•Independent Compensation Committee: Each member of our Compensation Committee satisfies the applicable independence requirements set forth in the NYSE Rules and under Rule 10C-1 promulgated by the SEC under the Exchange Act. Each member of our Compensation Committee also qualifies as an outside director for purposes of IRC § 162(m) and as a non-employee director for purposes of Rule 16b-3 under the Exchange Act.
Insider Trading Policy; •Anti-Hedging Policy: Our Insider Trading Policy prohibits all Company employees, including our NEOs, and members of the Board, from engaging in certain hedging transactions relating to Company securities held by them, including short sales, the purchase of puts, calls or listed options and hedging transactions such as prepaid variable forwards, equity swaps, caps, collars and exchange funds.
The Say-on-Pay vote is not intended to address any specific element of compensation, but rather provides shareholders an opportunity to express their views regarding the overall compensation of our NEOs and our executive compensation philosophy and objectives, guiding principles, policies and practices.
Recommendation and Vote
For the reasons set forth above, the Company is asking its shareholders to support the compensation of the NEOs as set forth in this Proxy Statement by approving the following resolution:
“RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the Company’s Named Executive Officers as disclosed in the Company’s Proxy Statement for the 20192022 Annual Meeting of Shareholders, including the Compensation Discussion and Analysis, the executive compensation tables and the related footnote and narrative disclosures accompanying the tables.”
To be approved, this proposal requires the affirmative vote of the holders of a majority of the Company’s Common Shares present in person or by proxy and entitled to vote on the proposal, which means the votes cast “For” the proposal must exceed the votes cast “Against” the proposal. Abstentions will be treated as votes cast “Against” the proposal. Broker non-votes will not be counted in determining the required vote on the proposal.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS.
We highly value the opinions of our shareholders. Accordingly, although the vote is advisory only and not binding on the Company or the Board, the Compensation Committee will consider the outcome of the Say-on-Pay vote in connection with future executive compensation decisions.
PROPOSAL NUMBER 3
RATIFICATION OF THE SELECTION OF THE
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP (“Deloitte”) has served as the Company’s independent registered public accounting firm since 2005 and audited the Company’s consolidated financial statements as of and for the fiscal year ended September 30, 2018,2021, and the Company’s internal control over financial reporting as of September 30, 2018.2021. The Audit Committee is directly responsible for the selection of the Company’s independent registered public accounting firm and has selected Deloitte to audit the Company’s consolidated financial statements for the fiscal year ending September 30, 2019.2022. Although it is not required to do so, the Board has determined to submit the Audit Committee’s selection of the independent registered public accounting firm to the Company’s shareholders for ratification as a matter of good corporate governance. In the event that the Audit Committee’s selection of Deloitte as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 20192022 is not ratified by the holders of a majority of the Common Shares represented at the Annual Meeting (with an abstention being treated the same as a vote “Against”), the Audit Committee will evaluate such shareholder vote when considering the selection of an independent registered public accounting firm for the fiscal year ending September 30, 2020.2023. Even if the selection of Deloitte is ratified, the Audit Committee, in its discretion, could decide to terminate the engagement of Deloitte and to engage another independent registered public accounting firm if the Audit Committee determines such action is necessary or desirable.
Representatives of Deloitte are expected to be present at the Annual Meeting, will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.
YOUR BOARD OF DIRECTORS AND THE AUDIT COMMITTEE RECOMMEND THAT YOU VOTE FOR RATIFICATION OF THE AUDIT COMMITTEE’S SELECTION OF DELOITTE & TOUCHE LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 2019.2022.
PROPOSAL NUMBER 4
APPROVAL OF AMENDMENT AND RESTATEMENT OF
THE SCOTTS MIRACLE-GRO COMPANY
LONG-TERM INCENTIVE PLAN
Proposal
We seek shareholder approval of the amendment and restatement of The Scotts Miracle-Gro Company Long-Term Incentive Plan (the “Plan”), which was adopted, subject to shareholder approval, by the Board of Directors (“Board”) of The Scotts Miracle-Gro Company (“Company”). The amendment and restatement of the Plan includes the following changes to the Plan:
•Increase in Aggregate Share Limit. The amendment and restatement increases the maximum number of common shares available for grant to participants under the Plan by 1,500,000 common shares.
•Share Limits for Incentive Stock Options. The amendment and restatement provides that the aggregate limit for incentive stock option awards made on or after January 24, 2022 is 2,892,894 common shares.
•Since the Plan was amended and restated on January 27, 2017, the deduction limit for certain performance-based compensation under IRC § 162(m) was repealed. As a result, the amendment and restatement has generally removed specific language such as the definition of “Performance-Based Compensation,” and other limitations and restrictive provisions, including per share annual award limits for Plan participants other than non-employee directors, that were previously included in the Plan solely for purposes of complying with the performance-based pay exception under IRC § 162(m).
•Performance Goals. The amendment and restatement expands the Performance Goals that the Compensation and Organization Committee (“Compensation Committee”) may consider when setting Performance Goals for performance-based awards.
•Extension of Plan Expiration Date. Currently, the authority to grant new awards under the Plan will expire on January 27, 2027. The amendment and restatement of the Plan extends the expiration date of the Plan until January 24, 2032.
We refer to the Plan as modified by the proposed amendment and restatement as the “Amended Plan.” A copy of the Amended Plan is attached to this Proxy Statement as Annex A. Capitalized terms that are used but not defined in this proposal are defined in the Amended Plan. The Amended Plan will become effective only if it is approved by our shareholders.
Background
The Compensation Committee believes it is desirable to continue to have equity-based awards available under a long-term incentive plan to be used to recruit new individuals to become employees or serve as directors or third-party service providers and for incentive purposes, where necessary or appropriate. The Amended Plan will continue to make common shares available for a variety of awards, allowing the Company to choose the incentives most appropriate to individual circumstances. The Amended Plan is intended to benefit the Company and its shareholders.
The Company’s shareholders originally approved the Plan at the 2006 Annual Meeting of Shareholders, effective January 26, 2006. The Plan was amended and restated effective as of October 30, 2007 to reflect administrative changes and compliance with IRC § 409A. Subsequently, on January 20, 2010, the Plan was amended to allow award agreements for Plan awards granted on or after January 20, 2010 to specify different termination of service provisions than those set forth in the Plan. On January 20, 2011, the Company’s shareholders re-approved the material terms of the performance criteria under the Plan. The Plan was subsequently amended and restated effective January 17, 2013 to increase the aggregate and individual share and cash limits, create a fungible share pool, and make other changes. The most recent amendment and restatement, effective January 27, 2017, revised the aggregate and individual limits for share-based and cash-based awards under the Plan, modified the change in control definition, expanded the performance measures that were able to be considered by the Compensation Committee, and provided for additional shares available for awards under the Plan, among other changes.
Determination of Shares to be Available for Issuance
The Board approved the additional share authorization requested under the amendment and restatement of the Plan based, in part, on a belief that the number of common shares currently available under the Plan does not give us sufficient flexibility to adequately provide for future incentives. We will continue to have the authority to grant awards under the Plan, within the existing Plan limits, if shareholders do not approve this proposal; however, the Company’s flexibility to may be limited.
If this Proposal Number 4 is approved by our shareholders at the 2022 Annual Meeting of Shareholders (“Annual Meeting”), the maximum aggregate number of common shares that may be issued with respect to grants made on and after January 24, 2022 will be equal to the sum of (i) 1,500,000 new common shares, plus (ii) 1,392,894 common shares, which is the number of common shares that remained available for awards under the Plan as of December 1, 2021 (per the supplemental disclosures outlined below), plus (iii) the number of common shares subject to outstanding awards under the Plan as of December 1, 2021 that terminate, expire, or are cancelled, forfeited, exchanged, or surrendered without having been exercised, vested, or paid under the Plan (not exceeding 2,070,517 common shares, per the supplemental disclosures outlined below). The share reserve is subject to adjustment as described under “Adjustments” below.
The number of common shares reserved for issuance under the Plan will be reduced on a one-for-one basis for each common share issued under the Amended Plan pursuant to a stock option or stock appreciation right and will be reduced by a fixed ratio of two to one (2:1) shares (“full value factor”) for each common share issued under the Amended Plan pursuant to any Plan award other than a stock option or stock appreciation right. For example, if shares are issued pursuant to an award of 1,000 restricted stock units, the share reserve under the Amended Plan will be reduced by 2,000 shares.
When deciding on the number of shares to be available for awards under the Amended Plan, the Compensation Committee considered a number of factors, including the number of common shares available under the Plan, our past share usage (run rate), the number of common shares needed for future awards, a dilution analysis, competitive data from relevant peer companies, the current and future accounting expenses associated with our equity award practices, and input from our shareholders and shareholder advisory firms.
Dilution Analysis
As of December 1, 2021, our capital structure consisted of 54,953,842 common shares outstanding. In addition, 1,392,894 common shares remained available for the grant of future awards under the Plan as of December 1, 2021 (per the supplemental disclosures outlined below). No awards have been granted after December 1, 2021, and prior to the date of this Proxy Statement. As of December 1, 2021, 2,070,517 total equity awards remain outstanding. The proposed share authorization is a request for 1,500,000 new common shares to be available for awards under the Amended Plan.
Dilution Analysis — Supplemental Disclosures:
The Company is providing the following supplemental disclosures to provide the most current information on the status of the outstanding equity awards and the shares that remain available to grant in the future as of the date of this Proxy Statement, as well as important context about the temporary timing impact of a large performance-based award that was granted under the Plan in January 2017 (known as the “Project Focus Awards” or “PFAs”), that is both fully earned and fully vested as of the date of this Proxy Statement, but is not scheduled to be paid out until one week following the effective date of the new share request. The supplemental disclosures reconcile the differences between the outstanding equity awards and shares available for future grant as reported in the Company’s Annual Report on Form 10-K for the 2021 fiscal year, with the share data used for purposes of presenting the dilution analysis of the proposed share request. Both the Company and the Board urge our shareholders to carefully consider these supplemental disclosures when evaluating the potential cost and dilutive impact of the Company’s share request.
Project Focus Awards: On January 30, 2017, the Company created a unique high-value long-term incentive plan, known as the Project Focus Awards (or “PFAs”), that was directly linked to achieving the pre-defined financial outcomes of the Project Focus strategic plan over a five-year performance period covering the 2017 through 2021 fiscal years (the “PFA Performance Period”). The PFAs were designed to pull forward a portion of the grant value that would otherwise have been provided to each of the participants over the PFA Performance Period into a front-loaded performance-based award with demanding performance goals tied to increased Non-GAAP Free Cash Flow and investor returns that were directly aligned to the objectives of Project Focus. The Company’s actual performance far exceeded the pre-defined performance goals for the PFA Performance Period. As a result, the PFA participants earned the maximum payout equal to 250% of the target shares granted (for a total payout of 1,062,093 shares). Additional details on the PFAs are contained in the CD&A within this Proxy
Statement. It is important to note that the potential magnitude of the PFA payout was contemplated and disclosed to our shareholders in the 2017 Proxy Statement in connection with a request that shareholders ultimately approved to replenish the share pool at that time, and in each subsequent Proxy Statement we filed to date. As of December 1, 2021, the PFA payout of 1,062,093 shares is both fully earned and fully vested, but based on the terms of the applicable award agreements these shares are not scheduled to be paid out until January 30, 2022. Due to the timing of the payout of the vested PFAs, there will be a temporary overlap period of one week between the time the additional 1,500,000 new common shares come into the Plan and the 1,062,093 vested PFA shares are paid out.
Impact of Project Focus Awards on Outstanding Equity Awards: Based on the Company’s past disclosure practice, performance-based equity awards are counted at target until the actual payout occurs, at which time the authorized share pool is reduced by the full amount of the earned share payout. However, given the material difference between the target shares granted for the PFAs (424,836) and the actual share payout achieved (1,062,093), as well as the fact that the outstanding PFA will be paid out within one week following the 2022 Annual Meeting of Shareholders, the Company believes that the pending PFA payout temporarily distorts the dilution analysis since the award is still included in the count of outstanding equity awards as of the date of this Proxy Statement. To provide a more reasonable reflection of the outstanding equity awards that should be considered in an analysis of the potential dilutive impact of the new share request, the Company has provided the following supplemental disclosure table:
Shares Underlying Outstanding Equity Awards as of December 1, 2021:
| | | | | |
| Proforma |
Shares Underlying Outstanding Equity Awards as reported on Form 10-K as of September 30, 2021 | 1,516,573 |
Awards settled between October 1, 2021 and December 1, 2021 | (69,659) | |
Awards cancelled between October 1, 2021 and December 1, 2021 | (13,654) |
Incremental PFA performance above target (earned and fully vested as of December 1, 2021) | 637,257 | |
Actual equity awards outstanding as of December 1, 2021 (reflects PFA at actual 250% payout achieved) | 2,070,517 | |
PFA payout scheduled on January 30, 2022 (at full 250% payout level achieved) | (1,062,093) | |
Proforma equity Awards outstanding after adjusting for PFA payout | 1,008,424 | |
Impact of Project Focus Awards on Shares Available to Grant: When evaluating the potential dilutive impact of the new share request, it is also important to understand that due to timing differences between the guidelines governing the disclosures in the Company’s Annual Report on Form 10-K for the 2021 fiscal year and the underlying share utilization provisions specified in the shareholder approved Plan, the 2,583,458 shares reported in the Company’s Annual Report on Form 10-K for the 2021 fiscal year as available for future grants under the Plan (2,667,408 after adjusting for activity between October 1, 2021 and December 1, 2021), have not yet been reduced to reflect: (i) the incremental PFA shares that have been earned above the target payout level as of December 1, 2021, based on the PFA performance period that had already ended on September 30, 2021 (637,257), or (ii) the corresponding 2:1 full value factor adjustment prescribed in the Plan. Inclusive of the 2:1 full value adjustment, a total of 1,274,514 shares should be deducted from the available share pool since the incremental PFA shares, which are both fully earned and fully vested as of December 1, 2021, are already committed for payout pursuant to the terms of existing PFA award agreements that were previously granted on January 30, 2017 and are scheduled for payout on January 30, 2022 (within one week following the 2022 Annual Meeting of Shareholders). This adjustment to the number of shares available for grant as of December 1, 2021, is reflected in the table below.
Since the PFA shares are fully earned, fully vested, and committed for payout as of December 1, 2021, the share utilization rules under the Plan expressly preclude the Company from regranting these incremental PFA shares, except to the extent that such shares are otherwise settled without the issuance of shares. In addition, the majority of the PFA shares “earned” as of September 30, 2021 have, based on applicable SEC disclosure rules, been reported on Form 4s as beneficially owned by our Section 16 officers as of October 28, 2021, following Compensation Committee certification of the final PFA payout amounts.
Shares Available for Future Grants as of December 1, 2021:
| | | | | |
Shares available to underlie new grants as reported on Form 10-K as of Sept 30, 2021 | 2,583,458 | |
Awards cancelled or settled without issuance of shares between October 1, 2021 and December 1, 20211 (returned to share pool) | 83,950 | |
Subtotal | 2,667,408 | |
Incremental PFA shares in excess of target shares that are fully earned, vested and committed for payout as of December 1, 2021, pursuant to outstanding awards1 (deducted from share pool) | (1,274,514) | |
Actual shares available for future grant under the Plan as of December 1, 2021 | 1,392,894 | |
________________________
1 Full value awards have been adjusted to reflect the 2:1 full value adjustment factor prescribed in the Plan
Potential Overhang Calculation Based on Supplemental Disclosures: Since the approach adopted by Institutional Shareholder Services (“ISS”) and other proxy advisory firms tend to rely solely on a formulaic assessment of the share request without considering qualitative factors such as the supplemental disclosures discussed above, it is possible that the Company’s request for its shareholders to approve 1,500,000 new common shares for future grants under the Amended Plan will not receive a favorable voting recommendation from ISS. However, both the Company and the Board urge our shareholders to carefully consider the supplemental disclosures provided above and below, which we believe are a more accurate reflection of the shares available for future grants and shares outstanding as of December 1, 2021 and provides a reasonable basis to evaluate the potential dilutive impact of the Company’s share request.
Potential Overhang with 1,500,000New CommonShares:
| | | | | |
| Proforma |
Stock Options Outstanding as of December 1, 2021 | 565,049 |
Weighted Average Exercise Price of Stock Options Outstanding as of December 1, 2021 | $ | 117.72 | |
Weighted Average Remaining Term of Stock Options Outstanding as of December 1, 2021 | 5.4 |
Outstanding Full Value Awards under the Plan as of December 1, 2021 | 443,375 | |
Common Shares Available for Grant under the Plan as of December 1, 2021 | 1,392,894 | |
Common Shares Requested | 1,500,000 |
The table below shows our potential dilution levels (referred to as overhang) based on our fully diluted common shares and our request for 1,500,000 common shares to be available for awards under the Amended Plan. The share authorization after adding the 1,500,000 new common shares represents, on a proforma basis, approximately 6.6% of fully diluted common shares of the Company, including all common shares that will be authorized under the Amended Plan, as described in the table below. The Compensation Committee believes that this number of common shares available under the Amended Plan represents a reasonable amount of potential equity dilution, which will allow us to continue awarding equity awards, and that equity awards are an important component of our equity compensation program.
| | | | | | | | | | | |
| Before Share Authorization (proforma) | | After Share Authorization (proforma) |
Total Equity Awards Outstanding + Shares Available for Grant (A) | 2,401,318 | | 3,901,318 |
Common Shares Outstanding as of December 1, 2021 (B) | 54,953,842 | | 54,953,842 |
Fully Diluted Common Shares (C ) | 57,355,160 | | 58,855,160 |
Simple Overhang (A ÷ B) | 4.37% | | 7.10% |
Fully Diluted Overhang (A ÷ C) | 4.19% | | 6.63% |
The Outstanding Full Value Awards in the foregoing table are measured at target for the outstanding performance-based awards, which can be paid at, above or below target (other than the PFA shares that have been excluded entirely).
The Fully Diluted Common Shares in the foregoing table consists of the Common Shares Outstanding as of December 1, 2021 (on a proforma basis) plus the Total Equity Awards Outstanding and Shares Available for Grant under the Plan as described in the foregoing table. Based on our current equity award practices, the Compensation Committee estimates that the authorized common shares under the Plan may be sufficient to provide us with an opportunity to grant equity awards for approximately three to four years, in amounts determined appropriate by the Compensation Committee. This is only an estimate, and circumstances could cause the share reserve to be used more quickly or more slowly. These circumstances include, but are not limited to, the future price of our common shares, the mix of cash, options and full value awards provided as long-term incentive compensation, grant amounts provided by our competitors, payout of performance-based awards in excess of target in the event of superior performance, hiring activity, and promotions during the next few years.
The following table illustrates our traditional run rate for full value awards, which includes the number of time-vested full value awards granted and the number of performance-based awards granted during each fiscal year.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Fiscal Year | | Stock Options | | Full Value Awards | | Weighted Average Common Shares Outstanding as of September 30 | | Traditional Run Rate |
2021 | | 183,553 | | 82,102 | | 55,700,000 | | 0.48% |
2020 | | 37,255 | | 158,095 | | 55,700,000 | | 0.35% |
2019 | | — | | 254,950 | | 55,500,000 | | 0.46% |
The Compensation Committee believes that our executive compensation program, and particularly the granting of equity awards, allows us to align the interests of officers and other employees who are selected to receive awards with those of our shareholders. The Amended Plan is designed to enable us to formulate and implement a compensation program that will attract, motivate and retain officers and other employees who we expect will contribute to our financial success. The Compensation Committee believes that awards granted pursuant to the Amended Plan are a vital component of our compensation program and, accordingly, that it is important that an appropriate number of common shares be authorized for issuance under the Amended Plan.
Purpose
The purpose of the Amended Plan is to provide a means whereby employees, directors and third-party service providers develop a sense of proprietorship and personal involvement in the development and financial success of the Company and to encourage them to devote their best efforts to the business of the Company, thereby advancing the interests of the Company and its shareholders. In addition, the purpose of the Amended Plan is to provide a means through which the Company may attract able individuals to become employees or serve as directors or third-party service providers and to provide a means whereby those individuals, upon whom the responsibilities of the successful administration and management of the Company are of importance, can acquire and maintain ownership of the common shares, thereby strengthening their concern for the welfare of the Company.
The following is a brief summary of the material features of the Amended Plan. This summary (and the bullet list above of changes to the Plan made in the Amended Plan) is qualified in its entirety by reference to the full text of the Amended Plan.
Summary of Operation of the Amended Plan
Share Authorization under the Amended Plan and Limitations on Plan Awards; Fungible Share Pool
The Plan currently authorizes 4,943,137 common shares as the maximum aggregate number of common shares that may be issued to employees, non-employee directors, and third-party service providers of the Company. Based on the number of common shares subject to outstanding awards under the Plan, 1,392,894 common shares remain available for issuance as of December 1, 2021. The Compensation Committee is requesting an additional 1,500,000 common shares to be available for awards under the Amended Plan. If this Proposal Number 4 is approved by our shareholders at the Annual Meeting of Shareholders, the maximum aggregate number of common shares that may be issued with respect to grants made on and after January 24, 2022, will be equal to the sum of (i) 1,500,000 common shares, plus (ii) 1.392,894 common shares, which is the number of common shares that remained available for awards under the Plan as of December 1, 2021, plus (iii) the number of common shares subject to outstanding awards under the Plan as of December 1, 2021 that terminate, expire, or are cancelled, forfeited, exchanged, or surrendered without having been exercised, vested, or paid under the Plan (not exceeding 2,070,517 common shares). The share reserve is subject to adjustment as described under “Adjustments” below.
Common shares available for issuance under the Amended Plan may be authorized and unissued common shares or treasury shares. The Amended Plan retains a “fungible share pool,” pursuant to which the number of common shares available for grant shall be reduced by one share for each share covered by an option or stock appreciation right granted on or after January 17, 2013, and the number of common shares available for grant shall be reduced by two shares for each share subject to any other type of award granted on or after January 17, 2013 (the “full value factor”). The full number of common shares covered by a stock appreciation right that is to be settled by the issuance of common shares will be counted against the number of common shares available under the Amended Plan, regardless of the number of common shares actually issued on the settlement of such stock appreciation right.
Within the overall share authorization under the Amended Plan, for Plan awards granted on and after January 24, 2022, no more than 2,892,894 common shares may be issued pursuant to incentive stock options granted under the Plan, subject to adjustment as described under “Adjustments” below.
The maximum grant date value of common shares subject to Plan awards granted to a non-employee director during any fiscal year, in the capacity as a non-employee director, will not exceed $500,000 in total value. For this purpose, the value shall be calculated based on the grant date fair value for such Plan awards for financial reporting purposes. The Company’s fiscal year is currently October 1 through September 30.
Any common shares related to awards under the Plan which terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of such common shares, are settled in cash in lieu of common shares, or are exchanged with the Compensation Committee’s permission, prior to the issuance of common shares, for Plan awards not involving common shares, shall be available again for grant under the Amended Plan; provided, however, that the number of common shares that shall again be available shall be based on the full value factor if the previous award was not an option or stock appreciation right. If any common shares are withheld by the Company or are tendered (either actually or by attestation) by a participant to satisfy any tax withholding obligation with respect to a Plan award (other than an option or stock appreciation right), then the common shares so tendered or withheld shall again be available for issuance under the Amended Plan, and shall correspondingly increase the total number of common shares available for issuance under the Amended Plan, based on the full value factor.
Notwithstanding anything to the contrary in the prior paragraph, the following common shares will not again become available for issuance under the Amended Plan: (i) any common shares which would have been issued upon any exercise of an option award but for the fact that the exercise price was paid by a “net exercise” or any common shares tendered (either actually or by attestation) by a participant in payment of the exercise price of an option award; (ii) any common shares withheld by the Company or common shares tendered (either actually or by attestation) by a participant to satisfy any tax withholding obligation with respect to an option award or a stock appreciation right award (but not other Plan awards); (iii) common shares covered by a stock appreciation right award that are not issued in connection with the stock settlement upon its exercise; or (iv) common shares that are repurchased by the Company using option exercise proceeds.
Eligibility and Participation
As under the current Plan, all employees, directors and third-party service providers of the Company are eligible to participate in the Amended Plan. For purposes of the Amended Plan, an “employee” means any individual who performs services for and is designated as an employee of the Company, an affiliate of the Company or a subsidiary of the Company on the payroll records of the relevant entity; a “director” means any individual who is a member of the Board of the Company; and a “third-party service provider” means any consultant, agent, advisor or independent contractor who renders services to the Company, a subsidiary of the Company or an affiliate of the Company, other than a person who (a) provides services in connection with the offer or sale of the Company’s securities in a capital raising transaction or (b) directly or indirectly promotes or maintains a market for the Company’s securities.
Based on current grant practices, the Company estimates there are approximately 100 employees of the Company and its current affiliates and subsidiaries currently eligible to receive Plan awards, including the executive officers of the Company named in the Summary Compensation Table within this Proxy Statement. In addition, following the election of four directors at the Annual Meeting of Shareholders, there will be eleven directors (including James Hagedorn in his capacity as CEO) of the Company eligible to receive Plan awards. Mr. Hagedorn does not receive additional compensation, including Plan awards, for his services as a director, and the Company does not intend to make any grants to Mr. Hagedorn under the Amended Plan for his services as a director. Currently there are only two third-party service providers that have outstanding Plan awards, and the Company does not anticipate the number of third-party service providers receiving Plan awards in the future to increase significantly.
Performance Goals
Performance Goals shall be established by the Compensation Committee based on one or more of the following criteria or derivations of such criteria or other such criteria as determined by the Compensation Committee, including but not limited to the following: (a) net earnings or net income (before or after taxes); (b) earnings per share (basic or diluted); (c) net sales or revenue growth; (d) net operating profit; (e) return measures (including, but not limited to, return on assets, capital, invested capital, equity, sales, revenue or dividend yield); (f) cash flow (including, but not limited to, operating cash flow, free cash flow, cash flow return on equity and cash flow return on investment); (g) earnings before or after taxes, interest, depreciation and/or amortization; (h) gross or operating margins; (i) productivity ratios; (j) share price (including, but not limited to, growth measures and total shareholder return); (k) expense targets; (l) margins; (m) operating efficiency; (n) market share; (o) customer satisfaction; (p) working capital targets; (q) economic value added or EVA(R) (net operating profit after tax minus the sum of capital multiplied by the cost of capital); (r) developing new products and lines of revenue; (s) reducing operating expenses; (t) developing new markets; (u) meeting completion schedules; (v) developing and managing relationships with regulatory and other governmental agencies; (w) managing cash; (x) managing claims against the Company, including litigation; and (y) identifying and completing strategic acquisitions or joint ventures. Any Performance Goal(s) may be used to measure the performance of the Company, a subsidiary and/or an affiliate as a whole, or any business unit or joint venture of the Company, a subsidiary, and/or an affiliate or any combination thereof, as the Compensation Committee may deem appropriate. Any of the above Performance Goals may be applied as compared to the performance of a group of comparator companies, or published or special index that the Compensation Committee, in its sole discretion, deems appropriate.
In addition, the Compensation Committee may provide in any award agreement that any evaluation of performance may include or exclude any of the following events that occurs during a performance period: (i) asset write-downs; (ii) litigation or claim judgments or settlements; (iii) the effect of changes in tax laws, accounting principles or other laws or provisions affecting reported results; (iv) any reorganization and restructuring programs; (v) unusual and infrequently occurring items as described in applicable Accounting Principles Board opinions and in Management’s Discussion and Analysis of Financial Conditions and Results of Operations appearing in the Company’s annual report to shareholders for the applicable year; (vi) acquisitions or divestitures; (vii) foreign exchange gains and losses and (viii) other appropriate events.
The Compensation Committee may provide for accelerated vesting of any Award based on the achievement of Performance Goals.
Administration
As under the current Plan, the Amended Plan is administered by the Compensation Committee (in the case of awards other than those granted to non-employee directors) or the Board of the Company (in the case of awards granted to non-employee directors). The term “Administrator” means the Compensation Committee or the Board, as applicable.
The Compensation Committee consists of, unless otherwise determined by the Board, not less than two members who shall be (i) “non-employee directors” within the meaning of Rule 16b-3(b)(3) (or any successor rule) under the Securities Exchange Act of 1934, as amended, and (ii) “independent directors” as determined in accordance with the independence standards established by the stock exchange on which common shares are at the time primarily traded.
The Compensation Committee has the full and exclusive discretionary power to: (i) interpret the terms and the intent of the Amended Plan and any award agreement or other agreement or document ancillary to, or in connection with, the Plan; (ii) determine eligibility for Plan awards granted to participants other than non-employee directors of the Company (which determination will be made by the Board); and (iii) adopt such rules, regulations, forms, instruments and guidelines for administering the Plan as the Compensation Committee deems necessary or proper. The Administrator has the authority to: (i) select Plan award recipients; (ii) establish all terms and conditions of Plan awards and award agreements, including the treatment of Plan awards following a change in control, and whether the terms of any exercise, vesting or restriction periods will be based upon the achievement of specific Performance Goals; (iii) grant Plan awards as an alternative to, or as the form of payment for, grants or rights earned or due under compensation plans or arrangements of the Company; and (iv) construe any provision of the Plan or any award agreement.
The Compensation Committee may delegate to one or more of its members or to one or more officers of the Company, its subsidiaries or affiliates, or to one or more agents or advisors, such administrative duties or powers as the Compensation Committee may deem advisable to the extent permitted or required by law or governing document. In addition, the Compensation 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 can the Compensation Committee: (i) designate employees who are to receive Plan awards; and (ii) determine the size of any such Plan awards. However, the Compensation Committee may not delegate such responsibilities to
any such officer for Plan awards granted to an employee who is, on the relevant date, an officer or director of the Company, or a more than 10% beneficial owner of any class of the our equity securities that is registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, as determined by the Board or Compensation Committee in accordance with Section 16 of the Securities Exchange Act of 1934, as amended; the resolution providing such authorization must set forth the total number of Plan awards such officer(s) may grant; and the officer(s) must report periodically to the Compensation Committee regarding the nature and scope of the Plan awards granted pursuant to the authority delegated.
Description of Plan Awards
As under the current Plan, the Amended Plan authorizes the grant or award of (i) incentive stock options; (ii) non-qualified stock options; (iii) stock appreciation rights; (iv) restricted stock; (v) restricted stock units; (vi) performance shares; (vii) performance units; and (viii) other equity-based awards not described by one of the foregoing awards (collectively, the “Plan awards”).
Only employees of the Company and its subsidiaries may be granted incentive stock options. Employees, directors and third-party service providers may be granted or awarded non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares or other equity-based awards.
Pursuant to the Amended Plan, each participant’s award agreement will set forth the extent to which the participant will have the right to exercise, retain or receive, as applicable, the Plan awards subject to such agreement following the termination of the participant’s employment with or provision of services to the Company, its affiliates and/or its subsidiaries, as the case may be. Such provisions are to be determined in the sole discretion of the Administrator, need not be uniform among all Plan awards, may differ from the termination provisions of the Amended Plan and may reflect distinctions based on the reason for termination.
Options
As under the current Plan, non-qualified stock options may be granted to any participant under the Amended Plan. However, incentive stock options may be granted only to eligible employees of the Company or of any parent or subsidiary corporation as permitted under the applicable provisions of the IRC. Options may be granted for terms of up to, but not exceeding, ten years from the date of grant. Further, no incentive stock option granted to a 10% shareholder (as described below) can be exercisable later than the day before the fifth anniversary of its grant date. Each option grant is to be evidenced by an award agreement that specifies the exercise price of the option, the maximum duration of the option, the number of common shares to which the option pertains, the conditions upon which the option will vest and become exercisable, including, without limitation, whether Options will vest based upon the achievement of specific Performance Goals, and such other provisions as the Administrator may determine.
The exercise price of each option granted to a participant will be specified in the award agreement by the Administrator. The exercise price must be at least 100% of the fair market value of the underlying common shares on the grant date; provided, however, that the option price must be at least 110% of the fair market value of a share on the grant date with respect to any incentive stock option issued to a participant who on the grant date owns more than 10% of the total combined voting power of the Company (as determined in accordance with the IRC) (a “10% Shareholder”). For purposes of the Amended Plan, the fair market value of a common share on a particular date will generally be the closing price of a common share on the relevant trading day or, if such day is not a trading day, on the next trading day on which common shares were publicly traded on the New York Stock Exchange (“NYSE”) (the “fair market value”). On December 1, 2021, the fair market value of the Company’s common shares was $138.22.
The exercise price of any option must be paid in full at the time of exercise (i) in cash or its equivalent; (ii) by tendering (either by actual delivery or attestation) previously acquired common shares having a fair market value equal to the exercise price; (iii) by a cashless broker-assisted exercise; (iv) by a combination of (i), (ii) and/or (iii); or (v) by any other method approved or accepted by the Compensation Committee in its sole discretion. If the exercise price is paid through the tender of previously acquired common shares, those common shares must have either been purchased on the open market or been held by the participant for at least six months (or such other period as the Compensation Committee permits) prior to their tender if acquired under the Amended Plan or any other compensation plan maintained by the Company.
Stock Appreciation Rights
The Administrator may, in its discretion, grant stock appreciation rights. The award agreement will specify the grant price, the term of the stock appreciation right and such other provisions as the Administrator determines, including, without limitation, whether a stock appreciation right will vest based upon the achievement of specific Performance Goals. The grant price of each stock appreciation right granted to a participant will be specified by the Administrator in the award agreement; however, the grant price must be at least equal to 100% of the fair market value of the underlying common shares as determined on the grant date. No stock appreciation right will be exercisable later than the tenth anniversary of its grant date.
Upon the exercise of a stock appreciation right, a participant will be entitled to receive payment from the Company in an amount determined by multiplying (i) the excess of the fair market value of a common share on the exercise date over the grant price by (ii) the number of common shares with respect to which the stock appreciation right is exercised. At the discretion of the Administrator, the payment upon stock appreciation right exercise may be made in cash, common shares or a combination thereof, or in any other manner approved by the Administrator. The Administrator’s determination regarding the form of stock appreciation right payout may be set forth in the award agreement pertaining to the grant of the stock appreciation right.
Restricted Stock and Restricted Stock Units
The Administrator may, in its discretion, grant restricted stock and/or restricted stock units to participants. The award agreement will specify the period(s) of restriction, the number of common shares covered by the restricted stock or restricted stock unit award, and such other provisions as the Administrator determines. Among other things, the Administrator may impose any conditions and/or restrictions it deems advisable including, without limitation: (i) a requirement that the participant pay a stipulated purchase price for each share of restricted stock or each restricted stock unit; (ii) whether shares of restricted stock and/or restricted stock units vest based upon the achievement of specified Performance Goals; (iii) time-based restrictions on vesting following the attainment of the Performance Goals; (iv) time-based restrictions and/or restrictions under applicable laws or under the requirements of any stock exchange or market upon which the Company’s common shares are listed or traded; (v) holding requirements or sales restrictions placed on the common shares upon vesting of such restricted stock or restricted stock units; and (vi) whether or not a participant may make or refrain from making an election under IRC § 83(b).
Except as provided under the Amended Plan and in a participant’s award agreement, common shares subject to a restricted stock award will become freely transferable by the participant after all the conditions and restrictions applicable to such common shares have been satisfied or lapse, and restricted stock units will be paid in cash, common shares or a combination of cash and common shares, as the Administrator determines. Unless otherwise determined by the Administrator and set forth in a participant’s award agreement, participants holding restricted stock may be granted the right to exercise full voting rights with respect to the underlying common shares during any period of restriction to the extent permitted or required by law. A participant will have no voting rights with respect to any restricted stock units granted under the Amended Plan.
Performance Units and Performance Shares
The Administrator may, in its discretion, grant performance units and/or performance shares to participants, as evidenced by an award agreement. The Administrator may establish Performance Goals for a participant for a particular performance period based upon various Performance Goals as described above under “Summary of Operation of the Amended Plan — Performance Goals.” Each performance unit will have an initial value that is established by the Administrator at the time of the grant. Each performance share will have an initial value equal to the fair market value of a common share on the grant date. The Administrator will set Performance Goals in its discretion which will, depending on the extent to which they are met, determine the value and/or number of performance units or performance shares that may be paid out to the participant. After the applicable performance period has ended, the holder of performance units or performance shares will be entitled to receive payout on the value and number of performance units or performance shares earned during such performance period to the extent Performance Goals have been met. The Administrator may pay earned performance units or performance shares in cash, in common shares, or a combination of both, equal to the value of the earned performance units or performance shares at the close of the applicable performance period.
Other Equity-Based Awards
The Administrator may, in its discretion, grant equity-based or equity-related awards not otherwise described in the Amended Plan (including the grant or offer for sale of unrestricted common shares) to participants, in such amounts and subject to such terms and conditions as the Administrator may determine. Each other equity-based award will be expressed in terms of common shares or units based on common shares, as determined by the Administrator. The Administrator may also establish Performance Goals in its discretion, and the value and/or number of other equity-based awards that may be paid out to a participant will depend on the extent to which such Performance Goals have been met. Payment, if any, other equity-based awards may be made in cash or common shares as the Administrator determines.
Dividends and Dividend Equivalents
Any participant may be granted dividends or dividend equivalents based on the dividends declared on the common shares underlying a Plan award (other than options or stock appreciation rights), to be credited as of the dividend payment dates, during the period between the grant date of the Plan award and the date the Plan award vests or expires, as determined by the Administrator; provided, however, that dividends or dividend equivalents shall be payable only when and to the extent the underlying Plan awards vest and become payable. Any such dividend equivalents will be converted to cash or additional common shares by such formula and at such time and subject to such limitations as may be determined by the Administrator.
Tax Withholding
Consistent with the Financial Accounting Standards Board’s Accounting Standards Update No. 2016-09 as released in March 2016, the Amended Plan provides that the Company has the right to withhold from any payment of cash or common shares to a participant or other person under the Plan an amount sufficient to cover any required withholding taxes, including a participant’s social security and Medicare taxes (FICA) and federal, state, local income tax or such other applicable taxes (“taxes”) with respect to a Plan award. The Company may require the payment of any taxes before issuing any common shares pursuant to a Plan award. The Compensation Committee may, if it deems appropriate in the case of a participant, withhold such taxes through a reduction of the number of common shares delivered to such participant, or allow the participant to elect to cover all or any part of such withholding for taxes, through a reduction of the number of common shares delivered to the participant or a subsequent return to the Company of common shares held by the participant, in each case valued in the same manner as used in computing the withholding taxes under applicable laws.
Participants Based Outside the United States
In order to comply with the laws in other countries in which the Company, its affiliates and/or its subsidiaries operate or have employees, directors or third-party service providers, the Compensation Committee has the power and authority to: (i) determine which affiliates and subsidiaries are covered by the Amended Plan; (ii) determine which employees, directors and/or third-party service providers outside the United States are eligible to participate in the Amended Plan; (iii) modify the terms and conditions of any Plan award granted to employees and/or third-party service providers outside the United States to comply with applicable foreign laws; (iv) establish subplans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable; and (v) take any action, before or after a Plan award is made, that the Compensation Committee deems advisable to obtain approval or comply with any necessary local government regulatory exemptions or approvals.
Change in Control
A “change in control” will be deemed to occur upon the occurrence of any of the following:
•a change in the majority of the members of the Board, from those in office on the date the Amended Plan is approved by the Company’s shareholders (“incumbent directors”), for any reason other than death (provided that any director whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the incumbent directors then in office will be counted as an incumbent director in determining if there has been a change in a majority of the Board);
•any person (other than the Company, any of the Company’s subsidiaries, any employee benefit plan of the Company or any of the Company’s subsidiaries or Hagedorn Partnership, L.P. or any party related to Hagedorn Partnership, L.P. as determined by the Compensation Committee) is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing more than 30% of the combined voting power of the Company’s then outstanding securities;
•the consummation of (i) the merger or other business combination of the Company with or into another entity in which the shareholders of the Company immediately before the effective date of such transaction will own less than 50% of the voting power of such entity, or (ii) the sale or other disposition of all or substantially all of the assets of the Company;
•the adoption by the shareholders of the Company of a plan relating to the liquidation or dissolution of the Company; or
•for any reason, Hagedorn Partnership, L.P. or any party related to Hagedorn Partnership, L.P., as determined by the Compensation Committee, becomes the beneficial owner, directly or indirectly, of securities representing more than 49% of the combined voting power of the Company’s then outstanding securities.
The Compensation Committee may provide for a more restrictive definition of change in control in an award agreement if necessary or appropriate to comply with IRC § 409A or as the Compensation Committee deems appropriate.
In the event of a change in control, provided the outstanding awards are not assumed or substituted as provided below, outstanding awards shall be treated as follows. Each option and stock appreciation right (other than options and stock appreciation rights of non-employee directors of the Company) outstanding on the date of the change of control may be cancelled in exchange either for cash equal to the excess of the change in control price, as defined below, over the exercise price or grant price, as applicable, of the cancelled option or stock appreciation right or, in the discretion of the Compensation Committee, for whole common shares with a fair market value equal to the excess of the change in control price over the exercise price or grant price, as applicable, of the cancelled option or stock appreciation right plus cash equal to the value of any fractional common share. The Compensation Committee may allow participants to exercise any outstanding options or stock appreciation rights that are to be cancelled by following the normal procedures for exercising options and stock appreciation rights within 15 days of the date of the change in control. All Performance Goals will be deemed to have been met on the date of the change in control, all performance periods will be accelerated and all Plan awards for which Performance Goals have been established will be distributed in a single lump sum cash payment within 30 days following the change in control. All other then-outstanding Plan awards whose exercisability or vesting depends merely on the satisfaction of a service obligation by a participant to the Company, a subsidiary or an affiliate will vest in full and will be distributed, if not already held by the participant and to the extent applicable, in a single lump-sum cash payment within 30 days following the change in control based on the change in control price or, at the discretion of the Compensation Committee, in the form of whole common shares based on the change in control price.
The foregoing accelerated payments will not be made to a participant if the Compensation Committee determines, prior to the change in control and subject to requirements contained in the Amended Plan, that immediately after the change in control, the Amended Plan awards will be honored or assumed, or new rights with substantially equivalent economic value will be substituted therefor, by the employee’s employer, or (if the Company is the surviving company) that the Plan awards in effect immediately prior to the change in control will continue without change following the change in control. In that event, accelerated payments will be made in limited circumstances upon involuntary or constructive termination within 24 months immediately following the change in control.
The “change in control price” will be (i) the price per common share paid in connection with the transaction resulting in the change in control or (ii) in the event of a change in control not related to a transfer of common shares, the highest fair market value of a common share on NYSE on any of the 30 consecutive trading days ending on the last trading day before the change in control occurs.
Upon a change in control, outstanding non-qualified stock options or stock appreciation rights issued to non-employee directors of the Company will be cancelled unless (i) the common shares remain publicly traded or (ii) the non-employee director remains a director of the Company immediately following the change in control. Each non-qualified stock option or stock appreciation right issued to a non-employee director that is cancelled will be exchanged either for cash equal to the excess of the change in control price over the exercise price or grant price, as applicable, of the cancelled non-qualified stock option or stock appreciation right or, in the discretion of the Board, for whole common shares with a fair market value equal to the excess of the change in control price over the exercise price or grant price, as applicable, of the cancelled non-qualified stock option or stock appreciation right plus cash equal to the value of any fractional common share. The Board also may allow non-employee directors to exercise any outstanding non-qualified stock options or stock appreciation rights that are to be cancelled by following the normal procedures for exercising non-qualified stock options and stock appreciation rights within 15 days of the date of the change in control. Restricted stock or restricted stock units held by a non-employee director will be settled for a lump sum cash payment equal to the change in control price within 30 days following such change in control. All other types
of Plan awards held by non-employee directors will be settled within 30 days following such change in control for a lump sum cash payment equal to the change in control price less any amount a non-employee director would be required to pay in order for the Plan award to be exercised or settled, other than any such amount related to taxes.
Notwithstanding the foregoing, the Plan awards subject to IRC § 409A will not be paid or settled upon change in control unless the change in control under the Amended Plan constitutes a “change in control event” under IRC § 409A and Treasury Regulation Section 1.409A-3(i)(5).
Forfeiture Events
The Administrator may specify in an award agreement that the participant’s rights, payments and benefits with respect to a Plan award will be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of specified events, in addition to any otherwise applicable vesting or Performance Goals of the Plan award. These events may include, but will not be limited to: (i) termination of employment for cause; (ii) termination of the participant’s provision of services to the Company, an affiliate and/or a subsidiary; (iii) violation of material policies of the Company, an affiliate and/or a subsidiary; (iv) breach of noncompetition, confidentiality or other restrictive covenants that may apply to the participant; or (v) other conduct by the participant that is detrimental to the business or reputation of the Company, its affiliates and/or its subsidiaries.
If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under the securities laws, if the participant knowingly or grossly negligently engaged in the misconduct, or knowingly or grossly negligently failed to prevent the misconduct, or if the participant is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002, the participant must reimburse the Company the amount of any payment in settlement of a Plan award earned or accrued during the 12-month period following the first public issuance or filing with the SEC (whichever first occurred) of the financial document embodying such financial reporting requirement. All Plan awards are subject to any Company clawback or recoupment policies, share trading policies and other policies that the Company may implement. See the Compensation Discussion and Analysis for a description of the Company’s clawback policy.
Transferability of Plan Awards
During a participant’s lifetime, the participant’s Plan awards are exercisable only by the participant or the participant’s legal representative. Plan awards are not transferable other than by will or the laws of descent and distribution. No Plan awards may be subject to attachment, execution or levy of any kind, and any purported transfer in violation of the Amended Plan will be null and void. Notwithstanding the foregoing and subject to certain exceptions, the Administrator may, in its discretion, permit any or all Plan awards (other than incentive stock options) to be transferred (without value) by a participant.
Adjustments
In the event of any corporate event or transaction such as a merger, consolidation, reorganization, recapitalization, separation, partial or complete liquidation, stock dividend, stock split, reverse stock split, split up, spin-off, or other distribution of stock or property of the Company, combination of common shares, exchange of common shares, dividend in kind, or other similar change in capital structure, number of outstanding common shares or distribution to shareholders of the Company, the Compensation Committee, in its sole discretion, shall, as required to prevent dilution or enlargement of participants’ rights under the Amended Plan, substitute or adjust, as applicable: (i) the number and kind of common shares that may be issued under the Amended Plan or under particular forms of Plan awards; (ii) the full value factor described above; (iii) the number and kind of common shares subject to outstanding Plan awards; (iv) the exercise price or grant price applicable to outstanding Plan awards; and (v) other value determinations applicable to outstanding Plan awards.
The Compensation Committee, in its sole discretion, shall also make adjustments in the terms of any Plan award to reflect such changes or distributions and to modify any other terms of outstanding Plan awards, including modifications of Performance Goals and changes in the length of performance periods. Subject to certain provisos as set forth in the Amended Plan, the Compensation Committee may authorize the issuance or assumption of benefits under the Amended Plan in connection with any merger, consolidation, acquisition of property or stock, or reorganization upon such terms and conditions as the Compensation Committee may deem appropriate, subject to compliance with the applicable rules, if any, under the IRC.
The Compensation Committee may make adjustments in the terms and conditions of, and the criteria included in, Plan awards in recognition of unusual and infrequently occurring items affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations or accounting principles, as the Compensation Committee determines appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made under the Amended Plan. Notwithstanding anything to the contrary, an adjustment to an option or to a stock appreciation right can be made only to the extent such adjustment complies with the requirement of IRC § 409A.
Amendment, Modification, Suspension and Termination; Repricing Requires Shareholder Approval
As under the current Plan, the Compensation Committee may alter, amend, modify, suspend or terminate the Amended Plan, at any time and from time to time, or any award agreement under the Amended Plan in whole or in part; provided, however, that the Amended Plan provides that, except in connection with a corporate transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of common shares), the Compensation Committee shall not, without prior shareholder approval, (i) amend the terms of outstanding options or stock appreciation rights to reduce the exercise price of such outstanding options or stock appreciation rights, (ii) cancel outstanding options or stock appreciation rights in exchange for options or stock appreciation rights with an exercise price that is less than the exercise price of the original option or stock appreciation rights, or (iii) cancel outstanding options or stock appreciation rights with an exercise price above the current share price in exchange for cash or other securities. No material amendment of the Plan shall be made without shareholder approval if shareholder approval is required by law, regulation, or stock exchange rules.
The Amended Plan will terminate on January 23, 2032, unless terminated earlier as provided above.
U.S. Federal Income Tax Consequences
The following is a brief summary of the general U.S. federal income and employment tax consequences relating to the Amended Plan. This summary is based on U.S. federal tax laws and regulations in effect on the date of this Proxy Statement and does not purport to be a complete description of the U.S. federal income or employment tax laws.
Incentive Stock Options
Incentive stock options are intended to qualify for special treatment available under IRC § 422. A participant will not recognize any income when an incentive stock option is granted. No income is recognized upon the exercise of an incentive stock option (although the exercise of an incentive stock option may result in or increase alternative minimum tax liability). The Company will not receive a deduction at either the grant or exercise of an incentive stock option. Also, incentive stock options are not subject to employment taxes.
If a participant acquires common shares by exercising an incentive stock option and continues to hold those common shares for one year or, if longer, until the second anniversary of the grant date (each of these periods is called an “incentive stock option holding period”), the amount the participant receives when the participant disposes of the common shares, minus the exercise price, will be taxable as long-term capital gain or loss (this is referred to as a “qualifying disposition”). Upon a qualifying disposition, the Company is not entitled to a deduction.
If a participant disposes of the common shares before the end of either incentive stock option holding period (this is referred to as a “disqualifying disposition”), the participant will recognize ordinary income equal to the excess, if any, of (i) the fair market value of the common shares on the date the incentive stock option was exercised, or, if less, the amount received on the disposition, over (ii) the exercise price. The Company will be entitled to a deduction equal to the ordinary income that the participant recognizes. The participant’s additional gain will be taxable as long-term or short-term capital gain (depending on whether the participant held the common shares for more than one year).
If a participant uses common shares received in the prior exercise of an incentive stock option (“delivered shares”) to pay the exercise price of an incentive stock option, the participant’s payment will be treated as a disqualifying disposition of the delivered shares if the delivered shares are used to exercise an incentive stock option before the end of their incentive stock option holding periods. This type of disposition generally will cause the participant to recognize ordinary income on the delivered shares equal to the ordinary difference between the exercise price of the delivered shares and the fair market value of the delivered shares at exercise. The Company will be entitled to a deduction equal to the ordinary income that the participant recognizes. If a participant exercises an incentive stock option using (i) common shares that were not purchased pursuant to an incentive stock option or (ii) delivered shares that were purchased by exercising an incentive stock option that satisfied the incentive stock option holding periods, the participant generally will not recognize income, gain or loss in connection with the exercise.
If a participant exercises an incentive stock option using only delivered shares to pay the exercise price, the participant’s basis in the same number of new common shares will be the same as the participant’s basis in the delivered shares plus the taxable income, if any, that the participant recognized on the delivery of the delivered shares. Any additional new common shares will have a zero basis.
The rules that generally apply to incentive stock options do not apply when calculating any alternative minimum tax liability. When an incentive stock option is exercised, a participant must treat the excess, if any, of the fair market value of the common shares on the date of exercise over the exercise price as an item of adjustment for purposes of the alternative minimum tax. The rules affecting the application of the alternative minimum tax are complex and their effect depends on individual circumstances, including whether a participant has items of adjustment other than those derived from incentive stock options.
Non-Qualified Stock Options
Non-qualified stock options do not receive the special tax treatment afforded to incentive stock options under the IRC. A participant will not recognize any income when a non-qualified stock option is granted and the Company will not receive a deduction at that time. However, unlike an incentive stock option, when a non-qualified stock option is exercised, a participant will recognize ordinary income equal to the excess, if any, of the fair market value of the common shares that the participant purchased on the date of exercise over the exercise price. Also, unlike an incentive stock option, this same amount will be subject to employment taxes. If a participant uses common shares or a combination of common shares and cash to pay the exercise price of an non-qualified stock option, he or she will have ordinary income equal to the value of the number of common shares that the participant purchases over the value of the number of common shares the participant surrenders, less any cash the participant uses to pay the exercise price. This same amount will be subject to employment taxes. When a non-qualified stock option is exercised, the Company will be entitled to a deduction equal to the ordinary income that the participant recognizes.
If the amount a participant receives when the participant disposes of the common shares that the participant acquired by exercising a non-qualified stock option is larger than the exercise price the participant paid plus the amount of ordinary income recognized in the non-qualified stock option exercise, the excess will be treated as a long-term or short-term capital gain, depending on whether the participant held the common shares for more than one year after the exercise of the non-qualified stock option. But, if the amount a participant receives when the participant disposes of the common shares that the participant acquired by exercising a non-qualified stock option is less than the exercise price the participant paid plus the amount of ordinary income recognized in the non-qualified stock option exercise, the difference will be treated as a long-term or short-term capital loss, depending on whether the participant held the common shares for more than one year after the exercise of the non-qualified stock option.
Restricted Stock
Unless a participant makes an election under IRC § 83(b) the participant will not recognize taxable income when restricted stock is granted and the Company will not receive a deduction at that time. Instead, a participant will recognize ordinary income when the restricted stock vests (i.e., when the participant can no longer lose them or is transferable) equal to the fair market value of the common shares the participant receives when the restrictions lapse, less any amount paid for the restricted stock, and the Company generally will be entitled to a deduction equal to the ordinary income that the participant recognizes. Also, the same amount will be subject to employment taxes.
If the amount a participant receives when the participant disposes of these common shares is larger than the value of the common shares when the restricted stock vested, the excess will be treated as a long-term or short-term capital gain, depending on whether the participant held the common shares for more than one year after the restricted stock vested. But, if the amount the participant receives when the participant disposes of these common shares is less than the value of the common shares when the restricted stock vested, the difference will be treated as a long-term or short-term capital loss, depending on whether the participant held the common shares for more than one year after the restricted stock vested.
If a participant makes a Section 83(b) election, the participant will recognize ordinary income on the grant date equal to the fair market value of the common shares of restricted stock on the grant date, less any amount paid for the restricted stock, and the Company will be entitled to a deduction equal to the income that the participant recognizes at that time. Also, the same amount will be subject to employment taxes. However, the participant will not recognize income when (and if) the restrictions lapse. If a participant earns the common shares, any appreciation between the grant date and the date the participant disposes of the common shares will be treated as a long-term or short-term capital gain, depending on whether the participant held the common shares for more than one year after the grant date. But, if the amount the participant receives when the participant disposes of these common shares is less than the value of the common shares on the grant date, the difference will be treated as a long-term or short-term capital loss, depending on whether the participant held the common shares for more than one year after the grant date. Also, if a participant forfeits the participant’s restricted stock, the participant’s tax deduction in connection with that forfeiture is limited to the amount, if any, paid for the restricted stock.
Stock Appreciation Rights
A participant will not recognize any income when a stock appreciation right is granted and the Company will not receive a deduction at that time. When a stock appreciation right is exercised, a participant will recognize ordinary income equal to the cash and/or fair market value of the common shares the participant receives upon exercise. The Company will be entitled to a deduction equal to the ordinary income that the participant recognizes. Also, the same amount will be subject to employment taxes. If the amount a participant receives when the participant disposes of any common shares acquired upon the exercise of a stock appreciation right is larger than the value of the common shares when the stock appreciation right was exercised, the excess will be treated as a long-term or short-term capital gain, depending on whether the participant held the common shares for more than one year after the stock appreciation right was exercised. But, if the amount the participant receives when the participant disposes of these common shares is less than the value of the common shares when the stock appreciation right was exercised, the difference will be treated as a long-term or short-term capital loss, depending on whether the participant held the common shares for more than one year after the stock appreciation right was exercised.
Restricted Stock Units, Performance Units and Performance Shares
A participant will not recognize taxable income when the Company grants the participant restricted stock units, performance units or performance shares and the Company will not receive a deduction at that time. However, if the participant earns the Plan award, the participant will recognize ordinary income equal to the cash and/or the fair market value of the common shares the participant receives at the time of delivery. Also, the same amount will be subject to employment taxes. The Company generally will be entitled to a deduction equal to the ordinary income that the participant recognizes.
If the amount a participant receives when the participant disposes of the common shares acquired upon the settlement of a restricted stock unit, performance unit or performance share is larger than the value of the common shares when the participant received them, the excess will be treated as a long-term or short-term capital gain, depending on whether the participant held the common shares for more than one year after they were issued. But, if the amount the participant receives when the participant disposes of these common shares is less than the value of the common shares when they were issued, the difference will be treated as a long-term or short-term capital loss, depending on whether the participant held the common shares for more than one year after they were issued.
Section 409A of the IRC
The Amended Plan provides that the Plan is intended to comply with the requirements of IRC § 409A to the extent applicable. All Plan awards shall be construed and administered such that the Plan award either (i) qualifies for an exemption from the requirements of IRC § 409A or (ii) satisfies the requirements of IRC § 409A. If a Plan award is subject to IRC § 409A, unless the award agreement provides otherwise: (i) distributions shall only be made in a manner and upon an event permitted under IRC § 409A; (ii) payments to be made upon a termination of employment shall only be made upon a “separation from service” under IRC § 409A; (iii) payments to be made upon a change in control shall only be made upon a “change of control event” under IRC § 409A; (iv) each payment shall be treated as a separate payment for purposes of IRC § 409A; and (v) in no event shall a participant, directly or indirectly, designate the calendar year in which a distribution is made except in accordance with IRC § 409A.
Any Plan award granted under the Plan that is subject to IRC § 409A, and that is to be distributed to a “specified employee” (as defined under IRC § 409A) upon a termination of employment shall be administered so that any distribution with respect to such Plan award shall be postponed for six months following the date of the participant’s termination of employment, if required by IRC § 409A. If a distribution is delayed pursuant to IRC § 409A, the distribution shall be paid within 30 days after the end of the six-month period. If the participant dies during such six-month period, any postponed amounts shall be paid within 90 days of the participant’s death.
Although the Company intends to administer the Plan to prevent taxation under IRC § 409A, the Company does not represent or warrant that the Plan or any Plan award complies with any provision of federal, state, local or other tax law.
Other Tax Consequences
State tax consequences may in some cases differ from those described above. In some instances, participants may be subject to tax in jurisdictions other than the United States and may result in tax consequences that differ from those described above.
New Plan Benefits Under the Amended Plan
The Compensation Committee has not granted any awards under the Amended Plan subject to stockholder approval of the Amended Plan. Participation and the types of awards under the Amended Plan are subject to the discretion of the Compensation Committee, consistent with the terms and limitations of the Amended Plan, and as a result, the benefits or amounts that will be received by any participant or groups of participants under the Amended Plan are not currently determinable. For information on awards granted between October 1, 2020 and September 30, 2021 under the Plan to our named executive officers, see sections captioned “EXECUTIVE COMPENSATION TABLES — Summary Compensation Table” and “EXECUTIVE COMPENSATION TABLES — Grants of Plan-Based Awards Table” in this Proxy Statement.
Recommendation and Vote
The affirmative vote of holders of a majority of the Company’s common shares that are voted on the proposal is necessary to approve this proposal. Under applicable NYSE Rules, broker non-votes will not be treated as votes cast. Abstentions will be treated as votes cast and will have the effect of a vote “against” this proposal.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE SCOTTS MIRACLE-GRO COMPANY LONG-TERM INCENTIVE PLAN.
PROPOSAL NUMBER 5
ADVISORY VOTE ON THE FREQUENCY OF
ADVISORY VOTES ON THE COMPENSATION OF
THE COMPANY’S NAMED EXECUTIVE OFFICERS
Proposal
In addition to providing shareholders with the opportunity to cast an advisory vote on executive compensation, in accordance with the requirements of the Dodd-Frank Act and Section 14A(a)(2) of the Exchange Act, we are providing shareholders the opportunity to recommend, on an advisory, non-binding basis, whether the Say-on-Pay vote, as discussed in “PROPOSAL NUMBER 2 — ADVISORY VOTE ON THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS (“SAY-ON-PAY”),” should occur every one, two or three years in the future.
After careful consideration, the Board believes that the advisory vote on executive compensation should continue to be held every year. The Board considered the following factors in arriving at its decision:
•Our compensation programs are intended to align our NEOs’ interests with those of our shareholders, and an annual advisory vote will afford shareholders an opportunity to provide regular feedback regarding those programs, thus helping to ensure proper alignment.
•An annual vote will allow the Compensation Committee to consider shareholder sentiment as it evaluates and approves NEO compensation each year.
•An annual advisory vote is consistent with our policy of seeking input from, and engaging in discussions with, our shareholders on corporate governance matters on a regular basis.
Recommendation and Vote
Shareholders have the option to choose whether the Say-on-Pay advisory vote should occur every one, two or three years, or they may abstain from voting on this proposal. The option that receives the highest number of votes cast by shareholders will be considered the preferred option of the shareholders.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE OPTION OF EVERY ONE YEAR AS THE PREFERRED FREQUENCY OF ADVISORY VOTES ON THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS.
Although the vote is advisory only and not binding on the Company or the Board, the Compensation Committee and the Board intend to give meaningful consideration to the preference expressed by shareholders.
AUDIT COMMITTEE MATTERS
In accordance with applicable SEC Rules, the Audit Committee issued the following report on November 15, 2018.18, 2021. The Audit Committee consisted of the following members as of such date: Nancy G. Mistretta, Chair; David C. Evans; Brian D. Finn; and Thomas N. Kelly Jr.; and Gerald Volas.
Report of the Audit Committee for the 20182021 Fiscal Year
Role of the Audit Committee, Independent Registered Public Accounting Firm and Management
The Audit Committee consists of four directors, each of whom satisfies the applicable independence requirements set forth in the NYSE Rules and under SEC Rule 10A-3, and operates under a written charter adopted by the Board. A copy of the Audit Committee charter is posted under the “Corporate Governance” link on the Company’s Internet website at http://investor.scotts.com.
The role of the Audit Committee is to assist the Board in its oversight of the Company’s financial reporting process. Management has the primary responsibility for the financial statements and the reporting process, including the system of internal controls. The Company’s independent registered public accounting firm is responsible for auditing the Company’s financial statements and expressing an opinion as to their conformity to accounting principles generally accepted in the United States. The Audit Committee is responsible for the appointment, compensation and oversight of the work of the Company’s independent registered public accounting firm.
In the performance of its oversight function, the Audit Committee has reviewed and discussed with management and the independent registered public accounting firm the Company’s audited financial statements. The Audit Committee also has discussed with the Company’s independent registered public accounting firm the matters required to be discussed by Auditing Standard No. 16,1301, Communications with Audit Committees, issued by the U.S. Public Company Accounting Oversight Board or the PCAOB. In addition, the Audit Committee has received from the Company’s independent registered public accounting firm the written disclosures and the letter required by PCAOB Ethics and Independence Rule 3526, Communication with Audit Committees Concerning Independence regarding the Company’s independent registered public accounting firm’s communications with the Audit Committee concerning independence, has discussed with the Company’s independent registered public accounting firm their independence from the Company and its management, and has considered whether the Company’s independent registered public accounting firm’s provision of non-audit services to the Company is compatible with maintaining the auditors’ independence.
The Audit Committee discussed with the Company’s internal auditors and independent registered public accounting firm the overall scope and plans for their respective audits. The internal auditors are responsible for preparing an annual audit plan and conducting internal audits under the control of the Company’s Chief Internal Auditor, who is accountable to the Audit Committee. The Audit Committee met with the internal auditors and the Company’s independent registered public accounting firm, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting. In addition, the Audit Committee met with the Chief Financial Officer and other executive officers of the Company to discuss the processes that they have undertaken to evaluate the accuracy and fair presentation of the Company’s financial statements and the effectiveness of the Company’s systems of disclosure controls and procedures and internal control over financial reporting.
Audit Committee Recommendation
Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board, and the Board has approved, that the Company’s audited financial statements be included in the Company’s 20182021 Annual Report to Shareholders and Annual Report on Form 10-K for the 2021 fiscal year ended September 30, 2018 for filing with the SEC.
Submitted by the Audit Committee of the Board of Directors of the Company:
Nancy G. Mistretta, Chair
David C. Evans
Brian D. Finn
Thomas N. Kelly Jr.
Gerald Volas
Fees of the Independent Registered Public Accounting Firm
Audit Fees
The aggregate audit fees billed by Deloitte, including expenses, for the 20182021 fiscal year and the 20172020 fiscal year were approximately $2,524,000$2,531,000 and $3,104,000,$2,437,000, respectively. These amounts included fees for professional services rendered by Deloitte in connection with (1) its audit of the Company’s consolidated financial statements, (2) its audit of the effectiveness of the Company’s internal control over financial reporting and (3) its review of the unaudited consolidated interim financial statements included in the Company’s Quarterly Reports on Form 10-Q, as well as fees for services performed in connection with consents related to SEC registration statements and reports related to statutory audits.
Audit-Related Fees
The aggregate fees for audit-related services rendered by Deloitte, including expenses, for the 20182021 fiscal year and the 20172020 fiscal year were approximately $1,375,000$1,196,000 and $1,470,000,$446,000, respectively. Audit-related fees include fees for services related to (i) acquisitions and divestitures, (ii) audit-related research and assistance and (iii) internal control reviews, and (iv) work performed in connection with registration statements including issuances of comfort letters.reviews.
Tax Fees
The aggregate fees for tax services rendered by Deloitte, including expenses, for the 20182021 fiscal year and the 20172020 fiscal year were approximately $149,000$62,000 and $175,000,$170,000, respectively. Tax fees are related to tax compliance and advisory services and assistance with tax audits.
All Other Fees
The aggregate fees for non-audit services rendered by Deloitte for the 20182021 fiscal year and the 20172020 fiscal year were approximately $6,000$4,000 and $8,000,$5,000, respectively. The fees under this category are related to technical subscriptions.
Pre-Approval of Services Performed by the Independent Registered Public Accounting Firm
None of the services described under the headings “Audit-Related Fees,” “Tax Fees” or “All Other Fees” above were approved by the Audit Committee pursuant to the waiver procedure set forth in 17 C.F.R. § 210.2-01(c)(7)(i).
The Audit Committee’s “Policies and Procedures Regarding Approval of Services Provided by the Independent Registered Public Accounting Firm” are set forth below.
THE SCOTTS MIRACLE-GRO COMPANY
THE AUDIT COMMITTEE
POLICIES AND PROCEDURES REGARDING APPROVAL OF SERVICES
PROVIDED BY THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Purpose and Applicability
We recognize the importance of maintaining the independent and objective viewpoint of our independent registered public accounting firm. We believe that maintaining independence, both in fact and in appearance, is a shared responsibility involving management, the Audit Committee and the independent registered public accounting firm.
The Scotts Miracle-Gro Company (together with its consolidated subsidiaries, “the Company”) recognizes that the independent registered public accounting firm possesses a unique knowledge of the Company and can provide necessary and valuable services to the Company in addition to the annual audit. Consequently, this policy sets forth policies, guidelines and procedures to be followed by the Company when retaining the independent registered public accounting firm to perform audit and non-audit services.
Policy Statement
All services provided by the independent registered public accounting firm, including audit services, audit-related services, non-audit services, tax services and program and subscription services, must be pre-approved by the Audit Committee or a designated member of the Audit Committee (“Designated Member”). Pre-approval may be of classes of permitted services, such as “audit services,” “merger and acquisition due diligence services” or similar broadly defined predictable or recurring services. Such classes of services could include the following illustrative examples:
•Audits of the Company’s financial statements required by law, the SEC, lenders, statutory requirements, regulators and others.
•Consents, comfort letters, reviews of registration statements and similar services that incorporate or include financial statements of the Company.
•Employee benefit plan audits.
•Tax compliance and related support for any tax returns filed by the Company.
•Tax planning and support.
•Merger and acquisition due diligence services.
•Internal control reviews.
•Program and subscription services, including educational programs and seminars, webcasts/podcasts, database subscriptions, research reports, surveys and similar or related tools and services.
The Audit Committee may choose to establish fee thresholds for pre-approved services (for example: “merger and acquisition due diligence services with fees not to exceed $100,000 without additional pre-approval from the Audit Committee”).
The Audit Committee may delegate to a Designated Member, who must satisfy the applicable independence requirements set forth in the NYSE Rules, the authority to grant pre-approvals of permitted services, or classes of permitted services, to be provided by the independent registered public accounting firm. Any decision by a Designated Member to pre-approve a permitted service shall be reported to the Audit Committee at its next regularly scheduled meeting.
All fees (audit, audit-related, tax and other) paid to the independent registered public accounting firm are disclosed in accordance with applicable SEC Rules.
Prohibited Services
The Company may not engage the independent registered public accounting firm to provide the non-audit services described below:
1. Bookkeeping or other services related to the accounting records or financial statements of the Company. The independent registered public accounting firm cannot maintain or prepare the Company’s accounting records, prepare the Company’s financial statements that are filed with the SEC or prepare or originate source data underlying the Company’s financial statements, unless it is reasonable to conclude that the results of these services will not be subject to audit procedures during an audit of the Company’s financial statements.
2. Financial information systems design and implementation. The independent registered public accounting firm cannot directly or indirectly operate, or supervise the operation of, the Company’s information system or manage the Company’s local area network, or design or implement a hardware or software system that aggregates source data underlying the Company’s financial statements or generates information that is significant to the Company’s financial statements or other financial information systems taken as a whole, unless it is reasonable to conclude that the results of these services will not be subject to audit procedures during an audit of the Company’s financial statements.
3. Appraisal or valuation services, fairness opinions or contribution-in-kind reports. The independent registered public accounting firm cannot provide any appraisal service, valuation service or any service involving a fairness opinion or contribution-in-kind report for the Company, unless it is reasonable to conclude that the results of these services will not be subject to audit procedures during an audit of the Company’s financial statements.
4. Actuarial services. The independent registered public accounting firm cannot provide any actuarially-oriented advisory service involving the determination of amounts recorded in the financial statements and related accounts for the Company other than assisting the Company in understanding the methods, models, assumptions and inputs used in computing an amount, unless it is reasonable to conclude that the results of these services will not be subject to audit procedures during an audit of the Company’s financial statements.
5. Internal audit outsourcing services. The independent registered public accounting firm cannot provide any internal audit service to the Company that relates to the Company’s internal accounting controls, financial systems or financial statements, unless it is reasonable to conclude that the results of these services will not be subject to audit procedures during an audit of the Company’s financial statements.
6. Management functions. Neither the independent registered public accounting firm, nor any of its partners or employees, can act, temporarily or permanently, as a director, officer or employee of the Company, or perform any decision-making, supervisory or ongoing monitoring function for the Company.
7. Human resources. The independent registered public accounting firm cannot (A) search for or seek out prospective candidates for the Company’s managerial, executive or director positions; (B) engage in psychological testing, or other formal testing or evaluation programs, for the Company; (C) undertake reference checks of prospective candidates for executive or director positions with the Company; (D) act as a negotiator on the Company’s behalf, such as determining position, status or title, compensation, fringe benefits or other conditions of employment; or (E) recommend or advise the Company to hire a specific candidate for a specific job (except that the independent registered public accounting firm may, upon request by the Company, interview candidates and advise the Company on the candidate’s competence for financial accounting, administrative or control positions).
8. Broker-dealer, investment advisor or investment banking services. The independent registered public accounting firm cannot act as a broker-dealer, promoter or underwriter on behalf of the Company, make investment decisions on behalf of the Company or otherwise have discretionary authority over the Company’s investments, execute a transaction to buy or sell the Company’s investment, or have custody of assets of the Company, such as taking temporary possession of securities purchased by the Company.
9. Legal Services. The independent registered public accounting firm cannot provide any service to the Company that, under the circumstances in which the service is provided, could be provided only by someone licensed, admitted or otherwise qualified to practice law in the jurisdiction in which the service is provided.
10. Expert services unrelated to the audit. The independent registered public accounting firm cannot provide an expert opinion or other expert service for the Company, or the Company’s legal representative, for the purpose of advocating the Company’s interests in litigation or in a regulatory or administrative proceeding or investigation. In any litigation or regulatory or administrative proceeding or investigation, the independent registered public accounting firm may provide factual accounts, including in testimony, of work performed or explain the positions taken or conclusions reached during the performance of any service provided by the independent registered public accounting firm to the Company.
Non-prohibited services shall be deemed to be permitted services and may be provided to the Company with the pre-approval of a Designated Member or the full Audit Committee, as described herein.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than the transactions described below, since the beginning of the 2021 fiscal year, the Company is not aware of any transactions in which it or any of its subsidiaries was or will be a participant and in which any persons deemed to be “related persons” for purposes of Item 404(a) of SEC Regulation S-K had or will have a direct or indirect material interest that required the review and approval or ratification of the Governance Committee pursuant to the Company’s Related Person Transaction Policy and disclosure pursuant to Item 404(a) of SEC Regulation S-K:
Scotts LLC maintains a “time sharing agreement,” as that term is defined in the provisions of 14 C.F.R. § 91.501(b)(6) and (c)(1), as amended, with the Company’s CEO, Mr. Hagedorn. The agreement permits Mr. Hagedorn to purchase up to 100 flight hours on Company aircraft for personal use at a cost that is calculated as the lesser of the Company’s incremental direct operating cost per flight hour or the maximum charge allowed for such flight as set forth in 14 C.F.R. § 91.501(d), as amended. During the 20182021 fiscal year, Mr. Hagedorn purchased 94.4229.3 flight hours under his time sharing agreement at a cost of $135,257,$312,911, plus applicable federal excise taxes. Under the terms of the time sharing agreement, which is governed by the rules of the Federal Aviation Administration, the Company remains responsible for providing licensed and qualified pilots, maintaining the aircraft in airworthy operating condition, and carrying in full force and effect public liability, property damage, “all-risk” hull and any other necessary policies of insurance in respect of the aircraft, naming Mr. Hagedorn as an additional insured.
From time to time, Scotts LLC leases aircraft for business use from Hagedorn Aviation, Inc. (“Hagedorn Aviation”), an aircraft operating company of which James Hagedorn is the majority shareholder. During the 20182021 fiscal year, the Company leased Hagedorn Aviation aircraft at a cost of $154,445.$202,321. Because fuel that has been purchased on a Company account is sometimes used in Hagedorn Aviation aircraft, Hagedorn Aviation is obligated to reimburse the Company for fuel used during the 20182021 fiscal year in the amount of $701,381.$425,974. The Company also has agreements with Hagedorn Aviation pursuant to which the Company, for a fee, provides Hagedorn Aviation with access to the services of the Company’s aviation mechanics and/or pilots in circumstances involving non-business, non-commuting flights on personal aircraft. The agreements were approved by the Governance Committee based on the Company’s interest in ensuring the safety and security of Mr. Hagedorn and provide that if Hagedorn Aviation uses the Company’s aviation mechanics and/or pilots from time to time, Hagedorn Aviation must reimburse the Company at annually established rates reflecting the costs to the Company of employing the aviation mechanics and/or pilots, as appropriate. During the 20182021 fiscal year, Hagedorn Aviation accessed the services of pilots and mechanics in the amount of $10,951$14,088 and $39,023,$20,157, respectively.
The Farms For City Kids Foundation, Inc. (“Farms”) is a 501(c)(3) nonprofit organization that annually hosts more than 750 students in an all-expense paid one-week residential educational program at Spring Brook Farm in Reading, Vermont, a working farmstead that Farms owns and operates. Modeled on a similar program in the United Kingdom, Farms provides school-aged children from less-advantaged backgrounds in areas including metropolitan New York, Boston and Vermont with educational opportunities they would not otherwise have. By engaging in hands-on learning in outdoor classrooms, these young people connect with the natural world and explore new dimensions of learning as academics integrate with everyday farm activities and sustainable agricultural practices. Mr. Hagedorn and his wife, Karli, founded Farms in 1992, and they currently serve as board members as well as Vice President and President, respectively. During the 2021 fiscal year, Farms received $848,458 in support that the Company either directly provided or helped generate.
The Hagedorn Legacy Foundation (“HLF”) is a private charitable foundation with 501(c)(3) status. HLF’s directors and officers include Mr. Hagedorn’s son, ChristopherHagedorn, other members of the Hagedorn family and certain Company employees. The Scotts Miracle-Gro Foundation (“SMGF”) is a 501(c)(3) established in 2018 to promote the Company’s support of efforts to address environmental and social issues that impact the community. SMGF focuses its work in four areas: community enhancement, environmental improvement, youth empowerment, and social justice. HLF and SMGF have partnered over the years to fund an endowment at The Ohio State University that provides direct scholarship support for entrepreneurially minded students who have a financial need. SMGF also collaborates with HLF on its Legacy Project, a unique jointly funded coaching program that gives motivated students personal one-on-one coaching to help them successfully move through their high school years and into a post-secondary learning experience. Students get opportunities to interact with entrepreneurial thinkers, learn more about their own character strengths, develop and work toward their own goals, develop inquiry, problem-solving, and other skills for success in the professional world, and they receive financial support for college or other post-secondary training. During the 2021 fiscal year, HLF received an aggregate of $1,032,347 comprised of direct financial support from SMGF and indirect administrative support from Scotts LLC.
Nicholas Hagedorn is the son of James Hagedorn and brother of Christopher Hagedorn. Mr. N. Hagedorn is currently employed by The Hawthorne Gardening Company, (aa subsidiary of the Company)Company as Senior Vice President and General Manager. Mr. C. Hagedorn also serves as a director of The Hawthorne Gardening Company. Analyst, Government Affairs. During the 20182021 fiscal year, Mr. C.N. Hagedorn received salary, bonus and other payments in the amount of $8,269,593. This amount includes the value of a one-time front-loaded performance unit grant (referred to as a “Hawthorne PFA”), with a grant date value of $7,500,000. The Hawthorne PFA was payable in 2022, subject to The Hawthorne Gardening Company profitability growth from 2018-2021 compared to pre-defined goals. The Hawthorne PFA was originally approved by the Compensation Committee on October 30, 2017, but on October 31, 2018, the Compensation Committee authorized the cancellation of the Hawthorne PFAs, which remain subject to participant consent, in light of a transformational acquisition by Hawthorne in June 2018, and the downturn in the Hawthorne business driven by a series of factors, mostly notably the impact of regulatory delays. The Compensation Committee’s decision to cancel$132,508. Mr. C. Hagedorn’s Hawthorne PFA was intended to allow adequate time for integration and stabilization of business conditions before considering future Hawthorne-based long-term incentive awards. The cancellation of the Hawthorne PFA eliminated the majority of the outstanding long-term incentive opportunity for Mr. C. Hagedorn. To ensure his compensation retains a strong link to the performance of Hawthorne, a one-time performance bonus grant, with a grant date value of $3,000,000, payable subject to the achievement of pre-defined Hawthorne profitability goals from 2019-2022, was awarded on November 1, 2018. In addition, it is expected that, beginning in January 2019, Mr. C. Hagedorn will receive annual equity awards with an approximate $800,000 grant date value that will consist of a mix of performance units (tied to future Hawthorne performance) and service-based RSUs. The one-time performance bonus grant will only be paid out in the event Hawthorne achieves profitability levels between 2019-2022 that have been approved by the Compensation Committee. As an employee of The Hawthorne Gardening Company, Mr. C.N. Hagedorn is also eligible to participate in the incentive plans, retirement plans, insurance programs, health benefits and other
similar employee welfare benefit arrangements available to other employees of comparable level and on substantially similar terms and conditions.
Mr.Adam Hanft, a current nonemployee director, is the principal and Chief Executive Officer of Hanft ProjectsIdeas LLC and is an award-winning brand strategist whose creative contributions are widely recognized. Hanft Projects providesIdeas LLC has entered into a letter agreement, effective February 1, 2021, with the Company to provide strategic consulting services to the Company on marketing matters, including (i) providing insights and expertise to help inspire and develop a culture of creativity, (ii) providing recommendations to our CEO on marketing strategy issues, (iii) periodically participating in marketing meetings to support the execution of marketing initiatives, and (iv) providing support on other marketing issues as requested by the Company. During the 20182021 fiscal year, in exchange for consulting services, the Company paid Hanft ProjectsIdeas LLC $900,000 and granted RSUs to Mr. Hanft with a grant date value of $400,012.$400,209. During the first quarter of the 20192022 fiscal year, Hanft ProjectsIdeas earned $225,000 for consulting services provided to the Company. The amounts paid by the Company for consulting services are in addition to the cash, equity or other compensation Mr. Hanft receives for his services as a director on our Board.
Mr. Hargreaves, a current director, solely owns or controls entities that received real estate related lease payments during the 2018 fiscal year from a subsidiary of the Company in the aggregate amount of $287,065.
Mr. Hargreaves’ brother, Doug Hargreaves, is employed by Hawthorne Hydroponics LLC (a subsidiary of the Company) as Chief Operating Officer. During the 2018 fiscal year, Mr. D. Hargreaves received salary, bonus, equity awards and other payments in the amount of $3,947,596. This amount includes the value of a one-time retention grant of service-based RSUs with a grant date value of $3,000,054. This retention grant is only payable if Mr. D. Hargreaves satisfies the three-year vesting requirement. Mr. D. Hargreaves is also eligible to participate in the incentive plans, retirement plans, insurance programs, health benefits and other similar employee welfare benefit arrangements available to other employees of comparable level and on substantially similar terms and conditions.
Jordan Littlefield, Ms. Littlefield’s son, Jordan Littlefield, is currently employed by Scotts LLC as Senior Analyst, Supply Chain.Director, Creative Services. During the 20182021 fiscal year, Mr. Littlefield received salary, bonus and other payments in the amount of $152,004.$210,342. Mr. Littlefield is also eligible to participate in the incentive plans, retirement plans, insurance programs, health benefits and other similar employee welfare benefit arrangements available to other employees of comparable level and on substantially similar terms and conditions.
Kevin White, Mr. Lukemire’s son-in-law, was employed by Scotts LLC as North America Sales Operations Director until July 2021. During the 2021 fiscal year, Mr. White received salary, bonus and other payments in the amount of $163,333. Mr. White was also eligible to participate in the incentive plans, retirement plans, insurance programs, health benefits and other similar employee welfare benefit arrangements available to other employees of comparable level and on substantially similar terms and conditions.
Amanda Miller, Ms. Stump’s daughter, is currently employed by The Hawthorne Gardening Company, a subsidiary of the Company as Vice President, Human Resources. During the 2021 fiscal year, Ms. Miller received salary, bonus, equity awards and other payments in the amount of $568,183. Ms. Miller is also eligible to participate in the incentive plans, retirement plans, insurance programs, health benefits and other similar employee welfare benefit arrangements available to other employees of comparable level and on substantially similar terms and conditions.
Policies and Procedures with Respect to Related Person Transactions
The Board has adopted a written Related Person Transaction Policy (the “Related Person Policy”) to assist it in reviewing and approving or ratifying transactions with persons who are deemed “related persons” for purposes of Item 404(a) of SEC Regulation S-K (collectively, “related persons”), and to assist the Company in the preparation of the related person transaction disclosures required by the SEC. The Related Person Policy supplements the Company’s other policies that may apply to transactions with related persons, such as the Corporate Governance Guidelines and the Code of Business Conduct and Ethics. Any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which: (i) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year; (ii) the Company or one of its subsidiaries is a participant; and (iii) any related person has or will have a direct or indirect interest, is within the scope of the Related Person Policy.
The Company’s directors and executive officers are required to provide prompt and detailed notice of any potential Related Person Transaction (as defined in the Related Person Policy) to the Chair of the Governance Committee so that the Chair can analyze the particular transaction and determine whether the transaction constitutes a Related Person Transaction requiring compliance with the Related Person Policy. If the Chair determines that the transaction constitutes a Related Person Transaction, then the Chair’s analysis and recommendation regarding the Related Person Transaction are required to be presented to the Governance Committee for consideration at its next regularly scheduled meeting. If advance approval of a Related Person Transaction by the Governance Committee is not feasible, then the Related Person Transaction is to be considered, and if the Governance Committee determines it to be appropriate, ratified at the Governance Committee’s next regularly scheduled meeting. In addition, the Chair of the Governance Committee has the authority to pre-approve or ratify (as applicable) any Related Person Transaction in which the aggregate amount expected to be involved is less than $1.0 million.
In reviewing a Related Person Transaction for approval or ratification, the Governance Committee will take into account, among other factors it deems appropriate, whether the Related Person Transaction is on terms no less favorable to the Company or the applicable subsidiary than terms generally available to an unaffiliated third partythird-party under the same or similar circumstances and the extent of the related person’s interest in the transaction.
No director may participate in the discussion or approval of any Related Person Transaction in which such director has a direct or indirect interest, other than to provide material information about the Related Person Transaction to the Governance Committee.
The Governance Committee will not approve or ratify a Related Person Transaction unless, after considering all relevant information, it has determined that the transaction is in, or is not inconsistent with, the Company’s or the applicable subsidiary’s best interests and the best interests of the Company’s shareholders. If a Related Person Transaction is ongoing, the Governance Committee may establish guidelines for the Company’s management to follow in the ongoing dealings of the Company or the applicable subsidiary with the related person. Further, on at least an annual basis, the Governance Committee will review and assess each ongoing Related Person Transaction to ensure that such Related Person Transaction remains appropriate and any established guidelines for the Related Person Transaction are being complied with.
The following transactions have been deemed to be pre-approved for purposes of the Related Person Policy:
•ordinary course transactions not exceeding $120,000;
•executive officer compensation arrangements, provided that (a) the related compensation is required to be reported in the Company’s proxy statement pursuant to the compensation disclosure requirements of the SEC, or (b) the executive officer is not an immediate family member of another executive officer or director of the Company, the related compensation would have been reported in the Company’s proxy statement pursuant to the compensation disclosure requirements of the SEC if the executive officer was aan “NEO,” and the Compensation Committee approved the compensation;
•director compensation arrangements approved by the Board, provided that the related compensation is required to be reported in the Company’s proxy statement pursuant to the compensation disclosure requirements of the SEC;
•transactions with other companies where the related person’s interest is solely as an employee (other than an executive officer), a director or less than 10% owner of the other company, if the aggregate amount is less than $1.0 million or 2% of the other company’s total annual revenues;
•charitable contributions where the related person’s only relationship to the charitable organization, foundation or university is as an employee (other than an executive officer) or a director, if the aggregate amount is less than $1.0 million or 2% of the charitable organization’s total annual receipts;
•transactions where the related person’s interest arises solely from the ownership of Common Shares and all shareholders receive a proportional benefit (e.g., dividends);
•transactions involving competitive bids;
•regulated transactions; and
•certain banking-related services.
The Governance Committee reviewed each of the Related Person Transactions discussed above and, after considering all of their relevant facts and circumstances, approved or ratified them for the 20182021 fiscal year.
EQUITY COMPENSATION PLAN INFORMATION
There are three equity compensation plans under which the Common Shares are authorized for issuance to eligible directors, officers, employees or third-party service providers:
•the Long-Term Incentive Plan;
•the Discounted Stock Purchase Plan; and
•the ERP.
The following table summarizes equity compensation plan information for the Long-Term Incentive Plan and the Discounted Stock Purchase Plan as a group, both of which are shareholder approved, and for the ERP, which is not subject to shareholder approval, in each case as of September 30, 2018.2021. No disclosure is included in respect of the RSP as it is intended to meet the qualification requirements of IRC § 401(a).
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| | | | | | | | |
Plan Category | | (a) Number of Common Shares to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | | (b) Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | | (c) Number of Common Shares Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Common Shares Reflected In Column(a)) |
Equity compensation plans approved by shareholders | | 2,387,089 (1) |
| | $58.68 (2) | | 3,906,639 (3) |
|
Equity compensation plans not approved by shareholders | | n/a (4) |
| | n/a (5) | | n/a (5) |
|
Total | | 2,387,089 |
| | $58.68 (2) | | 3,906,639 |
|
The information included below reflects the equity compensation plan information as of September 30, 2021 and therefore does not correspond to the supplemental disclosure included in “PROPOSAL NUMBER 4 — APPROVAL OF AMENDMENT AND RESTATEMENT OF THE SCOTTS MIRACLE-GRO COMPANY LONG-TERM INCENTIVE PLAN” which reflect our Common Shares to be Issued and our Common Shares remaining available for grant as of December 1, 2021. | | | | | | | | | | | | | | | | | | | | | | | |
Plan Category | | (a) Number of Common Shares to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | | (b) Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | | (c) Number of Common Shares Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Common Shares Reflected In Column(a)) | |
Equity compensation plans approved by shareholders | | 1,516,573 | | (1) | $ | 118.38 | | (2) | 2,797,512 | | (3) |
Equity compensation plans not approved by shareholders | | n/a | (4) | n/a | | n/a | (5) |
Total | | 1,516,573 | | | $ | 118.38 | | (2) | 2,797,512 | | |
________________________
| |
(1) | Includes 1,217,092 Common Shares issuable upon exercise of NSOs granted under the Long-Term Incentive Plan (804,941 of which are fully vested as of September 30, 2018); 403,440 Common Shares issuable upon vesting of RSUs and DSUs granted under the Long-Term Incentive Plan (53,527 of which are fully vested as of September 30, 2018); 292,254 Common Shares representing the target number of PUs and 474,303 Common Shares representing the target number of PFAs granted under the Long-Term Incentive Plan (assuming the underlying performance criteria applicable to the PUs and PFAs will be achieved at the target level of performance). As of September 30, 2018, 234,434 PUs and 474,303 PFAs remain subject to future performance goals. |
(1) Includes 568,191 Common Shares issuable upon exercise of NSOs granted under the Long-Term Incentive Plan, of which 384,638 are fully vested as of September 30, 2021; 375,825 Common Shares issuable upon vesting of RSUs and DSUs granted under the Long-Term Incentive Plan (48,202 of which are fully vested as of September 30, 2021); 147,721 Common Shares representing the target number of PUs and 424,836 Common Shares representing the target number of PFAs granted under the Long-Term Incentive Plan (assuming the underlying performance criteria applicable to the PUs and PFAs achieve a target level of performance for the applicable performance periods).
For outstanding performance-based awards that are expected to achieve a payout, the number of shares reported in column (a) does not reflect an additional 48,457637,257 Common Shares attributed to PFAs that will be paid out on January 30, 2022 based on achieving the maximum 250% payout level; or up to an additional 112,952 Common Shares that may be paid out if the outstanding PUs are achieved atachieve the 200%250% maximum payout level or an additional 711,455(as applicable).
(2) Represents the weighted-average exercise price of outstanding NSOs granted under the Long-Term Incentive Plan.
(3) Includes 214,054 Common Shares remaining available for issuance under the Discounted Stock Purchase Plan and 2,583,458 Common Shares authorized and remaining available for issuance under the Long-Term Incentive Plan. This amount may be reduced proportionate to the maximum amount of Common Shares that may be paid out if the outstanding PFAs are achievedand PUs achieve a payout above target level as discussed in note (1) above, and further reduced by the 2:1 full value adjustment factor pursuant to the terms of the Long-Term Incentive Plan.
(4) As of September 30, 2021, the Company is holding 176,527 Common Shares which were credited to the respective bookkeeping accounts of participants in the ERP. This number has been rounded to the nearest whole Common Share. Such shares were acquired by the Company at fair value in the open market, based on a participant directed election to designate a portion of its respective salary and bonus deferrals as Supplemental Retirement Account contributions to be invested in shares of the Company and distributed to the participant at the 250% maximum payout level.applicable distribution date(s). The shares, which are held in a trust account for the benefit of the participant, are already included as part of the Company’s issued and outstanding share balance as of September 30, 2021.
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(2) | Represents the weighted-average exercise price of outstanding NSOs granted under the Long-Term Incentive Plan. The weighted-average exercise price does not take the RSUs and PUs into account. |
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(3) | Includes 3,625,268 Common Shares authorized and remaining available for issuance under the Long-Term Incentive Plan. This amount may be reduced proportionate to the maximum amount of Common Shares that may be paid out if the PUs and PFAs achieve a payout above target level as discussed in note (1) above. It also includes 281,371 Common Shares remaining available for issuance under the Discounted Stock Purchase Plan. |
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(4) | As of September 30, 2018, the Company is holding 123,135 Common Shares which were credited to the respective bookkeeping accounts of participants in the ERP. This number has been rounded to the nearest whole Common Share. Such shares were acquired by the Company at fair value in the open market, based on a participant directed election to designate a portion of its respective salary and bonus deferrals as Supplemental Retirement Account contributions to be invested in shares of the Company and distributed to the participant at the applicable distribution date(s). The shares, which are held in a trust account for the benefit of the participant, are already included as part of the Company’s issued and outstanding share balance as of September 30, 2018. |
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(5) | Since the Common Shares held in the ERP are acquired by the plan as market shares, the ERP does not provide for a specified limit on the number of Common Shares that may be credited to participants’ bookkeeping accounts. Please see the description of the ERP in the section captioned “Elements of Executive Compensation — Retirement Plans and Deferred Compensation Benefits (long-term compensation element)” within the CD&A. Participant account balances in the ERP may be credited to one or more benchmark investment funds, including a Company stock fund and mutual fund investments, which are substantially consistent with the investment options permitted under the RSP. The amount credited to the benchmark Company stock fund is recorded as Common Shares. The weighted-average price of amounts credited to the benchmark Company stock fund within participants’ bookkeeping accounts under the ERP is not readily calculable. The amount credited to one of the benchmark mutual fund investments is recorded as mutual fund shares.
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(5) Since the Common Shares held in the ERP are acquired by the plan as market shares, the ERP does not provide for a specified limit on the number of Common Shares that may be credited to participants’ bookkeeping accounts. Please see the description of the ERP in the section captioned “Elements of Executive Compensation — Retirement Plans and Deferred Compensation Benefits (long-term compensation element)” within the CD&A. Participant account balances in the ERP may be credited to one or more benchmark investment funds, including a Company stock fund and mutual fund investments, which are substantially consistent with the investment options permitted under the RSP. The amount credited to the benchmark Company stock fund is recorded as Common Shares. The amount credited to one of the benchmark mutual fund investments is recorded as mutual fund shares.
Discounted Stock Purchase Plan
The Company currently maintains a Discounted Stock Purchase Plan, which provides a means for eligible associates to purchase Common Shares at a price equal to at least 85% of the fair value of the Common Shares on the applicable Purchase Date (as defined in the Discounted Stock Purchase Plan). Participants in the Discounted Stock Purchase Plan may elect to purchase Common Shares at a rate of not less than $10 per offeringeither via payroll deductions each pay period or more thanvia lump contributions to the plan; both methods are subject to an aggregate purchase limit of $36,000 per plan year.
Any U.S.-based full-time or permanent part-time employee of the Company (or a designated subsidiary of the Company) who has reached age 18 and has been an employee for at least 15 days before the applicable Purchase Date is eligible to participate in the Discounted Stock Purchase Plan. Any non-U.S.-based employee of the Company (or a designated subsidiary of the Company) based in Canada or The Netherlands who meets certain eligibility criteria is also eligible to participate in the Discounted Stock Purchase Plan.
Common Shares acquired through the Discounted Stock Purchase Plan are held in a custodial account maintained on the participant’s behalf, and may not be sold until the earliest of: (1) the date the participant terminates employment; (2) 12 months after a Purchase Date; or (3) the date on which a change in control affecting the Company occurs. Upon any such event, all whole Common Shares and cash held in a participant’s custodial account will be made available to the participant under procedures developed by the custodian for the Discounted Stock Purchase Plan and the committee appointed by the Board to administer the Discounted Stock Purchase Plan. Any fractional Common Shares that are to be withdrawn from a custodial account will be distributed in cash equal to the fair value of the fractional Common Share on the termination date.
Participants are entitled to vote the number of whole and fractional Common Shares credited to their respective custodial accounts.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Common Shares are the only outstanding class of voting securities of the Company. The following table furnishes certain information regarding the beneficial ownership of the Common Shares as of November 30, 201829, 2021 by each of the current directors of the Company, by each nominee for election as a director, by each NEO listed in the Summary Compensation Table, and by all current directors and executive officers as a group, as well as byand all persons known to the Company to beneficially own more than 5% of the outstanding Common Shares. With respect to the 5% holders, the reported Common Shares are as of the date described in the applicable footnote. As of November 30, 2018,29, 2021, there were 55,326,05255,004,181 Common Shares issued and outstanding.
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| | | | | | | | | | | | | | | |
| | Amount and Nature of Beneficial Ownership(1) | | |
|
Name and Address of Beneficial Owner | | Common Shares Presently Held | | Common Share Equivalents Presently Held(2) | | Options(3) | | Total | | Percent of Class |
Thomas Randal Coleman (4) | | 4,549 |
| | 7,099(5) |
| | 56,292 |
| | 67,940(6) |
| | * |
|
David C. Evans | | — |
| | — |
| | — |
| | —(7) |
| | * |
|
Brian D. Finn | | 12,346(8) |
| | 8,482(9) |
| | — |
| | 20,828(10) |
| | * |
|
James Hagedorn (4) | | 15,679,276(11) |
| | 140,830(12) |
| | 598,331(13) |
| | 16,418,437(14) |
| | 29.28 | % |
Adam Hanft | | 37,577 |
| | 6,606(15) |
| | — |
| | 44,183(16) |
| | * |
|
Craig R. Hargreaves | | 254,602(17) |
| | — |
| | — |
| | 254,602(18) |
| | * |
|
Stephen L. Johnson | | 9,310 |
| | 5,661(19) |
| | — |
| | 14,971(20) |
| | * |
|
Thomas N. Kelly Jr. | | 15,837 |
| | 4,718(21) |
| | — |
| | 20,555(22) |
| | * |
|
Katherine Hagedorn Littlefield | | 15,625,196(23) |
| | 4,718(24) |
| | — |
| | 15,629,914(25) |
| | 28.25 | % |
Michael C. Lukemire (4) | | 513(26) |
| | 11,649(27) |
| | 130,242(28) |
| | 142,404(29) |
| | * |
|
James F. McCann | | 6,062 |
| | 6,167(30) |
| | — |
| | 12,229(31) |
| | * |
|
Nancy G. Mistretta | | 14,313 |
| | 4,718(32) |
| | — |
| | 19,031(33) |
| | * |
|
Peter E. Shumlin | | — |
| | 3,281(34) |
| | — |
| | 3,281(35) |
| | * |
|
Ivan C. Smith (4) | | 12,202(36) |
| | 4,223(37) |
| | 33,126 |
| | 49,551(38) |
| | * |
|
Denise S. Stump (4) | | 5,442(39) |
| | 11,527(40) |
| | 21,104(41) |
| | 38,073(42) |
| | * |
|
John R. Vines | | 7,572 |
| | 5,655(43) |
| | — |
| | 13,227(44) |
| | * |
|
All current directors and executive officers as a group (16 individuals) | | 16,059,601 |
| | 225,334 |
| | 839,095 |
| | 17,124,030(45) |
| | 30.37 | % |
Hagedorn Partnership, L.P. | | 15,625,196(46) |
| | — |
| | — |
| | 15,625,196 |
| | 28.24 | % |
44 South Bayles Ave., Suite 218, Port Washington, NY 11050 | | | | | | | | | | |
The Vanguard Group (47) | | 3,863,678(48) |
| | — |
| | — |
| | 3,863,678 |
| | 6.98 | % |
100 Vanguard Blvd. Malvern, PA 19355 | | | | | | | | | | |
FMR LLC/Abigail P. Johnson (49) | | 3,636,836(50) |
| | — |
| | — |
| | 3,636,836 |
| | 6.57 | % |
245 Summer Street Boston, MA 02210 | | | | | | | | | | |
BlackRock, Inc. (51) | | 3,546,354(52) |
| | — |
| | — |
| | 3,546,354 |
| | 6.41 | % |
55 East 52nd Street New York, NY 10055 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount and Nature of Beneficial Ownership(1) | | |
Name and Address of Beneficial Owner | | Common Shares Presently Held | | Common Share Equivalents Presently Held(2) | | Options(3) | | Total | | Percent of Class |
Thomas Randal Coleman (4)(5) | | — | | | — | | | — | | | — | | | * |
David C. Evans | | 1,659 | | — | | | — | | | 1,659(6) | | * |
Brian D. Finn | | 3,563 | | 2,936(7) | | — | | | 6,499(8) | | * |
Christopher J. Hagedorn (4) | | 23,809(9) | | — | | | 9,425(10) | | 33,234(11) | | * |
James Hagedorn (4) | | 14,633,324(12) | | — | | | 325,075(13) | | 14,958,399(14) | | 27.04 | % |
Adam Hanft | | 18,934 | | 4,225(15) | | — | | | 23,159(16) | | * |
Stephen L. Johnson | | 15,395 | | 4,861(17) | | — | | | 20,256(18) | | * |
Thomas N. Kelly Jr. | | 4,430 | | 4,225(19) | | — | | | 8,655(20) | | * |
Katherine Hagedorn Littlefield | | 14,598,864(21) | | 4,225(22) | | — | | | 14,603,089(23) | | 26.55 | % |
Michael C. Lukemire (4) | | 561(24) | | — | | | 13,742(25) | | 14,303(26) | | * |
Cory J. Miller (4) | | 6,426(27) | | — | | | — | | | 6,426(28) | | * |
Nancy G. Mistretta | | 11,073 | | 4,225(29) | | — | | | 15,298(30) | | * |
Peter E. Shumlin | | 795 | | 6,302(31) | | — | | | 7,097(32) | | * |
Denise S. Stump (4) | | 576(33) | | 480(34) | | 4,869(35) | | 5,925(36) | | * |
John R. Vines | | 5,474 | | 5,026(37) | | — | | | 10,500(38) | | * |
Gerald Volas | | 6,000 | | — | | | — | | | 6,000(39) | | * |
All current directors and executive officers as a group (17 individuals) | | 14,733,522 | | 36,505 | | 356,449 | | 15,126,476(40) | | 27.31 | % |
Hagedorn Partnership, L.P. | | 14,598,864(41) | | — | | — | | 14,598,864 | | 26.54 | % |
44 South Bayles Ave., Suite 218, Port Washington, NY 11050 | | | | | | | | | | |
The Vanguard Group (42) | | 4,752,812(43) | | — | | — | | 4,752,812 | | 8.64 | % |
100 Vanguard Blvd. Malvern, PA 19355 | | | | | | | | | | |
Kayne Anderson Rudnick Investment Management LLC (44) | | 3,707,004(45) | | — | | | — | | | 3,707,004 | | 6.74 | % |
1800 Avenue of the Stars, 2nd Floor Los Angeles, CA 90067 | | | | | | | | | | |
BlackRock, Inc. (46) | | 3,662,373(47) | | — | | | — | | | 3,662,373 | | 6.66 | % |
55 East 52nd Street New York, NY 10055 | | | | | | | | | | |
________________________
* Less than 1%
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(1) | Unless otherwise indicated, the beneficial owner has sole voting and dispositive power as to all Common Shares reflected in the table. All fractional Common Shares have been rounded to the nearest whole Common Share. The mailing address of each of the current executive officers and directors of the Company is 14111 Scottslawn Road, Marysville, Ohio 43041. |
(1)Unless otherwise indicated, the beneficial owner has sole voting and dispositive power as to all Common Shares reflected in the table. All fractional Common Shares have been rounded to the nearest whole Common Share. The mailing address of each of the current executive officers and directors of the Company is 14111 Scottslawn Road, Marysville, Ohio 43041.
(2)Common Share Equivalents Presently Held amounts include (in each case to the extent such Common Shares may be acquired within 60 days of November 29, 2021): (a) Common Shares represented by amounts credited to the benchmark Company stock fund within the NEO’s bookkeeping account under the ERP; (b) Common Shares subject to RSUs or PUs granted to executive officers under the Long-Term Incentive Plan; (c) Common Shares subject to DSUs and/or RSUs granted to non-employee directors (together with related dividend equivalents) under the Long-Term Incentive Plan. The individual has no voting or dispositive power with respect to the Common Shares attributable to the individual’s bookkeeping account under the ERP or the Common Shares subject to RSUs, PUs or DSUs.
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(2) | Common Share Equivalents Presently Held figures include: (a) Common Shares represented by amounts credited to the benchmark Company stock fund within the NEO’s bookkeeping account under the ERP; (b) Common Shares subject to RSUs granted to executive officers under the Long-Term Incentive Plan; and (c) Common Shares subject to DSUs granted to directors (together with related dividend equivalents) under the Long-Term Incentive Plan, in each case to the extent such Common Shares may be acquired within 60 days of November 30, 2018. The individual has no voting or dispositive power with respect to the Common Shares attributable to the individual’s bookkeeping account under the ERP or the Common Shares subject to RSUs or DSUs. |
Amounts credited to the benchmark Company stock fund under the ERP are to be distributed in Common Shares.
Each whole RSU or PU (to the extent the underlying performance criteria are achieved) granted to an executive officer represents a contingent right to receive one Common Share. In general, RSUs and PUs granted to an executive officer vest on the third anniversary of the grant date. RSUsdate, and are subject to earlier vesting in the event of retirement, death or disability of the individual or a change in control of the Company in certain circumstances, but otherwise will be forfeited in the event of termination prior to the third anniversary of the grant date. Subject to the terms of the Long-Term Incentive Plan, whole vested RSUsRSU or PU granted to an executive officer will be settled in a lump sum as soon as administratively practicable, but in no event later than 90 days following the earliest to occur of: (i) termination due to death or disability; or (ii) the third anniversary of the grant date.
Each whole DSURSU granted to a non-employee director represents a contingent right to receive one Common Share. In general, RSUs granted to non-employee directors vest on the first anniversary of the grant date and the vested RSUs are settled on the third anniversary of the grant date. Each dividend equivalent represents the right to receive additional RSUs in respect of dividends that are declared and paid during the period beginning on the grant date and ending on the settlement date with respect to the Common Share represented by the related RSU. Additional details about the vesting and settlement schedule associated with RSUs granted to non-employee directors is discussed in the section captioned “NON-EMPLOYEE DIRECTOR COMPENSATION — Equity-Based Compensation — Vesting and Settlement.”
Each whole DSU granted to a non-employee director, which is fully vested at the date of grant, represents a contingent right to receive one Common Share on a pre-defined future date. Each dividend equivalent represents the right to receive additional DSUs in respect of dividends that are declared and paid during the period beginning on the grant date and ending on the settlement date with respect to the Common Share represented by the related DSU. The vesting and settlement schedule associated with DSUs is discussed in the section captioned “NON-EMPLOYEE DIRECTOR COMPENSATION — Equity-Based Compensation — Vesting and Settlement.” With respect to Mr. Finn, Mr. Hanft, Mr. Johnson Mr. McCann and Mr. Shumlin, amounts include fully vested DSUs granted in connection with their elections to defer a portion of the cash retainer received for services as a director.director in one or more prior years.
(3) Amounts represent Common Shares that can be acquired upon the exercise of options that are currently exercisable or will first become exercisable within 60 days of November 29, 2021.
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(3) | Amounts represent Common Shares that can be acquired upon the exercise of options that are currently exercisable or will first become exercisable within 60 days of November 30, 2018. |
(4) Individual named in the Summary Compensation Table.
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(4) | Individual named in the Summary Compensation Table. |
(5) Mr. Coleman departed from the Company effective January 5, 2021.
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(5) | Represents Common Shares that are the subject of PUs granted to Mr. Coleman, which remain subject to vesting and/or settlement provisions. |
(6) Does not include 5,016 Common Shares that are the subject of RSUs granted to Mr. Evans, which remain subject to vesting and/or settlement provisions.
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(6) | Does not include: (a) a target amount of 48,936 Common Shares that are the subject of PFAs granted to Mr. Coleman; and (b) 14,175 Common Shares that are the subject of RSUs, all of which remain subject to vesting and/or settlement provisions. |
(7) Represents the aggregate of: (a) 1,581 Common Shares that are the subject of RSUs granted to Mr. Finn; and (b) 1,355 Common Shares that are the subject of DSUs granted to Mr. Finn in connection with his election to defer 100% of his cash retainer for services as a director; all of which remain subject to vesting and/or settlement provisions.
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(7) | Does not include 1,535 Common Shares that are the subject of DSUs. |
(8) Does not include the aggregate of: (a) 3,435 Common Shares that are the subject of RSUs granted to Mr. Finn; and (b) 1,230 Common Shares that are the subject of DSUs granted to Mr. Finn in connection with his election to defer 100% of his cash retainer for services as a director; all of which remain subject to vesting and/or settlement provisions.
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(8) | Represents the aggregate of: (a) 7,500 Common Shares held by Mr. Finn directly; and (b) 4,846 Common Shares held in one or more family trusts. |
(9) Represents the aggregate of: (a) 23,748 Common Shares held by Mr. C. Hagedorn directly; and (b) 61 Common Shares held in his custodial account under the Discounted Stock Purchase Plan.
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(9) | Represents Common Shares that are the subject of DSUs granted to Mr. Finn, including DSUs granted to Mr. Finn in connection with his election to defer 100% of his cash retainer for services as a director, which remain subject to vesting and/or settlement provisions. |
(10) Represents Common Shares that are the subject of fully vested NSOs granted to Mr. C. Hagedorn.
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(10) | Does not include 2,085 Common Shares that are the subject of DSUs. |
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(11) | Mr. Hagedorn is a general partner of Hagedorn Partnership, L.P. (the “Hagedorn Partnership”), and has shared voting power with respect to the Common Shares held by the Hagedorn Partnership and sole investment power with respect to 1,864,791 of such Common Shares. See note (46) below for additional disclosures regarding the Hagedorn Partnership. Includes, in addition to those Common Shares described in note (46) below, (a) 45,254 Common Shares that are allocated to his account and held by the trustee under the RSP; and (b) 8,826 Common Shares held in a custodial account under the Discounted Stock Purchase Plan. |
97
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(12) | Represents the aggregate of: (a) 107,486 Common Shares credited to the benchmark Company stock fund within Mr. Hagedorn’s bookkeeping account under the ERP; and (b) 33,344 Common Shares that are the subject of PUs granted to Mr. Hagedorn, which remain subject to vesting and/or settlement provisions. |
(11) Does not include the aggregate of: (a) 7,853 Common Shares that are the subject of NSOs granted to Mr. C. Hagedorn that are subject to vesting provisions; (b) 12,071 Common Shares that are the subject of PUs granted to Mr. C. Hagedorn; and (c) 10,622 Common Shares that are the subject of RSUs granted to Mr. C. Hagedorn; all of which remain subject to either the underlying performance criteria, vesting and/or settlement provisions.
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(13) | Because Mr. Hagedorn is retirement eligible, all NSOs are subject to accelerated vesting should he retire prior to the normal vesting dates. |
(12) Mr. J. Hagedorn is a general partner of Hagedorn Partnership, L.P. (the “Hagedorn Partnership”), and has shared voting power with respect to the Common Shares held by the Hagedorn Partnership and sole investment power with respect to 1,814,791 of such Common Shares. See note (41) below for additional disclosures regarding the Hagedorn Partnership. Includes, in addition to those Common Shares described in note (41) below, (a) 24,331 Common Shares that are allocated to Mr. Hagedorn’s account and held by the trustee under the RSP; and (b) 10,129 Common Shares held in his custodial account under the Discounted Stock Purchase Plan.
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(14) | Does not include the aggregate of: (a) a target amount of 172,403 Common Shares that are the subject of PFAs granted to Mr. Hagedorn; and (b) 49,939 Common Shares that are the subject of RSUs. Because Mr. Hagedorn is retirement eligible, all PUs and RSUs are subject to accelerated vesting and all PFAs are subject to partial vesting, should he retire prior to the normal vesting dates. However, both the PUs and the PFAs remain subject to the performance criteria. |
(13) Represents Common Shares that are the subject of NSOs granted to Mr. J. Hagedorn that are either fully vested or subject to retirement provisions.
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(15) | Represents Common Shares that are the subject of DSUs granted to Mr. Hanft, including DSUs granted to Mr. Hanft in connection with his election to defer 50% of his cash retainer for services as a director, which remain subject to vesting and/or settlement provisions. |
(14) Does not include the aggregate of: (a) 147,265 Common Shares credited to the benchmark Company stock fund within Mr. J. Hagedorn’s bookkeeping account under the ERP; (b) 431,008 Common Shares that are the subject of PFAs granted to Mr. Hagedorn; and (c) 63,737 Common Shares that are the subject of RSUs granted to Mr. Hagedorn; all of which remain subject to either the underlying performance criteria, vesting and/or settlement provisions.
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(16) | Does not include the aggregate of: (a) 4,505 Common Shares that are the subject of RSUs; and (b) 2,085 Common Shares that are the subject of DSUs. |
(15) Represents Common Shares that are the subject of RSUs granted to Mr. Hanft, which remain subject to vesting and/or settlement provisions.
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(17) | Represents 254,602 Common Shares held by Cascade Range Investments, LLC, an entity Mr. Hargreaves owns and/or controls. |
(16) Does not include 2,500 Common Shares that are the subject of RSUs granted to Mr. Hanft, which remain subject to vesting and/or settlement provisions.
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(18) | Does not include 978 Common Shares that are the subject of DSUs. |
(17) Represents the aggregate of: (a) 4,225 Common Shares that are the subject of RSUs granted to Mr. Johnson; and (b) 636 Common Shares that are the subject of DSUs granted to Mr. Johnson in connection with his election to defer 25% of his cash retainer for services as a director; all of which remain subject to vesting and/or settlement provisions.
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(19) | Represents Common Shares that are the subject of DSUs granted to Mr. Johnson, including DSUs granted to Mr. Johnson in connection with his election to defer 25% of his cash retainer for services as a director, which remain subject to vesting and/or settlement provisions. |
(18) Does not include 791 Common Shares that are the subject of RSUs granted to Mr. Johnson, which remain subject to vesting and/or settlement provisions.
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(20) | Does not include 2,085 Common Shares that are the subject of DSUs. |
(19) Represents Common Shares that are the subject of RSUs granted to Mr. Kelly, which remain subject to vesting and/or settlement provisions.
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(21) | Represents Common Shares that are the subject of DSUs granted to Mr. Kelly, which remain subject to vesting and/or settlement provisions. |
(20) Does not include 791 Common Shares that are the subject of RSUs granted to Mr. Kelly, which remain subject to vesting and/or settlement provisions.
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(22) | Does not include 2,085 Common Shares that are the subject of DSUs. |
(21) Ms. Littlefield is a general partner of the Hagedorn Partnership and has shared voting power with respect to the Common Shares held by the Hagedorn Partnership and sole investment power with respect to 2,723,519 of such Common Shares. See note (41) below for additional disclosures regarding the Hagedorn Partnership.
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(23) | Ms. Littlefield is a general partner of the Hagedorn Partnership and has shared voting power with respect to the Common Shares held by the Hagedorn Partnership and sole investment power with respect to 2,754,984 of such Common Shares. See note (46) below for additional disclosures regarding the Hagedorn Partnership. |
(22) Represents Common Shares that are the subject of RSUs granted to Ms. Littlefield, which remain subject to vesting and/or settlement provisions.
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(24) | Represents Common Shares that are the subject of DSUs granted to Ms. Littlefield, which remain subject to vesting and/or settlement provisions. |
(23) Does not include 791 Common Shares that are the subject of RSUs granted to Ms. Littlefield, which remain subject to vesting and/or settlement provisions.
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(25) | Does not include 2,085 Common Shares that are the subject of DSUs. |
(24) Represents Common Shares that are allocated to Mr. Lukemire’s account and held by the trustee under the RSP.
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(26) | Represents Common Shares that are allocated to Mr. Lukemire’s account and held by the trustee under the RSP. |
(25) Represents Common Shares that are the subject of NSOs granted to Mr. Lukemire that are either fully vested or subject to retirement provisions.
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(27) | Represents Common Shares that are the subject of PUs granted to Mr. Lukemire, which remain subject to vesting and/or settlement provisions. |
(26) Does not include the aggregate of: 22,309 Common Shares that are the subject of RSUs granted to Mr. Lukemire; and (b) 150,573 Common Shares that are the subject of PFAs granted to Mr. Lukemire; all of which remain subject to either the underlying performance criteria, vesting and/or settlement provisions.
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(28) | Because Mr. Lukemire is retirement eligible, all NSOs are subject to accelerated vesting should he retire prior to the normal vesting dates. |
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(29) | Does not include the aggregate of: (a) a target amount of 60,229 Common Shares that are the subject of PFAs granted to Mr. Lukemire; and (b) 23,989 Common Shares that are the subject of RSUs. Because Mr. Lukemire is retirement eligible, all PUs and RSUs are subject to accelerated vesting and all PFAs are subject to partial vesting, should he retire prior to the normal vesting dates. However, both the PUs and the PFAs remain subject to the performance criteria. |
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(30) | Represents Common Shares that are the subject of DSUs granted to Mr. McCann, which remain subject to vesting and/or settlement provisions. |
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(31) | Does not include 2,085 Common Shares that are the subject of DSUs. |
(27) Represents the aggregate of: (a) 4,060 Common Shares held by Mr. Miller directly; (b) 1,367 Common Shares that are allocated to his account and held by the trustee under the RSP; and (c) 999 Common Shares held in his custodial account under the Discounted Stock Purchase Plan.
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(32) | Represents Common Shares that are the subject of DSUs granted to Ms. Mistretta, which remain subject to vesting and/or settlement provisions. |
(28) Does not include the aggregate of: (a) 3,019 Common Shares that are the subject of PUs granted to Mr. Miller; (b) 5,890 Common Shares that are the subject of NSOs granted to Mr. Miller that are subject to vesting provisions; and (c) 11,439 Common shares that are the subject of RSUs granted to Mr. Miller; all of which remain subject to either the underlying performance criteria, vesting and/or settlement provisions.
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(33) | Does not include 2,085 Common Shares that are the subject of DSUs. |
(29) Represents Common Shares that are the subject of RSUs granted to Ms. Mistretta, which remain subject to vesting and/or settlement provisions.
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(34) | Represents Common Shares that are the subject of DSUs granted to Mr. Shumlin, including DSUs granted to Mr. Shumlin in connection with his election to defer 100% of his cash retainer for services as a director, which remain subject to vesting and/or settlement provisions. |
(30) Does not include 791 Common Shares that are the subject of RSUs granted to Ms. Mistretta, which remain subject to vesting and/or settlement provisions.
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(35) | Does not include 2,085 Common Shares that are the subject of DSUs. |
(31) Represents the aggregate of: (a) 4,225 Common Shares that are the subject of RSUs granted to Mr. Shumlin; and (b) 2,077 Common Shares that are the subject of DSUs granted to Mr. Shumlin in connection with his election to defer 100% of his cash retainer for services as a director; all of which remain subject to vesting and/or settlement provisions.
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(36) | Represents the aggregate of: (a) 11,603 Common Shares held by Mr. Smith directly; and (b) 599 Common Shares held in a custodial account under the Discounted Stock Purchase Plan. |
(32) Does not include the aggregate of: (a) 1,321 Common Shares that are the subject of DSUs granted to Mr. Shumlin in connection with his election to defer 100% of his cash retainer for services as a director; and (b) 791 Common Shares that are the subject of RSUs granted to Mr. Shumlin; all of which remain subject to vesting and/or settlement provisions
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(37) | Represents Common Shares that are the subject of PUs granted to Mr. Smith, which remain subject to vesting and/or settlement provisions. |
(33) Represents the aggregate of: (a) 383 Common Shares held by Ms. Stump directly; and (b) 193 Common Shares held in Ms. Stump’s custodial account under the Discounted Stock Purchase Plan.
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(38) | Does not include: (a) a target amount of 21,833 Common Shares that are the subject of PFAs granted to Mr. Smith; and (b) 6,546 Common Shares that are the subject of RSUs, all of which remain subject to vesting and/or settlement provisions. |
(34) Represents Common Shares credited to the benchmark Company stock fund within Ms. Stump’s bookkeeping account under the ERP.
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(39) | Represents the aggregate of: (a) 3,243 Common Shares held by Ms. Stump directly; and (b) 2,199 Common Shares held in a custodial account under the Discounted Stock Purchase Plan. |
(35) Represents Common Shares that are the subject of NSOs granted to Ms. Stump that are either fully vested or subject to retirement provisions.
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(40) | Represents the aggregate of: (a) 7,013 Common Shares credited to the benchmark Company stock fund within Ms. Stump’s bookkeeping account under the ERP; and (b) 4,514 Common Shares that are the subject of RSUs. |
(36) Does not include the aggregate of: (a) 11,068 Common Shares credited to the benchmark Company stock fund within Ms. Stump’s bookkeeping account under the ERP; (b) 7,904 Common Shares that are the subject of RSUs granted to Ms. Stump; and (c) 58,348 Common Shares that are the subject of PFAs granted to Ms. Stump; all of which remain subject to either the underlying performance criteria, vesting and/or settlement provisions.
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(41) | Because Ms. Stump is retirement eligible, all NSOs are subject to accelerated vesting should she retire prior to the normal vesting dates. |
(37) Represents Common Shares that are the subject of RSUs granted to General Vines, which remain subject to vesting and/or settlement provisions.
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(42) | Does not include the aggregate of: (a) a target amount of 23,339 Common Shares that are the subject of PFAs granted to Ms. Stump; and (b) 6,762 Common Shares that are the subject of RSUs. Because Ms. Stump is retirement eligible, all RSUs are subject to accelerated vesting and all PFAs are subject to partial vesting, should she retire prior to the normal vesting dates. However, the PFAs remain subject to the performance criteria. |
(38) Does not include 941 Common Shares that are the subject of RSUs granted to Mr. Vines, which remain subject to vesting and/or settlement provisions.
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(43) | Represents Common Shares that are the subject of DSUs, granted to General Vines which remain subject to vesting and/or settlement provisions. |
(39) Does not include 438 Common Shares that are the subject of RSUs granted to Mr. Volas, which remain subject to vesting and/or settlement provisions.
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(44) | Does not include 2,479 Common Shares that are the subject of DSUs. |
(40) Does not include 1,072,464 Common Shares which remain subject to either the underlying performance criteria, vesting and/or settlement provisions.
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(45) | Does not include 454,328 Common Shares which remain subject to vesting and/or settlement provisions. |
(41) The Hagedorn Partnership is the record owner of 14,598,864 Common Shares. Of those Common Shares, 2,200,000 are pledged as security for a line of credit with a bank. James Hagedorn, Katherine Hagedorn Littlefield, Paul Hagedorn, Peter Hagedorn, Robert Hagedorn and Susan Hagedorn are siblings, general partners of the Hagedorn Partnership and former shareholders of Stern’s Miracle-Gro Products, Inc. (“Miracle-Gro Products”). The general partners (a) share voting power with respect to the Common Shares held by the Hagedorn Partnership and (b) have, respectively, sole investment power with respect to the Common Shares held in the applicable general partner’s account at the Hagedorn Partnership. James Hagedorn and Katherine Hagedorn Littlefield are directors of the Company. Community Funds, Inc., a New York not-for-profit corporation (“Community Funds”), is a limited partner of the Hagedorn Partnership.
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(46) | The Hagedorn Partnership is the record owner of 15,625,196 Common Shares. Of those Common Shares, 2,000,000 are pledged as security for a line of credit with a bank. James Hagedorn, Katherine Hagedorn Littlefield, Paul Hagedorn, Peter Hagedorn, Robert Hagedorn and Susan Hagedorn are siblings, general partners of the Hagedorn Partnership and former shareholders of Stern’s Miracle-Gro Products, Inc. (“Miracle-Gro Products”). The general partners (a) share voting power with respect to the Common Shares held by the Hagedorn Partnership and (b) have, respectively, sole investment power with respect to the Common Shares held in the applicable general partner’s account at the Hagedorn Partnership. James Hagedorn and Katherine Hagedorn Littlefield are directors of the Company. Community Funds, Inc., a New York not-for-profit corporation (“Community Funds”), is a limited partner of the Hagedorn Partnership. |
The Amended and Restated Agreement and Plan of Merger, dated as of May 19, 1995 (the “Miracle-Gro Merger Agreement”), among The Scotts Company, ZYX Corporation, Miracle-Gro Products, Stern’s Nurseries, Inc., Miracle-Gro Lawn Products Inc., Miracle-Gro Products Limited, the Hagedorn Partnership, the general partners of the Hagedorn Partnership, Horace Hagedorn, Community Funds and John Kenlon, as amended by the First Amendment to Amended and Restated Agreement and Plan of Merger, made and entered into as of October 1, 1999 (the “First Amendment”), limits the ability of the Hagedorn Partnership and the other shareholders of Miracle-Gro Products (the “Miracle-Gro Shareholders”) to acquire additional voting securities of the Company. Under the terms of the Merger Agreement, as amended by the First Amendment, the Miracle-Gro Shareholders may not collectively acquire, directly or indirectly,
beneficial ownership of Voting Stock (defined in the Miracle-Gro Merger Agreement, as amended by the First Amendment, to mean the Common Shares and any other securities issued by the Company that are entitled to vote generally for the election of directors of the Company) representing more than 49% of the total voting power of the outstanding Voting Stock, except pursuant to a tender offer for 100% of that total voting power, which tender offer is made at a price per share that is not less than the market price per share on the last trading day before the announcement of the tender offer and is conditioned upon the receipt of at least 50% of the Voting Stock beneficially owned by shareholders of the Company other than the Miracle-Gro Shareholders and their affiliates and associates.
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(47) | All information presented in this table regarding The Vanguard Group (“Vanguard”) was derived from the Schedule 13G (the “Vanguard Schedule 13G”), filed by Vanguard with the SEC on February 17, 2018 to report beneficial ownership of the Company’s Common Shares as of December 31, 2017. |
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(48) | In the Vanguard Schedule 13G, Vanguard reported sole voting power with respect to 23,344 Common Shares, shared voting power with respect to 5,729 Common Shares, sole dispositive power with respect to 3,837,976 Common Shares and shared dispositive power with respect to 25,702 Common Shares. |
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(49) | All information presented in this table regarding FMR LLC/Abigail P. Johnson (“FMR”) was derived from the Schedule 13G (the “FMR Schedule 13G”), filed by FMR with the SEC on February 13, 2018 to report beneficial ownership of the Company’s Common Shares as of December 31, 2017.
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(50) | In the FMR Schedule 13G, FMR reported sole voting power with respect to 1,181,498 Common Shares and sole dispositive power with respect to 3,636,836 Common Shares. |
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(51) | All information presented in this table regarding BlackRock, Inc. (“BlackRock”) was derived from the Schedule 13G/A (the “BlackRock Schedule 13G”), filed by BlackRock with the SEC on January 23, 2018 to report beneficial ownership of the Company’s Common Shares as of December 31, 2017. |
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(52) | In the BlackRock Schedule 13G, BlackRock reported sole voting power with respect to 3,385,589 Common Shares and sole dispositive power with respect to 3,546,354 Common Shares. |
(42) All information presented in this table regarding The Vanguard Group (“Vanguard”) was derived from the Schedule 13G/A (the “Vanguard Schedule 13G”), filed by Vanguard with the SEC on February 10, 2021 to report beneficial ownership of the Company’s Common Shares as of December 31, 2020.
(43) In the Vanguard Schedule 13G, Vanguard reported sole voting power with respect to 0 Common Shares, shared voting power with respect to 31,836 Common Shares, sole dispositive power with respect to 4,687,558 Common Shares and shared dispositive power with respect to 65,254 Common Shares.
(44) All information presented in this table regarding Kayne Anderson Rudnick Investment Management, LLC (“Kayne”) was derived from the Schedule 13G (the “Kayne Schedule 13G”), filed by Kayne with the SEC on February 11, 2021 to report beneficial ownership of the Company’s Common Shares as of December 31, 2020.
(45) In the Kayne Schedule 13G, Kayne reported sole voting power with respect to 3,035,551 Common Shares, shared voting power with respect to 671,453 Common Shares, sole dispositive power with respect to 3,035,551 Common Shares and shared dispositive power with respect to 671,453 Common Shares.
(46) All information presented in this table regarding BlackRock, Inc. (“BlackRock”) was derived from the Schedule 13G/A (the “BlackRock Schedule 13G”), filed by BlackRock with the SEC on February 1, 2021 to report beneficial ownership of the Company’s Common Shares as of December 31, 2020.
(47) In the BlackRock Schedule 13G, BlackRock reported sole voting power with respect to 3,532,630 Common Shares and sole dispositive power with respect to 3,662,373 Common Shares.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company’s directors and executive officers and any persons beneficially holding more than 10% of the Company’s outstanding Common Shares to file statements reporting their initial beneficial ownership of Common Shares, and any subsequent changes in beneficial ownership, with the SEC by specified due dates that have been established by the SEC. Based solely upon the Company’s review of (a) Section 16(a) statements filed on behalf of these persons for their respective transactions during the Company’s 20182021 fiscal year and (b) representations received from these persons that no other Section 16(a) statements were required to be filed by them for their respective transactions during the Company’s 20182021 fiscal year, the Company believes that all Section 16(a) filing requirements applicable to its directors and executive officers and persons beneficially holding more than 10% of the Company’s outstanding Common Shares were complied with during the Company’s 20182021 fiscal year, except that one report covering one transaction was filed after the prescribed time by each of Ms. Stump, Mark Scheiwer and Messrs. HargreavesEvans, Finn, Hagedorn, Hanft, and Shumlin.Johnson.
SHAREHOLDER PROPOSALS FOR 20202023 ANNUAL MEETING OF SHAREHOLDERS
Shareholder proposals must be received by the Corporate Secretary of the Company no later than August 16, 201917, 2022 to be eligible for inclusion in the Company’s form of proxy, notice of meeting and proxy statement relating to the 20202023 Annual Meeting of Shareholders. The Company will not be required to include in its proxy materials a shareholder proposal that is received after that date or that otherwise fails to meet the requirements for shareholder proposals established by applicable SEC Rules.
The SEC has promulgated rules relating to the exercise of discretionary voting authority pursuant to proxies solicited by the Board. If a shareholder intends to present a proposal at the 20202023 Annual Meeting of Shareholders without including that proposal in the Company’s proxy materials and written notice of the proposal is not received by the Corporate Secretary of the Company by October 30, 2019,31, 2022, or if the Company meets other requirements of the applicable SEC Rules, then the proxies
solicited by the Board for use at the 20202023 Annual Meeting of Shareholders will confer discretionary authority to the individuals acting under the proxies to vote on the proposal at the 20202023 Annual Meeting of Shareholders.
In each case, written notice must be given to the Company’s Corporate Secretary at the following address: The Scotts Miracle-Gro Company, 14111 Scottslawn Road, Marysville, Ohio 43041, Attn: Corporate Secretary.
The Company’s 20202023 Annual Meeting of Shareholders is currently scheduled to be held on January 27, 2020.23, 2023.
OTHER BUSINESS
As of the date of this Proxy Statement, the Board knows of no matter that will be properly presented for action at the Annual Meeting other than those matters discussed in this Proxy Statement. However, if any other matter requiring a vote of the shareholders properly comes before the Annual Meeting, the individuals acting under the proxies solicited by the Board will vote and act according to their best judgments in light of the conditions then prevailing, to the extent permitted under applicable law.
ANNUAL REPORT ON FORM 10-K
Audited consolidated financial statements for the Company and its subsidiaries for the 20182021 fiscal year are included in the Company’s 20182021 Annual Report. Copies of the Company’s 20182021 Annual Report and the Company’s Annual Report on Form 10-K for the 20182021 fiscal year (excluding exhibits, unless such exhibits have been specifically incorporated by reference therein) may be obtained, without charge, from the Company’s Investor Relations Department at 14111 Scottslawn Road, Marysville, Ohio 43041. The Company’s Annual Report on Form 10-K for the 20182021 fiscal year is also available on the Company’s website located at http://investor.scotts.com and is on file with the SEC at the SEC’s Public Reference Roomwebsite located at 100 F Street N.E., Washington, D.C. 20549.www.sec.gov.
ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER COMMUNICATIONS
Registered shareholders can further save the Company expense by consenting to receive all future proxy statements, forms of proxy and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please access the website www.proxyvote.com when transmitting your voting instructions and, when prompted, indicate that you agree to receive or access shareholder communications electronically in future years. Your choice will remain in effect unless and until you revoke it.
To revoke your decision to receive or access shareholder communications electronically, access the website www.proxyvote.com, enter your current PIN, select “Cancel my Enrollment” and click on the Submit button. After submitting your entry, the Cancel Enrollment Confirmation screen will be displayed. This screen will show your current Enrollment Number. To confirm your enrollment cancellation, click on the Submit button. Otherwise, click on the Back button to return to the Enrollment Maintenance screen. After submitting your entry, the Cancel Enrollment Complete screen will be displayed. This screen will indicate that your enrollment has been cancelled. You may be asked to complete a brief survey to help us understand why you opted out of electronic delivery. You will be sent an e-mail message confirming the cancellation of your enrollment. No further electronic communications will be conducted for your account and your Enrollment Number will be marked as “Inactive.” You may at any time reactivate your enrollment. You will be responsible for any fees or charges that you would typically pay for access to the Internet.
HOUSEHOLDING OF ANNUAL MEETING MATERIALS
The SEC has implemented rules regarding the delivery of proxy materials (i.e., annual reports to shareholders, proxy statements and Notices of Internet Availability of Proxy Materials) to households.two or more registered shareholders sharing the same household. This method of delivery, often referred to as “householding,” permits the Company to send: (a) a single annual report and/or a single proxy statementstatement; or (b) a single Notice of Internet Availability of Proxy Materials to multiple registered shareholders who share an address. In each case, each registered shareholder at the shared address must consent to the householding process in accordance with applicable SEC Rules. Each registered shareholder would continue to receive a separate proxy card with proxy materials delivered by mail or e-mail.
Only one copy of this Proxy Statement and the Company’s 20182021 Annual Report or one copy of the Notice of Internet Availability of Proxy Materials is being delivered to multiple registered shareholders at a shared address who have affirmatively consented, in writing, to the householding process, unless the Company has subsequently received contrary instructions from one or more of such registered shareholders. A separate proxy card is being included for each account at the shared address to which paper copies of this Proxy Statement and the Company’s 20182021 Annual Report have been delivered. The Company will promptly deliver, upon written or oral request, a separate copy of this Proxy Statement and the Company’s 20182021 Annual Report or a separate copy of the Notice of Internet Availability of Proxy Materials to a registered shareholder at a shared address to which a single copy of these documents was delivered. A registered shareholder at a shared address may contact the Company by mail addressed to The Scotts Miracle-Gro Company, Investor Relations Department, 14111 Scottslawn Road, Marysville, Ohio 43041, or by phone at (937) 644-0011, to: (a) request additional copies of this Proxy Statement and the Company’s 20182021 Annual Report or the Notice of Internet Availability of Proxy Materials; or (b) notify the Company that such registered shareholder wishes to receive a separate annual report to shareholders, proxy statement or Notice of Internet Availability of Proxy Materials, as applicable, in the future.
Registered shareholders who share an address may request delivery of a single copy of annual reports to shareholders, proxy statements or Notices of Internet Availability of Proxy Materials, as applicable, in the future, if they are currently receiving multiple copies, by contacting the Company as described in the preceding paragraph.
Many brokerage firms and other holders of record have also instituted householding. If your family or others with a shared address have one or more “street name” accounts under which you beneficially own Common Shares, you may have received householding information from your broker/dealer, financial institution or other nominee in the past. Please contact the holder of record directly if you have questions, require additional copies of this Proxy Statement and the Company’s 20182021 Annual Report or the Notice of Internet Availability of Proxy Materials or wish to revoke your decision to household and thereby receive multiple copies. You should also contact the holder of record if you wish to institute householding.
By Order of the Board of Directors,
JAMES HAGEDORN
Chief Executive Officer
and Chairman of the Board
THE SCOTTS MIRACLE-GRO COMPANY
LONG-TERM INCENTIVE PLAN
(EFFECTIVE AS OF JANUARY 24, 2022)
Article 1.
Establishment, Purpose, and Duration
1.1 Establishment. This Plan, an incentive compensation plan, was established by The Scotts Miracle-Gro Company. This Plan was originally effective on January 26, 2006, was amended and restated effective as of October 30, 2007, January 20, 2010, January 17, 2013, January 27, 2017, and is hereby further amended and restated effective as of January 24, 2022 (the “Effective Date”), as set forth in this document. This Plan shall remain in effect as provided in Section 1.3 hereof.
This Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units and Other Stock-Based Awards. Awards granted under the Plan prior to the Effective Date shall continue to be governed by the applicable Award Agreements and the terms of the Plan without giving effect to the changes made pursuant to this amendment and restatement, and the Committee shall administer such Awards in accordance with the Plan without giving effect to changes made pursuant to this amendment and restatement.
1.2 Purpose of this Plan. The purpose of this Plan is to provide a means whereby Employees, Directors, and Third-Party Service Providers develop a sense of proprietorship and personal involvement in the development and financial success of the Company, and to encourage them to devote their best efforts to the business of the Company, thereby advancing the interests of the Company and its shareholders. A further purpose of this Plan is to provide a means through which the Company may attract able individuals to become Employees or serve as Directors or Third-Party Service Providers and to provide a means whereby those individuals upon whom the responsibilities of the successful administration and management of the Company are of importance, can acquire and maintain stock ownership, thereby strengthening their concern for the welfare of the Company.
1.3 Duration of this Plan. Unless sooner terminated as provided herein, this Plan shall terminate on January 23, 2032. After this Plan is terminated, no Awards may be granted but Awards previously granted shall remain outstanding in accordance with their applicable terms and conditions and this Plan’s terms and conditions.
Article 2.
Definitions
Whenever used in this Plan, the following terms shall have the meanings set forth below, and when the meaning is intended, the initial letter of the word shall be capitalized.
2.1 “Affiliate” shall mean any corporation or other entity (including, but not limited to, a partnership or a limited liability company), that is affiliated with the Company through stock or equity ownership or otherwise, and is designated as an Affiliate for purposes of this Plan by the Committee.
2.2 “Award” means, individually or collectively, a grant under this Plan of Nonqualified Stock Options, Incentive Stock Options, SARs, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units or Other Stock-Based Awards, in each case subject to the terms of this Plan.
2.3 “Award Agreement” means either (i) a written agreement entered into by the Company and a Participant setting forth the terms and provisions applicable to an Award granted under this Plan, or (ii) a written or electronic statement issued by the Company to a Participant describing the terms and provisions of such Award, including in each case any amendment or modification thereof. The Committee may provide for the use of electronic, internet or other non-paper Award Agreements, and the use of electronic, internet or other non-paper means for the acceptance thereof and actions thereunder by a Participant.
2.4 “Beneficial Owner” or “Beneficial Ownership” shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.
2.5 “Board” or “Board of Directors” means the Board of Directors of the Company.
2.6 “Cause” means, unless otherwise specified in an Award Agreement or in an applicable employment agreement between the Company and a Participant, with respect to any Participant, that the Participant has:
(a) willfully and materially breached the terms of any employment agreement between the Participant and the Company;
(b) engaged in willful misconduct that has materially injured the business of the Company or any Subsidiary or Affiliate;
(c) willfully committed a material act of fraud or material breach of the Participant’s duty of loyalty to the Company or any Subsidiary or Affiliate;
(d) willfully and continually failed to attempt in good faith to perform the Participant’s duties hereunder (other than any such failure resulting from the Participant’s incapacity due to physical or mental illness), after written notice has been delivered to the Participant by the Company, which notice specifically identifies the manner in which the Participant has not attempted in good faith to perform his duties; or
(e) been convicted, or plead guilty or nolo contendere for the commission of an act or acts constituting a felony under the laws of the United States or any state thereof.
For purposes of subsections (a) - (d), no act, or failure to act, on the Participant’s part shall be deemed “willful” unless, the Company reasonably determines, in good faith, that it was done, or omitted to be done, by the Participant not in good faith and without reasonable belief that his act, or failure to act, was in the best interest of the Company or any Subsidiary or Affiliate.
2.7 “Change in Control” means the occurrence of any of the following:
(a) The members of the Board on the Effective Date (“Incumbent Directors”) cease for any reason other than death to constitute at least a majority of the members of the Board, provided that any director whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the then Incumbent Directors also will be treated as an Incumbent Director; or
(b) Any “person,” including a “group” (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act, but excluding the Company, any of its Subsidiaries, any employee benefit plan of the Company or any of its Subsidiaries or Hagedorn Partnership, L.P. or any party related to Hagedorn Partnership, L.P. as determined by the Committee) becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing more than thirty percent (30%) of the combined voting power of the Company’s then outstanding securities; or
(c) Consummation of (i) the merger or other business combination of the Company with or into another entity in which the shareholders of the Company immediately before the effective date of such merger or other business combination own less than fifty percent (50%) of the voting power in such entity; or (ii) the sale or other disposition of all or substantially all of the assets of the Company; or
(d) The adoption by the shareholders of the Company of a plan relating to the liquidation or dissolution of the Company; or
(e) For any reason, Hagedorn Partnership, L.P. or any party related to Hagedorn Partnership, L.P. as determined by the Committee becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing more than forty-nine percent (49%) of the combined voting power of the Company’s then outstanding securities.
The Committee may provide for a more restrictive definition of Change in Control in an Award Agreement if necessary or appropriate to comply with Code Section 409A or as the Committee deems appropriate.
Notwithstanding the foregoing, an Award that is subject to Code Section 409A will not be paid or settled upon a Change in Control unless the Change in Control also constitutes a “change in control event” under Code Section 409A and Treasury Regulation Section 1.409A-3(i)(5).
2.8 “Change in Control Price” means the price per Share paid in conjunction with any transaction resulting in a Change in Control (as determined in good faith by the Committee if any part of the offered price is payable other than in cash) or, in the case of a Change in Control occurring solely by reason of events not related to a transfer of Shares, the highest Fair Market Value of a Share on any of the thirty (30) consecutive trading days ending on the last trading day before the Change in Control occurs.
2.9 “Code” means the U.S. Internal Revenue Code of 1986, as amended from time to time. For purposes of this Plan, references to sections of the Code shall be deemed to include references to any applicable regulations thereunder and any successor or similar provision, as well as any applicable interpretative guidance issued related thereto.
2.10 “Committee” means the Compensation and Organization Committee of the Board or a subcommittee thereof, or any other committee designated by the Board to administer this Plan. The members of the Committee shall be appointed from time to time by and shall serve at the discretion of the Board. If the Committee does not exist or cannot function for any reason, the Board may take any action under the Plan that would otherwise be the responsibility of the Committee.
2.11 “Company” means The Scotts Miracle-Gro Company, an Ohio corporation, and any successor thereto as provided in Article 19 herein.
2.12 “Director” means any individual who is a member of the Board of Directors of the Company.
2.13 “Dividend Equivalent” has the meaning set forth in Article 13.
2.14 “Effective Date” has the meaning set forth in Section 1.1.
2.15 “Employee” means any individual who performs services for and is designated as an employee of the Company, its Affiliates, and/or its Subsidiaries on the payroll records thereof. An Employee shall not include any individual during any period he or she is classified or treated by the Company, Affiliate, and/or Subsidiary as an independent contractor, a consultant, or any employee of an employment, consulting, or temporary agency or any other entity other than the Company, Affiliate, and/or Subsidiary, without regard to whether such individual is subsequently determined to have been, or is subsequently retroactively reclassified as a common-law employee of the Company, Affiliate, and/or Subsidiary during such period.
2.16 “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto.
2.17 “Fair Market Value” or “FMV” means a price that is based on the opening, closing, actual, high, low, or average selling prices of a Share reported on the New York Stock Exchange (“NYSE”) or other established stock exchange (or exchanges) on the applicable date, the preceding trading day, the next succeeding trading day, or an average of trading days, as determined by the Committee in its discretion. Unless the Committee determines otherwise, Fair Market Value shall be deemed to be equal to the closing price of a Share on the relevant date if it is a trading day or, if such date is not a trading day, on the next trading day. In the event Shares are not publicly traded at the time a determination of their value is required to be made hereunder (a) with respect to NQSOs, SARs and Awards that are subject to Code Section 409A, “Fair Market Value” shall mean the value as determined by the Committee through the reasonable application of a reasonable valuation method, taking into account all information material to the value of the Company, within the meaning of Code Section 409A and (b) with respect to all other Awards, the determination of “Fair Market Value” shall be made by the Committee in such manner as it deems appropriate. Such definition(s) of FMV shall be specified in each Award Agreement and may differ depending on whether FMV is in reference to the grant, exercise, vesting, settlement, or payout of an Award.
2.18 “Full-Value Award” means an Award other than in the form of an ISO, NQSO, or SAR, and which is settled by the issuance of Shares.
2.19 “Full-Value Factor” has the meaning set forth in Section 4.1(b).
2.20 “Grant Date” means the date an Award is granted to a Participant pursuant to the Plan.
2.21 “Grant Price” means the price established at the time of grant of a SAR pursuant to Article 7, used to determine whether there is any payment due upon exercise of the SAR.
2.22 “Incentive Stock Option” or “ISO” means an Option to purchase Shares granted under Article 6 that is designated as an Incentive Stock Option and that is intended to meet the requirements of Code Section 422, or any successor provision.
2.23 “Insider” shall mean an individual who is, on the relevant date, an officer or Director of the Company, or a more than ten percent (10%) Beneficial Owner of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act, as determined by the Board or Committee in accordance with Section 16 of the Exchange Act.
2.24 “Non-employee Director” means a Director who is not an Employee on the Grant Date.
2.25 “Non-employee Director Award” means any NQSO, SAR, or Full-Value Award granted to a Participant who is a Non-employee Director pursuant to such applicable terms, conditions, and limitations as the Board or Committee may establish in accordance with this Plan.
2.26 “Nonqualified Stock Option” or “NQSO” means an Option that is not intended to meet the requirements of Code Section 422, or that otherwise does not meet such requirements.
2.27 “Option” means an Incentive Stock Option or a Nonqualified Stock Option, as described in Article 6.
2.28 “Option Price” means the price at which a Share may be purchased by a Participant pursuant to the exercise of an Option.
2.29 “Other Stock-Based Award” means an equity-based or equity-related Award not otherwise described by the terms of this Plan, granted pursuant to Article 10.
2.30 “Participant” means any eligible individual as set forth in Article 5 to whom an Award is granted.
2.31 “Performance Goals” shall be established by the Committee, based on one or more of the following criteria or derivations of such criteria or such other criteria as determined by the Committee, including but not limited to the following: net earnings or net income (before or after taxes); earnings per share (basic or diluted); net sales or revenue growth; net operating profit; return measures (including, but not limited to, return on assets, capital, invested capital, investor return, equity, sales, revenue or dividend yield); cash flow (including, but not limited to, operating cash flow, free cash flow, cash flow return on equity, and cash flow return on investment); earnings before or after taxes, interest, depreciation, and/or amortization; gross or operating margins; productivity ratios; share price (including, but not limited to, growth measures and total shareholder return); expense targets; margins; operating efficiency; market share; customer satisfaction; working capital targets; economic value added or EVA(R) (net operating profit after tax minus the sum of capital multiplied by the cost of capital); developing new products and lines of revenue; reducing operating expenses; developing new markets; meeting completion schedules; developing and managing relationships with regulatory and other governmental agencies; managing cash; managing claims against the Company, including litigation; identifying and completing strategic acquisitions or joint ventures. Any Performance Goal(s) may be used to measure the performance of the Company, Subsidiary, and/or Affiliate as a whole or any business unit or joint venture of the Company, Subsidiary, and/or Affiliate or any combination thereof, as the Committee may deem appropriate, or any of the above Performance Goals as compared to the performance of a group of comparator companies, or published or special index that the Committee, in its sole discretion, deems appropriate.The Committee may provide in any such Award that any evaluation of performance may include or exclude any of the following events that occurs during a Performance Period: (a) asset write-downs, (b) litigation or claim judgments or settlements, (c) the effect of changes in tax laws, accounting principles, or other laws or provisions affecting reported results, (d) any reorganization and restructuring programs, (e) unusual and infrequently occurring items as described in applicable Accounting Principles Board opinions and in management’s discussion and analysis of financial conditions and results of operations appearing in the Company’s annual report to shareholders for the applicable year, (f) acquisitions or divestitures, (g) foreign exchange gains and losses, and (h) other appropriate events.The Committee has the authority to provide for accelerated vesting of any Award based on the achievement of Performance Goals.
2.32 “Performance Period” means the period of time during which the Performance Goals must be met in order to determine the degree of payout and/or vesting with respect to an Award.
2.33 “Performance Share” means an Award under Article 9 herein and subject to the terms of this Plan, denominated in Shares, the value of which at the time it is payable is determined as a function of the extent to which corresponding performance criteria or Performance Goal(s), as applicable, have been achieved.
2.34 “Performance Unit” means an Award under Article 9 herein and subject to the terms of this Plan, denominated in units, the value of which at the time it is payable is determined as a function of the extent to which corresponding performance criteria or Performance Goals, as applicable, have been achieved.
2.35 “Period of Restriction” means the period when Restricted Stock or Restricted Stock Units are subject to a substantial risk of forfeiture (based on the passage of time, the achievement of Performance Goals, or the occurrence of other events as determined by the Committee, in its discretion), as provided in Article 8.
2.36 “Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) thereof.
2.37 “Plan” means The Scotts Miracle-Gro Company Long-Term Incentive Plan, as amended and restated from time to time.
2.38 “Plan Year” means the Company’s fiscal year.
2.39 “Restricted Stock” means an Award granted to a Participant pursuant to Article 8.
2.40 “Restricted Stock Unit” means an Award granted to a Participant pursuant to Article 8, except no Shares are actually awarded to the Participant on the Grant Date.
2.41 “Share” means a common share of the Company, without par value per share.
2.42 “Stock Appreciation Right” or “SAR” means an Award granted to a Participant pursuant to Article 7.
2.43 “Subsidiary” means any corporation or other entity, whether domestic or foreign, in which the Company has or obtains, directly or indirectly, a proprietary interest of more than fifty percent (50%) by reason of stock ownership or otherwise.
2.44 “Termination” or “Terminate” means: (a) if a Participant is an Employee, cessation of the employee-employer relationship between a Participant and the Company and all Affiliates and Subsidiaries for any reason; (b) if a Participant is a Non-employee Director, termination of the Non-employee Director’s service on the Board for any reason; and (c) if a Participant is a Third-Party Service Provider, termination of the Third-Party Service Provider’s service relationship with the Company and all Affiliates and Subsidiaries for any reason. Notwithstanding the foregoing, with respect to any Award subject to Code Section 409A, any such cessation or termination also must constitute a “separation from service” as defined under Treasury Regulation Section 1.409A-1(h). Effective for Awards granted on or after January 20, 2010, an Award Agreement may specify a different definition of “Termination” or “Terminate,” that will apply to such Award Agreement; provided that no such different definition shall cause the term of the Award to which it relates to extend beyond the maximum possible term for such Award contemplated under the applicable provisions of this Plan and any applicable law, regulation or stock exchange rule.
2.45 “Third-Party Service Provider” means any consultant, agent, advisor, or independent contractor who renders services to the Company, a Subsidiary, or an Affiliate that (a) are not in connection with the offer or sale of the Company’s securities in a capital raising transaction, and (b) do not directly or indirectly promote or maintain a market for the Company’s securities.
Article 3.
Administration
3.1 General. The Committee shall be responsible for administering this Plan, subject to this Article 3 and the other provisions of this Plan. The Committee shall be comprised, unless otherwise determined by the Board, solely of not less than two members who shall be (i) “non-employee directors” within the meaning of Rule 16b-3(b)(3) (or any successor rule) promulgated under the Exchange Act, and (ii) “independent directors,” as determined in accordance with the independence standards established by the stock exchange on which the Shares are at the time primarily traded. The Committee may employ attorneys, consultants, accountants, agents, and other individuals, any of whom may be an Employee, and the Committee, the Company, and its officers and Directors shall be entitled to rely upon the advice, opinions, or valuations of any such individuals. All actions taken and all interpretations and determinations made by the Committee shall be final and binding upon
the Participants, the Company, and all other interested individuals. By accepting an Award under this Plan, each Participant agrees to all Committee determinations as described above.
3.2 Authority of the Committee. The Committee shall have full and exclusive discretionary power to interpret the terms and the intent of this Plan and any Award Agreement or other agreement or document ancillary to or in connection with this Plan, to determine eligibility for Awards and to adopt such rules, regulations, forms, instruments, and guidelines for administering this Plan as the Committee may deem necessary or proper. Such authority shall include, but not be limited to, selecting Award recipients, establishing all Award terms and conditions, including the terms and conditions set forth in Award Agreements and whether the terms of any exercise, vesting or restriction periods will be based upon the achievement of specific Performance Goals, granting Awards as an alternative to or as the form of payment for grants or rights earned or due under compensation plans or arrangements of the Company, construing any provision of the Plan or any Award Agreement, and, subject to Article 17, adopting modifications and amendments to this Plan or any Award Agreement, including without limitation, any that are necessary to comply with the laws of the countries and other jurisdictions in which the Company, its Affiliates, and/or its Subsidiaries operate.
3.3 Delegation. The Committee may delegate to one or more of its members or to one or more officers of the Company, and/or its Subsidiaries and Affiliates or to one or more agents or advisors such administrative duties or powers as it may deem advisable, and the Committee or any individuals to whom it has delegated duties or powers as aforesaid may employ one or more individuals to render advice with respect to any responsibility the Committee or such individuals 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 can the Committee: (a) designate Employees to be recipients of Awards; (b) determine the size of any such Awards; provided, however, (i) the Committee shall not delegate such responsibilities to any such officer for Awards granted to an Employee who is considered an Insider; (ii) the resolution providing such authorization sets forth the total number of Awards such officer(s) may grant; and (iii) the officer(s) shall report periodically to the Committee regarding the nature and scope of the Awards granted pursuant to the authority delegated. Notwithstanding the foregoing, awards to Non-employee Directors shall be administered and interpreted by the Board.
Article 4.
Shares Subject to this Plan and Maximum Awards
4.1 Number of Shares Available for Awards.
(a) Subject to adjustment as provided in Section 4.3 herein, the maximum number of Shares that may be issued under the Plan with respect to Awards granted on or after the Effective Date (the “Share Authorization”) is the sum of: (i) one million five hundred (1,500,000) Shares, plus (ii) the number of Shares that remained available for Awards under the Plan as of December 1, 2021 (1,392,894), plus (iii) the number of Shares subject to outstanding Awards under the Plan as of December 1, 2021 that terminate, expire, or are cancelled, forfeited, exchanged, or surrendered without having been exercised, vested, or paid under the Plan (not exceeding 2,070,587 Shares).The Shares available for issuance under this Plan may be authorized and unissued Shares or treasury Shares.
(b) Subject to the provisions of Section 4.2, in determining the number of Shares that remain available for issuance to Participants pursuant to Awards granted under this Plan on or after January 17, 2013, the Share Authorization shall be reduced by one Share for each Share covered by an Option or Stock Appreciation Right granted on or after January 17, 2013, and the Share Authorization shall be reduced by two Shares (the “Full Value Factor”) per each Share subject to an Award, other than an Option or Stock Appreciation Right, granted on or after January 17, 2013. If a Stock Appreciation Right is settled by the issuance of Shares, the Share Authorization shall be reduced by the number of Shares covered by the Stock Appreciation Right rather than the number of Shares issued in settlement of the Stock Appreciation Right.
(c) Subject to adjustment as provided in Section 4.3, the maximum number of Shares of the Share Authorization that may be issued pursuant to the exercise of ISOs granted on or after the Effective Date, shall be two million eight hundred and ninety-two thousand eight hundred and ninety-four (2,892,894) Shares.
(d) The maximum Grant Date value of Shares subject to Awards granted to a Non-employee Director during any Plan Year, in the Participant’s capacity as a Non-employee Director, shall not exceed $500,000 in total value. For purposes of this limit, the value of such Awards shall be calculated based on the Grant Date fair value of such Awards for financial reporting purposes.
4.2 Reallocation of Shares. To the extent that Awards terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of such Shares, are settled in cash in lieu of Shares, or are exchanged with the Committee’s permission, prior to the issuance of Shares, for Awards not involving Shares, then the Shares subject to such Award shall be available again for grant under Section 4.1(a) of this Plan; provided, however, that the number of Shares that shall again be available shall be based on the Full Value Factor if the previous Award was not an Option or Stock Appreciation Right. If any Shares are withheld by the Company or are tendered (either actually or by attestation) by a Participant to satisfy any tax withholding obligation with respect to an Award (other than an Option or Stock Appreciation Right), then the Shares so tendered or withheld shall again be available for issuance under the Plan and correspondingly increase the total number of Shares available for issuance under Section 4.1(a) of the Plan based on the Full Value Factor. Notwithstanding anything to the contrary in this Section 4.2, the following Shares will not again become available for issuance under the Plan: (i) any Shares which would have been issued upon any exercise of an Option but for the fact that the exercise price was paid by a “net exercise” or any Shares tendered (either actually or by attestation) by a Participant in payment of the exercise price of an Option; (ii) any Shares withheld by the Company or Shares tendered (either actually or by attestation) by a Participant to satisfy any tax withholding obligation with respect to an Option or a Stock Appreciation Right (but not other Awards); (iii) Shares covered by a Stock Appreciation Right that are not issued in connection with the stock settlement upon its exercise; or (iv) Shares that are repurchased by the Company using Option exercise proceeds.
4.3 Adjustments in Authorized Shares. In the event of any corporate event or transaction (including, but not limited to, a change in the Shares of the Company or the capitalization of the Company) such as a merger, consolidation, reorganization, recapitalization, separation, partial or complete liquidation, stock dividend, stock split, reverse stock split, split up, spin-off, or other distribution of stock or property of the Company, combination of Shares, exchange of Shares, dividend in kind, or other like change in capital structure, number of outstanding Shares or distribution (other than normal cash dividends) to shareholders of the Company, or any similar corporate event or transaction, the Committee, in its sole discretion, in order to prevent dilution or enlargement of Participants’ rights under this Plan, shall substitute or adjust, as applicable, the number and kind of Shares that may be issued under this Plan or under particular forms of Awards, the Full Value Factor set forth in Section 4.1, the number and kind of Shares subject to outstanding Awards, the Option Price or Grant Price applicable to outstanding Awards, and other value determinations applicable to outstanding Awards.
The Committee, in its sole discretion, may also make appropriate adjustments in the terms of any Awards under this Plan to reflect such changes or distributions and to modify any other terms of outstanding Awards, including modifications of Performance Goals and changes in the length of applicable Performance Periods. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on Participants under this Plan.
Notwithstanding anything to the contrary in this Section 4.3, an adjustment to an Option or SAR shall be made only to the extent such adjustment complies with the requirements of Code Section 409A.
Subject to the provisions of Article 17 and notwithstanding anything else herein to the contrary, without affecting the number of Shares reserved or available hereunder, the Committee may authorize the issuance or assumption of benefits under this Plan in connection with any merger, consolidation, acquisition of property or stock, or reorganization upon such terms and conditions as it may deem appropriate (including, but not limited to, a conversion of equity awards into Awards under this Plan in a manner consistent with paragraph 53 of FASB Interpretation No. 44), subject to compliance with the rules under Code Sections 409A, 422 and 424, as and where applicable.
Article 5.
Eligibility and Participation
5.1 Eligibility. Individuals eligible to participate in this Plan include all Employees, Directors, and Third-Party Service Providers.
5.2 Actual Participation. Subject to the provisions of this Plan, the Committee may, from time to time, select from all eligible individuals, those individuals to whom Awards shall be granted and shall determine, in its sole discretion, the nature of, any and all terms permissible by law, and the amount of, each Award.
Article 6.
Stock Options
6.1 Grant of Options. Subject to the terms and provisions of this Plan, Options may be granted to Participants in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee, in its sole discretion; provided that ISOs may be granted only to eligible Employees of the Company or of any parent or subsidiary corporation (as permitted under Code Sections 422 and 424).
6.2 Award Agreement. Each Option grant shall be evidenced by an Award Agreement that shall specify the Option Price, the maximum duration of the Option, the number of Shares to which the Option pertains, the conditions upon which the Option shall become vested and exercisable, including, without limitation, whether Options will vest based upon the achievement of specific Performance Goals, and such other provisions as the Committee shall determine which are not inconsistent with the terms of this Plan. The Award Agreement also shall specify whether the Option is intended to be an ISO or a NQSO.
6.3 Option Price. The Option Price for each grant of an Option under this Plan shall be determined by the Committee in its sole discretion and shall be specified in the Award Agreement; provided, however, the Option Price must be at least equal to one hundred percent (100%) of the FMV of the Shares as determined on the Grant Date; provided, further, however, that the Option Price must be at least equal to one hundred and ten percent (110%) of the FMV of a Share on the Grant Date with respect to any ISO issued to a Participant who, on the Grant Date, owns (as defined in Code Section 424(d)) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of its subsidiary corporation (as defined in Code Section 424(f)) (a “10% Shareholder”).
6.4 Term of Options. Each Option granted to a Participant shall expire at such time as the Committee shall determine at the time of grant; provided, however, no Option shall be exercisable later than the day before the tenth (10th) anniversary of the Grant Date; provided, further, however, that no ISO granted to a 10% Shareholder shall be exercisable later than the day before the fifth (5th) anniversary of its Grant Date.
6.5 Exercise of Options. Options granted under this Article 6 shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which terms and restrictions need not be the same for each grant or for each Participant. Notwithstanding anything in this Plan to the contrary, to the extent that the aggregate FMV of the Shares (determined as of the Grant Date of the applicable ISO) with respect to which ISOs are exercisable for the first time by a Participant during any calendar year (under all plans of the Company and its subsidiary corporations (as defined in Code Section 424(f)) exceeds $100,000, such Options shall be treated as Nonqualified Stock Options.
6.6 Payment. Options granted under this Article 6 shall be exercised by the delivery of a notice of exercise to the Company or an agent designated by the Company in a form specified or accepted by the Committee, or by complying with any alternative procedures which may be authorized by the Committee, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares.
A condition of the issuance of the Shares as to which an Option shall be exercised shall be the payment of the Option Price. The Option Price of any Option shall be payable to the Company in full either: (a) in cash or its equivalent; (b) by tendering (either by actual delivery or attestation) previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the Option Price (provided that except as otherwise determined by the Committee, the Shares that are tendered must have been held by the Participant for at least six (6) months (or such other period, if any, as the Committee may permit) prior to their tender to satisfy the Option Price if acquired under this Plan or any other compensation plan maintained by the Company or have been purchased on the open market); (c) by a cashless (broker-assisted) exercise; (d) by a combination of (a), (b) and/or (c); or (e) any other method approved or accepted by the Committee in its sole discretion, including by the withholding of Shares subject to the exercisable Option, which have a Fair Market Value on the date of exercise equal to the Option Price, if permitted by the Committee.
Subject to any governing rules or regulations, as soon as practicable after receipt of written notification of exercise and full payment (including satisfaction of any applicable tax withholding), the Company shall deliver to the Participant evidence of book entry Shares, or upon the Participant’s request, Share certificates in an appropriate amount based upon the number of Shares purchased under the Option(s).
Unless otherwise determined by the Committee, all payments under all of the methods indicated above shall be paid in United States dollars.
6.7 Restrictions on Share Transferability. The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of an Option granted under this Article 6 as it may deem advisable, including, without limitation, minimum holding period requirements, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, or under any blue sky or state securities laws applicable to such Shares.
6.8 Termination of Employment or Service. Each Participant’s Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the Option following the Participant’s Termination. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Options issued pursuant to this Article 6, and may reflect distinctions based on the reasons for Termination.
6.9 Notification of Disqualifying Disposition. If any Participant shall make any disposition of Shares issued pursuant to the exercise of an ISO under the circumstances described in Code Section 421(b) (relating to certain disqualifying dispositions), such Participant shall notify the Company of such disposition within ten (10) calendar days thereof.
Article 7.
Stock Appreciation Rights
7.1 Grant of SARs. Subject to the terms and conditions of this Plan, SARs may be granted to Participants at any time and from time to time as shall be determined by the Committee.
Subject to the terms and conditions of this Plan, the Committee shall have complete discretion in determining the number of SARs granted to each Participant and, consistent with the provisions of this Plan, in determining the terms and conditions pertaining to such SARs, including, without limitation, whether SARs will vest based upon the achievement of specific Performance Goals.
The Grant Price for each grant of a SAR shall be determined by the Committee and shall be specified in the Award Agreement; provided, however, the Grant Price on the Grant Date must be at least equal to one hundred percent (100%) of the FMV of the Shares as determined on the Grant Date.
7.2 SAR Agreement. Each SAR Award shall be evidenced by an Award Agreement that shall specify the Grant Price, the term of the SAR, and such other provisions as the Committee shall determine.
7.3 Term of SAR. The term of a SAR granted under this Plan shall be determined by the Committee, in its sole discretion, and no SAR shall be exercisable later than the tenth (10th) anniversary date of its Grant Date.
7.4 Exercise of SARs. SARs may be exercised upon whatever terms and conditions the Committee, in its sole discretion, imposes.
7.5 Settlement of SARs. Upon the exercise of a SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying:
(a) The excess of the Fair Market Value of a Share on the date of exercise over the Grant Price; by
(b) The number of Shares with respect to which the SAR is exercised.
At the discretion of the Committee, the payment upon SAR exercise may be in cash, Shares, or any combination thereof, or in any other manner approved by the Committee in its sole discretion. The Committee’s determination regarding the form of SAR payout may be set forth in the Award Agreement pertaining to the grant of the SAR.
7.6 Termination of Employment or Service. Each Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the SAR following the Participant’s Termination. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with Participants, need not be uniform among all SARs issued pursuant to this Plan, and may reflect distinctions based on the reasons for Termination.
7.7 Other Restrictions. The Committee shall impose such other conditions and/or restrictions on any Shares received upon exercise of a SAR granted pursuant to this Plan as it may deem advisable or desirable. These restrictions may include, but shall not be limited to, a requirement that the Participant hold the Shares received upon exercise of a SAR for a specified period of time.
Article 8.
Restricted Stock and Restricted Stock Units
8.1 Grant of Restricted Stock or Restricted Stock Units. Subject to the terms and provisions of this Plan or an Award Agreement, the Committee, at any time and from time to time, may grant Shares of Restricted Stock and/or Restricted Stock Units to Participants in such amounts as the Committee shall determine. Restricted Stock Units shall be similar to Restricted Stock except that no Shares are actually awarded to the Participant on the Grant Date.
8.2 Restricted Stock or Restricted Stock Unit Agreement. Each Restricted Stock and/or Restricted Stock Unit grant shall be evidenced by an Award Agreement that shall specify the Period(s) of Restriction, the number of Shares of Restricted Stock or the number of Restricted Stock Units granted, and such other provisions as the Committee shall determine.
8.3 Other Restrictions.The Committee shall impose such other conditions and/or restrictions on any Shares of Restricted Stock or Restricted Stock Units granted pursuant to this Plan as it may deem advisable, including, without limitation, a requirement that Participants pay a stipulated purchase price for each Share of Restricted Stock or each Restricted Stock Unit, whether Shares of Restricted Stock and/or Restricted Stock Units will vest based upon the achievement of specific Performance Goals,time-based restrictions on vesting following the attainment of the Performance Goals, time-based restrictions, and/or restrictions under applicable laws or under the requirements of any stock exchange or market upon which such Shares are listed or traded, or holding requirements or sale restrictions placed on the Shares by the Company upon vesting of such Restricted Stock or Restricted Stock Units.
To the extent deemed appropriate by the Committee, the Company may retain the certificates representing Shares of Restricted Stock in the Company’s possession until such time as all conditions and/or restrictions applicable to such Shares have been satisfied or lapse.
Except as otherwise provided in this Article 8, Shares of Restricted Stock covered by each Restricted Stock Award shall become freely transferable by the Participant after all conditions and restrictions applicable to such Shares have been satisfied or lapse (including satisfaction of any applicable tax withholding obligations), and Restricted Stock Units shall be paid in cash, Shares, or a combination of cash and Shares as the Committee, in its sole discretion shall determine.
8.4 Certificate Legend. In addition to any legends placed on certificates pursuant to Section 8.3, each certificate representing Shares of Restricted Stock granted pursuant to this Plan may bear a legend such as the following or as otherwise determined by the Committee in its sole discretion:
The sale or transfer of the common shares of The Scotts Miracle-Gro Company represented by this certificate, whether voluntary, involuntary, or by operation of law, is subject to certain restrictions on transfer as set forth in The Scotts Miracle-Gro Company Long-Term Incentive Plan, and in the associated Award Agreement. A copy of this Plan and such Award Agreement will be provided by The Scotts Miracle-Gro Company, without charge, within five (5) days after receipt of a written request therefor.
8.5 Voting Rights. Unless otherwise determined by the Committee and set forth in a Participant’s Award Agreement, to the extent permitted or required by law, as determined by the Committee, Participants holding Shares of Restricted Stock granted hereunder may be granted the right to exercise full voting rights with respect to those Shares during the Period of Restriction. A Participant shall have no voting rights with respect to any Restricted Stock Units granted hereunder.
8.6 Termination of Employment or Service. Each Award Agreement shall set forth the extent to which the Participant shall have the right to retain Restricted Stock and/or Restricted Stock Units following the Participant’s Termination. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Shares of Restricted Stock or Restricted Stock Units issued pursuant to this Plan, and may reflect distinctions based on the reasons for Termination.
8.7 Section 83(b) Election. The Committee may provide in an Award Agreement that the Award of Restricted Stock is conditioned upon the Participant making or refraining from making an election with respect to the Award under Code Section 83(b). If a Participant makes an election pursuant to Code Section 83(b) concerning a Restricted Stock Award, the Participant shall be required to file promptly a copy of such election with the Company.
Article 9.
Performance Units/Performance Shares
9.1 Grant of Performance Units/Performance Shares. Subject to the terms and provisions of this Plan, the Committee, at any time and from time to time, may grant Performance Units and/or Performance Shares to Participants in such amounts and upon such terms as the Committee shall determine.
9.2 Value of Performance Units/Performance Shares. Each Performance Unit shall have an initial value that is established by the Committee at the Grant Date. Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the Grant Date. The Committee shall set Performance Goals in its discretion which, depending on the extent to which they are met, will determine the value and/or number of Performance Units/Performance Shares that will be paid out to the Participant.
9.3 Earning of Performance Units/Performance Shares. Subject to the terms of this Plan, after the applicable Performance Period has ended (unless otherwise specified in the Award Agreement), the holder of Performance Units/Performance Shares shall be entitled to receive payout on the value and number of Performance Units/Performance Shares earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding Performance Goals have been achieved.
9.4 Form and Timing of Payment of Performance Units/Performance Shares. Payment of earned Performance Units/Performance Shares shall be as determined by the Committee and as evidenced in the Award Agreement. Subject to the terms of this Plan, the Committee, in its sole discretion, may pay earned Performance Units/Performance Shares in the form of cash or in Shares (or in a combination thereof) equal to the value of the earned Performance Units/Performance Shares at the close of the applicable Performance Period, or as soon as practicable after the end of the Performance Period (unless otherwise specified in the Award Agreement). Any Shares may be granted subject to any restrictions deemed appropriate by the Committee. The determination of the Committee with respect to the form of payout of such Awards shall be set forth in the Award Agreement pertaining to the grant of the Award.
9.5 Termination of Employment or Service. Each Award Agreement shall set forth the extent to which the Participant shall have the right to retain Performance Units and/or Performance Shares following the Participant’s Termination. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Awards of Performance Units or Performance Shares issued pursuant to this Plan, and may reflect distinctions based on the reasons for Termination.
9.6 Performance Units and Performance Shares shall be transferred or paid to the Participant as determined by the Committee in the applicable Award Agreement, consistent with the requirements of Code Section 409A.
Article 10.
Other Stock-Based Awards
10.1 Other Stock-Based Awards. The Committee may grant other types of equity-based or equity-related Awards not otherwise described by the terms of this Plan (including the grant or offer for sale of unrestricted Shares) in such amounts and subject to such terms and conditions, as the Committee shall determine. Such Awards may involve the transfer of actual Shares to Participants, or payment in cash or otherwise of amounts based on the value of Shares and may include, without limitation, Awards designed to comply with or take advantage of the applicable local laws of jurisdictions other than the United States.
10.2 Value of Other Stock-Based Awards. Each Other Stock-Based Award shall be expressed in terms of Shares or units based on Shares, as determined by the Committee. The Committee may establish Performance Goals in its discretion applicable to Other Stock-Based Awards. If the Committee exercises its discretion to establish Performance Goals, the number and/or value of Other Stock-Based Awards that will be paid out to the Participant will depend on the extent to which the Performance Goals are met.
10.3 Payment of Other Stock-Based Awards. Payment, if any, with respect to an Other Stock-Based Award shall be made in accordance with the terms of the Award, in cash or Shares as the Committee determines and as specified in the Award Agreement.
10.4 Termination of Employment or Service. The Committee shall determine the extent to which the Participant shall have the right to receive Other Stock-Based Awards following the Participant’s Termination. Such provisions shall be determined in the sole discretion of the Committee, shall be included in an agreement entered into with each Participant, need not be uniform among all Awards of Other Stock-Based Awards issued pursuant to the Plan, and may reflect distinctions based on the reasons for Termination.
Article 11.
Transferability of Awards
11.1 Transferability. Except as provided in Section 11.2 below, during a Participant’s lifetime, his or her Awards shall be exercisable only by the Participant or the Participant’s legal representative. Awards shall not be transferable other than by will or the laws of descent and distribution; no Awards shall be subject, in whole or in part, to attachment, execution, or levy of any kind; and any purported transfer in violation hereof shall be null and void. The Committee may establish such procedures as it deems appropriate for a Participant to designate a beneficiary to whom any amounts payable or Shares issuable in the event of, or following, the Participant’s death, may be provided.
11.2 Committee Action. The Committee may, in its discretion, determine that notwithstanding Section 11.1, any or all Awards (other than ISOs) shall be transferable to and exercisable by such transferees, and subject to such terms and conditions, as the Committee may deem appropriate; provided, however, no Award may be transferred for value (as defined in the General Instructions to Form S-8).
Article 12.
Non-employee Director Awards
The Board shall determine all Awards to Non-employee Directors. The terms and conditions of any grant to any such Non-employee Director shall be set forth in an Award Agreement.
Article 13.
Dividends or Dividend Equivalents
Any Participant selected by the Committee may be granted dividends or Dividend Equivalents based on the dividends declared on Shares that are subject to any Award (other than Options or SARs), to be credited as of dividend payment dates, during the period between the Grant Date and the date the Award becomes payable or as otherwise provided in an Award Agreement, as determined by the Committee; provided, however, that dividends or Dividend Equivalents on Shares shall be payable only when and to the extent that the underlying Awards vest and become payable. Such dividends and Dividend Equivalents shall be converted to cash or additional Shares by such formula and at such time and subject to such limitations as may be determined by the Committee.
Article 14.
Beneficiary Designation
Each Participant under this Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under this Plan is to be paid in case of his death before he receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant, shall be in a form prescribed by the Committee, and will be effective only when filed by the Participant in writing with the Company during the Participant’s lifetime. In the absence of any such beneficiary designation, benefits remaining unpaid or rights remaining unexercised at the Participant’s death shall be paid to or exercised by the Participant’s spouse, executor, administrator, or legal representative in that order.
Article 15.
Rights of Participants
15.1 Employment or Service. Nothing in this Plan or an Award Agreement shall interfere with or limit in any way the right of the Company, its Affiliates, and/or its Subsidiaries, to Terminate any Participant at any time or for any reason not prohibited by law, nor confer upon any Participant any right to continue his employment or service as a Director or Third-Party Service Provider for any specified period of time.
Neither an Award nor any benefits arising under this Plan shall constitute an employment contract with the Company, its Affiliates, and/or its Subsidiaries and, accordingly, subject to Articles 3 and 17, this Plan and the benefits hereunder may be terminated at any time in the sole and exclusive discretion of the Committee without giving rise to any liability on the part of the Company, its Affiliates, and/or its Subsidiaries.
15.2 Participation. No individual shall have the right to be selected to receive an Award under this Plan, or, having been so selected, to be selected to receive a future Award.
15.3 Rights as a Shareholder. Except as otherwise provided herein, a Participant shall have none of the rights of a shareholder with respect to Shares covered by any Award until the Participant becomes the record holder of such Shares.
Article 16.
Change in Control
16.1 Accelerated Vesting and Settlement. Subject to Section 16.2, on the date of any Change in Control:
(a) Each Option and SAR (other than Options and SARs of Non-employee Directors) outstanding on the date of a Change in Control (whether or not exercisable) will be cancelled in exchange (i) for cash equal to the excess of the Change in Control Price over the Option Price or Grant Price, as applicable, associated with the cancelled Option or SAR or, (ii) at the Committee’s discretion, for whole Shares with a Fair Market Value equal to the excess of the Change in Control Price over the Option Price or Grant Price, as applicable, associated with the cancelled Option or SAR and the Fair Market Value of any fractional Share will be distributed in cash. However, the Committee, in its sole discretion, may offer the holders of the Options or SARs to be cancelled a reasonable opportunity (not longer than 15 days beginning on the date of the Change in Control) to exercise all their outstanding Options and SARs (whether or not otherwise then exercisable);
(b) Except as otherwise provided in an Award Agreement, all performance goals associated with Awards for which Performance Goals have been established will be deemed to have been met on the date of the Change in Control, all Performance Periods accelerated to the date of the Change in Control and all outstanding Awards for which Performance Goals have been established (including those subject to the acceleration described in this subsection) will be distributed in a single lump sum cash payment within thirty (30) days following such Change in Control; and
(c) All other then-outstanding Awards whose exercisability or vesting depends merely on the satisfaction of a service obligation by a Participant to the Company, Subsidiary, or Affiliate (“Service Award”) shall vest in full and be free of restrictions related to the vesting of such Awards. All Service Awards whose vesting is so accelerated will be distributed, if not already held by a Participant and to the extent applicable, (i) in a single lump-sum
cash payment within thirty (30) days following such Change in Control based on the Change in Control Price or, (ii) at the Committee’s discretion, in the form of whole Shares based on the Change in Control Price.
16.2 Alternative Awards. Section 16.1 will not apply to the extent that the Committee reasonably concludes in good faith before the Change in Control occurs that Awards will be honored or assumed, or new rights will be substituted (collectively, “Alternative Awards”), by the Employee’s employer (or the parent or a subsidiary of that employer), or (if the Company is the surviving company) that the Awards in effect immediately prior to the Change in Control shall continue without change following the Change in Control (“Continued Award”), provided that any Alternative Award or Continued Award must, as applicable:
(a) Be based on stock that is (or, within 60 days of the Change in Control, will be) traded on an established securities market;
(b) Provide the Employee with the rights and entitlements substantially equivalent to or better than the rights, terms and conditions of each Award for which it is substituted, including an identical or better exercise or vesting schedule and identical or, in the case of an Award that is not subject to Code Section 409A, better timing and methods of payment;
(c) Have substantially equivalent economic value to the Award (determined at the time of the Change in Control) for which it is substituted; and
(d) Provide that, if the Employee is involuntarily Terminated without Cause or the Employee constructively Terminates within twenty-four (24) months following the Change in Control, any conditions on the Employee’s rights under, or any restrictions on transfer or exercisability applicable to, each Alternative Award or Continued Award will be waived or lapse. For purposes of this section, a constructive Termination means a Termination by an Employee following a material reduction in the Employee’s compensation or job responsibilities (when compared to the Employee’s compensation and job responsibilities on the date of the Change in Control) or the relocation of the Employee’s principal place of employment to a location at least fifty (50) miles from his or her principal place of employment on the date of the Change in Control (or other location to which the Employee has been reassigned with his or her written consent), in each case without the Employee’s written consent.
Notwithstanding anything herein to the contrary, no Alternative Award shall be made with respect to an Option or SAR if it would cause the Option or SAR to fail to comply with the requirements of Code Section 409A.
16.3 Non-employee Directors’ Awards. Upon a Change in Control, each outstanding:
(a) Option or SAR held by a Non-employee Director will be cancelled unless (i) the Shares continues to be traded on an established securities market after the Change in Control or (ii) the Non-employee Director continues to be a Board member after the Change in Control. In the situations just described, the Options or SARs held by a Non-employee Director will be unaffected by a Change in Control. Any Options and SARs held by a Non-employee Director to be cancelled under the next preceding sentence will be exchanged (iii) for cash equal to the excess of the Change in Control Price over the Option Price or Grant Price, as applicable, associated with the cancelled Option or SAR held by a Non-employee Director or, (iv) at the Board’s discretion, for whole Shares with a Fair Market Value equal to the excess of the Change in Control Price over the Option Price or Grant Price, as applicable, associated with the cancelled Option or SAR held by a Non-employee Director and the Fair Market Value of any fractional Share will be distributed in cash. However, the Board, in its sole discretion, may offer Non-employee Directors holding Options or SARs to be cancelled a reasonable opportunity (not longer than 15 days beginning on the date of the Change in Control) to exercise all their outstanding Options and SARs (whether or not otherwise then exercisable).
(b) Restricted Stock or Restricted Stock Unit held by a Non-employee Director will be settled within thirty (30) days following such Change in Control for a lump sum cash payment equal to the Change in Control Price.
(c) All other types of Awards held by a Non-employee Director will be settled within thirty (30) days following such Change in Control for a lump sum cash payment equal to the Change in Control Price less any amount the Non-employee Director would be required to pay in order for the Award to be exercised or settled, other than any such amount related to taxes.
Article 17.
Amendment, Modification, Suspension, and Termination
17.1 Amendment, Modification, Suspension, and Termination. Subject to Section 17.3, the Committee may, at any time and from time to time, alter, amend, modify, suspend, or terminate this Plan and any Award Agreement in whole or in part; provided, however, that except in connection with a corporate transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of Shares), the Company shall not, without the prior approval of the Company’s shareholders, (i) amend the terms of outstanding Options or SARs to reduce the exercise price of such outstanding Options or SARs, (ii) cancel outstanding Options or SARs in exchange for Options or SARs with an exercise price that is less than the exercise price of the original Options or SARs, or (iii) cancel outstanding Options or SARs with an exercise price above the current stock price in exchange for cash or other securities. No material amendment of this Plan shall be made without shareholder approval if shareholder approval is required by law, regulation, or stock exchange rule.
17.2 Adjustment of Awards Upon the Occurrence of Certain Unusual and Infrequently Occurring Events. The Committee may make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or infrequently occurring events (including, without limitation, the events described in Section 4.3 hereof) affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on Participants under this Plan. Notwithstanding anything to the contrary in this Section 17.2, an adjustment to an Option or SAR shall be made only to the extent such adjustment complies with the requirements of Code Section 409A.
17.3 Awards Previously Granted. Notwithstanding any other provision of this Plan to the contrary (other than Section 17.4), no termination, amendment, suspension, or modification of this Plan or an Award Agreement shall adversely affect in any material way any Award previously granted under this Plan, without the written consent of the Participant holding such Award.
17.4 Amendment to Conform to Law. Notwithstanding any other provision of this Plan to the contrary, the Board may amend the Plan or an Award Agreement, to take effect retroactively or otherwise, as deemed necessary or advisable for the purpose of conforming the Plan or an Award Agreement to any present or future law relating to plans of this or similar nature (including, but not limited to, Code Section 409A), and to the administrative regulations and rulings promulgated thereunder. By accepting an Award under this Plan, each Participant agrees to any amendment made pursuant to this Section 17.4 to any Award granted under the Plan without further consideration or action.
Article 18.
Tax Withholding
The Company has the right to withhold from any payment of cash or Shares to a Participant or other person under the Plan an amount sufficient to cover any required withholding taxes, including the Participant’s social security and Medicare taxes (FICA) and federal, state, local income tax or such other applicable taxes (“Taxes”) with respect to an Award. The Company may require the payment of any Taxes before issuing any Shares pursuant to an Award. The Committee may, if it deems appropriate in the case of a Participant, withhold such Taxes through a reduction of the number of Shares issued to such Participant, or allow the Participant to elect to cover all or any part of such withholding for Taxes, through a reduction of the number of Shares issued to the Participant or a subsequent return to the Company of Shares held by the Participant, in each case valued in the same manner as used in computing the withholding taxes under the applicable laws.
Article 19.
Successors
All obligations of the Company under this Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
Article 20.
General Provisions
20.1 Forfeiture Events.
(a) The Committee may specify in an Award Agreement that the Participant’s rights, payments, and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events may include, but shall not be limited to, Termination for Cause, termination of the Participant’s provision of services to the Company, Affiliate, and/or Subsidiary, violation of material Company, Affiliate, and/or Subsidiary policies, breach of noncompetition, confidentiality, or other restrictive covenants that may apply to the Participant, or other conduct by the Participant that is detrimental to the business or reputation of the Company, its Affiliates, and/or its Subsidiaries.
(b) If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under the securities laws, if the Participant knowingly or grossly negligently engaged in the misconduct, or knowingly or grossly negligently failed to prevent the misconduct, or if the Participant is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002, the Participant shall reimburse the Company the amount of any payment in settlement of an Award earned or accrued during the twelve (12)-month period following the first public issuance or filing with the United States Securities and Exchange Commission (whichever first occurs) of the financial document embodying such financial reporting requirement.
20.2 Legend. The certificates for Shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer of such Shares.
20.3 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular, and the singular shall include the plural.
20.4 Severability. In the event any provision of this Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of this Plan, and this Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
20.5 Requirements of Law. The granting of Awards and the issuance of Shares under this Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or stock exchange as may be required.
20.6 Delivery of Title. The Company shall have no obligation to issue or deliver evidence of title for Shares issued under this Plan prior to:
(a) Obtaining any approvals from governmental agencies that the Company determines are necessary; and
(b) Completion of any registration or other qualification of the Shares under any applicable national or foreign law or ruling of any governmental body that the Company determines to be necessary.
20.7 Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
20.8 Investment Representations. The Committee may require any individual receiving Shares pursuant to an Award under this Plan to represent and warrant in writing that the individual is acquiring the Shares for investment and without any present intention to sell or distribute such Shares.
20.9 Employees Based Outside of the United States. Notwithstanding any provision of this Plan to the contrary, in order to comply with the laws in other countries in which the Company, its Affiliates, and/or its Subsidiaries operate or have Employees, Directors, or Third-Party Service Providers, the Committee, in its sole discretion, shall have the power and authority to:
(a) Determine which Affiliates and Subsidiaries shall be covered by this Plan;
(b) Determine which Employees, Directors, and/or Third-Party Service Providers outside the United States are eligible to participate in this Plan;
(c) Modify the terms and conditions of any Award granted to Employees and/or Third-Party Service Providers outside the United States to comply with applicable foreign laws;
(d) Establish subplans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable. Any subplans and modifications to Plan terms and procedures established under this Section 20.9 by the Committee shall be attached to this Plan document as appendices; and
(e) Take any action, before or after an Award is made, that it deems advisable to obtain approval or comply with any necessary local government regulatory exemptions or approvals.
Notwithstanding the above, the Committee may not take any actions hereunder, and no Awards shall be granted, that would violate applicable law.
20.10 Uncertificated Shares. To the extent that this Plan provides for issuance of certificates to reflect the transfer of Shares, the transfer of such Shares may be effected on a noncertificated basis, to the extent not prohibited by applicable law or the rules of any stock exchange.
20.11 Unfunded Plan. Participants shall have no right, title, or interest whatsoever in or to any investments that the Company, and/or its Subsidiaries, and/or its Affiliates may make to aid it in meeting its obligations under this Plan. Nothing contained in this Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any Participant, beneficiary, legal representative, or any other individual. To the extent that any individual acquires a right to receive payments from the Company, its Subsidiaries, and/or its Affiliates under this Plan, such right shall be no greater than the right of an unsecured general creditor of the Company, a Subsidiary, or an Affiliate, as the case may be. All payments to be made hereunder shall be paid from the general funds of the Company, a Subsidiary, or an Affiliate, as the case may be and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in this Plan.
20.12 No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to this Plan or any Award. The Committee shall determine whether cash, Awards, or other property shall be issued or paid in lieu of fractional Shares or whether such fractional Shares or any rights thereto shall be forfeited or otherwise eliminated.
20.13 Retirement and Welfare Plans. Neither Awards made under this Plan nor Shares or cash paid pursuant to such Awards may be included as “compensation” for purposes of computing the benefits payable to any Participant under the Company’s or any Subsidiary’s or Affiliate’s retirement plans (both qualified and non-qualified) or welfare benefit plans unless such other plan expressly provides that such compensation shall be taken into account in computing a Participant’s benefit.
20.14 Deferred Compensation. This Plan is intended to comply with the requirements of Code Section 409A, to the extent applicable. All Awards shall be construed and administered such that the Award either (i) qualifies for an exemption from the requirements of Code Section 409A or (ii) satisfies the requirements of Code Section 409A. If an Award is subject to Code Section 409A, unless the Agreement specifically provides otherwise: (i) distributions shall only be made in a manner and upon an event permitted under Code Section 409A, (ii) payments to be made upon a termination of employment shall only be made upon a “separation from service” under Code Section 409A, (iii) payments to be made upon a Change in Control shall only be made upon a “change of control event” under Code Section 409A, (iv) each payment shall be treated as a separate payment for purposes of Code Section 409A, and (v) in no event shall a Participant, directly or indirectly, designate the calendar year in which a distribution is made except in accordance with Code Section 409A. Any Award granted under this
Plan that is subject to Code Section 409A and that is to be distributed to a “specified employee” (as defined below) upon Termination shall be administered so that any distribution with respect to such Award shall be postponed for six months following the date of the Participant’s Termination, if required by Code Section 409A. If a distribution is delayed pursuant to Code Section 409A, the distribution shall be paid within 30 days after the end of the six-month period. If the Participant dies during such six-month period, any postponed amounts shall be paid within 90 days of the Participant’s death. The determination of “specified employees,” including the number and identity of persons considered “specified employees” and the identification date, shall be made by the Committee or its delegate each year in accordance with Code Section 416(i) and the “specified employee” requirements of Code Section 409A. In no event shall the Company have any responsibility or liability if any Award does not meet the applicable requirements of Code Section 409A. Although the Company intends to administer the Plan to prevent taxation under Code Section 409A, the Company does not represent or warrant that the Plan or any Award complies with any provision of federal, state, local or other tax law.
20.15 Company Policies. All Awards granted under the Plan shall be subject to any applicable Company clawback or recoupment policies, share trading policies and other policies that may be implemented by the Company from time to time.
20.16 Nonexclusivity of this Plan. The adoption of this Plan shall not be construed as creating any limitations on the power of the Board or Committee to adopt such other compensation arrangements as it may deem desirable for any Participant.
20.17 No Constraint on Corporate Action. Nothing in this Plan shall be construed to: (i) limit, impair, or otherwise affect the Company’s or a Subsidiary’s or an Affiliate’s right or power to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge or consolidate, or dissolve, liquidate, sell, or transfer all or any part of its business or assets; or, (ii) limit the right or power of the Company or a Subsidiary or an Affiliate to take any action which such entity deems to be necessary or appropriate.
20.18 Governing Law. The Plan and each Award Agreement shall be governed by the laws of the State of Ohio, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Plan to the substantive law of another jurisdiction. Unless otherwise provided in the Award Agreement, recipients of an Award under this Plan are deemed to submit to the exclusive jurisdiction and venue of the federal or state courts of Ohio, to resolve any and all issues that may arise out of or relate to this Plan or any related Award Agreement.
20.19 Indemnification. Subject to requirements of Ohio law, each individual who is or shall have been a member of the Board, or a Committee appointed by the Board, or an officer of the Company to whom authority was delegated in accordance with Article 3, shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under this Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his/her own behalf, unless such loss, cost, liability, or expense is a result of his/her own willful misconduct or except as expressly provided by statute.
The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such individuals may be entitled under the Company’s Articles of Incorporation or Code of Regulations, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
20.20 Controlling Language. Unless otherwise specified herein, in the event of a conflict between the terms of the Plan and the terms of an Award Agreement, the terms of the Plan shall control.
*** Exercise Your Right to Vote ***
Important Notice Regarding the Availability of Proxy Materials for the
Shareholder Meeting to Be Held on January 24, 2022. | | | | | | | | | | | | | | |
THE SCOTTS MIRACLE-GRO CO. | Meeting Information |
Meeting Type: | Annual | |
| For holders as of: | November 29, 2021 | |
| Date: January 24, 2022Time: 9:00 AM Eastern Time |
| Location: | Meeting live via the Internet-please visit http://www.virtualshareholdermeeting.com/SMG2022 |
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Vote By Internet: |
Before The Meeting: | |
Go to www.proxyvote.com. Have the information that is printed in the box marked by the arrow àXXXX XXXX XXXX XXXX (located on the following page) available and follow the instructions. |
During The Meeting: | |
Go to www.virtualshareholdermeeting.com/SMG2022. Have the information that is printed in the box marked by the arrow àXXXX XXXX XXXX XXXX (located on the following page) available and follow the instructions. |
Vote By Mail: You can vote by mail by requesting a paper copy of the materials, which will include a proxy card. |
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Voting Items | | | | | | |
Your Board of Directors recommends you vote FOR the following: | | | | |
1. | Election of four directors, each to serve for a term of three years to expire at the 2025 Annual Meeting of Shareholders: | | | | |
| Nominees: | | | | |
| 01) David C. Evans | | | | |
| 02) Stephen L. Johnson | | | | |
| 03) Adam Hanft | | | | |
| 04) Katherine Hagedorn Littlefield | | | | |
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Your Board of Directors recommends that you vote FOR the following proposals: |
2. | Approval, on an advisory basis, of the compensation of the Company’s named executive officers. |
3. | Ratification of the selection of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2022. |
4. | Approval of an amendment and restatement of The Scotts Miracle-Gro Company Long-Term Incentive Plan to, among other things, increase the maximum number of common shares available for grant to participants. |
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Your Board of Directors recommends that you vote 1 year on the following proposal: |
5. | Approval, on an advisory basis, regarding the frequency with which future advisory votes on executive compensation will occur. |
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THE SCOTTS MIRACLE-GRO CO. ATTN: KATHY UTTLEY — PARALEGAL 14111 SCOTTSLAWN ROAD MARYSVILLE, OH 43041 | | VOTE BY INTERNET Before The Meeting — Go to www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 PM Eastern Time on January 24, 2019.23, 2022. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
During The Meeting — Go to www.virtualshareholdermeeting.com/SMG2019SMG2022
You may attend the Meeting via the Internet and vote during the Meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions.
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| ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by The Scotts Miracle-Gro Company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
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| VOTE BY PHONE — 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 PM Eastern Time on January 24, 2019.23, 2022. Have your proxy card in hand when you call and then follow the instructions.
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| VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to The Scotts Miracle-Gro Company, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. |
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | |
E53514-P15388-Z73574 | KEEP THIS PORTION FOR YOUR RECORDS |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. | DETACH AND RETURN THIS PORTION ONLY |
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THE SCOTTS MIRACLE-GRO COMPANY | For All
| | Withhold All
| | For All Except
| | To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. | | |
| Your Board of Directors recommends you vote FOR the following: | | | | | | | | | | | | | | | | |
| 1. | Election of four directors, each to serve for a term of three years to expire at the 20222025 Annual Meeting of Shareholders: | ¨ | | ¨ | | ¨ | | | | | | | | | | | |
| | Nominees: | | | | | | | | | | | | | | | | | |
| | 01) David C. Evans | | | | | | | | | | | | | | | | | |
| | 02) Adam Hanft | | | | | | | | | | | | | | | | | |
| | 03) Stephen L. Johnson | | | | | | | | | | | | | | | | | |
| | 03) Adam Hanft | | | | | | | | | | | | | | | | | |
| | 04) Katherine Hagedorn Littlefield | | | | | | | | | | | | | | | | | |
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| Your Board of Directors recommends that you vote FOR the following proposals: | | | | For | | Against | | Abstain | |
| 2. | Approval, on an advisory basis, of the compensation of the Company's named executive officers. | | | | ¨ | | ¨ | | ¨ | |
| 3. | Ratification of the selection of Deloitte & Touche LLP as the Company's independent registered public accounting firm for the fiscal year ending September 30, 20192022. | | | | ¨ | | ¨ | | ¨ | |
| 4. | Approval of an amendment and restatement of The Scotts Miracle-Gro Company Long-Term Incentive Plan to, among other things, increase the maximum number of common shares available for grant to participants. | | | | ¨ | | ¨ | | ¨ | |
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| Your Board of Directors recommends that you vote 1 year on the following proposal: | | 1 Year | | 2 Years | | 3 Years | | Abstain | |
| 5. | Approval, on an advisory basis, regarding the frequency with which future advisory votes on executive compensation will occur. | | ¨ | | ¨ | | ¨ | | ¨ | | | | | | | | | | | | | |
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| The undersigned shareholder(s) authorize(s) the individuals designated to vote this proxy to vote, in their discretion, to the extent permitted by applicable law, upon such other matters (none known by the Company at the time of solicitation of this proxy) as may properly come before the Annual Meeting or any adjournment or postponement.
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| Please sign exactly as your name appears hereon. The signer hereby revokes all prior proxies heretofore given by the signer to vote at said meeting or any adjournments thereof. |
| Note: Please fill in, sign, date and return this proxy card in the enclosed envelope. When signing as Attorney, Executor, Administrator, Trustee or Guardian, please give full title as such. If shareholder is a corporation, please sign the full corporate name by an authorized officer. If shareholder is a partnership or other entity, an authorized person should sign in the entity's name. Joint Owners must each sign individually.
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| Signature [PLEASE SIGN WITHIN BOX] | | Date | | | | Signature (Joint Owners) | | | Date | | | |
NOTICE OF VIRTUAL ANNUAL MEETING OF SHAREHOLDERS
FRIDAY,MONDAY, JANUARY 25, 2019,24, 2022, AT 9:00 A.M., EASTERN TIME
Access to this year’s virtual Annual Meeting of Shareholders will be available at
www.virtualshareholdermeeting.com/SMG2019.SMG2022. A replay of the meeting will be available for 1 year.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of
Shareholders To Be Held on January 25, 201924, 2022:
The Notice of Annual Meeting of Shareholders, Proxy Statement and 20182021 Annual Report are available at
www.proxyvote.com.
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| | E53515-P15388-Z73574 |
THE SCOTTS MIRACLE-GRO COMPANY |
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JANUARY 25, 201924, 2022 |
The holder(s) of common shares of The Scotts Miracle-Gro Company (the "Company") identified on this proxy card hereby appoint(s) James Hagedorn and Ivan C. Smith, and each of them, the proxies of the shareholder(s), with full power of substitution in each, to attend the Annual Meeting of Shareholders of the Company (the "Annual Meeting") to be held via live webcast only at www.virtualshareholdermeeting.com/SMG2019,SMG2022, on Friday,Monday, January 25, 2019,24, 2022, at 9:00 a.m., Eastern Time, and any adjournment or postponement, and to vote all of the common shares which the shareholder(s) is/are entitled to vote at such Annual Meeting or any adjournment or postponement. |
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Where a choice is indicated, the common shares represented by this proxy card, when properly executed and returned, will be voted or not voted as specified. If no choice is indicated, the common shares represented by this proxy card when properly executed and returned will be voted "FOR" the election of the nominees listed in Proposal Number 1 as directors of the Company, to the extent permitted by applicable law, "FOR" approval, on an advisory basis, of the compensation of the Company's named executive officers as set forth in Proposal Number 2, and “FOR” ratification of the selection of Deloitte & Touche LLP as the Company’s independent registered public accounting firm listed in Proposal Number 3.3, “FOR” the approval of the amendment and restatement of The Scotts Miracle-Gro Company Long-Term Incentive Plan to, among other things, increase the maximum number of common shares available for grant to participants under the plan as set forth in Proposal Number 4, and “1 YEAR” approval, on an advisory basis regarding the frequency with which future advisory votes on executive compensation will occur listed in Proposal Number 5. If any other matters are properly brought before the Annual Meeting or any adjournment or postponement, or if a nominee for election as a director named in the Proxy Statement who would have otherwise received the required number of votes is unable to serve or for good cause will not serve, the common shares represented by this proxy card will be voted in the discretion of the individuals designated to vote this proxy card, to the extent permitted by applicable law, on such matters or for such substitute nominee(s) as the directors of the Company may recommend. |
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If common shares are allocated to the account of a shareholder under The Scotts Company LLC Retirement Savings Plan (the “RSP”), then the shareholder hereby directs the Trustee of the RSP to vote all common shares of the Company allocated to such account under the RSP in accordance with the instructions given herein, at the Company’s Annual Meeting and at any adjournment or postponement, on the matters set forth on the reverse side. If no instructions are given, the proxy will not be voted by the Trustee of the RSP. |
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The shareholder(s) hereby acknowledge(s) receipt of the Notice of Annual Meeting of Shareholders and the related Proxy Statement for the January 25, 201924, 2022 Annual Meeting, as well as the Company’s 20182021 Annual Report. Any proxy heretofore given to vote the common shares which the shareholder(s) is/are entitled to vote at the Annual Meeting is hereby revoked. |
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE SCOTTS MIRACLE-GRO COMPANY. |
(This proxy card continues and must be signed and dated on the reverse side.) |
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*** Exercise Your Right to Vote ***
Important Notice Regarding the Availability of Proxy Materials for the
Shareholder Meeting to Be Held on January 25, 2019.
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THE SCOTTS MIRACLE-GRO CO. | Meeting Information |
Meeting Type: | Annual | |
| For holders as of: | November 30, 2018 | |
| Date: January 25, 2019 Time: 9:00 AM Eastern Time
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| Location: | Meeting live via the Internet-please visit
www.virtualshareholdermeeting.com/SMG2019
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| The company will be hosting the meeting live via the Internet this year. To attend the meeting via the Internet please visit www.virtualshareholdermeeting.com/SMG2019 and be sure to have the information that is printed in the box marked by the arrow ---> XXXX XXXX XXXX XXXX (located on the following page). |
THE SCOTTS MIRACLE-GRO COMPANY
ATTN: KATHY UTTLEY — PARALEGAL
14111 SCOTTSLAWN ROAD
MARYSVILLE, OH 43041
| You are receiving this communication because you hold shares in the company named above. |
| This is not a ballot. You cannot use this notice to vote these
shares. This communication presents only an overview of the more complete proxy materials that are available to you on the Internet. You may view the proxy materials online at www.proxyvote.com or easily request a paper copy (see reverse side).
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| We encourage you to access and review all of the important
information contained in the proxy materials before voting.
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| See the reverse side of this notice to obtain proxy materials and voting instructions. |
— Before You Vote —
How to Access the Proxy Materials
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Proxy Materials Available to VIEW or RECEIVE: | |
NOTICE OF THE 2019 ANNUAL MEETING AND PROXY STATEMENT | 2018 ANNUAL REPORT |
How to View Online: | | |
Have the information that is printed in the box marked by the arrow à XXXX XXXX XXXX XXXX (located on the following page) and visit: www.proxyvote.com.
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How to Request and Receive a PAPER or E-MAIL Copy: | |
If you want to receive a paper or e-mail copy of these documents, you must request one. There is NO charge for requesting a copy. Please choose one of the following methods to make your request: |
| 1) BY INTERNET:
| www.proxyvote.com | |
| 2) BY TELEPHONE:
| 1-800-579-1639 | |
| 3) BY E-MAIL*:
| sendmaterial@proxyvote.com | |
* If requesting materials by e-mail, please send a blank e-mail with the information that is printed in the box marked by the arrow à XXXX XXXX XXXX XXXX (located on the following page) in the subject line.
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Requests, instructions and other inquiries sent to this e-mail address will NOT be forwarded to your investment advisor. Please make the request as instructed above on or before January 11, 2019 to facilitate timely delivery. |
— How To Vote —
Please Choose One of the Following Voting Methods
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Vote By Internet: |
Before The Meeting: | |
Go to www.proxyvote.com. Have the information that is printed in the box marked by the arrow
àXXXX XXXX XXXX XXXX (located on the following page) available and follow the instructions.
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During The Meeting: | |
Go to www.virtualshareholdermeeting.com/SMG2019. Have the information that is printed in the box marked by the arrow àXXXX XXXX XXXX XXXX (located on the following page) available and follow the instructions.
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Vote By Mail: You can vote by mail by requesting a paper copy of the materials, which will include a proxy card.
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Voting Items | | | | | | |
Your Board of Directors recommends you vote FOR the following: | | | | |
1. | Election of four directors, each to serve for a term of three years to expire at the 2022 Annual Meeting of Shareholders: | | | | |
| Nominees: | | | | |
| 01) David C. Evans | | | | |
| 02) Stephen L. Johnson | | | | |
| 03) Adam Hanft | | | | |
| 04) Katherine Hagedorn Littlefield | | | | |
| | | | | | | | | |
Your Board of Directors recommends that you vote FOR the following proposals: |
2. | Approval, on an advisory basis, of the compensation of the Company’s named executive officers. |
3. | Ratification of the selection of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2019. |
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