Use of Peer Group and Market Data for Our 2018 Executive Compensation Program
The Company establishes target compensation levels that are consistent with market practice and internal equity considerations relative to base salaries, annual cash incentive awards and long-term incentive grants, as well as with the Compensation Committee’s assessment of the appropriate pay element mix for the position.
In order to gauge the competitiveness of its compensation programs, the Company reviewed compensation practices and pay opportunities from general industry survey data, as well as from a selection of publicly traded peer companies. The Company attempts to position itself to attract and retain qualified senior executives in the face of competitive pressures in its relevant labor markets.
Specifically, in 2018, the Company used information regarding the pay practices of general industry companies in the WTW Executive Compensation Database, regressed to $3.2 billion in annual revenue.Use of Peer Group and Market Data
The Company establishes compensation levels that are consistent with market practice and general internal equity considerations relative to base salaries, target annual cash incentive awards and long-term incentive grants, as well as with the Compensation Committee’s assessment of the appropriate pay element mix for the position. In order to gauge the competitiveness of its compensation programs, the Company reviewed compensation practices and pay opportunities from general industry survey data, as well as from a selection of publicly traded peer companies. The Company attempts to position itself to attract and retain qualified senior executives in the face of competitive pressures in its relevant labor markets. Specifically, in 2021, the Company used information regarding the pay practices of general industry companies in the WTW Executive Compensation Database, regressed to $3.8 billion in annual revenue, which was slightly below our expectations for 2021 revenue at the beginning of 2021, but aligned to our expectations for 2020 revenue, prior to the global outbreak of the COVID-19 pandemic. When running this regression analysis, the Company maintained the revenue figure at $3.8 billion due in part to continued uncertainty relating to the pandemic as well as supply chain challenges. The Company believes that revenue and operational footprint are appropriate indicators of the size and complexity of an organization, which should be reflected in determining compensation levels. The compensation data resulting from this analysis was a significant factor considered by the Compensation Committee with respect to its 2021 executive compensation decisions for our NEOs. The Company also used a compensation peer group as an additional reference point when determining executive compensation. The 2021 peer group (used to set compensation levels for 2021), which is unchanged from our 2020 peer group, consisted of a select group of U.S. industrial companies that our Compensation Committee believed to be reflected in determining compensation levels. The compensation data resulting from this analysis was a significant factor considered by the Compensation Committee with respect to its 2018 executive compensation decisions for our NEOs. The Company also used a compensation peer group as an additional reference point when determining executive compensation. The 2018 peer group consisted of a select group of similarly sized U.S. industrial companies that our Compensation Committee believes are representative of the talent market in which we compete and consisted of the following companies:
| | | | | | | | Allison Transmission Holdings, Inc. | | Donaldson Company,Dana Inc.* | | Nordson CorporationCorp. | | | | Altra Industrial Motion Corp. | | Flowserve Corp. | | Regal Beloit Corp.* | | | | American Axle & Manufacturing Holdings, Inc. | | Flowserve Corporation | | Regal Beloit Corporation | | | | Carlisle Companies Incorporated | | IDEX CorporationCorp. | | Rexnord CorporationCorp.* | | | | Colfax CorporationCarlisle Companies Inc. | | ITT Inc. | | Terex Corp. | | | | Colfax Corp. | | Kennametal Inc. | | Trinity Industries, Inc. | | | | Crane Co. | | KennametalMeritor, Inc. | | Triumph Group, Inc. |
* As named prior to the Regal Beloit Corp. and Rexnord Process and Motion Control transaction. While the Compensation Committee considered general industry and peer group data in determining the general competitiveness of executive compensation, market data is only one factor taken into consideration when determining the total compensation for our NEOs. The Compensation Committee also considered other factors listed in “Factors Guiding Our Decisions” on page 38. Changes to the Compensation Peer Group Referenced for 2022 Executive Compensation In 2021, as part of its annual review of executive and director compensation, the Compensation Committee, in consultation with WTW, reviewed the peer group utilized in 2021 and assessed whether any adjustments were needed to the peer group referenced for setting compensation levels in 2022. Factors taken into consideration when setting the 2022 compensation peer group included comparisons of various financial metrics, such as revenue and market capitalization, operational footprint, relevant end-user markets, and product portfolio of added companies compared to Timken’s current product portfolio. To account for the Company’s increased revenue and market capitalization compared to the median revenue size and median market capitalization of our current peer group, we made the following changes: | | | | | | | 2021 Peer Group | | | | | | Dana IncorporatedRemoved | | Meritor, Inc.Remaining for 2022 | | Added | | | | Allison Transmission Holdings, Inc. American Axle & Manufacturing Holdings, Inc. Colfax Corp. IDEX Corp. Nordson Corp. Rexnord Corp.* Trinity Industries, Inc. Triumph Group, Inc. | | Altra Industrial Motion Corp. Carlisle Companies Inc. Crane Co. Dana Inc. Flowserve Corp. ITT Inc. Kennametal Inc. Meritor, Inc. Regal Rexnord Corp. Terex Corp. | | Agco Corp. Dover Corp. Fortive Corp. Gates Industrial Corporation plc Ingersoll Rand Inc. Oshkosh Corp. Westinghouse Air Brake Technologies Corporation*Corp. Woodward, Inc. | While the Compensation Committee considered peer group data in determining the general competitiveness of executive compensation, it is only one factor taken into consideration when determining the total compensation for our NEOs. The Compensation Committee also considered other factors listed in “Factors Guiding Our Decisions” on page 30.
*For fiscal 2019, we replaced Westinghouse Air Brake Technologies Corporation (due to their pending acquisition of General Electric Company’s transportation segment) with Terex Corporation, and Donaldson Company, Inc. with Altra Industrial Motion Corporation (because the Compensation Committee felt that Altra Industrial Motion Corporation was a more suitable peer as a result of its completion of the acquisition of Fortive Corporation’s automation and specialty business).
| | | | 2022 Peer Group |
* As named prior to the Regal Beloit Corp. and Rexnord Process and Motion Control transaction. Determining Compensation for 20182021 Role of the Compensation Committee Each year, the Compensation Committee determines the appropriate level of compensation for our NEOs. As part of this process, the Compensation Committee reviews all of the components of compensation for the NEOs and determines if each individual’s total compensation is reasonable and consistent with the Company’s compensation philosophy. The Compensation Committee reviews each component of compensation individually and in total, references competitive market data (25th to 75th percentile) for each individual element, as well as total direct compensationincluding at the 50th percentile, and, after consideration of additional factors (e.g,.(for example, the executive’s responsibilities, experience level, tenure, performance in the position and Company performance, including TSR), may make adjustments to any element of an executive’sa NEO’s compensation in establishing such executive’s total direct compensation. The Compensation Committee then approves, with any modifications it deems appropriate, base salary ranges, target annual cash incentive award opportunities and long-term incentive grants for the Company’s NEOs. In the course of this analysis and development of proposed total compensation packages, WTW, the Compensation Committee’s external compensation consultant, reviews the relevant information and discusses its findings with the Compensation Committee. The compensation package for the CEO is determined by the Compensation Committee and approved by the independent Directors of the Board during executive session. Role of the CEO and Management The CEO, in consultation with executive compensation leadership and WTW, prepares compensation recommendations for the NEOs (other than the CEO) and presents these recommendations to the Compensation Committee. These recommendations are based on the CEO’s personal review of each NEO’s performance, general internal equity considerations, job responsibilities and importance to our overall business strategy, as well as our compensation philosophy. Although these recommendations are given significant weight, the Compensation Committee retains full discretion when determining compensation for the NEOs. As part of this process, individual elements of compensation provided to our NEOs are generally compared to general industry market data and peer group data as described above and the total compensation package is considered in relation to the target established for the position, taking into account the scope of responsibilities for the particular position. Total direct compensation (base salary, annual cash incentive and long-term incentive grants) also is evaluated in relation to the total compensation for positions with similar levels of responsibility derived from the general industry market data and peer group data.data described above. Role of the Compensation Consultant To add rigor in the review process and to inform the Compensation Committee of market trends, the Compensation Committee engages the services of WTW anas our independent executive compensation consultant to analyze our executive compensation structure and plan designs, and to assess whether the compensation program is competitive and supports the Compensation Committee’s goal to align the interests of executive officers with those of shareholders. WTW also provides the Compensation Committee with market data, which the Compensation Committee generally references as a market check when determining compensation for non-employee Directors and executive officers. In 2018,For purposes of 2021 compensation decisions, WTW’s primary areas of assistance to the Compensation Committee were:
| ●· | | Gathering information related to current trends and practices in executive compensation in response to questions raised by the Compensation Committee and management; |
| ●· | | Developing analyses that help evaluate and inform on how the compensation programs are working, including pay-for-performance analyses, peer group reviews and risk assessments; |
| · | | Reviewing information developed by management for the Compensation Committee and providing its input on such information to the Compensation Committee; |
| ●· | | Attending and participating in meetings with the Compensation Committee, as well as briefings with the Compensation Committee chairpersonChair and management prior to meetings; and |
| ●· | | Reviewing with management and the Compensation Committee materials to be used in preparing the Company’s Proxy Statement. |
The Compensation Committee has authorized WTW to interact with the Company’s management, as needed, on behalf of the Compensation Committee with respect to executive compensation matters. WTW also provides actuarial, pension administration and other services to the Company, which are unrelated to the work that WTW provides to the Compensation Committee. The WTW consultants who advise the Compensation Committee are different from the WTW employees who perform work for the Company in other areas. In order to maintain independence, WTW has adopted internal safeguardsformal executive compensation consulting protocols that help to ensure that its executive compensation unit, which provides supportadvice to the Compensation Committee is maintained separatelyfully objective and independent and that the business unit providing such advice remains separate from itsWTW’s other business units that provide advice to the Company’s management. For more information regarding fees paid to WTW by the Company in 20182021 and the Compensation Committee’s assessment that there is no conflict of interest in the work performed by WTW with respect to executive compensation, see page 1923 of the Proxy Statement. Key Elements of the Executive Compensation Program | | | | | | | | | | | Type of Compensation | | Link to Program Objectives | | Type of
Compensation
| | Key Features | | Cash Compensation | | | | Base Salary | | A standard compensation element in executive compensation packages, offering market competitivemarket-competitive fixed compensation to attract and retain talent.talent | | Cash | | Provides a consistent source of income. income | | | | | Annual Cash Incentive | | A cash-based award that encourages executives to focus on achievement of specific annual corporate performance goals. | | Cashgoals | | Target incentive opportunity is set as a percentage of base salary, and award isawards are paid out only if thresholdbased on achievement relative to annual performance levels are met.metrics and targets | | Long-Term Equity Incentives | | | | Long-Term Incentive:Nonqualified Stock Options
| | Helps ensure that executive pay is directly linked to stock price appreciation and promotes retention. | | Long-Term
Equity
| | Four-year vesting and10-year exercise period; NEOs holding nonqualified stock options will only receive value if the stock price rises. | | | | | Long-Term Incentive:Performance-Based Restricted Stock Units
| | Requires achievement of specified strategic financial and operating metrics over a three-year period that the Compensation Committee believes are highly correlated to driving long-term shareholder value. Itvalue; it also further aligns the long-term financial interests of our executives with those of our shareholders. | | Long-Term Equityshareholders | | Designed to reward executives for attainment of specified3-year three-year corporate performance goals; value is delivered in equity to align with shareholder experience. Cumulativeexperience; cumulative dividend equivalents are paid in cash based on the actual number of shares delivered at the end of the three-year performance cycle.cycle | | | | | Long-Term Incentive:Time-BasedTime Based Restricted Stock Units
| | Rewards long-term shareholder value creation, enhances executive stock ownership and promotes retention. | | Long-Term Equityretention | | Four-year (25% per year) time vesting; value is delivered in equity to align with shareholder experience. Cumulativeexperience; cumulative dividend equivalents are paid in cash upon vesting.vesting | | | | | | Benefits | | | | | | Retirement and Savings Benefits | | An element of our benefits program that helps attract and retain executive talent. | | Benefittalent | | NEOs receive retirement and savings benefits through several plans: ●· Qualified and nonqualified defined contribution plans*; ·
●· Qualified and nonqualified defined benefit plans*; and
· Deferred compensation plan |
| | | | | | | | | | | Severance and Change in Control Agreements | | | | Helps ensure NEOs remain focused on creating sustainable performance | | Agreements help protect the Company and the NEOs from risks by providing: · ●· Deferred compensation plan.Economic stability;
*See“Retirement Programs” on page 44 for NEO eligibility· Death or disability payments; and
· Payments and benefits in the event of a qualifying termination of employment, including in connection with a change in control | | | | | Other Benefits | | Keeps program competitive and provides health, disability and life insurance protection for executives. | | Benefitexecutives | | Perquisites are limited in amount and use. | | | | | Severance and Change in Control Agreements
| | Helps ensure NEOs remain focused on creating sustainable performance. | | Benefit | | Agreements help protect the Company and the NEOs from risks by providing:
● Economic stability;
● Death or disability payments; and
● Payments and benefits in the event of a qualifying termination of employment, including in connection with a change in control. use |
*See “Retirement Programs” on page 52 for NEO eligibility. Analysis of 20182021 Compensation Base Salary | | | | | Base salaries for the NEOs are intended to reflect the scope of their responsibilities, the length of their experience performing those responsibilities and their performance. The Compensation Committee initially determines base salary ranges for executive officersthe NEOs based on external general market and peer group data for salary practices for positions with similar levels of responsibility. The Compensation Committee also reviews base salaries for the NEOs annually in light of each officer’s experience, leadership, current salary and position in the salary range. The base salary decisions described below were made based on these considerations. | | | | | | Establishing Base Salaries When establishing base salaries for NEOs, the Compensation Committee considers general industry data for comparable roles and peer group data as a general guideline. | | | | | | |
20182021 Base Salary Decisions
| ●· | | CEO: Mr. Kyle received aThe Committee awarded base salary increase of 5.6%increases effective in March 2018. His last2021 to each NEO, including the CEO.
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| · | | The percentage increases shown below are in comparison to the base salaries approved in March 2020 for the CEO and other NEOs, and do not reflect the temporary salary increase priorreductions in 2020 taken in response to this was in Maythe significant unforeseen impact of 2014.COVID-19. |
| ● | | Other NEOs: Mr. Fracassa received a base salary increase of 5% in March 2018. Ms. Cheverine, Mr. Coughlin and Mr. Myers received base salary increases of 3% in March 2018.
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| | | | | | | | | | | | | Executive Officer | | 2020 Target Base Salary | | | 2021 Target Base Salary | | | Percent Increase | | | | | | Richard G. Kyle | | | $1,017,640 | | | | $1,041,046 | | | | 2.3% | | | | | | Philip D. Fracassa | | | $562,380 | | | | $575,315 | | | | 2.3% | | | | | | Christopher A. Coughlin | | | $562,194 | | | | $575,125 | | | | 2.3% | | | | | | Hansal N. Patel | | | $390,179 | | | | $420,223 | | | | 7.7% | | | | | | Andreas Roellgen* | | | $360,306 | | | | $378,682 | | | | 5.1% | | | | | | Ronald J. Myers | | | $408,288 | | | | $425,028 | | | | 4.1% | | *The conversion rate used for purposes of converting the Euros earned by Mr. Roellgen into U.S. Dollars was €1.00 = $1.1833 (the average monthly exchange rate for the calendar year) | |
Annual Cash Incentive | | | | | The Company’s annual cash incentive program provides the NEOs with the opportunity to earn additional compensation based on the achievement of annual corporate performance goals established by the Compensation Committee and approved by the Board. It is intended to focus the NEOs on specific performance goals in the applicable year. For all NEOs, the 20182021 annual cash incentive opportunity was delivered through the Senior Executive Management Performance Plan (the “SEMPP”).shareholder-approved Equity and Incentive Compensation Plan. | | | | Linking Compensation to Performance The Compensation Committee established adjusted EBIT as the primary performance measure because it believes this measure is closely correlated with the creation of shareholder value. |
In 2021, Mr. Kyle, as CEO, had an annual cash target award opportunity of 125% of base salary and the other NEOs had target award opportunities ranging from 55% to 80% of base salary. Annual cash incentive payouts for our NEOs were determined by: | · | | Corporate performance (measured by adjusted EBIT, adjusted EBIT margin and free cash flow3); and |
| · | | Individual performance (however, for 2021, annual cash incentive payments were not adjusted as a result of individual performance for any of the NEOs). |
Specific factors that go into setting the targets include consideration of Company results for prior years, our SEMPP permitted us to grant awards that could qualifyresults for U.S. industrial peers, current market conditions, cyclicality and outlook, acquisitions, divestitures, working capital requirements, past targets and performance against those targets, and macro-economic factors. Performance goals for the “qualified performance-based compensation” exemption under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). However, as a result of U.S. federal tax reform legislation adopted in late 2017 (“U.S. Tax Reform”), that exemption is no longer available for SEMPP awards (beginning with award opportunities granted for 2018). At this time, the Company plans to continue to utilize the shareholder-approved SEMPP to deliver theCompany’s corporate annual cash incentive opportunitiesplan were set near the beginning of 2021. The 2021 adjusted EBIT target represents a 15% increase over actual 2020 adjusted EBIT results (using comparable exclusions) and approximately 5% lower than the 2020 adjusted EBIT target which was not achieved due to NEOs for the 2019 plan year.impact of the COVID-19 pandemic. In 2018, the Company used adjusted EBIT,The 2021 adjusted EBIT margin target of 14.4% was set at a level that was 30 basis points higher than the 2020 actual adjusted EBIT margin results of 14.1% and 80 basis points lower than the 2020 adjusted EBIT margin target of 15.2% which was not achieved due to the impact of the COVID-19 pandemic.
The 2021 free cash flow target of $415 million was set equal to the 2020 free cash flow target and 10% lower than 2020 free cash flow results as the Company expected higher working capital investment to support anticipated sales growth. This turned out to be the case and was compounded by higher operating costs associated with the impact from COVID-19,as free cash flow of $230 million in 2021 resulted in a percentage0% payout under the corporate annual cash incentive plan. 2021 Annual Performance Award Decisions Under the corporate annual cash incentive plan, actual performance under each of sales (basedthe three financial metrics needed to reach the respective minimum threshold for that portion of the award to be payable. Performance targets and actual performance levels for the 2021 corporate annual cash incentive plan are shown in the table below. Straight-line interpolation is used to calculate actual payouts under the plan. Corporate Annual Cash Incentive Plan | | | | | | | | | | | | | | | | Threshold | | Target | | Maximum | | Actual | | | | | | Adjusted EBIT (60% weighting) | | $399M | | $570M | | $741M | | $552M (94.7% payout) | | | | | | Adjusted EBIT Margin* (20% weighting) | | 10.0% | | 14.4% | | 16.5% | | 13.4% (88.1% payout) | | | | | | Free Cash Flow (20% weighting) | | $249M | | $415M | | $581M | | $239M (0.0% payout) | | | | | | Plan Payout | | é
50% | | é
100% | | é
200% | | é 74.4% payout |
*Adjusted EBIT Margin less than 8.5% would have resulted in zero payout for the plan. Between 8.5% and 10.0%, a payout under the Adjusted EBIT metric and/or Free Cash Flow metric would have been possible. 3 Based on adjusted earnings used for external reporting, further adjusted to exclude post-closing operating results of acquisitions)acquisitions. Free cash flow is defined as net cash provided by operating activities minus capital expenditures. See Appendix A for reconciliations of adjusted earnings and free cash flow as used for external reporting to their most directly comparable GAAP financial measures. Actual performance for adjusted EBIT, adjusted EBIT margin, and free cash flow caused the performance measures for funding the SEMPP. Mr. Kyle, as CEO, had a target award opportunity of 120% of base salary and the other NEOs had target award opportunities ranging from 55% to 75% of base salary in 2018. | Setting Targets and Aligning the Executive Annual Cash Incentive Plan with the Corporate Annual Cash Incentive Plan
Like other eligible corporate Company employees, our NEOs have the opportunity to receive an annual cash incentive award for meeting or exceeding a series of individual and collective performance targets over the course of the year. While the SEMPP is the plan the NEOs participate in, the payouts from this plan take into account payouts associated with the Company’s corporate annual cash incentive plan that covers other eligible corporate employees generally. Annual cash incentive payouts are determined by:
● Corporate performance (measured by adjusted EBIT, adjusted EBIT margin and working capital as a percentage of sales); and
● Individual performance.
Specific factors that go into setting the targets include consideration of prior-year results for the Company as compared to results for global bearing companies and U.S. industrial peers, current market conditions, cyclicality and outlook, acquisitions, divestitures, past targets and performance against those targets, and macro-economic factors such as currency rates.
Performance goals for the Company’s corporate annual cash incentive plan were set near the beginning of 2018. The 2018 adjusted EBIT target was set approximately 27% higher than the 2017 adjusted EBIT target, and represents a 14% increase over actual 2017 adjusted EBIT results (using comparable exclusions).
The 2018 target for working capital as a percentage of sales of 27.8% was made more challenging to achieve (because it required a 120 basis point improvement to obtain a target payout for this financial metric) than the 2017 target for working capital as a percentage of sales of 29.0%, and represents a 30 basis point improvement over actual 2017 working capital as a percentage of sales of 28.1%.
The 2018 adjusted EBIT margin target (which was newly added for 2018) of 11.5% was set at a level that was 70 basis points higher than 2017 actual adjusted EBIT margin results of 10.8%.
In addition to the performance measures used in the SEMPP, performance against the corporate annual cash incentive plan goals is a factor the Compensation Committee considers when determining an NEO’s annual cash incentive payout. A summary of performance and calculated payouts for 2018 annual cash incentives are shown in the section below.
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2018 Annual Performance Award Decisions
Under the SEMPP, actual performance under the three financial metrics must reach the respective minimum threshold for that portion of the SEMPP award to be funded. Performance targets and actual performance levels for the 2018 SEMPP and2021 corporate annual cash incentive plan are shown in the tables below. Straight-line interpolation is used to calculate actual payouts under the plan.
SEMPP
| | | | | | | | | | | Threshold | | Target | | Maximum | | Actual | Adjusted EBIT* (60% weighting) | | $215M | | $358M | | $466M | | $488M (260% funding) | | | | | | Adjusted EBIT Margin (20% weighting) | | 9.5% | | 11.5% | | 13.0% | | 14.0%
(260% funding) | Working Capital as a % of Sales (20% weighting) | | 32.5% | | 27.8% | | 24.0% | | 29.9% (129.8% funding) | | | | | | | | ![LOGO](https://capedge.com/proxy/DEF 14A/0001193125-19-082712/g616071dsp0048.jpg) | | ![LOGO](https://capedge.com/proxy/DEF 14A/0001193125-19-082712/g616071dsp0048.jpg) | | ![LOGO](https://capedge.com/proxy/DEF 14A/0001193125-19-082712/g616071dsp0048.jpg) | | ![LOGO](https://capedge.com/proxy/DEF 14A/0001193125-19-082712/g616071dsp0048.jpg) | | | | | | Plan Funding | | 80% | | 170% | | 260% | | 234% funding |
Corporate Annual Cash Incentive Plan
| | | | | | | | | | | | | Threshold | | Target | | Maximum | | | Actual | | | | | | | Adjusted EBIT* (60% weighting) | | $251M | | $358M | | $466M | |
| $488M (200% payout) | | | | | | | Adjusted EBIT Margin (20% weighting) | | 9.5% | | 11.5% | | 13.0% | |
| 14.0%
(200% payout) |
| | | | | | Working Capital as a % of Sales (20% weighting) | | 32.5% | | 27.8% | | 24.0% | |
| 29.9%
(77% payout) |
| | | | | | | | ![LOGO](https://capedge.com/proxy/DEF 14A/0001193125-19-082712/g616071dsp0048.jpg) | | ![LOGO](https://capedge.com/proxy/DEF 14A/0001193125-19-082712/g616071dsp0048.jpg) | | ![LOGO](https://capedge.com/proxy/DEF 14A/0001193125-19-082712/g616071dsp0048.jpg) | | | ![LOGO](https://capedge.com/proxy/DEF 14A/0001193125-19-082712/g616071dsp0048.jpg) | | | | | | | Plan Payout | | 50% | | 100% | | 200% | | | 175.5% payout | |
*Adjusted EBIT less than $215M would have resulted in zero payout for the plan. Between $215M and $251M, a payout under the Adjusted EBIT Margin metric and/or Working Capital as a % of Sales metric would have been possible. The Adjusted EBIT target was modified slightly due to the divestment of Groeneveld Information Technology Holding B.V., anon-core telematics business that had sales of approximately $15 million for the twelve months ended September 30, 2018.
Because actual performance for both adjusted EBIT and adjusted EBIT margin were above target, the 2018 SEMPP was eligible to fundbe scored at 234% of target. However, the calculated award for the 2018 corporate annual cash incentive plan was 175.5%74.4% for corporate participants. Accordingly, the 2018participants, resulting in a 2021 cash award payout equaled 175.5%of 74.4% of the target opportunity for Mr.Messrs. Kyle, Fracassa, Coughlin, Myers, Patel and the other NEOs, reflecting the Compensation Committee’s use of negative discretion to reduce payouts from the SEMPP to be in line with the corporate plan (reflected in the chart above).Roellgen. While payouts to other non-NEO participants in the corporate plan are subject to certain multipliers based upon individual performance, seniority and employment grade, no similarsuch multipliers were applied to the 20182021 cash award payouts for the NEOs. Mr. Myers’ award payout was prorated based on the number of months worked during the year, prior to his retirement on November 30, 2021. The SEMPPcorporate annual cash incentive plan metrics were chosen to drive short-term operational business priorities that the Compensation Committee believes will help drivedeliver shareholder value over time. The targets for the SEMPPcorporate plan for 20182021 were established at more challenging levels than 2017when compared with 2020 results and the payouts are a reflection of very strong results for 2018 as2021, relative to the Company achieved record adjusted EPSinflationary environment and significantly increased revenue, net income, adjusted ROIC, adjusted EBIT and adjusted EBIT margin from the prior year.global supply chain challenges.
Long-Term Incentives The Compensation Committee administers the Long-TermEquity and Incentive Plan, which was approved by our shareholders.Compensation Plan. Awards under the Long-TermEquity and Incentive Compensation Plan can be made in the form of common shares, nonqualified stock options, incentive stock options, stock appreciation rights, performance shares, performance units, restricted shares, restricted stock units, deferred shares and dividend equivalents. All long-term incentives settle in equity to further align our executives’ long-term financial interests with those of our shareholders. In 2018,2021, the Company granted to the NEOs:NEOs under the Equity and Incentive Compensation Plan: | ● | | Nonqualified stock options that vest 25% per year over four years with a10-year exercise period and are intended to provide value to the holder only to the extent that the share price rises above the market price of the common shares at the time the option is granted;
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| ●· | | Performance-based restricted stock units that are earned based on the achievement of objective performance metrics measured over a three-year period of strategic, financial and operating metrics and are intended to further align the long-term financial interests of our executives with those of our shareholders and link compensation to building long-term shareholder value; and |
| ●· | | Time-based restricted stock units that vest 25% per year over four years and provide strong alignment between the interests of Company executives and shareholders. |
The value of each type of long-term incentive grant is linked directly to the performance of the Company or the price of its common shares. In the case of stock options, the recipient recognizes value only to the extent that the share price on the exercise date exceeds the grant date exercise price. For performance-based restricted stock units, the value of the grant is tied to both the Company’s share price and the achievement of financial and operating metrics, while the value of time-based restricted stock units is directly linked to the Company’s share price. In each case described above, an executive generally must remain employed by the Company for a specified period of time to earn the full value of an award, which aids the Company in retaining executives. In total, the Company believes that these grants provide a balanced focus on shareholder value creation and retention of key managers over the course of a full business cycle. These grants also serve to balance the short-term operating focus of the Company and align the long-term financial interests of executive management with those of our shareholders. The size of the long-term incentive grants and the allocation of grant value among the long-term incentive grant types are based on a combination of an analysis of market practice and the relative importance of the objectives behind each of the grants. In February 2020, the Company made a one-time grant of 5,000 deferred shares to Mr. Myers under the Equity and Incentive Compensation Plan to promote the retention of Mr. Myers through the end of 2021. In September 2021, Mr. Myers notified the Company of his intention to retire on November 30, 2021. In connection with his retirement, on October 1, 2021, the Compensation Committee of the Board of Directors approved a modification to his award. Under the modification, instead of requiring Mr. Myers to remain employed by the Company until December 31, 2021 in order to earn the deferred shares, the Compensation Committee provided that, as long as Mr. Myers remained employed with the Company until November 30, 2021, then the deferred shares would continue to vest following Mr. Myers’ retirement from the Company as if he remained in continuous employment through December 31, 2021. Upon his retirement, Mr. Myers’ remaining unvested equity holdings were treated in accordance with the original terms of the respective grants. For additional details regarding the treatment of unvested equity holdings upon an NEO’s retirement, see the “2018Retirement” section on page 68. 2021 Long-Term Incentive Decisions | | | For the annual grants made in February 2018,2021, the target value to be delivered in nonqualified stock options, performance-based restricted stock units and time-based restricted stock units was 400%425% of the base salary midpoint for Mr. Kyle, and between 110%115% and 215%220% of the base salary midpoint for the other NEOs. The allocation percentage between the threetwo types of equity for NEOs receiving the annual grant was 30% nonqualified stock options, 50%60% performance-based restricted stock units and 20%40% time-based restricted stock units. | | Driving Shareholder Return Long-term incentive grants are intended to balance short-term operating objectives of the Company with long-term objectives by aligningand align the financial interests of our executives with those of our shareholders. |
In determining the number of shares or options granted in 2018,2021, the target value for each grant was converted to a number of shares or options, respectively, based on the opening share price on the day of the grant. TheFor 2021, the Compensation Committee typically makesmade long-term incentive grants at the first regularly scheduled meeting of each year when the Compensation Committee determinesdetermined all elements of the NEOs’ compensation for the year and did so in 2018.
Stock Options
In 2018, our key employees (including the NEOs) received nonqualified stock options that:
| ● | | Have an exercise price equal to the opening share price on the date of grant;
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| ● | | Will vest over a four-year period in equal amounts each year; and
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| ● | | Will expire ten years after the date of grant.
|
The Compensation Committee believes that these awards help the Company retain executives and focus attention on longer-term performance. Stock options are an effective retention and motivational tool because they only have value if the share price grows over the term of the award, and then only to the extent the share price on the exercise date exceeds the grant date exercise price. For information about the specific number of stock options awarded in 2018 to each NEO, see the“2018 Grants of Plan-Based Awards”table on page 51.
Under accounting rules, nonqualified stock options are expensed over the vesting period using the Black-Scholes value on the date of grant. year.
Performance-Based Restricted Stock Units To further align the long-term interests of executive leadership with those of our shareholders, and to provide an incentive to achieve long-term financial and operating objectives, the Compensation Committee granted performance-based restricted stock units to key employees (including the NEOs) that vest based on the achievement of specified performance objectives. Performance-based restricted stock units also serve to both reward and retain executives, as the receipt of a payout is linked to performance and the value of the payout is linked to the share price when the shares vest. Cumulative dividend equivalents are paid in cash based on the actual number of shares delivered at the end of the performance cycle. 2018-20202021-2023 Performance-Based Restricted Stock Units Cycle
The performance metrics for performance-based restricted stock units granted in 20182021 were cumulative adjusted EPS and adjusted ROIC for a three-year performance period (2018-2020)(2021-2023). The Compensation Committee selected these metrics because it believed they are highly correlated to driving long-term shareholder value and key elements to achievement of the Company’s business strategy. Actual performance for adjusted EPS and adjusted ROIC is calculated based on fully adjusted earnings as used for external reporting in 2021 (net of taxes)4, with adjustmentsthe ability to exclude the effect of material changes in accounting principles, methods, and/or methodssignificant changes in tax law that are not reflected in the plan. For the 2018-20202021-2023 performance-based restricted stock unit cycle, the adjusted EPS target reflected an 8%a 7% compound annual growth rate (“CAGR”) over actual 20172020 adjusted EPS (using comparable exclusions)adjustments), resulting in the cumulative adjusted EPS target for the 2018-20202021-2023 performance-based restricted stock unit cycle being set approximately 45%10% higher than the actual cumulative adjusted EPS results for the 2015-20172018-2020 cycle, which was the most recently completed cycle at the time the 2018-20202021-2023 target was established.established and was also record three-year performance at that time. The 8%7% targeted CAGR over 20172020 actual adjusted EPS results was set at a level that required meaningful improvement over the cycle. The three-year target for adjusted ROIC was set equal to the actual average adjusted ROIC for the 2018-2020 cycle and 160 basis points higher than 2020 actual adjusted ROIC. The factors that go into setting the target include consideration of prior-year results for the Company as compared to results for U.S. industrial peers, current market conditions, cyclicality and outlook, acquisitions, divestitures, past targets and performance against those targets and other factors. The three-year target for adjusted ROIC reflected a 70 basis point improvement over actual 2017 adjusted ROIC and a 110 basis point improvement over actual adjusted ROIC for the 2015-2017 cycle. The Company’s performance targets for the performance-based restricted stock units granted in 20182021 are shown in the table below. 4 See Appendix A for reconciliations of adjusted EPS and adjusted ROIC as used for external reporting to their most directly comparable GAAP financial measures. Straight-line interpolation is used to calculate payouts for these performance-based restricted stock units. 2018-20202021-2023 Performance-Based Restricted Stock Units Cycle: Metrics and Weightings
| | | | | | | | | Threshold | | Target | | Maximum | Three-Year Cumulative Adjusted EPS (70% weighting) | | $5.53 | | $9.22 | | $11.99 | Adjusted ROIC* (30% weighting) | | 8.0% | | 10.5% | | 12.5% | | | | | | | ![LOGO](https://capedge.com/proxy/DEF 14A/0001193125-19-082712/g616071dsp0048.jpg) | | ![LOGO](https://capedge.com/proxy/DEF 14A/0001193125-19-082712/g616071dsp0048.jpg) | | ![LOGO](https://capedge.com/proxy/DEF 14A/0001193125-19-082712/g616071dsp0048.jpg) | Plan Funding | | 50% | | 100% | | 200% |
| | | | | | | | | Threshold | | Target | | Maximum | Three-Year Cumulative Adjusted EPS (60% weighting) | | $9.92 | | $14.17 | | $18.42 | Adjusted ROIC* (40% weighting) | | 8.5%
é | | 11.5%
é | | 14.0% é | Plan Funding | | 50% | | 100% | | 200% |
*Adjusted ROIC less than 5%7.5% will result in zero payout for the cycle. Between adjusted ROIC of 5%7.5% to 8%8.5%, a payout under the Three-Year Cumulative Adjusted EPS metric is possible. For information about the specific performance-based restricted stock units awarded to the NEOs in 2018,2021, see the“20182021 Grants of Plan-Based Awards”tableontableon page 51.61. Results for the 2016-20182019-2021 Performance-Based Restricted Stock Units Cycle In 2016,2019, the NEOs other than Ms. Cheverine (who was hired after the 2016 performance-based restricted stock units were granted), received awards of performance-based restricted stock units to cover a three-year performance period (2016-2018)(2019-2021). The performance metrics for performance-based restricted stock units granted in 20162019 were cumulative adjusted EPS and adjusted ROIC for the three-year performance period. The Compensation Committee selected these metrics because it believed they are highly correlated to driving long-term shareholder value and key elements to achievement of the Company’s business strategy. Actual performance for adjusted EPS and adjusted ROIC is calculated based on fully adjusted EPS as used for external reporting5, with adjustmentsthe ability to exclude the effect of changes in tax law, accounting principles or methods or other laws that are not reflected in the plan. The adoption ofmark-to-market accounting forNo such exclusions were applied to the remeasurement of pension and other post-retirement assets and obligations in 2017 and the benefits from U.S. Tax Reform (effective as of 2018) were deemed to be material changes in accounting methods and tax laws that were not originally contemplated by the Compensation Committee when the performance metrics for the 2016-20182019-2021 performance-based restricted stock unit cycle, were established. Combined, these two items improved actual cumulativeand fully adjusted EPS results over the3-year cycle by approximately $0.54 and actual adjusted ROIC results by 100 basis points. As a result,as used for external reporting were used to determine actual performance for the Compensation Committee eliminated the impact from these two unplanned items, which reduced the payout.applicable compensation adjusted metrics. The Compensation Committee believed that the targets for the performance-based restricted stock units granted in 20162019 were appropriately challenging but achievable.and that achievement would be supportive of shareholder value creation. The adjusted EPS target for the 2016-20182019-2021 performance-based restricted stock unit cycle reflected an 8%a 6% CAGR over actual 20152018 adjusted EPS results and was also set approximately 22%which were 71% higher than the actual cumulative adjusted EPS results for the 2015-2017most recently completed cycle. The adjusted ROIC target for the 2016-20182019-2021 cycle was set 50100 basis points higher than the 2018-2020 adjusted ROIC target and 30 basis points lower than the actual 20152018-2020 average adjusted ROIC of 10.5%11.8%. OverIn terms of actual results for the 2016-2018 cycle, adjusted EPS increased approximately 10% year-over-year in 2019, decreased approximately 12%11% year-over-year in 2016, increased approximately 25% year-over-year in 20172020, due to the negative impact from the COVID-19 pandemic, and increased approximately 58%15% year-over-year in 2018.2021. As a result, the performance-based restricted stock units were earned at 114%, or slightly above target92.7% reflecting the difficulty of the targets set for the 2016-2018 cycle.cycle as we achieved record three-year cumulative adjusted EPS over the period, including record adjusted EPS results in 2019 and 2021, and strong average ROIC performance. Moreover, as detailed on page 2837 in the “20182021 Performance” section, the Company’s3-year three-year TSR exceeded bothoutpaced the median of its peersour 2021 compensation peer group and exceeded the S&P 500 indexIndustrials over the timeframe, reflecting strong performance over this period, which demonstrates support for the link between the metrics of adjusted EPS and adjusted ROIC and the creation of long-term shareholder value.period.
The Company’s performance goals and actual calculated results for the 2016-20182019-2021 cycle are summarized in the table below. Straight-line interpolation is used to calculate actual payouts for these performance-based restricted stock units. Despite the significant unforeseen impact of COVID-19, no adjustments or modifications were made to the financial performance metrics or targets for our5 See Appendix A for reconciliations of adjusted EPS and adjusted ROIC as used for external reporting to their most directly comparable GAAP financial measures. 2019-2021 performance-based RSU cycle. Payouts earned for the 2019-2021 PRSU awards reflect formulaic calculations based on metrics and targets established prior to the outset of the COVID-19 pandemic. 2016-20182019-2021 Performance-Based Restricted Stock Units Cycle: Metrics, Weightings and Actual Results
| | | | | | | | | | | Threshold | | Target | | Maximum | | Actual | Three-Year Cumulative Adjusted EPS (80% weighting) | | $5.43 | | $7.75 | | $10.08 | | $8.26 | | | | | | ROIC (20% weighting) | | 9% | | 11% | | 14% | | 10.2% | | | | | | | | ![LOGO](https://capedge.com/proxy/DEF 14A/0001193125-19-082712/g616071dsp0048.jpg) | | ![LOGO](https://capedge.com/proxy/DEF 14A/0001193125-19-082712/g616071dsp0048.jpg) | | ![LOGO](https://capedge.com/proxy/DEF 14A/0001193125-19-082712/g616071dsp0048.jpg) | | ![LOGO](https://capedge.com/proxy/DEF 14A/0001193125-19-082712/g616071dsp0048.jpg) | Plan Funding | | 50% | | 100% | | 200% | | 114% |
| | | | | | | | | | | Threshold | | Target | | Maximum | | Actual | | | | | | Three-Year Cumulative Adjusted EPS (60% weighting) | | $8.00 | | $14.11 | | $18.34 | | $13.42 | | | | | | ROIC (40% weighting) | | 8.5%
é | | 11.5%
é | | 14.0%
é | | 10.9% é | Plan Funding | | 50% | | 100% | | 200% | | 92.7% |
Under accounting rules, performance-based restricted stock units are expensed over the vesting period using the fair value on the date of grant and adjusted quarterly to account for actual and anticipated performance. Time-Based Restricted Stock Units Time-based restricted stock units that were awarded in 20182021 to each NEO vest 25% each year over a four-year period. Cumulative dividend equivalents are paid in cash upon vesting. For information about the specific number of time-based restricted stock units awarded to the NEOs in 2018,2021, see the “2018 2021 Grants of Plan-Based Awards” table on page 51.61. Under accounting rules, time-based restricted stock units are expensed over the vesting period using the fair value on the date of grant. Retirement Programs The Company has beenis transitioning and continues to transition, away from defined benefit plans to the use of market-competitive defined contribution and employee savings plans for all eligible salaried employees, including the NEOs. The NEOs also participate in the Company’s nonqualified retirement programs based on eligibility. Several years ago, the Company closed its primary defined benefit plan in the United States (the “Pension Plan”) to new entrants and ceased providing Excess Benefit Agreements to newly appointed officers. On October 1,In 2018, the Company announced that, effective December 31, 2022, it wouldwill be freezing benefits under the Company’s primary U.S. defined benefit pension plan (Mr.Pension Plan. Mr. Coughlin and Mr. Myers participateparticipates in this planthe Pension Plan and will cease to accrue benefits after December 31, 2022).2022. Mr. Myers participated in the Pension Plan until his retirement on November 30, 2021. To align with this action, on November 8,in 2018, the Compensation Committee approved the freezing of benefits under the Excess Benefit Agreements, also effective as of December 31, 2022 (Mr. Coughlin, Mr. Fracassa and Mr. Kyle have Excess Benefit Agreements and will cease to accrue benefits under these arrangements after December 31, 2022). During 2021, the Company made the decision to update the marriage assumptions under the Excess Benefit Agreements for the remaining non-retired participants (Mr. Kyle, Mr. Fracassa and Mr. Coughlin) to reflect their current marital statuses. Due to the varying tenure of our NEOs and the transition of our retirement plans, our U.S.-based NEOs participate (or participated) in different programs based on their eligibility as follows: | | | | | | | | | | | | | | | | | | | | | | | | | Name | | Defined Benefit | | | Defined Contribution | | | | Qualified | | Nonqualified | | Qualified | | Nonqualified | | | | Nonqualified | | | Qualified | | | Nonqualified | | | Pension Plan | | | Supplemental Pension Plan | | | SIP Plan Matching Contributions Contributions
| | | Core DC Contribution | | Post-Tax Savings Plan | Post-Tax
Savings Plan Name | | Pension Plan | | Restoration Portion | | | Excess Benefit Agreement | | Richard G. Kyle | | | | | | | | | | ✓ | | | | ✓ | | | | ✓ | | | | ✓ | | ✓ | | ✓ | | ✓ | Philip D. Fracassa | | | | | | | | | | ✓ | | | | ✓ | | | | ✓ | | | | ✓ | | ✓ | | ✓ | | ✓ | Christopher A. Coughlin | | ✓ | | ✓ | | ✓ | | ✓ | | | | ✓ | Hansal N. Patel | | | ✓ | | | | | | | | ✓ | | | Carolyn E. Cheverine
| | | | | | | | | | | | ✓ | | ✓ | | | | ✓ | | | | ✓ | | | Ronald J. Myers | | ✓ | | ✓ | | | ✓ | | | | | | | | ✓ | | | | | | | | ✓ | | | | ✓ |
Because Mr. Roellgen is based in Colmar, France, he does not participate in the U.S. plans outlined above. A summary of the plans in which he participates is set forth below. The following is a summary of the plans in which the NEOs other than Mr. Roellgen participate (or participated): | ● | | Qualified Pension Plan: The Pension Plan benefit replaces a targeted percentage ofpre-retirement income, subject to limits on benefits and compensation imposed by the Code.Internal Revenue Code (the “Code”). Eligible salaried employees whose age plus years of service equaled or exceeded 50 as of December 31, 2003 participate in the Pension Plan, which provides an annual benefit of 0.75%timesFinal Average Earningstimesyears of service. “Final Average Earnings” is based on the highest fivenon-consecutive years of eligible compensation over the 10 years preceding retirement. Eligible compensation includes base salary and annual cash incentive but excludes long-term incentives. The benefit is payable beginning at age 65 for the lifetime of the employee, with alternative forms of payment, including a lump sum option, available with actuarial adjustments. Participants may retire early if they meet certain eligibility requirements, with the benefit reduced if started before age 62. As of December 31, 2018,2021, Mr. Coughlin and Mr. Myers are bothis eligible for early retirement.retirement under this plan. Mr. Myers retired from the Company on November 30, 2021 and met the eligibility requirements to receive unreduced benefits under the plan. |
| ● | | Nonqualified Supplemental Pension Plan: The Supplemental Pension Plan benefit replaces a targeted percentage ofpre-retirement income. There are two components to this plan: |
| (1) | Restoration Portion: A restoration portion restores benefits to affected Company employees that would otherwise be provided under the Pension Plan were it not for Code limits; and |
| (2) | Individual Excess Benefits Agreements: These arrangements are for “grandfathered”legacy NEOs whichand provide for a benefit based on Final Average Earnings as described above with offsets for other Company-provided benefits. |
Supplemental retirement benefits for NEOs who have an Excess BenefitsBenefit Agreement will be calculated using a target benefit of 60% of Final Average Earnings, offset by the sum of: (a) an annuity which could be purchased at market rates with the value of Company matching contributions, andany “Core DC” contributions madeavailable under the Company’s Savings and Investment Retirement Plan (the “SIP Plan”), and“Post-Tax Savings Plan” contributions, in each case using assumed contribution rates and assuming earnings were accumulated at an 8% interest rate until benefit commencement, and (b) any Company-provided defined benefit pensions. The net benefit after offsets is automatically paid as a lifetime annuity or an unadjusted 50%joint-and-survivor annuity depending on whether the executive is married when benefits commence. Alternatively, the executive can elect an actuarially equivalent lump sum. Participating NEOs ratably earn the 60% benefit over 10 years (15 years for Mr. Kyle) of Company service. All participating NEOs have at least five years of officer service and are therefore fully vested in this benefit to the extent it is earned. Participating NEOs can retire after age 55, but the benefit is reduced by 4% for each year benefits commence prior to age 62. | ●· | | Qualified SIP Plan Matching Contributions: The SIP Plan is a savings plan which matches 100% on the first 3% of pay contributed by the employee plus 50% on the next 3%, subject to Code limits on compensation and contributions. |
| ●· | | Qualified Core DC contribution refersContributions: Core DC contributions refer tonon-matching Company contributions provided within the SIP Plan to eligible U.S.-based salaried employees not earning Pension Plan service. Contributions range from 1% to 4.5% of eligible compensation (up to Code limits) based on an employee’s age plus years of service. |
| ● | | Employees impacted by the December 31, 2022 freezing of benefits under the Company’s primary U.S. defined benefit pension plan will be eligible to receive the Core DC contribution under the SIP Plan after December 31, 2022. |
| ●· | | Nonqualified Post-Tax Savings Plan: ThePost-Tax Savings Plan is intended to restore benefits that would be provided under the SIP Plan were it not for Code limits. Affected employees have the option each year of taking these contributions in taxable cash or to defer the amounts with interest credited at a market-based interest rate (currently prime(prime + 1%). |
Because Mr. Roellgen is based in Colmar, France, he does not participate in the U.S. plans outlined above. Instead, Mr. Roellgen participates in a legally required French Retirement Indemnity Plan (the “FRIP”) as well as the Timken Europe Supplementary Pension Plan with Defined Benefits (the “Europe Executive Plan”). The FRIP covers all French employees and pays a lump sum benefit based on service. The maximum FRIP benefit payable is six months of pay following 40 years of service. Mr. Roellgen’s benefits under the Europe Executive Plan are equal to 10% of his highest 3 years of pension earnings multiplied by the ratio of his years of service at December 31, 2012 to his years of service at retirement. The benefit is paid in the form of a 60% joint-and-survivor annuity. The Europe Executive Plan benefit vests only upon his retirement from the Company. While his accumulation of years of service was frozen under the Europe Executive Plan in 2012, his benefit continues to reflect compensation increases since 2012. Following the freeze of accumulation of years of service under the Europe Executive Plan, Mr. Roellgen commenced earning benefits under the Company’s French qualified defined contribution plan (the “French DC”). The French DC provides contributions of 4% of eligible compensation to certain employees under French law. Deferred Compensation The Company permits certain employees, including the U.S.-based NEOs, to participate in a 1996 Deferred Compensation Plan, as amended and restated effective January 1, 2019 (the “Deferred Compensation Plan”), that allows them to defer, the receipt, on apre-tax basis, the receipt of certain types of compensation until a portion of theirspecified point in the future. Eligible compensation includes salary, incentive compensation payable in cash, employee or Company 401(k) contributions and/or core defined contributions in excess of tax limits and/or incentive compensation payable in cash, until a specified point in the future.limits. Cash deferrals earn interest quarterly at a rate based on the prime rate plus one percent.1%. All of the NEOs (other than Mr. Roellgen) were eligible to participate in the Deferred Compensation Plan during 2018 and2021, but none earned “above-market” or preferential interest, as defined by the SEC. The Deferred Compensation Plan is not funded by the Company, and participants have an unsecured contractual commitment by the Company to pay the amounts due under the plan. When such payments are due, they will be distributed from the Company’s general assets. In the event of a change in control of the Company, as defined in the Deferred Compensation Plan, participants are entitled to receive deferred amounts immediately. The Compensation Committee believes that providing employees with tax deferral opportunities aids in the attractionrecruitment and retention of such employees.retention. The value of deferred compensation amounts is quantified each year and this program is reviewed periodically for its competitiveness. The value of deferred compensation has not had a significant impact on decisions regarding salary, annual cash incentive awards or long-term incentive grants for our NEOs.
Other Benefits The NEOs are eligible to participate in a number of benefit programs offered broadly to certain other employees, including health, disability and life insurance programs. Additionally, Mr. Roellgen participates in the Timken European Stock Ownership Plan (the “TESOP”). The TESOP is a stock ownership plan established in accordance with French law that allows participants to make contributions to a fund with a corresponding company match of up to 1.4% (subject to certain legal limits) that invests a portion of the contribution in Company stock. Mr. Roellgen also participates in a legally required French profit-sharing plan that provides a modest benefit. The NEOs also may receive certain limited perquisites, including executive physicals, access to corporate country club memberships (although personal expenses are not reimbursed), and travel for spouses when accompanying NEOs on business travel. We eliminated the financial planning allowance for NEOs beginning January 1, 2018, continuing our practiceMr. Roellgen also receives reimbursement of limiting the amount and use of perquisites that we offer to our NEOs.Company car-related expenses in accordance with local benefits practices in France. The Company does not provide taxgross-ups for these benefits to executives. These benefits are intended to provide executives with a competitive perquisite program that is reasonable and consistent with the Company’s overall approach to executive compensation. The total cost of these benefits is a very small percentage of each NEO’s total compensation. Severance Agreements In addition to retirement payments, the Company provides termination-related payments through severance agreements with individual executivesNEOs in the event of involuntary termination of employment without cause or, following a change in control, in the event of involuntary termination of employment without cause or termination of employment by the executive under certain circumstances. Severance agreements are provided based on competitive market practice and the Company’s desire to ensure some level of income continuity should an executive’s employment be terminated without cause. The Company believes that providing for such income continuity results in greater management stability and lower unwanted management turnover.cause or terminated under other qualifying circumstances. The level of severance benefits reflects the Company’s perception of competitive market practice for the NEOs’ positions, based on an assessment by WTW. Severance pay was established as a multiple of base salary and actual annual cash incentive compensation. In the event of a qualifying termination of employment, an NEO would also be entitled to vesting of equity-based awards in accordance with the respective grant agreement, health and welfare benefits, outplacement services, and (in the event of a qualifying termination that follows a change in control) benefits underourunderour retirement benefit programs. The types of severance benefits for which our NEOs are potentially eligible, and the potential benefit and compensation amounts, are further described and quantified below under “Potential Payments Upon Termination or Change in Control” on page 5566 and in the “Termination Scenarios” table on page 58.70. The severance agreements do not contain excise taxgross-up provisions. Stock Ownership Guidelines Stock ownership guidelines have been established for all senior executives (including the NEOs) and are intended to align the interests of executive management with those of our shareholders. These guidelines establish a specific ownership target for each of the NEOs. In determining whether the executive met his or her individual ownership target for 2018,2021, the Company considered shares owned by the executive and full-value equity awards held by the executive, including deferred shares and time-based restricted stock units (stock settled) still subject to vesting conditions. Performance-based shares/units are not counted towards ownership until they are vested, and shares that are subject to unexercised options are not counted towards ownership. The sharestock ownership requirement is based on a multiple of base salary. Each NEO must meet this requirement within five years of becoming an NEO. The NEO must retain any net shares after tax until the ownership requirement is met. If ownership falls below the requirement due to a decline in share price, the expectation would be for the NEO to maintain net shares after tax with respect to vested equity awards until the ownership requirement is met. The stock ownership guidelines do not require purchasing shares on the open market, but rather maintaining net shares on future vestings. As of December 31, 2018,2021, all active NEOs (except Mr. Myers)currently serving at the Company exceeded their individual ownership target. Mr. Myers was appointed as Executive Vice President, Human Resources in November 2017 and is on track to achieve his ownership requirement within the five-year time frame.targets. | | | | | Officer Name | | Stock Ownership Requirement -– Multiple of Base Salary | | Actual Stock Ownership – Multiple of Base Salary* | CEO Mr. Kyle
| | 5x | | 26.7x | Other NEOs Mr. Fracassa
| | 3x | | 12.8x | Mr. Coughlin | | 3x | | 15.2x | Mr. Patel | | 2x | | 2.0x | Mr. Roellgen | | 2x | | 13.4x |
* Calculated by multiplying the number of shares held by each NEO on December 31, 2021 by the daily average stock price for the year ending December 31, 2021 and dividing that product by each NEO’s 2021 base salary. Anti-Hedging/Pledging Policies The Company has aadopted formal policypolicies that prohibitsprohibit our Directors, NEOs, other officers, and employees (and related persons) from pledging Company common shares or hedging the economic risk related to such stock ownership. In addition to prohibiting hedging transactions generally, the policies also expressly forbid use of the following types of hedging transactions: puts, calls, short sales, and the purchase of Company stock on margin. Compensation Risk Assessment The Compensation Committee regularly reviews the risk associated with the Company’s compensation programs. As part of this process, the Compensation Committee reviewed a comprehensive risk assessment conducted by WTW in 20162020 and concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company.Company, and that several of our current practices effectively mitigate risk and promote performance. In each of 2017 and 2018,2021, the Compensation Committee discussed any year-over-year changes that could impact risk with WTW. The Compensation Committee and WTW concluded that no plan changes were implemented in either 2017 or 20182021 that would materially affect materially the existing risk profile of the compensation programs, and that several of our current practices effectively mitigate risk and promote performance. Clawback Provisions The Company maintains specific provisions regarding the recovery of awards to deter certain types of conduct, including conduct that could affect the accuracy of the Company’s financial statements. These provisions apply to both short- and long-term incentive programs where, if personal misconduct or any fraudulent activity on the part of the executive leads to the restatement of Company financial results, the Company can clawback an award. In such cases, the Compensation Committee has discretion, based on applicable facts and circumstances, to cause the Company to seek to recover all or any portion of the equity-based or cash incentive paid or payable to the executive for some or all of the years covered by the restatement. Certain Tax and Accounting Considerations
Among relevant considerations, the Company generally considers the overall expense arising from aggregate executive compensation, as well as the accounting and tax treatment of such programs, in setting executive compensation. Section 162(m) of the Code generally disallows a federal income tax deduction to publicly traded companies for compensation paid to certain executives (and, beginning in 2018, certain former executives) to the extent such compensation exceeds $1 million per executive in any fiscal year. Historically, compensation that satisfies the Code’s requirements for performance-based compensation has not been subject to that deduction limitation, but that exemption was repealed through U.S. Federal Tax Reform, effective for taxable years beginning after December 31, 2017, unless transition relief for certain compensation arrangements in place as of November 2, 2017 is available. As a result, it is uncertain whether compensation that the Compensation Committee may have intended to structure as performance-based compensation under Section 162(m) prior to 2018 will be deductible.
Compensation Committee Report The Compensation Committee has reviewed and discussed the CD&A for the year ended December 31, 20182021 with our management. Based on the review and discussion referred to above, the Compensation Committee recommended to our Board, and our Board approved, the inclusion of the CD&A in our Annual Report on Form10-K for the fiscal year ended December 31, 20182021 and this Proxy Statement for filing with the SEC. | | | | | Ajita G. Rajendra (Compensation Committee Chair) | Elizabeth A. Harrell | Sarah C. Lauber | | John A. Luke, Jr. (Compensation Committee Chairman) | | | | | Elizabeth A. Harrell
| | | | | Christopher L. Mapes
| | | | | James F. Palmer | | | | | Ajita G. Rajendra
| | | | | Joseph W. Ralston
| | | | | Jacqueline F. Woods |
EXECUTIVE COMPENSATION 2018 2021 Summary Compensation Table
The following table sets forth information concerning compensation for our NEOs for 2018:2021, 2020 and 2019, as applicable: | | Name and Principal Position | | Year | | | Salary | | | Stock Awards(2) | | | Option Awards (3) | | | Non-Equity Incentive Plan Compensation (4) | | | Change in Pension Value and Nonqualified Deferred Compensation Earnings (5) | | | All Other Compensation (6) | | | Total | | | Year | | | Salary (2) | | | Stock Awards (3) | | Option Awards (4) | | Non-Equity Incentive Plan Compensation (5) | | | Change in Pension Value and Nonqualified Deferred Compensation Earnings (6) | | All Other Compensation (7) | | | Total | | | Richard G. Kyle | | | 2018 | | | | $941,667 | | | | $2,913,413 | | | | $1,248,177 | | | | $1,982,811 | | | | $1,303,000 | | | | $331,204 | | | | $8,720,272 | | | | 2021 | | | | $1,037,145 | | | | $4,422,240 | | | - | | | $958,338 | | | | $2,674,337 | | | $573,270 | | | | $9,665,330 | | | President & CEO | | | 2017 | | | | $900,000 | | | | $2,912,604 | | | | $1,248,150 | | | | $1,477,656 | | | | $1,706,000 | | | | $359,563 | | | | $8,603,973 | | | | 2020 | | | | $843,093 | | | | $4,421,376 | | | - | | | $974,914 | | | | $4,448,000 | | | $576,880 | | | | $11,264,263 | | | | | 2016 | | | | $900,000 | | | | $2,784,713 | | | | $1,192,862 | | | | $518,400 | | | | $1,123,000 | | | | $125,768 | | | | $6,644,743 | | | | | | | | | 2019 | | | | $981,667 | | | | $3,095,955 | | | $1,326,112 | | | $1,459,000 | | | | $4,434,000 | | | $582,517 | | | | $11,879,251 | | | Philip D. Fracassa | | | 2018 | | | | $536,459 | | | | $706,586 | | | | $302,526 | | | | $705,993 | | | | $202,000 | | | | $194,194 | | | | $2,647,758 | | | | 2021 | | | | $573,159 | | | | $1,249,358 | | | - | | | $337,694 | | | | $708,956 | | | $166,410 | | | | $3,035,577 | | | Executive Vice President and Chief | | | 2017 | | | | $512,500 | | | | $645,104 | | | | $275,865 | | | | $525,902 | | | | $670,000 | | | | $142,474 | | | | $2,771,845 | | | | 2020 | | | | $499,112 | | | | $1,226,319 | | | - | | | $338,373 | | | | $1,399,000 | | | $174,084 | | | | $3,636,888 | | | Financial Officer | | | 2016 | | | | $500,000 | | | | $615,356 | | | | $263,494 | | | | $180,000 | | | | $407,000 | | | | $69,822 | | | | $2,035,672 | | | | 2019 | | | | $558,775 | | | | $778,515 | | | $333,624 | | | $519,049 | | | | $1,699,000 | | | $188,155 | | | | $4,077,118 | | | Christopher A. Coughlin | | | 2018 | | | | $527,917 | | | | $911,976 | | | | $390,248 | | | | $694,752 | | | | $0 | | | | $104,786 | | | | $2,629,679 | | | | 2021 | | | | $572,970 | | | | $1,333,395 | | | - | | | $337,582 | | | | $498,724 | | | $158,935 | | | | $2,901,606 | | | Executive Vice President, Group | | | 2017 | | | | $515,041 | | | | $911,535 | | | | $390,345 | | | | $528,510 | | | | $833,000 | | | | $218,798 | | | | $3,397,229 | | | | 2020 | | | | $497,200 | | | | $1,332,379 | | | - | | | $337,210 | | | | $1,150,000 | | | $167,245 | | | | $3,484,034 | | | President | | | 2016 | | | | $515,041 | | | | $871,350 | | | | $373,013 | | | | $185,415 | | | | $515,000 | | | | $41,218 | | | | $2,501,037 | | | | 2019 | | | | $548,175 | | | | $911,640 | | | $390,385 | | | $509,203 | | | | $1,664,000 | | | $167,120 | | | | $4,190,523 | | | Hansal N. Patel | | | | 2021 | | | | $415,215 | | | | $704,048 | | | - | | | $198,400 | | | | - | | | $53,761 | | | $ | 1,371,424 | | | Vice President, General Counsel | | | | | | | | | | | | | | | | | | | & Secretary | | | | | | | | | | | | | | | Andreas Roellgen (1) | | | | 2021 | | | | $375,501 | | | | $472,478 | | | - | | | $151,609 | | | | $0 | | | $72,420 | | | | $1,072,008 | | | Vice President, Europe, Asia and | | | | 2020 | | | | $304,998 | | | | $395,074 | | | - | | | $136,003 | | | | $315,000 | | | $55,845 | | | | $1,206,920 | | | Africa | | | | 2019 | | | | $309,520 | | | | $191,700 | | | $81,670 | | | $172,509 | | | | $267,000 | | | $58,903 | | | | $1,081,302 | | | Ronald J. Myers | | | 2018 | | | | $372,075 | | | | $289,109 | | | | $123,995 | | | | $359,084 | | | | $132,000 | | | | $51,647 | | | | $1,327,910 | | | | 2021 | | | | $386,819 | | | | $582,660 | | | - | | | $198,945 | | | | $181,931 | | | $109,404 | | | | $1,459,759 | | Executive Vice President, Human | | | 2017 | | | | $330,661 | | | | $289,106 | | | | $123,755 | | | | $248,826 | | | | $246,000 | | | | $37,617 | | | | $1,275,965 | | | Resources | | | 2016 | | | | $291,996 | | | | $176,213 | | | | $74,960 | | | | $71,476 | | | | $150,000 | | | | $20,669 | | | | $785,314 | | | Carolyn E. Cheverine(1) | | | 2018 | | | | $204,200 | | | | $317,015 | | | | $135,314 | | | | $197,070 | | | | - | | | | $611,685 | | | | $1,465,284 | | | | Former Executive Vice President, | | | 2017 | | | | $212,500 | | | | $554,990 | | | | $370,004 | | | | $159,908 | | | | - | | | | $21,140 | | | | $1,318,542 | | | | 2020 | | | | $359,115 | | | | $846,092 | | | - | | | $208,615 | | | | $498,000 | | | $65,509 | | | | $1,977,331 | | General Counsel and Secretary | | | | | | | | | | | | | | | | | | | Human Resources | | | | 2019 | | | | $386,353 | | | | $350,385 | | | $150,167 | | | $283,249 | | | | $545,000 | | | $58,969 | | | | $1,774,123 | |
| (1) | EffectiveMr. Roellgen’s compensation is generally based in Euros. The conversion rate used for purposes of converting the Euros earned by Mr. Roellgen into U.S. Dollars for purposes of the Change in Pension Value and Nonqualified Deferred Compensation Earnings column was €1.00 = $1.1370, which was the applicable exchange rate as of July 19, 2018, Ms. Cheverine ceased serving as Executive Vice President, General Counsel and Secretary and her employment withDecember 31, 2021. For all other columns in this table, the Company ended.conversion rate used for purposes of converting the Euros earned by Mr. Roellgen into U.S. Dollars was €1.00 = $1.1833 (the average monthly exchange rate for the calendar year), which approach we believe provides a reasonable representation of his compensation by accounting for currency exchange fluctuations that occurred throughout the calendar year.
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| (2) | 2020 base salaries reflect temporary reductions that occurred between April and July 2020 for each of the Company’s NEOs in response to the impacts of COVID-19, as approved by the Board. No reductions to base salaries were made during 2021 in response to the impacts of COVID-19. |
| (3) | The amounts shown in this column for 20182021 include the grant date fair market value of time-based restricted stock units granted in 2018.2021. See the description of time-based restricted stock units on page 44.52. Additionally, this column includes the grant date fair market value of the performance-based restricted stock units for the 2018-20202021-2023 performance cycle at target. See the description of the performance-based restricted stock units on page 42.50. Should performance equal or exceed the maximum goals for these performance-based restricted stock units, the grant date fair value for such awards would be: Mr. Kyle - $4,161,380;$5,307,435; Mr. Fracassa - $1,009,090;$1,497,735; Mr. Coughlin - $1,301,548;$1,598,580; Mr. Patel - $844,110; Mr. Myers - $413,013;$698,445; and Ms. CheverineMr. Roellgen - $453,198. The amounts shown in this column are computed in accordance with FASB ASC Topic 718. For Ms. Cheverine, the time-based restricted stock units and performance-based restricted stock units included in this column were eligible forpro-rata vesting in connection with her cessation of employment with the Company as of July 19, 2018 in accordance with the applicable award agreement. See “Involuntary Termination Without Cause” on page 56 for more details on the treatment of these grants.$567,720. |
The amounts shown in this column are computed in accordance with FASB ASC Topic 718. | (3)(4) | Nonqualified stock options were eliminated from our long-term incentive award mix in 2020. |
| (5) | The amounts shown in this column for 2018 represent the grant date fair value of nonqualified stock options granted in 2018 (calculated in accordance with FASB ASC Topic 718) using the Black-Scholes model. All stock options vest at a rate of 25% per year. Assumptions used to determine the value of these nonqualified stock options are listed in the discussion of Stock Compensation Plans in Note 11 of the Company’s Consolidated Financial Statements contained in the Company’s Annual Report on Form10-K for the year ended December 31, 2018. For Ms. Cheverine, the stock options included in this column were eligible forpro-rata vesting in connection with her cessation of employment with the Company as of July 19, 2018 in accordance with the applicable award agreement. See “Involuntary Termination Without Cause” on page 56 for more details on the treatment of these stock options. |
| (4) | The amounts shown in this column for 20182021 represent actual cash award payouts under the annual cash incentive plan for 20182021 performance.
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For Ms. Cheverine, the amount in this column reflectspro-ration in connection with the end of her employment with the Company as of July 19, 2018 in accordance with the terms of the annual incentive plan. See “Involuntary Termination Without Cause” Mr. Myers’ actual award payout was prorated based on page 56 for more details on the treatment of this annual cash incentive.
| (5) | The amounts shown in this column for 2018 represent the difference betweennumber of months worked during the accumulated benefit amounts shown inyear, prior to his retirement on November 30, 2021. Both Mr. Patel and Mr. Myers elected to defer receipt of a portion of their 2021 annual cash incentive plan payout under the 2018 Pension Benefits Table as of December 31, 2018 and those amounts calculated as of December 31, 2017. See“2018 Pension Benefits Table” on page 53 for a description of how the amounts as of December 31, 2018 were calculated. The amounts as of December 31, 2017 were calculated in the same manner as the December 31, 2018 amounts, except that a discount rate of 3.80% was used (compared to discount rates of 4.38% for the 2018 amounts for nonqualified benefits and 4.39% for the 2018 amounts for qualified benefits). For 2018, liabilities were determined assuming no probability of termination, retirement, death, or disability before age 62 (the earliest age unreduced pension benefits are payable from the plans). A measurement date of December 31, 2018 was used for all NEOs. Although $0 is reported for Mr. Coughlin, his aggregate accumulated benefits as of December 31, 2018 represented a decrease of $86,000 from his aggregate accumulated benefits as of December 31, 2017 because the negative impact from the increase in the discount rate outweighed the impact from changes to the other factors used in calculating his benefit.Deferred Compensation Plan.
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| (6) | The amounts shown in this column for 20182021 represent the difference between the accumulated benefit amounts shown in the 2021 Pension Benefits Table as of December 31, 2021 and those amounts calculated as of December 31, 2020. See “2021 Pension Benefits Table” on page 65 for a description of how the amounts as of December 31, 2021 were calculated. For U.S.-based NEOs, the amounts as of December 31, 2020 were calculated in the same manner as the December 31, 2021 amounts, except that discount rates of 2.81% for nonqualified plans and 2.85% for qualified plans were used (compared to discount rates of 3.06% for the 2021 amounts for nonqualified benefits and 3.07% for the 2021 amounts for qualified benefits). For Mr. Roellgen, the amounts as of December 31, 2020 were calculated in the same manner as 2021 amounts, except that a discount rate of 0.25% was used (compared to a discount rate of 1.00% for 2021). While the Summary Compensation Table includes a $0 value for change in pension value for Mr. Roellgen, the value of his pensions actually decreased $186,100 due to the increase in discount rate year over year. Values were determined assuming no probability of termination, retirement, death, or disability before age 62, the earliest age unreduced pension benefits are payable from the applicable plans in each case. A measurement date of December 31, 2021 was used for all NEOs. The smaller year-over-year increase in actuarial pension values resulted from higher interest rates from the prior year measurement period, offset partially by an update to the marriage assumptions under the Excess Benefit Agreements for the remaining non-retired participants (Mr. Kyle, Mr. Fracassa and Mr. Coughlin) to reflect their current marital statuses. The reported amount for Mr. Myers reflects a year-over-year increase in value to both his Pension Plan, which was distributed to him in 2021, and his Supplemental Pension Plan benefit. Mr. Patel does not participate in the Pension Plan. |
Several years ago, the Company closed the Pension Plan to new entrants and ceased providing Excess Benefit Agreements to newly appointed officers. Effective December 31, 2022, the Company is freezing benefits under both the Pension Plan and the Excess Benefit Agreements. See the “Retirement Programs” section on page 52 for additional details. | (7) | The amounts shown in this column for 2021 are detailed in the following table: |
| | Name | | Annual Company Contribution to SIP Plan and Core DC Program (a) | | Annual Company Contribution to Post-Tax Savings Plan (b) | | Executive Physicals | | Personal Use of Company Country Club Memberships (c) | | Spousal Travel and Related Expenses (d) | | Cash Dividend Equivalents (e) | | Life Insurance (f) | | Other (g) | | Annual Company Contribution to SIP, Core DC, and/or French DC (a) | | Annual Company Contribution to Post-Tax Savings Plan (b) | | Executive Physicals | | Personal Use of Company Country Club Memberships (c) | | Personal and Spousal Travel and Related Expenses (d) | | Cash Dividend Equivalents (e) | | Life Insurance (f) | | Other (g) | | Richard G. Kyle | | $22,000 | | $171,108 | | $1,778 | | $6,763 | | $1,995 | | $124,810 | | $2,750 | | - | | $24,650 | | $146,375 | | $1,383 | | $10,000 | | $38,981 | | $346,886 | | $4,995 | | - | | Philip D. Fracassa | | $22,000 | | $133,876 | | $2,541 | | $4,369 | | $1,756 | | $27,579 | | $2,073 | | - | | $24,650 | | $52,830 | | $2,201 | | - | | $1,177 | | $84,136 | | $1,416 | | - | | Christopher A. Coughlin | | $12,375 | | $35,164 | | $1,157 | | $818 | | $14,170 | | $39,029 | | $2,073 | | - | | $13,050 | | $27,908 | | $1,905 | | $3,745 | | $62 | | $108,202 | | $4,063 | | - | | Hansal N. Patel | | | $21,750 | | $22,619 | | $2,823 | | - | | - | | $6,160 | | $409 | | - | | Andreas Roellgen | | | $20,660 | | - | | $2,189 | | - | | - | | $22,758 | | $2,078 | | $24,735 | | Ronald J. Myers | | $12,375 | | $15,565 | | $2,365 | | - | | $11,535 | | $8,060 | | $1,747 | | - | | $13,050 | | $13,745 | | - | | - | | $62 | | $45,614 | | $2,606 | | $34,327 | Carolyn E. Cheverine | | $24,700 | | $10,447 | | - | | - | | - | | - | | $1,798 | | $574,740 | |
| (a) | “SIP Plan”SIP” refers to the Savings and Investment Retirement Plan, which is the Company’s primary U.S. qualified defined contribution plan for eligible salaried employees, under which the Company makes matching contributions and “Core DC” contributions to the accounts of eligible U.S. salaried employees. Messrs. Kyle, Fracassa, Coughlin, Patel and Myers received SIP matching contributions during 2021. Messrs. Kyle, Fracassa and Ms. CheverinePatel received Core DC contributions during 2018.2021. “French DC” refers to the Company’s French |
| qualified defined contribution plan under which Mr. Roellgen received contributions. See the“Retirement Programs”section on page 4452 for plan details. |
| (b) | The“Post-Tax Savings Plan” is the Company’snon-tax qualified restoration plan for eligible U.S. salaried employees whose contributions and benefits in qualified retirement plans are limited by Section 415 of the Code. Amounts shown in this column may also include amounts deferred into the Deferred Compensation Plan, if elected by the NEO, for Company 401(k) contributions and/or core defined contributions in excess of tax limits. |
| (c) | The amounts shown for personal use of country club memberships reflect prorated amounts of Company-paid annual membership dues in 20182021 that relate to personal use by the NEOs. There are no incremental costs to the Company for personal use, as just one annual payment is made to cover membership dues for both business use and personal use, but all such costspersonal expenses are allocated to, and borne by, the NEO.NEOs. |
| (d) | The amounts shown for spousalpersonal travel include actual and estimated incremental travel expenses for when a spouse accompanied an NEO onpersonal use of the Company aircraft. Incremental travel expenses for personal use flights include direct variable operating costs such as costs related to fuel, maintenance expenses, landing and parking fees, crew accommodations and meals. Since the aircraft is used primarily for business travel, or to the Company’s 2018 strategy meeting.Company does not include in the calculation the fixed costs that do not change based on usage. No taxgross-ups on the related imputed income are paid. |
| (e) | Reflects cumulative dividend equivalents paid in cash in 2021 upon vesting for applicable time-based restricted stock units and performance-based restricted stock units. |
| (f) | The amounts shown represent the actual premiums paid by the Company for term life insurance (which is provided by the Company for all eligible employees at a level equal to one times their annual salary) and long-term disability insurance. |
| (g) | This column reflects Mr. Roellgen’s Company car benefit in the amount of $10,424, Company contributions into his TESOP, and an additional amount of $11,068 paid under the legally required French profit-sharing plan. For Mr. Myers, this column reflects a severance paymentpayout for accrued, but unused vacation in 2021 in the amount of $574,740 which was made to Ms. Cheverine in connection with the end of her employment with the Company (as further described below under “Potential Payments Upon Termination or Change in Control”). This amount does not include certain additional benefits such as continuation of health and welfare benefits (estimated value of $16,500 per year) and outplacement services (estimated value of $10,000 per year) since costs are only incurred and known if these benefits are elected.$34,327. |
2018
2021 Grants of Plan-Based Awards The following table sets forth information concerning certain grants made to our NEOs during 2018:2021: | | Name | | Grant Date | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | | | Estimated Future Payouts Under Equity Incentive Plan Awards | | | All Other Stock Awards: Number of Shares of Stock or Units | | | All Other Option Awards: Number of Securities Underlying Options | | | Exercise or Base Price of Option Awards ($/share) | | | Grant Date Fair Value of Stock and Option Awards (5) | | | Grant Date | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | | Estimated Future Payouts Under Equity Incentive Plan Awards | | All Other Stock Awards: Number of Shares of Stock or Units | | Grant Date Fair Value of Stock and Option Awards (4) | | | | | | Threshold | | | Target | | | Maximum | | | Threshold | | | Target | | | Maximum | | | | | | | | | | | | | | | Threshold | | Target | | Maximum | | Threshold | | Target | | Maximum | | | | | Richard G. | | 02/12/2018 RSUs (1) | | | | | | | | | | | | | | | 18,650 | | | | | | | | $832,723 | | | 02/10/2021 RSUs (1) | | | | | | | | | | | | | | 23,675 | | | $1,768,523 | | | Kyle | | 02/12/2018 SEMPP(2) | | $113,000 | | | | $1,921,000 | | | | $2,938,000 | | | | | | | | | | | | | | | | | 02/10/2021 CSTIP (2) | | $128,795 | | $1,287,951 | | $2,575,902 | | | | | | | | | | | | | 02/12/2018 NQSOs (3) | | | | | | | | | | | | | | | | | 121,300 | | | | $44.65 | | | | $1,248,177 | | | | | | 02/12/2018 Perf RSUs (4) | | | | | | | | | 6,990 | | | | 46,600 | | | | 93,200 | | | | | | | | | | $2,080,690 | | | 02/10/2021 Perf RSUs (3) | | | | | | | | 7,105 | | 35,525 | | 71,050 | | | | | $2,653,718 | | | Philip D. | | 02/12/2018 RSUs (1) | | | | | | | | | | | | | | | 4,525 | | | | | | | | $202,041 | | | 02/10/2021 RSUs (1) | | | | | | | | | | | | | | 6,700 | | | $500,490 | | | Fracassa | | 02/12/2018 SEMPP(2) | | $40,234 | | | | $683,985 | | | | $1,046,094 | | | | | | | | | | | | | | | | | 02/10/2021 CSTIP (2) | | $45,384 | | $453,841 | | $907,682 | | | | | | | | | | | | | 02/12/2018 NQSOs (3) | | | | | | | | | | | | | | | | | 29,400 | | | | $44.65 | | | | $302,526 | | | | | | 02/12/2018 Perf RSUs (4) | | | | | | | | | 1,695 | | | | 11,300 | | | | 22,600 | | | | | | | | | | $504,545 | | | 02/10/2021 Perf RSUs (3) | | | | | | | | 2,005 | | 10,025 | | 20,050 | | | | | $748,868 | | | Christopher A. | | 02/12/2018 RSUs (1) | | | | | | | | | | | | | | | 5,850 | | | | | | | | $261,203 | | | 02/10/2021 RSUs (1) | | | | | | | | | | | | | | 7,150 | | | $534,105 | | | Coughlin | | 02/12/2018 SEMPP(2) | | $39,594 | | | | $673,094 | | | | $1,029,438 | | | | | | | | | | | | | | | | | 02/10/2021 CSTIP (2) | | $45,369 | | $453,691 | | $907,382 | | | | | | | | | | | | | 02/12/2018 NQSOs (3) | | | | | | | | | | | | | | | | | 37,925 | | | | $44.65 | | | | $390,248 | | | | | | 02/12/2018 Perf RSUs (4) | | | | | | | | | 2,186 | | | | 14,575 | | | | 29,150 | | | | | | | | | | $650,774 | | | 02/10/2021 Perf RSUs (3) | | | | | | | | 2,140 | | 10,700 | | 21,400 | | | | | $799,290 | | | Hansal N. | | | 02/10/2021 RSUs (1) | | | | | | | | | | | | | | 3,775 | | | $281,993 | | | Patel | | | 02/10/2021 CSTIP (2) | | $26,664 | | $266,638 | | $533,277 | | | | | | | | | | | | | | | 02/10/2021 Perf RSUs (3) | | | | | | | | 1,130 | | 5,650 | | 11,300 | | | | | $422,055 | | | Andreas | | | 02/10/2021 RSUs (1) | | | | | | | | | | | | | | 2,525 | | | $188,618 | | | Roellgen | | | 02/10/2021 CSTIP (2) | | $20,375 | | $203,754 | | $407,508 | | | | | | | | | | | | | | | 02/10/2021 Perf RSUs (3) | | | | | | | | 760 | | 3,800 | | 7,600 | | | | | $283,860 | | | Ronald J. | | 02/12/2018 RSUs (1) | | | | | | | | | | | | | | | 1,850 | | | | | | | | $82,603 | | | 02/10/2021 RSUs (1) | | | | | | | | | | | | | | 3,125 | | | $233,438 | | | Myers | | 02/12/2018 SEMPP(2) | | $20,464 | | | | $347,890 | | | | $532,067 | | | | | | | | | | | | | | | | | 02/10/2021 CSTIP (2) | | $29,216 | | $292,164 | | $584,328 | | | | | | | | | | | | | 02/12/2018 NQSOs (3) | | | | | | | | | | | | | | | | | 12,050 | | | | $44.65 | | | | $123,995 | | | | | | 02/12/2018 Perf RSUs (4) | | | | | | | | | 694 | | | | 4,625 | | | | 9,250 | | | | | | | | | | $206,506 | | | 02/10/2021 Perf RSUs (3) | | | | | | | | 935 | | 4,675 | | 9,350 | | | | | $349,223 | | Carolyn E. | | 02/12/2018 RSUs (1) | | | | | | | | | | | | | | | 2,025 | | | | | | | | $90,416 | | | Cheverine | | 02/12/2018 SEMPP(2) | | $20,295 | | | | $345,015 | | | | $527,670 | | | | | | | | | | | | | | | | | | | 02/12/2018 NQSOs (3) | | | | | | | | | | | | | | | | | 13,150 | | | | $44.65 | | | | $135,314 | | | | | 02/12/2018 Perf RSUs (4) | | | | | | | | | 761 | | | | 5,075 | | | | 10,150 | | | | | | | | | | $226,599 | | |
| (1) | The “RSUs” amounts shown reflect the time-based restricted stock units granted to each NEO in 20182021 under the Long-TermEquity and Incentive Compensation Plan. See the description of time-based restricted stock units on page 44.52. |
| (2) | The “SEMPP”“CSTIP” amounts shown indicate possible funding levelsreflect payout opportunities at threshold, target and maximum performance levels under the SEMPP for 2018. The SEMPP is a shareholder-approved plan in which all the NEOs participated in 2018. The Compensation Committee exercised negative discretion to reduce the NEOs’ 2018 awards to be in line with the corporate annual cash incentive plan. Target payout amounts for each of the NEOs under the corporate annual cash incentive plan calculation weredesign for 2021. Threshold is reflected as follows:the minimum payout if (a) the adjusted EBIT results would lead to a payout under that metric of zero, (b) one of either the adjusted EBIT margin or free cash flow metric results would lead to a payout of zero, (c) the results for the other metric identified in clause (b) (either adjusted EBIT margin or free cash flow) would lead to a payout at threshold under that metric, and (d) adjusted EBIT margin was greater than 8.5%. Mr. Kyle - $1,130,000; Mr. Fracassa - $402,344; Mr. Coughlin - $395,938; Ms. Cheverine - $202,950; and Mr. Myers - $204,641. The amounts shown for Ms. Cheverine reflect fullMyers’ actual award payout was prorated based on the number of months worked during the year, target amounts, see the“Non-Equity Incentive Plan Compensation” column in the 2018 Summary Compensation Tableprior to his retirement on page 49 for her actualpro-rated payout.November 30, 2021. See the “Annual Cash Incentive” section on page 3847 for additional details. |
| (3) | The “NQSOs” amounts shown reflect nonqualified stock options granted in 2018. All options granted to the NEOs were granted on February 12, 2018 with an exercise price equal to the opening price on the date of grant. All options were granted pursuant to the Long-Term Incentive Plan, have a10-year term and generally will become exercisable 25% per year over the four-year period from the date of the grant.
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| (4) | The “Perf RSUs” amounts shown indicate aggregate threshold, target and maximum award opportunities for the performance-based restricted stock units covering the 2018-20202021-2023 cycle granted to each NEO in 20202021 under the Long-TermEquity and Incentive Compensation Plan. Threshold is reflected as the minimum payout if the adjusted EPS metric payout is zero and the adjusted ROIC metric pays at threshold. Mr. Myers’ performance-based restricted stock unit award granted during 2021 will be prorated based on the number of months working during the three-year period and will vest following completion of the three-year performance period. The final performance score will be applied upon payout. See the description of the performance-based restricted stock units on page 42.50. |
| (5)(4) | The amounts shown reflect the grant date fair market value of time-based restricted stock units nonqualified stock options and performance-based restricted stock units granted in 2018,2021, calculated in accordance with FASB ASC Topic 718. The fair market value of time-based restricted stock units and |
| performance-based restricted stock units is the opening price of our common shares on the date of grant multiplied by the number of shares granted. The fair market valuegranted (or, for performance-based restricted stock units, the “target” number of options is determined by usingshares granted, which represents the Black-Scholes model.probable outcome of the applicable performance conditions as of the grant date). |
For more information regarding certain compensation arrangements with our NEOs, please refer to the “Potential Payments Upon Termination or Change in Control” section on page 55.66. For information regarding the amount of various compensation elements in proportion to total compensation, see the NEO pay mix charts in the “Aligning Pay with Performance” section on page 33.41. Outstanding Equity Awards at 20182021 Year-End The following table sets forth information concerning unexercised Company stock options and stock awards that have not vested for each of our NEOs as of December 31, 2018:2021: | Option Awards (2) | | Option Awards (2) | | Stock Awards | Name | | | Grant Date | | Number of Securities Underlying Unexercised (#) Options | | Number of Securities Underlying Unexercised (#) Options | | Option Exercise Price | | Option Expiration Date | | Grant Date | | Number of Shares or Units of Stock That Have Not Vested | | Market Value of Shares or Units of Stock That Have Not Vested | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | | | | | | | | | | | | | | | | | | | | | | | | | | | Option Awards(1) | | | | | | | | | Stock Awards | | Exercisable | | Unexercisable | | | | Name | | Grant Date | | | Number of Securities Underlying Unexercised Options | | | Number of Securities Underlying Unexercised Options | | | Option Exercise Price | | | Option Expiration Date | | | Grant Date | | Number of Shares or Units of Stock That Have Not Vested | | Market Value of Shares or Units of Stock That Have Not Vested | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | | | | | | | Exercisable | | | Unexercisable | | | | | | | | | | | | | Richard G. Kyle | | | 02/08/2011 | | | | 17,000 | | | | - | | | | $35.97 | | | | 02/08/2021 | | | | 02/12/2015 | (2) | | 5,119 | | $191,041 | | - | | - | | 02/11/2016 | | 30,000 | | - | | $27.75 | | 02/11/2026 | | 02/12/2018 (3) | | 4,663 | | $323,099 | | - | | - | | | | 02/09/2012 | | | | 26,200 | | | | - | | | | $37.31 | | | | 02/09/2022 | | | | 02/11/2016 | (2) | | 14,338 | | $535,094 | | - | | - | | | | | 02/07/2013 | | | | 30,800 | | | | - | | | | $40.56 | | | | 02/07/2023 | | | | 02/13/2017 | (2) | | 13,763 | | $513,635 | | - | | - | | 02/13/2017 | | 70,000 | | - | | $45.35 | | 02/13/2027 | | 02/12/2019 (3) | | 10,388 | | $719,785 | | - | | - | | | | 02/13/2014 | | | | 108,800 | | | | - | | | | $41.15 | | | | 02/13/2024 | | | | 02/13/2017 | (3) | | - | | - | | 45,875 | | $1,712,055 | | 02/12/2018 | | 90,975 | | 30,325 | | $44.65 | | 02/12/2028 | | 02/10/2020 (3) | | 25,013 | | $1,733,151 | | - | | - | | | | 02/12/2015 | | | | 83,287 | | | | 27,763 | | | | $41.79 | | | | 02/12/2025 | | | | 02/12/2018 | (2) | | 18,650 | | $696,018 | | - | | - | | 02/12/2019 | | 69,212 | | 69,213 | | $42.60 | | 02/12/2029 | | 02/10/2020 (4) | | - | | - | | 50,025 | | $3,466,232 | | | | 02/11/2016 | | | | 91,900 | | | | 91,900 | | | | $27.75 | | | | 02/11/2026 | | | | 02/12/2018 | (3) | | - | | - | | 46,600 | | $1,739,112 | | | | | | | | | | | | 02/10/2021 (3) | | 23,675 | | $1,640,441 | | - | | - | | | | 02/13/2017 | | | | 29,437 | | | | 88,313 | | | | $45.35 | | | | 02/13/2027 | | | | | | | | | | | | | | | | | | | | | | | 02/10/2021 (4) | | - | | - | | 35,525 | | $2,461,527 | | | | 02/12/2018 | | | | - | | | | 121,300 | | | | $44.65 | | | | 02/12/2028 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Philip D. Fracassa | | | 02/08/2011 | | | | 5,600 | | | | - | | | | $35.97 | | | | 02/08/2021 | | | | 02/12/2015 | (2) | | 1,132 | | $42,246 | | - | | - | | 02/13/2017 | | 10,625 | | - | | $45.35 | | 02/13/2027 | | 02/12/2018 (3) | | 1,132 | | $78,436 | | - | | - | | | | 02/09/2012 | | | | 6,000 | | | | - | | | | $37.31 | | | | 02/09/2022 | | | | 02/11/2016 | (2) | | 3,175 | | $118,491 | | - | | - | | 02/12/2018 | | 22,050 | | 7,350 | | $44.65 | | 02/12/2028 | | 02/12/2019 (3) | | 2,613 | | $181,055 | | - | | - | | | | 02/07/2013 | | | | 4,500 | | | | - | | | | $40.56 | | | | 02/07/2023 | | | | 02/13/2017 | (2) | | 3,057 | | $114,087 | | - | | - | | 02/12/2019 | | 17,412 | | 17,413 | | $42.60 | | 02/12/2029 | | 02/10/2020 (3) | | 6,938 | | $480,734 | | - | | - | | | | 02/13/2014 | | | | 19,400 | | | | - | | | | $41.15 | | | | 02/13/2024 | | | | 02/13/2017 | (3) | | - | | - | | 10,150 | | $378,798 | | | | | | | | | | | | 02/10/2020 (4) | | - | | - | | 13,875 | | $961,399 | | | | 02/12/2015 | | | | 18,393 | | | | 6,132 | | | | $41.79 | | | | 02/12/2025 | | | | 02/12/2018 | (2) | | 4,525 | | $168,873 | | - | | - | | | | | | | | | | | | 02/10/2021 (3) | | 6,700 | | $464,243 | | - | | - | | | | 02/11/2016 | | | | 20,300 | | | | 20,300 | | | | $27.75 | | | | 02/11/2026 | | | | 02/12/2018 | (3) | | - | | - | | 11,300 | | $421,716 | | | | | | | | | | | | 02/10/2021 (4) | | - | | - | | 10,025 | | $694,632 | | | | 02/13/2017 | | | | 6,506 | | | | 19,519 | | | | $45.35 | | | | 02/13/2027 | | | | | | | | | | | | | | | | 02/12/2018 | | | | - | | | | 29,400 | | | | $44.65 | | | | 02/12/2028 | | | | | | | | | | | | | Christopher A. Coughlin | | | 02/08/2011 | | | | 27,600 | | | | - | | | | $35.97 | | | | 02/08/2021 | | | | 02/12/2015 | (2) | | 1,600 | | $59,712 | | - | | - | | 02/11/2016 | | 57,475 | | - | | $27.75 | | 02/11/2026 | | 02/12/2018 (3) | | 1,463 | | $101,371 | | - | | - | | | | 02/09/2012 | | | | 26,200 | | | | - | | | | $37.31 | | | | 02/09/2022 | | | | 02/11/2016 | (2) | | 4,488 | | $167,492 | | - | | - | | 02/13/2017 | | 36,825 | | - | | $45.35 | | 02/13/2027 | | 02/12/2019 (3) | | 3,063 | | $212,235 | | - | | - | | | | 02/07/2013 | | | | 30,800 | | | | - | | | | $40.56 | | | | 02/07/2023 | | | | 02/13/2017 | (2) | | 4,313 | | $160,961 | | - | | - | | 02/12/2018 | | 28,443 | | 9,482 | | $44.65 | | 02/12/2028 | | 02/10/2020 (3) | | 7,538 | | $522,308 | | - | | - | | | | 02/13/2014 | | | | 35,400 | | | | - | | | | $41.15 | | | | 02/13/2024 | | | | 02/13/2017 | (3) | | - | | - | | 14,350 | | $535,542 | | 02/12/2019 | | 20,375 | | 20,375 | | $42.60 | | 02/12/2029 | | 02/10/2020 (4) | | - | | - | | 15,075 | | $1,044,547 | | | | 02/12/2015 | | | | 26,043 | | | | 8,682 | | | | $41.79 | | | | 02/12/2025 | | | | 02/12/2018 | (2) | | 5,850 | | $218,322 | | - | | - | | | | | | | | | | | | 02/10/2021 (3) | | 7,150 | | $495,424 | | - | | - | | | | 02/11/2016 | | | | 28,737 | | | | 28,738 | | | | $27.75 | | | | 02/11/2026 | | | | 02/12/2018 | (3) | | - | | - | | 14,575 | | $543,939 | | | | | | | | | | | | 02/10/2021 (4) | | - | | - | | 10,700 | | $741,403 | Hansal N. Patel | | | 02/12/2018 | | - | | 438 | | $44.65 | | 02/12/2028 | | 02/12/2018 (3) | | 75 | | $5,197 | | - | | - | | | | 02/13/2017 | | | | 9,206 | | | | 27,619 | | | | $45.35 | | | | 02/13/2027 | | | | | | | | | | | | | 02/12/2019 | | - | | 1,935 | | $42.60 | | 02/12/2029 | | 02/12/2019 (3) | | 295 | | $20,441 | | - | | - | | | | 02/12/2018 | | | | - | | | | 37,925 | | | | $44.65 | | | | 02/12/2028 | | | | | | | | | | | | | | | | | | | | | | | 02/10/2020 (3) | | 2,832 | | $196,229 | | - | | - | Ronald J. Myers | | | 02/08/2011 | | | | 3,800 | | | | - | | | | $35.97 | | | | 02/08/2021 | | | | 02/12/2015 | (2) | | 325 | | $12,129 | | - | | - | | | | | | | | | | | | | | | 02/10/2020 (4) | | - | | - | | 5,675 | | $393,221 | | | | | | | | | | | | | | 02/10/2021 (3) | | 3,775 | | $261,570 | | - | | - | | | | | | | | | | | | | | 02/10/2021 (4) | | - | | - | | 5,650 | | $391,489 | Andreas Roellgen | | | 02/13/2017 | | 6,850 | | - | | $45.35 | | 02/13/2027 | | 08/21/2017 (5) | | 10,000 | | $692,900 | | - | | - | | | | 02/09/2012 | | | | 5,100 | | | | - | | | | $37.31 | | | | 02/09/2022 | | | | 02/11/2016 | (2) | | 913 | | $34,073 | | - | | - | | 02/12/2018 | | 5,943 | | 1,982 | | $44.65 | | 02/12/2028 | | 02/12/2018 (3) | | 307 | | $21,272 | | - | | - | | | | 02/07/2013 | | | | 5,700 | | | | - | | | | $40.56 | | | | 02/07/2023 | | | | 02/13/2017 | (2) | | 1,369 | | $51,091 | | - | | - | | 02/12/2019 | | 4,262 | | 4,263 | | $42.60 | | 02/12/2029 | | 02/12/2019 (3) | | 650 | | $45,039 | | - | | - | | | | 02/13/2014 | | | | 3,900 | | | | - | | | | $41.15 | | | | 02/13/2024 | | | | 02/13/2017 | (3) | | - | | - | | 4,550 | | $169,806 | | | | | | | | | | | | 02/10/2020 (3) | | 2,232 | | $154,655 | | - | | - | | | | 02/12/2015 | | | | 5,231 | | | | 1,744 | | | | $41.79 | | | | 02/12/2025 | | | | 02/12/2018 | (2) | | 1,850 | | $69,042 | | - | | - | | | | | | | | | | | | 02/10/2020 (4) | | - | | - | | 4,475 | | $310,073 | | | | 02/11/2016 | | | | 2,888 | | | | 5,775 | | | | $27.75 | | | | 02/11/2026 | | | | 02/12/2018 | (3) | | - | | - | | 4,625 | | $172,605 | | | | | | | | | | | | 02/10/2021 (3) | | 2,525 | | $174,957 | | - | | - | | | | 02/13/2017 | | | | 2,918 | | | | 8,757 | | | | $45.35 | | | | 02/13/2027 | | | | | | | | | | | | | | | | | | | | | | | 02/10/2021 (4) | | - | | - | | 3,800 | | $263,302 | | | | 02/12/2018 | | | | - | | | | 12,050 | | | | $44.65 | | | | 02/12/2028 | | | | | | | | | | | | | Carolyn E. Cheverine | | | 05/30/2017 | | | | 35,441 | | | | - | | | | $46.40 | | | | 07/19/2021 | | | | 05/30/2017 | (4) | | 11,608 | | $433,211 | | - | | - | | Ronald J. Myers (1) | | | 02/12/2018 | | - | | 3,013 | | $44.65 | | 02/12/2028 | | 02/12/2018 (3) | | 463 | | $32,081 | | - | | - | | | | 02/12/2018 | | | | 3,287 | | | | - | | | | $44.65 | | | | 07/19/2021 | | | | 02/12/2018 | (2) | | 491 | | $18,324 | | - | | - | | 02/12/2019 | | - | | 7,838 | | $42.60 | | 02/12/2029 | | 02/12/2019 (3) | | 1,175 | | $81,416 | | - | | - | | | | | | | | | | | | | | | 02/12/2018 | (3) | | - | | - | | 2,537 | | $94,681 | | | | | | | | | | | | 02/10/2020 (3) | | 3,169 | | $219,580 | | - | | - | | | | | | | | | | | | | | 02/10/2020 (4) | | - | | - | | 4,056 | | $281,040 | | | | | | | | | | | | | | 02/10/2021 (3) | | 3,021 | | $209,325 | | - | | - | | | | | | | | | | | | | | 02/10/2021 (4) | | - | | - | | 1,428 | | $98,946 |
| (1) | Upon his retirement, Mr. Myers’ unvested nonqualified stock options, time-based restricted stock units and performance-based restricted stock units were treated in accordance with the original terms of the respective grants. The performance-based restricted stock units in the table are prorated based on the number of months worked during the three-year period. |
| (2) | All option awards shown are nonqualified stock options that vest 25% per year over the four-year period from the date of grant and will expire ten years after the date of grant. |
| (2)(3) | Time-based restricted stock units vest 25% per year over the four-year period from the date of grant. Upon an NEO becoming retirement eligible, restricted stock units may be withheld prior to vesting for taxes owed on such restricted stock units being deemed nonforfeitable. |
| (3)(4) | Performance-based restricted stock units vest atafter the end of the three-year performance cycle based on the achievement of performance objectives. For the performance-based restricted stock units granted on February 10, 2020 and February 10, 2021, amounts are shown at target. |
| (4)(5) | Ms. Cheverine’s deferredDeferred restricted shares for Mr. Roellgen vest 100% on the fifth anniversary of the date of grant in accordance with the terms of her applicable award agreement, which provide that the award will continue to vest following the end of Ms. Cheverine’s employment with the Company as if she had remained in continuous employment.grant.
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The market value of the stock awards shown in the table above was determined based upon the closing price of our common shares on December 31, 2018,2021, which was $37.32.$69.29. 2018 2021 Option Exercises and Stock Vested
The following table sets forth information with respect to the exercise of stock options by and vesting of other equity-based awards for our NEOs during 2018:2021: | | | | | | | | | | | Option Awards | | Stock Awards (2) | | | Option Awards | | Stock Awards(2) | | | | Name | | Number of Shares Acquired on Exercise | | Value Realized on Exercise(1) | | Number of Shares Acquired on Vesting | | Value Realized on Vesting | | Number of Shares Acquired on Exercise | | Value Realized on Exercise (1) | | Number of Shares Acquired on Vesting | | Value Realized on Vesting | | | | | | Richard G. Kyle | | 4,275 | | $129,896 | | 98,585 | | $4,277,494 | | 297,750 | | $14,219,067 | | 70,866 | | $4,913,329 | | | | | | Philip D. Fracassa | | 10,000 | | $316,600 | | 21,778 | | $944,931 | | 30,525 | | $1,233,402 | | 17,859 | | $1,238,321 | | | | | | Christopher A. Coughlin | | - | | - | | 30,846 | | $1,338,374 | | - | | - | | 21,095 | | $1,463,722 | | | | | | Hansal N. Patel | | | 3,196 | | $162,532 | | 2,582 | | $181,628 | | | | | | Andreas Roellgen | | | 18,525 | | $1,031,106 | | 4,608 | | $320,566 | | | | | | Ronald J. Myers | | - | | - | | 6,396 | | $277,658 | | 9,850 | | $295,792 | | 12,445 | | $862,175 | Carolyn E. Cheverine | | - | | - | | - | | - | |
| (1) | The value realized on the exercise of stock options is the difference between the exercise price and the fair market value of our common shares at the time of exercise. Fair market value is determined by a real-time trading quote from the NYSE at the time of exercise. |
| (2) | Stock awards include time-based restricted stock units and performance-based restricted stock units.units for all NEOs. For Mr. Myers, stock awards also include deferred shares. The value realized on vesting for time-based and performance-based restricted stock units and deferred shares is the number of shares that vested in 20182021 multiplied by the fair market value of our common shares on the date of vesting. Fair market value for performance-based restricted stock units is determined by the average of the high and low price of our common shares on the date of vesting, which is the date that the Compensation Committee approves the performance score payout associated with such award. |
2018
2021 Pension Benefits Table Year-over-year changes in pension values in the 20182021 Summary Compensation Table are influenced by plan participation, age, length of service, and changes in annual cash compensation, as well as external factors such as interest rates and changes to mortality assumptions.assumptions, discount rates, and interest on the prior year’s values as the benefits are one year closer to being paid. The smaller year-over-year increase in actuarial pension values resulted from higher interest rates from the prior year measurement period, offset partially by an update to the marriage assumptions under the Excess Benefit Agreements for the remaining non-retired participants (Mr. Kyle, Mr. Fracassa and Mr. Coughlin) to reflect their current marital statuses. Effective December 31, 2022, eligible U.S. participants will cease to accrue pension benefits under the Company’s primary U.S. defined benefit pension plans. The following table sets forth the number of years of credited service and actuarial present value of the defined benefit pension plans for our NEOs as of December 31, 20182021 (see the“Retirement Programs” section on page 4452 for additional details of the material features of these plans): | Name | | Plan Name | | Number of Years of Credited Service | | Present Value of Accumulated Benefit (1) | | Plan Name | | Number of Years Credited Service | | Present Value of Accumulated Benefit (1) | | Payments During Last Fiscal Year (2) | Richard G. Kyle(2) | | Supplemental Pension Plan | | 12.7 | | $6,993,000 | | | Richard G. Kyle (3) | | | Supplemental Pension Plan | | 15.7 | | $18,549,337 | | - | | | | Pension Plan | | - | | - | | Pension Plan | | - | | - | | - | Philip D. Fracassa(2) | | Supplemental Pension Plan | | 13.2 | | $3,175,000 | | | Philip D. Fracassa (3) | | | Supplemental Pension Plan | | 16.2 | | $6,981,956 | | - | | | | | Pension Plan | | - | | - | | - | | | Pension Plan | | - | | - | | Christopher A. Coughlin | | Supplemental Pension Plan | | 34.5 | | $4,958,000 | | Supplemental Pension Plan | | 37.5 | | $7,836,685 | | - | | | | Pension Plan | | 34.5 | | $914,000 | | Pension Plan | | 37.5 | | $1,348,039 | | - | | Hansal N. Patel (3) | | | Supplemental Pension Plan | | - | | - | | - | | | | | Pension Plan | | - | | - | | - | | Andreas Roellgen (4) | | | Europe Executive Plan | | 15.3 | | $955,100 | | - | | | | | FRIP | | 24.3 | | $167,800 | | - | | Ronald J. Myers | | Supplemental Pension Plan | | 36.6 | | $583,000 | | Supplemental Pension Plan | | 39.5 | | $1,377,650 | | - | | | | Pension Plan | | 36.6 | | $1,049,000 | | Pension Plan | | 39.5 | | - | | $1,479,281 | Carolyn E. Cheverine(2) | | Supplemental Pension Plan | | - | | - | | | | | Pension Plan | | - | | - | |
| (1) | The “Present Value of Accumulated Benefit” is the present value of pension benefits earned as of December 31, 20182021 that would be payable under that plan for the life of the executive, beginning at age 62. SeeNote 1214 – Retirement Benefit Plansin the Notes to the Consolidated Financial Statement in the Company’s Annual Report on Form10-K for the fiscal year ending December 31, 20182021 for details about the assumptions used to determine present value. |
| (2) | In connection with Mr. Myers’ retirement from the Company, Mr. Myers received a lump sum payment from the Pension Plan in 2021. |
| (3) | Because neither Mr. Kyle, nor Mr. Fracassa and Mr. Patel were not employed by the Company as of December 31, 2003, they did not accumulate any service under the Pension Plan. Ms. Cheverine was |
| (4) | Because Mr. Roellgen is based in Colmar, France, he is not eligible for either the Pension Plan or the Supplemental Pension Plan. Instead, Mr. Roellgen is a participant in the Supplemental PensionFRIP and the Europe Executive Plan. Mr. Roellgen had earned 15.3 years of service under the Europe Executive Plan or Pension Planwhen his accumulation of years of service under such plan was frozen at the end of 2012. Mr. Roellgen’s compensation is based in Euros. The conversion rate used for purposes of converting the Euros earned by Mr. Roellgen into U.S. Dollars for purposes of this table was €1.00 = $1.1370, which was the applicable exchange rate as these plans were closed to new entrants prior to her date of hire.December 31, 2021. |
2018
2021 Nonqualified Deferred Compensation The table below sets forth information regarding Deferred Compensation Plan contributions, earnings and withdrawals during 20182021 and the account balances as of December 31, 20182021 for the NEOs: | | Name | | Executive Contributions in 2018(1) | | Company Contributions in 2018(1) | | Aggregate Earnings in 2018(2) | | Aggregate Withdrawals/ Distributions | | Aggregate Balance at December 31, 2018(3) | | Executive Contributions in 2021 (1) | | Company Contributions in 2021 (2) | | Aggregate Earnings in 2021 (3) | | Aggregate Withdrawals/ Distributions | | Aggregate Balance at December 31, 2021 (4) | | Richard G. Kyle | | $47,083 | | - | | $14,823 | | - | | $291,130 | | $204,318 | | - | | $33,164 | | - | | $911,441 | | Philip D. Fracassa | | $71,112 | | $62,764 | | $21,875 | | - | | $455,236 | | $56,038 | | $52,830 | | $37,254 | | - | | $970,396 | | Christopher A. Coughlin | | - | | - | | - | | - | | - | | - | | - | | - | | - | | - | | Hansal N. Patel | | | $62,207 | | - | | $3,989 | | - | | $148,021 | | Andreas Roellgen | | | - | | - | | - | | - | | - | | Ronald J. Myers | | - | | - | | $11,368 | | - | | $200,577 | | - | | - | | $9,654 | | - | | $233,374 | Carolyn E. Cheverine | | $3,318 | | $7,129 | | $225 | | - | | $10,672 | |
| (1) | Amounts shown as executive contributions or Company contributions in 2018,2021, if any, were reported in the 20182021 Summary Compensation Table.Table (for base salary) or in the 2020 Summary Compensation Table (for payments made under the annual cash incentive plan). |
| (2) | Amounts shown as Company contributions in 2021, if any, were reported in the 2021 Summary Compensation Table under the “All Other Compensation” column (for Company contributions into the Deferred Compensation Plan). |
| (3) | This column includes interest earned from cash deferrals. The earnings during this year and previous years were not above market or preferential; therefore, these amounts were not included in the 20182021 Summary Compensation Table. |
| (3)(4) | Includes $170,592$549,642 for Mr. Kyle, $242,114$676,285 for Mr. Fracassa, and $87,237 for Mr. Myers that was previously reported as compensation in the 2018 Summary Compensation TableTables for prior years (or would have been if the recipient had been an NEO in such year).years. |
The Deferred Compensation Plan allows certain employees, including the U.S.-based NEOs, to defer, receipt on apre-tax basis, the receipt of certain types of compensation until a portion of theirspecified point in the future. Eligible compensation includes salary, incentive compensation payable in cash, employee or Company 401(k) contributions and/or core defined contributions in excess of tax limits and/or incentive compensation payable in cash until a specified point in the future. limits. Cash deferrals earn interest quarterly at a rate based onequal to the prime rate plus one percent.1%. For further information, see the “Deferred Compensation” section on page 46.54. Potential Payments Upon Termination or Change in Control We have entered into severance agreements with each of the NEOs that provide for compensation in the event of termination of employment under certain circumstances (the “Severance Agreements”). In addition, the NEOs are entitled to post-termination payments or benefits under agreements entered into under the Equity and Incentive Compensation Plan, the Predecessor Long-Term Incentive Plan, and under our retirement and benefit plans in certain situations. The following circumstances would trigger post-termination payments to the NEOs: change in control followed by certain events described below,below; involuntary termination without cause, retirement,cause; retirement; permanent disabilitydisability; and death. All scenarios are assumed to have occurred on December 31, 2018.2021. Change in Control Under the Severance Agreements with the NEOs, when certain events occur, such as a reduction in the NEO’s responsibilities or base salary, or termination of the NEO’s employment without cause, within twoa specified number of years following a change in control of the Company (as defined in the Severance Agreements), each NEO will be entitled to receive a lump sum payment in an amount equal to a multiple (that is set forth in the table below for the respective NEO) of the sum of: (1) the greater of (a) the NEO’s annual base salary in effect prior to the termination and (b) the NEO’s annual base salary in effect prior to the change in control,control; plus (2) the greater of (a) the NEO’s target annual cash incentive compensation for the year in which the NEO terminates employment and (b) the NEO’s target annual cash incentive compensation for the year in which the change in control occurs. For Mr. Roellgen, the amount is reduced by any severance payments he is entitled to receive under French law. | | | | | NEO | | Change In Control Multiple | | Additional Service Years | Mr. Kyle | | 3.0x | | 3 years | Mr. Fracassa | | 3.0x | | 3 years | Mr. Coughlin | | 3.0x | | 3 years | Mr. MyersPatel | | 1.5x | Mr. Roellgen | | 1.5 years1.5x |
In addition, each U.S.-based NEO who is eligible for a supplemental retirement benefit would receive a lump sum amount. The lump sum amount is determined by calculating the benefit under each of the QualifiedPension Plan and the Supplemental Pension PlanPlan. Under the Severance Agreements, pension benefits for Messrs. Kyle, Fracassa, and Coughlin would be calculated assuming the NEO continuedthey continue to earn service foruntil the number of years designated in the table above until December 31, 2022 pension freeze date, with annual earnings during those years equal to the compensation described above. The lump sum amount is reduced by the lump sum equivalent of the benefit otherwise payable from the QualifiedPension Plan. This lump sum is determined based on the mortality table and interest rate promulgated by the IRS under Section 417(e)(3) of the Code. The NEOSeverance Agreements also would receive certain benefits based onprovide Messrs. Kyle, Fracassa, and Coughlin with contributions that would have been made to the SIP Plan and thePost-Tax Savings Plan duringon the Changethree years of change in Control period designatedcontrol compensation they would receive. The agreements for Messrs. Patel and Roellgen do not provide for any such contributions in the table above. event of a change in control. At the time the conditions are met after a change in control, any unvested equity-based grants would vest and become nonforfeitable and the NEO would have three years to exercise all stock options. Performance-based restricted stock units would vest based on actual performance through the most recent date prior to the Changechange in Control.control. In the event of a change in control, the amounts payable under the Severance Agreements would become secured by a trust arrangement. As consideration for providing severance benefits, the Company receives confidentiality andnon-compete covenants from the NEOs, as well asand (where legally permissible) a customary release of claims against the Company. The NEOU.S.-based NEOs also would be entitled to continuation of health and welfare benefits through the applicable severance period (in other words, a number of years equal to the change in control multiple in the table above) and career outplacement services.services (or French unemployment benefits in the case of Mr. Roellgen). None of the Severance Agreements with the NEOs containcontains an excise taxgross-up provision. Voluntary Termination If an NEO voluntarily terminates his or her employment with the Company, we generally provide no enhanced termination benefits such as severance, benefits, perquisites or vesting of any equity-based grants, although the Compensation Committee reserves the right to make adjustments where warranted. Involuntary Termination With Cause The Company provides no standard severance, benefits, perquisites or vesting of any equity-based grants in the case where an NEO is terminated by the Company with cause. As provided in the Severance Agreements, termination with cause can occur only in the event that the NEO has committed any of the following: an intentional act of fraud, embezzlement or theft in connection with his duties with the Company; intentional wrongful disclosure of secret processes or confidential information of the Company or a Company subsidiary; or intentional wrongful engagement in any Competitive Activity (as defined in the Severance Agreements) that would constitute a material breach of the NEO’s duty of loyalty to the Company.Company (or a Company subsidiary as applicable). If the Company terminates an NEO’s employment for cause, no benefit is payable from any ofunder the nonqualified pension plans.Excess Benefit Agreements. Involuntary Termination Without Cause In the case of an involuntary termination without cause other than in connection with a change in control, each NEO is entitled to a lump sum severance payment equal to a multiple (that is set forth in the table below for the respective NEO) of the sum of: (1) the NEO’s base salary and (2) an amount equal to the highest annual cash incentive payout percentage during the preceding five years (not to exceed 100%) multiplied by the target annual cash incentive compensation for the year in which the NEO is terminated.terminated (or, for Mr. Roellgen, the actual annual cash incentive compensation earned for the full year in which he is terminated). For Mr. Roellgen, the amount is reduced by any severance payments he is entitled to receive under French law. As consideration for providing severance benefits, the Company receives confidentiality andnon-compete covenants from the NEOs, as well asand (where legally permissible) a customary release of claims against the Company. Each NEO also is entitled to continuation of certain health and welfare benefits through the applicable severance period (in other words, a number of years equal to the applicable multiple in the table below) and career outplacement services.services (or French unemployment benefits in the case of Mr. Roellgen). Equity-based grants vest through the period of time equal to one year multiplied by the severance multiple in the table below in the case of an involuntary termination without cause, with up to three years to exercise stock options. | | | | | NEO | | Severance Multiple | Mr. Kyle | | 2.0x | Mr. Fracassa | | 1.5x | Mr. Coughlin | | 1.5x | Mr. MyersPatel | | 1.0x | Mr. Roellgen | | 1.0x |
The values shown in the Termination Scenarios table below for the retirement benefits (where eligible) are payable in the same form and manner as discusseddescribed in the “Retirement Programs” discussion on page 44.pages 52 to 54. In the event of involuntary termination without cause, the benefit is determined and payable as described in the “Retirement Programs” discussion on page 44,pages 52 to 54, but with up to two additional years of service credit.credit, except with respect to pension benefits for Messrs. Kyle, Fracassa, and Coughlin, which would be calculated assuming they continue to earn service until the December 31, 2022 pension freeze date. Retirement “Retirement” for purposes of outstanding grants to NEOs under the Long-TermEquity and Incentive Compensation Plan (for grants made in 2018) means either: (1) voluntary termination of the NEO at or after age 62; or (2) retirement after the NEO has reached age 55 and has accrued at least 15 years of continuous service, with the consent of the Board or the Committee. Treatment of equity awards for NEOs who retire includes normal vesting of Long-TermEquity and Incentive Compensation Plan awards as if the officer had remained in the continuous employ of the Company (except performance-based restricted stock units, which are prorated through the last day of employment and paid at the end of the performance period). Amounts shown in the retirement column in the Termination Scenarios table below for “Retirement Benefits” are for NEOs who are eligible to retire under the Pension Plan or under an individual Excess Benefit Agreement as of December 31, 20182021 assuming the NEOs immediately retire. The amounts shown are in addition to the corresponding amounts reflected in the pension benefits table2021 Pension Benefits Table on page 5365 (which assumes retirement of the NEO at age 62). See the “Retirement Programs” section on page 4452 for additional details. Death or Permanent Disability “Permanent Disability” occurs if an NEO qualifies for permanent disability benefits under a disability plan or program of the Company or, in the absence of a disability plan or program of the Company, under a government-sponsored disability program. Benefits for U.S.-based NEOs who die while actively employed are payable to the surviving spouse from the defined benefit pension plans at the NEO’s normal retirement date (or on a reduced basis at an early retirement date). The benefit is equal to 50% of the benefit payable as if thesuch NEO had terminated employment on the date of his death, survived to the payment date (as elected by spouse), elected the 50% joint and survivor form of payment, and died the next day. If the U.S.-based NEO has at least 15 years of service at time of death, the benefit is equal to 50% of the accrued benefit at time of death payable immediately, but with any applicable early commencement reduction.reduction. All equity-based Equity and Incentive Compensation Plan and Predecessor Long-Term Incentive Plan grants immediately vest in the event of death or permanent disability, except performance-based restricted stock units, which are prorated and paid at the end of the performance period. In the case of disability, the employee has up to five years to exercise stock options. In the case of death, the survivor has up to five years to exercise stock options. Termination Scenarios | | | | | | | | | | | | | | | | | | | | | | | | | Mr. Kyle | | | | | | | | | | | Voluntary Resignation | | | Termination With Cause | | | Retirement(5) | | | Death & Disability | | | Termination Without Cause | | | Change in Control | | | | | | | | | Cash Severance(1) | | | - | | | | - | | | | - | | | | - | | | | $4,143,334 | | | | $6,215,001 | | | | | | | | | Equity(2) | | | - | | | | - | | | | - | | | | $6,266,438 | | | | $5,747,205 | | | | $6,092,415 | | | | | | | | | Retirement Benefits (3) | | | - | | | | - | | | | - | | | | - | | | | $1,358,000 | | | | $4,972,000 | | | | | | | | | Other Benefits(4) | | | - | | | | - | | | | - | | | | - | | | | $53,000 | | | | $79,500 | | | | | | | | | Total | | | - | | | | - | | | | - | | | | $6,266,438 | | | | $11,301,539 | | | | $17,358,916 | | | Mr. Fracassa | | | | | | | | | | | Voluntary Resignation | | | Termination With Cause | | | Retirement(5) | | | Death & Disability | | | Termination Without Cause | | | Change in Control | | | | | | | | | Cash Severance(1) | | | - | | | | - | | | | - | | | | - | | | | $1,408,204 | | | | $2,816,407 | | | | | | | | | Equity(2) | | | - | | | | - | | | | - | | | | $1,438,482 | | | | $1,315,998 | | | | $1,396,236 | | | | | | | | | Retirement Benefits (3) | | | - | | | | - | | | | - | | | | - | | | | - | | | | $1,228,000 | | | | | | | | | Other Benefits(4) | | | - | | | | - | | | | - | | | | - | | | | $39,750 | | | | $79,500 | | | | | | | | | Total | | | - | | | | - | | | | - | | | | $1,438,482 | | | | $2,763,952 | | | | $5,520,143 | | | Mr. Coughlin | | | | | | | | | | | Voluntary Resignation | | | Termination With Cause | | | Retirement(5) | | | Death & Disability | | | Termination Without Cause | | | Change in Control | | | | | | | | | Cash Severance(1) | | | - | | | | - | | | | - | | | | - | | | | $1,385,782 | | | | $2,771,564 | | | | | | | | | Equity(2) | | | - | | | | - | | | | - | | | | $1,960,991 | | | | $1,798,164 | | | | $1,906,392 | | | | | | | | | Retirement Benefits (3) | | | - | | | | - | | | | $659,000 | | | | - | | | | - | | | | $199,000 | | | | | | | | | Other Benefits(4) | | | - | | | | - | | | | - | | | | - | | | | $39,750 | | | | $79,500 | | | | | | | | | Total | | | - | | | | - | | | | - | | | | $1,960,991 | | | | $3,223,696 | | | | $4,956,456 | | | Mr. Myers | | | | | | | | | | | Voluntary Resignation | | | Termination With Cause | | | Retirement(5) | | | Death & Disability | | | Termination Without Cause | | | Change in Control | | | | | | | | | Cash Severance(1) | | | - | | | | - | | | | - | | | | - | | | | $576,716 | | | | $865,074 | | | | | | | | | Equity(2) | | | - | | | | - | | | | - | | | | $564,013 | | | | $512,437 | | | | $546,734 | | | | | | | | | Retirement Benefits (3) | | | - | | | | - | | | | $146,000 | | | | - | | | | - | | | | $286,000 | | | | | | | | | Other Benefits(4) | | | - | | | | - | | | | - | | | | - | | | | $26,500 | | | | $39,750 | | | | | | | | | Total | | | - | | | | - | | | | - | | | | $564,013 | | | | $1,115,653 | | | | $1,737,558 | |
Note: Ms. Cheverine is not reflected in the table above because her employment with the Company ended as of July 19, 2018. In connection with Ms. Cheverine’s cessation of employment, she received the compensation and benefits provided for in the event of an involuntary termination without cause (as described on page 56) under the terms of her outstanding deferred share, nonqualified stock option, time-based restricted stock unit and performance-based restricted stock unit agreements and her severance agreement. For more details see the 2018 Summary Compensation Table on page 49 and “Outstanding Equity Awards at 2018Year-End” on page 52. She is also entitled to the “Other Benefits” described in footnote 4 below. | | | | | | | | | | | | | | | | | | | | | | | | | Mr. Kyle | | | | | | | | | | | Voluntary Resignation | | | Termination With Cause | | | Retirement | | | Death & Disability | | | Termination Without Cause | | | Change in Control and Termination | | | | | | | | | Cash Severance (1) | | | - | | | | - | | | | - | | | | - | | | | $4,667,152 | | | | $7,000,728 | | Equity (2) | | | - | | | | - | | | | - | | | | $10,142,263 | | | | $11,540,743 | | | | $12,528,610 | | | | | | | | | Retirement Benefits (3) | | | - | | | | - | | | | $1,124,480 | | | | - | | | | $0 | | | | $1,110,664 | | Other Benefits (4) | | | - | | | | - | | | | - | | | | - | | | | $79,500 | | | | $79,500 | | | | | | | | | Total | | | - | | | | - | | | | $1,124,480 | | | | $10,142,263 | | | | $16,287,395 | | | | $20,719,502 | | | Mr. Fracassa | | | | | | | | | | | Voluntary Resignation | | | Termination With Cause | | | Retirement | | | Death & Disability | | | Termination Without Cause | | | Change in Control and Termination | | | | | | | | | Cash Severance (1) | | | - | | | | - | | | | - | | | | - | | | | $1,547,530 | | | | $3,095,060 | | Equity (2) | | | - | | | | - | | | | - | | | | $2,722,755 | | | | $2,998,183 | | | | $3,390,295 | | | | | | | | | Retirement Benefits (3) | | | - | | | | - | | | | - | | | | - | | | | - | | | | $597,408 | | Other Benefits (4) | | | - | | | | - | | | | - | | | | - | | | | $79,500 | | | | $79,500 | | | | | | | | | Total | | | - | | | | - | | | | - | | | | $2,722,755 | | | | $4,625,213 | | | | $7,162,263 | | | Mr. Coughlin | | | | | | | | | | | Voluntary Resignation | | | Termination With Cause | | | Retirement | | | Death & Disability | | | Termination Without Cause | | | Change in Control and Termination | | | | | | | | | Cash Severance (1) | | | - | | | | - | | | | - | | | | - | | | | $1,547,018 | | | | $3,094,036 | | Equity (2) | | | - | | | | - | | | | - | | | | $3,052,236 | | | | $3,349,282 | | | | $3,770,843 | | | | | | | | | Retirement Benefits (3) | | | - | | | | - | | | | $194,908 | | | | - | | | | - | | | | $225,607 | | Other Benefits (4) | | | - | | | | - | | | | - | | | | - | | | | $79,500 | | | | $79,500 | | | | | | | | | Total | | | - | | | | - | | | | $194,908 | | | | $3,052,236 | | | | $4,975,800 | | | | $7,169,986 | | | Mr. Patel | | | | | | | | | | | Voluntary Resignation | | | Termination With Cause | | | Retirement | | | Death & Disability | | | Termination Without Cause | | | Change in Control and Termination | | | | | | | | | Cash Severance (1) | | | - | | | | - | | | | - | | | | - | | | | $685,105 | | | | $1,027,658 | | Equity (2) | | | - | | | | - | | | | - | | | | $938,471 | | | | $836,901 | | | | $1,069,083 | | | | | | | | | Retirement Benefits (3) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Other Benefits (4) | | | - | | | | - | | | | - | | | | - | | | | $26,500 | | | | $39,750 | | | | | | | | | Total | | | - | | | | - | | | | - | | | | $938,471 | | | | $1,548,506 | | | | $2,136,491 | | | Mr. Roellgen (5) | | | | | | | | | | | Voluntary Resignation | | | Termination With Cause | | | Retirement | | | Death & Disability | | | Termination Without Cause | | | Change in Control and Termination | | | | | | | | | Cash Severance (1) | | | - | | | | - | | | | - | | | | - | | | | $582,027 | | | | $873,040 | | Equity (2) | | | - | | | | - | | | | - | | | | $1,545,852 | | | | $1,423,262 | | | | $1,641,819 | | | | | | | | | Retirement Benefits (3) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Other Benefits (4) | | | - | | | | - | | | | - | | | | - | | | | $21,477 | | | | $21,477 | | | | | | | | | Total | | | - | | | | - | | | | - | | | | $1,545,852 | | | | $2,026,766 | | | | $2,536,336 | |
| (1) | “Cash Severance” amounts are determined by multiples of annual pay provided in the Severance Agreements. |
| (2) | “Equity” includes deferred shares, time-based restricted stock units, performance-based restricted stock units and stock option grants. Equity-basedTreatment of equity-based grants immediately vest in the event of a termination or change in control (as definedis described in the Severance Agreements) followed by certain“Potential Payments Upon Termination or Change in Control” section on page 66. Beginning with the Predecessor Long-Term Incentive Plan grant for 2012, we modified our equity grant agreements to require double-trigger vesting for awards in the event of a qualifying termination events previously described or at the time of death or permanent disability. Outside of thefollowing a change in control context, equity-based grants vest through the period of time represented by the severance multiple in the case of an involuntary termination. All full-value awards are valued at the closing price of our common shares on December 31, 2018, which was $37.32.control. All stock options are valued based on the difference between the above closing stock price and the exercise price (or zero if the difference is negative), times the number of unvested stock options that would accelerate, as provided for in the Severance Agreements. Beginning withFor retirement eligible NEOs, amounts shown reflect both the Long- |
| Term Incentive Plan grant for 2012, we modified our equity grant agreements to require double-trigger vesting for awardsvalue of unvested restricted stock units and stock options that would vest as described in the event“Retirement” section on page 68 following retirement as well as the value of a qualifyingperformance-based restricted stock units, which are prorated through the last day of employment (for purposes of this table, assuming December 31, 2021 as the termination following a change in control.date). All full-value awards are valued at the closing price of our common shares on December 31, 2021, which was $69.29. |
| (3) | “Retirement Benefits” for eligible NEOs represent the value of additional benefits earned under the qualified and supplemental plans as a result of retirement, termination without cause, or a qualifying termination following a change in control. |
| (4) | “Other Benefits” consist of continuation of health and welfare benefits through the severance period, with an estimated value of $16,500 per year, plus outplacement services (if elected) with an estimated value of $10,000 per year.
|
| (5) | Values are shown under the retirement scenario for only those NEOs who were eligible for early retirement as defined in the applicable retirement plan as of December 31, 2018,2021 and reflect the incremental present value above what they would receive at normal retirement age.age 62. As of December 31, 2018,2021, Mr. CoughlinKyle and Mr. MyersCoughlin both were eligible for early retirement as defined in the applicable retirement plan. |
| | The table above only reports the value of Mr. Coughlin’s change in control SIP payments because the value of his pension as of December 31, 2021 would actually decrease $297,893 due to the change in control provisions. These pension provisions fully offset the value of his change in control SIP payments, which results in a lower net benefit value with the change in control severance benefits than without. |
| (4) | “Other Benefits” consist of continuation of health and welfare benefits through the severance period, with estimated values for U.S.-based NEOs of $16,500 per year and for Mr. Roellgen of $770 per year, plus outplacement services (if elected) with estimated values of $10,000 per year for U.S.-based NEOs and $20,700 per year for Mr. Roellgen. |
| (5) | Mr. Roellgen’s compensation is generally based in Euros. The conversion rate used for purposes of converting the Euros earned by Mr. Roellgen into U.S. Dollars was €1.00 = $1.1833 (the average monthly exchange rate for the calendar year). |
Mr. Myers is not included in the table above due to his retirement from the Company on November 30, 2021. In connection with his retirement, Mr. Myers received cash payments of $198,945 for his annual incentive award, of which 85% was deferred into the Deferred Compensation Plan, $1,479,281 for his lump sum payment from the Pension Plan and $34,327 for accrued, but unused vacation paid to him in 2021. The value of his unvested equity upon retirement on November 30, 2021 was $1,816,464 assuming performance-based restricted stock units at target and valued at the closing price of our common shares on November 30, 2021, which was $65.83. Equity Compensation Plan Information The table below sets forth information as of December 31, 20182021 regarding the Predecessor Long-Term Incentive Plan and the Equity and Incentive Compensation Plan. Under the Predecessor Long-Term Incentive Plan and Equity and Incentive Compensation Plan, we have made equity compensation available to Directors, officers and other employees of the Company. The Predecessor Long-Term Incentive Plan has beenand Equity and Incentive Compensation Plan were approved by our shareholders. | Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted-average exercise price of outstanding options, warrants and rights | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)(1) | | Weighted-average Exercise price of outstanding options, Warrants and rights (b)(2) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)(3) | | | | (a)(1) | | (b)(2) | | (c)(3) | | | Equity compensation plans approved by security holders(4) | | 4,382,842 | | $38.21 | | 3,759,864 | | 2,211,516 | | $41.59 | | 7,738,437 | | Equity compensation plans not approved by security holders | | - | | - | | - | | - | | - | | - | | Total: | | 4,382,842 | | $38.21 | | 3,759,864 | | 2,211,516 | | $41.59 | | 7,738,437 |
(1) | The amount shown in column (a) includes the following:following grants made under both the Predecessor Long-Term Incentive Plan and the Equity and Incentive Compensation Plan: nonqualified stock options – 3,189,950;1,217,945; deferred shares – 112,786;55,138; performance-based restricted stock units – 741,241616,221 (assuming payout levels at target and settlement in shares)shares; at maximum payout levels for performance-based restricted stock units, an additional 616,221 shares would be issued); and time-based restricted stock units – 338,865322,212 (assuming settlement in shares). |
(2) | The weighted average exercise price in column (b) includes nonqualified stock options only. |
(3) | The amount shown in column (c) represents common shares remaining available under the Long-TermEquity and Incentive Compensation Plan, under which the Compensation Committee is authorized to make awards of common shares, nonqualified stock options, incentive stock options, appreciation rights, restricted shares, deferred shares, performance shares, performance units and restricted stock units.units, and is inclusive of eligible recycled shares from the Predecessor Long Term Incentive Plan as described below. Awards may be credited with dividend equivalents payable in the form of cash or common shares. In addition, under the Long-TermEquity and Incentive Compensation Plan, nonemployee Directors are eligible for awards of restricted shares, restricted stock units, common shares and option rights. In 2015,2019, the Long-TermEquity and Incentive Compensation Plan was amended and restated and approved by shareholders at the annual meeting of shareholders to increase the numberauthorizing 10,000,000 shares of common sharesstock that may be issuedissued. Shares from the Predecessor Long-Term Incentive Plan are no longer available to be issued. However, if any common shares subject to an aggregateaward granted under the Predecessor Long Term Incentive Plan are forfeited, or an award granted under the Predecessor Long Term Incentive Plan (in whole or in part) is canceled or forfeited, expires, is settled in cash, or is unearned, the common shares subject to such award will, to the extent of 13,000,000.such cancellation, forfeiture, expiration, cash settlement, or unearned amount, be available for awards under the Equity and Incentive Compensation Plan. Under the Long-TermEquity and Incentive Compensation Plan, for any award that is not an option right or a stock appreciation right, 2.12 (awards issued prior to May 7, 2015) / 2.6 (awards issued on or after May 7, 2015)3.5 common shares are subtracted from the maximum number of common shares available under |
| the plan for every common share granted under the award. For awards of option rights and stock appreciation rights, however, only one common share is subtracted from the maximum number of common shares available under the plan for every common share granted. The amount in the table assumes payout levels at targetRecycled option rights and settlement in shares for performance-based restricted stock units and settlement in shares for time-based restricted stock units. At maximum payout levels for performance-based restricted stock units, an additional 1,927,227 shares would be subtractedappreciation rights from the Predecessor Long Term Incentive Plan are added back to the maximum number of securities remaining for future issuancecommon shares available under equity compensation plans. The entire amount in this columnthe plan by one common share. For any award that is not an option right or stock appreciation right, 3.5 common shares are added to the maximum number of shares available for future issuance other than uponunder the exercise of options, warrants or rights.plan. |
(4) | The Company also maintains the Director Deferred Compensation Plan and the Deferred Compensation Plan pursuant to which Directors and other employees, respectively, may defer receipt of incentive compensation payable in common shares (other than restricted shares or options) authorized for issuance under the Long-TermEquity and Incentive Compensation Plan. The table does not include separate information about these plans because they merely provide for the deferral, rather than the issuance, of common shares. |
CEO PAY RATIO For 2018,2021, the ratio of our CEO’s annual total compensation (“CEO Compensation”) to the median of the annual total compensation of all of our employees (other than our CEO and the Excluded Employees (as defined below)) as described below (“Median Annual Compensation”), commonly referred to as the “CEO Pay Ratio”, was 173162 to 1. This CEO Pay Ratio disclosure is a reasonable estimate calculated in a manner consistent with Item 402(u) of RegulationS-K using the data and assumptions described below, but there may be a degree of imprecision due to the permitted use of reasonable estimates and assumptions in preparing this CEO Pay Ratio disclosure. In this summary, we refer to the employee who received our Median Annual Compensation as our “Median Employee.” For purposes of this disclosure, the date used to identify our Median Employee was December 31, 2018.October 1, 2021 (the “Determination Date”). We did not use the same Median Employee to calculate the CEO Pay Ratio for 20182021 that we identified for the calculation in 20172020 (the “2017“2020 Median Employee”). From 2017 to 2018 there have been changes to, as the 20172020 Median Employee’s compensation and toEmployee is no longer employed by the size and composition of our total global workforce that, in the aggregate, caused us to reasonably believe would result in a significant change to our CEO Pay Ratio.Company. For purposes of this CEO Pay Ratio disclosure, CEO Compensation was $8,720,272,$9,665,330, which represents the total compensation reported for our CEO in the 2018“2021 Summary Compensation Table.Table”. Also for purposes of this CEO Pay Ratio disclosure, Median Annual Compensation was $50,297,$59,720, which was calculated by totaling all applicable elements of compensation that our Median Employee earned during the 20182021 fiscal year in accordance with Item 402(c)(2)(x) of RegulationS-K. To identify our Median Employee in 2021, we utilized the consistently applied compensation measure of ‘target“target total direct compensation” for the period from January 1, 20182021 to December 31, 2018,2021, which measure consisted of the sum of annual base pay plus the targeted value of annual and long-term incentives. For hourly workers, annual base pay was calculated using a reasonable estimate of hours worked during 20182021 multiplied by the applicable hourly rate. In addition, we annualized the total compensation (based on reasonable assumptions and estimates relating to our employee compensation program) for any employees (full-time and part-time) that commenced employment with the Company after January 1, 2018.2021. To establish our employee pool, as permitted by the applicable SEC rules, we excluded 82766056 non-U.S employees (the “Excluded Employees”) from our total global workforce of 17,45617,950 employees as of December 31, 2018October 1, 2021 who were employed in locations that individually represented less than 5% of our total global workforce from our Median Employee determination process to arrive at a pool of 16,62917,345 employees (this pool, excluding the Excluded Employees and the CEO, is hereinafter referred to as the “Employee Pool”). The Employee Pool doesdid not include any independent contractors or “leased” workers and excluded employees of businesses acquired by us in 2021, as permitted by the applicable SEC rules, and does not exclude any employees of businesses 6 The Excluded Employees include the following number of employees from the following countries: (a) Italy – 632 employees; (b) South Africa – 86 employees; (c) Mexico – 65 employees; (d) Russia – 18 employees; (e) Israel – 8 employees; (f) Indonesia – 7 employees; (g) Turkey – 6 employees; (h) Columbia – 3 employees; and (i) Philippines – 2 employees.
acquired by us or combined with us (other than employees who otherwise qualify as Excluded Employees).rules. We next calculated the median target total direct compensation for our Employee Pool and identified the subset of employees who were paid within a 1% range of such median (the “Comparison Group”). Finally, we selected a representative employee from the Comparison Group as our Median
Employee and determined our Median Employee’s Median Annual Compensation as described above.in 2021. We did not utilize anycost-of-living adjustments for purposes of this CEO Pay Ratio disclosure. Our Median Employee holds a position in our operations group in 6 The Excluded Employees included the following number of employees from the following countries: (a) United States.Kingdom – 188 employees; (b) Mexico – 182 employees; (c) Brazil – 87 employees; (d) South Africa – 83 employees; (e) Russian Federation – 24 employees; (f) Turkey – 8 employees; (g) Indonesia – 6 employees; (h) Israel – 6 employees; (i) Colombia – 3 employees; (j) Ghana – 3 employees; (k) Taiwan – 3 employees; (l) Thailand – 3 employees; (m) Bosnia and Herzegovina – 1 employee; (n) the Democratic Republic of the Congo – 1 employee; (o) Egypt – 1 employee; (p) Kazakhstan – 1 employee; (q) Nigeria – 1 employee; (r) Philippines – 1 employee; (s) Tanzania – 1 employee; (t) Ukraine – 1 employee; and (u) Vietnam – 1 employee. PROPOSAL NO. 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR The Audit Committee of the Board of Directors has appointed Ernst & Young LLP, an independent registered public accounting firm, to perform the audit of our financial statements and our internal control over financial reporting for the 20192022 fiscal year. Ernst & Young has acted as our independent accounting firm for over 100 years. We believe the long tenure of Ernst & Young’s audit relationship with us is beneficial as Ernst & Young has developed significant expertise and experience with our business, accounting policies and practices and our internal control over financial reporting, which we believe allows for a higher quality audit and a competitive fee structure. The appointment of Ernst & Young as our independent auditor is not required to be submitted to a vote of our shareholders for ratification. However, the Board of Directors believes that obtaining shareholder ratification is a sound governance practice. If our shareholders fail to vote in favor of the appointment of Ernst & Young, the Audit Committee will reconsider whether to retain Ernst & Young and may retain that firm or another firm without resubmitting the matter to our shareholders. Even if the shareholders ratify the appointment, the Audit Committee may, in its discretion, direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interest of the Company and its shareholders. The affirmative vote of a majority of the votes cast on this matter is necessary to ratify the appointment of Ernst & Young. Abstentions will not be counted for determining whether this matter is approved. Because the ratification of the appointment of Ernst & Young is a routine matter, we do not expect any brokernon-votes with respect to this matter. Representatives of Ernst & Young are expected to be present at the 20192022 Annual Meeting of Shareholders. They will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions. | THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTEFOR RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT AUDITOR FOR THE 20192022 FISCAL YEAR.
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Auditor Set forth below are the aggregate fees billed by Ernst & Young LLP for professional services rendered to us in 20182021 and 2017:2020: | | | | 2018 | | | | | 2017 | | | | | | 2021 | | | | | | 2020 | | Audit Fees: | | | | | | | | | | | | | | Consolidated financial statements | | $3,614,000 | | | | | | $3,443,600 | | | | $3,263,500 | | | | | | $3,033,000 | | | New accounting standards and method changes | | $165,000 | | | | | | $751,938 | | | New accounting standards, method changes, and accounting consultations on matters addressed during the audit or interim reviews | | | | - | | | | | | | | $367,500 | | | Statutory audits and SEC filings | | $483,400 | | | | | | $378,000 | | | | $558,000 | | | | | | $416,600 | | | Total Audit Fees | | | $4,262,400 | | | | | | $4,573,538 | | | | $3,821,500 | | | | | | $3,817,100 | | | Audit-Related Fees: | | | | | | | | | | | | | | Accounting consultations | | | - | | | | | | - | | | | Employee benefit plan audits | | | - | | | | | | $12,150 | | | | Total Audit-Related Fees | | | - | | | | | | $12,150 | | | | - | | | | | | - | | | Tax Fees: | | | | | | | | | | | | | | Tax compliance | | $112,486 | | | | | | $130,744 | | | | $205,000 | | | | | | $180,400 | | | Tax advisory and transfer pricing | | $942,841 | | | | | | $577,277 | | | | $1,220,000 | | | | | | $825,400 | | | Total Tax Fees | | | $1,055,327 | | | | | | $708,021 | | | | $1,425,000 | | | | | | $1,005,800 | | | All Other Fees: | | | $7,200 | | | | | | - | | | | | | | | | Total fees | | | $5,324,927 | | | | | | $5,293,709 | | | Publications and online subscriptions/content | | | | $7,200 | | | | | | $7,200 | | | Enterprise risk management assessment | | | | - | | | | | | $25,000 | | | Forensic services | | | | - | | | | | | $45,000 | | | Total Other Fees | | | | $7,200 | | | | | | $77,200 | | | Total Fees | | | | $5,253,700 | | | | | | $4,900,100 | |
The Audit Committee has adopted policies and procedures requiringpre-approval of all services provided by the independent auditor. Other than servicespre-approved in connection with the annual engagement of the independent auditor, all services to be provided by the independent auditor must be, and have been,pre-approved by the Audit Committee. Requests forpre-approval must contain sufficient detail to ensure the Audit Committee knows precisely what services it is being asked topre-approve so that it can make a well-reasoned assessment of the impact of the service on the auditor’s independence. Additionally, the Audit Committee haspre-approved the provision of a limited number of specific services that do not require further action by the Audit Committee. The Audit Committee has delegated itspre-approval authority to one of its members who must report anypre-approval decisions to the full Audit Committee at its next scheduled meeting. Audit Committee Report The Audit Committee has reviewed and discussed with management and our independent auditor the audited financial statements contained in our Annual Report on Form10-K for the fiscal year ended December 31, 2018.2021. The Audit Committee also has discussed with our independent auditor the matters required to be discussed pursuant to Auditing Standard 1301, “Communications with Audit Committees,” as adopted by the applicable requirements of the Public Company Accounting Oversight Board.Board and the SEC. The Audit Committee has received and reviewed the written disclosuredisclosures and the letter from our independent auditor required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditor’s communications with the Audit Committee concerning independence, has discussed with our independent auditor such independent auditor’s independence, and has considered the compatibility ofnon-audit services with the auditor’s independence. Based on the review and discussions referred to above, the Audit Committee recommended to our Board of Directors that the audited financial statements be included in our Annual Report on Form10-K for the fiscal year ended December 31, 2018,2021, for filing with the SEC. | | | | | James F. Palmer (Audit Committee Chairman)Chair) | | | Maria A. Crowe | | | Christopher L. MapesSarah C. Lauber | | | Ajita G. RajendraChristopher L. Mapes | | | Joseph W. RalstonAjita G. Rajendra | | | Frank C. Sullivan |
PROPOSAL NO. 4: APPROVAL OF THE TIMKEN COMPANY 2019 EQUITY AND INCENTIVE COMPENSATION
PLAN
Introduction
We are asking shareholders to approve The Timken Company 2019 Equity and Incentive Compensation Plan (the “2019 Plan”). The Board, upon recommendation of the Compensation Committee, approved and adopted the 2019 Plan on February 6, 2019, which, if adopted by our shareholders, will succeed the Long-Term Incentive Plan and The Timken Company Long-Term Incentive Plan (the “Original LTIP” and, together with the Long-Term Incentive Plan, the “Predecessor Plans”), in each case including as amended or amended and restated. The Original LTIP terminated as to new awards on May 10, 2011 in connection with shareholder approval of the Long-Term Incentive Plan, and no further grants may be made under it. The Long-Term Incentive Plan has 1,080,026 shares remaining available for new awards as of the date of this Proxy Statement (assuming target-level payout for performance-based restricted stock units), but if the 2019 Plan is approved by our shareholders, no further grants will be made under the Long-Term Incentive Plan. However, outstanding awards under the Predecessor Plans, which are the only Company equity plans under which there are still outstanding awards, will generally continue in effect in accordance with their terms.
Shareholder approval of the 2019 Plan would constitute approval of up to 10,000,000 common shares, without par value, available for awards under the 2019 Plan, as described below and in the 2019 Plan. If the 2019 Plan is approved by shareholders, it will be effective as of the day of the 2019 Annual Meeting of Shareholders. If the 2019 Plan is not approved by our shareholders, no awards will be made under the 2019 Plan.
The actual text of the 2019 Plan is attached to this Proxy Statement asAppendix B. The following description of the 2019 Plan is only a summary of its principal terms and provisions and is qualified by reference to the actual text of the 2019 Plan as set forth inAppendix B.
Why We Believe You Should Vote for this Proposal
The 2019 Plan authorizes our Compensation Committee to provide cash awards and equity-based compensation as further described below, for the purpose of providing ournon-employee Directors, employees of the Company and its subsidiaries, and certain consultants and other service providers to the Company and its subsidiaries, incentives and rewards for service and/or performance. Some of the key features of the 2019 Plan that reflect our commitment to effective management of equity and incentive compensation are set forth below.
The following includes aggregated information regarding our view of the overhang associated with the Predecessor Plans and the potential dilution associated with the 2019 Plan. This information is as of February 20, 2019. As of that date, there were approximately 76,110,070 common shares outstanding:
| ● | | Outstanding full-value awards (deferred shares, time-based restricted shares, performance-based restricted stock units, and time-based restricted stock units): 1,147,383 shares, assuming maximum payout for performance-based restricted stock units (approximately 1.5% of our outstanding common shares);
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| ● | | Outstanding stock options: 3,716,514 shares (approximately 4.9% of our outstanding common shares) (outstanding stock options have a weighted average exercise price of $38.90 and a weighted average remaining term of 6.0 years);
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| ● | | In summary, total common shares subject to outstanding awards, as described above (full-value awards and stock options): 4,863,897 shares (approximately 6.4% of our outstanding common shares);
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| ● | | Proposed common shares available for awards under the 2019 Plan: 10,000,000 shares (approximately 13.1% of our outstanding common shares – this percentage reflects the simple dilution of our shareholders that would occur if the 2019 Plan is approved); and
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| ● | | The total common shares subject to outstanding awards as of February 20, 2019 (4,863,897 shares), plus the proposed common shares available for future awards under the 2019 Plan (10,000,000 shares), represent a total overhang of 14,863,897 shares (19.5% under the 2019 Plan).
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Based on the closing price on the NYSE for our common shares on February 20, 2019 of $43.51 per share, the aggregate market value as of February 20, 2019 of the new 10,000,000 common shares requested under the 2019 Plan was $435,100,000.
In determining the number of shares to request for approval under the 2019 Plan, our management team worked with WTW and the Compensation Committee to evaluate a number of factors, including our recent share usage and criteria expected to be utilized by institutional proxy advisory firms in evaluating our proposal for the 2019 Plan.
We currently anticipate that the shares requested in connection with the approval of the 2019 Plan will last for about four to five years, based on our historic grant rates and the approximate current share price, but could last for a shorter period of time if actual practice does not match recent rates or our share price changes materially. As noted below, our Compensation Committee retains full discretion under the 2019 Plan to determine the number and amount of awards to be granted under the 2019 Plan, subject to the terms of the 2019 Plan.
In evaluating this proposal, shareholders should consider all of the information in this proposal.
2019 Plan Highlights
Reasonable 2019 Plan Limits
Subject to adjustment and the applicable common share counting provisions as described in the 2019 Plan, awards under the 2019 Plan are limited to 10,000,000shares,plus any common shares that become available under the 2019 Plan as a result of forfeiture, cancellation, expiration, cash settlement or less-than-maximum earning of awards. These shares may be shares of original issuance or treasury shares or a combination of the two.
The 2019 Plan also provides that, subject as applicable to adjustment and the applicable common share counting provisions as described in the 2019 Plan:
| ● | | the aggregate number of common shares actually issued or transferred upon the exercise of Incentive Stock Options (as defined below) will not exceed 10,000,000common shares; and
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| ● | | nonon-employee Director will be granted, in any one calendar year, compensation for such service having an aggregate maximum value (measured at the date of grant as applicable and calculating the value of any awards under the 2019 Plan based on the grant date fair value for financial reporting purposes) in excess of $650,000.
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Allowances for Conversion Awards and Assumed Plans
Common shares issued or transferred under awards granted under the 2019 Plan in substitution for or conversion of, or in connection with an assumption of, stock options, stock appreciation rights (“SARs”), restricted shares, restricted stock units, deferred shares, or other share or share-based awards held by awardees of an entity engaging in a corporate acquisition or merger transaction with us or any of our subsidiaries will not count against (or be added to) the aggregate share limit or other 2019 Plan limits described above. Additionally, shares available under certain plans that we or our subsidiaries may assume in connection with corporate transactions from another entity may be available for certain awards under the 2019 Plan, under circumstances further described in the 2019 Plan, but will not count against the aggregate share limit or other 2019 Plan limits described above.
Fungible Share Counting
Subject to the share counting rules in the 2019 Plan, the aggregate number of common shares available under the 2019 Plan will be reduced by (a) one common share for every one common share subject to a stock option or SAR granted under the 2019 Plan, and (b) 3.50 common shares for every one common share subject to an award other than a stock option or SAR granted under the 2019 Plan.
Limited Share Recycling Provisions
Subject to certain exceptions described in the 2019 Plan, if any award granted under the 2019 Plan (in whole or in part) is canceled or forfeited, expires, is settled for cash, or is unearned, the common shares subject to such award will, to the extent of such cancellation, forfeiture, expiration, cash settlement, or unearned amount, again be available under the 2019 Plan. Additionally, if, after the effective date of the 2019 Plan, any common shares subject to an award granted under the Predecessor Plans are forfeited, or an award granted under the Predecessor Plans (in whole or in part) is canceled or forfeited, expires, is settled in cash, or is unearned, the common shares subject to such award will, to the extent of such cancellation, forfeiture, expiration, cash settlement, or unearned amount, be available for awards under the 2019 Plan. Generally, the following will not be added (or added back, as applicable) to the aggregate number of common shares available under the 2019 Plan: (a) common shares used in payment of the exercise price of a stock option; (b) common shares used to satisfy tax withholding; and (c) common shares reacquired by the Company using cash proceeds from the exercise of stock options. Further, none of the common shares covered by stock-settled SARs that are exercised and settled in shares, whether or not all common shares covered by the SARs are actually issued to the participant upon exercise, will be added back to the aggregate number of shares available under the 2019 Plan. If a participant elects to give up the right to receive compensation in exchange for common shares based on fair market value, such common shares will not count against the aggregate number of shares available under the 2019 Plan.
Generally, any common share that becomes available under the 2019 Plan as a result of the recycling provisions of the 2019 Plan will be added back as (a) one common share if such common share was subject to a stock option or SAR, and (b) as 3.50 common shares if such common share was subject to an award other than a stock option or SAR.
Minimum Vesting Periods
The 2019 Plan provides that awards granted under the 2019 Plan will vest no earlier than after a minimumone-year vesting period orone-year performance period, as applicable, except that an aggregate of up to 5% of the common shares available for awards under the 2019 Plan (as may be adjusted under the adjustment provisions of the 2019 Plan) may be used for awards that do not at grant
comply with the minimum vesting requirement. However, notwithstanding the minimum vesting requirement, the Compensation Committee is permitted to (a) provide for continued vesting or accelerated vesting for any award under the 2019 Plan upon certain events, including in connection with or following a participant’s death, disability, or termination of service, or a change in control of the Company, or (b) exercise its discretionary vesting authority under the 2019 Plan (as described below and in the 2019 Plan) at any time following the grant of an award.
No Repricing Without Shareholder Approval
Except in connection with certain corporate transactions, changes in the capital structure of the Company or in connection with a change in control, the terms of outstanding awards may not be amended to (a) reduce the exercise price or base price of outstanding stock options or SARs, respectively, or (b) cancel outstanding “underwater” stock options or SARs (including following a participant’s voluntary surrender of “underwater” stock options or SARs) in exchange for cash, other awards or stock options or SARs with an exercise price or base price, as applicable, that is less than the exercise price or base price of the original stock options or SARs, as applicable, without shareholder approval. The 2019 Plan specifically provides that this provision is intended to prohibit the repricing of “underwater” stock options and SARs and that it may not be amended without approval by our shareholders.
Exercise or Base Price Limitation
The 2019 Plan also provides that, except with respect to certain converted, assumed or substituted awards as described in the 2019 Plan, no stock options or SARs will be granted with an exercise or base price less than the fair market value of a common share on the date of grant.
Code Section 162(m)
Section 162(m) of the Code generally disallows a deduction for certain compensation paid to certain executive officers (and, beginning in 2018, certain former executive officers) to the extent that compensation to a covered employee exceeds $1 million for such year. Compensation qualifying for a performance-based exception as “qualified performance-based compensation” under Section 162(m) of the Code has historically not been subject to the deduction limit if the compensation satisfied the requirements of Section 162(m) of the Code. This exception was repealed, effective for taxable years beginning after December 31, 2017, unless certain transition relief for certain compensation arrangements in place as of November 2, 2017 is available. Currently, the Company does not anticipate that it will be able to make any future grants under the 2019 Plan that will qualify for a performance-based exception. To be clear, shareholders are not being asked to approve the 2019 Plan (or any of its provisions) for purposes of Section 162(m) of the Code or the performance-based exception.
Summary of Other Material Terms of the 2019 Plan
Administration
The 2019 Plan will generally be administered by our Compensation Committee (except as otherwise contemplated in the 2019 Plan) or such other body that may administer the 2019 Plan pursuant to its terms. Our Compensation Committee may delegate its authority under the 2019 Plan to a subcommittee. Any interpretation, construction and determination by our Compensation Committee of any provision of the 2019 Plan, or of any agreement, notification or document evidencing the grant of awards under the 2019 Plan, will be final and conclusive. To the extent permitted by applicable law, our Compensation Committee may delegate to one or more of its members or to one or more officers, or to one or more agents or advisors of the Company, such administrative duties or powers as it deems advisable. In addition, our Compensation Committee may by resolution, subject to certain restrictions set forth in the 2019 Plan, authorize one or more officers of the Company to (a) designate employees to be recipients of awards under the 2019 Plan, and (b) determine the size of such awards. Our Compensation Committee
is authorized to take action under the 2019 Plan subject to the express limitations contained in the 2019 Plan.
Eligibility
Participation in the 2019 Plan is available to any person who is selected by our Compensation Committee to receive benefits under the 2019 Plan and who is at that time (a) anon-employee Director of the Company, (b) an officer or other employee of the Company or any of its subsidiaries (including a person who has agreed to commence serving in such capacity within 90 days of the date of grant), (c) a consultant of the Company or a subsidiary, or (d) a person who provides services to the Company or any subsidiary that are equivalent to those typically provided by an employee. However, participants in the 2019 Plan must generally satisfy the FormS-8 definition of “employee.” As of February 20, 2019, we had approximately 17,000 employees and there were approximately 300 employees, 0 consultants, and 10non-employee Directors of the Company expected to participate in the 2019 Plan. The basis for participation in the 2019 Plan by eligible persons is the selection of such persons by our Compensation Committee in its discretion.
Types of Awards Under the 2019 Plan
Pursuant to the 2019 Plan, the Company may grant cash awards and stock options (including stock options intended to be “incentive stock options” as defined in Section 422 of the Code (“Incentive Stock Options”), SARs, restricted shares, restricted stock units, deferred shares, performance shares, performance units, cash incentive awards, and certain other awards based on or related to common shares.
Generally, each grant of an award under the 2019 Plan will be evidenced by an award agreement, certificate, resolution or other type or form of writing or other evidence approved by our Compensation Committee (an “Evidence of Award”), which will contain such terms and provisions as our Compensation Committee may determine, consistent with the 2019 Plan. A brief description of the types of awards which may be granted under the 2019 Plan is set forth below.
Stock Options
A stock option is a right to purchase common shares upon exercise. Stock options under the 2019 Plan may consist of either an Incentive Stock Option (subject to applicabletax-based limitations), anon-qualified stock option that is not intended to be an “incentive stock option” under Section 422 of the Code, or a combination of both. The term of a stock option may not extend more than 10 years from the date of grant. Our Compensation Committee may provide for the automatic exercise of a stock option in an Evidence of Award.
Each grant of a stock option will specify the applicable terms of the stock option, including the number of common shares subject to the stock option and the required period or periods of the participant’s continuous service, if any, before any stock option or portion of a stock option will become exercisable (subject to the 2019 Plan’s minimum vesting rules).
Each grant will specify whether the consideration to be paid in satisfaction of the exercise price will be payable: (a) in cash, by check acceptable to the Company, or by wire transfer of immediately available funds; (b) by the actual or constructive transfer to the Company of common shares owned by the participant with a value at the time of exercise that is equal to the total exercise price; (c) subject to any conditions or limitations established by our Compensation Committee, by a net exercise arrangement pursuant to which the Company will withhold common shares otherwise issuable upon exercise of a stock option; (d) by a combination of the foregoing methods; or (e) by such other methods as may be approved by our Compensation Committee. To the extent permitted by law, any grant may provide for deferred payment of the exercise price from the proceeds of a sale through a bank or broker of some or all of the shares to which the exercise relates. Stock options granted under the 2019 Plan may not provide for dividends or dividend equivalents.
SARs
A SAR is a right to receive from us an amount equal to 100%, or such lesser percentage as our Compensation Committee may determine, of the spread between the base price and the value of our common shares on the date of exercise. Each grant of SARs will specify the period or periods of continuous service, if any, by the participant with the Company or any subsidiary that is necessary before the SARs or installments of such SARs will become exercisable (subject to the 2019 Plan’s minimum vesting rules). A SAR may be paid in cash, common shares or any combination of the two. The term of a SAR may not extend more than 10 years from the date of grant. Our Compensation Committee may provide for the automatic exercise of a SAR in an Evidence of Award. SARs granted under the 2019 Plan may not provide for dividends or dividend equivalents.
Restricted Shares
Restricted shares constitute an immediate transfer of the ownership of common shares to the participant in consideration of the performance of services, entitling such participant to dividend, voting and other ownership rights, subject to the substantial risk of forfeiture and restrictions on transfer determined by our Compensation Committee for a period of time determined by our Compensation Committee or until certain management objectives specified by our Compensation Committee are achieved. Each such grant or sale of restricted shares may be made without additional consideration or in consideration of a payment by the participant that is less than the fair market value per common share on the date of grant. Restricted shares are subject to the 2019 Plan’s minimum vesting rules. Any grant of restricted shares may require that any and all dividends or distributions paid on restricted shares that remain subject to a substantial risk of forfeiture be automatically deferred and/or reinvested in additional restricted shares, which will be subject to the same restrictions as the underlying restricted shares. Any such dividends or other distributions on restricted shares will be deferred until, and paid contingent upon, the vesting of such restricted shares.
Restricted Stock Units
Restricted stock units awarded under the 2019 Plan constitute an agreement by the Company to deliver common shares, cash, or a combination of the two, to the participant in the future in consideration of the performance of services, but subject to the fulfillment of such conditions during the restriction period as our Compensation Committee may specify. Each grant or sale of restricted stock units may be made without additional consideration or in consideration of a payment by the participant that is less than the fair market value of our common shares on the date of grant. Restricted stock units are subject to the 2019 Plan’s minimum vesting rules. During the restriction period applicable to restricted stock units, the participant will have no right to transfer any rights under the award and will have no rights of ownership in the common shares underlying the restricted stock units and no right to vote them. Rights to dividend equivalents may be extended to and made part of any restricted stock unit award at the discretion of and on the terms determined by our Compensation Committee, on a deferred and contingent basis, either in cash or in additional common shares, but dividend equivalents or other distributions on common shares under the restricted stock units will be deferred until and paid contingent upon vesting of such restricted stock units. A restricted stock unit may be paid in cash, common shares or any combination of the two.
Deferred Shares
The grant or sale of deferred shares represents an agreement to issue or transfer common shares to the participant following a deferral period in consideration of the participant’s performance of services, subject to fulfillment of conditions specified by our Compensation Committee. Each such grant or sale may be made without additional consideration from the participant or in consideration of a payment by the participant that is less than the fair market value of common shares on the date of grant. During the deferral period, the participant will have no right to transfer any rights under the award, and will have no rights of ownership in the deferred shares and no right to vote them. Our Compensation Committee may authorize the payment of dividend equivalents on the deferred shares, in cash or additional deferred shares, on a deferred and contingent basis, but dividend equivalents or other distributions on deferred shares will be deferred until and paid contingent upon the earning and vesting of such deferred shares.
Deferred shares are subject to the 2019 Plan’s minimum vesting rules. A deferred share may be paid in cash, common shares or any combination of the two.
Performance Shares, Performance Units and Cash Incentive Awards
Performance shares, performance units and cash incentive awards may also be granted to participants under the 2019 Plan. A performance share is a bookkeeping entry that records the equivalent of one common share, and a performance unit is a bookkeeping entry that records a unit equivalent to $1.00 or such other value as determined by our Compensation Committee. Each grant will specify the number or amount of performance shares or performance units, or the amount payable with respect to a cash incentive award being awarded, which number or amount may be subject to adjustment to reflect changes in compensation or other factors.
These awards, when granted under the 2019 Plan, generally become payable to participants based on the achievement of specified management objectives and upon such terms and conditions as our Compensation Committee determines at the time of grant.
The performance period with respect to each cash incentive award or grant of performance shares or performance units will be a period of time determined by our Compensation Committee (subject to the 2019 Plan’s minimum vesting rules) and within which the management objectives relating to such award are to be achieved. Any grant of performance shares or performance units may provide for the payment of dividend equivalents in cash or in additional common shares, subject to deferral and payment on a contingent basis based on the participant’s earning and vesting of the performance shares or performance units, as applicable, with respect to which such dividend equivalents are paid.
Other Awards
Subject to applicable law and applicable share limits under the 2019 Plan, our Compensation Committee may authorize the grant to any participant of common shares or such other awards that may be based on or related to common shares, as further described in the 2019 Plan (“Other Awards”). The terms and conditions of any such awards will be determined by our Compensation Committee. Common shares delivered under an award in the nature of a purchase right granted under the 2019 Plan will be purchased for such consideration, paid for at such time, by such methods, and in such forms, including, without limitation, common shares, other awards, notes or other property, as our Compensation Committee determines. In addition, our Compensation Committee may grant cash awards, as an element of or supplement to any other awards granted under the 2019 Plan. Our Compensation Committee may also authorize the grant of common shares as a bonus, or may authorize the grant of other awards in lieu of obligations of the Company or a subsidiary to pay cash or deliver other property under the 2019 Plan or under other plans or compensatory arrangements, subject to terms determined by our Compensation Committee in a manner that complies with Section 409A of the Code.
Other Awards are subject to the 2019 Plan’s minimum vesting rules. Our Compensation Committee may provide for the payment of dividends or dividend equivalents on Other Awards in cash or in additional common shares, subject to deferral and payment on a contingent basis based on the participant’s earning and vesting of the Other Awards with respect to which such dividends or dividend equivalents are paid.
Change in Control
The 2019 Plan includes a definition of “change in control” that will apply to awards under the 2019 Plan, unless otherwise determined by our Compensation Committee.
Management Objectives
The 2019 Plan provides that any of the awards set forth above may be granted subject to the achievement of specified management objectives. Management objectives are defined as the measurable performance objective or objectives established pursuant to the 2019 Plan for participants
who have received grants of performance shares, performance units or cash incentive awards or, when so determined by our Compensation Committee, other types of awards under the 2019 Plan, all as determined by our Compensation Committee. Additionally, if our Compensation Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which it conducts its business, or other events or circumstances render the management objectives unsuitable, our Compensation Committee may in its discretion modify such management objectives or the goals or actual levels of achievement, in whole or in part, as our Compensation Committee deems appropriate and equitable.
Transferability of Awards
In general, and except as otherwise provided by our Compensation Committee, and subject to the terms of the 2019 Plan, awards under the 2019 Plan will not be transferrable by a participant except by will or the laws of descent and distribution. In no event will any such award granted under the 2019 Plan be transferred for value. Except as otherwise determined by our Compensation Committee, stock options and SARs will be exercisable during the participant’s lifetime only by him or her or, in the event of the participant’s legal incapacity to do so, by his or her guardian or legal representative as described in the 2019 Plan.
Adjustments; Corporate Transactions
Our Compensation Committee will make or provide for such adjustments in: (a) if and as applicable, the number of and kind of common shares covered by, and the exercise price or base price provided under, awards granted pursuant to the 2019 Plan; (b) cash incentive awards; and (c) other award terms, as our Compensation Committee in its good faith discretion determines to be equitably required in order to prevent dilution or enlargement of the rights of participants that otherwise would result from certain corporate transactions and events that are described in the 2019 Plan.
Also, in the event of any such transaction or event, or in the event of a change in control of the Company, our Compensation Committee may provide in substitution for any or all outstanding awards under the 2019 Plan such alternative consideration (including cash), if any, as it may in good faith determine to be equitable under the circumstances. In addition, for each stock option or SAR with an exercise price or base price, respectively, greater than the consideration offered in connection with any such transaction or event or change in control of the Company, our Compensation Committee may in its discretion elect to cancel such stock option or SAR without any payment to the person holding such award. Our Compensation Committee will make or provide for such adjustments to the numbers of common shares available under the 2019 Plan and the share limits of the 2019 Plan as our Compensation Committee in its sole discretion may in good faith determine to be appropriate in connection with such transaction or event (subject to applicable limitations described in the 2019 Plan).
Detrimental Activity and Recapture
Any Evidence of Award may reference a clawback policy of the Company or provide for the cancellation or forfeiture and repayment to us of any gain related to an award, or other provisions intended to have a similar effect, upon such terms and conditions as may be determined by our Compensation Committee from time to time, if any participant, either during employment or other service with us or a subsidiary or within a specified period after such employment or service, engages in any detrimental activity, as described in the applicable Evidence of Award or such clawback policy. In addition, any Evidence of Award or such clawback policy may provide for cancellation or forfeiture of an award or the forfeiture and repayment of any common shares issued under and/or any other benefit related to an award, or other provisions intended to have a similar effect, upon such terms and conditions as may be required by our Compensation Committee or under Section 10D of the 1934 Act and any applicable rules and regulations promulgated by the SEC or any national securities exchange or national securities association on which the common shares may be traded.
Withholding
The 2019 Plan includes provisions governing the satisfaction of the Company’s tax and other withholding obligations with respect to awards under the 2019 Plan. Generally, absent other arrangements being made by a participant, if a participant’s benefit is to be received in the form of common shares, unless otherwise determined by our Compensation Committee, we will withhold common shares having a value equal to the amount required to be withheld. When a participant is required to pay the Company an amount required to be withheld, the participant may elect, unless otherwise determined by our Compensation Committee, to satisfy the obligation, in whole or in part, by having withheld, from the shares required to be delivered to the participant, common shares having a value equal to the amount required to be withheld or by delivering to us other common shares held by such participant. In no event will the fair market value of the common shares to be withheld and delivered pursuant to the 2019 Plan exceed the minimum amount required to be withheld, unless (a) an additional amount can be withheld and not result in adverse accounting consequences, (b) such additional withholding amount is authorized by our Compensation Committee, and (c) the total amount withheld does not exceed the participant’s estimated tax obligations attributable to the applicable transaction. Participants will also make such arrangements as the Company may require for the payment of any withholding tax or other obligation that may arise in connection with the disposition of common shares acquired upon the exercise of stock options.
Effective Date of the 2019 Plan
The 2019 Plan will become effective on the date it is approved by the Company’s shareholders.
Amendment and Termination of the 2019 Plan
The Board generally may amend the 2019 Plan from time to time in whole or in part. However, if any amendment, for purposes of applicable stock exchange rules (and except as permitted under the adjustment provisions of the 2019 Plan) must be approved by our shareholders in order to comply with applicable law or the rules of the NYSE (including as described in the 2019 Plan), or, if the common shares are not traded ontheNYSE, the principal national securities exchange upon which the common shares are traded or quoted, all as determined by the Board, then such amendment will be subject to shareholder approval and will not be effective unless and until such approval has been obtained.
Further, subject to the 2019 Plan’s prohibition on repricing and other limitations set forth in the 2019 Plan, our Compensation Committee generally may amend the terms of any award prospectively or retroactively. If permitted by Section 409A of the Code and subject to certain other limitations set forth in the 2019 Plan (but notwithstanding the 2019 Plan’s minimum vesting rules), including in the case of termination of employment or service, or in the case of unforeseeable emergency or other circumstances or in the event of a change in control, our Compensation Committee may in its discretion provide for continued vesting or accelerate the vesting of certain awards granted under the 2019 Plan.
The Board may, in its discretion, terminate the 2019 Plan at any time. Termination of the 2019 Plan will not affect the rights of participants or their successors under any awards outstanding and not exercised in full on the date of termination. No grant will be made under the 2019 Plan on or after the tenth anniversary of the effective date of the 2019 Plan, but all grants made prior to such date will continue in effect thereafter subject to their terms and the terms of the 2019 Plan.
New Plan Benefits
It is not possible to determine specific amounts and types of awards that may be granted in the future under the 2019 Plan because the grant and actual settlement of awards under the 2019 Plan will be discretionary. The 2019 Plan does not mandate set benefits or amounts, and no awards have been granted under the 2019 Plan that are contingent upon shareholder approval.
U.S. Federal Income Tax Consequences
The following is a brief summary of certain of the federal income tax consequences of certain transactions under the 2019 Plan based on federal income tax laws in effect. This summary, which is presented for the information of shareholders considering how to vote on this proposal and not for 2019 Plan participants, is not intended to be complete and does not describe federal taxes other than income taxes (such as Medicare and Social Security taxes), or state, local or foreign tax consequences.
Tax Consequences to Participants
Restricted Shares
The recipient of restricted shares generally will be subject to tax at ordinary income rates on the fair market value of the restricted shares (reduced by any amount paid by the recipient for such restricted shares) at such time as the restricted shares are no longer subject to forfeiture or restrictions on transfer for purposes of Section 83 of the Code (“Restrictions”). However, a recipient who so elects under Section 83(b) of the Code within 30 days of the date of transfer of the shares will have taxable ordinary income on the date of transfer of the shares equal to the excess of the fair market value of such shares (determined without regard to the Restrictions) over the purchase price, if any, of such restricted shares. If a Section 83(b) election has not been made, any dividends received with respect to restricted shares that are subject to the Restrictions generally will be treated as compensation that is taxable as ordinary income to the recipient.
Performance Shares, Performance Units and Cash Incentive Awards
No income generally will be recognized upon the grant of performance shares, performance units or cash incentive awards. Upon payment in respect of theearn-out of performance shares, performance units or cash incentive awards, the recipient generally will be required to include as taxable ordinary income in the year of receipt an amount equal to the amount of cash received and the fair market value of any unrestricted common shares received.
Nonqualified Stock Options
In general:
| ● | | no income will be recognized by an optionee at the time anon-qualified stock option is granted;
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| ● | | at the time of exercise of anon-qualified stock option, ordinary income will be recognized by the optionee in an amount equal to the difference between the option price paid for the shares and the fair market value of the shares, if unrestricted, on the date of exercise; and
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| ● | | at the time of sale of shares acquired pursuant to the exercise of anon-qualified stock option, appreciation (or depreciation) in value of the shares after the date of exercise will be treated as either short-term or long-term capital gain (or loss) depending on how long the shares have been held.
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Incentive Stock Options
No income generally will be recognized by an optionee upon the grant or exercise of an Incentive Stock Option. If common shares are issued to the optionee pursuant to the exercise of an Incentive Stock Option, and if no disqualifying disposition of such shares is made by such optionee within two years after the date of grant or within one year after the transfer of such shares to the optionee, then upon sale of such shares, any amount realized in excess of the option price will be taxed to the optionee as a long-term capital gain and any loss sustained will be a long-term capital loss.
If common shares acquired upon the exercise of an Incentive Stock Option are disposed of prior to the expiration of either holding period described above, the optionee generally will recognize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of such shares at the time of exercise (or, if less, the amount realized on the disposition of such shares if a sale or exchange) over the exercise price paid for such shares. Any further gain (or loss) realized by the participant generally will be taxed as short-term or long-term capital gain (or loss) depending on the holding period.
SARs
No income will be recognized by a participant in connection with the grant of a SAR. When the SAR is exercised, the participant normally will be required to include as taxable ordinary income in the year of exercise an amount equal to the amount of cash received and the fair market value of any unrestricted common shares received on the exercise.
Restricted Stock Units
No income generally will be recognized upon the award of restricted stock units. The recipient of a restricted stock unit award generally will be subject to tax at ordinary income rates on the fair market value of unrestricted common shares on the date that such shares are transferred to the participant under the award (reduced by any amount paid by the participant for such restricted stock units), and the capital gains/loss holding period for such shares will also commence on such date.
Deferred Shares
No income generally will be recognized upon the award of deferred shares. The participant generally will be subject to tax at ordinary income rates on the fair market value of unrestricted common shares on the date that such shares are transferred to the participant under the award (reduced by any amount paid by the participant for such deferred shares), and the capital gains/loss holding period for such shares will also commence on such date.
Tax Consequences to the Company or its Subsidiaries
To the extent that a participant recognizes ordinary income in the circumstances described above, the Company or the subsidiary for which the participant performs services will be entitled to a corresponding deduction provided that, among other things, the income meets the test of reasonableness, is an ordinary and necessary business expense, is not an “excess parachute payment” within the meaning of Section 280G of the Code and is not disallowed by the $1 million limitation on certain executive compensation under Section 162(m) of the Code.
Registration with the SEC
We intend to file a Registration Statement on FormS-8 relating to the issuance of common shares under the 2019 Plan with the SEC pursuant to the Securities Act of 1933, as amended, as soon as practicable after approval of the 2019 Plan by our shareholders
Vote Required for Approval
The affirmative vote of a majority of the votes cast on this proposal is necessary for approval of the 2019 Plan. Abstentions and brokernon-votes will not be counted for determining whether this proposal is approved.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTEFOR APPROVAL OF THE TIMKEN COMPANY 2019 EQUITY AND INCENTIVE COMPENSATION PLAN.
PROPOSAL NO. 5: SHAREHOLDER PROPOSAL – SIMPLE
INDEPENDENT BOARD CHAIRMANMAJORITY VOTE
A shareholder, John Chevedden, whose name, address and share ownership are available upon request as described on page 78,81, has notified the Company of his intention to offer the following proposal for consideration of our shareholders at the 20192022 Annual Meeting of Shareholders. By including the proposal below in our proxy materials, the Company makes no representation as to the accuracy or completeness of the proponent’s claims or assertions. Proposal 4 – Simple Majority Vote ![LOGO](https://capedge.com/proxy/DEF 14A/0001193125-22-078880/g212116sp81.jpg)
RESOLVED, Shareholders request that our board take each step necessary so that each voting requirement in our charter and bylaws (that is explicit or implicit due to default to state law) that calls for a greater than simple majority vote be eliminated, and replaced by a requirement for a majority of the votes cast for and against applicable proposals, or a simple majority in compliance with applicable laws. If necessary this means the closest standard to a majority of the votes cast for and against such proposals consistent with applicable laws. This includes any existing supermajority vote requirement that result from default to state law and can be subject to elimination. Shareholders request our Boardare willing to pay a premium for shares of Directorscompanies that have excellent corporate governance. Supermajority voting requirements have been found to adopt as a policy,be one of 6 entrenching mechanisms that are negatively related to company performance according to “What Matters in Corporate Governance” by Lucien Bebchuk, Alma Cohen and amend our governing documents as necessary, to require henceforth that the ChairAllen Ferrell of the Board of Directors, whenever possible,Harvard Law School. Supermajority requirements are used to be an independent member of the Board. The Board would have discretion to phase in this policy for the next Chief Executive Officer transition, implemented so it does not violate any existing agreement. If the Board determines thatblock initiatives supported by most shareowners but opposed by a Chairman, who was independent when selected is no longer independent, the Board shall select a new Chairman who satisfies the requirements of the policy within a reasonable amount of time. Compliance with this policy is waived if no independent director is available and willing to serve as Chairman. This proposal requests that all the necessary steps be taken to accomplish the above.status quo management.
This proposal topic won 50%-plusfrom 74% to 88% support at 5 major U.S. companies in 2013 including 73%-support at Netflix. These 5 majorityWeyerhaeuser, Alcoa, Waste Management, Goldman Sachs, FirstEnergy, McGraw-Hill and Macy’s. The proponents of these proposals included Ray T. Chevedden and William Steiner. The votes would have been still higher than 74% to 88% if allmore shareholders had access to independent proxy voting advice. An independent board chairman would have more time and incentive to improveCurrently a 2%-minority can frustrate the independence and oversightwill of our Board. For instance Elizabeth Ann Harrell,79%-shareholder majority in an election in which 81% of shares cast ballots. In other words a new director in 2017, had no other major company director experience.
Meanwhile 6 directors had15-2%-minority could have the power to32-years long-tenure on our board – long-tenure which erodes director independence:
| | | John Timken
| | 32-years
| John Luke
| | 19-years
| Jacqueline Woods
| | 18-years
| Ward Timken
| | 16-years
| Joseph Ralston
| | 15-years
| Frank Sullivan
| | 15-years
|
These directors, whose independence has eroded, also had a big influence on our most important Board committees – controlling 8 prevent 79% of the 18 positions.
Joseph Ralston, with15-year long-tenure, was Lead Director - inappropriate because the Lead Director position requires a higher level of director independence.
Plus we permanently have no right to elect a director by written consent since Timken is incorporated in Ohio. Written consent often obtains significantshareholders from improving shareholder support in states other than Ohio. For instance a written consent proposal, sponsored by Ray T. Chevedden, won 54% supportrights and management accountability at AT&T.
An independent Chairman is best positioned to build up the oversight capabilities of our directors while our CEO addresses the challengingday-to-day issues facing the company. The roles of Chairman and CEO are fundamentally different and should be held by 2 directors, a CEO and a Chairman who is completely independent.Timken.
Please vote yes: Independent Board ChairmanSimple Majority Vote - Proposal 54
SHAREHOLDER PROPOSAL – INDEPENDENT BOARD CHAIRMAN
THE BOARD OF DIRECTORS’ RESPONSE TO THE SHAREHOLDER PROPOSAL THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTEAGAINST THIS SHAREHOLDER PROPOSAL. This proposal, submitted by John Chevedden, requests that each Company voting requirement in our Articles of Incorporation or Code of Regulations that calls for a greater than simple majority vote (either explicit or implicit due to default state law) be replaced by a majority vote requirement. After careful consideration, the Board has concluded that this proposal is not in the best interests of the Company and its shareholders. Accordingly, the Board unanimously recommends a vote AGAINST this proposal for the following reasons. Existing Supermajority Voting Thresholds Apply in Limited Circumstances A majority of votes cast, or a simple majority, is already the voting standard for most matters voted upon by the Company’s common shareholders. Our existing Board leadership structure and strong corporate governance practices already provide for effective and independent Board oversight. Timken’s Directors have a fiduciary duty to routinely evaluate and determine the Board’s leadership structure based on what will best serve shareholders’ interests under the circumstances, not pursuant to an inflexible policy established in advance. No single, fixed leadership model is appropriateCode of Regulations currently provides that in all circumstances. If this proposal werematters, except as provided by statute or by our Articles of Incorporation or Code of Regulations, a simple majority is the voting standard applicable to be approvedour common shareholders. The express voting standards applicable to our common shareholders in our Articles of Incorporation and implemented, it would depriveCode of Regulations are also simple majority standards. Ohio corporate law, like the Boardcorporate law of important flexibility to utilize its business judgment to determinemost states, does however provide a default voting standard for certain extraordinary matters (requiring the most effective leadership structure to serveaffirmative vote of the interestsholders of at least two-thirds of our outstanding voting securities). Because our organizational documents are otherwise silent on the required voting standard for such extraordinary matters, certain matters, such as a merger or sale of all or substantially all of the Company’s assets and a voluntary dissolution of the Company, and its shareholders. Moreover, when the proponent put forth substantially the same proposal in 2014, over 73% of the votes cast by our shareholders voted against the proposal. The Board’s current and preferred leadership structure is to separate the roles of Chairman and CEO. With limited exceptions, these roles have been separate for over 80 years. The Board considers this balance of leadership between the two positions to bewould require a strength for the Company.
The Board recognizes the importance of having in place a structure to ensure that it functions in an appropriately independent manner. With the Board’s appointment of John M. Timken, Jr. to the role of Chairman in 2014, it already adopted a structure that is essentially the same as that requested by this proposal (without unduly depriving the Board of its flexibility). John M. Timken, Jr. meets all of the independence requirements of the NYSE listing standards, and the Board itself has determined that he has no relationships that impair his independence. The last time the Company had anon-independent Chairman, the Board utilized an independent Lead Director. Pursuant to the Board of Directors General Policies and Procedures, the Board maintains the right to appoint an independent Lead Director in the future should circumstances warrant.supermajority vote.
The Board believes that independent oversight involvesretaining the default supermajority voting standards under Ohio law, applicable only in certain limited circumstances, is in the best interests of the Company’s shareholders and the Company. Supermajority voting requirements on fundamental corporate matters help to protect shareholders against self-interested and potentially abusive actions proposed by one or a few large shareholders, who may seek to advance their interests over the interests of the majority of the Company’s shareholders. The Board believes that in certain limited circumstances, the higher voting requirements are appropriate because certain fundamental matters should require the support of a broad consensus of the Company’s shareholders, rather than a simple majority of the votes present at a meeting. These default supermajority thresholds assist in maximizing long-term value to all shareholders and have the effect of deterring hostile takeovers of our Company that may not be in the best interests of our shareholders and the Company. The Board believes that the limited supermajority requirements the Company has in place are appropriate to maintain the stability of our operations, while striking an appropriate balance that allows for fundamental changes where there is strong shareholder consensus. Benefits to Shareholders from Supermajority Provisions Under a simple majority voting standard, where only having an independenta “majority of the votes cast for and against” is required, a few large shareholders would have the power to approve actions that would significantly alter the governance of the Company, including fundamental changes to the Company’s corporate governance structure or operations that could negatively impact the interests of all shareholders. This means a very small group of shareholders could act in their own self-interests and possibly to the detriment of the Company’s other shareholders. Our Board leader, but also showingbelieves that the few heightened voting standards currently existing protect our shareholders against such actions and should not be eliminated. Because this proposal would eliminate shareholder protections that are in place to maximize long-term value, the Board believes that this proposal is not in the best interests of the Company or its shareholders. The Board Has Demonstrated a Strong Commitment to Corporate Governance Best Practices The Board believes that this proposal should be evaluated in the context of the Company’s overall commitment to strong corporate governance whichthat is responsive to the views and concerns of the Company’s shareholders, as evidenced by the following practices: | ●· | | We have a declassified Board – all of our Directors are elected annually. |
| · | | We have an independent Board Chairman. |
| · | | The Board is comprised of a substantial majority of independent Directors (9(10 of 11 Director nominees12 Directors are independent). |
| ●· | | At each regularly scheduledWe have shown a strong commitment to Board meeting, the independent Directors have the opportunity to meet in executive session. Independent directors use these executive sessions to discuss matters of concern as well as any matter they deem appropriate, including evaluation of senior management, CEOrefreshment and management succession, matters to be included on Board agendas, Board informational needs and Board effectiveness. Following these sessions, the Board’s guidance and feedback is discussed with the CEO and Chairman.diversity:
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| ●○ | | The Chairs – and all members –over half of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee are independent Directors. These Chairs review in advance the matters to be discussed and the materials to be providedour Board is comprised of Directors that have been added in the areas covered by their respective committee charters.past decade; and
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| ●○ | | Five of 12 Directors are ethnically or gender diverse. |
| · | | We align our Directors’ and executive officers’ interests with those of our shareholders through robust ownership requirements. |
| · | | We have granted our shareholders proxy access with 3/3/20/20 parameters. |
| · | | All Directors have full accessDirector nominees are evaluated in the same manner by the Nominating and Corporate Governance Committee, without regard to all members of management, other Company employees and outside advisors, so the Chairman is only onesource of the many sourcesnominee recommendation. |
| · | | Our Directors are elected by a majority of information forvotes cast and our Majority Voting Policy requires a Director who fails to receive a majority of the Directors.votes cast in favor of his or her election to submit his or her resignation to the Board. |
| · | | Shareholders holding 25% of the Company’s common shares have the right to call special meetings. |
See page 2125 for more details on the Company’s commitment to strong corporate governance. * * * * In support of his position, the proponent makes several assertions and intimations with which we do not agree. As indicated above, a substantial majority of our Board is composed of independent Directors (as defined by the NYSE listing standards), which is also true ofall standing committee members and committee Chairs. The Nominating and Corporate Governance Committee routinely reviews Board and committee composition to help ensure that there is the right balance of experience, competencies and backgrounds to fulfill oversight obligations for our shareholders. As part of that process, the Nominating and Corporate Governance Committee regularly reviews whether any vacancies are expected due to retirement, refreshment or otherwise. Our commitment to refreshment has been demonstrated with the addition of five new independent Directors since 2014. While the Nominating and Corporate Governance Committee seeks to maintain an appropriate mix of newer Directors who bring fresh perspectives, we believe that it is in the best interests of our Company and its shareholders to retain longer-tenured Directors who have deep knowledge of our global operations and long-term strategy.
The Board believes that adopting a policy to restrict the Board’s discretion in selecting the Chair of the Board would deprive the Board of valuable flexibility to exercise its business judgment in selecting the most qualified and appropriate individual to lead the Board. In light of the substantial independent oversight of management by the Board, the Company’s strong corporate governance practices, and the business success that the Board has fostered and overseen, the Board believes that the simple majority vote standard for certain limited circumstances that would be imposed under this proposal is neither productive nornot in the best interests of the Company or its shareholders.
The affirmative vote of a majority of the votes cast is necessary for the approval of this proposal. Abstentions and brokernon-votes will not be counted for determining whether the resolution is approved. FOR THESE REASONS, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTEAGAINST THIS SHAREHOLDER PROPOSAL. OTHER INFORMATION Admission toParticipation at the Annual Meeting
For admissionIn order to attend the Annual Meeting,online-only meeting, you will need to pre-register no later than 10:00 a.m., Eastern Time, on May 5, 2022. To pre-register for the meeting, please bringfollow these instructions:
Registered Shareholders If your shares are registered in your name with our transfer agent or you are a participant holding shares in a Timken-sponsored employee savings plan and you wish to attend the virtual meeting, go to www.cesonlineservices.com/tkr22_vm. Please have your Proxy Card or Notice of Annualthe Meeting, of Shareholders (withcontaining your11-digit control number)number, available and follow the instructions to complete your registration request. Beneficial Shareholders (those holding shares through a stock brokerage account or by a letterbank or other holder of record) Beneficial shareholders who wish to attend the virtual meeting may pre-register by visiting the website www.cesonlineservices.com/tkr22_vm. Please have available the voting instruction form, notice, or other communication from your broker, ifbank, or other holder of record that sets forth the control number provided to you and follow the instructions to complete your shares are held in street name.registration request. After pre-registering for the meeting, shareholders will receive a confirmation email with a link and instructions for accessing the virtual Annual Meeting and submitting questions. Shareholders may review the rules of conduct for the virtual meeting or vote during the virtual Annual Meeting by following the instructions available on the meeting website. Proxy Solicitation The enclosed proxy is solicited by the Board of Directors, and the entire cost of solicitation will be paid by the Company. In addition to solicitation by mail, our officers and other employees, without extra remuneration, may solicit the return of proxies by any means of communication. Brokerage houses, nominees, fiduciaries and other custodians will be requested to forward soliciting material to the beneficial owners of shares held of record by them and will be reimbursed for their expenses. We have retained Innisfree M&A Incorporated to assist in the solicitation of proxies for a fee not to exceed $17,500 plus reasonableout-of-pocket expenses. How Proxies will be Voted On the record date of February 20, 2019,22, 2022, we had 76,110,07074,787,494 outstanding common shares, each entitled to one vote upon all matters presented to the meeting. The presence in person or by proxy of not less than 50% of such shares shall constitute a quorum for purposes of the 20192022 Annual Meeting of Shareholders. Voting at the Meeting Shares represented by properly executed proxies will be voted at the meeting in accordance with the shareholders’ instructions. In the absence of specific instructions, the shares will be voted FOR all of the Director nominees as indicated under Proposal No. 1, FOR Proposal No. 2, FOR Proposal No. 3 FOR Proposal No. 4, and AGAINST Proposal No. 5.4. The time limits established under our Amended Regulations forNon-Rule14a-8Non-Rule 14a-8 Proposals (as defined below) described under “Submission of Shareholder Proposals” also apply in determining whether notice is timely for purposes of SEC rules relating to the exercise of discretionary voting authority. We do not know of any matters to be brought before the 20192022 Annual Meeting except as indicated in the accompanying Notice of 20192022 Annual Meeting of Shareholders and this Proxy Statement. However, if any other matters properly come before the meeting for action of which we did not have notice on or prior to February 7, 20196, 2022, or that applicable law otherwise permits proxies to vote on a discretionary basis, it is intended that the proxy holders may vote or act thereon in their discretion. You may revoke your proxy at any time before the 20192022 Annual Meeting of Shareholders by a later dated proxy received by us or by giving notice to us either in writing or at the meeting. Corporate Election Services, Inc. (“CES”) will be responsible for tabulating the results of shareholder voting. CES will submit a total vote only, keeping all individual votes confidential. Representatives of CES will serve as inspectors of election for the 20192022 Annual Meeting of Shareholders. Under Ohio law, our Amended Articles of Incorporation and Amended Regulations, properly executed proxies marked “abstain” and brokernon-votes will be counted for purposes of determining whether a quorum has been achieved at the 20192022 Annual Meeting of Shareholders. Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the 1934 Act requires our executive officers and Directors, and persons who own more than ten percent of our common shares, to file reports of ownership and changes in ownership with the SEC, and to provide us with copies of such reports. We are required to disclose any failure by any of the above-mentioned persons to file timely Section 16 reports.
Based solely upon our review of the copies of such reports furnished to us, or written representations that no forms were required to be filed, we are not aware of any instances of noncompliance, or late compliance, with such filings during the year ended December 31, 2018, by our executive officers, Directors, orten-percent shareholders.
Submission of Shareholder Proposals We must receive by November 23, 201918, 2022 any proposal of our shareholders intended to be presented at the 20202023 Annual Meeting of Shareholders and to be included in our proxy materials related to the 20202023 Annual Meeting of Shareholders pursuant to Rule14a-8 under the 1934 Act. Such proposals should be submitted by certified mail, return receipt requested. A shareholder submitting a proposal outside the processes of Rule14a-8 under the 1934 Act in connection with the 20202023 Annual Meeting of Shareholders(“Non-Rule14a-8Non-Rule 14a-8 Proposals”) must submit written notice of such proposal in accordance with Article I, Sections 12 and 14 of our Amended Regulations. In general, to be timely, a shareholder’s notice must be delivered to or received by our Vice President, General Counsel & Secretary at our principal executive offices not less than 90 nor more than 120 days prior to the first anniversary of the date on which the Company held the preceding year’s annual meeting of shareholders. If the date of the 20202023 Annual Meeting of Shareholders is scheduled for a date more than 30 days prior to or more than 30 days after the first anniversary of the 20192022 Annual Meeting of Shareholders, then a shareholder’s notice must be delivered to our Vice President, General Counsel & Secretary at ourprincipalourprincipal executive offices not later than the close of business on the later of the 90th day prior to the 20202023 Annual Meeting of Shareholders or the 10th day following the day on which public announcement of the date of the 20202023 Annual Meeting of Shareholders is first made. Our proxy related to the 20202023 Annual Meeting of Shareholders will give discretionary authority to the proxy holders to vote with respect to allNon-Rule 14a-8 Proposals received by us after February 7, 2020.5, 2023. The summaries set forth immediately above are qualified in their entirety by our Amended Regulations and Rule14a-8. General The SEC permits companies to send a single set of annual disclosure documents to any household at which two or more shareholders reside, unless contrary instructions have been received, but only if we provide advance notice and follow certain procedures. In such cases, such shareholders continue to receive a separate notice of the meeting and proxy card. This “householding” process reduces the volume of duplicate information and reduces printing and mailing expenses. We have not instituted householding for shareholders of record; however, a number of brokerage firms may have instituted householding for beneficial owners of our common shares held through such brokerage firms. If your family has multiple accounts holding common shares, you already may have received a householding notification from your broker. Please contact your broker directly if you have any questions or require additional copies of the annual disclosure documents. The broker will arrange for delivery of a separate copy of this Proxy Statement or our Annual Report on Form10-K for the year ended December 31, 20182021 promptly upon your written or oral request. You may decide at any time to revoke your decision to household and thereby receive multiple copies. After April 1, 2019,2022, we will furnish to each shareholder, upon written request and without charge, a copy of our Annual Report to Shareholders for the year ended December 31, 2018,2021, including financial statements and schedules thereto, filed with the SEC. Requests should be addressed to Hansal N. Patel, CorporateVice President, General Counsel & Secretary, The Timken Company, 4500 Mt. Pleasant Street NW, North Canton, Ohio 44720. The name, address and share ownership of the personshareholder submitting the shareholder proposal on page 74,76 may be obtained using the contact information above or by calling234-262-3000. APPENDIX A RECONCILIATION RECONCILIATIONS OF NON-GAAP MEASURES TO MOST DIRECTLY COMPARABLE GAAP TO NON-GAAP MEASURES
(dollars in millions, excluding EPS and Adjusted EPS) | Reconciliation of Net Income to Adjusted Net Income, EBIT and Margin1 | | 2018 | | | 2017 | | 2016 | | 2016 As Reported6 | | 2015 As Reported6 | | 2014 As Reported6 | | | | | | | Reconciliation of Net Income to Adjusted Net Income and EBITDA1 | | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 10 | | | | | Net Sales | | $ | 3,580.8 | | | $ | 3,003.8 | | | $ | 2,669.8 | | | $ | 2,669.8 | | | $ | 2,872.3 | | | $ | 3,076.2 | | | $ 4,132.9 | | $ 3,513.2 | | $ 3,789.9 | | $ 3,580.8 | | $ 3,003.8 | | $ 2,669.8 | Net Income (Loss) Attributable to The Timken Company | | | 302.8 | | | 203.4 | | | 140.8 | | | 152.6 | | | (70.8 | ) | | 170.8 | | | $ 369.1 | | $ 284.5 | | $ 362.1 | | $ 302.8 | | $ 203.4 | | $ 140.8 | Discontinued operations | | | - | | | | - | | | | - | | | | - | | | | - | | | (24.0 | ) | | Income from Continuing Operations | | | 302.8 | | | 203.4 | | | 140.8 | | | 152.6 | | | (70.8 | ) | | 146.8 | | | Impairment, restructuring and reorganization charges2 | | | 15.1 | | 29.0 | | 9.8 | | 7.1 | | 13.1 | | 28.0 | Corporate pension and other postretirement benefit related expense (income)3 | | | 0.3 | | 18.5 | | (4.1) | | 12.8 | | 18.1 | | 67.0 | | | | | Acquisition related charges | | | 3.2 | | 3.7 | | 15.5 | | 20.6 | | 9.0 | | 4.2 | | | | | Acquisition-related gain4 | | | (0.9) | | (11.1) | | - | | - | | - | | - | | | | | (Gain) loss on divestitures and sale of real estate | | | - | | (0.4) | | (4.5) | | 0.8 | | (3.6) | | (0.5) | Property (recoveries) losses and related expenses5 | | | - | | (5.5) | | 7.6 | | - | | - | | - | | | | | Brazil legal matter | | | - | | - | | 1.8 | | - | | - | | - | | | | | Tax Indemnification and related items | | | 0.2 | | 0.5 | | 0.7 | | 1.5 | | (1.0) | | - | | | | | Health care plan modification costs | | | - | | - | | - | | - | | (0.7) | | 2.9 | | | | | CDSOA income, net of expense | | | - | | | | - | | | (59.6 | ) | | (59.6 | ) | | | - | | | | - | | | - | | - | | - | | - | | - | | (59.6) | Pension related charges2 | | | 12.8 | | | 18.1 | | | 67.0 | | | 28.1 | | | 465.0 | | | 33.7 | | | Impairment and restructuring charges3 | | | 7.1 | | | 13.1 | | | 28.0 | | | 28.0 | | | 15.9 | | | 136.2 | | | Loss (gain) on divestitures and sale of real estate | | | 0.8 | | | (3.6 | ) | | (0.5 | ) | | (0.5 | ) | | (28.7 | ) | | (22.6 | ) | | Acquisition related charges | | | 20.6 | | | 9.0 | | | 4.2 | | | 4.2 | | | 5.7 | | | | - | | | Tax Indemnification and related items | | | 1.5 | | | (1.0 | ) | | | - | | | | - | | | | - | | | | - | | | Health care plan modification costs | | | - | | | (0.7 | ) | | 2.9 | | | 2.9 | | | | - | | | | - | | | Fixed assetwrite-off | | | - | | | | - | | | | - | | | | - | | | 9.7 | | | | - | | | | | | | Noncontrolling interest | | | (1.3 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | - | | (0.1) | | (0.5) | | (1.3) | | - | | - | | | | | Provision for income taxes | | | (16.8 | ) | | (30.8 | ) | | (13.8 | ) | | 0.5 | | | (207.7 | ) | | (61.2 | ) | | (23.6) | | (6.0) | | (34.6) | | (16.8) | | (30.8) | | (13.8) | | | | | Adjusted Net Income | | $ | 327.5 | | | $ | 207.5 | | | $ | 169.0 | | | $ | 156.2 | | | $ | 189.1 | | | $ | 232.9 | | | $ 363.4 | | $ 313.1 | | $ 353.8 | | $ 327.5 | | $ 207.5 | | $ 169.0 | Net income (loss) attributable to noncontrolling interest | | | 2.7 | | | (1.1 | ) | | 0.3 | | | 0.3 | | | 2.8 | | | 2.5 | | | 12.4 | | 7.9 | | 12.6 | | 2.7 | | (1.1) | | 0.3 | | | | | Provision for income taxes (as reported) | | | 102.6 | | | 57.6 | | | 60.5 | | | 69.2 | | | (121.6 | ) | | 54.7 | | | 95.1 | | 103.9 | | 97.7 | | 102.6 | | 57.6 | | 60.5 | | | | | Interest expense | | | 51.7 | | | 37.1 | | | 33.5 | | | 33.5 | | | 33.4 | | | 28.7 | | | 58.8 | | 67.6 | | 72.1 | | 51.7 | | 37.1 | | 33.5 | | | | | Interest income | | | (2.1 | ) | | (2.9 | ) | | (1.9 | ) | | (1.9 | ) | | (2.7 | ) | | (4.4 | ) | | (2.3) | | (3.7) | | (4.9) | | (2.1) | | (2.9) | | (1.9) | | | | | Depreciation and amortization expense6 | | | 167.0 | | 164.0 | | 159.9 | | 146.0 | | 135.8 | | 130.2 | | | | | Less: Noncontrolling interest | | | (1.3 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | - | | (0.1) | | (0.5) | | (1.3) | | - | | - | | | | | Less: Provision for income taxes | | | (16.8 | ) | | (30.8 | ) | | (13.8 | ) | | 0.5 | | | (207.7 | ) | | (61.2 | ) | | (23.6) | | (6.0) | | (34.6) | | (16.8) | | (30.8) | | (13.8) | Adjusted EBIT | | $ | 500.5 | | | $ | 329.0 | | | $ | 275.2 | | | $ | 256.8 | | | $ | 308.7 | | | $ | 375.6 | | | Adjusted EBIT Margin (% of net sales) | | | 14.0% | | | 11.0% | | | 10.3% | | | 9.6% | | | 10.7% | | | 12.2% | | | | | | | Adjusted EBITDA | | | $ 718.0 | | $ 658.9 | | $ 726.3 | | $ 646.5 | | $ 464.8 | | $ 405.4 | | | | | | | | | | | | | | | | | Reconciliation of Diluted EPS to Adjusted EPS1 | | 2018 | | | 2017 | | 2016 | | 2016 | | 2015 | | 2014 | | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 10 | Diluted Earnings per Share (EPS) - Continuing Operations | | $ | 3.86 | | | $ | 2.58 | | | $ | 1.78 | | | $ | 1.92 | | | $ | (0.84 | ) | | $ | 1.61 | | | Adjusted EPS - Continuing Operations | | $ | 4.18 | | | $ | 2.63 | | | $ | 2.13 | | | $ | 1.97 | | | $ | 2.21 | | | $ | 2.55 | | | | | | | Diluted Earnings per Share (EPS) | | | $ 4.79 | | $ 3.72 | | $ 4.71 | | $ 3.86 | | $ 2.58 | | $ 1.78 | | | | | Adjusted EPS | | | $ 4.72 | | $ 4.10 | | $ 4.60 | | $ 4.18 | | $ 2.63 | | $ 2.13 | | | | | Diluted Shares | | | 78,337,481 | | | 78,911,149 | | | 79,234,324 | | | 79,234,324 | | | 85,346,246 | | | 91,224,328 | | | 77,006,589 | | 76,401,366 | | 76,896,565 | | 78,337,481 | | 78,911,149 | | 79,234,324 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Reconciliation of Adjusted Net Operating Profit after Taxes | | 2018 | | | 2017 | | 2016 | | | | | | | | | | 2021 | | 2020 | | 2019 | | 2018 | | | | | | | | | Adjusted EBITDA | | | $ 718.0 | | $ 658.9 | | $ 726.3 | | $ 646.5 | | | | | | | | | Less: Depreciation and amortization expense6 | | | $167.0 | | $164.0 | | $159.9 | | $ 146.0 | | | | | | | | | Adjusted EBIT | | $ | 500.5 | | | $ | 329.0 | | | $ | 275.2 | | | | | | | | | $ 551.0 | | $ 494.9 | | $ 566.4 | | $ 500.5 | | | | | | | | | Adjusted tax rate | | | 26.5% | | | 30.0% | | | 30.5% | | | | | | | | | 24.0% | | 25.5% | | 26.5% | | 26.5% | | | | | | | | | Calculated income taxes | | | 132.6 | | | 98.7 | | | 83.9 | | | | | | | | | $ 132.2 | | $126.2 | | $150.1 | | $132.6 | | | | | | | | | Adjusted net operating profit after taxes (ANOPAT) | | $ | 367.9 | | | $ | 230.3 | | | $ | 191.3 | | | | | | | | | $ 418.8 | | $ 368.7 | | $ 416.3 | | $ 367.9 | | | | | | | | | | | | | | Reconciliation of Adjusted Invested Capital | | 2018 | | | 2017 | | 2016 | | | | | | | | | | Total debt | | $ | 1,681.6 | | | $ | 962.3 | | | $ | 659.2 | | | | | | | | | Total equity | | | 1,642.7 | | | 1,474.9 | | | 1,310.9 | | | | | | | | | Invested capital (Total debt + Total equity) | | | 3,324.3 | | | 2,437.2 | | | $ | 1,970.1 | | | | | | | | | Invested capital(two-point average) | | $ | 2,880.8 | | | $ | 2,203.7 | | | $ | 1,988.1 | | | | | | | | | | | | | | | | | | Calculation of Return on Adjusted Invested Capital4 | | 2018 | | | 2017 | | 2016 | | | | | | | | | | ANOPAT | | $ | 367.9 | | | $ | 230.3 | | | $ | 191.3 | | | | | | | | | Invested capital(two-point average) | | | 2,880.8 | | | 2,203.7 | | | 1,988.1 | | | | | | | | | Return on invested capital | | | 12.8% | | | 10.5% | | | 9.6% | | | | | | | | | | | | | | | | | | | | | | Reconciliation of Free Cash Flow5 | | 2018 | | | | | | | | | | | | | | Net cash provided from operating activities | | $ | 332.5 | | | | | | | | | | | | | Less: capital expenditures | | | 112.6 | | | | | | | | | | | | | Free cash flow | | $ | 219.9 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Reconciliation of Adjusted Invested Capital | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | | | | | | | | | Total debt | | $1,464.9 | | $1,564.6 | | $1,730.1 | | $1,681.6 | | $962.3 | | | | | | | | | | Total equity | | $2,377.7 | | $2,225.2 | | $1,954.8 | | $1,642.7 | | $1,474.9 | | | | | | | | | | Invested capital (Total debt + Total equity) | | $3,842.6 | | $3,789.8 | | $3,684.9 | | $3,324.3 | | $2,437.2 | | | | | | | | | | Invested capital (two-point average) | | $3,816.2 | | $3,737.4 | | $3,504.6 | | $2,880.8 | | | | | | | | | | | | | | | | | | | | | | | | | Calculation of Return on Adjusted Invested Capital7 | | 2021 | | 2020 | | 2019 | | 2018 | | | | | | | | | | | | ANOPAT | | $418.8 | | $368.7 | | $416.3 | | $367.9 | | | | | | | | | | | | Invested capital (two-point average) | | $3,816.2 | | $3,737.4 | | $3,504.6 | | $2,880.8 | | | | | | | | | | | | Return on invested capital | | 11.0% | | 9.9% | | 11.9% | | 12.8% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Reconciliation of Free Cash Flow8 | | 2021 | | 2020 | | | | | | | | | | | | | | | | Net cash provided from operating activities | | $387.3 | | $577.6 | | | | | | | | | | | | | | | | Less: capital expenditures | | $148.3 | | $121.6 | | | | | | | | | | | | | | | | Free cash flow | | $239.0 | | $456.0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Reconciliation of Net Debt9 | | 2021 | | 2020 | | | | | | | | | | | | | | | | Short-term debt | | $53.8 | | $130.7 | | | | | | | | | | | | | | | | Long-term debt | | $1,411.1 | | $1,433.9 | | | | | | | | | | | | | | | | Total debt | | $1,464.9 | | $1,564.6 | | | | | | | | | | | | | | | | Less: cash and cash equivalents | | $257.1 | | $320.3 | | | | | | | | | | | | | | | | Net debt | | $1,207.8 | | $1,244.3 | | | | | | | | |
1Management believes consolidated earnings (loss) before interest, taxes, depreciation and taxes (EBIT)amortization (EBITDA) is anon-GAAP measure that is useful to investors as it is representative of the Company’s performance and that it is appropriate to compare GAAP net income to consolidated EBIT.EBITDA. Management also believes thatnon-GAAP measures of adjusted EBIT, adjusted EBIT Margin,EBITDA, adjusted net income and adjusted diluted earnings per share are useful to investors as they are representative of the Company’s core operations and are used in the management of the business, including decisions concerning the allocation of resources and assessment of performance. 2Pension Impairment, restructuring and reorganization charges (including items recorded in cost of products sold) are related charges represent curtailments, professional fees associated withto: (i) plant closures; (ii) the rationalization of certain plants; (iii) severance related to cost reduction initiatives; and (iv) related depreciation and amortization. The Company reassesses its operating footprint and cost structure periodically, and makes adjustments as needed that result in restructuring charges. However, management believes these actions are not representative of the Company’s core operations. 3 Corporate pensionde-risking and other postretirement benefit related expense (income) primarily represents actuarial gainslosses and losses(gains) that resulted from the remeasurement of pension plan assets and obligations as a result of changes in assumptions. The Company recognizes actuarial gainslosses and losses(gains) through earnings in connection with the annual remeasurement in the fourth quarter, or on an interim basis if specific events trigger a remeasurement. Pension Corporate pension and other postretirement benefit related chargesexpense (income) also include pension settlement charges.includes curtailments. 34Impairment The acquisition-related gain represents a bargain purchase price gain on the acquisition of the assets of Aurora Bearing Company that closed on November 30, 2020.
5 Property (recoveries) losses and restructuring charges, including items recorded in costrelated expenses represent property loss and related expenses during the periods presented (net of products sold, are related to plant closures,insurance recoveries received) that occurred during the rationalizationfirst quarter of certain plants and severance related to cost reduction initiatives. The Companyre-assesses its operating footprint and makes adjustments as needed that result in restructuring charges. However, management believes these actions are not representative2019 at one of the Company’s core operations.warehouses in Knoxville, Tennessee and during the third quarter of 2019 at one of the Company’s warehouses in Yantai, China. 46 Depreciation and amortization shown excludes depreciation recognized in reorganization charges, if any.
7The Company uses ANOPAT/Average Invested Capital as anon-GAAP ratio that indicates return on invested capital, which is useful to investors as a measure of return on their investment. 58Management believes that free cash flow is anon-GAAP measure that is useful to investors because it is a meaningful indicator of cash generated from operating activities available for the execution of its business strategy.
692014-2016 Management believes Net Debt is an important measure of the Company’s financial position, due to the amount of cash and cash equivalents on hand.
10 2016 results depicted above are as originally reported and prior torevised for the adoption ofmark-to-market accounting. APPENDIX B
THE TIMKEN COMPANY
2019 EQUITY AND INCENTIVE COMPENSATION PLAN
1. Purpose.The purpose of this Plan is to permit award grants tonon-employee Directors, officers and other employees of the Company and its Subsidiaries, and certain consultants to the Company and its Subsidiaries, and to provide to such persons incentives and rewards for service and/or performance.
2. Definitions.As used in this Plan:
(a) “Appreciation Right” means a right granted pursuant toSection 5 of this Plan.
(b) “Base Price” means the price to be used as the basis for determining the Spread upon the exercise of an Appreciation Right.
(c) “Board” means the Board of Directors of the Company.
(d) “Cash Incentive Award” means a cash award granted pursuant toSection 9 of this Plan.
(e) “Change in Control” has the meaning set forth inSection 13 of this Plan.
(f) “Code” means the Internal Revenue Code of 1986, as amended from time to time, and the regulations thereunder, as such law and regulations may be amended from time to time.
(g) “Committee” means the Compensation Committeeof the Board (or its successor(s)), or any other committee of the Board designated by the Board to administer this Plan pursuant toSection 11 of this Plan. In addition, the Board may act on behalf of the Committee with respect to the terms of this Plan regarding any awards granted tonon-employee Directors under this Plan.
(h) “Common Shares” means the common shares, without par value, of the Company or any security into which such common shares may be changed by reason of any transaction or event of the type referred to inSection 12 of this Plan.
(i) “Company” means The Timken Company, an Ohio corporation, and its successors.
(j) “Date of Grant” means the date provided for by the Committee on which a grant of Option Rights, Appreciation Rights, Performance Shares, Performance Units, Cash Incentive Awards, or other awards contemplated bySection 10 of this Plan, or a grant or sale of Restricted Shares, Restricted Stock Units, Deferred Shares or other awards contemplated bySection 10 of this Plan, will become effective (which date will not be earlier than the date on which the Committee takes action with respect thereto).
(k) “Deferral Period” means the period of time during which Deferred Shares are subject to deferral limitations, as provided inSection 8 of this Plan.
(l) “Deferred Shares” means an award made pursuant toSection 8 of this Plan of the right to receive Common Shares at the end of the applicable Deferral Period.
(m) “Director” means a member of the Board.
(n) “Effective Date” means the date this Plan is approved by the Shareholders.
(o) “Evidence of Award” means an agreement, certificate, resolution or other type or form of writing or other evidence approved by the Committee that sets forth the terms and conditions of the awards granted under this Plan. An Evidence of Award may be in an electronic medium, may be limited to notation on the books and records of the Company and, unless otherwise determined by the Committee, need not be signed by a representative of the Company or a Participant.
(p) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations thereunder, as such law, rules and regulations may be amended from time to time.
(q) “Incentive Stock Option” means an Option Right that is intended to qualify as an “incentive stock option” under Section 422 of the Code or any successor provision.
(r) “Management Objectives” means the measurable performance objective or objectives established pursuant to this Plan for Participants who have received grants of Performance Shares, Performance Units or Cash Incentive Awards or, when so determined by the Committee, Option Rights, Appreciation Rights, Restricted Shares, Restricted Stock Units, Deferred Shares, dividend equivalents or other awards pursuant to this Plan. If the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which it conducts its business, or other events or circumstances render the Management Objectives unsuitable, the Committee may in its discretion modify such Management Objectives or the goals or actual levels of achievement regarding the Management Objectives, in whole or in part, as the Committee deems appropriate and equitable.
(s) “Market Value per Share” means, as of any particular date, the price per Common Share under the fair market value pricing method adopted by the Committee provided such method is in compliance with the fair market value pricing rules set forth in Section 409A of the Code, which pricing method may include (but is not limited to) (i) the closing price, opening price or average price of a Common Share as reported for the particular date on the New York Stock Exchange or, if the Common Shares are not then listed on the New York Stock Exchange, on any other national securities exchange on which the Common Shares are listed, or if there are no sales on such date, on the next preceding trading day during which a sale occurred, and (ii) if there is no regular public trading market for the Common Shares, the fair market value as determined in good faith by the Committee.
(t) “Optionee” means the optionee named in an Evidence of Award evidencing an outstanding Option Right.
(u) “Option Price” means the purchase price payable on exercise of an Option Right.
(v) “Option Right” means the right to purchase Common Shares upon exercise of an award granted pursuant toSection 4 of this Plan.
(w) “Participant” means a person who is selected by the Committee to receive benefits under this Plan and who is at the time (i) anon-employee Director, (ii) an officer or other employee of the Company or any Subsidiary, including a person who has agreed to commence serving in such capacity within 90 days of the Date of Grant, (iii) a consultant of the Company or a Subsidiary, or (iv) a person who provides services to the Company or any Subsidiary that are equivalent to those typically provided by an employee;provided,however, that no person may be selected by the Committee as a Participant unless such person satisfies the FormS-8 definition of an “employee.”
(x) “Performance Period” means, in respect of a Cash Incentive Award, Performance Share or Performance Unit, a period of time established pursuant toSection 9 of this Plan within which the Management Objectives relating to such Cash Incentive Award, Performance Share or Performance Unit are to be achieved.
(y) “Performance Share” means a bookkeeping entry that records the equivalent of one Common Share awarded pursuant toSection 9 of this Plan.
(z) “Performance Unit” means a bookkeeping entry awarded pursuant toSection 9 of this Plan that records a unit equivalent to $1.00 or such other value as is determined by the Committee.
(aa) “Plan” means this The Timken Company 2019 Equity and Incentive Compensation Plan, as may be amended or amended and restated from time to time.
(bb) “Predecessor Plans” means The Timken Company 2011 Long-Term Incentive Plan and The Timken Company Long-Term Incentive Plan, in each case including as amended or amended and restated.
(cc) “Restricted Shares” means Common Shares granted or sold pursuant toSection 6 of this Plan as to which neither the substantial risk of forfeiture nor the prohibition on transfers has expired.
(dd) “Restricted Stock Units” means an award made pursuant toSection 7 of this Plan of the right to receive Common Shares, cash or a combination thereof at the end of the applicable Restriction Period.
(ee) “Restriction Period” means the period of time during which Restricted Stock Units are subject to restrictions, as provided inSection 7 of this Plan.
(ff) “Shareholder” means an individual or entity that owns one or more Common Shares.
(gg) “Spread” means the excess of the Market Value per Share on the date when an Appreciation Right is exercised over the Base Price provided for with respect to the Appreciation Right.
(hh) “Subsidiary” means a corporation, company or other entity (i) more than 50% of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are, or (ii) which does not have outstanding shares or securities (as may be the case in a partnership, joint venture, limited liability company, unincorporated association or other similar entity), but more than 50% of whose ownership interest representing the right generally to make decisions for such other entity is, now or hereafter, owned or controlled, directly or indirectly, by the Company;provided,however, that for purposes of determining whether any person may be a Participant for purposes of any grant of Incentive Stock Options, “Subsidiary” means any corporation in which the Company at the time owns or controls, directly or indirectly, more than 50% of the total combined Voting Power represented by all classes of stock issued by such corporation.
(ii) “Voting Power” means, at any time, the combined voting power of the then-outstanding securities entitled to vote generally in the election of Directors in the case of the Company or members of the board of directors or similar body in the case of another entity.
3. Shares Available Under this Plan.
(a) Maximum Shares Available Under this Plan. Subject to adjustment as provided inSection 12 of this Plan and the share counting rules set forth inSection 3(b) of this Plan, the number of Common Shares available under this Plan for awards of (A) Option Rights or Appreciation Rights, (B)
Restricted Shares, (C) Restricted Stock Units, (D) Deferred Shares, (E) Performance Shares or Performance Units, (F) awards contemplated bySection 10 of this Plan, or (G) dividend equivalents paid with respect to awards made under this Plan will not exceed in the aggregate (x) 10,000,000 Common Shares. Such shares may be shares of original issuance or treasury shares or a combination of the foregoing.
(b) Share Counting Rules.
| (i) | Subject to the provisions of thisSection 3(b), the aggregate number of Common Shares available underSection 3(a) of this Plan will be reduced by (A) one Common Share for every one Common Share subject to an Option Right or Appreciation Right granted under this Plan, and (B) 3.50 Common Shares for every one Common Share subject to an award other than an Option Right or Appreciation Right granted under this Plan.
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| (ii) | Except as provided inSection 23 of this Plan, if any award granted under this Plan (in whole or in part) is cancelled or forfeited, expires, is settled for cash, or is unearned, the Common Shares subject to such award will, to the extent of such cancellation, forfeiture, expiration, cash settlement, or unearned amount, again be available underSection 3(a) above.
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| (iii) | If, after the Effective Date, any Common Shares subject to an award granted under the Predecessor Plans are forfeited, or an award granted under the Predecessor Plans (in whole or in part) is cancelled or forfeited, expires, is settled for cash, or is unearned, the Common Shares subject to such award will, to the extent of such cancellation, forfeiture, expiration, cash settlement, or unearned amount, be available for awards under this Plan.
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| (iv) | Notwithstanding anything to the contrary contained in this Plan: (A) Common Shares withheld by the Company, tendered or otherwise used in payment of the Option Price of an Option Right will not be added (or added back, as applicable) to the aggregate number of Common Shares available underSection 3(a) of this Plan; (B) Common Shares withheld by the Company, tendered or otherwise used to satisfy tax withholding will not be added (or added back, as applicable) to the aggregate number of Common Shares available underSection 3(a) of this Plan; (C) Common Shares subject to a share-settled Appreciation Right that are not actually issued in connection with the settlement of such Appreciation Right on the exercise thereof will not be added back to the aggregate number of Common Shares available under Section 3(a) of this Plan; and (D) Common Shares reacquired by the Company on the open market or otherwise using cash proceeds from the exercise of Option Rights will not be added (or added back, as applicable) to the aggregate number of Common Shares available under Section 3(a) of this Plan.
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| (v) | Any Common Share that becomes available under this Plan under thisSection 3(b) will be added back as (A) one Common Share if such Common Share was subject to an Option Right or Appreciation Right granted under this Plan or an option right or a stock appreciation right granted under a Predecessor Plan, and (B) as 3.50 Common Share(s) if such Common Share was subject to an award granted under this Plan other than an Option Right or an Appreciation Right (or was subject to an
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| award other than an option right or a stock appreciation right granted under a Predecessor Plan). |
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| (vi) | If, under this Plan, a Participant has elected to give up the right to receive compensation in exchange for Common Shares based on fair market value, such Common Shares will not count against the aggregate limit underSection 3(a) of this Plan.
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(c) Limit on Incentive Stock Options. Notwithstanding anything to the contrary contained in this Plan, and subject to adjustment as provided inSection 12 of this Plan, the aggregate number of Common Shares actually issued or transferred by the Company upon the exercise of Incentive Stock Options will not exceed 10,000,000 Common Shares.
(d) Non-Employee Director Compensation Limit. Notwithstanding anything to the contrary contained in this Plan, in no event will anynon-employee Director in any one calendar year be granted compensation for such service having an aggregate maximum value (measured at the Date of Grant as applicable, and calculating the value of any awards based on the grant date fair value for financial reporting purposes) in excess of $650,000.
(e) Certain Vesting Requirements. Notwithstanding anything in this Plan (outside of thisSection 3(e)) to the contrary, awards granted under this Plan shall vest no earlier than after a minimumone-year vesting period orone-year performance period, as applicable;provided,however, that, notwithstanding the foregoing, an aggregate of up to 5% of the Common Shares available for awards under this Plan as provided for inSection 3 of this Plan, as may be adjusted underSection 12 of this Plan, may be used for awards that do not at grant comply with such minimum vesting provisions. Nothing in thisSection 3(e) or otherwise in this Plan, however, shall preclude the Committee, in is sole discretion, from (i) providing for continued vesting or accelerated vesting for any award under the Plan upon certain events, including in connection with or following a Participant’s death, disability, or termination of service or a Change in Control, or (ii) exercising its authority underSection 19(c) at any time following the grant of an award.
4. Option Rights.The Committee may, from time to time and upon such terms and conditions as it may determine, authorize the granting to Participants of Option Rights. Each such grant may utilize any or all of the authorizations, and will be subject to all of the requirements, contained in the following provisions:
(a) Each grant will specify the number of Common Shares to which it pertains subject to the limitations set forth inSection 3 of this Plan.
(b) Each grant will specify an Option Price per Common Share, which Option Price (except with respect to awards underSection 23 of this Plan) may not be less than the Market Value per Share on the Date of Grant.
(c) Each grant will specify whether the Option Price will be payable (i) in cash, by check acceptable to the Company or by wire transfer of immediately available funds, (ii) by the actual or constructive transfer to the Company of Common Shares owned by the Optionee having a value at the time of exercise equal to the total Option Price, (iii) subject to any conditions or limitations established by the Committee, by the withholding of Common Shares otherwise issuable upon exercise of an Option Right pursuant to a “net exercise” arrangement (it being understood that, solely for purposes of determining the number of treasury shares held by the Company, the Common Shares so withheld will not be treated as issued and acquired by the Company upon such exercise), (iv) by a combination of such methods of payment, or (v) by such other methods as may be approved by the Committee.
(d) To the extent permitted by law, any grant may provide for deferred payment of the Option Price from the proceeds of sale through a bank or broker on a date satisfactory to the Company of some or all of the Common Shares to which such exercise relates.
(e) Each grant will specify the period or periods of continuous service by the Optionee with the Company or any Subsidiary, if any, that is necessary before any Option Rights or installments thereof will vest.
(f) Any grant of Option Rights may specify Management Objectives regarding the vesting of such rights.
(g) Option Rights granted under this Plan may be (i) options, including Incentive Stock Options, that are intended to qualify under particular provisions of the Code, (ii) options that are not intended to so qualify, or (iii) combinations of the foregoing. Incentive Stock Options may only be granted to Participants who meet the definition of “employees” under Section 3401(c) of the Code.
(h) No Option Right will be exercisable more than 10 years from the Date of Grant. The Committee may provide in any Evidence of Award for the automatic exercise of an Option Right upon such terms and conditions as established by the Committee.
(i) Option Rights granted under this Plan may not provide for any dividends or dividend equivalents thereon.
(j) Each grant of Option Rights will be evidenced by an Evidence of Award. Each Evidence of Award will be subject to this Plan and will contain such terms and provisions, consistent with this Plan, as the Committee may approve.
5. Appreciation Rights.
(a) The Committee may, from time to time and upon such terms and conditions as it may determine, authorize the granting to any Participant of Appreciation Rights. An Appreciation Right will be the right of the Participant to receive from the Company an amount determined by the Committee, which will be expressed as a percentage of the Spread (not exceeding 100%) at the time of exercise.
(b) Each grant of Appreciation Rights may utilize any or all of the authorizations, and will be subject to all of the requirements, contained in the following provisions:
| (i) | Each grant may specify that the amount payable on exercise of an Appreciation Right will be paid by the Company in cash, Common Shares or any combination thereof.
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| (ii) | Each grant will specify the period or periods of continuous service by the Participant with the Company or any Subsidiary, if any, that is necessary before the Appreciation Rights or installments thereof will vest.
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| (iii) | Any grant of Appreciation Rights may specify Management Objectives regarding the vesting of such Appreciation Rights.
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| (iv) | Appreciation Rights granted under this Plan may not provide for any dividends or dividend equivalents thereon.
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| (v) | Each grant of Appreciation Rights will be evidenced by an Evidence of Award. Each Evidence of Award will be subject to this Plan and will contain such terms and provisions, consistent with this Plan, as the Committee may approve.
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(c) Also, regarding Appreciation Rights:
| (i) | Each grant will specify in respect of each Appreciation Right a Base Price, which (except with respect to awards underSection 23 of this Plan) may not be less than the Market Value per Share on the Date of Grant; and
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| (ii) | No Appreciation Right granted under this Plan may be exercised more than 10 years from the Date of Grant. The Committee may provide in any Evidence of Award for the automatic exercise of an Appreciation Right upon such terms and conditions as established by the Committee.
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6. Restricted Shares. The Committee may, from time to time and upon such terms and conditions as it may determine, authorize the grant or sale of Restricted Shares to Participants. Each such grant or sale may utilize any or all of the authorizations, and will be subject to all of the requirements, contained in the following provisions:
(a) Each such grant or sale will constitute an immediate transfer of the ownership of Common Shares to the Participant in consideration of the performance of services, entitling such Participant to voting, dividend and other ownership rights, but subject to the substantial risk of forfeiture and restrictions on transfer hereinafter described.
(b) Each such grant or sale may be made without additional consideration or in consideration of a payment by such Participant that is less than the Market Value per Share on the Date of Grant.
(c) Each such grant or sale will provide that the Restricted Shares covered by such grant or sale will be subject to a “substantial risk of forfeiture” within the meaning of Section 83 of the Code for a period to be determined by the Committee on the Date of Grant or until achievement of Management Objectives referred to inSection 6(e) of this Plan.
(d) Each such grant or sale will provide that during or after the period for which such substantial risk of forfeiture is to continue, the transferability of the Restricted Shares will be prohibited or restricted in the manner and to the extent prescribed by the Committee on the Date of Grant (which restrictions may include rights of repurchase or first refusal of the Company or provisions subjecting the Restricted Shares to a continuing substantial risk of forfeiture while held by any transferee).
(e) Any grant of Restricted Shares may specify Management Objectives regarding the vesting of such Restricted Shares.
(f) Any such grant or sale of Restricted Shares may require that any and all dividends or other distributions paid thereon during the period of such restrictions be automatically deferred and/or reinvested in additional Restricted Shares, which will be subject to the same restrictions as the underlying award. For the avoidance of doubt, any such dividends or other distributions on Restricted Shares will be deferred until, and paid contingent upon, the vesting of such Restricted Shares.
(g) Each grant or sale of Restricted Shares will be evidenced by an Evidence of Award. Each Evidence of Award will be subject to this Plan and will contain such terms and provisions, consistent with this Plan, as the Committee may approve. Unless otherwise directed by the Committee, (i) all certificates representing Restricted Shares will be held in custody by the Company until all restrictions thereon will have lapsed, together with a stock power or powers executed by the Participant in whose name such certificates are registered, endorsed in blank and covering such shares or (ii) all Restricted Shares will be held at the Company’s transfer agent in book entry form with appropriate restrictions relating to the transfer of such Restricted Shares.
7. Restricted Stock Units. The Committee may, from time to time and upon such terms and conditions as it may determine, authorize the granting or sale of Restricted Stock Units to Participants. Each such grant or sale may utilize any or all of the authorizations, and will be subject to all of the requirements, contained in the following provisions:
(a) Each such grant or sale will constitute the agreement by the Company to deliver Common Shares or cash, or a combination thereof, to the Participant in the future in consideration of the performance of services, but subject to the fulfillment of such conditions (which may include achievement regarding Management Objectives) during the Restriction Period as the Committee may specify.
(b) Each such grant or sale may be made without additional consideration or in consideration of a payment by such Participant that is less than the Market Value per Share on the Date of Grant.
(c) During the Restriction Period, the Participant will have no right to transfer any rights under his or her award and will have no rights of ownership in the Common Shares deliverable upon payment of the Restricted Stock Units and will have no right to vote them, but the Committee may, at or after the Date of Grant, authorize the payment of dividend equivalents on such Restricted Stock Units on a deferred and contingent basis, either in cash or in additional Common Shares;provided,however, that dividend equivalents or other distributions on Common Shares underlying Restricted Stock Units will be deferred until and paid contingent upon the vesting of such Restricted Stock Units.
(d) Each grant or sale of Restricted Stock Units will specify the time and manner of payment of the Restricted Stock Units that have been earned. Each grant or sale will specify that the amount payable with respect thereto will be paid by the Company in Common Shares or cash, or a combination thereof.
(e) Each grant or sale of Restricted Stock Units will be evidenced by an Evidence of Award. Each Evidence of Award will be subject to this Plan and will contain such terms and provisions, consistent with this Plan, as the Committee may approve.
8. Deferred Shares.The Committee may, from time to time and upon such terms and conditions as it may determine, authorize the granting or sale of Deferred Shares to Participants. Each such grant or sale may utilize any or all of the authorizations, and will be subject to all of the requirements, contained in the following provisions:
(a) Each such grant or sale will constitute the agreement by the Company to issue or transfer Common Shares to the Participant in the future in consideration of the performance of services, but subject to the fulfillment of such conditions (which may include achievement regarding Management Objectives) during the Deferral Period as the Committee may specify.
(b) Each such grant or sale may be made without additional consideration or in consideration of a payment by such Participant that is less than the Market Value per Share on the Date of Grant.
(c) Each such grant or sale will provide that the Deferred Shares covered by such grant or sale will be subject to a Deferral Period to be determined by the Committee on the Date of Grant or until Management Objectives are achieved.
(d) During the Deferral Period, the Participant will have no right to transfer any rights under his or her award, will have no rights of ownership in the Deferred Shares and will have no right to vote them, but the Committee may, at or after the Date of Grant, authorize the payment of dividend equivalents on such Deferred Shares on a deferred and contingent basis, either in cash or in additional Deferred Shares;provided,however, that dividend equivalents or other distributions on Deferred Shares will be deferred until and paid contingent upon the earning and vesting of such Deferred Shares.
(e) Each grant or sale of Deferred Shares will be evidenced by an Evidence of Award. Each Evidence of Award will be subject to this Plan and will contain such terms and provisions, consistent with this Plan, as the Committee may approve.
(f) Each grant or sale of Deferred Shares will specify the time and manner of payment of the Deferred Shares that have been earned. Each grant or sale will specify that the amount payable with respect thereto will be paid by the Company in Common Shares or cash, or a combination thereof.
9. Cash Incentive Awards, Performance Shares and Performance Units. The Committee may, from time to time and upon such terms and conditions as it may determine, authorize the granting of Cash Incentive Awards, Performance Shares and Performance Units. Each such grant may utilize any or all of the authorizations, and will be subject to all of the requirements, contained in the following provisions:
(a) Each grant will specify the number or amount of Performance Shares or Performance Units, or amount payable with respect to a Cash Incentive Award, to which it pertains, which number or amount may be subject to adjustment to reflect changes in compensation or other factors.
(b) The Performance Period with respect to each Cash Incentive Award or grant of Performance Shares or Performance Units will be such period of time as will be determined by the Committee.
(c) Each grant of a Cash Incentive Award, Performance Shares or Performance Units will specify Management Objectives regarding the earning of the award.
(d) Each grant will specify the time and manner of payment of a Cash Incentive Award, Performance Shares or Performance Units that have been earned.
(e) The Committee may, on the Date of Grant of Performance Shares or Performance Units, provide for the payment of dividend equivalents to the holder thereof either in cash or in additional Common Shares, which dividend equivalents will be subject to deferral and payment on a contingent basis based on the Participant’s earning and vesting of the Performance Shares or Performance Units, as applicable, with respect to which such dividend equivalents are paid.
(f) Each grant of a Cash Incentive Award, Performance Shares or Performance Units will be evidenced by an Evidence of Award. Each Evidence of Award will be subject to this Plan and will contain such terms and provisions, consistent with this Plan, as the Committee may approve.
10. Other Awards.
(a) Subject to applicable law and the applicable limits set forth inSection 3 of this Plan, the Committee may authorize the grant to any Participant of Common Shares or such other awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Common Shares or factors that may influence the value of such shares, including, without limitation, convertible or exchangeable debt securities, other rights convertible or exchangeable into Common Shares, purchase rights for Common Shares, awards with value and payment contingent upon performance of the Company or specified Subsidiaries, affiliates or other business units thereof or any other factors designated by the Committee, and awards valued by reference to the book value of the Common Shares or the value of securities of, or the performance of specified Subsidiaries or affiliates or other business units of the Company. The Committee will determine the terms and conditions of such awards. Common Shares delivered pursuant to an award in the nature of a purchase right granted under thisSection 10 will be purchased for such consideration, paid for at such time, by such methods, and in such forms, including, without limitation, Common Shares, other awards, notes or other property, as the Committee determines.
(b) Cash awards, as an element of or supplement to any other award granted under this Plan, may also be granted pursuant to thisSection 10.
(c) The Committee may authorize the grant of Common Shares as a bonus, or may authorize the grant of other awards in lieu of obligations of the Company or a Subsidiary to pay cash or deliver other property under this Plan or under other plans or compensatory arrangements, subject to such terms as will be determined by the Committee in a manner that complies with Section 409A of the Code.
(d) The Committee may, at or after the Date of Grant, authorize the payment of dividends or dividend equivalents on awards granted under thisSection 10 on a deferred and contingent basis, either in cash or in additional Common Shares;provided,however, that dividend equivalents or other distributions on Common Shares underlying awards granted under thisSection 10 will be deferred until and paid contingent upon the earning and vesting of such awards.
(e) Each grant of an award under thisSection 10 will be evidenced by an Evidence of Award. Each such Evidence of Award will be subject to this Plan and will contain such terms and provisions, consistent with this Plan, as the Committee may approve, and will specify the time and terms of delivery of the applicable award.
11. Administration of this Plan.
(a) This Plan will be administered by the Committee. The Committee may from time to time delegate all or any part of its authority under this Plan to a subcommittee thereof. To the extent of any such delegation, references in this Plan to the Committee will be deemed to be references to such subcommittee.
(b) The interpretation and construction by the Committee of any provision of this Plan or of any Evidence of Award (or related documents) and any determination by the Committee pursuant to any provision of this Plan or of any such agreement, notification or document will be final and conclusive. No member of the Committee shall be liable for any such action or determination made in good faith. In addition, the Committee is authorized to take any action it determines in its sole discretion to be appropriate subject only to the express limitations contained in this Plan, and no authorization in any Plan section or other provision of this Plan is intended or may be deemed to constitute a limitation on the authority of the Committee.
(c) To the extent permitted by law, the Committee may delegate to one or more of its members, to one or more officers of the Company, or to one or more agents or advisors, such administrative duties or powers as it may deem advisable, and the Committee, the subcommittee, or any person to whom duties or powers have been delegated as aforesaid, may employ one or more persons to render advice with respect to any responsibility the Committee, the subcommittee or such person may have under this Plan. The Committee may, by resolution, authorize one or more officers of the Company to do one or both of the following on the same basis as the Committee: (i) designate employees to be recipients of awards under this Plan; and (ii) determine the size of any such awards;provided,however, that (A) the Committee will not delegate such responsibilities to any such officer for awards granted to an employee who is an officer, Director, or more than 10% “beneficial owner” (as such term is defined in Rule13d-3 promulgated under the Exchange Act) of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act, as determined by the Committee in accordance with Section 16 of the Exchange Act; (B) the resolution providing for such authorization shall set forth the total number of Common Shares such officer(s) may grant; and (C) the officer(s) will report periodically to the Committee regarding the nature and scope of the awards granted pursuant to the authority delegated.
12. Adjustments. The Committee shall make or provide for such adjustments in the number of and kind of Common Shares covered by outstanding Option Rights, Appreciation Rights, Restricted Shares, Restricted Stock Units, Deferred Shares, Performance Shares and Performance Units granted hereunder and, if applicable, in the number of and kind of Common Shares covered by other awards
granted pursuant toSection 10 of this Plan, in the Option Price and Base Price provided in outstanding Option Rights and Appreciation Rights, respectively, in Cash Incentive Awards, and in other award terms, as the Committee, in its sole discretion, exercised in good faith, determines is equitably required to prevent dilution or enlargement of the rights of Participants that otherwise would result from (a) any extraordinary cash dividend, stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, (b) any merger, consolidation,spin-off,split-off,spin-out,split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities, or (c) any other corporate transaction or event having an effect similar to any of the foregoing. Moreover, in the event of any such transaction or event or in the event of a Change in Control, the Committee may provide in substitution for any or all outstanding awards under this Plan such alternative consideration (including cash), if any, as it, in good faith, may determine to be equitable in the circumstances and shallrequire in connection therewith the surrender of all awards so replaced in a manner that complies with Section 409A of the Code. In addition, for each Option Right or Appreciation Right with an Option Price or Base Price, respectively, greater than the consideration offered in connection with any such transaction or event or Change in Control, the Committee may in its discretion elect to cancel such Option Right or Appreciation Right without any payment to the person holding such Option Right or Appreciation Right. The Committee shall also make or provide for such adjustments in the number of Common Shares specified inSection 3 of this Plan as the Committee in its sole discretion, exercised in good faith, determines is appropriate to reflect any transaction or event described in thisSection 12;provided,however, that any such adjustment to the number specified inSection 3(c) of this Plan will be made only if and to the extent that such adjustment would not cause any Option Right intended to qualify as an Incentive Stock Option to fail to so qualify.
13. Change in Control. For purposes of this Plan, except as may be otherwise prescribed by the Committee in an Evidence of Award made under this Plan, “Change in Control” means the occurrence of any of the following events:
(a) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a “Person”) of beneficial ownership (within the meaning of Rule13d-3 promulgated under the Exchange Act) of 30% or more of either: (i) the then-outstanding Common Shares or (ii) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (“Voting Shares”);provided,however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (1) any acquisition directly from the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, or (4) any acquisition by any Person pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c); or
(b) individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason (other than death or disability) to constitute at least a majority of the Board;provided,however, that any individual becoming a Director subsequent to the Effective Date whose election, or nomination for election by the Shareholders, was approved by a vote of at least a majority of the Directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for Director, without objection to such nomination) shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
(c) consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively of the Common Shares and Voting Shares immediately prior to such Business Combination beneficially own, directly or indirectly, more than66-2/3% of, respectively, the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity
resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions relative to each other as their ownership, immediately prior to such Business Combination, of the Common Shares and Voting Shares of the Company, as the case may be, (ii) no Person (excluding any entity resulting from such Business Combination or any employee benefit plan (or related trust) sponsored or maintained by the Company or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 30% or more of, respectively, the then-outstanding shares of common stock of the entity resulting from such Business Combination, or the combined voting power of the then-outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
(d) approval by the Shareholders of a complete liquidation or dissolution of the Company.
Notwithstanding the foregoing, with respect to any award under the Plan that is characterized as“non-qualified deferred compensation” within the meaning of Section 409A of the Code, an event shall not be considered to be a Change in Control under the Plan for purposes of any payment in respect of such award unless such event would also constitute a “change in ownership,” a “change in effective control” or a “change in the ownership of a substantial portion of the assets of” the Company under Section 409A of the Code.
14. Detrimental Activity and Recapture Provisions. Any Evidence of Award may reference a clawback policy of the Company or provide for the cancellation or forfeiture of an award or the forfeiture and repayment to the Company of any gain related to an award, or other provisions intended to have a similar effect, upon such terms and conditions as may be determined by the Committee from time to time, if a Participant, either (a) during employment or other service with the Company or a Subsidiary, or (b) within a specified period after termination of such employment or service, engages in any detrimental activity, as described in the applicable Evidence of Award or such clawback policy. In addition, notwithstanding anything in this Plan to the contrary, any Evidence of Award or such clawback policy may also provide for the cancellation or forfeiture of an award or the forfeiture and repayment to the Company of any Common Shares issued under and/or any other benefit related to an award, or other provisions intended to have a similar effect, upon such terms and conditions as may be required by the Committee or under Section 10D of the Exchange Act and any applicable rules or regulations promulgated by the Securities and Exchange Commission or any national securities exchange or national securities association on which the Common Shares may be traded.
15. Non-U.S. Participants. In order to facilitate the making of any grant or combination of grants under this Plan, the Committee may provide for such special terms for awards to Participants who are foreign nationals or who are employed by the Company or any Subsidiary outside of the United States of America or who provide services to the Company or any Subsidiary under an agreement with a foreign nation or agency, as the Committee may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the Committee may approve such supplements to or amendments, restatements or alternative versions of this Plan (includingsub-plans) (to be considered part of this Plan) as it may consider necessary or appropriate for such purposes, without thereby affecting the terms of this Plan as in effect for any other purpose, and the secretary or other appropriate officer of the Company may certify any such document as having been approved and adopted in the same manner as this Plan. No such special terms, supplements, amendments or restatements, however, will include any provisions that are inconsistent with the terms of this Plan as then in effect unless this Plan could have been amended to eliminate such inconsistency without further approval by the Shareholders.
16. Transferability.
(a) Except as otherwise determined by the Committee, and subject to compliance withSection 18(b) of this Plan and Section 409A of the Code, no Option Right, Appreciation Right, Restricted Share, Restricted Stock Unit, Deferred Share, Performance Share, Performance Unit, Cash Incentive Award, award contemplated bySection 10 of this Plan or dividend equivalents paid with respect to awards made under this Plan will be transferable by the Participant except by will or the laws of descent and distribution. In no event will any such award granted under this Plan be transferred for value. Where transfer is permitted, references to “Participant” shall be construed, as the Committee deems appropriate, to include any permitted transferee to whom such award is transferred. Except as otherwise determined by the Committee, Option Rights and Appreciation Rights will be exercisable during the Participant’s lifetime only by him or her or, in the event of the Participant’s legal incapacity to do so, by his or her guardian or legal representative acting on behalf of the Participant in a fiduciary capacity under state law or court supervision.
(b) The Committee may specify on the Date of Grant that part or all of the Common Shares that are (i) to be issued or transferred by the Company upon the exercise of Option Rights or Appreciation Rights, upon the termination of the Restriction Period applicable to Restricted Stock Units, upon the termination of the Deferral Period applicable to Deferred Shares or upon payment under any grant of Performance Shares or Performance Units or (ii) no longer subject to the substantial risk of forfeiture and restrictions on transfer referred to inSection 6 of this Plan, will be subject to further restrictions on transfer, including minimum holding periods.
17. Withholding Taxes. To the extent that the Company is required to withhold federal, state, local or foreign taxes or other amounts in connection with any payment made or benefit realized by a Participant or other person under this Plan, and the amounts available to the Company for such withholding are insufficient, it will be a condition to the receipt of such payment or the realization of such benefit that the Participant or such other person make arrangements satisfactory to the Company for payment of the balance of such taxes or other amounts required to be withheld, which arrangements (in the discretion of the Committee) may include relinquishment of a portion of such benefit. If a Participant’s benefit is to be received in the form of Common Shares, and such Participant fails to make arrangements for the payment of taxes or other amounts, then, unless otherwise determined by the Committee, the Company will withhold Common Shares having a value equal to the amount required to be withheld. Notwithstanding the foregoing, when a Participant is required to pay the Company an amount required to be withheld under applicable income, employment, tax or other laws, the Participant may elect, unless otherwise determined by the Committee, to satisfy the obligation, in whole or in part, by having withheld, from the Common Shares required to be delivered to the Participant, Common Shares having a value equal to the amount required to be withheld or by delivering to the Company other Common Shares held by such Participant. The Common Shares used for tax or other withholding will be valued at an amount equal to the fair market value of such Common Shares on the date the benefit is to be included in Participant’s income. In no event will the fair market value of the Common Shares to be withheld and delivered pursuant to thisSection 17 exceed the minimum amount required to be withheld, unless (i) an additional amount can be withheld and not result in adverse accounting consequences, (ii) such additional withholding amount is authorized by the Committee, and (iii) the total amount withheld does not exceed the Participant’s estimated tax obligations attributable to the applicable transaction. Participants will also make such arrangements as the Company may require for the payment of any withholding tax or other obligation that may arise in connection with the disposition of Common Shares acquired upon the exercise of Option Rights.
18. Compliance with Section 409A of the Code.
(a) To the extent applicable, it is intended that this Plan and any grants made hereunder comply with the provisions of Section 409A of the Code, so that the income inclusion provisions of Section 409A(a)(1) of the Code do not apply to the Participants. This Plan and any grants made hereunder will be administered in a manner consistent with this intent. Any reference in this Plan to
Section 409A of the Code will also include any regulations or any other formal guidance promulgated with respect to such section by the U.S. Department of the Treasury or the Internal Revenue Service.
(b) Neither a Participant nor any of a Participant’s creditors or beneficiaries will have the right to subject any deferred compensation (within the meaning of Section 409A of the Code) payable under this Plan and grants hereunder to any anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment. Except as permitted under Section 409A of the Code, any deferred compensation (within the meaning of Section 409A of the Code) payable to a Participant or for a Participant’s benefit under this Plan and grants hereunder may not be reduced by, or offset against, any amount owed by a Participant to the Company or any of its Subsidiaries.
(c) If, at the time of a Participant’s separation from service (within the meaning of Section 409A of the Code), (i) the Participant will be a specified employee (within the meaning of Section 409A of the Code and using the identification methodology selected by the Company from time to time) and (ii) the Company makes a good faith determination that an amount payable hereunder constitutes deferred compensation (within the meaning of Section 409A of the Code) the payment of which is required to be delayed pursuant to thesix-month delay rule set forth in Section 409A of the Code in order to avoid taxes or penalties under Section 409A of the Code, then the Company will not pay such amount on the otherwise scheduled payment date but will instead pay it, without interest, on the tenth business day of the seventh month after such separation from service.
(d) Solely with respect to any award that constitutes nonqualified deferred compensation subject to Section 409A of the Code and that is payable on account of a Change in Control (including any installments or stream of payments that are accelerated on account of a Change in Control), a Change in Control shall occur only if such event also constitutes a “change in the ownership,” “change in effective control,” and/or a “change in the ownership of a substantial portion of assets” of the Company as those terms are defined under Treasury Regulation§1.409A-3(i)(5), but only to the extent necessary to establish a time and form of payment that complies with Section 409A of the Code, without altering the definition of Change in Control for any purpose in respect of such award.
(e) Notwithstanding any provision of this Plan and grants hereunder to the contrary, in light of the uncertainty with respect to the proper application of Section 409A of the Code, the Company reserves the right to make amendments to this Plan and grants hereunder as the Company deems necessary or desirable to avoid the imposition of taxes or penalties under Section 409A of the Code. In any case, a Participant will be solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on a Participant or for a Participant’s account in connection with this Plan and grants hereunder (including any taxes and penalties under Section 409A of the Code), and neither the Company nor any of its affiliates will have any obligation to indemnify or otherwise hold a Participant harmless from any or all of such taxes or penalties.
19. Amendments.
(a) The Board may at any time and from time to time amend this Plan in whole or in part;provided,however, that if an amendment to this Plan, for purposes of applicable stock exchange rules and except as permitted underSection 12 of this Plan, (i) would materially increase the benefits accruing to Participants under this Plan, (ii) would materially increase the number of securities which may be issued under this Plan, (iii) would materially modify the requirements for participation in this Plan, or (iv) must otherwise be approved by the Shareholders in order to comply with applicable law or the rules of the New York Stock Exchange or, if the Common Shares are not traded on the New York Stock Exchange, the principal national securities exchange upon which the Common Shares are traded or quoted, all as determined by the Board, then, such amendment will be subject to Shareholder approval and will not be effective unless and until such approval has been obtained.
(b) Except in connection with a corporate transaction or event described inSection 12 of this Plan or in connection with a Change in Control, the terms of outstanding awards may not be amended to reduce the Option Price of outstanding Option Rights or the Base Price of outstanding
Appreciation Rights, or cancel outstanding “underwater” Option Rights or Appreciation Rights (including following a Participant’s voluntary surrender of “underwater” Option Rights or Appreciation Rights) in exchange for cash, other awards or Option Rights or Appreciation Rights with an Option Price or Base Price, as applicable, that is less than the Option Price of the original Option Rights or Base Price of the original Appreciation Rights, as applicable, without Shareholder approval. ThisSection 19(b) is intended to prohibit the repricing of “underwater” Option Rights and Appreciation Rights and will not be construed to prohibit the adjustments provided for inSection 12 of this Plan. Notwithstanding any provision of this Plan to the contrary, thisSection 19(b) may not be amended without approval by the Shareholders.
(c) If permitted by Section 409A of the Code, but subject to the paragraph that follows, notwithstanding the Plan’s minimum vesting requirements, and including in the case of termination of employment or service, or in the case of unforeseeable emergency or other circumstances or in the event of a Change in Control, to the extent a Participant holds an Option Right or Appreciation Right not immediately exercisable in full, or any Restricted Shares as to which the substantial risk of forfeiture or the prohibition or restriction on transfer has not lapsed, or any Restricted Stock Units as to which the Restriction Period has not been completed, or any Deferred Shares as to which the Deferral Period has not been completed, or any Cash Incentive Awards, Performance Shares or Performance Units which have not been fully earned, or any dividend equivalents or other awards made pursuant toSection 10 of this Plan subject to any vesting schedule or transfer restriction, or who holds Common Shares subject to any transfer restriction imposed pursuant toSection 16(b) of this Plan, the Committee may, in its sole discretion, provide for continued vesting or accelerate the time at which such Option Right, Appreciation Right or other award may vest or be exercised or the time at which such substantial risk of forfeiture or prohibition or restriction on transfer will lapse or the time when such Restriction Period will end or the time when such Deferral Period will end or the time at which such Cash Incentive Awards, Performance Shares or Performance Units will be deemed to have been earned or the time when such transfer restriction will terminate or may waive any other limitation or requirement under any such award.
(d) Subject toSection 19(b) of this Plan, the Committee may amend the terms of any award theretofore granted under this Plan prospectively or retroactively. Except for adjustments made pursuant toSection 12 of this Plan, no such amendment will materially impair the rights of any Participant without his or her consent. The Board may, in its discretion, terminate this Plan at any time. Termination of this Plan will not affect the rights of Participants or their successors under any awards outstanding hereunder and not exercised in full on the date of termination.
20. Governing Law. This Plan and all grants and awards and actions taken hereunder will be governed by and construed in accordance with the internal substantive laws of the State of Ohio.
21. Effective Date/Termination. This Plan will be effective as of the Effective Date. No grants will be made on or after the Effective Date under the Predecessor Plans, provided that outstanding awards granted under the Predecessor Plans will continue unaffected following the Effective Date. No grant will be made under this Plan on or after the tenth anniversary of the Effective Date, but all grants made prior to such date will continue in effect thereafter subject to the terms thereof and of this Plan. For clarification purposes, the terms and conditions of this Plan shall not apply to or otherwise impact previously granted and outstanding awards under the Predecessor Plans, as applicable.
22. Miscellaneous Provisions.
(a) The Company will not be required to issue any fractional Common Shares pursuant to this Plan. The Committee may provide for the elimination of fractions or for the settlement of fractions in cash.
(b) This Plan will not confer upon any Participant any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate such Participant’s employment or other service at any time.
(c) Except with respect toSection 22(e) of this Plan, to the extent that any provision of this Plan would prevent any Option Right that was intended to qualify as an Incentive Stock Option from qualifying as such, that provision will be null and void with respect to such Option Right. Such provision, however, will remain in effect for other Option Rights and there will be no further effect on any provision of this Plan.
(d) No award under this Plan may be exercised by the holder thereof if such exercise, and the receipt of cash or shares thereunder, would be, in the opinion of counsel selected by the Company, contrary to law or the regulations of any duly constituted authority having jurisdiction over this Plan.
(e) Absence on leave approved by a duly constituted officer of the Company or any of its Subsidiaries will not be considered interruption or termination of service of any employee for any purposes of this Plan or awards granted hereunder.
(f) No Participant will have any rights as a Shareholder with respect to any Common Shares subject to awards granted to him or her under this Plan prior to the date as of which he or she is actually recorded as the holder of such Common Shares upon the share records of the Company.
(g) The Committee may condition the grant of any award or combination of awards authorized under this Plan on the surrender or deferral by the Participant of his or her right to receive a cash bonus or other compensation otherwise payable by the Company or a Subsidiary to the Participant.
(h) Except with respect to Option Rights and Appreciation Rights, the Committee may permit Participants to elect to defer the issuance of Common Shares under this Plan pursuant to such rules, procedures or programs as it may establish for purposes of this Plan and which are intended to comply with the requirements of Section 409A of the Code. The Committee also may provide that deferred issuances and settlements include the crediting of dividend equivalents or interest on the deferral amounts.
(i) If any provision of this Plan is or becomes invalid or unenforceable in any jurisdiction, or would disqualify this Plan or any award under any law deemed applicable by the Committee, such provision will be construed or deemed amended or limited in scope to conform to applicable laws or, in the discretion of the Committee, it will be stricken and the remainder of this Plan will remain in full force and effect. Notwithstanding anything in this Plan or an Evidence of Award to the contrary, nothing in this Plan or in an Evidence of Award prevents a Participant from providing, without prior notice to the Company, information to governmental authorities regarding possible legal violations or otherwise testifying or participating in any investigation or proceeding by any governmental authorities regarding possible legal violations, and for purpose of clarity a Participant is not prohibited from providing information voluntarily to the Securities and Exchange Commission pursuant to Section 21F of the Exchange Act.
23. Share-Based Awards in Substitution for Awards Granted by Another Company. Notwithstanding anything in this Plan to the contrary:
(a) Awards may be granted under this Plan in substitution for or in conversion of, or in connection with an assumption of, stock options, stock appreciation rights, restricted shares, restricted stock units, deferred shares or other share or share-based awards held by awardees of an entity engaging in a corporate acquisition or merger transaction with the Company or any Subsidiary. Any conversion, substitution or assumption will be effective as of the close of the merger or acquisition, and, to the extent applicable, will be conducted in a manner that complies with Section 409A of the Code. The awards so granted may reflect the original terms of the awards being assumed or substituted or converted for and need not comply with other specific terms of this Plan, and may account for Common Shares substituted for the securities covered by the original awards and the number of shares subject to the original awards, as well as any exercise or purchase prices applicable to the original awards, adjusted to account for differences in stock prices in connection with the transaction.
(b) In the event that a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary merges has shares available under apre-existing plan previously approved by shareholders and not adopted in contemplation of such acquisition or merger, the shares available for grant pursuant to the terms of such plan (as adjusted, to the extent appropriate, to reflect such acquisition or merger) may be used for awards made after such acquisition or merger under this Plan;provided,however, that awards using such available shares may not be made after the date awards or grants could have been made under the terms of thepre-existing plan absent the acquisition or merger, and may only be made to individuals who were not employees or directors of the Company or any Subsidiary prior to such acquisition or merger.
(c) Any Common Shares that are issued or transferred by, or that are subject to any awards that are granted by, or become obligations of, the Company underSections 23(a) or 23(b) of this Plan will not reduce the Common Shares available for issuance or transfer under this Plan or otherwise count against the limits contained inSection 3 of this Plan. In addition, no Common Shares subject to an award that is granted by, or becomes an obligation of, the Company underSections 23(a) or23(b) of this Plan, will be added to the aggregate limit contained inSection 3(a) of this Plan.
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| | c/o Corporate Election Services P. O. Box 3230 Pittsburgh, PA 15230 | | VOTE BY TELEPHONE | | | | Have your proxy card available when you call theToll-Free number 1-888-693-8683using a touch-tone phone, and follow the simple instructions to record your vote. | | | | | | | | | | VOTEBY INTERNET | | | | | | | | | | Have your proxy card available when you access the websitewww.cesvote.comand follow the simple instructions to record your vote. | | | | | | | | | | VOTEBY MAIL | | | | | | | | | | Please mark, sign and date your proxy card and return it in thepostage-paid envelopeprovided or return it to: Corporate Election Services, P.O. Box 3230, Pittsburgh, PA 15230. |
| | | | | | | | | | | | | Vote by Telephone
CallToll-Freeusing a
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| | Vote by Internet
Access the Website and
Cast your vote:
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| | Telephone Vote by
Call Toll-Free: 1-888-693-8683 | | | | Mail Return your proxy card | Access the Internet site and | | | | ![LOGO](https://capedge.com/proxy/DEF 14A/0001193125-22-078880/g212116g46q98.jpg) | | | | | cast your vote: | | | | | | | | card/voting instruction form | www.cesvote.com | | | | | | | | in thePostage-Paid postage-paid | | | | | Scan with a mobile device | | | | | | envelope provided |
Vote 24 hours a day, 7 days a week! If you vote by telephone or Internet, please do NOT send your proxy by mail. ![LOGO](https://capedge.com/proxy/DEF 14A/0001193125-22-078880/g212116g60o11.jpg)
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Proxy must be signed and dated below.
Please fold and detach card at perforation before mailing. ![LOGO](https://capedge.com/proxy/DEF 14A/0001193125-22-078880/g212116g56f82.jpg) ![LOGO](https://capedge.com/proxy/DEF 14A/0001193125-19-082712/g616071pc3.jpg)
| | | THETIMKENCOMPANY | | PROXY /VOTINGINSTRUCTIONCARD |
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The undersigned appoints John M. Timken, Jr.; Richard G. Kyle; and Hansal N. Patel; and each of them, as true and lawful proxies, with full power of substitution, to vote and act for the undersigned as specified on the reverse hereof at the Annual Meeting of Shareholders of THE TIMKEN COMPANY to be held online at 4500 Mount Pleasant Street NW, North Canton, Ohio 44720,http://www.cesonlineservices.com/tkr22_vm, on May 10, 2019,6, 2022, at 10:00 a.m., and at any adjournment thereof, as fully as the undersigned could vote and act if personally present on the matters set forth on the reverse hereof, and, in their discretion on such other matters as may properly come before the meeting, and/or if the undersigned is a participant in one or more of the Company’s or its subsidiaries’ employee share ownership plans and has stock of the Company allocated to his or her account(s), the undersigned directs the trustee(s) of such plan(s) likewise to appoint the above-named individuals as proxies to vote and act with respect to all shares of such stock so allocated on the record date for such meeting in the manner specified on the reverse hereof at such meeting or any adjournment thereof, and in their discretion on such other matters as may properly come before the meeting. | | | | | Signature | | | Signature (if jointly held) |
| | | | Please sign exactly as the name appears hereon. Joint owners should each sign. When signing as an attorney, executor, administrator, trust or guardian, please give full title as such. |
PLEASE SIGN AND RETURN AS SOON AS POSSIBLE
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS May 6, 2022 at 10:00 a.m. | | | | | | | May 10, 2019 at 10:00 a.m.
The Timken Company
4500 Mount Pleasant Street NW
North Canton, OH 44720-5450
Telephone: (234) 262-3000
| | | | Parking: Shareholders attending the meeting may park in the visitor lot in front of the Corporate Office building.
Note: If your shares are held in street name, please bring a letter with you from your broker stating as such to the Annual Meeting.
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For directions to the Annual Meeting, you may call234-262-3000.http://www.cesonlineservices.com/tkr22_vm
ELECTRONIC ACCESS TO FUTURE DOCUMENTS NOW AVAILABLE If you are a registered holder of shares, you have the option to access future shareholder communications (e.g., annual reports, proxy statements, related proxy materials) over the Internet instead of receiving those documents in print. Participation is completely voluntary. If you give your consent, in the future, when our material is available over the Internet you will receive notification that will contain the Internet location where the material is available. Our material will be presented in PDF format. There is no cost to you for this service other than any charges you may incur from your Internet provider, telephone and/or cable company. Once you give your consent, it will remain in effect until you inform us otherwise. You may revoke your consent at any time by notifying the Company in writing. To give your consent, follow the prompts when you vote by telephone or over the Internet or check the appropriate box located at the bottom of the attached proxy card when you vote by mail. ![LOGO](https://capedge.com/proxy/DEF 14A/0001193125-19-082712/g616071pc5.jpg) Please fold and detach card at perforation before mailing. ![LOGO](https://capedge.com/proxy/DEF 14A/0001193125-22-078880/g212116g56f82.jpg) ![LOGO](https://capedge.com/proxy/DEF 14A/0001193125-19-082712/g616071pc5.jpg)
| | | | | | | | | | | | | | | THE TIMKEN COMPANY | | PROXY /VOTINGINSTRUCTIONCARD | | PROXY / VOTING INSTRUCTION CARD
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The shares represented by this proxy will be voted as recommended by the Board of Directors unless otherwise specified. The Board of Directors recommends a vote FOR proposals 1, 2 and 3. 1. | Election of twelve Directors to serve for a term of one year: |
| | | | | | | | | | | | | | | | | Nominees: | | (01) | | Maria A. Crowe | | (02) | | Elizabeth A. Harrell | | (03) | | Richard G. Kyle | | (04) | | Sarah C. Lauber | | | (05) | | John A. Luke, Jr. | | (06) | | Christopher L. Mapes | | (07) | | James F. Palmer | | (08) | | Ajita G. Rajendra | | | (09) | | Frank C. Sullivan | | (10) | | John M. Timken, Jr. | | (11) | | Ward J. Timken, Jr. | | (12) | | Jacqueline F. Woods |
| | | | | | | | | | | | | | | | | | | The shares represented by this proxy will be voted as recommended by the Board of Directors unless otherwise specified.
The Board of Directors recommends a
| | | | ☐FOR all nominees listed above | | ☐WITHHOLD AUTHORITY to vote FOR proposals 1, 2, 3 and 4. | for all nominees listed above |
1. | Election of Directors to serve for a term of one year:
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| | | | | | | | | | | | | | | | | | | | | Nominees: | | (01) | | Maria A. Crowe | | (02) | | Elizabeth A. Harrell | | (03) | | Richard G. Kyle | | (04) | | John A. Luke, Jr. | | | | | | | | | | | | (05) | | Christopher L. Mapes | | (06) | | James F. Palmer | | (07) | | Ajita G. Rajendra | | (08) | | Frank C. Sullivan | | | | | | | | | | | | (09) | | John M. Timken, Jr. | | (10) | | Ward J. Timken, Jr. | | (11) | | Jacqueline F. Woods | | | | | | | | | | ❑ | | FOR all nominees listed above ❑ WITHHOLD AUTHORITYto vote for all nominees listed above | | | | | To withhold authority to vote for individual Nominee(s), write the name(s) or number(s) on the line below: |
| | | | | | | | | | | | | | | | | | | | | To withhold authority to vote for individual Nominee(s), write the name(s) or number(s) on the line below:
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2. | Approval, on an advisory basis, of our named executive officer compensation. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ❑ FOR | | | ❑☐ | | FOR | | ☐ | | AGAINST | | | ❑ | ☐ | | ABSTAIN | | | | | | |
3. | Ratification of the appointment of Ernst & Young LLP as our independent auditor for the fiscal year ending December 31, 2019.2022. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ❑ FOR | | | ❑☐ | | FOR | | ☐ | | AGAINST | | | ❑ | ☐ | | ABSTAIN | | |
The Board of Directors recommends a vote AGAINST proposal 4. 4. | | | Consideration of a shareholder proposal requesting that our Board take each step necessary so that each voting requirement in our charter and bylaws (that is explicit or implicit due to default to state law) that calls for a greater than simple majority vote be eliminated, and replaced by a requirement for a majority of the votes cast for and against applicable proposals, or a simple majority in compliance with applicable laws. |
4. | Approval of The Timken Company 2019 Equity and Incentive Compensation Plan.
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ❑ FOR | | | ❑☐ | | FOR | | ☐ | | AGAINST | | | ❑ | ☐ | | ABSTAIN | | | | | | |
The Board of Directors recommends a vote AGAINST proposal 5.
5. | A shareholder proposal asking our Board of Directors to adopt a policy, or otherwise take the steps necessary, to require that the Chair of the Board of Directors be independent.
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❑ | PLEASE CHECK THIS BOX IF YOU CONSENT TO ACCESS FUTURE ANNUAL REPORTS AND PROXY MATERIAL VIA THE INTERNET ONLY. |
| | | | | | | | | | | | | | | | | | | | | | CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE. |
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