Committee recommends to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s 2021 Proxy Statement, and incorporated by reference in the Company’s Annual Report on Form 10-K for the year ended September 30, 2020.
Submitted by:
The Compensation Committee of the Board of
Directors of Matthews International Corporation
M.K. O’Brien, Chairperson
A. Garcia-Tunon
D.W. Quigley, Jr.
Compensation Discussion and Analysis
Matthews International Corporation’s Named Executive Officers in Fiscal 2020
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Joseph C. Bartolacci | President & Chief Executive Officer |
Brian J. Dunn | Executive Vice President, Strategy & Corporate Development |
Steven D. Gackenbach | Group President, Memorialization |
Steven F. Nicola | Chief Financial Officer & Secretary |
Brian D. Walters | Senior Vice President and General Counsel |
The Company's executive compensation policies are administered by the Compensation Committee of the Board of Directors. The Compensation Committee consists of three independent directors: Mr. O’Brien (Chairperson), Mr. Garcia-Tunon, and Mr. Quigley. Compensation for the Company's CEO, Chief Financial Officer, and the three other most highly compensated executives is presented in the Summary Compensation Table.
Executive Summary
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Compensation Philosophy and Objectives |
Continuous improvement in operating results and the creation of shareholder value are key elements of the compensation philosophy of Matthews. This philosophy serves as the framework for the Company’s executive compensation program. Our program is designed to provide incentive arrangements that reward executives for improvement in the Company’s operating results and appreciation in our stock value.
To underscore the importance of “pay-for-performance” in our compensation philosophy and our Company’s culture, our Compensation Committee (referred to throughout this section as the Committee) has developed incentive arrangements based on rigorous performance standards. Our annual incentive compensation plan rewards executives for the attainment of adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization ("EBITDA")), economic value added and operating cash flow targets. Adjusted net income is utilized instead of adjusted EBITDA for Corporate participants. For purposes of our annual incentive plan, “economic value added” is the measure of adjusted EBITDA (or adjusted net income for Corporate participants) compared to the cost of the capital utilized to generate this income. Our long-term incentive plan rewards participants for the achievement of earnings per share targets and return on invested capital ("ROIC").
The principal objectives of the Company’s executive compensation program for the Company’s named executive officers ("NEOs") and other executive officers, are to:
•Attract, retain and motivate highly qualified executives;
•Reward continuous improvement in operating results and the creation of shareholder value; and
•Align the interests of the Company’s executives with our shareholders.
The Company seeks to accomplish these objectives by maintaining a compensation philosophy that emphasizes rigorous performance-based programs. The foundation of its philosophy is to:
•Emphasize rigorous performance-based compensation elements in our pay mix while providing total compensation opportunities commensurate with market levels;
•Provide retirement and health benefits that are competitive with market levels; and
•De-emphasize the use of perquisites except for business purposes.
Our compensation philosophy targets the market median for all elements of compensation.
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Response to 2020 Say on Pay Vote and Investor Engagement Efforts |
In response to lower shareholder support (approximately 69%) at our 2018 annual meeting, the Committee adopted significant changes to our executive compensation program design effective beginning in fiscal 2019. As a result, at the annual meeting held in February 2020, approximately 92% of votes cast were in support of the compensation of our NEOs. Given this increased level of support, the Committee is satisfied that the changes made more appropriately link our executive compensation to the performance of the Company and better reflect contemporary practices. The Committee is committed to routinely reviewing and updating our executive compensation program as appropriate.
In addition, the Committee routinely evaluates responses from the Company’s ongoing outreach efforts with its largest shareholders and, consistent with fiscal 2019, deemed that the current executive compensation design aligns with the expectations of our shareholders. Therefore, based on the results of our latest Say-on-Pay vote and feedback from investors, the Committee maintained its recently-adopted changes to the core executive compensation design. A summary of our executive compensation program for fiscal 2020 is included in the table below.
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Executive Compensation Elements for Fiscal 2020 |
Our executive compensation program is comprised of the following key elements. Each is designed to meet the objectives of our executive compensation program as established by the Committee:
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Compensation Element | Form and Key Characteristics | Description and Performance Metrics |
Base Salary | - Fixed cash component - Reviewed annually and adjusted as appropriate
| - Positioned competitively to attract and retain executive talent - Considers scope and complexity of the role as well as individual performance and experience |
Annual Incentive Compensation | - Variable cash compensation component - Performance-based opportunity | '- Executives other than SGK Brand Solutions: - 40% weighting assigned to adjusted net income (corporate executives) or adjusted EBITDA (business unit executives) - 40% weighting assigned to economic value added (improvement in adjusted EBITDA greater than the cost of the capital utilized to generate this adjusted EBITDA) - 20% weighting assigned to adjusted operating cash flow - SGK Brand Solutions executives: 80% weighting assigned to adjusted EBITDA and 20% weighting assigned to adjusted operating cash flow |
Long-Term Incentive Compensation | - Variable equity-based compensation component - 65% performance units - 35% time-based units | '- Performance units earned at the end of the three-year performance period: - Upon the attainment of non-GAAP annual earnings per share - Upon the attainment of ROIC Goals - Time-based units vest 100% on the third anniversary of the grant |
Change in Control Severance Policy | - Compensation and benefit continuation in the event of involuntary or good reason termination and a change in control of the Company | - Cash severance equal to 2 times base salary and target bonus - Acceleration of unvested or unearned equity awards (“double trigger”) - Health care benefit continuation over the severance period (2 years) |
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Executive Compensation Governance Practices |
The following executive compensation practices and policies have been adopted by the Committee to ensure sound corporate governance and alignment of the interests of executives and the Company’s shareholders. Many of these policies and practices have been adopted to discourage excessive risk-taking by our executive team.
What We Do:
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ü | Designate a non-executive board chair to provide effective independent board leadership and oversight of management |
ü | Review risks associated with our compensation arrangements and adopt mitigating features, practices, and policies |
ü | Engage in a rigorous CEO performance evaluation process |
ü | Employ shareholder-value creating metrics and challenging targets such as adjusted EBITDA, adjusted net income, economic value added and operating cash flow in our annual incentive plan, and earnings per share and return on invested capital within our long-term incentive plan |
ü | Cap annual and long-term incentive payouts |
ü | Maintain significant stock ownership guidelines for both executives and directors |
ü | Require both a qualified change in control and termination of employment (“Double Trigger”) in order to receive cash severance benefits and for unvested equity awards to accelerate |
ü | Maintain a “clawback” policy that provides for the recoupment of incentive awards under certain conditions in the event of a financial restatement |
ü | Retain an independent compensation consultant who regularly provides advise to the compensation committee on matters pertaining to executive compensation |
What We Don’t Do:
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û | Enter into individual employment contracts with our executives, except in an instance where an agreement is assumed as part of an acquisition |
û | Allow hedging or pledging of the Company's common stock |
û | Provide excise tax gross-ups related to change in control terminations |
û | Allow repricing or exchanging of stock options or other equity awards without shareholder approval |
û | Provide excessive perquisites and tax gross-up perquisites |
In response to the impact of COVID-19, the Committee made no changes to the base salary and long-term incentive plan components of executive compensation for fiscal 2020. For the annual incentive compensation program, the Committee took the following actions for fiscal 2020:
•No adjustments were made to the performance metrics and target amounts necessary to achieve 100% of target payouts even though they were established prior to the pandemic at the beginning of the fiscal year. The Committee felt that economic value added (adjusted EBITDA above our cost of capital) and adjusted net income for corporate executives and adjusted EBITDA for business unit executives continued to appropriately focus executives on driving shareholder value creation.
•However, due to the additional emphasis on cash flow preservation/generation as a result of the uncertainties of the pandemic, the Committee implemented operating cash flow as an additional performance metric. For this purpose, the Committee utilized operating cash flow targets established in connection with the Company’s fiscal 2020 budgeting process which were developed prior to the pandemic.
•Additionally, since the pandemic essentially rendered the performance targets for adjusted EBITDA and economic value added unachievable for Corporate and most business unit participants, the Committee approved the following:
◦Lowered the minimum performance threshold for adjusted EBITDA from 80% of target to 60% of target; and
◦Lowered the minimum performance threshold for economic value added to require positive economic value added performance (initially required 75% of established target).
•The Committee felt these changes provided the best incentive to drive focus and executive behaviors through the period impacted by the pandemic without significantly altering the plan design. The Committee also believed that maintaining objective performance metrics and goals was a better approach for the Company then using its discretion to reward for qualitative achievements over the fiscal year. The Committee also considered that at the time of the approved changes, the likelihood of a payout at target or above as a result of the changes was highly unlikely.
No other changes were made to fiscal 2020 executive compensation as a result of COVID-19.
For the annual incentive program for fiscal 2021, the Committee maintained the additional performance metric of operating cash flow but reinstated the previous minimum performance thresholds for adjusted EBITDA and economic value added to 80% of target and 50% of target, respectively.
With respect to the Company’s long-term incentive plan, the Committee did not make any changes to its methodology in determining target awards to plan participants. Target amounts for the November 2020 annual awards were maintained at market median levels. The allocation of restricted share units was set at 50% performance units and 50% time-based units. This allocation between time and performance vesting is currently only intended for fiscal 2021 in consideration of the pandemic. In addition, the three-year performance targets were established as follows:
•One-half (50%) of the performance-vesting units (i.e., 25% of the overall award) are based upon the attainment of growth in the Company’s stock price of 40%, 20%, and 60%, respectively, to earn 100%, 50% and 200% of the award; and
•One-half (50%) of the performance-vesting units (i.e., 25% of the overall award) are based upon the attainment of return on invested capital of 12%, 10%, and 14%, respectively, to earn 100%, 50% and 200% of the award.
The utilization of stock price as a performance goal is temporary in consideration of the pandemic and is intended to better align the interests of participants with the Company’s shareholders. The Committee established the minimum threshold ROIC goal of 10% to exceed the Company’s estimated cost of capital.
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CEO Compensation Decisions for Fiscal 2020 |
The Compensation Committee approved the following compensation changes based on an evaluation of factors including: overall company and business unit performance, performance against pre-established personal objectives and goals, execution of business strategy, and consideration of the competitive market.
•Base Salary: Mr. Bartolacci’s base salary for calendar 2020 was increased 3% to approximate the market median.
•Annual Incentive Compensation The Committee approved a payout under this program for Mr. Bartolacci for fiscal year 2020 performance equal to 80% of target based upon performance against pre-established adjusted net income, economic value added and operating cash flow performance goals.
•Long-Term Incentive Compensation: Mr. Bartolacci received an annual equity award for fiscal year 2020 equal to $2,847,903, representing a decrease when compared to his grant of $2,874,161 the previous year.
•Change in Pension Value: Mr. Bartolacci’s Change in Pension Value shown in the Summary Compensation Table declined from $3,008,481 for fiscal 2019 to $1,864,250 in fiscal 2020. The change was primarily due to a reduction in the discount rate assumption from 3.06% to 2.48% for fiscal 2020, compared to the impact of a reduction in the discount rate assumption from 4.18% to 3.06% for the previous year.
As further emphasis on the Committee’s philosophy to align long-term incentive compensation with the Company’s performance, the actual realized portion of the performance-based long-term incentive compensation awards that were granted over the past five years for the Company's CEO was 39.5% (see table on page 29).
Mr. Bartolacci and the Committee have mutually agreed to cap Mr. Bartolacci’s accumulated benefit obligation (“ABO”) under the supplemental retirement plan at the actuarial present value as of September 30, 2020, thus generally foregoing any future increases to his ABO. Accordingly, Mr. Bartolacci will no longer have any further standard compensation in connection with this plan.
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Fiscal 2020 Target Compensation Mix |
The pie charts below show the mix of target compensation provided to our CEO and other NEOs in fiscal 2020. Variable, at-risk compensation accounted for 80% of our CEO’s target compensation and 65% of our other NEOs compensation on average.
Compensation Committee Administration
The principal function of the Compensation Committee is to review the Company’s compensation and benefit programs, including executive compensation and benefits, to ensure that total compensation is appropriate, competitive and consistent with the Company’s compensation philosophy. In performing its duties, the Compensation Committee consults with the Company’s CEO, the Company’s Senior Vice President, Human Resources and various independent external advisors. In fiscal 2020, the Compensation Committee consulted principally with Pay Governance, LLC, an independent executive compensation consulting firm. Pay Governance, LLC does not perform any other services for the Company and reports directly to the Compensation Committee. The Compensation Committee has full authority to retain external advisors, consultants and agents, as necessary, in the fulfillment of its responsibilities. The Compensation Committee reviews the performance and the fees of the independent consultant each year and determines whether to retain such consultant for the upcoming year.
Among its other duties, the Compensation Committee has responsibility for setting executive base salary levels and administering the terms and policies of the following key executive benefit plans:
•2015 Incentive Compensation Plan;
•2017 Equity Incentive Plan;
•Supplemental Retirement Plan ("SERP"); and
•Officers Retirement Restoration Plan ("ORRP").
In general, the Compensation Committee’s desire to align the Company's executive compensation program with market levels drives the allocation between short-term and long-term compensation, as well as cash and equity components. The Compensation Committee believes that the level of compensation provided to an executive should be based on success against pre-established performance goals that drive the creation of shareholder value. To achieve this objective, the Company has built its current annual cash incentive
plan based on achievement of adjusted EBITDA, economic value-added and operating cash flow targets. For the long-term plan, the Compensation Committee provided equity awards in fiscal 2020 (November 2019) with vesting provisions dependent on time and service (35%) and the achievement of earnings per share (32.5%) and return on invested capital (32.5%) targets. The Company has no formal policy regarding the allocation of variable and fixed compensation for its NEOs.
The Compensation Committee has considered whether its executive compensation program promotes risk taking at levels that are unacceptable to the Company. The Compensation Committee considered the following factors related to risk:
•Compensation philosophy that targets salaries and incentives at the market median;
•Annual incentive design that caps maximum awards for the achievement of adjusted EBITDA and economic value-added targets reflective of the Company’s business plan;
•Long-term incentives with performance and time-based vesting criteria;
•Stock ownership guidelines; and
•Incentive compensation recoupment policy.
The Compensation Committee believes that the above factors as well as the overall executive compensation design, policies and mix of compensation serve to manage risk in a manner that is acceptable to the Company and its shareholders.
The Compensation Committee makes decisions regarding executive compensation with input from its independent consultant. When making decisions regarding compensation for the CEO, the Compensation Committee has a process in which it considers comparative market data provided by its independent consultant and the CEO’s performance assessment prepared by the Company’s Board of Directors. When making decisions regarding compensation for executives other than the CEO, the Compensation Committee considers comparative market data and seeks input and evaluates recommendations from the CEO. In order to obtain comparative market data for evaluating executive compensation, the Company, through its independent consultant, utilizes compensation data published by Willis Towers Watson. The Company targets industrial and manufacturing companies of similar size, complexity, employment region and performance in developing this set of comparative data. Because data sample sizes for these types of companies may not be sufficient, the Company supplements such data with broader and more general industry data to develop its market data.
In evaluating compensation for fiscal 2020, the Compensation Committee’s independent consultant developed a group of peer companies to make assessments of market compensation and to determine the alignment of compensation earned relative to Company and peer performance. The peer group targeted industrial/manufacturing companies of similar size, complexity, employment region and performance. The peer group of companies used in evaluating compensation (“Peer Group”) for 2020 was:
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Barnes Group Inc. | Deluxe Corp. | EnPro Industries Inc. |
Graco Inc. | Hillenbrand Inc. | ICF International, Inc. |
InnerWorkings, Inc. | John Wiley & Sons, Inc. | Kaman Corporation |
MDC Partners, Inc. | Meredith Corporation | Minerals Technologies Inc. |
MSA Safety Incorporated | Moog, Inc. | Schweitzer-Mauduit Intl. |
Service Corp. International | Standex International Corp. | Teledyne Technologies, Inc. |
TriMas Corporation | Viad Corporation | Woodward, Inc. |
The Compensation Committee does not consider amounts from prior performance-based compensation, such as prior bonus awards or realized or unrealized equity compensation gains, in its decisions to increase or decrease compensation in the current year. The Compensation Committee believes that this would not be in the best interest of retaining and motivating the executive.
Pay-for-Performance Alignment
The Compensation Committee believes there are different ways of assessing whether compensation paid to executives aligns with the performance of the Company. For the Compensation Committee’s consideration in understanding the Company’s pay-for-performance alignment, the Compensation Committee’s compensation consultant examined the relationship of the Company's CEO’s realizable compensation and the Company’s performance relative to the CEO compensation and performance of the Peer Group. Performance was defined as the relative ranking of the following four performance metrics:
•Net sales growth;
•Return on invested capital;
•Growth in earnings before interest, taxes, depreciation and amortization (EBITDA); and
•Total shareholder return (stock price appreciation plus dividends).
The consultant evaluated each performance metric independently relative to the Peer Group for the three-year period 2017 through 2019, and the five-year period 2015 through 2019. The relative ranking of each performance metric was averaged to form a composite ranking. The Company’s relative composite performance ranking was aligned with the Peer Group as follows:
•2017 through 2019: 10th percentile
•2015 through 2019: 42nd percentile
For the three-year period 2017 through 2019, the CEO’s three-year realizable compensation relative to the Peer Group ranked at the 27th percentile while the Company’s performance composite ranked at the 10th percentile of the Peer Group. Realizable compensation includes base salary, actual bonuses paid, the intrinsic value of equity awards at the fiscal year-end 2019 stock price and performance shares earned or expected to be earned.
For the five-year period 2015 through 2019, the CEO’s five-year realizable compensation relative to Peer Group ranked at the 39th percentile while the Company’s performance composite ranked at the 42nd percentile of the Peer Group.
The Compensation Committee evaluated this information and concluded that the Company’s relative performance was aligned with the relative realizable value of compensation paid to the CEO on a three-year and five-year basis.
As further emphasis on the Compensation Committee’s philosophy to align long-term incentive compensation with the Company’s performance, below is a table which reflects, as of September 30, 2020, the actual realized portion of the performance-based long-term incentive compensation awards that were granted over the past five fiscal years for the Company's CEO:
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Grant | Performance Measure | Grant Value | Grant Date Stock Price | Vesting Thresholds | Percent of Shares Earned | Expiration Date | Forfeited Share Value (1) |
2016 | Non-GAAP EPS | $ | 850,403 | | | $ | 57.500 | | | $ | 3.25 | | | $ | 3.51 | | | $ | 3.79 | | | 100.0 | % | | 2019 | $340,170 |
2016 | Stock Price | $ | 790,585 | | | $ | 57.500 | | | $ | 60.38 | | | $ | 66.13 | | | $ | 71.88 | | | 100.0 | % | | 2021 | — |
2017 | Non-GAAP EPS | $ | 985,295 | | | $ | 66.610 | | | $ | 3.65 | | | $ | 3.94 | | | $ | 4.26 | | | 66.7 | % | | 2020 | $749,363 |
2017 | Stock Price | $ | 912,594 | | | $ | 66.610 | | | $ | 69.91 | | | $ | 76.61 | | | $ | 83.27 | | | 66.7 | % | | 2022 | — |
2018 | Non-GAAP EPS | $ | 802,265 | | | $ | 57.050 | | | $ | 3.89 | | | $ | 4.20 | | | $ | 4.54 | | | 33.3 | % | | 2021 | — |
2018 | Stock Price | $ | 751,220 | | | $ | 57.050 | | | $ | 59.91 | | | $ | 65.61 | | | $ | 71.32 | | | 33.3 | % | | 2023 | — |
2019 | Non-GAAP EPS | $ | 862,248 | | | $ | 42.205 | | | $ | 4.33 | | | $ | 4.72 | | | $ | 5.42 | | | — | % | | 2022 | — |
2019 | ROIC | $ | 862,248 | | | $ | 42.205 | | | 12 | % | | 14 | % | | 16 | % | | — | % | | 2022 | — |
2020 | Non-GAAP EPS | $ | 925,586 | | | $ | 35.290 | | | $ | 3.62 | | | $ | 3.94 | | | $ | 4.53 | | | — | % | | 2023 | — |
2020 | ROIC | $ | 925,551 | | | $ | 35.290 | | | 12 | % | | 14 | % | | 16 | % | | — | % | | 2023 | — |
| Total | | | | | | 39.5 | % | | | |
(1) The forfeited share value represents the number of shares forfeited multiplied by the grant date stock price. The 2017 shares were forfeited on November 19, 2020.
The unvested restricted shares awarded in fiscal 2017 and fiscal 2018 subject to the non-GAAP EPS performance measure have expired and, accordingly, were forfeited.
Base Salaries
The Compensation Committee determines and approves the base salaries of the Company’s executives, including the CEO, and considers recommendations from the CEO with respect to the other executives. The Compensation Committee employs the same principles that are applied in developing the base salaries of all employees. Base salary ranges are determined for each executive position based on their level, responsibilities and complexity using the 50th percentile survey data for similar positions at comparable companies. A base salary market median amount is determined for each position based on this competitive data and ranges are established to provide that the Company’s salary levels are managed between 80% and 120% of such market median.
In determining base salary adjustments for each executive, the Compensation Committee considers the individual’s performance evaluation, the level of responsibility for the position, an individual’s current base salary in relation to market median and industry competition for executive talent. As discussed earlier, the Compensation Committee’s philosophy is to target fixed base salaries at the median of market levels. On this basis, base salaries were increased for calendar 2020 as follows:
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NEO | Percent Increase |
Mr. Bartolacci | 3.0% |
Mr. Dunn | 3.0% |
Mr. Gackenbach | 3.0% |
Mr. Nicola | 3.0% |
Mr. Walters | 4.0% |
As a result of these adjustments, the calendar 2020 base salaries of each NEO approximated market median.
Executives are also subject to an annual individual performance evaluation. The evaluations are designed to rate each executive on various criteria, both objective and subjective, including the areas of leadership, technical expertise, initiative, judgment and personal development. An overall rating is assessed to each individual from these evaluations and is an important element in determining annual adjustments to base salaries. The rating levels include: Distinguished (highest rating), Commendable, Competent, Adequate and Provisional (lowest rating). The Compensation Committee conducts an evaluation of the CEO’s performance and the CEO conducts an evaluation of each executive officer’s performance. Each of the NEOs was rated at either the Competent level or greater.
Annual Incentive Compensation
The Company’s 2015 Incentive Compensation Plan (the “2015 Incentive Plan”) covers the annual incentive compensation to be paid to key managers of the Company, including the NEOs. The 2015 Incentive Plan provides an incentive arrangement based on the achievement of annual goals reflective of the Company’s business plan. The objective of the program is to promote the Company’s goal of increasing shareholder value. The Company believes that two of the key elements in the creation of shareholder value are:
•growth in adjusted EBITDA; and
•improvement in adjusted EBITDA greater than the cost of the capital utilized to generate this adjusted EBITDA (referred to as “economic value added”).
Accordingly, the 2015 Incentive Plan was designed to motivate management to achieve levels of adjusted EBITDA and economic value added reflective of the Company’s business plan.
Designated managers within each of the Company’s business segments participate in the incentive program for their respective business unit. For fiscal 2020, incentive compensation for these participants (except the SGK Brand Solutions segment) was calculated based on the achievement of adjusted EBITDA, economic value added, and operating cash flow targets established for their individual business unit. Economic value added for business units is defined as the unit’s adjusted EBITDA less its cost of capital (cost of capital is determined based on a pre-tax rate of 14% multiplied by net controllable assets, which is estimated to exceed the Company's weighted average pre-tax cost of capital). Operating cash flow for business units for the purposes of incentive compensation is defined as adjusted EBITDA less capital expenditures plus/minus changes in working capital. Incentive compensation for SGK Brand Solutions participants was calculated based on the achievement of adjusted EBITDA and operating cash flow targets for this business unit.
Incentive compensation for corporate executives was calculated based on the achievement of pre-established targets for adjusted net income, economic value added, and operating cash flow performance of the Company on a consolidated basis. Corporate economic value added is defined as the Company’s adjusted net income less its after-tax cost of capital (with cost of capital based on an after-tax rate of 8%, which is estimated to approximate the Company’s weighted average after-tax cost of capital).
Adjusted EBITDA, adjusted net income and economic value added targets are established at the beginning of the fiscal year by the Committee. In determining these targets for fiscal 2020, the Committee considered the long-term growth objectives of the Company; fiscal 2020 operating budgets approved by the Company’s Board of Directors; and current economic, industry and competitive market conditions.
In response to the impact of COVID-19, the Committee took the following actions to the annual incentive compensation program for fiscal 2020:
•No adjustments were made to the performance metrics and target amounts necessary to achieve 100% of target payouts even though they were established prior to the pandemic at the beginning of the fiscal year. The Committee felt that economic value added (adjusted EBITDA above our cost of capital) and adjusted net income for corporate executives and adjusted EBITDA for business unit executives continued to appropriately focus executives on driving shareholder value creation
•However, due to the additional emphasis on cash flow preservation/generation as a result of the uncertainties of the pandemic, the Committee implemented operating cash flow as an additional performance metric. For this purpose, the Committee utilized operating cash flow targets established in connection with the Company’s fiscal 2020 budgeting process, which were developed prior to the pandemic.
•Additionally, since the pandemic essentially rendered our performance targets for adjusted EBITDA and economic value added unachievable for Corporate and most business unit participants, the Committee approved the following:
◦Lowered the minimum performance threshold for adjusted EBITDA from 80% of target to 60% of target; and
◦Lowered the minimum performance threshold for economic value added to require positive economic value added performance (initially required 75% of established target).
Fiscal 2020 performance targets established for the respective business units of the NEO’s were as follows:
Corporate (Mr. Bartolacci, Mr. Nicola and Mr. Walters)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjusted Net Income | Economic Value Added | Operating Cash Flow | Relative Incentive % |
Target | | $ | 109,000 | | | | $ | 51,070 | | | $ | 226,115 | | | 100 | % | |
Minimum | 65,400 | | | — | | | 135,669 | | | — | % | |
Maximum | 130,800 | | | 76,605 | | | 316,561 | | | 200 | % | |
Industrial Technologies / Environmental Solutions (Mr. Dunn)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjusted EBITDA | Economic Value Added | Operating Cash Flow | Relative Incentive % |
Target | | $ | 48,664 | | | | $ | 15,562 | | | $ | 49,153 | | | 100 | % | |
Minimum | 29,198 | | | — | | | 29,492 | | | — | % | |
Maximum | 58,397 | | | 23,343 | | | 68,814 | | | 200 | % | |
Memorialization (excluding Environmental Solutions) (Mr. Gackenbach)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjusted EBITDA | Economic Value Added | Operating Cash Flow | Relative Incentive % |
Target | | $ | 126,326 | | | | $ | 40,474 | | | $ | 122,126 | | | 100 | % | |
Minimum | 75,796 | | | — | | | 73,276 | | | — | % | |
Maximum | 151,591 | | | 60,711 | | | 170,976 | | | 200 | % | |
Corporate amounts were based on consolidated net income and economic value added of the Company. The consolidated adjusted net income target for fiscal 2020 was $109.0 million, compared to actual fiscal 2019 consolidated adjusted net income of $104.4 million. The consolidated economic value added target for fiscal 2020 was $51.1 million, compared to actual fiscal 2019 economic value added of $38.5 million. Industrial Technologies / Environmental Solutions amounts were based on the combined adjusted EBITDA and economic value added for these businesses.
The attainment of target performance levels results in an earned incentive equivalent to the participant’s target incentive amount (discussed below). No incentive amounts are earned for operating results that do not achieve the defined minimum performance levels. Incentive amounts cannot exceed the defined maximum percentage of the participant’s target incentive amount. Earned incentive percentages are interpolated within the ranges.
For the NEOs for fiscal 2020, 40% of the participant’s annual incentive compensation opportunity was based on the achievement of adjusted EBITDA targets (adjusted net income in the case of Corporate participants), 40% was based on the achievement of economic value added targets, and the remaining 20% was based on the achievement of operating cash flow targets. To better align business unit performance with the Company’s consolidated objectives, 25% of the annual incentive compensation opportunities for Mr. Gackenbach and Mr. Dunn were based on the achievement of the Company’s consolidated results.
The target incentive amount is expressed as a percentage of the participant’s base salary and based upon the executive’s position and the industry recommended percentage target for the position as provided to the Company by Pay Governance, LLC. Target, minimum and maximum incentive award opportunities for the CEO and other NEOs are included in the table below.
| | | | | | | | | | | |
Named Executive Officer | Target Incentive Award as a Percent of Base Salary | Minimum Incentive Award as a Percent of Base Salary | Maximum Incentive Award as a Percent of Base Salary |
J.C. Bartolacci | 100% | 50% | 200% |
B.J. Dunn | 55% | 27.5% | 110% |
S.D. Gackenbach | 55% | 27.5% | 110% |
S.F. Nicola | 70% | 35% | 140% |
B.D. Walters | 50% | 25% | 100% |
Actual results for fiscal 2020 compared to target levels were as follows. Adjusted EBITDA and net income amounts reflect the following adjustments as pre-approved by the Committee: acquisition-related costs, restructuring costs, asset (including goodwill) impairments, ERP implementation costs, intangible amortization expense, and certain other non-GAAP adjustments as presented in the Company’s quarterly and annual earnings reports.
Corporate
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Actual | Target | Relative Incentive % | Allocation | Incentive Earned |
Adjusted net income | | $ | 93,890 | | | | $ | 109,000 | | | 65 | % | | 40 | % | | 26 | % | |
Economic value added | 42,061 | | | 51,070 | | | 82 | % | | 40 | % | | 33 | % | |
Operating cash flow | | 231,739 | | | | 226,115 | | | 106 | % | | 20 | % | | 21 | % | |
Total | | | | | 80 | % | |
Industrial Technologies / Environmental Solutions
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Actual | Target | Relative Incentive % | Allocation | Incentive Earned |
Adjusted EBITDA | | $ | 29,604 | | | | $ | 48,664 | | | 12 | % | | 40 | % | | 5 | % | |
Economic value added | (1,785) | | | 15,562 | | | — | % | | 40 | % | | — | % | |
Operating cash flow | | 24,780 | | | | 49,153 | | | — | % | | 20 | % | | — | % | |
Total | | | | | 5 | % | |
Memorialization (excluding Environmental Solutions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Actual | Target | Relative Incentive % | Allocation | Incentive Earned |
Adjusted EBITDA | | $ | 139,434 | | | | $ | 126,326 | | | 152 | % | | 40 | % | | 61 | % | |
Economic value added | 55,579 | | | 40,474 | | | 175 | % | | 40 | % | | 70 | % | |
Operating cash flow | | 156,545 | | | | 122,126 | | | 170 | % | | 20 | % | | 34 | % | |
Total | | | | | 165 | % | |
Based on actual results, the calculation of the earned incentive amounts were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Named Executive Officer | Base Salary | Target Incentive | Target Incentive Amount | Earned Incentive | Earned Incentive Amount |
J.C. Bartolacci | | $ | 930,000 | | | 100 | % | | | $ | 930,000 | | | 80 | % | | | $ | 747,255 | | |
B.J. Dunn | 430,500 | | | 55 | % | | | 236,775 | | | 5 | % | | 118,388 | | |
S.D. Gackenbach | 431,500 | | | 55 | % | | | 237,325 | | | 165 | % | | 340,811 | | |
S.F. Nicola | 551,500 | | | 70 | % | | | 386,050 | | | 80 | % | | 310,191 | | |
B.D. Walters | 393,500 | | | 50 | % | | | 196,750 | | | 80 | % | | 158,089 | | |
Note: 25% of the target incentive amounts for Mr. Gackenbach and Mr. Dunn were based on the achievement of the Corporate results.
Incentive amounts are subject to reduction at the discretion of the Compensation Committee based on the performance of the NEO relative to pre-established, quantifiable personal goals. Each incentive compensation plan participant develops personal goals, which are subject to review and approval by the business unit President or CEO, as appropriate. The personal goals of the CEO are reviewed and approved by the Compensation Committee. The Compensation Committee may use discretion to decrease calculated awards based on the participant’s performance relative to the quantifiable individual goals. No such adjustments were made in fiscal 2020.
Long-Term Incentive Compensation
Long-term incentive compensation for fiscal 2020 was provided to key managers and executives under the Company’s 2017 Equity Incentive Plan (the “2017 Equity Plan”). The 2017 Equity Plan is an equity compensation plan designed to directly align the interests of employees with the Company’s shareholders. The plan is intended to encourage eligible employees to increase their efforts to make the Company more successful, to provide an additional inducement for such employees to remain with the Company, to reward such employees by providing an opportunity to acquire shares of the Company’s common stock on favorable terms and to provide a means through which the Company may attract able persons to enter the employ of the Company. The eligible employees are those employees of the Company or any subsidiary who share responsibility for the management, growth or protection of the business of the Company.
Under the 2017 Equity Plan, equity grants can be made in the form of:
•Stock options;
•Restricted share awards;
•Restricted share units (including performance-based share units);
•Stock appreciation rights; and
•Other stock-based awards.
Prior to November 2018, the Company generally issued restricted shares with time and performance-vesting provisions. Beginning in November 2018 (fiscal 2019), the awards were in the form of restricted share units with time and performance vesting provisions.
The Compensation Committee believes that the use of stock-based compensation provides a strong link in aligning the interests of management with the Company’s shareholders by incentivizing shareholder value creation. In keeping with the Compensation Committee’s philosophy of providing performance-based incentives, the restricted share units awarded in November 2019 generally contained performance-vesting provisions for 65% of the units granted. Further, in order to enhance the Company’s retention objectives, the remaining 35% of the units granted contain a time-vesting feature in which such units vest three years from the grant date subject to continued employment of the executive by the Company.
For the November 2019 grant, the Company established the following two criteria for the performance-vesting units, to be measured three years following the grant of the award:
•One-half (50%) of the performance-vesting units (i.e., 32.5% of the overall award) are based upon the attainment of compounded annual growth in non-GAAP annual earnings per share of 6%, 3%, and 11%, respectively, to earn 100%, 50% and 200% of the award; and
•One-half (50%) of the performance-vesting units (i.e., 32.5% of the overall award) are based upon the attainment of return on invested capital of 14%, 12%, and 16%, respectively, to earn 100%, 50% and 200% of the award. For this measurement, return on invested capital is determined based on consolidated adjusted EBITDA divided by average invested capital (net debt plus shareholders' equity) of the Company.
For the November 2020 grant, in response to the impacts of COVID-19, the Committee did not make any changes to its methodology in determining target awards to plan participants. Target amounts for the November 2020 annual awards were maintained at market median levels. The allocation of restricted share units was set at 50% performance units and 50% time-based units. This allocation between time and performance vesting is currently only intended for fiscal 2021 in consideration of the pandemic. In addition, the three-year performance targets were established as follows:
•One-half (50%) of the performance-vesting units (i.e., 25% of the overall award) are based upon the attainment of growth in the Company’s stock price of 40%, 20%, and 60%, respectively, to earn 100%, 50% and 200% of the award; and
•One-half (50%) of the performance-vesting units (i.e., 25% of the overall award) are based upon the attainment of return on invested capital of 12%, 10%, and 14%, respectively, to earn 100%, 50% and 200% of the award.
The utilization of stock price as a performance goal is temporary in consideration of the pandemic and is intended to better align the interests of participants with the Company’s shareholders. The Committee established the minimum threshold ROIC goal of 10% to exceed the Company’s estimated cost of capital.
Every year, the Compensation Committee determines individual grant levels through consultation with the independent compensation advisor. The Compensation Committee is provided grant guidelines by Pay Governance, LLC, which provide recommended grant award ranges based on current market thresholds.
For the November 2019 awards, the target level of grants represented the market median (50th percentile). The relative recommended grant ranges have been developed such that the minimum of the range is set at 20% below the market median and the maximum of the range is set at 20% above the market median.
Grant recommendations are developed using a valuation model consistent with accounting policies for stock-based compensation and is based on the fair market value of the Company’s common stock on the dates of grant. Grants to executive officers are generally made only once a year in the Company’s first fiscal quarter (usually at the November meeting of the Compensation Committee), except for new hires and promotions. The Company does not time the release of material non-public information around the granting of equity compensation awards.
The minimum vesting period, in general, for all restricted share units (time and performance-based) is three years. Restricted share units may also vest under certain change-in-control circumstances, subject to double-trigger change-in-control provisions which require a change in control and involuntary or good reason employment termination (see “Employment and Severance Agreements” below).
The minimum holding periods for vested restricted share awards are governed by the Company’s stock ownership guidelines, which provides that at least 50% of the after-tax shares realized upon vesting of restricted stock must be retained until the ownership guideline is met.
Dividends are not paid on unvested restricted shares. Dividends associated with unvested restricted shares only become payable if and upon the vesting of the restricted shares. Accordingly, dividends will not be paid if the restricted shares do not become vested and are instead forfeited.
Adjustments or Recovery of Prior Compensation
The Sarbanes-Oxley Act of 2002 requires the CEO and Chief Financial Officer to reimburse the Company for any awards received following the release of financial results that subsequently require an accounting restatement due to noncompliance with a material financial reporting requirement as a result of misconduct. Additionally, our 2015 Incentive Plan has a recoupment provision under which the Compensation Committee has the discretion to adjust for the recovery of previously paid awards from any participant, where appropriate, in the event of restatement of prior financial statements. No such adjustments have been necessary under these provisions.
The 2015 Incentive Plan and the 2017 Equity Plan provide the Compensation Committee with the discretion over the three-year period following the grant of awards to cancel, suspend or require repayment to the Company of outstanding awards if the participant (i) competes with the Company or its subsidiaries, (ii) violates solicitation provisions with customers or employees, or (iii) defames or disparages the Company, its subsidiaries or certain related persons.
Stock Ownership Guidelines
The Company has established stock ownership guidelines for executive officers and business unit management in order to support a culture of ownership among the management team. The Compensation Committee believes significant ownership levels will provide additional motivation to executives to perform in accordance with the interests of the Company’s shareholders. The ownership guidelines are expressed as a multiple of base salary and are as follows:
|
| | | | |
Position | Minimum Equivalent Stock Value |
Chief Executive Officer | 6 times base salary |
Chief Financial Officer | 5 times base salary |
Group Presidents | 4 times base salary |
Other Officers and Executive Management of the Registrant | 3 times base salary |
Vice Presidents | 2 times base salary |
Director level and other managers eligible for equity compensation and other incentive compensation plan participants | 1 timeAnnual base salary |
For purposes of these guidelines, stock ownership includes all shares directly owned (including shares held under the Company's Employee Stock Purchase Plan and time-vesting restricted share units or shares), but does not include outstanding stock options or unvested performance-based restricted share units or shares. Immediate compliance with these guidelines is not mandatory; however, individuals are expected to undertake a program to achieve compliance within five years of their hire date or promotion to their respective position. The ownership policy mandates that at least 50% of the after-tax shares realized upon an option exercise or vesting of restricted stock or restricted share units must be retained until the ownership guideline is met. Compliance with these ownership guidelines is one of the factors considered by the Compensation Committee in determining eligibility for participation in the Company’s equity compensation programs.
As of November 30, 2018,2020, all NEOs exceeded the Company’s stock ownership guidelines.
Anti-Hedging Policy
The Company has a policy that prohibits its directors, executive officers and employees from hedging its ownership of the Company’s stock.stock, including the use of financial instruments such as prepaid variable forwards, equity swaps, collars and exchange funds related to Company stock or debt. Directors, executive officers and employees are prohibited from purchasing the Company’s stock on margin, borrowing against the Company’s stock held in a margin account, or pledging the Company’s stock as collateral for a loan.
Retirement Benefits
Retirement benefits are generally provided to executives under the Company’s principal retirement plan and in some cases, a supplemental retirement plan. The purpose of both these plans is to provide post-retirement compensation and stability to executives. The Committee’s goal is to provide a benefit that is competitive with plans which would be available to executives of similar companies. The Committee believes this philosophy will allow the Company to effectively attract and retain talented executives.
Executive officers may become eligible to participate in a supplemental retirement plan. To be eligible for participation, the individual must be an executive officer of the Company, as designated by the Board of Directors annually, and meet certain length of service requirements as a designated executive officer and in total with the Company.
Of the NEOs, Mr. Bartolacci, Mr. Dunn and Mr. Nicola participate in the SERP. Unlike the principal retirement plan, the SERP is an unsecured obligation of the Company and is not a tax-qualified plan. Funding for the SERP is provided through a non-revocable trust arrangement. The SERP is intended to make-up the tax-related limitation of benefits under the principal retirement plan and to provide retirement benefits at competitive market rates. In addition, the SERP serves as a retention vehicle as benefits generally do not fully vest until the completion of a minimum of 15 years of service.
Mr. Bartolacci and the Committee have mutually agreed to cap Mr. Bartolacci’s ABO under the supplemental retirement plan at the actuarial present value as of September 30, 2020, thus generally foregoing any future increases to his ABO. Accordingly, Mr. Bartolacci will no longer have any further standard compensation in connection with this plan.
In 2009, the Committee closed the SERP to new participants, including Mr. BabeGackenbach and Mr. Schawk,Walters, and created the ORRP for any new designated executive going forward, which limits the benefit available to the restoration of amounts lost to tax-related limitations under the Company's otherregular retirement and 401(k) plans.
Other Compensation
The Company generally provides all domestic employees with the following:
•401(k) plan;
•Employee stock purchase plan;
•Health and dental coverage;
•Company-paid term life insurance;
•Disability insurance;
•Educational assistance; and
•Paid time off (vacations and holidays).
These benefits are designed to be competitive with overall market practices. Educational assistance for dependent children is also provided to any employee of the Company whose child meets the scholastic eligibility criteria and is attending an eligible college or university. Educational assistance is limited to $1,200 for each semester and $2,400 annually.
The Company provides executives with other benefits, reflected in the “All Other Compensation” column in the Summary Compensation Table, which the Committee considers reasonable, competitive and consistent with the Company’s compensation philosophy. These benefits include supplemental life insurance coverage, costs associated with personal use of a vehicle and, in certain circumstances, club dues and financial counseling and tax preparation services.dues.
Employment and Severance Agreements
Except for Mr. Schawk, noneNone of the NEOs have employment or severance agreements. Mr. Schawk signed an employment agreement with the Company upon the acquisition of Schawk, Inc., on July 29, 2014. Under his employment agreement, which has an initial term of three years with successive annual one (1) year renewal provisions thereafter, his base salary was set at an initial annual rate of $595,000 and he is entitled to an annual incentive bonus at a target rate of 75% of base salary based on the performance of his business unit. The employment agreement also specifies other compensation generally consistent with the Company’s employee benefit plans.
The Company’s executive management, including the NEOs, are subjectparties to change-in-control agreements.agreements with the Company. These agreements provide certain benefits upon a change in control of the Company provided that, upon a change-in-control, the executive’s employment is terminated involuntarily or for good reason (“double-trigger”). Upon such double-trigger, the executive (including the CEO) is generally entitled to two times theirhis or her base salary and target bonus, and accelerated vesting of awards under the long-term incentive plan.
Tax Policy
Section 162(m) of the Internal Revenue Code of 1986, as amended, (“Section 162(m)”) disallows federal income tax deductions for compensation paid to the Chief Executive Officer, Chief Financial Officer and any of the other three highestmost highly compensated executives in excess of $1 million in any taxable year, subject to certain exceptions. One exception involved compensation paid pursuant to shareholder-approved compensation plans that are performance-based. Certain of the provisions in the 2015 Incentive Plan were intended to cause awards earned under such plan to be eligible for this exception (so that compensation related to such awards should be deductible under the Internal Revenue Code). In addition, certain of the provisions in the 2017 Equity Plan and the 2012 Equity Plan were intended to cause grants of performance-based stock compensation under such plan to be eligible for this exception (so that compensation related to the vesting or exercise of such shares should be deductible under the Internal Revenue Code). Payments of cash compensation to executives (except annual incentive compensation awards earned under the 2015 Incentive Plan) and time-based grants of restricted shares under the equity plans were not eligible for this performance-based exception. Section 162(m) was amended on December 22, 2017 by the “Tax Cuts and Jobs Act”. Under the Tax Cuts and Jobs Act, the exception under Section 162(m) for performance-based compensation wouldis no longer be available. The amendment to Section 162(m) applies to remuneration paid by the Company in taxable years beginning after December 31, 2017, except for remuneration which is provided pursuant to a written binding contract that was in effect on November 2, 2017 and which was not modified in any material respect on or after such date.
Annual Compensation of the Named Executive Officers
The table below summarizes the compensation for fiscal 2018, 20172020, 2019 and 20162018 earned by the Company’s Chief Executive Officer, Chief Financial Officer, and each of the three other most highly paid executive officers who were serving as executive officers atas of September 30, 2018.2020. These individuals are sometimes referred to in this Proxy Statement as the “named executive officers”, or the “NEOs”.
Summary Compensation Table
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| | | | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position | Year (1) | Salary | Bonus | Stock Awards (2) | Option Awards | Non-Equity Incentive Plan Compensation (3) | Change in Pension Value and Nonqualified Deferred Plan Compensation (4) | All Other Compensation (5) | Total |
Joseph C. Bartolacci Director, President and Chief Executive Officer | 2018 | $ | 874,285 |
| $ | — |
| $ | 3,478,922 |
| $ | — |
| $ | 965,741 |
| $ | 1,129,826 |
| $ | 116,064 |
| $ | 6,564,838 |
|
2017 | 836,637 |
| — |
| 4,262,545 |
| — |
| 1,189,008 |
| 633,643 |
| 114,175 |
| 7,036,008 |
|
2016 | 800,267 |
| — |
| 3,682,263 |
| — |
| 1,243,755 |
| 1,836,921 |
| 127,315 |
| 7,690,521 |
|
Gregory S. Babe Director and Chief Technology Officer | 2018 | 430,846 |
| — |
| 572,089 |
| — |
| 288,235 |
| — |
| 50,464 |
| 1,341,634 |
|
2017 | 401,692 |
| — |
| 522,308 |
| — |
| 285,154 |
| — |
| 31,350 |
| 1,240,504 |
|
Brian J. Dunn Executive Vice President, Strategy and Corporate Development | 2018 | 405,154 |
| — |
| 402,009 |
| — |
| 193,712 |
| 280,002 |
| 51,584 |
| 1,332,461 |
|
2017 | 388,231 |
| — |
| 108,064 |
| — |
| 268,026 |
| 117,677 |
| 29,949 |
| 911,947 |
|
2016 | 374,365 |
| — |
| 77,794 |
| — |
| 145,105 |
| 583,959 |
| 37,667 |
| 1,218,890 |
|
Steven F. Nicola Chief Financial Officer and Secretary | 2018 | 518,808 |
| — |
| 958,636 |
| — |
| 401,237 |
| 565,386 |
| 53,407 |
| 2,497,474 |
|
2017 | 496,077 |
| — |
| 1,116,659 |
| — |
| 493,612 |
| 338,156 |
| 48,525 |
| 2,493,029 |
|
2016 | 475,692 |
| — |
| 898,233 |
| — |
| 515,928 |
| 1,059,040 |
| 50,896 |
| 2,999,789 |
|
David A. Schawk Group President, SGK Brand Solutions | 2018 | 646,623 |
| — |
| 572,090 |
| — |
| 133,268 |
| — |
| 65,194 |
| 1,417,175 |
|
2017 | 627,605 |
| — |
| — |
| — |
| 273,986 |
| — |
| 33,730 |
| 935,321 |
|
2016 | 608,731 |
| — |
| — |
| — |
| 398,506 |
| — |
| 29,035 |
| 1,036,272 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position | Year (1) | Salary | Bonus | Stock Awards (2) | Non-Equity Incentive Plan Compensation (3) | Change in Pension Value and Nonqualified Deferred Plan Compensation (4) | All Other Compensation (5) | Total |
Joseph C. Bartolacci Director, President and Chief Executive Officer | 2020 | $ | 921,600 | | $ | — | | $ | 2,847,903 | | $ | 747,255 | | $ | 1,864,250 | | $ | 196,859 | | $ | 6,577,867 | |
2019 | 892,223 | | — | | 2,874,161 | | — | | 3,008,481 | | 144,664 | | 6,919,529 | |
2018 | 874,285 | | — | | 3,478,922 | | 965,741 | | 1,129,826 | | 116,064 | | 6,564,838 | |
Brian J. Dunn Executive Vice President, Strategy and Corporate Development | 2020 | 426,654 | | — | | 458,770 | | 118,388 | | 480,824 | | 55,659 | | 1,540,295 | |
2019 | 415,846 | | — | | 443,153 | | — | | 833,335 | | 24,304 | | 1,716,638 | |
2018 | 405,154 | | — | | 402,009 | | 193,712 | | 280,002 | | 51,584 | | 1,332,461 | |
Steven D. Gackenbach Group President, Memorialization | 2020 | 427,654 | | — | | 458,770 | | 340,811 | | 228,493 | | 72,139 | | 1,527,867 | |
2019 | 416,846 | | — | | 443,153 | | 91,448 | | 236,965 | | 47,029 | | 1,235,441 | |
2018 | 407,769 | | — | | 525,704 | | 197,957 | | 93,186 | | 40,344 | | 1,264,960 | |
Steven F. Nicola Chief Financial Officer and Secretary | 2020 | 546,577 | | — | | 868,135 | | 310,191 | | 1,009,743 | | 103,729 | | 2,838,375 | |
2019 | 532,673 | | — | | 785,013 | | — | | 1,676,654 | | 54,084 | | 3,048,424 | |
2018 | 518,808 | | — | | 958,636 | | 401,237 | | 565,386 | | 53,407 | | 2,497,474 | |
Brian D. Walters Senior Vice President and General Counsel | 2020 | 388,885 | | — | | 458,770 | | 158,089 | | 256,732 | | 53,631 | | 1,316,107 | |
2019 | 376,481 | | — | | 443,153 | | — | | 346,801 | | 32,288 | | 1,198,723 | |
2018 | 366,692 | | — | | 494,780 | | 202,529 | | 64,509 | | 29,385 | | 1,157,895 | |
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(1) | For the fiscal years ended September 30, 2018, 2017 and 2016. |
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(2) | Amounts in this column reflect the grant date fair value of awards of restricted shares of the Company’s Common Stock granted during fiscal 2018, 2017 and 2016 computed in accordance with Financial Accounting Standards Board ASC Topic 718; however, the estimate of forfeiture related to service-based vesting conditions is disregarded for purposes of this valuation. For details of individual grants of restricted shares during fiscal 2018, see the Grants of Plan-Based Awards table below. There were no restricted shares forfeited by the named executive officers during fiscal 2018, 2017 or 2016. The assumptions on which this valuation is based are set forth in Note 10 to the audited financial statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on November 20, 2018. |
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(3) | The amounts shown in this column reflect amounts earned and paid under the 2015 Incentive Plan in fiscal 2018, 2017 and 2016. For a full explanation of the operation of the Incentive Compensation Plan, refer to the narrative disclosure above and the Annual Incentive Compensation section of the Compensation Discussion and Analysis beginning on page 39 of this Proxy Statement. |
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(4) | The amount shown in this column for each of the named executive officers is the increase, if any, in the actuarial present value of the accumulated benefits under all defined benefit plans for the years ended September 30, 2018, 2017 and 2016. For additional information regarding defined benefit pension plans, see the Pension Benefits table below. |
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(5) | Amounts represent one or more of the following: premiums for officer’s life insurance, incremental premiums for long-term disability insurance, club dues, dividends on restricted shares, the value for personal use of Company leased vehicles or vehicle allowance, matching contributions to the Company’s 401(k) Plan and educational assistance. The fiscal 2018, 2017 and 2016 amounts for Mr. Bartolacci include dividends on restricted shares of $74,121, $78,603 and $87,124, respectively, the value of a leased vehicle of $15,707, $10,480 and $10,071, respectively, and club membership dues of $15,430, $14,289 and $18,681, respectively. The fiscal 2018 and 2017 amounts for Mr. Babe includes dividends on restricted shares of $7,347 and $2,063, respectively, vehicle allowances of $12,900 and $11,325, respectively, and club membership dues of $8,048 and $7,253, respectively. The fiscal 2018, 2017 and 2016 amounts for Mr. Dunn include dividends on restricted shares of $30,788, $10,695 and $17,869, respectively, and vehicle allowances of $12,900, $11,675 and $10,800, respectively. The fiscal 2018, 2017 and 2016 amounts for Mr. Nicola include dividends on restricted shares of $24,259, $24,105 and $28,256, respectively, the value of a leased vehicle of $13,224, $8,479 and $7,835, respectively, and club membership dues of $7,966, $7,711 and $6,912, respectively. The fiscal 2018 and 2016 amounts for Mr. Schawk include dividends on restricted shares of $33,123 and $3,654, respectively and for fiscal years 2018, 2017 and 2016 included amounts for the value of a leased vehicle of $12,900, $11,675 and $10,800, respectively, and club membership dues of $9,871, $11,800 and $8,226, respectively. |
(1) For the fiscal years ended September 30, 2020, 2019 and 2018.
(2) Amounts in this column reflect the grant date fair value of awards of restricted shares/units of the Company’s Common Stock granted during fiscal 2020, 2019 and 2018 computed in accordance with Financial Accounting Standards Board ASC Topic 718; however, the estimate of forfeiture related to service-based vesting conditions is disregarded for purposes of this valuation. For details of individual grants of restricted share units during fiscal 2020, see the Grants of Plan-Based Awards table below. Performance-based shares that were forfeited in fiscal 2020 were as follows: 5,916 for Mr. Bartolacci, 150 for Mr. Dunn, 925 for Mr. Gackenbach, 1,550 for Mr. Nicola and 750 for Mr. Walters. Mr. Dunn forfeited 4,303 performance-based shares in fiscal 2019. There were no restricted shares forfeited by the named executive officers during fiscal 2018. The assumptions on which this valuation is based are set forth in Note 12 to the audited financial statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on November 20, 2020.
(3)The amounts shown in this column reflect amounts earned under the 2015 Incentive Plan in fiscal 2020, 2019 and 2018. For a full explanation of the operation of the Incentive Compensation Plan, refer to the narrative disclosure above and the Annual Incentive Compensation section of the Compensation Discussion and Analysis beginning on page 30 of this Proxy Statement.
(4) The amount shown in this column for each of the named executive officers is the increase, if any, in the actuarial present value of the accumulated benefits under all defined benefit plans for the years ended September 30, 2020, 2019 and 2018. For additional information regarding defined benefit pension plans, see the Pension Benefits table below.
(5) Amounts represent one or more of the following: premiums for officer’s life insurance, incremental premiums for long-term disability insurance, club dues, dividends on restricted shares, the value for personal use of Company leased vehicles or vehicle allowance, matching contributions to the Company’s 401(k) Plan and educational assistance. The fiscal 2020, 2019 and 2018 amounts for Mr. Bartolacci include dividends on restricted shares of$79,520, $101,558 and $74,121, respectively, the value of a leased vehicle of $15,445, $14,168 and $15,707, respectively, and club membership dues of $18,510, $17,474 and $15,430, respectively. The fiscal 2020, 2019 and 2018 amounts for Mr. Dunn include dividends on restricted shares of $2,016, $2,989 and $30,788, respectively, and vehicle allowances of $12,900, $12,900 and $12,900, respectively. The fiscal 2020, 2019 and 2018 amounts for Mr. Gackenbach includes dividends on restricted shares of $12,432, $17,498 and $11,592, respectively, vehicle allowances of $12,900, $12,900 and $12,900, respectively, and club membership dues of $6,246, $6,252 and $5,665, respectively. The fiscal 2020, 2019 and 2018 amounts for Mr. Nicola include dividends on restricted shares of $20,832, $25,200 and $24,259, respectively, the value of a leased vehicle of $13,682, $12,425 and $13,224, respectively, and club membership dues of $7,625, $8,045 and $7,966, respectively. The fiscal 2020, 2019 and 2018 amounts for Mr. Walters include dividends on restricted shares of $10,080, $13,149 and $12,883, respectively, and the value of a leased vehicle of $9,696, $9,742 and $8,504, respectively. Fiscal 2020 also includes a one-time payout of accrued vacation due to a change in the Company's earned time-off policy of $69,438 for Mr. Bartolacci, $32,154 for Mr. Dunn, $32,230 for Mr. Gackenbach, $51,490 for Mr. Nicola and $24,020 for Mr. Walters.
The following table provides information on grants of plan-based awards held by the named executive officers during fiscal 2018.2020.
Grants of Plan-Based Awards Table
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name | Grant Date (1) | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#) (4) | Grant Date Fair Value of Stock Awards ($) |
Threshold ($) | Target ($) (2) | Maximum ($) | Threshold (#) | Target (# ) (3) | Maximum (#) |
J.C. Bartolacci | 11/12/19 | | | | | 26,228 | | | | $ | 925,586 | | (5) |
| 11/12/19 | | | | | 26,227 | | | | 925,551 | | (5) |
| 11/12/19 | | | | | | | 28,245 | | 996,766 | | (6) |
| 11/12/19 | $ | 465,000 | | $ | 930,000 | | $ | 1,860,000 | | | | | | | |
B.J. Dunn | 11/12/19 | | | | | 4,225 | | | | 149,100 | | (5) |
| 11/12/19 | | | | | 4,225 | | | | 149,100 | | (5) |
| 11/12/19 | | | | | | | 4,550 | | 160,570 | | (6) |
| 11/12/19 | 118,388 | | 236,775 | | 473,550 | | | | | | | |
S.D. Gackenbach | 11/12/19 | | | | | 4,225 | | | | 149,100 | | (5) |
| 11/12/19 | | | | | 4,225 | | | | 149,100 | | (5) |
| 11/12/19 | | | | | | | 4,550 | | 160,570 | | (6) |
| 11/12/19 | 118,663 | | 237,325 | | 474,650 | | | | | | | |
S.F. Nicola | 11/12/19 | | | | | 7,995 | | | | 282,144 | | (5) |
| 11/12/19 | | | | | 7,995 | | | | 282,144 | | (5) |
| 11/12/19 | | | | | | | 8,610 | | 303,847 | | (6) |
| 11/12/19 | 193,025 | | 386,050 | | 772,100 | | | | | | | |
B.D. Walters | 11/12/19 | | | | | 4,225 | | | | 149,100 | | (5) |
| 11/12/19 | | | | | 4,225 | | | | 149,100 | | (5) |
| 11/12/19 | | | | | | | 4,550 | | 160,570 | | (6) |
| 11/12/19 | 98,375 | | 196,750 | | 393,500 | | | | | | | |
(1)All grants were effective as of the date on which the Compensation Committee of the Board of Directors met to approve them.
(2)Amounts represent target payouts under the Company’s 2015 Incentive Plan. The target represents the named executive officer’s annual salary multiplied by his respective target incentive award percentage. The target incentive award percentages, expressed as a percentage of annual base salary are 100% for Mr. Bartolacci, 55% for Mr. Dunn and Mr. Gackenbach, 70% for Mr. Nicola, and 50% for Mr. Walters. For a full explanation refer to the Annual Incentive Compensation section of the Compensation Discussion and Analysis beginning on page 30 of this Proxy Statement.
(3) Amounts represent the number of restricted share units granted pursuant to the 2017 Equity Plan that vest upon certain performance criteria. Performance-based restricted share units granted in November 2019 were awarded such that, in general, 32.5% of the grant vests at target based upon the Company achieving certain metrics based on Return on Invested Capital ("ROIC"); and 32.5% of the grant vests at target based upon the Company achieving certain metrics based on adjusted earnings per share. Vesting of all units are generally subject to continuing employment through November 12, 2022. Upon vesting, performance based units will be converted to the Company's common stock using a factor ranging from 50% to 200% based upon the level of achievement of the performance thresholds related to the targets. Performance related units that do not achieve the ROIC or adjusted earnings per share thresholds for the period ended September 30, 2021 will be forfeited. For a full explanation of the operation of the 2017 Equity Plan, refer to the Long-Term Incentive Compensation section of the Compensation Discussion and Analysis beginning on page 34 of this Proxy Statement.
(4) Amounts represent the number of shares of restricted share units granted pursuant to the 2017 Equity Plan that fully vest on the third anniversary of the grant date. Upon vesting, time-based units will be converted to an equal number of shares of the Company's common stock. Restricted share units may also vest under certain change-in-control circumstances, subject to double-trigger change-in-control provisions which require a change in control and involuntary or good reason employment termination. The restricted share units are forfeited upon employment termination, or within specified time limits following voluntary employment termination (with consent of the Company), retirement or death. For a full explanation of the operation of the 2017 Equity Plan, refer to the Long-Term Incentive Compensation section of the Compensation Discussion and Analysis beginning on page 34 of this Proxy Statement.
(5) Values are calculated based on the grant date fair value of the Company’s common stock and the expected probability that the shares will ultimately vest at target (see footnote 3 above).
(6) Values are calculated based on the grant date fair value of the Company’s common stock. The vesting period for retirement-eligible employees is accelerated.
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| | | | | | | | | | | | | | | | | | | | |
Name | Grant Date (1) | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#) (4) | Grant Date Fair Value of Stock Awards ($) |
Threshold ($) | Target ($) (2) | Maximum ($) | Threshold (#) | Target (# ) (3) | Maximum (#) |
J.C. Bartolacci | 11/15/17 | | | | | 5,625 |
| | | $ | 286,988 |
| (5) |
| 11/15/17 | | | | | 5,625 |
| | | 249,694 |
| (5) |
| 11/15/17 | | | | | 5,625 |
| | | 214,538 |
| (5) |
| 11/15/17 | | | | | 5,625 |
| | | 320,906 |
| (6) |
| 11/15/17 | | | | | 5,625 |
| | | 320,906 |
| (6) |
| 11/15/17 | | | | | 5,625 |
| | | 160,453 |
| (6) |
| 11/15/17 | | | | | | | 33,750 |
| 1,925,437 |
| (7) |
| 11/15/17 | $ | 442,270 |
| $ | 884,540 |
| $ | 1,769,080 |
| | | | | | |
G.S. Babe | 11/15/17 | | | | | 925 |
| | | 47,194 |
| (5) |
| 11/15/17 | | | | | 925 |
| | | 41,061 |
| (5) |
| 11/15/17 | | | | | 925 |
| | | 35,279 |
| (5) |
| 11/15/17 | | | | | 925 |
| | | 52,771 |
| (6) |
| 11/15/17 | | | | | 925 |
| | | 52,771 |
| (6) |
| 11/15/17 | | | | | 925 |
| | | 26,386 |
| (6) |
| 11/15/17 | | | | | | | 5,550 |
| 316,627 |
| (7) |
| 11/15/17 | 132,000 |
| 264,000 |
| 528,000 |
| | | | | | |
B.J. Dunn | 11/15/17 | | | | | 650 |
| | | 33,163 |
| (5) |
| 11/15/17 | | | | | 650 |
| | | 28,853 |
| (5) |
| 11/15/17 | | | | | 650 |
| | | 24,791 |
| (5) |
| 11/15/17 | | | | | 650 |
| | | 37,083 |
| (6) |
| 11/15/17 | | | | | 650 |
| | | 37,083 |
| (6) |
| 11/15/17 | | | | | 650 |
| | | 18,541 |
| (6) |
| 11/15/17 | | | | | | | 3,900 |
| 222,495 |
| (7) |
| 11/15/17 | 112,750 |
| 225,500 |
| 451,000 |
| | | | | | |
S.F. Nicola | 11/15/17 | | | | | 1,550 |
| | | 79,081 |
| (5) |
| 11/15/17 | | | | | 1,550 |
| | | 68,805 |
| (5) |
| 11/15/17 | | | | | 1,550 |
| | | 59,117 |
| (5) |
| 11/15/17 | | | | | 1,550 |
| | | 88,427 |
| (6) |
| 11/15/17 | | | | | 1,550 |
| | | 88,427 |
| (6) |
| 11/15/17 | | | | | 1,550 |
| | | 44,214 |
| (6) |
| 11/15/17 | | | | | | | 9,300 |
| 530,565 |
| (7) |
| 11/15/17 | 183,750 |
| 367,500 |
| 735,000 |
| | | | | | |
D.A. Schawk | 11/15/17 | | | | | 925 |
| | | 47,194 |
| (5) |
| 11/15/17 | | | | | 925 |
| | | 41,061 |
| (5) |
| 11/15/17 | | | | | 925 |
| | | 35,280 |
| (5) |
| 11/15/17 | | | | | 925 |
| | | 52,771 |
| (6) |
| 11/15/17 | | | | | 925 |
| | | 52,771 |
| (6) |
| 11/15/17 | | | | | 925 |
| | | 26,386 |
| (6) |
| 11/15/17 | | | | | | | 5,550 |
| 316,627 |
| (7) |
| 11/15/17 | 244,125 |
| 488,250 |
| 976,500 |
| | | | | | |
| |
(1) | All grants were effective as of the date on which the Compensation Committee of the Board of Directors met to approve them. |
| |
(2) | Amounts represent target payouts under the Company’s 2015 Incentive Plan. The target represents the named executive officer’s annual salary multiplied by his respective target incentive award percentage. The target incentive award percentages, expressed as a percentage of annual base salary are 100% for Mr. Bartolacci, 60% for Mr. Babe, 55% for Mr. Dunn, 70% for Mr. Nicola, and 75% for Mr. Schawk. For a full explanation refer to the Annual Incentive Compensation section of the Compensation Discussion and Analysis beginning on page 39 of this Proxy Statement. |
| |
(3) | Amounts represent the number of shares of restricted stock granted pursuant to the 2012 Equity Plan that vest upon certain performance criteria. Performance-based restricted shares granted in November 2017 were granted such that for 50% of such shares vesting occurs in one-third increments upon the attainment of annual adjusted earnings per share of $3.89, $4.20 and $4.54, respectively; and for 50% of such shares vesting occurs upon the attainment of 5%, 15% and 25% appreciation, respectively, in the market value of the Company’s Common Stock, but in no event prior to the expiration of one year from the date of the grant. Restricted shares may also vest under certain change in control circumstances. The restricted shares are forfeited if the adjusted earnings per share and stock price appreciation performance vesting criteria have not been met on the earlier of three and five years from the date of grant, respectively, upon employment termination, or within specified time limits following voluntary employment termination (with consent of the Company), retirement or death. For a full explanation of the operation of the 2012 Equity Plan, refer to the Long-Term Incentive Compensation section of the Compensation Discussion and Analysis beginning on page 42 of this Proxy Statement. |
| |
(4) | Amounts represent the number of shares of restricted stock granted pursuant to the 2012 Equity Plan that fully vest on the third anniversary of the grant date. Restricted shares may also vest under certain change in control circumstances. The restricted shares are forfeited upon employment termination, or within specified time limits following voluntary employment termination (with consent of the Company), retirement or death. For a full explanation of the operation of the 2012 Equity Plan, refer to the Long-Term Incentive Compensation section of the Compensation Discussion and Analysis beginning on page 42 of this Proxy Statement. |
| |
(5) | Grant date fair values are developed using a Binomial pricing model based on the fair market value of the Company’s common stock on the dates of grant. The assumptions on which this valuation is based are set forth in Note 10 to the audited financial statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on November 20, 2018. |
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(6) | Values are calculated based on the grant date fair value of the Company’s common stock and the expected probability that the shares will ultimately vest. |
| |
(7) | Values are calculated based on the grant date fair value of the Company’s common stock. |
The following table sets forth information concerning the fiscal 20182020 year-end value of unearned restricted sharesshares/share units for each of the named executive officers.
Outstanding Equity Awards at Fiscal Year-End Table
| | | | | | | | | | | | | | | | | | | | |
| Stock Awards |
| No. of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) (4) | 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 ($) (4) |
J.C. Bartolacci | — | | | $ | — | | 11,833 | | (5) | $ | 264,586 | |
| 33,750 | | (1) | 754,650 | | 22,500 | | (6) | 503,100 | |
| 27,240 | | (2) | 609,086 | | 93,315 | | (7) | 2,086,523 | |
| 28,245 | | (3) | 631,558 | | — | | | — | |
B.J. Dunn | — | | | — | | 300 | | (5) | 6,708 | |
| 3,900 | | (1) | 87,204 | | 2,600 | | (6) | 58,136 | |
| 4,200 | | (2) | 93,912 | | 14,750 | | (7) | 329,810 | |
| 4,550 | | (3) | 101,738 | | — | | | — | |
S.D. Gackenbach | — | | | — | | 1,850 | | (5) | 41,366 | |
| 5,100 | | (1) | 114,036 | | 3,400 | | (6) | 76,024 | |
| 4,200 | | (2) | 93,912 | | 14,750 | | (7) | 329,810 | |
| 4,550 | | (3) | 101,738 | | — | | | — | |
S.F. Nicola | — | | | — | | 3,100 | | (5) | 69,316 | |
| 9,300 | | (1) | 207,948 | | 6,200 | | (6) | 138,632 | |
| 7,440 | | (2) | 166,358 | | 27,150 | | (7) | 607,074 | |
| 8,610 | | (3) | 192,520 | | — | | | — | |
B.D. Walters | — | | | — | | 1,500 | | (5) | 33,540 | |
| 4,800 | | (1) | 107,328 | | 3,200 | | (6) | 71,552 | |
| 4,200 | | (2) | 93,912 | | 14,750 | | (7) | 329,810 | |
| 4,550 | | (3) | 101,738 | | — | | | — | |
| | | | | | |
(1)Represents restricted shares that were fully vested on November 16, 2020.
(2)Represents restricted share units that will be earned and fully vested on November 14, 2021. Upon vesting, these restricted share units will be converted to an equal number of shares of the Company's common stock.
(3)Represents restricted share units that will be earned and fully vested on November 12, 2022. Upon vesting, these restricted share units will be converted to an equal number of shares of the Company's common stock.
(4)Represents the value of all unvested restricted shares/share units as of September 30, 2020. The value is computed by multiplying all unvested restricted shares/share units by $22.36, the closing price of the Company’s common stock on September 30, 2020. The value calculated for restricted share units is based on vesting at target for performance related shares (see footnote 7 below).
(5)Represents restricted shares that will be earned and vested as follows: one-half upon the stock price of the Company’s common stock reaching 115% of the grant date fair value of the Company’s common stock for ten consecutive trading days, one-half upon the price of the Company’s common stock reaching 125% of the grant date fair value of the Company’s common stock for ten consecutive trading days.
(6)Represents restricted shares that will be earned and vested as follows: one-fourth upon the stock price of the Company’s common stock reaching 115% of the grant date fair value of the Company’s common stock for ten consecutive trading days, one-fourth upon the price of the Company’s common stock reaching 125% of the grant date fair value of the Company’s common stock for ten consecutive trading days, one-fourth upon the adjusted earnings per share of the Company reaching $4.20, and one-fourth upon the adjusted earnings per share of the Company reaching $4.54. One-half of these shares were cancelled on November 19, 2020.
(7)Represents restricted share units that will be earned and vested as follows: one-half upon achieving certain metrics based on Return on Invested Capital ("ROIC") and one-half upon achieving certain metrics based on adjusted earnings per share. Upon vesting, these performance based units will be converted to the Company's common stock using a factor ranging from 50% to 200% based upon the level of achievement of the performance thresholds related to the above targets.
|
| | | | | | | | | | | | |
| Stock Awards |
| No. of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) (4) | 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 ($) (4) |
J.C. Bartolacci | 35,500 |
| (1) | $ | 1,780,325 |
| 5,916 |
| (5) | $ | 296,687 |
|
| 35,500 |
| (2) | 1,780,325 |
| 23,666 |
| (6) | 1,186,850 |
|
| 33,750 |
| (3) | 1,692,563 |
| 33,750 |
| (7) | 1,692,563 |
|
G.S. Babe | 3,660 |
| (1) | 183,549 |
| 610 |
| (5) | 30,592 |
|
| 4,350 |
| (2) | 218,153 |
| 2,900 |
| (6) | 145,435 |
|
| 5,550 |
| (3) | 278,333 |
| 5,550 |
| (7) | 278,333 |
|
B.J. Dunn | 750 |
| (1) | 37,613 |
| 125 |
| (5) | 6,269 |
|
| 900 |
| (2) | 45,135 |
| 600 |
| (6) | 30,090 |
|
| 3,900 |
| (3) | 195,585 |
| 3,900 |
| (7) | 195,585 |
|
| — |
| | — |
| 4,303 |
| (8) | 215,795 |
|
S.F. Nicola | 8,660 |
| (1) | 434,299 |
| 1,444 |
| (5) | 72,417 |
|
| 9,300 |
| (2) | 466,395 |
| 6,200 |
| (6) | 310,930 |
|
| 9,300 |
| (3) | 466,395 |
| 9,300 |
| (7) | 466,395 |
|
D.A. Schawk | 5,550 |
| (3) | 278,333 |
| 5,550 |
| (7) | 278,333 |
|
| — |
| | — |
| 4,685 |
| (8) | 234,953 |
|
| |
(1) | Represents restricted shares that were fully vested on November 11, 2018. |
| |
(2) | Represents restricted shares that will be earned and fully vested on November 16, 2019. |
| |
(3) | Represents restricted shares that will be earned and fully vested on November 15, 2020. |
| |
(4) | Represents the value of all unvested restricted shares as of September 30, 2018. The value is computed by multiplying all unvested restricted shares by the $50.15, the closing price of the Company’s common stock on September 30, 2018. |
| |
(5) | Represents restricted shares that will be earned and vested upon the adjusted earnings per share of the Company reaching $3.79. These shares vested on November 15, 2018. |
| |
(6) | Represents restricted shares that will be earned and vested as follows: one-fourth upon the stock price of the Company’s common stock reaching 115% of the grant date fair value of the Company’s common stock for ten consecutive trading days, one-fourth upon the price of the Company’s common stock reaching 125% of the grant date fair value of the Company’s common stock for ten consecutive trading days, one-fourth upon the adjusted earnings per share of the Company reaching $3.94, and one-fourth upon the adjusted earnings per share of the Company reaching $4.26. One-fourth of these shares vested on November 15, 2018. |
| |
(7) | Represents restricted shares that will be earned and vested as follows: one-sixth upon the stock price of the Company’s common stock reaching 105% of the grant date fair value of the Company’s common stock ($57.05) for ten consecutive trading days, one-sixth upon the stock price of the Company’s common stock reaching 115% of the grant date fair value of the Company’s common stock for ten consecutive trading days, one-sixth upon the price of the Company’s common stock reaching 125% of the grant date fair value of the Company’s common stock for ten consecutive trading days, one-sixth upon the adjusted earnings per share of the Company reaching $3.89, one-sixth upon the adjusted earnings per share of the Company reaching $4.20, and one-sixth upon the adjusted earnings per share of the Company reaching $4.54. One-third of these shares vested on November 15, 2018. |
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(8) | Represents restricted shares that will be earned and vested upon a portion of the Company’s annual adjusted EBITDA reaching $170 million. These shares canceled on November 15, 2018. |
The following table provides information on the vesting of restricted shares for each of the named executive officers during fiscal 2018.2020.
Stock Vested
| | | | | | | | |
| Stock Awards |
Name | Number of Shares Acquired on Vesting | Value Realized on Vesting |
J.C. Bartolacci | 35,500 | $ | 1,234,335 | |
B.J. Dunn | 900 | 31,293 |
S.D. Gackenbach | 5,550 | 192,974 |
S.F. Nicola | 9,300 | 323,361 |
B.D. Walters | 4,500 | 156,465 |
|
| | | | |
| Stock Awards |
Name | Number of Shares Acquired on Vesting | Value Realized on Vesting |
J.C. Bartolacci | 50,251 | $ | 2,635,439 |
|
G.S. Babe | 5,060 | 267,895 |
|
B.J. Dunn | 425 | 27,408 |
|
S.F. Nicola | 15,823 | 811,695 |
|
Retirement Benefits
The Company's domestic retirement plan is noncontributory and provides benefits based upon length of service and final average earnings. Generally, employees age 21 with one year of continuous service are eligible to participate in the retirement plan. The benefit formula is 3/4 of 1% of the first $550 of final average monthly earnings plus 1‑1/4% of the excess times years of credited service (maximum 35 years). The plan is a defined benefit plan and covered compensation is limited generally to base salary or wages. Benefits are not subject to any deduction or offset for Social Security.
In addition to benefits provided by the Company's retirement plan, the Company has a Supplemental Retirement Plan (“SERP”(the “SERP”), which provides for supplemental pension benefits to certain executive officers of the Company designated by the Board of Directors. Upon normal retirement under this plan, such individuals who meet stipulated age and service requirements are entitled to receive monthly supplemental retirement payments which, when added to their pension under the Company's retirement plan and their maximum anticipated Social Security primary insurance amount, equal, in total, 1.85% of final average monthly earnings (including incentive compensation) times the individual's years of continuous service (subject to a maximum of 35 years). Upon early retirement under the SERP, reduced benefits will be provided, depending upon age and years of service. Benefits under the SERP vest based upon the attainment of certain levels of qualified and total continuous service. The Company has established a non-revocable trust to fund the SERP, and a provision has been made on the Company's booksbalance sheet for the actuarially computed obligation.
Mr. Bartolacci and the Committee have mutually agreed to cap Mr. Bartolacci’s ABO under the supplemental retirement plan at the actuarial present value as of September 30, 2020, thus generally foregoing any future increases to his ABO. Accordingly, Mr. Bartolacci will no longer have any further standard compensation in connection with this plan.
In 2009, the Committee closed the SERP to new participants and created a separate plan, Officers Retirement Restoration Plan ("ORRP"), for any new designated executive going forward, limiting its benefit to restoring amounts lost to tax-related limitations under the Company’s regular retirement and 401(k) plans.
The table below sets forth the number of years of credited service and the present value at September 30, 20182020 of the accumulated benefits under the each of the retirement plans for each of the named executive officers.
Pension Benefits Table
| | | | | | | | | | | | | | |
Name | Plan Name | Number of Years Credited Service (#) (1) | Present Value of Accumulated Benefit ($) (2) | Payments During Last Fiscal Year ($) |
J.C. Bartolacci | Matthews International Corporation Employees Retirement Plan | 22 | $ | 1,059,968 | | $ | — | |
| Matthews International Corporation SERP | 23 | 11,090,769 | | — | |
B.J. Dunn | Matthews International Corporation Employees Retirement Plan | 20 | 1,082,115 | | — | |
| Matthews International Corporation SERP | 21 | 2,361,757 | | — | |
S.D. Gackenbach | Matthews International Corporation Employees Retirement Plan | 8 | 379,821 | | — | |
| Matthews International Corporation ORRP | 9 | 565,625 | | — | |
S.F. Nicola | Matthews International Corporation Employees Retirement Plan | 26 | 1,264,135 | | — | |
| Matthews International Corporation SERP | 27 | 5,597,213 | | — | |
B.D. Walters | Matthews International Corporation Employees Retirement Plan | 14 | 558,677 | | — | |
| Matthews International Corporation ORRP | 15 | 621,776 | | — | |
(1)As of September 30, 2020. Years of credited service for the Matthews International Corporation Employees Retirement Plan begin on the first of the month following the completion of one year of service. Years of credited service for the Company’s SERP and ORRP begin on the initial date of service. |
| | | | | | | | |
Name | Plan Name | Number of Years Credited Service (#) (1) | Present Value of Accumulated Benefit ($) (2) | Payments During Last Fiscal Year ($) |
J.C. Bartolacci | Matthews International Corporation Employees Retirement Plan | 20 | $ | 662,146 |
| $ | — |
|
| Matthews International Corporation SERP | 21 | 6,615,860 |
| — |
|
B.J. Dunn | Matthews International Corporation Employees Retirement Plan | 18 | 717,153 |
| — |
|
| Matthews International Corporation SERP | 19 | 1,412,560 |
| — |
|
S.F. Nicola | Matthews International Corporation Employees Retirement Plan | 24 | 802,131 |
| — |
|
| Matthews International Corporation SERP | 25 | 3,374,820 |
| — |
|
(2)The assumptions on which this valuation is based are set forth in Note 14 to the audited financial statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on November 20, 2020. | |
(1) | As of September 30, 2018. Years of credited service for the Matthews International Corporation Employees Retirement Plan begin on the first of the month following the completion of one year of service. Years of credited service for the Company’s SERP and ORRP begin on the initial date of service. |
| |
(2) | The assumptions on which this valuation is based are set forth in Note 12 to the audited financial statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on November 20, 2018. |
The Company provides a 401(k) Plan covering substantially all domestic employees of the Company. Participantsparticipants may make pre-tax contributions to their account of 1% up to 75% of their annual compensation. For employees covered under the Matthews International Corporation Employees Retirement Plan, which includes the named executive officers, the Company makes matching contributions to each participant at a rate of 50% of participants’ deferrals up to 1% of their annual compensation. Participants are fully vested immediately in the value of their contributions and fully vested in the value of Company matching contributions after three years of service, provided they are a participant of the plan.
CEO Pay Ratio
Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 requires most companies with publicly traded stock in the United States to identify the median total compensation of their worldwide employee population (other than the chief executive officer) and to compare that amount with the total compensation of their chief executive officer. Total compensation amounts are required to be calculated using the SEC’s compensation disclosure rules applicable to reporting compensation in the Summary Compensation Table of the proxy statement. Median employee compensation used to calculate the pay ratio is required to be the total compensation paid to an actual employee of the company.
To identify our median employee, we reviewed the annual base salary of all our employees other than the CEO as of September 30, 2018.2020. As permitted by SEC rules, we excluded from our review employees based in Brazil, China, Costa Rica, and Hong Kong, Hungary, and Mexico because those individuals, in the aggregate, make up less than 5% of our total employee base, representing approximately 490462 employees. Contingent workers who provide services to Matthews International but whose compensation is determined by an unaffiliated third party were also excluded from our determination of the median employee. We used an annual base salary as our consistently applied compensation measure as it represents the primary compensation component paid to all of our employees. As a result, annual base salary provides an accurate depiction of total earnings for the purpose of identifying our median employee. We then calculated the median employee’s total annual compensation in accordance with the requirements of the Summary Compensation Table. We did not use any material estimates, assumptions, adjustments or statistical sampling to determine the worldwide median employee.
Our median employee’s 20182020 compensation was $49,329.$49,696. Our Chief Executive Officer’s total 20182020 compensation was $6,564,838$6,577,867 as reported in the Summary Compensation Table on page 48.39. Accordingly, our 20182020 CEO to Median Employee Pay Ratio was 133:132:1.
Potential Payments upon Termination or Change in Control
The following discussion describes and quantifies the payments that would be made to each of the NEOs under a variety of circumstances, assuming that each had taken place on September 30, 2018:2020: (1) the executive resigns voluntarily without the consent of the Company; (2) the executive resigns voluntarily with the consent of the Company; (3) the executive is involuntarily terminated without cause; (4) the executive is involuntarily terminated with cause; (5) the executive dies or becomes permanently disabled while employed; (6) the executive retires; or (7) a change in control of the Company takes place.
The Company’s executive management, including the NEOs, are subject to change-in-control agreements. These agreements provide certain benefits upon a change-in-control of the Company provided that, upon a change-in-control, the executive’s employment is terminated involuntarily or for good reason (“double-trigger”). Upon such double-trigger, the executive (including the CEO) is generally entitled to two times their base salary and target bonus, and accelerated vesting of awards under the long-term incentive plan.
Restricted Stock. Under the terms of the existing restricted stock grants,and restricted share unit awards, in the event of voluntary termination of employment without the Company’s consent or any involuntary terminations, any unvested restricted sharesshares/share units are forfeited at the time of termination. In the event of death or termination due to permanent disability, retirement or voluntary termination with the Company’s consent, unvested performance-based restricted shares continue to performance vest for a period of two years following termination.termination and unvested performance-based restricted share units continue to performance vest over the term of the award. In the event of death or termination due to permanent disability, retirement or voluntary termination with the Company’s consent, unvested time-based restricted sharesshares/share units become immediately vested. In the event of a change in control of the Company, all unvested restricted sharesshares/share units immediately vest.
Supplemental Retirement Plan. Upon a change in control of the Company participants accrue five additional years of credited service under the SERP.
The following table provides information on the potential incremental value of executive benefits upon termination of employment prior to and after a change in control, assuming termination would have occurred as of September 30, 2018.2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Named Executive | Executive Benefit and Payment upon Separation | Voluntary Termination Without Consent | Voluntary Termination With Consent(1) (2) | Involuntary Termination Without Cause | Involuntary Termination With Cause | Death or Disability (1) (2) | Retirement (1) (2) | Change in Control (3) (4) |
J.C. Bartolacci | Performance-based Restricted Shares/Share Units | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
| Time-based Restricted Shares/Share Units | — | | 1,995,295 | | — | | — | | 1,995,295 | | 1,995,295 | | — | |
| SERP | — | | — | | — | | — | | — | | — | | 14,887,915 | |
| Total | — | | 1,995,295 | | — | | — | | 1,995,295 | | 1,995,295 | | 14,887,915 | |
B.J. Dunn | Performance-based Restricted Shares/Share Units | — | | — | | — | | — | | — | | — | | — | |
| Time-based Restricted Shares/Share Units | — | | 282,854 | | — | | — | | 282,854 | | 282,854 | | — | |
| SERP | — | | — | | — | | — | | — | | — | | 2,593,159 | |
| Total | — | | 282,854 | | — | | — | | 282,854 | | 282,854 | | 2,593,159 | |
S.D. Gackenbach | Performance-based Restricted Shares/Share Units | — | | — | | — | | — | | — | | — | | — | |
| Time-based Restricted Shares/Share Units | — | | 309,686 | | — | | — | | 309,686 | | 309,686 | | — | |
| Total | — | | 309,686 | | — | | — | | 309,686 | | 309,686 | | — | |
S.F. Nicola | Performance-based Restricted Shares/Share Units | — | | — | | — | | — | | — | | — | | — | |
| Time-based Restricted Shares/Share Units | — | | 566,826 | | — | | — | | 566,826 | | 566,826 | | — | |
| SERP | — | | — | | — | | — | | — | | — | | 7,819,932 | |
| Total | — | | 566,826 | | — | | — | | 566,826 | | 566,826 | | 7,819,932 | |
B.D. Walters | Performance-based Restricted Shares/Share Units | — | | — | | — | | — | | — | | — | | — | |
| Time-based Restricted Shares/Share Units | — | | 302,978 | | — | | — | | 302,978 | | 302,978 | | — | |
| Total | — | | 302,978 | | — | | — | | 302,978 | | 302,978 | | — | |
(1)The performance-based restricted share value represents the value of unvested restricted shares as of September 30, 2020 that had not met performance vesting criteria as of that date, but for which the performance vesting threshold was less than $22.36, the closing price of the Company’s common stock on the last trading day of fiscal 2020 (the “assumed performance vested shares”). The value of the restricted shares is computed by multiplying the number of assumed performance vested shares by $22.36. As of September 30, 2020 there were no assumed performance vested shares.
(2)The time-based restricted share unit value represents the value of unvested restricted share units as of September 30, 2020 that would vest upon termination as of September 30, 2020 (the “assumed time vested shares”). The value of the restricted share units is computed by multiplying the number of assumed time vested share units by $22.36, the closing price of the Company’s common stock on the last trading day of fiscal 2020.
(3)Time and performance restricted share units may vest under certain change-in-control circumstances, subject to double-trigger change-in-control provisions which require a change in control and involuntary or good reason employment termination.
(4)The incremental value of the SERP represents the increase in the accumulated benefit obligation resulting from an additional five years of vested service for eligible participants.
|
| | | | | | | | | | | | | | | |
Named Executive | Executive Benefit and Payment upon Separation | Voluntary Termination Without Consent | Voluntary Termination With Consent (1) (2) | Involuntary Termination Without Cause | Involuntary Termination With Cause | Death or Disability (1) (2) | Retirement (1) (2) | Change in Control (3) (4) |
J.C. Bartolacci | Performance-based Restricted Shares | — |
| — |
| — |
| — |
| — |
| — |
| 3,176,100 |
|
| Time-based Restricted Shares | — |
| 5,253,213 |
| — |
| — |
| 5,253,213 |
| 5,253,213 |
| 5,253,213 |
|
| SERP | — |
| — |
| — |
| — |
| — |
| — |
| 12,777,981 |
|
| Total | — |
| 5,253,213 |
| — |
| — |
| 5,253,213 |
| 5,253,213 |
| 21,207,294 |
|
G.S. Babe | Performance-based Restricted Shares | — |
| — |
| — |
| — |
| — |
| — |
| 454,359 |
|
| Time-based Restricted Shares | — |
| 680,034 |
| — |
| — |
| 680,034 |
| 680,034 |
| 680,034 |
|
| Total | — |
| 680,034 |
| — |
| — |
| 680,034 |
| 680,034 |
| 1,134,393 |
|
B.J. Dunn | Performance-based Restricted Shares | — |
| — |
| — |
| — |
| — |
| — |
| 447,739 |
|
| Time-based Restricted Shares | — |
| 278,333 |
| — |
| — |
| 278,333 |
| 278,333 |
| 278,333 |
|
| SERP | — |
| — |
| — |
| — |
| — |
| — |
| 3,319,996 |
|
| Total | — |
| 278,333 |
| — |
| — |
| 278,333 |
| 278,333 |
| 4,046,068 |
|
S.F. Nicola | Performance-based Restricted Shares | — |
| — |
| — |
| — |
| — |
| — |
| 849,742 |
|
| Time-based Restricted Shares | — |
| 1,367,089 |
| — |
| — |
| 1,367,089 |
| 1,367,089 |
| 1,367,089 |
|
| SERP | — |
| — |
| — |
| — |
| — |
| — |
| 6,837,098 |
|
| Total | — |
| 1,367,089 |
| — |
| — |
| 1,367,089 |
| 1,367,089 |
| 9,053,929 |
|
D.A. Schawk | Performance-based Restricted Shares | — |
| — |
| — |
| — |
| — |
| — |
| 513,285 |
|
| Time-based Restricted Shares | — |
| 278,333 |
| — |
| — |
| 278,333 |
| 278,333 |
| 278,333 |
|
| Total | — |
| 278,333 |
| — |
| — |
| 278,333 |
| 278,333 |
| 791,618 |
|
| |
(1) | The performance-based restricted share value represents the value of unvested restricted shares as of September 30, 2018 that had not met performance vesting criteria as of that date, but for which the performance vesting threshold was less than $50.15, the closing price of the Company’s common stock on the last trading day of fiscal 2018 (the “assumed performance vested shares”). The value of the restricted shares is computed by multiplying the number of assumed performance vested shares by $50.15. As of September 30, 2018 there were no assumed performance vested shares. |
| |
(2) | The time-based restricted share value represents the value of unvested restricted shares as of September 30, 2018 that would vest upon termination as of September 30, 2018 (the “assumed time vested shares”). The value of the restricted shares is computed by multiplying the number of assumed time vested shares by $50.15, the closing price of the Company’s common stock on the last trading day of fiscal 2018. |
| |
(3) | The performance-based and time-based restricted share value represents the value of all unvested restricted shares as of September 30, 2018. The value is computed by multiplying all unvested restricted shares by $50.15, the closing price of the Company’s common stock on the last trading day of fiscal 2018. |
| |
(4) | The incremental value of the SERP represents the increase in the accumulated benefit obligation resulting from an additional five years of vested service for eligible participants. |
AUDIT COMMITTEE MATTERS
Report of the Audit Committee
The Audit Committee of Matthews International Corporation (the "Company") is composed of threefive directors who the Board has determined to be independent under the U.S. Securities and Exchange Commission (“SEC”) regulations related to audit committee independence, the Nasdaq listing requirements and the Company’s Corporate Governance Guidelines. The Audit Committee operates under a written charter adopted by the Company’s Board of Directors.
Management of the Company has the primary responsibility for preparing the financial statements, establishing the system of internal controls, and assessing the effectiveness of the Company’s internal control over financial reporting. The Audit Committee is responsible for reviewing the Company’s financial reporting process on behalf of the Board of Directors.
In this context, the Audit Committee has met and held discussions with management, internal audit and the independent registered public accounting firm. Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the Audit Committee has discussed the consolidated financial statements with management, internal audit and the independent registered public accounting firm. The Audit Committee discussed with the independent registered public accounting firm matters required to be discussed by Auditing Standard No. 1301, "Communications with Audit Committees", and such other matters as are required to be discussed under the standards applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and the SEC.
The Company’s independent registered public accounting firm also provided to the Audit Committee the written disclosures required by Public Company Accounting Oversight Board Rule 3526, “Communicationapplicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with Audit Committees Concerning Independence”,the audit committee concerning independence, and the Audit Committee discussed with the independent registered public accounting firm that firm’s independence.
The Committee discussed with the Company's independent registered public accounting firm and internal auditors the overall scope and plan for their respective audits. The Audit Committee meets with the independent registered public accounting firm and internal auditors to discuss the results of their examinations, their evaluations of the Company's internal controls, and the overall quality of the Company's financial reporting.
Based on the Audit Committee’s discussions referred to above and the Audit Committee’s review of the report of the independent registered public accounting firm on the consolidated financial statements of the Company for the year ended September 30, 2018,2020, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended September 30, 20182020 for filing with the SEC.
Audit Committee:
A. Garcia-Tunon, Chairman
T.L. Dunlap
M.K. O’Brien
December 5, 2018 | | | | | |
| Audit Committee: |
| |
| A. Garcia-Tunon, Chairman |
| T.L. Dunlap |
| L.D. Etzkorn |
| M.K. O’Brien |
| J.R. Whitaker |
December 15, 2020
Relationship with Independent Registered Public Accounting Firm
Ernst & Young LLP (“EY”) has been the independent registered public accounting firm performing the audits of the consolidated financial statements of the Company since December 28, 2015. In addition to performing the audit of the Company's consolidated financial statements, EY provided fees for services related to the Company’s compliance with Section 404 of the Sarbanes-Oxley Act and various other services during fiscal 20182020 and 2017,2019, respectively. The aggregate fees (including out-of-pocket expenses) billed for fiscal 20182020 and 20172019 for each of the following categories of services are set forth below.
| | | | | | | | 2020 | 2019 |
| 2018 | 2017 | |
Audit fees (includes audits and reviews of the Company’s fiscal 2018 and 2017 financial statements) | $ | 1,448,694 |
| $ | 1,396,324 |
| |
Audit fees (includes audits and reviews of the Company’s fiscal 2020 and 2019 financial statements) | | Audit fees (includes audits and reviews of the Company’s fiscal 2020 and 2019 financial statements) | $ | 1,520,000 | | $ | 1,520,000 | |
Audit-related fees (primarily due diligence and regulatory compliance work) | 273,540 |
| 358,477 |
| Audit-related fees (primarily due diligence and regulatory compliance work) | 354,415 | | 53,306 | |
Tax fees (primarily tax compliance and advisory work) | 336,414 |
| 570,550 |
| Tax fees (primarily tax compliance and advisory work) | 207,746 | | 144,474 | |
All other fees | - |
| - |
| All other fees | - |
Fiscal 20182020 and 20172019 tax fees include tax compliance and planning fees. All services provided by EY for significant audit, audit-related, tax and other services are approved in advance by the Audit Committee. Fees for the annual audit, including quarterly reviews, are approved by the Audit Committee upon appointment of the Company’s independent registered public accounting firm. Other services are approved in advance on a specific project basis during the year. Examples of such projects include acquisition due diligence and tax assistance engagements. Where approval in advance by the Audit Committee is not practical due to time constraints, management provides a written description of the engagement to the Chairman of the Audit Committee and obtains the Chairman’s approval prior to proceeding with the engagement. Ratification of such services by the full Audit Committee is obtained at the next scheduled Audit Committee meeting. The Company’s independent registered public accounting firm provides a summary of audit and other services and related fees to the Audit Committee at each of its regularly scheduled Committee meetings. The summary includes total estimated fees for each individual project. The Audit Committee also considered whether the provision of non-audit services by EY is compatible with maintaining the independence of EY.
EY’s reports on the Company’s consolidated financial statements as of and for the fiscal years ended September 30, 20182020 and 20172019 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principle.
During the fiscal years ended September 30, 20182020 and 2017,2019, the Company had not consulted with EY regarding either (i) the application of accounting principles to a specific transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company's financial statements, or (ii) any matter that was the subject of a disagreement within the meaning of Item 304(a)(1)(iv) of Regulation S-K, or (iii) any reportable event within the meaning of Item 304(a)(1)(v) of Regulation S-K.
During the two most recent fiscal years ended September 30, 20182020 and 2017,2019, there were no disagreements between Matthews and EY on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of EY, would have caused EY to make reference to the subject matter of the disagreement in connection with its reports on the consolidated financial statements for such years.
CERTAIN TRANSACTIONS WITH RELATED PERSONS
Transactions with related persons are subject to review and approval by the Nominating and Corporate Governance Committee of the Board of Directors. Written policies and procedures relative to the identification of related party transactions are contained in the Company’s Code of Conduct and the Committee reviews and evaluates each such transaction based on the specific facts and circumstances involved.
The Company made additional investments of $130,000 during fiscal 2020 in Liquid X Printed Metals Inc. (“LiquidX”), a private company, in which Matthews participates as a strategic investor. Greg Babe, the Company’s Chief Technology Officer and a member of the Board of Directors, serves as President and CEO of LiquidX. Mr. Babe received no direct benefit in connection with these transactions.
During fiscal 2018, Matthews, through a subsidiary, leased an approximately 55,000 square foot facility located in Des Plaines, Illinois from Graphics IV, Ltd., a limited partnership (“Graphics IV”). David A. Schawk, a director and executive officer of2020, the Company is a partner with a 20%completed the sale of it's remaining 49% ownership interest in Graphics IV. The Graphics IV lease wasa pet cremation business, Faithful Forever Pet Loss Services, LLC (“FFPLS”). Prior to the sale of it's minority interest in place atFFPLS the time of the Schawk acquisition on July 29, 2014 and had an annual base rent amount of $520,134.50. The base rent was established based upon a market-rent appraisal performed by a third-party appraisal firm. The Graphics IV lease was terminatedCompany made additional investments in FFPLS totaling $9.5 million during fiscal 20182020. In connection with the sale, the Company obtained $15.0 million of senior preferred shares. The senior preferred shares earn a yield based on September 1, 2018. The total amount paid during fiscal 2018 underan escalating rate ranging from 6% to 14% and are expected to be redeemed before the Graphics IV lease was approximately $464,580.end of calendar year 2022. Brian Dunn, the Company’s Executive Vice President, Strategy and Corporate Development served on the Board of Directors of FFPLS until the Company sold it's remaining ownership interest. Mr. Dunn received no direct benefit in connection with these transactions.
COMPLIANCE WITH
DELINQUENT SECTION 16(a) OF THE EXCHANGE ACTREPORTS
The Company’s directors and executive officers are required under Section 16(a) of the Exchange Act to file reports of ownership and changes in ownership of the company’s common stock with the SEC. Based solely upon a review of Forms 3 and 4 and amendments thereto, if any, furnished to the Company during its most recent year and filed with the SEC, and representations from reporting persons that no Forms 5 were required; we believe that all of our directors and executive officers complied during fiscal 20182020 with the reporting requirements of Section 16(a) of the Exchange Act, with the exception of Edward M. Brady, Jr., Chief Information Officer,David A. Schawk, a member of the Board of Directors and Gary R. Kohl,retired Group President, SGK Brand Solutions, each of whomwho filed a Form 34 on April 25, 2018 reporting his appointment as an executive officer.November 20, 2019 with respect to the November 13, 2019 award of restricted stock units.
SHAREHOLDERS SHARING THE SAME ADDRESS
The SEC has adopted rules that permit companies and intermediaries (such as brokers) to implement a delivery procedure called “householding.” Under this procedure, multiple shareholders who reside at the same address may receive a single copy of our annual report and proxy materials, unless the affected shareholder has provided contrary instructions. This procedure reduces printing costs and postage fees.
A number of brokers with account holders who beneficially own our common stock will be “householding” our annual report and proxy materials. A single set of annual report and other proxy materials will be delivered to multiple shareholders sharing an address unless contrary instructions have been received from the affected shareholders. Once you have received notice from your broker that it will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. Shareholders may revoke their consent at any time by contacting the Company at Matthews International Corporation, Two NorthShore Center, Pittsburgh, Pennsylvania 15212-5851, Attention: Investor Relations, telephone (412) 442-8200.
Upon written or oral request, the Company will promptly deliver a separate copy of the annual report and other proxy materials to any beneficial owner at a shared address to which a single copy of any of those documents was delivered. To receive a separate copy of the annual report and other proxy materials, you may write or call the Company’s Investor Relations Department at Matthews International Corporation, Two NorthShore Center, Pittsburgh, Pennsylvania 15212-5851, Attention: Investor Relations, telephone (412) 442-8200. The annual report and proxy materials are also available on the Company's website at www.matw.com/investor/financial-reports.investors/sec-filings.
Shareholders who share the same address and currently receive multiple copies of our annual report and other proxy materials, who wish to receive only one set in the future, can contact their bank, broker or other holder of record to request information about householding.
SHAREHOLDER PROPOSALS FOR 20202022 ANNUAL MEETING
Shareholders may make proposals for inclusion in the proxy statement and proxy form for the 20202022 Annual Meeting of the Shareholders. To be considered for inclusion, any such proposal should be written and mailed to the Secretary of the Company at the corporate office for receipt by September 24, 201921, 2021 (120 days prior to the anniversary date of the Company's fiscal 20182021 Proxy Statement).
Section 2.09 of the By-lawsBylaws of the Company requires that any shareholder intending to present a proposal for action at an Annual Meeting must give written notice of the proposal, containing the information specified in such Section 2.09, so that it is received by the Company neither later nor earlier than the notice deadline determined under such Section 2.09. This period will generally be 75 to 120 days prior to the anniversary of the Company's Annual Meeting for the previous year, or October 24, 201921, 2021 to December 8, 20195, 2021 for the Company's Annual Meeting in 2020.2022. Any shareholder proposal received by the Secretary of the Company before October 24, 201921, 2021 and after December 8, 20195, 2021 will be considered untimely under Rule 14a-8(c)14a-8(e)(2) promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934.
OTHER MATTERS
The cost of soliciting proxies in the accompanying form will be paid by the Company. Shareholder votes at the Annual Meeting will be tabulated by the Company's transfer agent, Computershare Trust Company, N.A. A copy of the Company's Annual Report for 20182020 has previously been mailed to each shareholder of record, or will be mailed with this Proxy Statement.
By Order of The Board of Directors
/s/ /s/ Steven F. Nicola
Steven F. Nicola
Chief Financial Officer and Secretary
Exhibit A
MATTHEWS INTERNATIONAL CORPORATION
2019 DIRECTOR FEE PLAN
SECTION 1
Purposes; Reservation of Shares
(a)Purposes. The purposes of the 2019 Director Fee Plan, as amended (the "Plan") are:
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(1) | to provide each Director of Matthews International Corporation (the "Corporation"), who is not also an employee of the Corporation or any of its Subsidiaries ("Director"), with the payment of (i) an annual retainer fee, (ii) in the case of a Director who serves as Chairman of the Board (the "NE Chairperson") or serves as the lead director of the Board (the "Lead Director"), an additional annual retainer fee, (iii) an annual retainer fee for each Committee chairperson and to any Lead Director, in each case, for future services to be performed by such Director (collectively, "Director Fees") as a member of the Board of Directors of the Corporation (the "Board");
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(2) | to provide payment to each Director (except the NE Chairperson shall only be entitled to Meeting Fees for attending Board meetings and the Annual Meeting) for the following (collectively, the “Meeting Fees”): (i) fees if any, paid for attendance at meetings of the Board or committees of the Board; and (ii) fees, if any, paid to a Director for attendance at the Annual Meeting;
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(3) | to increase the identification of interests between the Directors and the shareholders of the Corporation by permitting (i) the Nominating and Corporate Governance Committee of the Board or a Stock Compensation Subcommittee of the Committee (the "Subcommittee") to award restricted stock awards (“RSA”), restricted stock units (“RSU”), nonstatutory stock options and/or stock appreciation rights to each Director on the fifteenth (15th) business day after the Annual Meeting, and
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(4) | to allow Directors to elect to (i) receive payment of certain fees in shares of Class A Common Stock, par value $1.00 per share of the Corporation (the “Common Stock”), (ii) defer receipt of certain fees and awards into a deferred stock account as deferred stock units (“DSU”), and (iii) reinvest dividends payable on Common Stock for awards or stock issued under this Plan instead of receiving cash.
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For purposes of the Plan, the term "Subsidiary" means any corporation, partnership, limited liability company, joint venture, trust or estate in an unbroken chain beginning with the Corporation, if each of the entities other than the last entity in the unbroken chain owns equity possessing fifty percent (50%) or more of the total combined voting power of all classes of equity in one of the other entities in the chain. As used hereinafter, the term "Committee" shall mean either the Nominating and Corporate Governance Committee or the Subcommittee, if the Subcommittee is authorized by the Board to act under this Plan; provided, however, that the members of the Committee must be composed solely of two or more "non-employee directors" in accordance with Rule 16b-3(d) under the 1934 Act. The term "Annual Meeting" shall refer to the annual shareholders’ meeting of the Corporation. The term "business day" means a day other than a Saturday, Sunday or other day on which commercial banks in the City of Pittsburgh, Pennsylvania are authorized or required to close.
(b)
Reservation of Shares. Except as otherwise provided in this Section 1(b), the aggregate number of shares of Common Stock which may be issued under the Plan or credited (in DSUs) to deferred stock compensation accounts for subsequent issuance under the Plan from the date of its first adoption is limited to one hundred fifty thousand (150,000) shares, subject to adjustment and substitution as set forth in Section 14 hereof. Shares of Common Stock issued under the Plan may be authorized but unissued shares or shares previously issued and thereafter acquired by the Corporation or partly each, as shall be determined from time
to time by the Board (or a committee thereof). If any stock option, RSU or stock appreciation right granted under the Plan is cancelled by mutual consent, forfeited, or terminates or expires for any reason without having been exercised in full, or if any RSAs under the Plan are forfeited, the number of shares subject thereto, in the case of stock options, RSUs or stock appreciation rights, or the number of shares forfeited, in the case of RSAs, shall again be available for all purposes of the Plan. All shares of Common Stock covered by a stock appreciation right or RSU, to the extent it is exercised or vests, as applicable, and shares of Common Stock are actually issued upon exercise or vesting of the right, shall be counted, regardless of the number of shares used to settle the stock appreciation right upon exercise.
(c)Individual Limits. During any calendar year:
(i) the maximum aggregate Fair Market Value of Equity Awards (as determined on the date of issuance of each such Equity Award) issued under this Plan to a Director in a calendar year shall not exceed $400,000 during such calendar year; and
(ii) the maximum aggregate (x) Director Fees or Meeting Fees payable under this Plan to a Director in a calendar year and (y) Fair Market Value of Equity Awards issued under this Plan (as determined pursuant to clause (i) above) shall not exceed $600,000 during such calendar year.
SECTION 2
Eligibility
Any Director of the Corporation who is separately compensated in the form of Director Fees or Meeting Fees for services on the Board shall be eligible to participate in the Plan.
SECTION 3
Payment of Director Fees
(a)Director Fee Payment. Subject to the provisions of Section 3(b) hereof, on the fifteenth (15th) business day following the Annual Meeting (or the election or re-election to a committee chair or lead director position if such election is not made at the time of the Annual Meeting) (each such date of payment referred to as a "RegularPayment Date"), each Director as of that date shall receive payment of Director Fees by:
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(1) | the payment to the Director of such amounts determined by the Board or by any committee of the Board which the Board authorizes to determine such amounts (collectively, the "Director Fee Amount"); or
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(2) | the issuance to the Director of a number of whole shares of Common Stock equal to the Director Fee Amount divided by the Fair Market Value of one share of the Common Stock, as defined in Section 17 hereof, on such Payment Date (rounded upward to the next whole share). |
Subject to the provisions of Section 3(b) hereof, each Director who first becomes a Director after a Regular Payment Date and before the next Annual Meeting shall, on the fifteenth (15th) business day following his or her election as a Director (the "Interim Payment Date", and collectively with any Regular Payment Date, a “Payment Date”), receive payment of a pro-rata portion of the Director Fee Amount (in cash or in shares of Common Stock, as the case may be), equal to the applicable Director Fee Amount multiplied by a fraction, the numerator of which shall be the number of Board meetings scheduled between the date of such Director's election and the date of the next Annual Meeting (excluding any Board meeting on the date of such Annual Meeting), and the denominator of which shall be the total number of Board meetings (actual and scheduled) between the date of the last Annual Meeting (including any Board meeting on the date of such
Annual Meeting) and the date of the next Annual Meeting (excluding any Board meeting on the date of such Annual Meeting).
(b)Stock Election. The Committee shall determine by November 30 of each year whether Director Fees in the following calendar year will be paid in cash or in shares of Common Stock, with the default election being the payment of Directors Fees in shares of Common Stock. Notwithstanding the foregoing, if the Director Fees are to be paid in cash, a Director may elect to receive payment of the Director Fees in shares (a "Stock Election"). A Stock Election shall be made by filing a notice of election with the Secretary of the Corporation in the form prescribed by the Corporation (each, a "Notice of Election"). Once made, a Stock Election shall be effective on January 1 of the year following the date on which the Notice of Election is filed; provided, however, that Stock Elections shall be effective on the date on which the Notice of Election is filed with respect to Director Fees payable after the time of a person's initial election to the office of Director, or any subsequent re-election if immediately prior thereto such person was not serving as a Director, provided the Director files such Notice of Election within ten (10) business days subsequent to being elected or re-elected as a Director. A Stock Election shall apply to all Director Fees otherwise payable while such election is effective. A Director may terminate a current Stock Election and receive current payment of Director Fees in cash (where the Committee has elected to pay Director Fees in cash) by filing a notice of termination with the Secretary of the Corporation in the form prescribed by the Corporation (each, a "Notice of Termination"), which shall be effective on January 1 of the year following the date on which a Notice of Termination is filed.
(c)Evidence of Shares. As of the date on which the Director Fees are payable in shares of Common Stock pursuant to Section 3(a) or 3(b) hereof, (i) the Corporation, at its sole discretion, shall either issue share certificates to the Director for any shares of Common Stock received under the Plan or cause such shares to be registered in the name of the Director on any book-entry registration maintained by the Corporation or its transfer agent, and (ii) the Director shall be a shareholder of the Corporation with respect to any such shares of Common Stock so issued.
(d)Deferral Election. Notwithstanding the foregoing provisions of this Section, each Director may elect to defer the receipt of Director Fees in accordance with the procedures set forth in Section 5.
SECTION 4
Payment of Meeting Fees
(a)Current Cash Payment. Subject to the provisions of Section 5 hereof, each Director shall receive payment of Meeting Fees in cash in such amounts determined by the Board or by any committee of the Board which the Board authorizes to determine such amounts, except that the NE Chairperson shall only be entitled to fees for attending Board meetings and the Annual Meeting, if any.
Except as set forth in Section 5 hereof, payment of Meeting Fees, if any, shall be paid within ten (10) business days following the meeting with respect to which such fees are payable. The amount and time of payment of Meeting Fees may be changed from time to time by the Board in its sole discretion through a duly adopted Board resolution.
(b)Deferral Election. Notwithstanding the foregoing provisions of this Section, each Director may elect to defer the receipt of Meeting Fees in accordance with the procedures set forth in Section 5.
SECTION 5
Deferral Elections
(a)Deferred Payment of Director Fees and Meeting Fees. Regardless of whether Director Fees or Meeting Fees are scheduled to be paid in cash or shares of Common Stock, each Director may elect to defer the receipt of Director Fees, Meeting Fees and/or RSAs granted pursuant to Section 12, as provided under this Section 5 (a “Deferral Election”).
(b)Deferral Election Procedures. A Deferral Election may be made by timely filing a Notice of Election with the Secretary of the Corporation in the form prescribed by the Corporation, subject to the following terms and conditions:
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(1) | A Deferral Election shall be effective only if made on or prior to December 31st of the calendar year immediately preceding the beginning of the calendar year to which the Deferral Election relates (or such other date as may be established by the Committee to the extent consistent with Section 409A);
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(2) | Deferral Elections are entirely voluntary and shall be irrevocable once made; provided, however, the Committee, in its sole discretion, may permit a Deferral Election to be changed at any time prior to the last permissible date for making a Deferral Election;
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(3) | A Deferral Election shall apply to all Director Fees and/or RSAs earned and payable in each calendar year while such Deferral Election remains effective, and to all Meeting Fees paid or payable for meetings held in each calendar year while such Deferral Election remains effective;
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(4) | A Deferral Election shall, to the extent permitted by the Committee, allow a Director to select whether any dividends or distributions payable with respect to the Director’s DSUs shall be paid currently in cash (or other property, as applicable) or otherwise credited in additional DSUs to the Director’s Account (the “Dividend Election”).
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(c)Elections for New Plan Participants. A Director who first becomes eligible to participate in the Plan may, to the extent permitted by the Committee, file a Deferral Election (the “Initial Election”) at any time on or before the 10th business day following the date on which the Director initially becomes eligible to participate in the Plan. Any such Initial Election shall only apply to fees and awards earned and payable for services rendered after the date on which the Initial Election is delivered to the Corporation. Accordingly, an Initial Election shall apply to all Director Fees or RSAs earned and payable subsequent to the date the Initial Election is delivered to the Corporation, and to all Meeting Fees earned and payable for meetings held following the date the Initial Election is delivered to the Corporation.
(d)Termination/Modification of Deferral Elections. Unless otherwise specifically provided in a Notice of Election, a Deferral Election shall remain in effect for future calendar years unless and until such election is timely revoked. A Director may increase, decrease, terminate or recommence a Deferral Election (including an Initial Election) by filing a new Deferral Election on or prior to the last date for filing a Deferral Election for the next calendar year. A new Deferral Election shall be effective January 1st of the calendar year following the date on which the election is filed with the Corporation.
SECTION 6
Deferred Stock Compensation Account
(a)General. The amount of any Director Fees, RSAs or Meeting Fees elected to be deferred in accordance with a Deferral Election for a calendar year shall be credited, in the form of shares of DSUs, to a deferred stock compensation account maintained by the Corporation in the name of the Director (an "Account"). On each Payment Date that a Deferral Election is effective for a Director, or on which DSUs are to be credited pursuant to a Deferral Election, the Director's Account(s) shall be credited on the Payment Date with the number of DSUs (including fractional shares to at least two decimal places) (i) equal to that number of shares of Common Stock that otherwise would have been payable to the Director on such Payment Date where the Director Fees had been payable to the Director in shares of Common Stock, (ii) equal to the aggregate amount of all Director Fees and/or Meeting Fees subject to such Deferral Election otherwise payable during such calendar year to such Director in cash divided by the Fair Market Value of one share of the Common Stock, as defined in Section 17 hereof, on such Payment Date, and/or (iii) equivalent to the number of shares of restricted stock granted. DSUs shall represent the right to receive an equivalent number of shares of Common Stock upon the terms and conditions outlined in this Section. No interest or other amount shall be paid or credited to a Director notwithstanding that Director Fees and/or Meeting Fees which otherwise would have been payable under the Plan are not reflected as DSUs until the Payment Date. A separate Account shall be maintained for each amount of deferred Director Fees, Meeting Fees or RSAs for which a Director has elected a different payment option or as otherwise determined by the Committee. Separate Accounts shall be maintained for deferred Director Fees, Meeting Fees and/or RSAs under the Plan as opposed to those deferred, if any, under the 1994 Director Fee Plan, as amended or the 2014 Director Fee Plan, as amended.
The Account of a Director shall be charged on the date of distribution with any distribution of DSUs made to the Director from such Account pursuant to Section 6(b) hereof.
(b)Dividend Equivalent Rights. If DSUs are outstanding in an Account on the record date with respect to a dividend was declared on the Corporation’s Common Stock in cash or property other than Common Stock, then on the date of such payment of the dividend the Corporation shall, based on each Director’s Dividend Election in effect at the time, either (i) pay directly to the Director an amount in cash or property other than Common Stock, as the case may be, or (ii) increase the number of DSUs credited to the Director’s Account by an amount, determined in accordance with the following formula, rounded down to the nearest hundredth of a whole share: X =((A x B)/C)-D, where
X = the additional number of DSUs to be credited to the Account, or paid in cash, based on the Director’s Dividend Election then in effect;
A = the number of DSUs in the Director’s Account;
B = the per share amount of the dividend;
C = the average of the high and low per share selling prices of the Corporation’s Common Stock on the payment date of such dividend;
D = the taxes, if any, required to be withheld on such amount, including but not limited to any taxes required to be withheld due to the characterization of such amounts as wages or compensation.
(c)Manner of Payment of Account. The DSUs held in a Director's Account will be paid in shares of Common Stock to the Director or, in the event of the Director's death, to the Director's Beneficiary as defined in Section 6(d) hereof.
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(1) | Elections. For Deferral Elections, a Director may elect at the time of filing the Notice of Election to receive payment of the DSUs credited to the Director's Account, in whole or in part, as follows (except as otherwise provided in Sections 6(d) and 7(b) hereof, if applicable):
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(i) | In a lump sum on April 1 (or if April 1 is not a business day, on the immediately preceding business day) of the calendar year following the calendar year in which the Director first separates from service with the Corporation under Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), or any successor Section, upon or after ceasing to be a member of the Board for any reason, including by reason of death or disability (the "Separation from Service Payment Commencement Date");
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(ii) | In two to five annual installments commencing on the Separation From Service Payment Commencement Date and continuing on the same date (or if such date is not a business day, on the immediately preceding business day) in the calendar year(s) thereafter; |
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(iii) | In a lump sum on April 1 (or if April 1 is not a business day, on the immediately preceding business day) of the calendar year specified by the Director at the time of filing of such Notice of Election (the "Designated Payment Commencement Date");
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(iv) | In two to five annual installments commencing on the Designated Payment Commencement Date and continuing on the same date (or if such date is not a business day, on the immediately preceding business day) in the calendar year(s) thereafter; or |
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(v) | If earlier than the date on which payment would be received under (i)-(iv) of this Section 6(c)(1), in a lump sum or in two to five annual installments, with payment commencing on the sixtieth (60th) day (or if such date is not a business day, on the immediately preceding business day) following the death of the Director or following the date on which the Director becomes disabled (within the meaning of Section 409A of the Code) and continuing on the same date (or if such date is not a business day, on the immediately preceding business day) in the calendar year(s) thereafter. |
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(2) | Installment Payments. In any case where payments are made in installments, the number of shares of Common Stock distributed in each installment shall be determined by multiplying (A) the number of DSUs in the Account on the date of payment of such installment, by (B) a fraction, the numerator of which is one and the denominator of which is the number of remaining unpaid installments, and by rounding such result down to the nearest whole number of shares. The balance of the number of DSUs in the Account shall be appropriately reduced in accordance with Section 6(a) hereof to reflect the installment payments made hereunder. DSUs remaining in an Account pending distribution pursuant to this Section 6(c) shall be subject to adjustment pursuant to Section 14 hereof.
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(3) | General. If a lump sum payment or the final installment payment hereunder would result in the issuance of a fractional share of Common Stock, such fractional share shall not be issued and cash in lieu of such fractional share shall be paid to the Director based on the Fair Market Value of a share of Common Stock, as defined in Section 17 hereof, on the date immediately preceding the date of such payment. The Corporation, at its sole discretion, shall either issue share certificates to the Director, or the Director's Beneficiary, for the shares of Common Stock distributed hereunder or cause such shares to be registered in the name of the Director, or the Director's Beneficiary, on any book-entry registration maintained by the Corporation or its transfer agent. As of the date on which the Director is entitled to receive payment of shares
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of Common Stock pursuant to this Section 6(c) hereof, a Director or the Director's Beneficiary shall be a shareholder of the Corporation with respect to such shares. For purposes of Section 409A and the Plan, a payment shall be treated as made on a scheduled Payment Date if such payment is made at such date or a later date in the same calendar year or, if later, by the 15th day of the third calendar month following the scheduled Payment Date.
(d)Director's Beneficiary. The "Director's Beneficiary" means any beneficiary or beneficiaries (who may be named contingently or successively) named by a Director under the Plan to whom any benefit under the Plan is to be paid in the case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Director, shall be in a form prescribed by the Committee, and will be effective only when filed by the Director in writing with the Secretary of the Corporation during the Director's lifetime. In the absence of such a designation, Director's Beneficiary means the person designated by the Director in the Director's Will, or, if the Director fails to make a testamentary disposition of the shares or dies intestate, to the person entitled to receive the shares pursuant to the laws of descent and distribution of the state of domicile of the Director at the time of death.
SECTION 7
Other Payment Commencement Dates
(a)General. If, in the case of a Deferral Election, the first DSUs credited to a particular Account with respect to such Director is credited after the relevant payment commencement date specified in Section 6(c) hereof or any DSUs are credited to an Account after a lump sum payment has been made pursuant to Section 6(c) hereof from such Account, payment of shares credited to such Account shall be made or commence on the April 1 (or if April 1 is not a business day, on the immediately preceding business day) following the date on which the shares are so credited.
(b)Delay in Payment. Notwithstanding Section 6(c) hereof and except as otherwise provided in Section 7(c) hereof, a Director may irrevocably elect, by filing a Notice of Election with the Secretary of the Corporation in the form prescribed by the Corporation, to commence payment on a date later than the date specified under Section 6(c) hereof provided that:
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(i) | Such election must be made at least twelve (12) months prior to the date on which payments (or the initial scheduled Payment Date in the case of installment payments) otherwise would have commenced pursuant to the election under Section 6(c) hereof; and |
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(ii) | The payment commencement date specified in such election under this Section 7(b) must be not less than five (5) years from the date on which payments (or the initial scheduled Payment Date in the case of installment payments) otherwise would have commenced pursuant to the election under Section 6(c) hereof. |
The provisions of this Section 7(b) are intended to comply with Section 409A(4)(C) of the Code, or any successor Section, and shall be interpreted consistently therewith.
(c)Change in Control Event. Notwithstanding Sections 6(c) and 7(b) hereof, effective for Director Fees, Meeting Fees and/or RSAs payable (but for any Deferral Elections) on and after January 1 of the year following the date on which the Notice of Election is filed, a Director may irrevocably elect, by filing a Notice of Election with the Secretary of the Corporation in a form prescribed by the Corporation, to receive payment of all DSUs credited to the Director's Account with respect to such Director Fees, Meeting Fees and/or RSAs, upon the earlier of when payment would be made pursuant to the election under Section 6(c) or 7(b) hereof or in a lump sum immediately following the occurrence of any Change in Control Event, as defined below (a "Change in Control Event Election").
A Change in Control Event Election shall be effective on the date on which it is filed with respect to Director Fees, Meeting Fees and RSAs payable (but for any Deferral Elections) after the time of a person's initial election to the office of Director, or any subsequent re-election if immediately prior thereto such person was not serving as a Director, provided (i) the Director files such Change in Control Event Election within ten (10) business days subsequent to being elected or re-elected as a Director and (ii) a Change in Control Event Election shall only be effective for Director Fees, Meeting Fees and RSAs payable for services performed after the Change in Control Event Election is filed. A Director may terminate a Change in Control Event Election only by filing a Notice of Termination of Change in Control Event Election with the Secretary of the Corporation in the form prescribed by the Corporation, which shall be effective for Director Fees, Meeting Fees and/or RSAs payable (but for any Deferral Elections) on and after January 1 of the year following the date on which such Notice of Termination of Change in Control Event Election is filed. If payments from a Director's Account have previously commenced at the time of a Change in Control Event which results in a permissible lump sum payment pursuant to this Section 7(c), for purposes of applying this Section 7(c) shares previously paid from the Director's Account shall be deemed to be from Director Fees, Meeting Fees and RSAs not subject to a Change in Control Event Election, to the extent thereof. A “Change in Control Event” shall mean the date upon which any event occurs which constitutes a change in the ownership or effective control of the Corporation or in the ownership of a substantial portion of the assets of the Corporation under Section 409A of the Code or any successor Section and Treasury Regulation §1.409A-3(i)(5)(v)-(vii) thereunder or any successor Section, provided that:
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(i) | The percentage specified in Treasury Regulation §1.409A-3(i)(5)(v) (addressing the percentage change in the ownership of the total fair market value or voting power of the Corporation's stock) shall be 50 percent and not a higher percentage; |
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(ii) | The percentage specified in Treasury Regulation §1.409-3(i)(5)(vi)(A)(1) (addressing the percentage change in the ownership of the voting power of the Corporation's stock) shall be 30 percent and not a higher percentage; |
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(iii) | For purposes of Treasury Regulation §1.409A-3(i)(5)(vi)(A)(2) (addressing a change in the effective control of the Corporation by virtue of a change in the composition of the Board), the words "a majority of the members of the corporation's board of directors" shall not be replaced by a higher portion; and |
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(iv) | The percentage specified in Treasury Regulation §1.409A-3(i)(5)(vii)(A) (addressing the percentage change in the ownership of the Corporation's assets) shall be 40 percent and not a higher percentage. |
SECTION 8
Non-Alienability of Benefits
Except as may be required by law, neither the Director nor the Director's Beneficiary shall have the right to, directly or indirectly, alienate, assign, transfer, pledge, anticipate or encumber (except by reason of death) any amounts or shares of Common Stock or DSUs that are or may be payable hereunder, including but not limited to in respect of any liability of a Director or the Director's Beneficiary for alimony or other payments for the support of a spouse, former spouse, child or other dependent, prior to such amount actually being received by the Director or the Director's Beneficiary hereunder, nor shall any such amounts or shares be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of the Director or the Director's Beneficiary or to the debts, contracts, liabilities, engagements, or torts of any Director or Director's Beneficiary, or transfer by operation of law in the event of bankruptcy or insolvency of the Director or the Director's Beneficiary, or any legal process.
SECTION 9
Nature of Deferred Stock Compensation Accounts
Any Account, and any DSUs reflected in such Account, shall be established and maintained only on the books and records of the Corporation. No assets or funds of the Corporation, a Subsidiary or the Plan shall be removed from the claims of the Corporation's or a Subsidiary's general or judgment creditors or otherwise made available, and no shares of Common Stock of the Corporation to be issued pursuant to an Account shall be issued or outstanding, until such amounts and shares are actually payable to a Director or a Director's Beneficiary as provided herein. DSUs credited to an Account constitute a mere promise by the Corporation to make payments in the future. Each Director and Director's Beneficiary shall have the status of, and their rights to receive a payment of shares of Common Stock under the Plan shall be no greater than the rights of, general unsecured creditors of the Corporation. No person shall be entitled to any voting rights with respect to DSUs credited to an Account. The Corporation shall not be obligated under any circumstances to fund any financial obligations under the Plan and the Plan is intended to constitute an unfunded plan for tax purposes. However, the Corporation may, in its sole discretion, set aside funds in a trust or other vehicle, subject to the claims of its creditors, in order to assist it in meeting its obligations under the Plan, if:
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(a) | such arrangement will not cause the Plan to be considered a funded deferred compensation plan under the Code; |
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(b) | any trust created by the Corporation, and any assets held by such trust to assist the Corporation in meeting its obligations under the Plan, will conform to the terms of the model trust, as described in Rev. Proc. 92-64, 1992-2 C.B. 422 or any successor; and |
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(c) | such set aside of funds is not described in Section 409A(b) of the Code, or any successor provision. |
SECTION 10
Grant of Equity Awards
The Committee shall have authority, in its sole discretion, (a) to grant "nonstatutory stock options" (i.e., stock options which do not qualify under Sections 422 and 423 of the Code), (b) to grant stock appreciation rights, (c) to award RSAs, and (d) to award RSUs (collectively “Equity Awards”). All grants and awards pursuant to this Section 10 shall be made on or to be effective on a Payment Date. On or as of each Payment Date, the Committee shall grant or award to each Director on such Payment Date Equity Awards with such amount determined by the Board or by any committee of the Board which the Board authorizes to determine such amount (subject to such limitations set forth under this Plan). The Committee shall determine in its sole discretion the portion of each grant and/or award to be comprised of nonstatutory stock options, stock appreciation rights, RSAs and RSUs and the value of each.
SECTION 11
Terms and Conditions of
Stock Options and Stock Appreciation Rights
Stock options and stock appreciation rights granted under the Plan shall be subject to the following terms and conditions:
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(A) | The purchase price at which each stock option may be exercised (the "option price") and the base price at which each stock appreciation right may be granted (the "Base Price") shall be such price as the Committee, in its sole discretion, shall determine but shall not be less than one hundred percent (100%) of the Fair Market Value per share of the Common Stock covered by the stock option or stock appreciation right on the date of grant. For purposes of this Section 11, the Fair
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Market Value of the Common Stock shall be determined as provided in Section 17 hereof. In no event may any stock option or stock appreciation right granted under this Plan, other than pursuant to Section14, be amended to decrease the exercise price or Base Price thereof, be cancelled in conjunction with the grant of any new stock option or stock appreciation right with a lower exercise price or Base Price, be cancelled or repurchased for cash, property, or another award at a time when the exercise price or Base Price is greater than the Fair Market Value of the underlying Common Stock, or otherwise be subject to any action that would be treated, for accounting purposes, as a "repricing" of such stock option or stock appreciation right, unless such amendment, cancellation, or action is approved by the Corporation's shareholders.
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(B) | The option price for each stock option shall be paid in full upon exercise and shall be payable in cash in United States dollars (including check, bank draft or money order), which may include cash forwarded through a broker or other agent-sponsored exercise or financing program; provided, however, that in lieu of such cash the person exercising the stock option may if authorized by the Committee pay the option price in whole or in part by delivering to the Corporation shares of the Common Stock (by delivery of such shares or by attestation) not restricted under Section 12 and having a Fair Market Value on the date of exercise of the stock option, determined as provided in Section 17 hereof, equal to the option price for the shares being purchased, except that any portion of the option price representing a fraction of a share shall in any event be paid in cash. If the person exercising a stock option participates in a broker or other agent-sponsored exercise or financing program, the Corporation will cooperate with all reasonable procedures of the broker or other agent to permit participation by the person exercising the stock option in the exercise or financing program. Notwithstanding any procedure of the broker or other agent-sponsored exercise or financing program, if the option price is paid in cash, the exercise of the stock option shall not be deemed to occur and no shares of the Common Stock will be issued until the Corporation has received full payment in cash (including check, bank draft or money order) for the option price from the broker or other agent. To facilitate the foregoing, the Corporation may, to the extent permitted by applicable law, enter into agreements for coordinated procedures with one or more brokerage firms. In the event the broker sells any shares on behalf of a Director, the broker shall be acting solely as the agent of the Director, and the Corporation disclaims any responsibility for the actions of the broker in making any such sales. The date of exercise of a stock option shall be determined under procedures established by the Committee, and as of the date of exercise the person exercising the stock option shall be considered for all purposes to be the owner of the shares with respect to which the stock option has been exercised. |
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(C) | Upon the exercise of stock appreciation rights the Corporation shall pay to the person exercising the stock appreciation rights a number of shares of the Common Stock with a Fair Market Value, as defined in Section 17 hereof, equal to the difference between the aggregate Fair Market Value, as defined in Section 17 hereof, of the Common Stock on the date of exercise of the stock appreciation rights and the aggregate Base Prices for the stock appreciation rights which are exercised (the "Spread") (rounded down to the next whole number of shares). No fractional shares of the Common Stock shall be issued nor shall cash in lieu of a fraction of a share of Common Stock be paid. Notwithstanding the foregoing, at the sole discretion of the Committee, the Corporation may pay to the person exercising the stock appreciation rights an amount of cash, rather than shares of the Common Stock, equal to the Spread if and only if the payment of cash upon exercise of the stock appreciation rights would not cause the stock appreciation rights to provide for a deferral of compensation within the meaning of Section 409A of the Code. The date of exercise of a stock appreciation right shall be determined under procedures established by the Committee.
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(D) | Unless the Committee, in its sole discretion, shall otherwise determine and subject to the terms of Sections 11(G) and 11(H) hereof, stock options and stock appreciation rights shall be exercisable by a Director commencing on the second anniversary of the date of grant. Subject to the terms of Sections 11(G) and 11(H) hereof providing for earlier termination of a stock option or stock appreciation right, no stock option or stock appreciation right shall be exercisable after the expiration of ten years from the date of grant. Unless the Committee, in its sole discretion, shall |
otherwise determine, a stock option or stock appreciation right to the extent exercisable at any time may be exercised in whole or in part.
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(E) | Unless the Committee, in its sole discretion, shall otherwise determine: |
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(i) | no stock option or stock appreciation right shall be transferable or assignable by the grantee otherwise than: |
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(b) | if the grantee dies intestate, by the laws of descent and distribution of the state of domicile of the grantee at the time of death; or |
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(c) | to the trustee of a trust that is revocable by the grantee alone, both at the time of the transfer or assignment and at all times thereafter prior to such grantee's death; and |
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(ii) | all stock options and stock appreciation rights shall be exercisable during the lifetime of the grantee only by the grantee (or the grantee's guardian or legal representative) or by the trustee of a trust described in Section 11(E)(i)(c) hereof. |
A transfer or assignment of a stock option or a stock appreciation right by a trustee of a trust described in Section 11(E)(i)(c) to any person other than the grantee shall be permitted only to the extent approved in advance by the Committee in writing, in its sole discretion and subject to applicable law. Stock options or stock appreciation rights held by such trustee also shall be subject to all of the conditions and restrictions set forth in the Plan and in the applicable agreement with the grantee as if such trustee were a party to such agreement as the grantee. In the event the grantee ceases to be a Director of the Corporation, the provisions set forth in the Plan and in the applicable agreement with the grantee shall continue to be applicable to the stock option or stock appreciation right and shall limit the ability of such trustee to exercise any such transferred stock options or stock appreciation rights to the same extent they would have limited the grantee. The Corporation shall not have any obligation to notify such trustee of any termination of a stock option or stock appreciation right due to the termination of service of the grantee as a Director of the Corporation.
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(F) | Unless otherwise specified by the Committee, the applicable Director shall have all of the rights of a shareholder of the Corporation holding Common Stock with respect to the shares of Common Stock to be issued upon the exercise of a stock option or stock appreciation right (including the right to vote the applicable shares and the right to receive dividends), when the Director (i) has given written notice of exercise in accordance with the procedures established by the Committee, (ii) if requested, has given the representation described in Section 18, and (iii) in the case of a stock option, has paid in full the option price for such shares. |
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(G) | Unless the Committee, in its sole discretion, shall otherwise determine, if a grantee ceases to be a Director of the Corporation, any outstanding stock options and stock appreciation rights held by the grantee shall vest and be exercisable and shall terminate, according to the following provisions: |
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(i) | Notwithstanding Section 11(D) hereof, if a grantee ceases to be a Director of the Corporation for any reason other than those set forth in Section 11(G)(ii) or (iii) hereof, any then outstanding stock option and stock appreciation right held by such grantee (whether or not vested and exercisable by the grantee immediately prior to such time) shall vest and be exercisable by the grantee (or, in the event of the grantee's death, by the person entitled to do so under the Will of the grantee, or, if the grantee shall fail to make testamentary disposition of the stock option or stock appreciation right or shall die intestate, by the legal representative of the grantee (the "Grantee's Heir or Representative")), at any time prior to the second anniversary of the date on which the grantee ceases to be a Director of the Corporation or the expiration date of the stock option or stock appreciation right, whichever is the shorter period;
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(ii) | Unless the exercise period of a stock option or stock appreciation right following termination of service as Director has been extended as provided in Section 15(c) hereof, if during his or her term of office as a non-employee Director a grantee is removed from office for cause or resigns without the consent of the Board, any then outstanding stock option and stock appreciation right held by such grantee shall terminate as of the close of business on the last day on which the grantee is a Director of the Corporation; and |
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(iii) | Notwithstanding Section 11(D) hereof, following the death of a grantee during service as a Director of the Corporation, or upon the disability of a Director which requires his or her termination as a Director of the Corporation, any outstanding stock option and stock appreciation right held by the grantee at the time of death or termination as a Director due to disability (whether or not vested and exercisable by the grantee immediately prior to such time) shall vest and be exercisable, in the case of death of the grantee, by the Grantee's Heir or Representative, or, in the case of disability of the grantee, by the grantee at any time prior to the second anniversary of the date on which the grantee ceases to be a Director of the Corporation or the expiration date of the stock option or stock appreciation right, whichever is the shorter period. |
Whether a resignation of a Director is with or without the consent of the Board and whether a grantee is disabled shall be determined in each case, in its sole discretion, by the Committee and such determination by the Committee shall be final and binding.
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(H) | If a grantee of a stock option or stock appreciation right engages in the operation or management of a business (whether as owner, partner, officer, director, employee or otherwise and whether during or after service as a Director of the Corporation) which is in competition with the Corporation or any of its Subsidiaries, or solicits any of the Corporation's customers or employees other than for the benefit of the Corporation, the Committee may immediately terminate all outstanding stock options and stock appreciation rights held by the grantee; provided, however, that this sentence shall not apply if the exercise period of a stock option or stock appreciation right following termination of service as a Director of the Corporation has been extended as provided in Section 15(c) hereof. Whether a grantee has engaged in the operation or management of a business which is in competition with the Corporation or any of its Subsidiaries, or solicits any of the Corporation's customers or employees other than for the benefit of the Corporation, shall be determined, in its sole discretion, by the Committee, and any such determination by the Committee shall be final and binding. |
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(I) | All stock options and stock appreciation rights shall be confirmed by a written agreement or an amendment thereto in a form prescribed by the Committee, in its sole discretion. Each agreement or amendment thereto shall be executed on behalf of the Corporation by the Chief Executive Officer (if other than the President), the President or any Vice President and by the grantee. The provisions of such agreements need not be identical. |
Subject to the foregoing provisions of this Section 11 and the other provisions of the Plan, any stock option or stock appreciation right granted under the Plan may be exercised at such times and in such amounts and be subject to such restrictions and other terms and conditions, if any, as shall be determined, in its sole discretion, by the Committee and set forth in the agreement referred to in Section 11(I) hereof or an amendment thereto.
SECTION 12
Terms and Conditions of Restricted Share Awards
(a)Restricted Share Awards. RSAs shall be evidenced by a written agreement in a form prescribed by the Committee, in its sole discretion, which shall set forth the number of shares of the Common Stock awarded, the restrictions imposed thereon (including, without limitation, restrictions on the right of the awardee to sell, assign, transfer, pledge or otherwise encumber such shares while such shares are subject to the other restrictions imposed under this Section 12), the duration of such restrictions, events (which may, in the sole discretion of the Committee, include performance-based events) the occurrence of which would cause a forfeiture of the RSAs and such other terms and conditions as the Committee in its sole discretion deems appropriate. Restricted share awards shall be effective only upon execution of the applicable RSA agreement on behalf of the Corporation by the Chief Executive Officer (if other than the President), the President or any Vice President, and by the awardee. The provisions of such agreements need not be identical. Notwithstanding
the foregoing provisions of this Section, each Director may elect to defer the receipt of any such RSAs in accordance with the procedures set forth in Section 5; provided, that the receipt of any DSUs in lieu of restricted share awards shall remain subject to the same vesting and forfeiture restrictions as the original equity award.
(b)Transfers to Trusts. Neither this Section 12 nor any other provision of the Plan shall preclude an awardee from transferring or assigning RSAs to (i) the trustee of a trust that is revocable by such awardee alone, both at the time of the transfer or assignment and at all times thereafter prior to such awardee's death or (ii) the trustee of any other trust to the extent approved in advance by the Committee in writing. A transfer or assignment of RSAs from such trustee to any person other than such awardee shall be permitted only to the extent approved in advance by the Committee in writing, and RSAs held by such trustee shall be subject to all of the conditions and restrictions set forth in the Plan and in the applicable agreement as if such trustee were a party to such agreement.
(c)Default Vesting Restrictions. Unless otherwise determined by the Committee, RSAs awarded to a Director shall be forfeited if the awardee terminates as a Director of the Corporation within two (2) years following the grant of such RSAs due to the voluntary resignation of the Director without the consent of the Board or the removal of the Director with cause. Any RSAs which have not previously vested shall vest and the restrictions related to service as a Director shall lapse upon the death of a Director or the disability of a Director which requires his or her termination as a Director of the Corporation.
(d)Evidence of Shares. Following a grant of RSA and prior to the lapse or termination of the applicable restrictions, the Corporation, at its sole discretion, shall (i) issue share certificates in the name of the awardee and hold them in escrow together with related stock powers in blank signed by the awardee, (ii) issue such share certificates and deliver them to the awardee with an appropriate conspicuous legend referring to the terms, conditions, and restrictions applicable to such award, substantially in the following form:
"The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the Matthews International Corporation 2019 Director Fee Plan and a corresponding agreement. Copies of such Plan and agreement are on file at the offices of Matthews International Corporation, Two NorthShore Center, Pittsburgh, PA 15212-5851.";
or (iii) issue the shares in book-entry form in the name of the awardee. If share certificates are issued in the name of the awardee, the awardee shall execute and deliver to the Corporation a blank stock power in form acceptable to the Corporation with respect to each of the certificates subject to the RSAs. In the case of forfeiture of the shares, the Corporation shall use the stock power(s) to transfer ownership of the shares to the Corporation. Upon the lapse or termination of the applicable restrictions, certificate(s) without the legend referenced in (ii) above and the blank stock power(s) shall be delivered to the awardee (or the awardee's personal representative) upon the surrender by such person of the legended certificates if they were previously provided to such person. If shares are issued in book-entry form, the Corporation shall instruct its transfer agent that the shares are to be designated as restricted on the transfer agent's book-entry records of the owners of the Common Stock, and may not be transferred from the name of the awardee until the earlier of (i) in the case of forfeiture of the shares, when the Corporation instructs its transfer agent in writing to record the shares as owned by the Corporation (rather than by the awardee), or (ii) when requested in writing by the awardee (or the awardee's personal representative) after the Corporation has instructed its transfer agent in writing that such shares are no longer to be designated as restricted on the transfer agent's book-entry records due to the lapse or termination of the applicable restrictions.
(e)Dividends; Dividend Reinvestment. From the date a RSA is effective, the awardee shall be a shareholder with respect to all of the restricted shares and shall have all the rights of a shareholder with respect to the restricted shares, including the right to vote the restricted shares and to receive all dividends, and other distributions paid with respect to the restricted shares, subject only to the preceding provisions of this Section 12(e) and the other restrictions imposed by the Committee. Except as provided in Section 14 hereof, the Committee, in its sole discretion, may determine that dividends and other distributions on the shares
shall not be paid to the awardee until the lapse or termination of the applicable restrictions. Unless otherwise provided, in its sole discretion, by the Committee, any such dividends or other distributions shall not bear interest. Upon the lapse or termination of the applicable restrictions (and not before such time), the unpaid dividends, if any, shall be delivered to the awardee. Further, the Committee shall have the ability, in its sole discretion following a written request of a Director, to authorize the automatic reinvestment of such dividends in additional shares of restricted stock at the time of any dividend payment (such shares referred to herein as “Reinvested Shares”), provided that sufficient shares of Common Stock are available under Section 1(B) for the issuance of such Reinvested Shares (taking into account then outstanding awards). In the event that sufficient shares of Common Stock are not available for such Reinvestment Shares to be issued, such reinvestment of dividends shall be made in the form of a grant of RSUs equal in number to the shares of Common Stock that would have been obtained by such reinvestment, the terms of which RSUs shall provide for settlement in cash and for dividend equivalent reinvestment in further RSUs on the terms contemplated by Section 13. Any Reinvestment Shares issued in connection with a Director’s election hereunder shall be subject to the same terms and conditions, including vesting schedule, as the shares of restricted stock upon which the dividend was issued.
(f)Competition. If an awardee of restricted shares engages in the operation of management of a business (whether as owner, partner, officer, director, employee or otherwise) which is in competition with the Corporation or any of its Subsidiaries or solicits any of the Corporation's customers or employees other than for the benefit of the Corporation, the Committee may immediately declare forfeited all restricted shares, including any Reinvested Shares, held by the awardee as to which the restrictions have not yet lapsed. Whether an awardee has engaged in the operation or management of a business which is in competition with the Corporation or any of its Subsidiaries or has solicited any of the Corporation's customers or employees other than for the benefit of Corporation, shall also be determined, in its sole discretion, by the Committee, and any such determination by the Committee shall be final and binding.
SECTION 13
Restricted Stock Units
(a)Restricted Stock Unit Awards. An RSU award represents the unsecured right to receive in the future payment (in cash, shares of Common Stock or a combination of both, as contemplated in the award) equal to the Fair Market Value of a specified number of shares of Common Stock, which is subject to a risk of forfeiture or a restriction period or both. RSUs shall be evidenced by a written agreement in a form prescribed by the Committee, in its sole discretion. RSU awards shall be effective only upon execution of the applicable RSU agreement on behalf of the Corporation by the Chief Executive Officer (if other than the President), the President or any Vice President, and by the awardee. The provisions of such agreements need not be identical.
(b)Terms and Conditions. Restricted stock units shall be subject to the restrictions imposed thereon, the duration of such restrictions, events (which may, in the sole discretion of the Committee, include performance-based events) the occurrence of which would cause a forfeiture of the RSUs and such other terms and conditions as the Committee in its sole discretion deems appropriate. Unless otherwise determined by the Committee, RSUs awarded to a Director shall be forfeited if the awardee terminates as a Director of the Corporation within two (2) years following the grant of such RSU due to the voluntary resignation of the Director without the consent of the Board or the removal of the Director with cause. An award of RSUs shall be settled as and when the RSUs vest, as determined and certified by the Committee, or at a later time specified by the Committee or in accordance with an election of the Director, if the Committee so permits. Subject to the restrictions set forth in this Plan, the Committee at any time after the date of grant, in its sole discretion, may modify or waive any of the conditions applicable to an award of RSUs. During the period, if any, set by the Committee, commencing with the date of grant of such RSUs for which such vesting restrictions apply, and until the expiration thereof, the Director shall not be permitted to sell, assign, transfer, pledge or otherwise encumber RSUs.
(c)Dividends. RSUs shall not have any voting rights, and holders of RSUs shall not be shareholders of the Corporation unless and until shares of Common Stock are issued by the Corporation (in book-entry form or otherwise). An award of RSUs shall not entitle the Director to receive dividends during the Restriction Period, nor vote the Common Stock subject to such award, or to otherwise enjoy any other stockholder rights; provided, however that the Administrator may, in its sole discretion, prescribe additional terms, conditions or restrictions relating to RSU awards, including but not limited to the issuance of any dividend equivalent units in tandem with a Restricted Stock Unit Award.
(d)Dividend Equivalent Units. Subject to the terms of this Plan, the Administrator will determine all terms and conditions of each award of dividend equivalent units, including but not limited to whether: (i) such award will be granted in tandem with another award; (ii) payment of the award shall be made currently or credited to an account for the Director that provides for the deferral of such amounts until a stated time; and (iii) the award will be settled in cash or shares; provided that dividend equivalent units may be granted only in connection with a “full-value award.” For this purpose, a “full-value award” includes Restricted Stock, RSUs and any other similar award under which the value of the award is measured as the full value of a share, rather than the increase in the value of a share.
SECTION 14
Adjustment and Substitution of Shares
In the event of a (i) merger, consolidation, acquisition of shares, stock rights offering, liquidation, separation, spinoff, disaffiliation of a Subsidiary from the Corporation, extraordinary dividend of cash or other property, or similar event affecting the Corporation or any of its Subsidiaries, including but not limited to a Section 15 Event (each, a "Corporate Transaction") or (ii) a stock dividend, stock split, reverse stock split, reorganization, share combination, or recapitalization or similar event affecting the capital structure of the Corporation (each, a "Share Change") the Committee or the Board shall make such substitutions or adjustments as it deems appropriate and equitable, to prevent the dilution or enlargement of the rights of Directors, to (A) the aggregate number and kind of shares of Common Stock reserved for issuance and delivery under the Plan, (B) the number of DSUs credited to any Account, (C) the number and kind of shares of Common Stock subject to outstanding grants and awards; (D) the option price and Base Price of outstanding stock options and stock appreciation rights, respectively, carried to at least three decimal places with the last decimal place being rounded up to the nearest whole number.
In the case of Corporate Transactions, such adjustments may include, without limitation, (1) the cancellation of outstanding stock options, stock appreciation rights or RSUs in exchange for payments of cash, property or a combination thereof having an aggregate value equal to the value of such grants and awards, as determined by the Committee or the Board in its sole discretion (it being understood that in the case of a Corporate Transaction with respect to which shareholders of Common Stock receive consideration other than publicly-traded equity securities of the ultimate surviving entity, any such determination by the Committee that the value of an option stock appreciation right shall for this purpose be deemed to equal the excess, if any, of the value of the consideration being paid for each share pursuant to such Corporate Transaction over the option price of such option or the Base Price of such stock appreciation right shall conclusively be deemed valid); (2) the substitution of other property (including, without limitation, cash or other securities of the Corporation and securities of entities other than the Corporation) for the shares subject to outstanding grants and awards; and (3) in connection with any disaffiliation of a Subsidiary, arranging for the assumption of grants and awards, or replacement of grants and awards with new grants and awards based on other property or other securities (including, without limitation, other securities of the Corporation and securities of entities other than the Corporation), by the affected Subsidiary, or by the entity that controls such Subsidiary following such disaffiliation (as well as any corresponding adjustments to grants and awards that remain based upon Corporation securities). No adjustment or substitution provided in this Section 14 shall require the Corporation or any other entity to issue or sell a fraction of a share or other security. Except as provided in this Section 14, a Director shall not have any rights with respect to any Corporate Transaction or Share Change. Notwithstanding the foregoing: (i) any adjustments made pursuant to this Section 14 to Accounts shall be made in compliance
with the requirements of Section 409A of the Code; (ii) any adjustments made pursuant to this Section 14 to grants and awards that are not considered "deferred compensation" subject to Section 409A of the Code shall be made in such a manner as to ensure that after such adjustment, the grants and awards either (A) continue not to be subject to Section 409A of the Code or (B) comply with the requirements of Section 409A of the Code; and (iii) in any event, neither the Committee nor the Board shall have the authority to make any adjustments pursuant to this Section 14 to the extent the existence of such authority would cause a grant or award that is not intended to be subject to Section 409A of the Code at the grant or award date of the Award to be subject thereto.
SECTION 15
Additional Rights in Certain Events
(a)Definitions. For purposes of this Section 15, the following terms shall have the following meanings:
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(1) | The term "Person" shall be used as that term is used in Sections 13(d) and 14(d) of the 1934 Act as in effect on the effective date of the Plan.
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(2) | "Beneficial Ownership" shall be determined as provided in Rule 13d-3 under the 1934 Act as in effect on the effective date of the Plan.
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(3) | “Voting Shares" shall mean all securities of a corporation entitling the holders thereof to vote in an annual election of directors (without consideration of the rights of any class of stock other than the Common Stock to elect directors by a separate class vote); and a specified percentage of "Voting Power" of a corporation shall mean such number of the Voting Shares as shall enable the holders thereof to cast such percentage of all the votes which could be cast in an annual election of directors (without consideration of the rights of any class of stock other than the Common Stock to elect Directors by a separate class vote).
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(4) | "Section 15 Event" shall mean the date upon which any of the following events occurs:
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(i) | The Corporation acquires actual knowledge that any Person other than the Corporation, a Subsidiary or any employee benefit plan(s) sponsored by the Corporation has acquired the Beneficial Ownership, directly or indirectly, of securities of the Corporation entitling such Person to 20% or more of the Voting Power of the Corporation; |
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(ii) | During any period of two consecutive years, less than a majority of the total number of authorized members of the Board (excluding vacant seats) are filled by individuals who were (i) Directors at the beginning of such period and (ii) individuals whose election by the Corporation’s security holders, or nomination for election, was approved by a vote (including a vote approving a merger or other agreement providing the membership of such individuals on the Board) of at least a majority of the members of the Nominating and Corporate Governance Committee (consisting of directors then still in office who were directors at the beginning of such period or who were approved for election or nomination hereunder) or at least two-thirds of the Directors then still in office who were Directors on the effective date of the Plan or who were so approved (other than an individual whose initial assumption of office is in connection with an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors relating to the election of Directors which would be subject to Rule 14a-11 under the 1934 Act, or any successor rule, including by reason of any agreement intended to avoid or settle any such election contest or proxy contest), provided that for purposes of this Section 15(a)(4)(ii), each Board then-authorized seat shall count once for determining whether a Section 15 Event has occurred; |
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(iii) | The consummation of a merger, consolidation, share exchange, division or sale or other disposition of assets of the Corporation as a result of which the shareholders of the Corporation immediately prior to such transaction shall not hold, directly or indirectly, immediately following such transaction, a majority of the Voting Power of (i) in the case of a merger or consolidation, the surviving or resulting corporation, (ii) in the case of a share exchange, the acquiring corporation or (iii) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the transaction, holds more than 30% of the consolidated assets of the Corporation immediately prior to the transaction; or |
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(iv) | The commencement of any liquidation or dissolution of the Corporation (other than pursuant to any transfer of 70% or more of the consolidated assets of the Corporation to an entity or entities controlled by the Corporation and/or its shareholders following such liquidation or dissolution); |
provided, however, that if securities beneficially owned by a Director are included in determining the Beneficial Ownership of a Person referred to in paragraph 4(a) above, then no Section 15 Event with respect to such Director shall be deemed to have occurred by reason of such event.
(b)Acceleration of the Exercise Date of Stock Options and Stock Appreciation Rights. Subject to Section 15(e), unless the agreement referred to in Section 11(I) hereof, or an amendment thereto, shall otherwise provide, notwithstanding any other provision contained in the Plan, in case any Section 15 Event occurs all outstanding stock options and stock appreciation rights (other than those held by a Director referred to in the proviso to Section 15 (a)) shall become immediately and fully exercisable whether or not otherwise exercisable by their terms.
(c)Extension of the Expiration Date of Stock Options and Stock Appreciation Rights. Subject to Section 15 (e), unless the agreement referred to in Section 11(I) hereof, or an amendment thereto, shall otherwise provide, notwithstanding any other provision contained in the Plan, all outstanding stock options and stock appreciation rights held by a grantee whose service with the Corporation as a Director terminates within one year of any Section 15 Event (other than those held by a Director referred to in the proviso to Section 15 (a)) for any reason shall be exercisable for the longer of (i) a period of three months from the date of such termination of service or (ii) the period specified in Section 11(G) hereof, but in no event after the expiration date of the stock option or stock appreciation right.
(d)Lapse of Restrictions on Restricted Share Awards and RSUs. Unless the agreement referred to in Section 12 hereof, or an amendment thereto, shall otherwise provide, notwithstanding any other provision contained in the Plan, if any Section 15 Event occurs prior to the scheduled lapse of all restrictions applicable to restricted share awards or RSUs under the Plan, all such restrictions (other than those applicable to a Director referred to in the proviso to Section 15 (a)) shall lapse upon the occurrence of any such Section 15 Event regardless of the scheduled lapse of such restrictions.
(e)Code Section 409A. Notwithstanding the foregoing, if any grant or award is subject to Section 409A of the Code, this Section 15 shall be applicable only to the extent specifically provided in the agreement under Sections 11(I) or 12 applicable to the grant or award and permitted pursuant to Section 409A.
SECTION 16
Administration of Plan; Hardship Withdrawal
(a)Administration of Plan. Except where the terms of the Plan specifically grant authority to the Committee of the Board or where the Board delegates authority to the Committee, full power and authority to construe, interpret, and administer the Plan shall be vested in the Board and it and the Committee shall have plenary authority to interpret the Plan and prescribe such rules, regulations and procedures in connection with the operations of the Plan as it shall deem to be necessary and advisable for the administration of the Plan consistent with the purposes of the Plan. Decisions of the Committee and the Board shall be final, conclusive, and binding upon all parties. Without limitation of the foregoing, the Committee shall have the authority, subject to the terms and conditions of the Plan:
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(i) | To determine the grants or awards to be made to the Directors pursuant to Sections 10-13 and all of the relevant terms thereof; |
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(ii) | Subject to Sections 11(I) and 12(a), to modify, amend or adjust the terms and conditions of any such grant or award; |
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(iii) | To adopt, alter and repeal such administrative rules, regulations, procedures, guidelines and practices governing the Plan as it shall from time to time deem advisable; |
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(iv) | To interpret the terms, provisions and conditions of the Plan and any such grant or award (and any agreement under Sections 11(I) and 12(a) relating thereto); |
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(v) | Subject to Sections 11(I) and 12(a), to accelerate the vesting or lapse of restrictions on any outstanding award, based in each case on such considerations as the Committee in its sole discretion determines; |
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(vi) | To decide all other matters that must be determined in connection with such grants and awards; |
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(vii) | To establish any "blackout" period that the Committee in its sole discretion deems necessary or advisable; and |
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(viii) | To otherwise administer the Plan in connection with such grants and awards. |
The Committee may, except to the extent prohibited by applicable law or the listing standards of the stock exchange which is the principal market for the Common Stock, allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any officers of the Corporation or committee of officers of the Corporation selected by it. The Committee shall keep records of action taken at its meetings. A majority of the Committee shall constitute a quorum at any meeting and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by all members of the Committee, shall be the acts of the Committee. Any determination made by the Committee or by an appropriately delegated officer pursuant to delegated authority under the provisions of the Plan with respect to any grant or award pursuant to Section 10 shall be made in the sole discretion of the Committee or such officer at the time of such grant or award or, unless in contravention of any express term of the Plan, at any time thereafter. All decisions made by the Committee or any appropriately delegated officer pursuant to the provisions of the Plan and shall be final and binding on all persons, including the Corporation, its Subsidiaries, and the Directors eligible under the Plan.
(b)Hardship Withdrawal. Notwithstanding the terms of Deferral Election made by a Director hereunder, the Committee may, in its sole discretion, permit the issuance of shares in accordance with the number of DSUs held in an Account with respect to Director Fees or Meeting Fees previously payable upon the request of a Director or the Director's representative, or following the death of a Director upon the request of a Director's Beneficiary or such beneficiary's representative, if the Board determines that the Director or the Director's Beneficiary, as the case may be, is confronted with an unforeseeable emergency.
For this purpose, an unforeseeable emergency means a severe financial hardship to the Director or the Director's Beneficiary resulting from an illness or accident of the Director or the Director's Beneficiary, the spouse, or a dependent (as defined in Section 152(a) of the Code) of the Director or the Director's Beneficiary,
loss of the Director or the Director's Beneficiary's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Director or the Director's Beneficiary. The Director or the Director's Beneficiary shall provide to the Committee evidence as the Committee, in its sole discretion, may require to demonstrate that such emergency exists and financial hardship would occur if the withdrawal were not permitted. The withdrawal shall be limited to the amount reasonably necessary to satisfy such emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise, by liquidation of the Director or the Director's Beneficiary's assets (to the extent the liquidation of such assets would not itself cause severe financial hardship) or by the cessation of deferrals under the Plan. Cash needs arising from foreseeable events, such as the purchase or building of a house or education expenses, will not be considered to be the result of an unforeseeable financial emergency. Payment shall be made, as soon as practicable after the Committee approves the payment and determines the number of shares which shall be issued under and pursuant to the Account(s) providing for the latest payments or series of payments. No Director shall participate in any decision of the Committee regarding such Director's request for a withdrawal under this Section 16.
(c)Cancellation; Suspension; Clawback. Any or all outstanding grants and awards to a Director may, at any time between the date of grant or award and the third anniversary of any exercise, payment or vesting of such grant and award, in the Board's or the Committee's sole discretion and subject to such terms and conditions established by the Board or the Committee, be cancelled, suspended, or required to be repaid to the Corporation if the Director (whether during or after service as a Director of the Corporation) (i) engages in the operation or management of a business (whether as owner, partner, officer, director, employee or otherwise) which is in competition with the Corporation or any of its Subsidiaries, (ii) induces or attempts to induce any customer, supplier, licensee or other individual, corporation or other business organization having a business relationship with the Corporation or any of its Subsidiaries to cease doing business with the Corporation or any of its Subsidiaries or in any way interferes with the relationship between any such customer, supplier, licensee or other person and the Corporation or any of its Subsidiaries, (iii) solicits any employee of the Corporation or any of its Subsidiaries to leave the employment thereof or in any way interferes with the relationship of such employee with the Corporation or any of its Subsidiaries, or (iv) makes any statements or comments, orally or in writing, of a defamatory or disparaging nature regarding the Corporation or any of its Subsidiaries (including but not limited to regarding any of their respective businesses, officers, directors, personnel, products or policies), provided, however, that this sentence shall not apply following the occurrence of a Section 15 Event unless the agreement under Sections 11(I) or 12(a) specifically so provides. Whether a Director has engaged in any such activities shall also be determined, in its sole discretion, by the Board or the Committee, and any such determination by the Board or the Committee shall be final and binding.
SECTION 17
Fair Market Value
"Fair Market Value" of the Common Stock shall be the mean between the following prices, as applicable, for the date as of which Fair Market Value is to be determined as quoted in The Wall Street Journal (or in any other reliable publication (electronic or otherwise) as the Board of the Corporation or its delegate, in its sole discretion, may determine to rely upon):
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(a) | if the Common Stock is listed on the New York Stock Exchange, the highest and lowest sales prices per share of the Common Stock as quoted in the NYSE-Composite Transactions listing for such date; or |
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(b) | if the Common Stock is not listed on such exchange, the highest and lowest sales prices per share of Common Stock for such date on (or on any composite index including) the NASDAQ Exchange or the principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended (the "1934 Act") on which the Common Stock is listed.
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If there are no such sale price quotations for the date as of which Fair Market Value is to be determined but there are such sale price quotations within a reasonable period both before and after such date, then Fair Market Value shall be determined by taking a weighted average of the means between the highest and lowest sales prices per share of the Common Stock as so quoted on the nearest date before and the nearest date after the date as of which Fair Market Value is to be determined. The average should be weighted inversely by the respective numbers of trading days between the selling dates and the date as of which Fair Market Value is to be determined. If there are no such sale price quotations on or within a reasonable period both before and after the date as of which Fair Market Value is to be determined, then Fair Market Value of the Common Stock shall be the weighted average of the means between such bona fide bid and asked prices on the nearest trading date before and the nearest trading date after the date as of which Fair Market Value is to be determined, if both such dates are within a reasonable period. The average is to be determined in the manner described above in this Section 17. If the Fair Market Value of the Common Stock cannot be determined on the basis previously set forth in this Section 17 on the date as of which Fair Market Value is to be determined, the Board or its delegate shall in good faith and in conformance with the requirements of Section 409A of the Code, to the extent applicable, determine the Fair Market Value of the Common Stock on such date. Fair Market Value shall be determined without regard to any restriction other than a restriction which, by its terms, will never lapse.
SECTION 18
Securities Laws; Issuance of Shares
The obligation of the Corporation to issue Common Stock or credit DSUs under the Plan shall be subject to:
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(i) | the effectiveness of a registration statement under the Securities Act of 1933, as amended, with respect to such shares, if deemed necessary or appropriate by counsel for the Corporation; |
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(ii) | the condition that the shares shall have been listed (or authorized for listing upon official notice of issuance) upon each stock exchange, if any, on which the Common Stock shares may then be listed; |
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(iii) | if required by the Committee, the representation and agreement of the Director that the Director is acquiring the shares only for investment and without a present view of the sale or distribution of such shares, with a corresponding legend on any stock certificates; |
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(iv) | all other applicable laws, regulations, rules and orders which may then be in effect; and |
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(v) | obtaining any other consent, approval, or permit from any state or federal governmental agency which the Committee shall, in its sole discretion, determine to be necessary or advisable. |
The inability or impracticability of the Corporation to obtain or maintain authority from any regulatory body having jurisdiction, which authority is deemed by the Corporation's counsel to be necessary to the lawful issuance, sale or delivery of any shares of Common Stock or credit DSUs in an Account hereunder, shall relieve the Corporation of any liability in respect of the failure to issue, sell or deliver such shares of Common Stock or credit DSUs in an Account as to which such requisite authority shall not have been obtained. If, on the date on which any shares of Common Stock would be issued pursuant to a current stock payment under Section 3(a) hereof any DSUs or credited to an Account and after consideration of any shares of Common Stock subject to outstanding Equity Awards, sufficient shares of Common Stock are not available under the Plan or the Corporation is not obligated to issue shares pursuant to this Section 18, then no shares of Common Stock shall be issued or DSUs credited but rather, in the case of a current stock payment under Section 3(a) hereof, cash shall be paid in payment of the Director Fees payable, and in the case of DSUs, Director Fees and Meeting Fees shall instead be credited in cash to a deferred cash compensation account in the name of the Director. The Board shall adopt appropriate rules and regulations to carry out the intent of the immediately preceding sentence if the need for such rules and regulations arises.
SECTION 19
Governing Law; Integration
(a)Governing Law. The provisions of this Plan shall be construed, administered and governed by the laws of the Commonwealth of Pennsylvania including its statute of limitations provisions, but without reference to conflicts of law principals. Titles of Sections of the Plan are for convenience of reference only and are not to be taken into account when construing and interpreting the Plan. In case any provision of the Plan shall be held illegal or invalid for any reason, such illegal or invalid provision shall not affect the remaining parts of the Plan, but the Plan shall be construed and enforced without regard to such.
(b)Integration. The Plan contains all of the understandings and representations between the Corporation, its Subsidiaries and any of the Directors and supersedes any prior understandings and agreements entered into between them regarding the subject matter of the Plan. There are no representations, agreements, arrangements or understandings, oral or written, between the Corporation, its Subsidiaries and any of the Directors relating to the subject matter of the Plan which are not fully expressed in the Plan.
SECTION 20
Effect of the Plan on the Rights of Corporation and Shareholders
Nothing in the Plan or in any stock option, stock appreciation right or restricted share award under the Plan or in any agreement providing for any of the foregoing or any amendment thereto shall confer any right to any person to continue as a Director of the Corporation or interfere in any way with the rights of the shareholders of the Corporation or the Board to elect and remove Directors.
SECTION 21
Amendment and Termination
(a)General. The right to amend the Plan at any time and from time to time and the right to terminate the Plan at any time are hereby specifically reserved to the Board; provided that no amendment of the Plan shall:
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(i) | be made without shareholder approval if shareholder approval of the amendment is at the time required by the rules of any stock exchange on which the Common Stock may then be listed; or |
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(ii) | otherwise amend the Plan in any manner that would cause the shares of Common Stock issued or DSUs credited under the Plan not to qualify for the exemption from Section 16(b) of the 1934 Act provided by Rule 16b-3. |
No amendment or termination of the Plan shall, without the written consent of the holder of shares of Common Stock issued or credited under the Plan or the holder of an Equity Award theretofore granted or awarded under the Plan, adversely affect the rights of such holder with respect thereto.
(b)Rule 16b-3. Notwithstanding anything contained in the preceding paragraph or any other provision of the Plan, the Board shall have the power to amend the Plan in any manner deemed necessary or advisable for shares of Common Stock issued or DSUs credited under the Plan to qualify for the exemption provided by Rule 16b-3 (or any successor rule relating to exemption from Section 16(b) of the 1934 Act), and any such amendment shall, to the extent deemed necessary or advisable by the Board, be applicable to any outstanding shares of Common Stock theretofore issued or credited under the Plan.
(c)Termination Date. Notwithstanding any other provision of the Plan:
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(i) | no shares of Common Stock shall be issued or DSUs credited on a Payment Date under the Plan after March 31, 2024; |
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(ii) | no shares of Common Stock shall be credited with respect to Meeting Fees payable under the Plan after March 31, 2024; |
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(iii) | no stock option or stock appreciation right shall be granted under the Plan after March 31, 2024; and |
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(iv) | no RSAs or vesting after March 31, 2024 of RSAs or RSUs shall be awarded under the Plan after March 31, 2024; |
provided, however, that the preceding provisions of this Section 21(c) shall not preclude the issuance of shares of Common Stock under the Plan in payment of the balance of a Director's Account or upon the exercise after March 31, 2024 of a stock option or stock appreciation right or vesting after March 31, 2024 of RSAs or RSUs.
SECTION 22
Unsecured Creditor
The Plan constitutes a mere promise by the Corporation to make benefit payments in the future. The Corporation's obligations under the Plan shall be unfunded and unsecured promises to pay. Any amount payable under the Plan shall be established and maintained only on the books and records of the Corporation. The Corporation and its Subsidiaries shall not be obligated under any circumstance to fund the Corporation's financial obligations under the Plan and no assets or funds of the Corporation, any Subsidiary, or the Plan shall be removed from the claims of the Corporation's general or judgment creditors or otherwise made available until such amounts are actually paid to a Director as provided herein. Any of them may, in its sole discretion, set aside funds in a trust or other vehicle, subject to the claims of its creditors, in order to assist it in meeting its obligations under the Plan, if such arrangement will not cause the Plan to be considered a funded deferred compensation plan. To the extent that any Director or Director's Beneficiary or other person acquires a right to receive payments under the Plan, such right shall be no greater than the right, and each Director and Director's Beneficiary shall at all times have the status, of a general unsecured creditor of the Corporation.
SECTION 23
Limitation of Liability
Any grant or award under the Plan shall not give a Director or Director's Beneficiary any rights except as expressly set forth in the Plan and in any such grant or award or create (i) any fiduciary or other obligation of the Corporation or any Subsidiary to take any action or provide to the Director or Director's Beneficiary any assistance or dedicate or permit the use of any assets of the Corporation or any Subsidiary in any manner; (ii) any trust, fiduciary or other duty or obligation of the Corporation or any Subsidiary to engage in any particular business, continue to engage in any particular business, engage in any particular business practices or sell any particular product or products; or (iii) any obligation of the Corporation that shall be greater than the obligation of the Corporation to any of its general unsecured creditors.
SECTION 24
Dispute Resolution
Since fees are paid and grants or awards are made under the Plan in Western Pennsylvania, records relating to the Plan and fees, grants or awards thereunder are located in Western Pennsylvania, and the Plan and fees, grants or awards are administered in Western Pennsylvania, the Corporation and the Director participating in the Plan, for themselves and their heirs, representatives, successors and assigns (collectively, the "Parties") irrevocably submit to the exclusive and sole jurisdiction and venue of the state courts of Allegheny County, Pennsylvania and the federal courts of the Western District of Pennsylvania with respect to any and
all disputes arising out of or relating to the Plan, the subject matter of the Plan or fees, grants or awards under the Plan, including but not limited to any disputes arising out of or relating to the interpretation and enforceability of any fees, grants or awards or the terms and conditions of the Plan. To achieve certainty regarding the appropriate forum in which to prosecute and defend actions arising out of or relating to the Plan, and to ensure consistency in application and interpretation of the governing law under Section 19 of the Plan, the Parties agree that (a) sole and exclusive appropriate venue for any such action shall be the Pennsylvania courts described in the immediately preceding sentence, and no other, (b) all claims with respect to any such action shall be heard and determined exclusively in such Pennsylvania courts, and no other, (c) such Pennsylvania courts shall have sole and exclusive jurisdiction over the Parties and over the subject matter of any dispute relating hereto and (d) the Parties waive any and all objections and defenses to bringing any such action before such Pennsylvania courts, including but not limited to those relating to lack of personal jurisdiction, improper venue or forum non conveniens.
SECTION 25
Non-Uniform Determinations
The Committee's determinations under the Plan (including without limitation its determinations of the grants and awards under Section 10, the form, amount and timing of such grants and awards and the terms and provisions of such grants and awards) need not be uniform and may be made by it selectively among Directors who receive, or are eligible to receive, grants and awards under the Plan, whether or not such persons are similarly situated.
SECTION 26
Indemnification
Subject to the requirements of Pennsylvania state law, each individual who is or shall have been a member of the Board or the Committee, or an officer of the Corporation to whom authority was delegated in accordance with Section 16, shall be indemnified and held harmless by the Corporation against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under this Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Corporation's approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she shall give the Corporation an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his/her own behalf, unless such loss, cost, liability, or expense is a result of his/her own willful misconduct or except as expressly provided by statute. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such individuals may be entitled under the Corporation's Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Corporation may have to indemnify them or hold them harmless.
SECTION 27
No Representations or Covenants With Respect to Tax Qualification
Although the Corporation may endeavor to (i) qualify the payment of fees or a grant or award for favorable United States tax treatment or avoid adverse tax treatment (e.g., under Section 409A of the Code), the Corporation makes no representation to that effect and expressly disavows any covenant to maintain favorable or avoid unfavorable tax treatment. The Corporation shall be unconstrained in its corporate activities without regard to any potential negative tax impact to Directors under the Plan.
SECTION 28
Compliance With Laws
Without limitation, payment of fees or a grant or award under the Plan and any issuance of shares of Common Stock under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or stock exchanges on which the Corporation is listed as may be required.
SECTION 29
Effective Date
The effective date and date of adoption of the original Plan was November 15, 2018, the date of adoption of the Plan by the Board, provided that on or prior to November 15, 2019 such adoption of the Plan by the Board was approved by the affirmative vote of holders of record of a majority of the shares of voting stock of the Corporation represented in person or by proxy and entitled to vote at a duly called and convened meeting of such holders at which a quorum is present.
Exhibit B
This proxy is solicited from you by the Board of Directors for use at the Annual Meeting of the Shareholders of Matthews International Corporation on February 21, 2019.18, 2021.
PROXY - MATTHEWS INTERNATIONAL CORPORATION
Notice of:
20192021 ANNUAL MEETING OF THE SHAREHOLDERS
To be held on February 21, 201918, 2021
Virtually via live webcast
Hotel CovingtonMeeting Link - www.meetingcenter.io/286592251
Meeting Password - MATW2021
638 Madison Avenue
Covington, KY 41011
The Annual Meetingannual meeting of the Shareholders of Matthews International Corporation (the “2019 Annual Meeting”(“Matthews” or the “Company”) will be held at 9:00 AM (EST), on Thursday, February 21, 201918, 2021 (the "Annual Meeting") virtually via a live webcast at Hotel Covington, 638 Madison Avenue, Covington, Kentucky 41011,www.meetingcenter.io/286592251. Password - MATW2021, for the purpose of considering and acting upon the the proposals set forth on the reverse side of this form.
Shareholders of record at the close of business on December 31, 20182020 will be entitled to vote at the 20192021 Annual Meeting or any adjournments thereof.
The undersigned hereby appoints Joseph C. Bartolacci and Steven F. Nicola and each of them, with full power of substitution and revocation, as proxies to vote all shares of Common Stock of Matthews International Corporation (the “Company”) which the undersigned is entitled to vote at the 20192021 Annual Meeting of the Shareholders or any adjournment thereof, with the authority to vote as designated on the reverse side.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS INSTRUCTED BY YOU ON THE REVERSE SIDE OF THIS CARD WITH RESPECT TO THE PROPOSALS SET FORTH IN THE PROXY STATEMENT, AND IN THE DISCRETION OF THE PROXIES ON ALL OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE 20192021 ANNUAL MEETING AND ANY ADJOURNMENT THEREOF. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL THE NOMINEES AND FOR PROPOSALS 2 3 AND 43 IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED PREPAID ENVELOPE.
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Continued and to be signed on reverse side
ANNUAL MEETING PROXY CARD
A. Proposals – The Board of Directors recommends a vote FOR all the nominees and FOR Proposals 2 3 and 4.3.
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1. | Election of Directors | | | | | | | | |
| | | | FOR | | WITHHOLD | | |
| 01 - | Terry L. DunlapJoseph C. Bartolacci (three year term) | | [ ] | | [ ] | | |
| 02 - | Alvaro Garcia-TunonKatherine E. Dietze (three year term) | | [ ] | | [ ] | | |
| 03 - | JohnLillian D. TurnerEtzkorn (three year term) | | [ ] | | [ ] | | |
| 04 - | Jerry R. WhitakerMorgan K. O'Brien (three year term) | | [ ] | | [ ] | | |
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| | | | FOR | | AGAINST | | ABSTAIN |
2. | Approve the adoption of the 2019 Director Fee Plan | | [ ] | | [ ] | | [ ] |
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| | | | FOR | | AGAINST | | ABSTAIN |
3. | Ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm to audit the records of the Company for the fiscal year ending September 30, 2019.2021. | | [ ] | | [ ] | | [ ] |
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| | | | FOR | | AGAINST | | ABSTAIN |
4.3. | Provide an advisory (non-binding) vote on the executive compensation of the Company’s named executive officers. | | [ ] | | [ ] | | [ ] |
B. Non-Voting Items
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Change of Address - Please print new address below | Meeting Attendance | |
| Mark box to the right if you plan to attend the Annual Meeting | [ ] |
C. Authorized Signatures – This section must be completed for your instructionsvote to be executed. – Datecount. Please date and Sign Belowsign below
Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as an attorney, executor, administrator, trustee, or guardian, please give full title as such. If a corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person.
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Signature 1 - Please keep signature within the box | | Signature 2 - Please keep signature within the box |
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Date (mm/dd/yyyy): ______________
C. Non-Voting Items
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Change of Address - Please print new address below | | |
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