DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

Filed by the Registrant  ☒                              Filed by a party other than the Registrant  ☐

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material Pursuant to § 240.14a-12

INSTALLED BUILDING PRODUCTS, INC.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if Other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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Title of each class of securities to which transaction applies:

 

     

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Aggregate number of securities to which transaction applies:

 

     

  (3)  

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Total fee paid:

 

     

  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously paid:

 

     

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Form, Schedule or Registration Statement No.:

 

     

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Filing Party:

 

     

  (4)  

Date Filed:

 

     

 

 

 


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INSTALLED BUILDING PRODUCTS, INC.

495 SOUTH HIGH STREET, SUITE 50

COLUMBUS, OHIO 43215

Notice of Annual Meeting of Stockholders to be held on May 31, 2018

The 2018 Annual Meeting of Stockholders (the “Annual Meeting”) of Installed Building Products, Inc. (the “Company”) will be held on Thursday, May 31, 2018 at 10:00 a.m. Eastern Time. The Annual Meeting will be conducted as a virtual meeting of stockholders by means of a live webcast.

The Annual Meeting is being held for the following purposes:

 

  1. To elect Margot L. Carter, Robert H. Schottenstein and Michael H. Thomas as directors to serve for three-year terms;
  2. To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2018;
  3. To conduct a non-binding advisory vote to approve the compensation of our named executive officers;
  4. To approve the material terms and performance criteria of our 2014 Omnibus Incentive Plan; and
  5. To transact any other business that may properly come before the Annual Meeting or any adjournment thereof.

The Board of Directors has fixed April 5, 2018 as the record date for determining stockholders entitled to receive notice of and to vote at the Annual Meeting and any adjournment of the Annual Meeting. Only stockholders of record at the close of business on that date will be entitled to notice of, and to vote at, the Annual Meeting.

On or about April 20, 2018, we will mail a Notice of Internet Availability of Proxy Materials (the “Notice”) to our stockholders of record at the close of business on the record date. The Notice contains instructions on how you can obtain internet access to our Proxy Statement and our Annual Report, which includes our Annual Report on Form 10-K for the 2017 fiscal year. The Notice also contains instructions on how you can request a paper copy of the proxy materials, including a form of proxy.

 

By Order of the Board of Directors

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Shelley A. McBride

General Counsel and Secretary

Columbus, Ohio

April 20, 2018


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Your vote is important. Whether or not you plan to attend the Annual Meeting webcast, please vote as promptly as possible to ensure your representation at the Annual Meeting. In order to vote, you must have the Control Number included on your Notice, your proxy card (if you received a printed copy of the proxy materials) or your Annual Meeting registration confirmation (if you are a beneficial owner who registered to attend the Annual Meeting). You may vote in any of the following ways:

 

 

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INSTALLED BUILDING PRODUCTS, INC.

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FREQUENTLY ASKED QUESTIONS ABOUT THE ANNUAL MEETING

     1  

PROPOSAL 1 – ELECTION OF DIRECTORS

     7  

Overview

     7  

Majority Voting

     7  

Director Nominees

     8  

Information Regarding the Director Nominees and Directors Continuing in Office

     8  

Required Vote and Recommendation of the Board

     13  

CORPORATE GOVERNANCE

     14  

Composition and Responsibilities of the Board

     14  

Director Qualification and Board Diversity

     14  

Director Independence

     15  

Board Leadership Structure

     16  

Executive Sessions of the Board

     17  

Annual Board and Committee Self-Assessments

     17  

Role of the Board in Risk Oversight

     17  

Meetings of the Board and Director Attendance at Annual Meeting of Stockholders

     18  

Board Committees

     18  

Compensation of our Directors

     21  

Director Stock Ownership Policy

     22  

Director Compensation Table

     22  

Code of Business Conduct and Ethics

     23  

Insider Trading Policy and Hedging and Pledging Prohibition

     24  

Communication with Directors

     24  

Governance Materials on our Website

     25  

Sustainability and Social Responsibility

     25  
PROPOSAL 2 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM      26  

Overview

     26  

Fees Paid to Deloitte

     26  

Pre-Approval Policies and Procedures

     27  

Report of the Audit Committee

     27  

Required Vote and Recommendation of the Board

     28  

PROPOSAL 3 – NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION

     29  

Overview

     29  

Required Vote and Recommendation of the Board

     30  

EXECUTIVE OFFICERS AND CERTAIN SIGNIFICANT EMPLOYEES

     31  

COMPENSATION DISCUSSION & ANALYSIS

     36  

Compensation Committee Report

     36  

CD&A Table of Contents

     36  

Section 1 – Executive Summary

     37  

Section 2 – How We Determine Pay

     42  

Section 3 – Elements of our Compensation Program

     46  

 

 

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Section 4 – What We Paid in 2017

     49  

Section 5 – Other Compensation and Policies

     54  
EXECUTIVE COMPENSATION      57  

Executive Compensation Tables

     57  

Employment Agreements, Severance and Change in Control Benefits

     62  

Chief Executive Officer Pay Ratio

     64  
PROPOSAL 4 –VOTE TO APPROVE THE MATERIAL TERMS AND PERFORMANCE CRITERIA OF OUR 2014 OMNIBUS INCENTIVE PLAN      66  

Overview

     66  

Summary of the 2014 Omnibus Incentive Plan

     67  

Federal Income Tax Consequences

     71  

Benefits to Directors, Named Executive Officers and Others

     72  

Required Vote and Recommendation of the Board

     72  
STOCK OWNERSHIP INFORMATION      74  

Stock Ownership Table

     74  

Section 16(a) Beneficial Ownership Reporting Compliance

     77  

Securities Authorized for Issuance under Equity Compensation Plans

     77  
CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS      78  

Registration Rights

     78  

Related-Party Sales

     78  

Real Property Leases

     79  

Estimating Agreement

     79  

Alpha Acquisition

     79  

Policies and Procedures for Related-Party Transactions

     79  
PROPOSALS OF STOCKHOLDERS FOR THE 2019 ANNUAL MEETING      82  
ADDITIONAL INFORMATION      83  

Householding of Proxy Materials

     83  

Incorporation by Reference

     83  

Availability of SEC Filings, Code of Ethics and Committee Charters

     83  

Use of Non-GAAP Financial Measures

     83  
OTHER MATTERS      85  
APPENDIX A – 2014 OMNIBUS INCENTIVE PLAN   

 

 

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Installed Building Products, Inc.

495 South High Street, Suite 50

Columbus, Ohio 43215

(614) 221-3399

 

 

PROXY STATEMENT FOR THE 2018 ANNUAL MEETING OF

STOCKHOLDERS

 

 

The 2018 Annual Meeting of Stockholders of Installed Building Products, Inc. (“Annual Meeting”) will be held on Thursday, May 31, 2018 at 10:00 a.m. Eastern Time. The Annual Meeting will be a virtual meeting hosted by means of a live webcast. This Proxy Statement is furnished in connection with the solicitation of proxies by our Board of Directors (sometimes referred to as the “Board”) for use at the Annual Meeting and any adjournment thereof.

We intend to begin mailing our Notice of Internet Availability of Proxy Materials (“Notice”) on or about April 20, 2018. Our Notice of Annual Meeting of Stockholders, Proxy Statement and Annual Report are available free of charge at www.envisionreports.com/IBP.

All references in this Proxy Statement to “we,” “us,” “our” or the “Company” refer to Installed Building Products, Inc.

All references in this Proxy Statement to our “Annual Report” refer to our 2017 Annual Report, which includes our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

 

 

FREQUENTLY ASKED QUESTIONS ABOUT THE ANNUAL

MEETING

 

 

A number of the questions and answers below refer to “stockholders of record” and “beneficial owners.” If your shares were registered directly in your name on the books of our transfer agent on the record date, then you are a stockholder of record. If your shares were held in an account at a brokerage firm, bank or other nominee on the record date (sometimes referred to as holding shares in street name), then you are a beneficial owner.

 

Q: Can I attend the Annual Meeting in person?

 

A: We will be hosting the Annual Meeting only by means of a live webcast. You will not be able to attend the meeting in person. Please be assured that you will be afforded the same rights and opportunities to participate in the virtual meeting as you would at an in-person meeting. You may participate in the Annual Meeting in the following ways:

Stockholders of Record. You will be able to listen to the Annual Meeting, submit questions and vote by going to www.meetingcenter.io/244001279 prior to the meeting and clicking on “I have a Control Number.”

Beneficial Owners. You may participate in the Annual Meeting in one of two ways:

 

 

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    If you wish to submit questions or vote your shares during the Annual Meeting (rather than directing your brokerage firm, bank or other nominee how to vote your shares), you must register in advance to attend the Annual Meeting. See “How do I register to attend the Annual Meeting?” below. When you have received your confirmation of registration and Control Number, you will be able to listen to the Annual Meeting, submit questions and vote by going to www.meetingcenter.io/244001279 prior to the meeting and clicking on “I have a Control Number.”

 

    If you wish to listen to the Annual Meeting, but do not wish to submit questions or vote during the Annual Meeting, you may go to www.meetingcenter.io/244001279 prior to the meeting and click on “I am a guest.”

The Annual Meeting webcast will start at 10:00 a.m. Eastern Time on Thursday, May 31, 2018. We encourage you to access the meeting website prior to the start time to allow ample time for check in. The password for the meeting is IBP2018.

 

Q: How do I register to attend the Annual Meeting?

 

A: Stockholders of Record. You do not need to register to attend the Annual Meeting webcast. Follow the instructions on your Notice or proxy card (if you received a printed copy of the proxy materials) to access the Annual Meeting. See “Can I attend the Annual Meeting in person?” above.

Beneficial Owners. If you wish to submit questions or vote your shares during the Annual Meeting (rather than directing your brokerage firm, bank or other nominee how to vote your shares), you must register in advance to attend the Annual Meeting. If you only want to listen to the Annual Meeting, then you do not need to register in advance. See “Can I attend the Annual Meeting in person?” above.

A beneficial owner wishing to attend the Annual Meeting webcast must provide our transfer agent, Computershare Trust Company, N.A. (“Computershare”) with your name, email address and a copy of a legal proxy from your brokerage firm, bank or other nominee reflecting your beneficial stock ownership in the Company. Registration requests must be in writing and be mailed to:

Computershare Investor Services

Installed Building Products, Inc. – Legal Proxy

462 South 4th Street, Suite 1600

Louisville, KY 40202

Requests for registration must be labeled as “Legal Proxy” and be received no later than 5:00 p.m., Eastern Time, on May 21, 2018. You will receive a confirmation email from Computershare acknowledging your registration along with a Control Number for the Annual Meeting.

 

Q: What is the purpose of the Annual Meeting?

 

A: The items of business to be brought before the Annual Meeting are:

 

  1. To elect Margot L. Carter, Robert H. Schottenstein and Michael H. Thomas as directors to serve for three-year terms;
  2. To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2018;
  3. To conduct a non-binding advisory vote to approve the compensation of our named executive officers;
  4. To approve the material terms and performance criteria of our 2014 Omnibus Incentive Plan; and

 

 

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  5. To transact any other business that may properly come before the Annual Meeting or any adjournment thereof.

Following the meeting, we will respond to questions from our stockholders.

 

Q: Could other matters be decided at the Annual Meeting?

 

A: Our Amended and Restated Bylaws (“Bylaws”) require that we receive advance notice of any proposal from a stockholder to be brought before the Annual Meeting. We have not received notice of any stockholder proposals for the Annual Meeting. If any other matters were to properly come before the Annual Meeting, the persons named as proxies will have the discretion to vote on those matters in accordance with their best judgment.

 

Q: Who is entitled to vote at the Annual Meeting?

 

A: Only holders of record of our common stock at the close of business on April 5, 2018, the record date for the Annual Meeting, are entitled to notice of and to vote at the Annual Meeting. At the close of business on April 5, 2018, we had 31,518,607 shares of common stock outstanding and entitled to vote. Each share of common stock is entitled to one vote for each director nominee and one vote for each other matter to be voted on at the Annual Meeting.

Stockholders of Record. You may vote your shares in any of the ways specified below in “How do I vote?”

Beneficial Owners. If you are a beneficial owner, the Notice was forwarded to you by your brokerage firm, bank or other nominee. The organization holding your account is the stockholder of record for purposes of attending and voting at the Annual Meeting; however, you have the right to direct the organization how to vote the shares in your account. Alternatively, you may vote your shares directly at the Annual Meeting by obtaining a legal proxy from your brokerage firm, bank or other nominee and registering in advance to attend the Annual Meeting webcast. See “How do I register to attend the Annual Meeting?” above.

A list of our stockholders entitled to vote at the Annual Meeting will be available for examination by any stockholder during ordinary business hours at our principal executive offices at 495 S. High Street, Suite 50, Columbus, Ohio 43215 for a period of ten days prior to the Annual Meeting. During the Annual Meeting, the list will be available for examination at www.meetingcenter.io/244001279.

 

Q: How do I vote?

 

A. Stockholders of Record. You may vote in any of the following ways:

 

LOGO    On the Internet. You may vote at www.envisionreports.com/IBP, 24 hours a day, seven days a week. You will need the Control Number included on your Notice or proxy card (if you received a printed copy of the proxy materials). Votes submitted through the internet must be received no later than the closing of the polls at the Annual Meeting.
LOGO    By Telephone. You may vote using a telephone by calling 1-800-652-8683, 24 hours a day, seven days a week. You will need the Control Number included on your Notice or proxy card (if you received a printed copy of the proxy materials). Votes submitted by telephone must be received no later than the closing of the polls at the Annual Meeting.
LOGO    By Mail. If you received printed proxy materials, you may vote by completing, signing and dating each proxy card you received and returning it in the prepaid envelope to Computershare Investor Services, 462 South 4th Street, Suite 1600, Louisville, KY 40202. Sign your name exactly as it appears on the proxy card. Proxy cards submitted by mail must be received no later than May 30, 2018.

 

 

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LOGO    At the Annual Meeting. Instructions on how to vote during the Annual Meeting webcast are posted at www.meetingcenter.io/244001279. Votes submitted during the Annual Meeting must be received no later than the closing of the polls at the Annual Meeting.

Voting on the internet, by telephone or at the Annual Meeting authorizes the persons named as proxies to vote as you direct in the same manner as if you had completed, signed, dated and returned a proxy card. If you vote on the internet or by telephone, or plan to vote during the Annual Meeting webcast, do not return your proxy card(s).

Beneficial Owners. You have the right to direct your broker, bank or other nominee how to vote your shares. If you are a beneficial owner, the Notice was forwarded to you by the organization holding your account and you should follow the voting instructions provided by that organization. The availability of internet and telephone voting will depend on the voting options of your broker, bank or other nominee. If you do not provide the organization holding your account with instructions on how to vote your shares, the organization may be able to vote your shares with respect to some of the proposals to be voted on at the Annual Meeting, but not all of the proposals. See “What happens if I do not vote my shares?” below.

Instead of directing your broker, bank or other nominee how to vote your shares, you may elect to attend the Annual Meeting and vote your shares during the meeting. If you wish to vote your shares during the Annual Meeting, you must register in advance. See “How do I register to attend the Annual Meeting?” above. When you have received your confirmation of registration and Control Number, you may vote in any of the ways in which a stockholder of record may vote described above except by mail.

 

Q: What does it mean if I received more than one proxy card or Notice?

 

A: If you received more than one proxy card or Notice, your shares are registered in more than one name or are registered in multiple accounts. To make certain all of your shares are voted, please complete, sign, date and return each proxy card that you received, or if you vote via the internet, by telephone or at the Annual Meeting, vote once for each Notice that you received.

 

Q: Can I revoke my proxy or change my vote?

 

A: Stockholders of Record. You may revoke your proxy or change your vote at any time before the closing of the polls at the Annual Meeting by:

 

    signing and returning a new proxy card with a later date;
    submitting a later-dated vote on the internet or by telephone — only your latest internet or telephone vote will be counted;
    participating in the Annual Meeting webcast and voting during the meeting; or
    delivering a written revocation to our Corporate Secretary at Installed Building Products, Inc., 495 South High Street, Suite 50, Columbus, Ohio 43215, which must be received no later than May 30, 2018.

If you attend the Annual Meeting without voting during the meeting, it will not cause a previously submitted vote to be revoked unless you specifically request that your prior proxy be revoked.

Beneficial Owners. You should contact the broker, bank or other nominee holding your shares to obtain instructions for revoking or changing your vote. If you registered in advance to attend the Annual Meeting, you may change your vote by submitting a later-dated vote on the internet or by telephone or by participating in the Annual Meeting webcast and by submitting a later vote during the meeting.

 

Q: What happens if I do not vote my shares?

 

 

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A. Stockholders of Record. If you do not vote by proxy card, by telephone, on the internet, or during the Annual Meeting live webcast, your shares will not be voted at the Annual Meeting. If you submit a proxy but fail to provide instructions on how you want your shares to be voted, your proxy will be voted in the manner recommended by the Board of Directors as follows:

 

    FOR the election of Margot L. Carter, Robert H. Schottenstein and Michael H. Thomas as directors to serve for three-year terms;
    FOR the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2018;
    FOR the approval, on a non-binding advisory basis, of the compensation of our named executive officers; and
    FOR the approval of the material terms and performance criteria of our 2014 Omnibus Incentive Plan.

We do not expect any other business to properly come before the Annual Meeting; however, if any other business should properly come before the Annual Meeting, the persons named as proxies will vote your shares on such matters in accordance with their best judgment.

Beneficial Owners. If you do not provide your broker, bank or other nominee with voting instructions for your shares, your broker, bank or other nominee may nevertheless vote your shares on certain routine, or “discretionary,” matters. The ratification of the appointment of our independent registered public accounting firm is currently considered a discretionary matter. On this proposal, the organization holding your account may vote your shares in the absence of voting instructions or may choose not to vote your shares. The other matters to be voted on at the meeting are not considered discretionary and cannot be voted by your broker, bank or other nominee without your instructions. When a broker, bank or other nominee is not able to vote shares for this reason, it is called a “broker non-vote.” In the case of a broker non-vote, your shares will not have any effect on the outcome of any proposal other than the ratification of the appointment of our independent registered public accounting firm.

If you are a beneficial owner and registered in advance to attend the Annual Meeting webcast but do not vote your shares on the internet, by telephone or during the Annual Meeting live webcast, your shares will not be voted at the Annual Meeting.

 

Q: How many shares must be present in order to conduct business at the Annual Meeting?

 

A: In order to carry out the business of the Annual Meeting, a minimum number of shares, constituting a quorum, must be present. A quorum is present if holders of at least a majority of the outstanding shares of our common stock entitled to vote are present or represented by proxy at the Annual Meeting. At the close of business on April 5, 2018, we had 31,518,607 shares of common stock outstanding and entitled to vote at the Annual Meeting, meaning that at least 15,759,304 shares of common stock must be present or represented by proxy to have a quorum. If a quorum is not present at the Annual Meeting, the meeting may be adjourned from time to time until a quorum is present.

If you are a stockholder of record and you submit a proxy, your shares will be counted to determine the presence of a quorum, even if you abstain from voting or fail to provide voting instructions on one or more of the proposals. If you are a beneficial owner and you do not direct your broker, bank or other nominee how to vote your shares, your shares will be counted for purposes of determining the presence of a quorum if the institution submits a proxy, even if your shares are not voted with respect to one or more proposals. If you obtain a legal proxy from your broker, bank or other nominee and you fail to vote your shares, your shares will not be counted for purposes of determining a quorum.

 

Q: How many votes are required to approve each proposal?

 

 

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A.

 

  

Proposal

 

  

Required Vote

 

 
  

Proposal 1 – To elect Margot L. Carter, Robert H. Schottenstein and Michael H. Thomas as directors to serve for three-year terms

 

   Majority of the votes cast at the Annual Meeting
 
  

Proposal 2 – To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2018

 

   Majority of the shares present or represented by proxy at the Annual Meeting and entitled to vote
 
  

Proposal 3 – To approve, on a non-binding advisory basis, the compensation of our named executive officers

 

   Majority of the shares present or represented by proxy at the Annual Meeting and entitled to vote
 
  

Proposal 4 – To approve the material terms and performance criteria of our 2014 Omnibus Incentive Plan

 

   Majority of the shares present or represented by proxy at the Annual Meeting and entitled to vote

 

Q: How can I find the voting results of the Annual Meeting?

 

A: Preliminary voting results will be announced at the Annual Meeting. Final voting results will be published in a current report on Form 8-K to be filed with the Securities and Exchange Commission (“SEC”) within four business days after the Annual Meeting. If final voting results are not available at that time, we will provide preliminary voting results in the Form 8-K and will provide the final voting results in an amendment to the Form 8-K as soon as they become available.

 

Q: Why did I receive a Notice in the mail regarding the internet availability of proxy materials instead of a full set of printed proxy materials?

 

A: We are making our proxy materials available to our stockholders electronically on the internet by mailing the Notice to our stockholders instead of mailing a full set of proxy materials. The Notice contains instructions on how to access an electronic copy of our proxy materials, including this Proxy Statement and our Annual Report. The Notice also contains instructions on how to request a paper copy of this Proxy Statement, including a form of proxy. We believe this process allows us to provide you with the information you need in a timely manner, while conserving natural resources and lowering the costs of printing and distributing our proxy materials.

 

Q: Who is conducting this proxy solicitation?

 

A: Our Board of Directors is soliciting your vote for the proposals being submitted to the stockholders at the Annual Meeting. Solicitation is being made by mail or internet but could also be made by our directors, officers and select other employees telephonically, electronically or by other means of communication. The Company will bear the cost of soliciting proxies. Directors, officers and employees who help us in the solicitation will not be specially compensated for those services, but we may reimburse them for their out-of-pocket expenses incurred in connection with the solicitation. We are requesting brokers, banks and other nominees to forward our soliciting materials to beneficial owners of our common stock and we will reimburse them for their reasonable out-of-pocket expenses.

 

 

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PROPOSAL 1 – ELECTION OF DIRECTORS

 

Overview

 

At the Annual Meeting, three directors are to be elected to serve for three-year terms. Each nominee elected as a director will continue in office until the 2021 Annual Meeting of Stockholders and until his or her successor is duly elected and qualified or until his or her earlier death, resignation, retirement, disqualification or removal. Our directors are divided into three classes, with one class of directors elected annually for three-year terms. Our directors are classified into the following three classes:

 

Director

 

 

      Class I      

 

 

      Class II      

 

 

      Class III      

 

       

Margot L. Carter

         
       

Jeffrey W. Edwards

         
       

Lawrence A. Hilsheimer

         
       

Janet E. Jackson

         
       

Michael T. Miller

         
       

J. Michael Nixon

         
       

Robert H. Schottenstein

         
       

Michael H. Thomas

         
       

Vikas Verma

         

Upon the recommendation of the Nominating and Corporate Governance Committee, the Board of Directors has nominated and is submitting to a vote of our stockholders a proposal to elect Margot L. Carter, Robert H. Schottenstein and Michael H. Thomas as directors. All of the nominees are incumbent directors and are independent Board members. In making its recommendation, the Nominating and Corporate Governance Committee considered the experience, qualifications, attributes and skills of each nominee, as well as the nominee’s individual contributions to our Board. See “Corporate Governance – Director Qualification and Board Diversity.”

Majority Voting

 

In response to a stockholder proposal approved at the 2017 Annual Meeting of Stockholders, effective February 22, 2018, the Board approved the amendment and restatement of our Bylaws, which included implementation of majority voting in uncontested director elections. The amended and restated Bylaws provide that a director nominee may be elected only upon the affirmative vote of a majority of the total votes cast, which means that the number of shares voted “for” a director’s election must exceed the number of shares voted “against” that director’s election. Votes cast do not include abstentions or broker non-votes. Prior to the amendment and restatement of the Bylaws, directors were elected by a plurality of votes cast, whether or not the election was contested. The Bylaws retain plurality voting for contested director elections.

Any incumbent director who fails to receive a majority of votes is required to promptly tender his or her resignation to the Board. Such resignation will become effective only upon its acceptance by the Board. The Nominating and Corporate Governance Committee will recommend to the Board whether to accept or reject the resignation, and the Board will act upon such resignation and publicly disclose its decision within 90 days from the date of the certification of the election results.

 

 

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Director Nominees

 

Nominees for Board membership are expected to demonstrate leadership and to possess outstanding integrity, values and judgment. Our nominees have a blend of historical and new perspectives about our Company. Our Nominating and Corporate Governance Committee and our Board of Directors have determined that each of the nominees possesses the right skills, experience and perspectives, collectively with other directors, to comprise a well-rounded, highly effective Board of Directors, and have determined that the nominees add to the overall diversity of the Board by bringing a wide range of experiences spanning various industries and organizations.

Based on the Nominating and Corporate Governance Committee’s recommendation and the nominees’ credentials, experience, attributes and skills outlined below under the caption “Information Regarding the Director Nominees and Directors Continuing in Office,” the Board of Directors has determined that the nominees can make a significant contribution to the Board and should serve as directors of the Company. Each nominee has accepted the nomination and has agreed to serve if elected. If any nominee is unable or declines to serve as a director at the time of the Annual Meeting, the persons named as proxies will use their discretion to vote for the election of the remaining nominees and for the election of any substitute nominee nominated and recommended by the Board.

Information Regarding the Director Nominees and Directors Continuing in Office

 

The following biographical information regarding each director nominee and director continuing in office is as of April 20, 2018. In addition to age and tenure as a director of the Company, it includes information about each individual’s principal occupation, professional experience, including public company and other directorships during the past five years, educational background, and certain other attributes, qualifications and skills that led the Nominating and Corporate Governance Committee and the Board to conclude that each individual should be nominated for election.

The average age of our directors is 61, with an average tenure of seven years. Our independent directors have an average tenure of four years. Our Board is comprised of 22% women and 22% minorities.

 

 

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    Director Nominees

 

    Class II – Terms to Expire at the 2021 Annual Meeting of Stockholders

 

 

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Margot L. Carter

Independent

Age 50

Director since 2014

and Presiding

Independent Director

since 2015

  

 

Occupation

 

President and Founder, Living Mountain Capital L.L.C., a business advisory consulting firm, which advises clients on corporate governance, business strategy, business development, strategic alliances and acquisitions (1998–present)

 

Education

 

B.A. in Economics and History, Binghamton University and J.D., Fordham University School of Law

 

Experience

 

   Executive Vice President, Chief Legal Officer and Secretary, RealPage, Inc., a publicly traded leading global software solutions and big data company in the commercial, multifamily, single-family and vacation rental industries (2010–2015)

   Executive Vice President and General Counsel, The Princeton Review, Inc.

   Executive Vice President, General Counsel and Managing Director, Soundview Technology Group, Inc.

   Assistant General Counsel, Cantor Fitzgerald and eSpeed, Inc.

  

 

Other Board Service

 

   Eagle Materials, Inc., a publicly traded leading provider of building materials, member of Corporate Governance and Nominating and Audit committees

   Freeman Company, one of the world’s largest brand experience companies, member of Audit and Compensation committees

 

   NACD North Texas

     

 

Ms. Carter’s experience as a business builder in the technology, real estate and construction industries and experience in global business strategy, development, acquisitions and corporate governance, both as a C-Suite executive, general counsel and board member of global public and private companies, make her a valued member of the Board.

 

 

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Robert H.

Schottenstein

Independent

Age 65

Director since 2014

  

 

Occupation

 

Chairman (since 2004), Chief Executive Officer (since 2004) and President (since 1996) of M/I Homes, Inc., one of the largest publicly traded home builders in the U.S.

 

Education

 

B.A., Indiana University and J.D., Capital University Law School

 

Experience

 

   Private practice of law specializing in commercial real estate, corporate and banking transactions

   Central Ohio Building Industry Association “Builder of the Year” Award 2002

   “Executive of the Year” for the homebuilding industry by Builder Magazine 2008

  

 

Other Board Service

 

   L Brands, a publicly traded leading specialty retailer focused on women’s intimate and other apparel, personal care, beauty and home fragrance categories, member of Audit Committee

   The Ohio State University Wexner Medical Center

   The Ohio State University Foundation

 

   Executive Committee of The Policy Advisory Board of Harvard University’s Joint Center for Housing Studies

 

     

 

Mr. Schottenstein’s experience in the homebuilding industry and as an executive and board member of public companies make him a valued member of the Board.

 

 

 

 

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Michael H. Thomas

Independent

Age 68

Director since 2014

  

 

Occupation

 

Former partner, Stonehenge Partners, Inc., a private mezzanine and equity investment firm, where he provided counsel in investment origination, portfolio asset management and disposition of investments (1999–2014)

 

Education

 

B.A. in Business Administration, University of Notre Dame

 

Experience

 

   Executive Vice President and Treasurer, JMAC, Inc., the holding and investment company of the McConnell family of Worthington, Ohio, where he directed investments in the financial services, publishing, health care, real estate and manufacturing sectors and was responsible for the McConnell family’s financial, estate and income tax planning

   Manager of Ernst & Young LLP Columbus, Ohio tax practice

 

  

 

Other Board Service

 

   Served as a director for the Company’s predecessor from 2004 to 2011

 

     

 

Mr. Thomas’ significant business and investment experience, knowledge of our business and accounting background make him a valued member of the Board.

 

 

 

  Directors Continuing in Office

 

  Class III – Terms to Expire at the 2019 Annual Meeting of Stockholders

 

 

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Jeffrey W. Edwards

Age 54

Chairman of the

Board since 1999

  

 

Occupation

 

Our President (since 2011), Chief Executive Officer (since 2004) and Chairman (since 1999)

 

Education

 

B.S. in Marketing, Miami University

 

Experience

 

   Officer and strategist for several family-owned companies across a variety of industries, including multi-family and student housing development and management, industrial tool distribution, wholesale building supply, homebuilding, land and real estate development and real estate brokerage

   Commercial real estate development throughout the U.S.

  

 

Other Board Service

 

Board of Trustees, Columbus Museum of Art

 

     

 

Mr. Edwards’ leadership, executive, managerial and business experience, along with his more than 29 years of experience in the industry make him a valued member of the Board.

 

 

 

 

 

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Lawrence A.

Hilsheimer

Independent

Age 60

Director since 2014

  

 

Occupation

 

Executive Vice President and Chief Financial Officer, Greif, Inc., a publicly traded global leader in industrial packing products and services (2014–present)

 

Education

 

B.A. in Business Administration, Fisher College of Business, The Ohio State University and J.D., Capital University Law School

 

Experience

 

   Executive Vice President and Chief Financial Officer, The Scotts Miracle-Gro Company, a publicly traded manufacturer of branded consumer lawn and garden products (2013–2014)

   Executive Vice President and Chief Financial Officer, Nationwide Mutual Insurance Company, a provider of property and casualty insurance and financial services, President and Chief Operating Officer of multiple business units, including Nationwide Direct and Customer Solutions and Nationwide Retirement Plans

   Vice Chairman and Regional Managing Partner, Deloitte & Touche USA, LLP

 

  

 

Other Board Service

 

   Root Insurance Company, member of Audit and Investment committees

   Dean’s Advisory Council, Fisher College of Business

   The Ohio State University Board of Trustees, member of Audit and Compliance Committee

 

     

 

Mr. Hilsheimer’s broad business background and corporate finance and public accounting experience, including as a chief financial officer with responsibility and accountability for all corporate and operating finance functions, make him a valued member of the Board

 

 

 

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Janet E. Jackson

Independent

Age 65

Director since 2014

  

 

Occupation

 

Former President and Chief Executive Officer, United Way of Central Ohio, a nonprofit organization and one of the largest United Way affiliates in the U.S. (2003–2017)

 

Education

 

B.A. in History, Wittenberg University and J.D., National Law Center at The George Washington University

 

Experience

 

   Columbus City Attorney, Columbus, Ohio

   Franklin County Municipal Court Judge

   First woman and first African American to hold her position at United Way and to be elected as Columbus City Attorney, and the first African American female judge in Franklin County history

 

  

 

Other Board Service

 

   Wittenberg University

   Columbus Jazz Arts Group

   United Way Retirees Association

 

     

 

Ms. Jackson’s significant leadership experience, as well as extensive strategy and legal background, make her a valued member of the Board.

 

 

           

 

 

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Class I – Terms Expire at the 2020 Annual Meeting of Stockholders

 

 

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Michael T. Miller

Age 53

Director since 2004

  

 

Occupation

 

Our Executive Vice President – Finance (since 2004) and Chief Financial Officer (since July 2013)

 

Education

 

   B.A. in Economics and German, Wake Forest University

 

Experience

 

   Senior Vice President/Managing Director, Corporate Investment Banking, Huntington Capital Corp., a subsidiary of Huntington Bancshares, Inc., a regional bank holding company

   Various positions with Deutsche Bank and Canadian Imperial Bank of Commerce

   First Union National Bank, Charlotte, North Carolina

  

 

Other Board Service

 

   BMC Stock Holdings, Inc., a publicly traded leader in diversified building products and services to builders, contractors and professional remodelers in the U.S., member of Audit Committee

 

     

 

Mr. Miller’s extensive experience with us in the building products industry, background in finance and knowledge of financial reporting make him a valued member of the Board.

 

 

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J. Michael Nixon

Age 73

Director since 2012

  

 

Occupation

 

Founder and Chief Executive Officer, TCI Contracting, LLC, installer of building products and one of our subsidiaries (2006–present)

 

Education

 

Attended Memphis State University

 

Experience

 

Quality Insulation Inc., a Connecticut-based insulation installer

  

 

Other Boards

 

   Cherokee County Airport Authority Georgia Properties Commission

 

     

 

Mr. Nixon’s extensive experience and leadership in the building products installation industry make him a valued member of the Board.

 

 

           

 

 

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Vikas Verma

Age 65

Director since 2017

  

 

Occupation

 

Chief Executive Officer of our subsidiaries Trilok Industries, Inc., Alpha Insulation & Water Proofing Company and Alpha Insulation & Water Proofing, Inc. (the “Alpha companies), installers of commercial waterproofing, insulation, fireproofing and fire stopping (2012– present)

 

Education

 

B.A. in Engineering and Associate’s Degree in International Marketing and Marketing Management, University of Bombay

 

Experience

 

   Founder of the Alpha Companies

   President of Alamo Insulation Co., a residential insulation company

 

  

 

Other Board Service

 

   National Association of Minority Contractors

 

 

 

 

     

 

Mr. Verma’s more than 36 years of experience in commercial and specialty construction make him a valued member of the Board.

 

 

           

Required Vote and Recommendation of the Board

 

The affirmative vote of a majority of the votes cast at the Annual Meeting is required to approve the election of each nominee as a director. A majority of votes cast means that the number of shares voted “FOR” a director must exceed the number of votes cast “AGAINST” the director. “ABSTAIN” votes and broker non-votes will not be counted as votes cast either “FOR” or “AGAINST” the director’s election.

Unless otherwise instructed, the persons named as proxies will vote “FOR” each nominee.

 

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF MARGOT L. CARTER, ROBERT H. SCHOTTENSTEIN AND MICHAEL H. THOMAS AS DIRECTORS, EACH TO SERVE A THREE-YEAR TERM.

 

 

 

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CORPORATE GOVERNANCE

 

Composition and Responsibilities of the Board

 

Our business and affairs are managed under the direction of our Board of Directors. Although the Board does not have responsibility for the day-to-day management of the Company, our directors stay informed about the Company’s business through regular meetings and interactions with management. The Board’s responsibilities include oversight of:

 

    the Company’s performance, strategies and major decisions, including acquisitions;
    the Company’s compliance with legal and regulatory requirements;
    the integrity of the Company’s financial statements;
    management’s practices for identifying, managing and mitigating key enterprise risks;
    management’s performance and succession planning; and
    executive and director compensation.

Our Bylaws provide that the number of directors constituting the Board is fixed from time to time by a majority vote of the directors then in office. No decrease in the authorized number of directors will result in the removal of an incumbent director until that director’s term of office expires. Vacancies may be filled by the Board.

Our Board of Directors currently consists of nine members. Our Second Amended and Restated Certificate of Incorporation provides that our directors are divided into three classes, as nearly equal in number as possible and designated Class I, Class II and Class III, with one class of directors elected annually for three-year terms. Each director holds office until his or her successor is duly elected and qualified or until his or her earlier death, resignation, retirement, disqualification or removal. As a result, only one class of directors is elected at each annual meeting of stockholders, with the other classes of directors continuing to serve for the remainder of their respective terms.

Director Qualification and Board Diversity

 

Our Nominating and Corporate Governance Committee is responsible for annually reviewing and evaluating the appropriate characteristics, skills and experience required for the Board as a whole and its individual members. In evaluating the suitability of both new candidates and current directors for director positions, the Nominating and Corporate Governance Committee, in recommending candidates, and the Board, in approving (and, in the case of vacancies, appointing) such candidates, consider whether there are evolving needs of the Board that may require expertise in a particular field. The entirety of each candidate’s credentials is evaluated, with no specific eligibility requirements or minimum qualifications.

The Nominating and Corporate Governance Committee and the Board take into account numerous factors, including those set forth in the “skills matrix” below. The skills matrix helps the Nominating and Corporate Governance Committee and the Board determine whether a candidate or a Board member possesses one or more of the skill sets and attributes set forth in the matrix that may qualify him or her for service on the Board or a particular committee.

 

 

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Industry

Knowledge

 

  

 

 

Financial Skills

  

 

 

Experience

  

 

 

Diversity

  

 

 

Miscellaneous

  Housing

  Construction    

  

  Public Company

  Financial Reporting

  Capital Structure Experience

  M&A Transactions

  IT / Risk Management

  

  Public Board

  Audit Committee

  Compensation Committee

  Corporate Governance / Nominating Committee

  Executive Leadership Strategic / Operational

  

  Age

  Gender

  Race / Ethnicity

  Geographic

  

  Time Commitment

The Nominating and Corporate Governance Committee and the Board also take into account whether the nominee meets applicable criteria for independence and whether the individual will enhance the diversity of views and experiences available to the Board in its deliberations. If the nominee is a current director, the Nominating and Corporate Governance Committee also considers the director’s individual contributions to the Board, the director’s ability to work collaboratively with other directors and the effectiveness of the Board as a whole. The Nominating and Corporate Governance Committee and the Board do not assign specific weight to any particular factor, and depending on the current needs of the Board, may weigh a factor or factors more or less heavily.

Although the Nominating and Corporate Governance Committee and the Board of Directors do not have a written diversity policy, the Board, as a group, is expected to represent a broad diversity of backgrounds and experience in business matters, and our current Board is comprised of 22% women and 22% minorities. The Nominating and Corporate Governance Committee believes that the collective experience of our directors, covering a wide range of backgrounds, skills, geographies, industries, ages, gender and race, serves to make the Board balanced and well diversified.

In identifying potential candidates for Board membership, the Nominating and Corporate Governance Committee may rely on recommendations from directors, stockholders, management and others. The Nominating and Corporate Governance Committee does not distinguish between nominees recommended by stockholders and nominees recommended by other sources, and evaluates candidates recommended by stockholders on a substantially similar basis as it considers other nominees.

Stockholders desiring to recommend or nominate a director candidate must comply with certain procedures. If you are a stockholder and desire to nominate a director candidate at the 2019 Annual Meeting of Stockholders, you must comply with the procedures for nomination set forth in the section entitled “Proposals of Stockholders for the 2019 Annual Meeting.” Stockholders who do not wish to nominate a director at an annual meeting may recommend a director candidate to the Nominating and Corporate Governance Committee for consideration at any time by giving written notice of the recommendation to our Corporate Secretary at Installed Building Products, Inc., 495 South High Street, Suite 50, Columbus, Ohio 43215. The recommendation must include the candidate’s name, age, business address, residence address and principal occupation or employment, as well as a description of the candidate’s qualifications, attributes and other skills. The Nominating and Corporate Governance Committee may require the submission of additional information before considering the candidate. A written consent from the candidate consenting to serve as a director, if elected, must accompany the recommendation. These procedural requirements are intended to ensure that the Nominating and Corporate Governance Committee has sufficient time and a basis on which to assess potential director candidates and are not intended to discourage or interfere with appropriate stockholder nominations.

Director Independence

 

Based upon information provided by each director concerning his or her background, education, employment, experience and affiliations, our Nominating and Corporate Governance Committee and Board of Directors have

 

 

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determined that each of Ms. Carter, Ms. Jackson and Messrs. Hilsheimer, Schottenstein and Thomas has no material relationship with the Company or its subsidiaries, either directly or indirectly, that would interfere with the exercise of his or her independent judgment, and that each qualifies as an “independent director” as defined in the rules of the New York Stock Exchange (“NYSE”) and the rules promulgated by the SEC.

When determining whether a director qualifies as independent, the Board broadly considers all relevant facts and circumstances to determine whether the director has any material relationship with the Company, either directly or indirectly, that would interfere with the exercise of independent judgment. In the course of determining the independence of Mr. Schottenstein, the Board considered that Mr. Schottenstein is the Chief Executive Officer of M/I Homes, Inc., a company with which we conduct transactions in the ordinary course of our business. Based on the aggregate annual value of these transactions (less than 1% of the annual revenues of each of the Company and M/I Homes, Inc. in 2017) and the nature of the transactions (which is the sale and installation of building products in the ordinary course of business of both companies), the Board does not believe that this relationship impairs the independence of Mr. Schottenstein or that Mr. Schottenstein has any material interest in any transaction between the Company and M/I Homes, Inc. Upon careful consideration, the Board of Directors has determined that our Board is comprised of a majority of independent directors, and that each Board committee is comprised solely of independent directors. There are no family relationships among any of our executive officers or any of our directors.

Board Leadership Structure

 

Mr. Edwards serves as our President, Chief Executive Officer and Chairman. The Board regularly evaluates its governance structure and has concluded that the Company and its stockholders are best served by not having a formal policy regarding whether the same individual should serve as both chairman and chief executive officer. This approach allows the Board to exercise its business judgment in determining the most appropriate leadership structure in light of the prevailing facts and circumstances facing the Company, including the composition and tenure of the Board, the tenure of the Chief Executive Officer, the strength of the Company’s management team, the Company’s recent financial performance, the Company’s strategic plan and the economic environment, among other factors. The positions of Chairman and Chief Executive Officer have historically been combined at our Company.

We believe that a combined Chairman and Chief Executive Officer role helps provide strong and consistent leadership for our management team and Board of Directors. In reviewing our leadership structure, the Board has considered that:

 

    Mr. Edwards has extensive experience in our industry;
    Mr. Edwards demonstrates the leadership and vision necessary to lead the Board and our Company in challenging industry environments;
    Mr. Edwards exercises leadership that has generated strong operational performance;
    Mr. Edwards is viewed by our customers, stockholders, suppliers and other business partners as a leader in our industry; and
    Mr. Edwards has a strong working relationship with the Board.

Based on the demonstrated success of our structure to date, both in terms of the functioning of the Board and the growth and performance of the Company, and the continued benefits of retaining Mr. Edwards’ strategic perspective in the position of Chairman, the Board believes that having a combined position is the appropriate leadership structure for the Company at this time.

To support our leadership structure, we have established a Presiding Independent Director position. Our Presiding Independent Director is elected annually by the independent directors on our Board. Ms. Carter, a director since 2014, currently serves as our Presiding Independent Director. Ms. Carter works with management to determine information to be provided to the Board, chairs regular executive sessions of the independent directors and serves as liaison between management and the Board as well as among independent directors. She regularly attends the meetings of the various Board committees.

 

 

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We believe that having a combined Chief Executive Officer and Chairman position, together with a Presiding Independent Director and a Board of Directors comprised of a majority of independent directors, provides the best leadership structure for our Company at the present time. The Board periodically reviews our leadership structure and retains the authority to modify the structure when appropriate.

Executive Sessions of the Board

 

Our Board of Directors holds regularly scheduled executive sessions in which the independent directors meet without the presence or participation of management. These meetings allow the independent directors to discuss the business and affairs of the Company, as well as matters concerning management, without any member of management present. At these meetings, Ms. Carter serves as the Presiding Independent Director who chairs the meetings and acts as liaison among the independent directors and the other Board members and management. As part of the executive sessions, the independent directors may meet with our Chief Executive Officer, our management team members and representatives of our independent registered public accounting firm as they deem necessary or appropriate.

Annual Board and Committee Self-Assessments

 

Pursuant to NYSE requirements, our Corporate Governance Guidelines and the charters of each of the Board committees, the Board and each of its committees conduct an annual self-assessment. This self-assessment is intended to determine whether the Board and the committees are functioning effectively and to provide them with an opportunity to improve their effectiveness. The self-assessment enables directors to provide confidential feedback on topics ranging from Board and committee composition and structure to responsibility and accountability of directors. A summary of the results is presented to the Nominating and Corporate Governance Committee, which is responsible for oversight of the process. The Nominating and Corporate Governance Committee reports the results of these self-assessments to the Board, which considers ways in which Board and committee effectiveness may be enhanced. This process helps identify opportunities to consider implementing new practices and procedures as appropriate. While the formal Board and committee self-evaluation is conducted on an annual basis, the directors share perspectives, feedback and suggestions year-round.

Role of the Board in Risk Oversight

 

Risk assessment and oversight are an integral part of our corporate governance and management processes. Our Board of Directors encourages management to promote a culture that incorporates risk management into both our overall corporate strategy and our day-to-day business operations.

It is management’s responsibility to identify, evaluate, manage and mitigate risk within the context of our strategic plans and to bring to the Board’s attention the most material risks facing the Company. It is the Board’s responsibility to oversee our risk management processes and to ensure that management is taking appropriate action to manage material risks. The Board also has responsibility for oversight of leadership succession for our most senior officers, including the Chief Executive Officer, and reviews succession plans on an annual basis.

Management regularly discusses strategic and operational risks, including a focused analysis of specific risks facing the Company. In addition, our risk assessment practices, including auditing procedures, internal controls over financial reporting, and compliance policies and programs, are designed to inform management about our material risks. Throughout the year, management reviews these risks with the Board and its committees as part of presentations that focus on particular business functions, operations or strategies. At the meetings, management advises the Board concerning major risk exposure and the steps taken to monitor, mitigate or eliminate material risks.

Our Board of Directors does not have a standing risk management committee, choosing instead to administer this oversight function through the entire Board.

 

 

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Board of Directors

 

 

Oversees overall risk management function and strategic risks to the Company. The Board has delegated certain risk management oversight to its committees in their areas of responsibility. The Board is kept informed of each committee’s risk oversight and other activities through reports to the Board presented at every regular Board meeting.

 

Audit Committee   Compensation Committee  

 

Nominating and Corporate

Governance Committee

 

     
Monitors financial statement integrity and compliance, including internal controls over financial reporting. Monitors operational and strategic risks related to the Company’s financial affairs, including strategies for managing financial exposure and contingent liabilities. Monitors compliance with ethics, investment and related-party transaction policies.   Monitors potential risks related to the design and administration of our compensation plans, policies, and programs, including our performance-based compensation programs, to promote appropriate incentives that do not encourage executive officers or employees to take unnecessary and/or excessive risks.   Monitors potential risks related to our governance practices, including reviewing succession plans and performance and composition of the Board, monitoring legal developments and trends regarding corporate governance practices and reviewing the effectiveness of our Corporate Governance Guidelines.

Meetings of the Board and Director Attendance at Annual Meeting of Stockholders

 

The Board of Directors held five meetings during 2017. Each director attended, in person or by telephone, at least 75% of the total number of meetings of both the Board and the committees on which he or she served during the year. Board agendas are set in advance by management with the assistance of the Presiding Independent Director to ensure that appropriate subjects are covered. Any member of the Board may request that an item be included on the agenda. Directors are provided with materials in advance of meetings and are expected to review these materials before each meeting to ensure that time in Board and committee meetings is focused on active discussions versus lengthy presentations. The independent directors held four meetings in executive session during 2017 (without the presence of Mr. Edwards or other employees of the Company) to discuss various matters related to the oversight of the Company and the management of Board affairs.

Although we do not have a formal policy requiring Board members to attend annual meetings of our stockholders, our directors are expected to make every effort to attend our stockholders’ meetings. All of our directors attended the Annual Meeting of Stockholders in 2017.

Board Committees

 

The Board has established three standing committees to assist it in the discharge of its duties. The table below shows the current membership for each of these committees:

 

Member           Audit               Compensation      

Nominating and

  Corporate Governance  

       

Margot L. Carter

        Chair
       

Lawrence A. Hilsheimer

  Chair      
       

Janet E. Jackson

      Chair  
       

Robert H. Schottenstein

         
       

Michael H. Thomas

       

 

 

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Audit Committee

 

 

Chair:

 

Lawrence A. Hilsheimer

 

Additional Members:

 

Margot L. Carter

Michael H. Thomas

 

Meetings in 2017: 4

 

   All members are independent under applicable rules of the SEC and NYSE and are “financially literate” under applicable rules of the NYSE

 

   Mr. Hilsheimer is an “audit committee financial expert” under applicable rules of the SEC

 

   Governed by a Board-approved charter

  

The Audit Committee oversees our corporate accounting and financial reporting processes and is primarily responsible for:

 

   selecting our independent registered public accounting firm and determining its scope of engagement;

   evaluating the firm’s qualifications, independence and performance;

   approving the scope of the annual audit and fees;

   approving audit and non-audit services to be performed by the firm, taking into consideration whether the firm’s provision of non-audit services is compatible with maintaining its independence;

   ensuring the rotation of partners of the firm on our engagement team;

   reviewing the adequacy and effectiveness of our accounting and financial reporting processes, internal controls and our financial statement audits;

   reviewing major financial risk exposures and the steps management has taken to monitor and control such exposures;

   overseeing complaints received regarding accounting, internal accounting controls or auditing matters;

   reviewing related-party transactions for potential conflicts of interest;

   reviewing reports to management prepared by our internal audit department and management’s responses;

   reviewing and discussing with management and our independent registered public accounting firm our financial statements and management’s discussion and analysis of financial condition and results of operations;

   evaluating, at least annually, the performance of the Audit Committee and its members, including compliance by the Audit Committee with its charter; and

   handling such other matters that are specifically delegated to the Audit Committee by the Board.

  

 

 

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Compensation Committee

 

 

Chair:

 

Janet E. Jackson

 

Additional Members:

 

Robert H. Schottenstein

Michael H. Thomas

 

Meetings in 2017: 6

 

   All members are independent under applicable rules of the NYSE and are “non-employee directors” under applicable rules of the SEC and are “outside directors” under the Internal Revenue Code

 

   Governed by a Board-approved charter

  

The Compensation Committee oversees the compensation of our executive officers, including our Chief Executive Officer, and is responsible for, among other things:

 

   reviewing and determining the compensation, employment agreements, severance arrangements and other benefits of our executive officers;

   approving, on an annual basis, the corporate goals and objectives relevant to the compensation of our executive officers and evaluating their performance in light of such goals and objectives;

   administering our 2014 Omnibus Incentive Plan;

   making recommendations to the Board with respect to non-employee director compensation;

   reviewing and discussing with management our Compensation Discussion and Analysis;

   reviewing any risks arising from our compensation policies and practices for our executives and employees that would be reasonably likely to have a material adverse effect on the Company;

   retaining the advice of a compensation consultant, independent legal counsel or other adviser after taking into consideration the factors required by any applicable requirements of law and NYSE rules;

   overseeing the appointment, work and compensation of compensation consultants, independent legal counsel and other advisers engaged by the Compensation Committee;

   evaluating, at least annually, the performance of the Compensation Committee and its members, including compliance by the Compensation Committee with its charter; and

   handling such other matters that are specifically delegated to the Compensation Committee by the Board.

  

During 2017 (i) no officer, former officer or employee of the Company served as a member of our Compensation Committee, and (ii) none of our executive officers served as a member of the board of directors or the compensation committee of any entity whose executive officers served on our Board or Compensation Committee.

 

 

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Nominating and Corporate Governance Committee

 

 

 

Chair:

 

Margot L. Carter

 

Additional Members:

 

Lawrence A. Hilsheimer

Janet E. Jackson

 

Meetings in 2017: 4

 

   All members are independent under applicable rules of the NYSE

 

   Governed by a Board-approved charter

   The Nominating and Corporate Governance Committee is responsible for, among other things:
  

 

   reviewing and establishing criteria for candidates to serve on the Board to ensure that the Board has the requisite expertise and is sufficiently diverse;

   conducting inquiries into the backgrounds and qualifications of potential director candidates;

   recommending to the Board nominees for election as directors, taking into account factors such as experience, skills, industry knowledge, financial expertise, existing commitments, potential conflicts of interest, independence and the extent to which the candidate fills a present need on the Board;

   recommending to the Board the composition and size of the Board;

   overseeing the evaluation of the Board, its committees and management in accordance with applicable rules of the NYSE;

   recommending members of the Board to serve on the committees of the Board as well as committee chairs;

   monitoring the structure and operations of Board committees, the qualifications and criteria for membership on each committee and, as appropriate, recommending periodic rotation of committee members and term limitations on committee service;

   reviewing the charter of each committee and recommending to the Board any changes;

   reviewing our Certificate of Incorporation and Bylaws and recommending to the Board any necessary or desirable amendments;

   assessing the adequacy of our Corporate Governance Guidelines and Code of Business Conduct and Ethics and recommending any proposed changes to the Board;

   periodically reviewing the Board’s leadership structure to assess whether it is appropriate given the specific characteristics and circumstances of the Company;

   overseeing an annual review of succession planning for senior executives;

   evaluating, at least annually, the performance of the Nominating and Corporate Governance Committee and its members, including compliance by the Nominating and Corporate Governance Committee with its charter; and

   handling such other matters that are specifically delegated to the Nominating and Corporate Governance Committee by the Board.

Compensation of our Directors

 

The Board of Directors annually reviews and determines the compensation of our non-employee directors, taking into account the recommendations of the Compensation Committee. In connection with this review and determination, the Board and the Compensation Committee consider the compensation paid to the non-employee directors of our peer group, which is the same peer group used in reviewing the compensation of our executive officers, current facts and circumstances relating to our business and our past practices. The Board believes that non-employee director compensation should be competitive to ensure that we attract and retain qualified non-employee directors and that the compensation of our non-employee directors should include a combination of cash and equity-based compensation to align the long-term interests of our non-employee directors and our stockholders. The Board does not have a pre-established policy or target for allocation between cash and equity-based compensation and determines the mix of compensation based on what it believes is most appropriate under the circumstances. The Compensation Committee approves all equity-based compensation granted to the non-employee directors. In 2016, the Compensation Committee engaged Mercer, LLC, a subsidiary of Marsh & McLennan Companies and a global

 

 

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professional services firm (“Mercer”), to review our non-employee director compensation program and to conduct market comparisons for our non-employee directors similar to that performed for our executive officer compensation program. See “Our Executive Compensation Process – Role of Compensation Consultant” and “Benchmarking.” The Compensation Committee evaluates director compensation primarily on the basis of peer group data provided by Mercer. The Compensation Committee intends to engage Mercer to update its review of our director compensation program biannually.

2017 Elements of our Non-Employee Director Compensation

 

Annual Board retainer    $ 50,000    
Annual committee chair retainer (Compensation Committee and Nominating and Corporate Governance Committee)    $ 10,000    
Annual committee chair retainer (Audit Committee)    $ 20,000    
Annual Presiding Independent Director retainer    $ 10,000    
Annual grant of stock under our 2014 Omnibus Incentive Plan (fair market value on grant date)    $ 60,000    

Director compensation, including aggregate cash compensation and the grant date fair value of shares of the Company’s common stock, may not exceed $400,000 in any fiscal year.

All directors are entitled to be reimbursed for their reasonable expenses to attend Board meetings and meetings of committees on which they serve. Directors who are employees of the Company receive no additional compensation for their service as directors.

Director Stock Ownership Policy

 

Pursuant to our Stock Ownership Policy for Directors established by the Board of Directors and the Compensation Committee, to align each director’s interests with the long-term interests of our stockholders, each director is required to beneficially own our common stock having a fair market value equal to at least the greater of $150,000 or three times the director’s annual cash retainer (excluding committee chair and Presiding Independent Director retainers). If a director chooses to meet this guideline using annual grants of restricted stock pursuant to our director compensation program, the fair market value of the stock for purposes of meeting the requirement is measured as of the grant date. Directors have five years from the date of (a) our initial public offering in February 2014, or (b) if later, from the date of his or her first appointment or election, or (c) if later, the date of an increase in the amount of common stock required to be held to meet this requirement. All of our directors meet, or are on track to meet, the guidelines within the timeframe established by the policy.

Director Compensation Table

 

The following table presents the total compensation paid during 2017 (i) to each non-employee director and (ii) to Messrs. Nixon and Verma, who are employees of the Company and who also serve as directors, but who receive no compensation for their Board service, as noted below. Directors’ retainer fees are paid quarterly.

 

 

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Name          Fees Earned
or Paid in
Cash
($)
    

Stock

  Awards  

($)(1)(2)

     All Other
Compensation
($)
     Total
($)
 

Margot L. Carter

        70,000        60,000        -            130,000  

Lawrence A. Hilsheimer

   (3)      64,093        60,000        -            124,093  

Janet E. Jackson

        60,000        60,000        -            120,000  

J. Michael Nixon

   (4)      -          -          275,195        275,195  

Steven G. Raich

   (5)      33,516        -          -            33,516  

Robert H. Schottenstein

        50,000        60,000        -            110,000  

Michael H. Thomas

        50,000        60,000        -            110,000  

Vikas Verma

   (4)      -          -          785,802        785,802  

 

 

                        

 

(1)   Represents an annual grant of restricted stock made pursuant to our 2014 Omnibus Incentive Plan having a value of $60,000 on the grant date (June 1, 2017), with the number of shares determined based on the closing price of our common stock ($50.50) on the grant date. All of the restricted stock awards vested upon grant.
(2)   None of our non-employee directors nor Messrs. Nixon or Verma held any stock options as of December 31, 2017.
(3)   Effective May 3, 2017, the Compensation Committee increased the annual retainer for the Chair of the Audit Committee from $10,000 to $20,000. The amount specified under “Fees Earned or Paid in Cash” column represents Mr. Hilsheimer’s prorated increased Audit Committee chair annual retainer.
(4)   As employees of the Company, Messrs. Nixon and Verma earn no compensation for their Board service. The amount specified under the “All Other Compensation” column reflects the following compensation paid to them as employees in 2017: (i) a salary of $250,000 and $300,000, respectively, (ii) a bonus of $478,993 paid to Mr. Verma; and (iii) other compensation, including a vehicle or vehicle allowance, Company-paid car insurance and Company-paid cell phone, totaling $25,195 and $6,809, respectively.
(5)   Represents fees paid to Mr. Raich through his term as a director, which expired on June 1, 2017.

Code of Business Conduct and Ethics

 

Our Board of Directors has established a Code of Business Conduct and Ethics applicable to all of our employees, officers and directors, including our principal executive, financial and accounting officers and all persons performing similar functions, to help ensure that our business is conducted in a consistently legal and ethical manner. Adherence to this code assures that our directors, officers and employees are held to the highest standards of integrity. The Code of Business Conduct and Ethics covers such areas as:

 

    conflicts of interest;
    compliance with laws;
    protection and proper use of Company assets;
    use of Company assets for personal gain;
    confidentiality of Company, customer, supplier and business partner information;
    fair dealing; and
    gifts, entertainment and other benefits.

 

 

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The Code of Business Conduct and Ethics is overseen by the Audit Committee.

Insider Trading Policy and Hedging and Pledging Prohibition

 

Our insider trading policy prohibits all directors, officers, employees and their family members from directly or indirectly purchasing or selling any type of security, whether the issuer of that security is our Company or another company, while aware of material, non-public information relating to the issuer. The policy also prohibits such persons from providing any such material, non-public information to any other person who may trade in the securities while aware of such information.

Effective February 22, 2018, the Board amended our insider trading policy to prohibit certain other transactions in Company stock:

 

Speculating   

Speculating in securities of the Company, including buying with the intention of quickly reselling such securities, or selling Company securities with the intention of quickly buying such securities.

 

Short Sales   

Directly or indirectly selling any equity security of the Company if the person does not own the security sold, including a “sale against the box” (a sale with delayed delivery).

 

Hedging   

Engaging in, directly or through family members or other persons or entities, any hedging or monetization transactions involving Company securities, including through the use of financial instruments such as puts, calls, publicly-traded options, swaps, forwards, warrants and any other derivative or similar instruments.

 

Pledges and

Margin Accounts

  

Pledging Company securities as collateral for a loan or holding Company securities as collateral in a margin account. TCI Holdings, LLC’s (an affiliate of Mr. Nixon) pre-existing pledge of 600,000 shares is the only exclusion from this prohibition. This pledge by TCI Holdings, LLC was entered into in August 2016 for 1.1 million shares and was recently reduced to 600,000 shares. All pledges by Mr. Edwards and his affiliates have been terminated. Any person who is (i) engaged in a hedging transaction involving Company securities, (ii) pledging Company securities as collateral for a loan or (iii) holding Company securities as collateral in a margin account is not eligible for election or re-election as a director.

 

We also have procedures that require trades in our stock by executive officers, directors and certain other significant employees, and each of their family members and members of their households, to be pre-cleared by appropriate Company personnel. None of our executive officers has any shares of Company stock pledged as collateral for personal loans or other obligations. In August 2016, TCI Holdings, LLC, an affiliate of J. Michael Nixon, pledged 1.1 million shares of Company stock. This pledge by TCI Holdings, LLC was recently reduced to 600,000 shares.

Communication with Directors

 

Stockholders and others who wish to communicate with the Board of Directors or to any particular director, including the Presiding Independent Director, may do so by writing to the following address: c/o Corporate Secretary, Installed Building Products, Inc., 495 South High Street, Suite 50, Columbus, Ohio 43215. The Board has directed the Corporate Secretary’s office to forward to the appropriate director(s) all correspondence, except for items unrelated to the functions of the Board, business solicitations and advertisements.

 

 

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Governance Materials on our Website

 

The following Board policies and other corporate governance materials are published on our website at http://investors.installedbuildingproducts.com/corporate-governance:

 

    Audit Committee Charter
    Amended and Restated Bylaws
    Amended and Restated Certificate of Incorporation
    Code of Business Conduct and Ethics
    Compensation Committee Charter
    Corporate Governance Guidelines
    Disclosure Committee Charter
    Insider Trading Policy – All Employees
    Insider Trading Policy – Covered Persons
    Nominating and Corporate Governance Committee Charter
    Reg FD Policy
    Related-Party Transactions Policy
    Whistleblower Policy

Sustainability and Social Responsibility

 

We strive to be a good steward of the environment as well as to our employees and to the communities in which we operate.

Installation of insulation materials accounted for 67% of our revenues in 2017. Fiberglass insulation is typically comprised of 40-80% recycled material. Sand, a renewable resource, is the primary non-recycled raw material in fiberglass insulation. One component of our fiberglass insulation installation is loosefill, or blown-in, insulation which is primarily made from scrap material, reducing landfill waste. Installation of these materials in residential and commercial structures, which is our primary business model, reduces carbon footprints by reducing energy consumption and greenhouse gas emissions, and making homes and workplaces more energy efficient and a more comfortable place to live and work. Our fiberglass manufacturing partners have strong records of environmental stewardship.

We believe that our growth is directly attributable to the commitment of our employees, and we are equally committed to the health, safety and wellness of our employees and to the community at large through the following programs:

 

    Safety Wanted 365 – Each year, significant staffing, funding and resources are allocated to our management systems that directly impact safety. We have strong workplace safety measures, including Safety Wanted 365, an initiative focused on creating a safer working environment for both our employees and other jobsite personnel through year round education and training.
    Financial Wellness Program – In 2017, we began offering a financial wellness education program to our employees, and approximately 40% of eligible employees took advantage of that program. The program educates participants on key personal financial topics including budgeting, debt reduction, saving and giving back to the community. The Company makes a matching contribution to the account of each participant who saves $1,000, which has been funded in part by our executives waiving all or a portion of their incentive cash bonuses in 2017 and again in 2018.
    Longevity-Based Awards – In 2017, we also initiated a longevity-based award plan that rewards employees with grants of restricted stock units for each ten years of service.
    Community Engagement – We have community engagement programs that offer volunteer opportunities to our corporate office employees. Many of our branch locations also offer employees the opportunity to engage with their local communities.

 

 

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PROPOSAL 2 – RATIFICATION OF APPOINTMENT OF

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Overview

 

Our Audit Committee is directly responsible for the appointment, compensation and oversight of the audit work of our independent registered public accounting firm. The Audit Committee conducts an annual evaluation of the independent registered public accounting firm’s qualifications, performance and independence. The Audit Committee considers whether the firm should be rotated and the advisability and potential impact of selecting a different auditing firm. In evaluating and selecting the Company’s independent registered public accounting firm, the Audit Committee considers, among other things, historical and recent performance of the current firm, an analysis of known significant legal or regulatory proceedings against the firm, audit quality and performance, firm capabilities, audit approach and the independence of the firm.

The Audit Committee has appointed, and the Board has ratified the appointment of, Deloitte & Touche LLP (“Deloitte”) to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2018. Deloitte has continuously served as our independent registered public accounting firm since 2013.

The Audit Committee and the Board believe that the continued retention of Deloitte as our independent registered public accounting firm is in the best interests of the Company and our stockholders, and we are asking our stockholders to ratify the selection of Deloitte as our independent registered public accounting firm for 2018. Although stockholder ratification is not required by our governing documents or otherwise, the Board is submitting the selection of Deloitte to our stockholders for ratification because we value our stockholders’ views on our independent registered public accounting firm and as a matter of good corporate governance. If our stockholders fail to ratify the appointment of Deloitte, the Audit Committee will reconsider whether or not to retain Deloitte and may retain that firm or another firm without resubmitting the matter to our stockholders. Even if the selection of Deloitte is ratified, the Audit Committee may, in its discretion, select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders.

A representative of Deloitte is expected to be present at the Annual Meeting, will be given an opportunity to make a statement if he or she so chooses and will be available to respond to appropriate questions from stockholders.

Fees Paid to Deloitte

 

The following table sets forth the aggregate fees paid by us to Deloitte for the fiscal years ended December 31, 2017 and 2016:

 

           2017      2016  
                              
Audit Fees      (1 )      $         1,846,964            $         1,587,144    

   Audit-Related Fees

     (2 )      -                179,438    
    

 

 

    

 

 

 

  Total

         $ 1,846,964            $ 1,766,582    
    

 

 

    

 

 

 

 

 

(1)  Consists of fees billed for professional services rendered in connection with the audit of our annual consolidated financial statements and internal control over financial reporting and

 

 

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review of our quarterly consolidated financial statements and services that are normally provided in connection with statutory and regulatory filings or engagements.

(2)  Consists of fees billed for professional services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit Fees.” These services include due diligence in connection with acquisitions, attest services that are not required by statute or regulation and accounting consultations on proposed transactions.

Pre-Approval Policies and Procedures

 

The Audit Committee has established a policy requiring pre-approval of all audit and non-audit services provided by our independent registered public accounting firm. On an ongoing basis, management submits to the Audit Committee specific projects and services to be performed by our independent registered public accounting firm for which it seeks advance approval. The Audit Committee reviews these requests and determines whether to approve the requested engagement. On a periodic basis, management reports to the Audit Committee the actual spending for such projects and services compared to the approved amounts.

For the 2016 and 2017 fiscal years, all services provided by Deloitte were pre-approved by the Audit Committee in accordance with this policy.

Report of the Audit Committee

 

Management is responsible for the preparation and presentation of the Company’s financial statements, the effectiveness of internal controls over financial reporting and procedures that are reasonably designed to assure compliance with accounting standards and applicable laws and regulations. The Company’s independent registered public accounting firm, Deloitte & Touche LLP (“Deloitte”), is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”).

The Audit Committee’s responsibility is to monitor and oversee these processes on behalf of the Board. In fulfilling these oversight responsibilities, the Audit Committee has reviewed and discussed with management and Deloitte the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2017. The Audit Committee also held discussions with management and Deloitte regarding the fair and complete presentation of the Company’s results and the assessment of the Company’s internal control over financial reporting. The Audit Committee discussed significant accounting policies applied in the Company’s financial statements, as well as, when applicable, alternative accounting treatments. Management represented to the Audit Committee that the consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America. The Audit Committee has also discussed with Deloitte the matters required to be discussed with the independent registered public accounting firm by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU section 380), as adopted by the PCAOB in Rule 3200T.

In addition, the Audit Committee reviewed and discussed with Deloitte its independence from the Company and its management. As part of that review, the Audit Committee received the written disclosures and the letter required by applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and the Audit Committee discussed Deloitte’s independence from the Company. The Audit Committee also considered whether the firm’s provision of non-audit services to the Company is compatible with the firm’s independence. The Audit Committee concluded that the Company’s independent registered public accounting firm is independent from the Company and its management.

 

 

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The Audit Committee discussed with the Company’s Internal Audit Department and Deloitte the overall scope of and plans for their respective audits. The Audit Committee meets with the Director of Internal Audit and representatives of Deloitte, in regular and executive sessions, to discuss the results of their examinations, the evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting and compliance programs.

Based on the reviews and discussions referred to above, the Audit Committee has recommended to the Board that the audited consolidated financial statements referred to above be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The Audit Committee has selected, and the Board of Directors has ratified the selection of, Deloitte as the Company’s independent registered public accounting firm for 2018.

Audit Committee

Lawrence A. Hilsheimer (Chair)

Margot L. Carter

Michael H. Thomas

Required Vote and Recommendation of the Board

 

The affirmative vote of a majority of the shares present or represented by proxy at the Annual Meeting and entitled to vote is required to ratify the appointment of Deloitte as our independent registered public accounting firm for the fiscal year ending December 31, 2018. Abstentions will have the same effect as votes “AGAINST” this proposal. Brokers have discretion to vote on this proposal; however, broker non-votes will have no effect on the outcome of this proposal. Unless otherwise instructed, the persons named as proxies will vote “FOR” this proposal.

 

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2018.

 

 

 

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PROPOSAL 3 – NON-BINDING ADVISORY VOTE ON

EXECUTIVE COMPENSATION

 

Overview

 

As required by Section 14A of the Securities Exchange Act of 1934 and as a matter of good corporate governance, we are seeking stockholder approval of our executive compensation program as disclosed below in this Proxy Statement. Stockholders are being asked to vote on the following advisory resolution:

“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the Company’s named executive officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation tables and the related disclosures relating to fiscal year 2017.”

We have a pay-for-performance philosophy that forms the foundation of our decisions regarding payment of executive compensation. This philosophy and the compensation structure approved by the Compensation Committee are central to our ability to attract, retain and motivate individuals who can achieve superior financial results in the best interests of the Company and our stockholders. Our program links pay to performance by weighting a significant portion of the total compensation opportunity of our named executive officers (sometimes referred to as our “NEOs”) in variable or “pay at risk” compensation programs. Our program also aligns the NEOs’ financial interest with those of our stockholders by weighting a substantial portion of their total compensation in the form of equity awards.

We urge our stockholders to read “Executive Compensation – Compensation Discussion and Analysis” below, which describes in detail how our executive compensation program and practices operate and are designed to achieve our compensation objectives, as well as the accompanying executive compensation tables and narratives that provide detailed information on the compensation of our NEOs.

As discussed in more detail in the Compensation Discussion and Analysis, we believe our executive compensation program is competitive and governed by pay-for-performance principles. We emphasize compensation opportunities that reward results. Our stock ownership requirements and use of stock-based incentives reinforce the alignment of the interests of our executives with those of our long-term stockholders. The Compensation Committee believes that our executive compensation program is consistent with our executive compensation philosophy, supports our long-term strategic objectives, encourages appropriate sensitivity to risk and increases stockholder value.

This advisory vote on our executive compensation, commonly referred to as a “say-on-pay” advisory vote, is non-binding on the Compensation Committee and the Board of Directors. However, the outcome of the vote will provide information to the Compensation Committee and the Board regarding stockholder sentiment about our compensation program, which the Compensation Committee will carefully review and consider when making future decisions regarding the compensation of our NEOs.

We believe that our compensation programs are competitive, focused on pay-for-performance and strongly aligned with the long-term interest of our stockholders. The Compensation Committee believes that executive compensation for 2017 was reasonable, appropriate and justified by the performance of the Company and the result of a carefully considered approach.

 

 

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Required Vote and Recommendation of the Board

 

The affirmative vote of a majority of the shares present or represented by proxy at the Annual Meeting and entitled to vote is required for approval of this advisory resolution. Abstentions will have the same effect as votes “AGAINST” this proposal. Broker non-votes will have no effect on the outcome of the advisory resolution. Unless otherwise instructed, the persons named as proxies will vote “FOR” this proposal.

 

 

THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” APPROVAL OF THE NON-BINDING ADVISORY RESOLUTION APPROVING THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS.

 

 

 

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EXECUTIVE OFFICERS AND CERTAIN SIGNIFICANT

EMPLOYEES

 

The following biographical information regarding our executive officers and certain significant employees is as of April 20, 2018:

Executive Officers

 

 

Jeffrey W. Edwards

 

Age 54

 

President, Chief Executive Officer and Chairman

  

 

Mr. Edwards is our President, Chief Executive Officer and Chairman and has held these positions since 2011, 2004 and 1999, respectively. Mr. Edwards’ position allows him to advise the Board on management’s perspective over a full range of issues affecting the Company. Prior to joining us, Mr. Edwards acted as an officer and strategist for several companies that he and his family started, acquired or invested in over more than 40 years across a variety of industries, including multi-family and student housing development and management, industrial tool distribution, wholesale building supply, homebuilding, land and real estate development and real estate brokerage. Since 1988, Mr. Edwards has been involved in the launch of many business ventures as well as commercial real estate developments in central Ohio and elsewhere. He holds a B.S. in Marketing from Miami University.

 

 

Michael T. Miller

 

Age 53

 

Executive Vice President, Chief Financial Officer and Director

  

 

Mr. Miller has served as our most senior financial officer since he joined us in 2000 as our Executive Vice President – Finance. He has been our Chief Financial Officer since July 2013 and a director since 2004. Prior to joining the Company, Mr. Miller held the position of Senior Vice President/Managing Director responsible for Corporate Investment Banking at Huntington Capital Corp., a subsidiary of Huntington Bancshares, Inc., a regional bank holding company. Before joining Huntington in 1991, Mr. Miller held various positions with Deutsche Bank and Canadian Imperial Bank of Commerce in New York. Mr. Miller began his career at First Union National Bank in Charlotte, North Carolina. He holds a B.A. from Wake Forest University. Mr. Miller serves on the board of BMC Stock Holdings, Inc. and is a member of its audit committee.

 

 

Jay P. Elliott

 

Age 56

 

Chief Operating Officer

  

 

Mr. Elliott has been our Chief Operating Officer since August 2013. Since joining the Company in April 2002 as Regional Operations and Business Integrations Manager, he has led our acquisition integration process and has overseen various corporate functions. Prior to joining us, Mr. Elliott worked with E&Y Corporate Finance, LLC in restructuring advisory services. Mr. Elliott’s experience includes ten years with Owens Corning in several roles including new business development, market management and corporate strategic planning. Mr. Elliott spent three years with IBM and began his career with Westinghouse Electric Corp. He earned an M.B.A. from Cornell University Johnson Graduate School of Management, a B.E. from Dartmouth College Thayer School of Engineering, and an A.B. from Colgate University.

 

 

 

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Todd R. Fry

 

Age 52

 

Chief Accounting Officer

  

 

Mr. Fry has been our Chief Accounting Officer since April 2014 and our Treasurer since March 2015. He was Chief Financial Officer of Champion Industries, Inc., a commercial printer, business form manufacturer and supplier of office products and office furniture, from 1999 to 2014, where his responsibilities included SEC reporting, Sarbanes-Oxley compliance, mergers & acquisitions, corporate governance, risk management and debt negotiation. From 1997 to 1999, Mr. Fry served as Chief Financial Officer of Broughton Foods Company, where he led both the initial public offering and subsequent sale of the company. Mr. Fry served as a manager at Coopers & Lybrand L.L.P. from 1991 to 1997. Mr. Fry holds a B.S. from The Ohio State University. Mr. Fry has served as a director of Summit State Bank since 2000.

 

 

 

W. Jeffrey Hire

 

Age 66

 

President of External Affairs

  

 

Mr. Hire joined the Company in 2008 and was named President of External Affairs in December 2013. His responsibilities include working with our largest customers, our major suppliers and industry associations. Prior to joining us, from 1978 to 2008, Mr. Hire held numerous management positions at Owens Corning. From 2006 to 2008, he served as Director of Products and Programs for the Insulating Systems Business, developing product innovations and value-added customer programs. For eleven years prior to that, Mr. Hire was General Manager of the Insulation Contractor Segment of the Residential Insulation Division. He earned a B.S. in Philosophy from University of Mount Union in Alliance, Ohio and an M.B.A. specializing in General Management from The University of St. Thomas Opus College of Business in St. Paul, Minnesota. He serves on the Board of the Insulation Contractors Association of America, most recently as the organization’s past President, and has served as a Committee Chairman for the North American Insulation Manufacturers Association. Mr. Hire received the Insulation Contractors Association of America’s “Key Man” award for his leadership and dedication to the industry.

 

 

Jason R. Niswonger

 

Age 45

 

Senior Vice President, Finance and Investor Relations

  

 

Mr. Niswonger has been our Senior Vice President, Finance and Investor Relations since 2015 and served as our Director of Investor Relations from 2014 until 2015. Prior to joining the Company, he served from 2011 to 2013 as the Director, Financial Reporting for Edwards Industries, a national property development and management company. From 2006 to 2011, Mr. Niswonger held multiple positions including the Director, Finance for the Seating Systems Division of Commercial Vehicle Group, Inc., a supplier of integrated system solutions for the global commercial vehicle market. From 2004 to 2006, he was the Director, Financial Reporting for Installed Building Products, LLC. Prior to joining Installed Building Products, LLC, Mr. Niswonger served as the Director of Global Accounting and Financial Reporting at Sterling Commerce, Inc., a global provider of EDI services, B2B integration software solutions and consulting, where he worked from 2000 to 2004. Prior to joining Sterling, he held positions in financial reporting at Express, a division of The Limited, and Exel Logistics. Mr. Niswonger earned an M.B.A. from Otterbein College and a B.A. from Ohio University.

 

 

 

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Certain Significant Employees

 

 

William W. Jenkins

 

Age 61

 

Senior Vice President, Purchasing and Supply Chain

  

 

Mr. Jenkins has been our Senior Vice President, Purchasing and Supply Chain since March 2015 and served as our Director of Internal Audit from September 2013 until March 2015. From 2011 to 2013, he served as a Regional President and served as our President from 1998 to 2011. Prior to joining the Company, Mr. Jenkins held senior management positions with Midwest Wholesale Building Materials, a building products wholesaler and BuyOhio Realtors. Mr. Jenkins began his career with Ernst & Young LLP, where he progressed to become a Senior Manager, specializing in audits of publicly held and privately held insurance, wholesale distribution and fast-food companies. He graduated from The Ohio State University with a B.S. and became a licensed CPA in the State of Ohio. Mr. Jenkins is currently a member of the American Institute of Certified Public Accountants.

 

 

R. Scott Jenkins

 

Age 62

 

Regional President

  

 

Mr. Jenkins has been a Regional President since October 2006 when we acquired OJ Insulation, Inc., which he co-founded in 1984. During his 22-year tenure at OJ Insulation as owner and chief executive officer, Mr. Jenkins was responsible for numerous strategic acquisitions and significant company growth. Since joining us, Mr. Jenkins has been responsible for the management of operations in certain states, including Minnesota, Idaho, Washington and California. He received a B.A. in Social Science from the University of California at Irvine and has been an active member of Vistage International CEO Organization since 2004.

 

 

Shelley A. McBride

 

Age 61

 

General Counsel and Secretary

  

 

Ms. McBride joined the Company in 2005 as General Counsel and Secretary. Prior to joining the Company, she worked as an attorney at the law firm of Calfee, Halter & Griswold, representing corporate and institutional clients in the areas of mergers and acquisitions, secured credit transactions, subordinated debt financings, common and preferred equity investments, organizational restructuring and general corporate matters. Before joining Calfee, Halter & Griswold in 2001, Ms. McBride served as legal counsel for Nationwide Mutual Insurance Company in the Nationwide Enterprise Office of Investments and also served as legal counsel for various investment funds at Banc One Capital. Her experience also includes representing corporate and institutional clients at the law firms of Squire Patton Boggs and Kegler, Brown, Hill & Ritter. From 1983 to 1989, Ms. McBride served as a law clerk to the Honorable John D. Holschuh and the Honorable Mark R. Abel in the United States District Court for the Southern District of Ohio. Ms. McBride earned a J.D. and a B.A. from The Ohio State University.

 

 

Matthew J. Momper

 

Age 57

 

Regional President

  

 

Mr. Momper has been a Regional President since 2008. Prior to joining the Company, he served as President of Momper Insulation Inc., a family business, which he joined in 1984. Mr. Momper was responsible for significant growth of Momper Insulation Inc., and the strategic decision to join that company with us in 1998. Since joining us, Mr. Momper has been responsible for the management of operations in certain states, including Wisconsin, Indiana, Ohio and Illinois. He received a B.S. from Ball State University and an M.B.A. from Drake University. Mr. Momper currently serves on the Board of Trustees for Ball State University and the Board for the Allen County Building Department.

 

 

 

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Warren W. Pearce

 

Age 59

 

Regional President

  

 

Mr. Pearce has been a Regional President since 2011. From 2004 to 2011, he was Vice President of Operations for Masco Corporation, a manufacturer of home products, distributor of building products and installer of building products, where he held various other positions beginning in 1984. Mr. Pearce began his career at Carroll Insulation and later served as branch manager at American Aluminum Insulation. Since joining the Company, Mr. Pearce has been responsible for the management of operations in certain states, including Ohio, North Carolina, Virginia and Maryland. He received from Kent Votech his Electrical Apprenticeship certification.

 

 

Henry T. Schmueckle

 

Age 53

 

President, the Alpha Companies

  

 

Mr. Schmueckle has been President of the Alpha companies, installers of commercial waterproofing, insulation, fireproofing, and fire stopping, since 2012. Mr. Schmueckle joined the Alpha companies in 1988 and served as the General Manager of the San Antonio branch from 1989 to 1992, as Vice President from 1992 to 2012 and as President from 2012 to the present. During his 30 years with the Alpha companies, Mr. Schmueckle has been responsible for various strategic and growth initiatives. He is currently responsible for estimating, development of new programs and the day-to-day operational needs of Alpha. Mr. Schmueckle holds specialty trade contractor licenses in Louisiana, Arkansas, Tennessee, Alabama and Mississippi. He received an Associates’ Degree from Texas State Technical College in Applied Science Specializing in Building Construction Technology.

 

 

Vikas Verma

 

Age 65

 

Chief Executive Officer, the Alpha Companies

  

 

Mr. Verma has served as the Chief Executive Officer of the Alpha companies, installers of commercial waterproofing, insulation, fireproofing and fire stopping, since 2012. He is responsible for business and market development, marketing, finance, insurance and bonding needs of the Alpha companies. Mr. Verma founded Alpha Insulation & Water Proofing, Inc. in 1982 and served as its President from 1982 to 2012 and as its Chief Executive Officer from 2012 to the present. Mr. Verma was the President of Alamo Insulation Co., a residential insulation company with offices in San Antonio and Corpus Christi, Texas from 1977 to 1982. Mr. Verma is a member of the boards of directors of the National Association of Minority Contractors and Boys and Girls Club of Atlanta, and has served on advisory boards for Bank of North Georgia, Owens Corning & Johns Manville. He holds a B.A. in Engineering and an Associate’s Degree in International Marketing and Marketing Management from University of Bombay. He also held the position of President for Georgia Walls & Ceilings Association and is a graduate of Leadership Atlanta.

 

 

Brad A. Wheeler

 

Age 43

 

Regional President

  

 

Mr. Wheeler has been a Regional President since January 2015. He joined the Company in 2010 as Regional Manager and was responsible for the management of operations in several states. Prior to joining us, Mr. Wheeler was a District and Branch Manager for Masco Contractor Services, an installer of building products, from 2001 to 2010. From 1996 to 2001, he held various positions at Cary Corporation, which was purchased by Masco Contractor Services. Since joining the Company, Mr. Wheeler has been responsible for the management of operations in certain states, including Colorado, Texas, Florida and Georgia. He attended Radford University and has been an active member of Vistage International CEO Organization since 2011.

 

 

 

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Randall S. Williamson

 

Age 56

 

Regional President

  

 

Mr. Williamson has been a Regional President since 2001. He began his career in 1981 at Monroe Insulation and Gutter Company Incorporated, or Monroe, where he progressed to become Vice President in 1992. In 1996, Mr. Williamson purchased Monroe and merged it with other companies to form American Building Systems, Inc., where he served as President until 2001. American Building Systems, Inc. merged with us in 2001. Since joining us, Mr. Williamson has been responsible for the management of operations in certain states, including Massachusetts, New Jersey, New York and Michigan. He attended Colorado State University and serves on the board of governors for U.S. Grown Foods.

 

 

 

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COMPENSATION DISCUSSION & ANALYSIS

 

Compensation Committee Report

 

The Compensation Committee has reviewed the Compensation Discussion & Analysis (“CD&A”) included in this Proxy Statement and has discussed the CD&A with members of the management team involved in the compensation process. Based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the CD&A be included in this Proxy Statement and incorporated in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Compensation Committee

Janet E. Jackson (Chair)

Robert H. Schottenstein

Michael H. Thomas

CD&A Table of Contents

 

 

Section

 

  

Highlights

 

  

    Page    

 

1 – Executive Summary

  

   2017 Named Executive Officers

   37
  

   Business Overview

   37
    

   2017 Company Performance Highlights

   37
  

   2017 Employee Initiatives

   38
  

   Pay for Performance Philosophy

   38
  

   2017 Say-on-Pay Voting Results

   39
  

   2017 Executive Compensation at a Glance

   39
  

   2017 Target Compensation Mix

   40
  

   Changes to Executive Compensation

   40
  

   Compensation Practices

   41

2 – How We Determine Pay

  

   Our Compensation Objectives and Philosophy

   42
  

   Goals of Our Compensation Program

   42
  

   Guiding Principles of Our Compensation Philosophy

   42
  

   Our Executive Compensation Process

   43
  

   Peer Group Analysis

   44
  

   Consideration of Advisory Vote on Executive Compensation

   45
  

   Risk Assessment and Management

   45

3 – Elements of our Compensation Program

  

   Components of Compensation

   46
  

   Base Salary

   47
  

   Performance-Based Cash Incentives

   47
  

   Performance-Based Equity Incentives

   48

 

 

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4 – What We Paid in 2017

  

   2017 Base Salary

   49
  

   2017 Performance-Based Incentive Cash Awards

   49
  

   2017 Time-Based Equity Awards

   51
  

   2017 Performance-Based Incentive Equity Awards

   52
  

   Executive Compensation Changes After December 31,2017

   52

5 – Other Compensation and Policies

  

   Executive Benefits and Perquisites

   54
  

   Post-Termination Compensation

   54
  

   Retirement / Post-Employment Benefits

   55
  

   Equity Grant Practices

   55
  

   Tax Considerations

   55
  

   Tax Gross-Ups

   55
  

   Stock Ownership Guidelines

   56
  

   Recoupment Policy

   56

Section 1 – Executive Summary

2017 Named Executive Officers (“NEOs”)

 

Name    Position            Since        

Jeffrey W. Edwards

   President, Chief Executive Officer and Chairman    1999

Michael T. Miller

   Executive Vice President and Chief Financial Officer    2004

Jay P. Elliott

   Chief Operating Officer    2013

Todd R. Fry

   Chief Accounting Officer and Treasurer    2014

Jason R. Niswonger

   Senior Vice President, Finance & Investor Relations    2015

Business Overview

We are one of the nation’s largest insulation installers for the residential new construction market and also offer a diversified range of complementary building products, including waterproofing, fire-stopping and fireproofing, garage doors, rain gutters, shower doors, closet shelving and mirrors. We manage all aspects of the installation process for our customers, including direct purchases of materials from national manufacturers, supply of materials to job sites and quality installation. We provide services for new and existing single-family and multi-family residential projects and commercial building projects from our national network of branch locations.

2017 Company Performance Highlights

Our record 2017 financial and operating results reflect the continued success of our growth-oriented business model, disciplined acquisition strategy and service-oriented culture. We have successfully enhanced our business platform by diversifying our services and expanding our geographic footprint to many of the strongest U.S. housing markets. Our enhanced position allows us to provide more installation services, while deepening our relationships with builders nationwide.

Results for the year ended December 31, 2017:

 

  LOGO   Net revenue increased 31.3% to $1.1 billion   
  LOGO   Gross profit improved 28.4% to $324 million   
  LOGO   Net income increased to $41.1 million ($1.30 per diluted share)   

 

 

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  LOGO   Adjusted EBITDA1 increased 34.6% to $141.1 million   
  LOGO   Operating income rose 12.4% to $74.3 million   

The primary drivers of our 2017 record results included:

 

    Solid organic growth, in part through product line and geographic expansion
    Contribution of our recent acquisitions – in 2017, we completed 16 acquisitions, a record for us in any single year, representing approximately $172 million of annual revenues at the time of acquisition
    Improvements in the rate of single-family housing completions

2017 Employee Initiatives

Our success is a direct result of the dedication and commitment of our nearly 7,000 employees. We are continuing to work on several key initiatives to improve employee sourcing and increase retention rates. Reflecting our commitment, in 2017, we began offering two new opportunities to our employees:

Financial Wellness Program - This program helps educate participants on key personal financial management topics, including budgeting, debt reduction, saving and giving back to the community. Nearly 40% of our eligible employees participated in the financial wellness program in 2017. One of the key components of this program is encouraging employees to establish personal savings accounts, which the Company matches dollar for dollar up to $1,000. As a result of the Company match, we incurred approximately $3 million of expense in 2017, which was partially offset by Messrs. Edwards, Miller and Elliott agreeing in advance to waive all or part of their 2017 performance-based incentive cash award payments. In the spirit of the program’s giving-back principle, Messrs. Edwards, Miller and Elliott have again agreed in advance to waive any performance-based incentive cash award payments earned in 2018 to further offset the start-up matching expense. We believe this is a valuable program that not only helps address employee retention, but represents the right thing to do in order to help educate and inform our employees about their financial position and security.

Longevity Restricted Stock Unit Program - This program rewards employees for their long-time dedicated service to the Company. Eligible employees are awarded grants of restricted stock units under the 2014 Omnibus Incentive Plan for each ten years of service to the Company, including service for companies that we acquire. Provided that the Company meets a revenue target established in advance by the Compensation Committee ($950 million trailing 12 month revenue from July 1, 2016 to June 30, 2017 for fiscal year 2017 awards), employees are awarded restricted stock units based on a percentage of wages that convert one year later into shares of our common stock. We awarded approximately 74,800 restricted stock units to approximately 875 employees in 2017, with years of service ranging from ten to 48 years. We believe the program is in the best interest of the Company and its stockholders, as it rewards employees for valued service and assists in retention of the Company’s highly valued long-term employees.

Pay for Performance Philosophy

Our executive compensation philosophy is to provide a competitive compensation package weighted toward Company performance and aligned with our stockholders’ long-term interests. A significant percentage of our executive compensation is in the form of performance-based awards. The Compensation Committee believes that our executive compensation program drives performance and increases stockholder value.

 

 

 

1  Adjusted EBITDA, used throughout this CD&A, is a non-GAAP performance measure. For more information regarding how we define Adjusted EBITDA, See “Additional Information – Use of Non-GAAP Financial Measures.”

 

 

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2017 Say-on-Pay Voting Results

Our executive compensation program received strong support from our stockholders in 2017, with 92.6% of the votes cast at the 2017 annual meeting voting in favor. The Compensation Committee believes that this level of support of our executive compensation program is indicative of our stockholders’ strong support of our compensation philosophy and goals.

2017 Executive Compensation at a Glance

We believe the compensation paid to our named executive officers for 2017 appropriately aligned executive pay with our corporate performance.

 

Name    Base Salary
($)
     Performance-
Based Cash
Award
($)
     Time-Based and
Performance-
Based Restricted
Stock Award at
Grant Date Fair
Value
($)(1)
 

Jeffrey W. Edwards

     660,000         508,125         3,072,118  

Michael T. Miller

     330,000         178,860         1,139,376  

Jay P. Elliott

     385,000         256,095         1,090,444  

Todd R. Fry

     241,346         56,910         128,889  

Jason R. Niswonger

     241,464         50,813         109,113  

 

                            
(1)      Beginning in 2017, to further align our executive compensation program with our performance, the Compensation Committee began granting incentive awards of restricted stock for our NEOs that are both performance-based and time-based. Because our performance-based equity awards are forward looking (based on the current year’s performance) and our time-based equity awards were historical (based on the past year’s performance), in 2017 our NEOs received two awards of restricted stock.

As noted above, Messrs. Edwards, Miller and Elliott agreed in advance to waive all or a portion of their 2017 performance-based cash award payments in order to offset partially the expense of the Company match under the financial wellness program. The following shows the amount of performance-based cash award actually paid to each NEO:

 

Name    Performance-
Based Cash
Award
Earned
($)
     Performance-
Based Cash
Award
Actually Paid
($)
 

Jeffrey W. Edwards

     508,125          

Michael T. Miller

     178,860          

Jay P. Elliott

     256,095         90,000   

Todd R. Fry

     56,910         56,910   

Jason R. Niswonger

     50,813         50,813   

 

 

 

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2017 Target Compensation Mix

Our executive compensation program for 2017 consisted of three components: base salary, performance-based cash awards and performance-based restricted stock awards. The illustration below reflects the mix of our target executive compensation for 2017 and highlights the at-risk portion of total target compensation. Approximately 86% of the target compensation of our Chief Executive Officer and approximately 74% of the average target compensation for our other NEOs was variable and tied to Company performance.

 

LOGO

Changes to Executive Compensation

Changes Effective for 2017

 

    Addition of Executive Officers. Todd R. Fry, our Chief Accounting Officer, and Jason R. Niswonger, our Senior Vice President, Finance and Investor Relations, were added as executive officers.

 

    Performance-Based Restricted Stock. Prior to 2017, time-based restricted stock vesting over three years was awarded to our executives based on the Compensation Committee’s subjective judgment. Beginning in 2017, all awards of restricted stock became both performance-based and time-based. If the pre-established Company financial performance metric is met and an award of restricted stock is earned, the restricted stock vests in two annual installments, generally subject to the NEO’s continued employment on the applicable vesting date, so that the value of equity awards is not fully realized for three years.

 

    Recoupment Policy. The Board of Directors adopted a compensation recoupment, or “clawback” policy. The policy provides for recovery of incentive and other compensation from executives if we are required to restate our financial statements due to material noncompliance with financial reporting requirements under the securities laws or if an executive officer has engaged in grossly negligent or intentional misconduct that was a significant contributing factor to an accounting restatement, any significant increase in the value of such executive’s incentive compensation or any substantial financial or reputational harm to the Company.

Changes Effective in 2018

 

    Addition of Executive Officer. W. Jeffrey Hire, our President of External Affairs, was added as an executive officer.

 

    Increased Compensation. To further align our NEOs’ compensation with the average of the median and 75th percentile of our peer group, the Compensation Committee increased the compensation levels for our NEOs:

 

  Base salaries for Messrs. Fry, Hire and Niswonger increased by $40,000, $2,940 and $30,000, respectively.

 

 

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  Target incentive cash bonuses were increased for Messrs. Edwards, Miller, Elliott, Fry, Hire and Niswonger by $50,000, $30,000, $25,000, $5,000, $15,595 and $17,500, respectively.

 

  Target incentive equity awards were increased for Messrs. Edwards, Miller, Elliott, Fry, Hire and Niswonger by $100,000, $30,000, $50,000, $5,000, $23,631 and $17,500, respectively.

 

  Amended Insider Trading Policy. We amended our Insider Trading Policy, effective February 22, 2018, for executive officers, directors and other persons covered by the policy to prohibit all hedging and monetization transactions involving our securities and all pledging of our securities as collateral. TCI Holdings, LLC’s (an affiliate of Mr. Nixon) pre-existing pledge of 600,000 shares is the only exclusion from this pledging prohibition. This pledge by TCI Holdings, LLC was entered into in August 2016 for 1.1 million shares and was recently reduced to 600,000 shares. No person who has any hedging or pledging transaction in effect relating to our securities may be nominated or re-nominated as a director. None of our executive officers has any shares of Company stock pledged as collateral.

Compensation Practices

 

     

What We Do

 

       

What We Don’t Do

 

   LOGO      

Pay for Performance – A substantial percentage of our executive compensation is based on pre-established financial performance metrics

 

       LOGO   

No Tax Gross-Ups – We do not provide for tax gross-ups for perquisites or other benefits for executives

 

   LOGO      

Balanced Compensation Mix – NEOs are paid a mix of salary, performance-based cash bonuses and performance-based restricted stock awards

 

       LOGO   

No Pension Plans – We do not have pension plans or other retirement benefits for our executives that are unavailable to other employees

 

   LOGO   

Multi-year Vesting of Equity Awards – Earned shares of performance-based restricted stock vest over a two year period after the financial target is met, enforcing a culture of long-term success

 

       LOGO   

No Hedging – Our Insider Trading Policy prohibits hedging and other monetization transactions involving our securities

 

   LOGO   

Limited Perquisites – We provide minimal perquisites to our NEOs that are not available to other salaried employees

 

       LOGO   

No Short Sales – We do not permit short sales or other speculative transactions in Company securities

 

   LOGO   

Competitive Pay – An independent consultant engaged by the Compensation Committee provides market data to assess compensation competitiveness

 

       LOGO   

No Option Repricing – Our 2014 Omnibus Incentive Plan prohibits repricing underwater stock options without the approval of our stockholders

 

   LOGO   

Robust Clawback Policy – Our clawback policy allows recovery of incentive and other compensation granted on or after the effective date of the policy in the event of a restatement of our financial statements or other triggering events

 

       LOGO   

No Accelerated Vesting on Change in Control– We do not provide for automatic accelerated vesting of incentive awards upon a change in control

 

   LOGO    Stock Ownership Requirements – NEOs are required to hold Company stock in a multiple of base salary, aligning their interests with our stockholders        LOGO   

No Pledging – Our Insider Trading Policy prohibits pledging transactions relating to our common stock and holding our common stock as collateral in a margin account

 

 

 

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   LOGO      

Annual Say-on-Pay – We value stockholder input and seek an annual advisory vote on executive compensation from our stockholders

 

       LOGO   

No Employment Agreements – We do not have employment agreements with our executives other than our Chief Executive Officer

 

Section 2 – How We Determine Pay

Our Compensation Objectives and Philosophy

Our executive compensation philosophy is to provide a competitive compensation package weighted toward Company performance and aligned with our stockholders’ long-term interests. Our executive compensation program is both reflective of the strategic value of the individual’s position and designed to ensure long-term retention and motivation.

Goals of Our Compensation Program

 

   To attract, motivate and retain exceptional executives who are critical to sustained long-term Company performance and stockholder value.

 

   To align the interests of our key executives with the long-term interests of our stockholders by tying a significant amount of executive compensation to the achievement of pre-established performance metrics related to our business goals and financial performance.

 

   To motivate our executives to perform at the highest level, to achieve our financial and strategic goals and to reinforce our commitment to high-quality service, which is the pillar of our local operations and is primarily responsible for our long-lasting relationships with our customers and suppliers.

Guiding Principles of Our Compensation Philosophy

 

   Pay for Performance. We reward our executives’ achievements by linking a significant portion of their compensation to the Company’s financial performance. Our incentive compensation program is measured by a pre-established performance metric that reflects strategic and operational objectives. Incentive compensation varies based on the extent to which the objective is met - if at least 80% of the target is not met, then no incentive compensation is payable, while if the target is exceeded, executives have an opportunity to earn above-target incentive compensation.

 

   Competitive Pay. Our compensation program is designed to recruit and retain top talent through the use of elements that are flexible and competitive with our peers. 

 

   Internal Pay Equity. We believe that internal pay equity is an important factor in ensuring fairness and encouraging a collaborative effort among our executive team. The Compensation Committee reviews compensation levels to ensure that appropriate internal pay equity exists, including review of each NEO’s pay components and levels relative to other NEOs, considering experience, leadership role, seniority and level of responsibility.

 

 

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  Aligned with Stockholders. A significant portion of our executives’ compensation is in the form of at-risk performance-based cash bonuses and performance-based restricted stock awards that, if earned, vest over an additional two years. The value of an executive’s equity-based award fluctuates with the price of our common stock, which aligns the long-term interests of our executives and our stockholders. In furtherance of this principle, we require our NEOs to maintain levels of ownership of our common stock based upon a multiple of their salaries.

Our Compensation Committee considers the overall mix of cash and equity compensation, annual and long-term incentives and fixed and variable pay in determining our executive compensation. The Compensation Committee does not follow any pre-established policies, guidelines or formulas for allocating compensation mix, instead retaining flexibility by determining annually what it believes is the appropriate mix of compensation.

Our Executive Compensation Process

Role of the Compensation Committee. Our Compensation Committee, comprised entirely of independent directors, is responsible for the oversight, establishment, implementation and administration of our executive compensation program. During the first quarter of each year, the Compensation Committee makes decisions with respect to incentive compensation earned based on the prior year’s performance and finalizes performance metrics and target incentive compensation levels for the current year. Later in the year, the Compensation Committee reviews materials relating to peer group composition and other information that forms the basis for future decisions. The Compensation Committee sets compensation consistent with our compensation philosophy and objectives and competitive with our peers. The Compensation Committee, in consultation with our Chief Executive Officer and Chief Financial Officer, annually reviews and establishes the compensation program for our named executive officers, including setting the performance metrics and compensation targets for our performance-based incentive plans. In making compensation decisions, the Compensation Committee considers a balance of information, among other things, the experience, leadership, responsibility and performance of the executive team, retention, internal equity considerations and industry competitiveness. While the Compensation Committee consults with management and its independent compensation consultant in making its decisions, final authority for the establishment of our executive compensation program and performance objectives rests solely with the Compensation Committee. For more information regarding the Compensation Committee, see “Corporate Governance – Board Committees – Compensation Committee.”

Role of Executives. In the course of determining executive compensation, the Compensation Committee from time to time solicits input from our management. The Compensation Committee believes this input is valuable because of the Chief Executive Officer’s and Chief Financial Officer’s comprehensive knowledge of our business, operations and financial and strategic goals. Our Chief Executive Officer and Chief Financial Officer (i) provide data, analysis and recommendations to the Compensation Committee regarding the Company’s executive compensation programs and policies, (ii) annually evaluate the performance of our named executive officers (other than themselves) based on each individual’s performance, length of service, experience, level of responsibility and achievement of Company goals, and (iii) propose to the Compensation Committee the performance metrics to be used to determine target awards under our performance-based incentive programs. The Compensation Committee, however, retains sole authority to determine all elements of executive compensation.    Our management and human resources department support the Compensation Committee in its duties, and the Compensation Committee from time to time delegates to management and the human resources department certain administrative duties.

Role of Compensation Consultants. Upon the recommendation of management, the Compensation Committee has engaged Mercer, LLC, a subsidiary of Marsh & McLennan Companies and a global professional services firm (“Mercer”), to provide and review market data with respect to publicly-traded companies similar in size and industry to us regarding executive officer compensation and non-employee director compensation. In 2016, the Compensation Committee engaged Mercer to perform a comprehensive review of our executive compensation program and to conduct market compensation comparisons for our executive officers to assist the Compensation Committee in designing our executive compensation program. Mercer reports directly to the Compensation

 

 

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Committee. The Compensation Committee and management worked with Mercer to develop an appropriate peer group of publicly-traded companies. Mercer provided an independent review of the executive and non-employee director compensation practices in our peer group, including an analysis of base salary and annual and long-term incentives. Mercer also made general observations and provided advice about the Company’s executive compensation program, including an analysis of overall competitiveness to market. The Compensation Committee met with Mercer, reviewed its reports and considered its advice in connection with structuring our compensation program. The Compensation Committee intends to engage Mercer to update its review of our executive compensation program biannually.

In connection with the engagement of Mercer, the Compensation Committee considered and assessed all relevant factors, including, but not limited to, those set forth in applicable SEC and NYSE rules, that could give rise to a potential conflict of interest with respect to Mercer. Based upon this review, the Compensation Committee determined that engaging Mercer did not raise any conflict of interest.

Peer Group Analysis

Mercer, in consultation with our management and Compensation Committee, compiled a report in July 2016 of compensation data for executive officers and non-employee directors at comparable companies. The data included base salary, annual cash incentive compensation, long-term incentive awards, performance metrics utilized, incentive plan designs, long-term incentive mix and equity plan designs. Mercer compiled this data from the proxy disclosures of the peer group as well as from published surveys.

The Compensation Committee reviewed Mercer’s report summarizing compensation levels at the 25th, median and 75th percentiles of the peer group and the survey composite data for positions comparable to those held by each of our NEOs. The Compensation Committee also reviewed a report comparing the target total cash compensation (base salary plus target annual incentive) and target total direct compensation (base salary plus target annual incentive plus target long-term incentive) for each of the NEOs against these benchmarks. For retention and competitive considerations, the Compensation Committee targets each NEO’s total cash compensation and total direct compensation levels at approximately the average of the median and 75th percentile of the peer group.

Using the information provided by Mercer, the Compensation Committee reviewed executive compensation data for executives with comparable positions at peer companies to gauge the reasonableness and competitiveness of our executive compensation program. Comparison to our peer group is one of several factors considered by the Compensation Committee in the compensation process but is not determinative. Individual compensation is based on numerous factors, including performance, length of service, experience, level of responsibility, competitive compensation data and performance of the Company. While the Compensation Committee does not establish executive pay based solely on peer group data, it believes that our pay levels and practices should be within a range of competitiveness with our peer group.

Selection of a peer group is challenging for our Company due to the lack of publicly-traded companies with whom we directly compete, and we expect it will continue to be an evolving process as the market changes. In determining our peer group, Mercer recommended that the Compensation Committee take into account a number of factors for each potential peer company, including size (revenues, market capitalization, net income and number of employees), and nature of the business (industry and similar customer base). The Compensation Committee believes our selected peer group provides a sufficient sample size from which to draw conclusions and reflects a representative market for executive talent that our business faces.

In 2016, upon consultation with management and advice from Mercer, the Compensation Committee selected the following companies as our peer group for determining 2017 compensation (updated to show last twelve months (“LTM”) figures as of December 31, 2107, except for American Woodmark, which is as of October 31, 2017:

 

 

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Peer Group   Industry   Market Cap
($ in Billions)
         Peer Group   Industry   LTM Revenue
($ in Millions)

Trex Company, Inc.

  Building Products   3.2        Builders FirstSouce, Inc.   Building Products   7,034.2  

TopBuild Corp.

  Homebuilding   2.7        BMC Stock Holdings, Inc.   Trading Companies & Distrubtors   3,366.0  

Builders FirstSouce, Inc.

  Building Products   2.5        Ply Gem Holdings, Inc.   Building Products   2,056.3  

Installed Building Products, Inc.

  Homebuilding   2.4        TopBuild Corp.   Homebuilding   1,906.3  

American Woodmark Corporation

  Building Products   2.1        Installed Building Products, Inc.   Homebuilding   1,132.9  

BMC Stock Holdings, Inc.

  Trading Companies & Distrubtors   1.7        American Woodmark Corporation   Building Products   1,103.1  

Ply Gem Holdings, Inc.

  Building Products   1.3        Gibraltar Industries, Inc.   Building Products   986.9  

Gibraltar Industries, Inc.

  Building Products   1.0        Trex Company, Inc.   Building Products   565.2  

PGT Innovations Inc.

  Building Products   0.8        PGT Innovations Inc.   Building Products   511.1  
                        

Peer Group Median

      1.9        Peer Group Median       1,504.7  

Peer Group 75th Percentile

      2.6        Peer Group 75th Percentile       3,038.5  

(1) Headwaters, Incorporated was excluded as they were purchased in 2016 by a private company

   

Consideration of Advisory Stockholder Vote on Executive Compensation

Our executive compensation program received substantial stockholder support in 2017, with more than 92% of the votes cast by our stockholders at the 2017 annual meeting voting in favor. The Compensation Committee believes that this level of support of our executive compensation program is indicative of our stockholders’ strong support of our executive compensation philosophy and goals. Stockholder votes provide information to the Compensation Committee regarding stockholder sentiment about our compensation program, which the Compensation Committee carefully reviews and considers when making future decisions regarding the compensation of our NEOs. The Compensation Committee did not implement any material changes to our executive compensation program as a direct result of the 2017 say-on-pay vote. In accordance with the preference expressed by our stockholders at the 2017 annual meeting of stockholders and as a matter of good corporate governance, our Board has committed to having an annual say-on-pay vote.

Risk Assessment and Management

Our management team assesses and discusses with the Compensation Committee our compensation practices as they relate to corporate risk management. The Compensation Committee believes that the following features of our executive compensation program appropriately mitigate potential risks:

 

    Financial Performance Metrics. Pre-established financial performance metrics used by the Compensation Committee to determine incentive award opportunities are intended to reward success without encouraging excessive risk taking.

 

    Equity Vesting. Prior to 2017, our executives were awarded time-based restricted stock that vested over three years. Beginning in 2017, our executives are awarded performance-based restricted stock awards which, if earned, vest over an additional two years. These vesting periods are designed to award sustained performance.

 

    Equity Retention. The Compensation Committee has established an NEO stock ownership policy which requires our executives to beneficially own our common stock with a fair market value between one and five times base salary.

 

    No Hedging or Pledging. Named executive officers (and other Company employees subject to our Insider Trading Policy for Covered Persons) are prohibited from engaging in any hedging or monetization transactions involving Company securities, pledging any Company securities as collateral for a loan and holding Company securities as collateral in a margin account.

 

   

Clawback Policy. The Compensation Committee has the ability to recoup compensation paid to an executive officer in the event of a restatement of our financial statements, or if an executive officer has

 

 

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  engaged in grossly negligent or intentional misconduct that was a significant contributing factor to an accounting restatement, any significant increase in the value of such executive’s incentive compensation or any substantial financial or reputational harm to the Company.

 

    Other Factors. Other mitigating factors include benchmarking compensation, oversight by a committee of independent directors and a mix of fixed and variable incentive compensation.

We believe the design of our compensation program mitigates any incentive for short-term risk-taking by executives that could be detrimental to the long-term best interests of the Company and its stockholders. The Compensation Committee believes that any risks arising from our compensation programs are minimal and are not reasonably likely to have a material adverse effect on us.

Section 3 – Elements of our Compensation Program

Components of Compensation. Our executive compensation program is designed to be simple, competitive and link pay to performance. Our approach to executive compensation in 2017 was substantially the same as the approach approved by our stockholders at the 2017 annual meeting, except that beginning in 2017, the Compensation Committee determined to issue combination performance-based and time-based incentive equity awards, rather than wholly time-based equity awards.

Our executive compensation program includes the following key elements:

 

Element

 

  

Design

 

  

Purpose

 

   
Base Salary   

  Fixed cash compensation.

 

  Reviewed annually and adjusted as appropriate, based on responsibility, performance, internal pay equity and competitive market.

 

  

  Provides a fixed source of income to attract and retain executives with proven skills and leadership abilities.

   
Performance-Based Cash Incentives   

  At-risk performance-based cash compensation based on achievement of pre-established performance goals.

 

  Earned only if at least 80% of target goal is achieved.

 

  

  To motivate and reward executives to achieve performance objectives that are key to our annual financial and strategic goals.

   
Performance-Based Equity Incentives   

  At-risk performance-based equity compensation based on achievement of pre-established performance goals.

 

  Granted as restricted stock.

 

  Earned only if at least 80% of target goal is achieved.

 

  Vests over two years after satisfaction of performance goals.

 

  

  To motivate and reward executives for focusing on sustained long-term growth and increasing stockholder value.

 

  Enhances retention of key talent.

 

  Aligns compensation to stockholder value and stock price appreciation.

Our executive compensation program includes both fixed components (base salary and benefits) and variable components (short- and long-term incentive awards). Variable components are directly tied to our financial performance. The Compensation Committee annually considers the mix of compensation and may make adjustments to this approach after giving consideration to evolving circumstances, the individuals involved and their responsibilities and performance. The Compensation Committee believes this mix of components is appropriate for our NEOs because it incentivizes them to focus on both short- and long-term success and aligns their interests with

 

 

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those of our stockholders. The Compensation Committee also believes that this mix is consistent with companies in our peer group. The Compensation Committee strives to achieve an appropriate balance among the elements of our compensation program to meet our objectives and philosophy, but does not apply any set formula in allocating executive compensation. We provide very few perquisites or other special benefits to our executive officers that are not generally available to our salaried employees, other than auto allowances (including insurance) and cell phones. We provide no pension plans or other retirement benefits to our executive officers other than our 401(k) plan, which is generally available to all of our employees.

Base Salary

We provide base salaries to our NEOs to compensate them for performing day-to-day responsibilities and to provide competitive fixed pay to balance at-risk compensation, which is a substantial part of our NEOs’ compensation. Base salary is intended to provide a fundamental level of compensation so that the NEOs do not feel pressured to take unnecessary or excessive risks or overly focus on the price of our common stock. In setting the base salaries of our named executive officers, the Compensation Committee considers, among other factors, the scope of the executive’s responsibilities, experience, individual performance, labor market conditions, competitive market salary levels and overall mix of compensation elements. The Compensation Committee reviews base salaries no less than annually, usually in the first quarter of each year, and takes into consideration market data provided by its independent compensation consultant, internal pay equity among executives and overall mix of compensation elements. Regular salary adjustments, if any, typically become effective on April 1 of each year.

Our Chief Executive Officer’s employment agreement provides for a minimum annual base salary of $600,000. See “Employment Agreement with Jeffrey W. Edwards” below for more information.

Performance-Based Cash Incentives

We provide our NEOs with annual performance-based cash incentive opportunities, which are designed to reward achievement of short-term performance goals measured over the current fiscal year. Incentive award opportunities are tied to the achievement of pre-determined financial performance targets that are directly related to our financial and strategic goals for the year. In February of each year, the Compensation Committee, after considering the recommendations of management, sets annual financial performance targets for the year based on one or more criteria under our 2014 Omnibus Incentive Plan and establishes for each NEO a target bonus amount expressed as a fixed dollar amount. Actual compensation for an executive may be above or below target, based on the degree to which the performance metrics are met. The executive generally must remain employed through the end of the performance period to be eligible for any cash bonus. Termination of employment for any reason prior to the actual payment date generally results in forfeiture of the incentive cash bonus unless the Compensation Committee determines otherwise.

In setting financial performance goals each year, the Compensation Committee uses a one-year performance metric so that performance targets reflect current business conditions, taking into account that the Company operates in the residential and commercial construction industry, which is heavily dependent upon external factors, including construction starts; interest rates; inflation; employment levels; personal income growth; housing demand; availability and pricing of mortgage financing; financial, political system and credit market stability; federal, state and local tax rates; deductibility of mortgage loan interest payments; government energy efficiency codes; credit availability; rising home prices; and severe weather conditions, such as unusually prolonged cold conditions, rain, blizzards or hurricanes.

The Compensation Committee uses Adjusted EBITDA as our financial performance metric because it believes that it provides an effective incentive to maximize an important short-term goal of improving operating profitability and aligns management awards with the short-term financial interests of our stockholders. The Compensation Committee believes Adjusted EBITDA is a useful measure of operating performance as it measures change in pricing decisions, cost controls and other factors that impact operating performance and removes the effect of our capital structure (primarily interest expense), asset base (primarily depreciation and amortization), items outside our control (primarily income taxes) and volatility related to the timing and extent of other activities such as asset

 

 

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impairments and non-core income and expenses. As the Company’s acquisition strategy continues and the volume of total acquired business operations become larger, the Company will incur additional non-cash amortization expense. This non-cash adjustment impacts net income, which is another reason why the Compensation Committee continues to believe that Adjusted EBITDA is the most useful measure of profitability and indicator of the Company’s financial health. The target set by the Compensation Committee is based on the budget approved by the Board and the annual and long-term business plan established at the beginning of each fiscal year. The budget and business plan are based upon certain assumptions and estimates of the housing and commercial markets, Company growth objectives and overall economic conditions. The performance target established by the Compensation Committee in the first quarter is periodically adjusted throughout the year to account for completed acquisitions. The Compensation Committee expects to continue to re-assess the performance metrics and goal setting processes annually. See “Additional Information – Use of Non-GAAP Financial Measures.”

Performance-Based Equity Incentives

A substantial component of our executive compensation program consists of rewards for long-term growth and enhancement of stockholder value through the use of performance and time-based incentive equity awards. The Compensation Committee believes that long-term incentive compensation is an effective way to retain a strong executive team and provide them with incentives to focus on the Company’s long-term success, aligning their interests with the long-term interests of our stockholders.

Our 2014 Omnibus Incentive Plan provides for grants of stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards. This range of available equity awards provides the Compensation Committee the flexibility to grant appropriate types of awards under different circumstances, depending on our needs and objectives over time.

From 2015 to 2017, the Compensation Committee granted incentive equity awards in the form of time-based restricted stock, which vested ratably over three years, generally subject to the NEO’s continued employment on each applicable vesting date. Beginning in 2017, to further align our executive compensation program with our performance, the Compensation Committee began granting incentive awards of restricted stock for our NEOs that are both performance-based and time-based. The Compensation Committee determined, for the reasons outlined in “Performance-Based Cash Incentives” above, to use a one-year performance metric of Adjusted EBITDA. In order to achieve a balance between the advisability of setting annual performance metrics and our compensation philosophy to align the interests of our NEOs with the long-term interests of our stockholders, the Compensation Committee added a time-vesting component to the performance-based awards. Performance-based restricted stock awards actually earned by an executive may be above or below the target award, based on the degree to which the performance metrics are met. If the performance metric is achieved at least 80% and restricted stock is earned, it vests in equal installments over the next two years, generally subject to the NEO’s continued employment on each applicable vesting date.

The Compensation Committee believes that adding the two year vesting period to the performance-based restricted stock award serves as a valuable retention incentive for our NEOs, whose skills and experience are sought after within the industry. The Compensation Committee also believes that granting long-term restricted stock awards aligns the executive officers’ interests directly with those of our stockholders, as the executive officers will realize greater or lesser value based on our stock price during the vesting period, which will parallel that of our stockholders over the same period. The Compensation Committee further believes the restricted stock awards focus our NEOs on our long-term performance and discourages excessive risk-taking in the short-term.

In the event of a change in control (as defined in the 2014 Omnibus Incentive Plan), the Compensation Committee may cause any unvested shares of restricted stock to be continued or assumed, to have new rights substituted therefor, to entitle the NEO to receive the same distribution as other shares of common stock in the change in control transaction or to be cancelled in exchange for cash. The Compensation Committee may also determine to accelerate vesting in connection with a change in control. If a named executive officer engages in “detrimental activity,” as

 

 

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defined in the 2014 Omnibus Incentive Plan, prior to or during the one year period following vesting of any restricted stock, the Compensation Committee may direct that all unvested restricted stock be forfeited and that the executive pay to the Company the fair market value of vested restricted stock (valued as of the vesting date).

Section 4 – What We Paid in 2017

2017 Base Salary

The table below sets forth the base salaries for each of our NEOs as of December 31, 2017:

 

Name   

2017 Base
Salary

($)

    

Increase

($)

     Percent of Total
Compensation
(%)

Jeffrey W. Edwards

     660,000        -      14.4%

Michael T. Miller

     330,000        -      18.5%

Jay P. Elliott

     385,000        -      20.5%

Todd R. Fry

     250,000        30,000      54.3%

Jason R. Niswonger

     250,000        30,000      57.6%

As reflected in the table above, the Compensation Committee did not increase the base salaries of Messrs. Edwards, Miller and Elliott for 2017, determining to place more emphasis on performance-based compensation for these executives to further align their compensation with Company performance and the interests of our stockholders. Based in part on the recommendation of our Chief Executive Officer and Chief Financial Officer, the Compensation Committee determined to increase the base salaries of Messrs. Fry and Niswonger by $30,000 and $30,000, respectively, as a result of their increasing responsibilities and strong individual performance. These increases became effective on April 1, 2017.

2017 Performance-Based Incentive Cash Awards

In consultation with our Chief Executive Officer and Chief Financial Officer, in February 2017, the Compensation Committee considered corporate goals and objectives for our named executive officers for the 2017 fiscal year. Based on management’s strategic and operational goals and considering management’s short- and long-term budgets and projections, the Compensation Committee established an Adjusted EBITDA target of $164,795,400 as the 2017 performance metric for our NEOs’ performance-based incentive awards, to be adjusted throughout the year for the forecasted impact of acquisitions during the performance period. The Compensation Committee found that the degree of difficulty of the target was significant though reasonable (as evidenced by the Company’s attainment of less than 100% of the target), given the current business environment and considering that housing starts, while increasing, continue to fall short of levels seen prior to the most recent housing downturn.

The Compensation Committee approved the target performance-based incentive cash awards for each NEO as set forth in the table below. The target awards were increased for 2017 due to the Compensation Committee’s desire to adjust the mix of executive compensation toward performance-based compensation and to encourage our executive team to continue to focus its efforts on increasing Company growth and stockholder value. The amount of an NEO’s performance-based incentive cash award is based on the Company’s achieved Adjusted EBITDA during the performance period as compared against the target. The incentive award earned is equal to the NEO’s target incentive cash award set forth in the table below multiplied by the percentage of the Adjusted EBITDA target achieved. No incentive award is earned if the Company’s actual Adjusted EBITDA during the performance period is less than 80% of the target, as adjusted for acquisitions. No maximum amount is established; however, even if target performance is achieved, the Compensation Committee retains the discretion to reduce the amount of the award. Unless otherwise determined by the Compensation Committee, payment of any incentive cash award is generally subject to the NEO remaining employed through the payment date. Incentive cash awards are subject to clawback under the terms of our recoupment policy.

 

 

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In 2017, the Company established a financial wellness program for its employees, the objective of which is to help educate participants on key personal financial management topics, including budgeting, debt reduction, saving and giving back to the community. One of the key components of the program is encouraging employees to establish personal savings accounts at a financial institution of their choice, which the Company matches dollar for dollar up to $1,000.

The Compensation Committee discussed with management prior to the establishment of the financial wellness program the desire of Mr. Edwards, Mr. Miller and other executives to forego all or a portion of their incentive cash awards for the 2017 performance period to help offset the cost of the start-up expenses of the Company matching contribution. At the time of these discussions, it was not known how well the program would be received by employees, the extent of employee interest in participating in the plan, whether and to what extent the performance metrics would be met or the amount of the incentive cash awards that might be payable to the executives. The Compensation Committee considered the potential start-up and future costs of the financial wellness program, future funding for the program and the generosity of management and its dedication to meaningful employee retention programs. The Compensation Committee discussed with management that to further the objective of funding the start-up costs of the financial wellness program, the executives would waive all or a portion of the payment of any amounts to which they would have otherwise been eligible, no matter the extent to which performance metrics were satisfied, in favor of diverting such amounts to partially offset the cost to the Company of the program. After considering the aforementioned factors, the Compensation Committee approved the advance waiver of 2017 incentive cash awards by Messrs. Edwards, Miller and Elliott.

In February 2018, the Compensation Committee met to review the results of the Company’s financial performance against the Adjusted EBITDA performance metric. The Company’s final Adjusted EBITDA target, as adjusted for the impact of 14 acquisitions during the performance period, was $170,422,000. Actual Adjusted EBITDA was $141,053,000, or approximately 81.4% of target, after adjustment to account for the waiver of incentive cash compensation for the financial wellness program discussed above, which, in consultation with management, the Compensation Committee finalized at 81.3%.

Participation in the financial wellness program in 2017 exceeded expectations, with nearly 40% of eligible employees electing to participate. As a result of the Company match, we incurred approximately $3 million of expense in 2017, which was partially offset by Messrs. Edwards, Miller and Elliott agreeing in advance to waive all or portion of their 2017 performance-based incentive cash award payments of $508,128, $178,860 and $166,095, respectively.

The following table shows each NEO’s 2017 target incentive cash award, earned incentive cash award and paid incentive cash award, taking into account the decision by Messrs. Edwards, Miller and Elliott to waive all or part of their cash incentive awards to offset a portion of the start-up expense of the employee financial wellness program:

 

Name    Target Cash
Incentive
($)
     Target Cash
Incentive as a
Percentage of
Salary
(%)
  Earned Cash
Incentive
($)
     Earned Cash
Incentive as a
Percentage of
Salary
(%)
  Earned Cash
Incentive Paid
($)
 

Jeffrey W. Edwards

     625,000      90.0%     508,125      77.0%     -  

Michael T. Miller

     220,000      70.0%     178,860      54.2%     -  

Jay P. Elliott

     315,000      80.0%     256,095      66.5%     90,000  

Todd R. Fry

     70,000      30.0%     56,910      22.8%     56,910  

Jason R. Niswonger

     62,500      30.0%     50,813      20.3%     50,813  

The performance-based incentive cash awards paid to our NEOs for 2017 are included in the “Non-Equity Incentive Plan Compensation” column of the “Summary Compensation Table” below. As noted above, Messrs. Edwards,

 

 

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Miller and Elliott agreed in advance to waive all or part of their 2017 performance-based cash award payments in order to partially offset the expense of the Company match under the financial wellness program.

2017 Time-Based Equity Awards

2017 was a transition year for our executive equity award program. Prior to 2017, in April of each year the Compensation Committee issued annual awards of time-based restricted stock to our NEOs for performance in the previous year, based on the Compensation Committee’s subjective judgment of a number of factors, including the recommendations of our Chief Executive Officer and Chief Financial Officer, review of peer group data for competitive compensation practices, an assessment of the appropriate mix of short- and long-term awards, internal equity factors and the Company’s financial and operating results.

Consistent with this practice, in April 2017, the Compensation Committee awarded our named executive officers the shares of time-based restricted stock for 2016 performance set forth in the table below. The restricted stock vests in three annual installments (on April 20, 2018, April 20, 2019 and April 20, 2020), except that 5,606 shares of restricted stock awarded to Mr. Elliott vest on April 20, 2018 and the remaining 5,202 shares awarded to Mr. Elliott vest in two equal installments on April 20, 2019 and April 20, 2020. The awards are generally subject to continued employment through each applicable vesting date, which means that each executive generally must be employed continuously for three years from the grant date to receive the full benefit of these time-based awards. Upon an NEO’s death, any unvested restricted stock automatically vests in full.

The following table shows the number of shares of restricted stock awarded to each NEO in 2017 for 2016 performance and the fair market value of the restricted stock on the grant date (April 19, 2017):

 

Name    Restricted
Stock
Awarded
(#)
     Fair Market
Value of
Restricted Stock
on Grant Date
($)
 

Jeffrey W. Edwards

     32,266        1,677,832  

Michael T. Miller

     11,749        610,948  

Jay P. Elliott

     10,808        562,016  

Todd R. Fry

     1,228        63,856  

Jason R. Niswonger

     965        50,180  

 

 

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2017 Performance-Based Incentive Equity Awards

Beginning in 2017, to further align our executive compensation program with our performance, the Compensation Committee began granting incentive awards of restricted stock for our NEOs that are both performance-based and time-based. As noted above, this decision represented a transition from backward-looking equity awards (earned based on 2016 performance, but paid in 2017) to forward-looking equity awards (earned, if at all, based on 2017 performance and subject to two additional years of vesting). Because both our new forward-looking performance-based equity awards and our former backward-looking time-based equity awards were granted in 2017—regardless of the performance period or year of vesting—SEC rules require us to report both of these awards of restricted stock as 2017 compensation. Thus, the Summary Compensation Table set forth in “Executive Compensation Tables” reflects the 2017 transition year totals of the two awards of restricted stock. In future years, the Compensation Committee intends to make only one award of performance-based equity in any year.

In February 2017, the Compensation Committee met to consider and finalize the performance metrics for our 2017 performance-based incentive equity awards. The Compensation Committee determined, for the reasons outlined in “Section 3 – Elements of Our Compensation Program – Performance-Based Cash Incentives” above, to use a one-year performance metric of Adjusted EBITDA. The target chosen by the Compensation Committee for the incentive equity award program was the same as that chosen for the incentive cash award program. In order to achieve a balance between setting an annual performance metric and its desire to align the interests of our NEOs with the long-term interests of our stockholders, the Compensation Committee added a time-vesting component to the performance-based awards. The performance-based restricted stock awards actually earned by an executive could be above or below the target award, based on the degree to which the performance metric was met. If the performance metric was achieved at least 80% and restricted stock earned, it would vest in equal installments over two years, generally subject to the NEO’s continued employment on each applicable vesting date.

In February 2018, the Compensation Committee met to review the results of the Company’s financial performance against the target performance metric. Consistent with the incentive cash award program, the Company’s final Adjusted EBITDA target, as adjusted for the impact of 14 acquisitions during the performance period, was $170,422,000. Actual Adjusted EBITDA was $141,053,000, or approximately 81.4% of target, after adjustment to account for the waiver of incentive cash compensation for the financial wellness program discussed above, which, in consultation with management, the Compensation Committee finalized at 81.3%.

The following table shows each NEO’s 2017 target incentive equity award, earned incentive equity award and the target and actual grant date fair value of the awards:

 

Name    Performance-
Based Restricted
Stock Target
(#)
     Performance-
Based Restricted
Stock Potential
Payout Grant Date
Fair Value
($)
     Performance-
Based
Restricted
Stock Actual
(#)
     Performance-
Based Restricted
Stock Actual
Payout at Grant
Date Fair Value
($)
 

Jeffrey W. Edwards

     41,829        1,714,989        34,007        1,394,287  

Michael T. Miller

     15,853        649,973        12,888        528,408  

Jay P. Elliott

     15,853        649,973        12,888        528,408  

Todd R. Fry

     1,951        79,991        1,586        65,026  

Jason R. Niswonger

     1,768        72,488        1,437        58,917  

Executive Compensation Changes after December 31, 2017

The Compensation Committee has continued to structure our executive compensation program to provide compensation opportunities that are competitive with our peer group, designed to ensure our ability to attract, retain

 

 

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and motivate the executives who are critical to our success and align the interests of our NEOs with the long-term interests of our stockholders.

Addition of Executive Officer. On February 22, 2018, the Nominating and Corporate Governance Committee and the Board of Directors determined that W. Jeffrey Hire, our President of External Affairs, is an executive officer, based on his overall responsibilities.

2018 Salary Increases. The Compensation Committee made the following adjustments to the base salaries of certain of our named executive officers, effective April 1, 2018, primarily to weight Mr. Fry’s compensation more heavily toward fixed compensation and to compensate the NEOs for increased responsibilities, including integration of the Alpha companies:

 

Name    2017 Base Salary
($)
     2018 Base Salary
($)
     Increase
($)
 

Jeffrey W. Edwards

     660,000        660,000        -  

Michael T. Miller

     330,000        330,000        -  

Jay P. Elliott

     385,000        385,000        -  

Todd R. Fry

     250,000        290,000        40,000  

W. Jeffrey Hire

     297,060        300,000        2,940  

Jason R. Niswonger

     250,000        280,000        30,000  

2018 Performance-Based Cash Compensation. The Compensation Committee continued our performance-based incentive cash program for 2018 on substantially the same terms as the program approved by our stockholders in 2017. The amount of an NEO’s performance-based incentive cash award is based on the Company’s achieved Adjusted EBITDA during the performance period as compared against the target Adjusted EBITDA established by the Compensation Committee on February 21, 2018. The incentive award earned is equal to the NEO’s target cash incentive award set forth in the table below multiplied by the percentage of the Adjusted EBITDA target achieved. No incentive award is earned if the Company’s actual Adjusted EBITDA during the performance period is less than 80% of the target, as adjusted for acquisitions. The Compensation Committee retained the discretion to adjust the amount of the awards. Target amounts for 2018 were increased to reward our NEOs for the financial and operational success of the Company and increasing responsibilities of the executives in light of the number of acquisitions made by the Company, including the Alpha companies. Similar to 2017, Messrs. Edwards, Miller and Elliott have waived payment in advance of any earned incentive bonus for 2018 to offset further the cost to the Company of the start-up expenses of the Company match under the financial wellness program.

 

Name    2018 Target
Bonus
($)
     2017 Target
Bonus
($)
     Increase
($)
     2018 Target
Bonus as
Percent of
Base Salary
(%)
 

Jeffrey W. Edwards

     675,000        625,000        50,000        102.3

Michael T. Miller

     250,000        220,000        30,000        75.8

Jay P. Elliott

     340,000        315,000        25,000        88.3

Todd R. Fry

     75,000        70,000        5,000        25.9

W. Jeffrey Hire

     75,000        59,405        15,595        25.0

Jason R. Niswonger

     80,000        62,500        17,500        28.6

2018 Performance-Based Equity Compensation. In connection with our performance-based equity compensation program, the Compensation Committee determined that each named executive officer is eligible to receive the target number of shares of restricted stock set forth in the table below. The financial performance metric and terms of the

 

 

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equity award program are the same as those used for the performance-based incentive cash program described under “2018 Performance-Based Cash Compensation” above. If an award of restricted stock is earned at the end of the performance period, the restricted stock will vest in two equal installments on April 20, 2020 and April 20, 2021, generally subject to the NEO’s continued employment on the applicable vesting date. The restricted stock vests automatically in full in the event of an NEO’s death. The Compensation Committee has discretion to adjust any award, even if fully earned.

 

Name    2018 Performance-
Based Restricted
Stock Target
(#)
     Fair Market
Value on Grant
Date
($)
 

Jeffrey W. Edwards

     27,667        1,815,000  

Michael T. Miller

     10,365        680,000  

Jay P. Elliott

     10,670        700,000  

Todd R. Fry

     1,295        85,000  

W. Jeffrey Hire

     1,524        100,000  

Jason R. Niswonger

     1,371        90,000  

Amended Insider Trading Policy. We amended our Insider Trading Policy, effective February 22, 2018, for executive officers, directors and other persons covered by the policy to prohibit all hedging and monetization transactions involving our securities and all pledging of our securities as collateral. TCI Holdings, LLC’s (an affiliate of Mr. Nixon) pre-existing pledged of 600,000 shares is the only exclusion from this pledging prohibition. This pledge by TCI Holdings, LLC was entered into in August 2016 for 1.1 million shares and was recently reduced to 600,000 shares. No person who has any hedging or pledging transaction in effect relating to our securities may be nominated or re-nominated as a director. None of our executive officers has any shares of Company stock pledged as collateral.

Section 5 – Other Compensation and Policies

Executive Benefits and Perquisites

The Company offers no perquisites to our NEOs that are not generally available to salaried employees, other than auto allowances (including insurance) and cell phones. Such perquisites do not pay a significant role in our executive compensation program. The perquisites and other benefits provided to our named executive officers are set forth in the “All Other Compensation” column of the “Summary Compensation Table” below. From time to time, our NEOs may travel by chartered aircraft services to facilitate travel that is directly related to the performance of their duties.

Post-Termination Compensation

We do not have severance or change-in-control arrangements with our named executive officers, except for Mr. Edwards. If an NEO’s employment is terminated due to retirement or disability (or death, in the case of equity awards granted prior to 2017), the Compensation Committee may, in the exercise of its discretion, determine to accelerate vesting of restricted stock awards and to waive any limitations placed on performance-based cash awards. Beginning in 2017, if an NEO’s employment is terminated due to the executive’s death, all earned but unvested restricted stock awards automatically vest in full.

The Company has entered into an employment agreement with Mr. Edwards, the terms of which are more fully described below under the caption “Employment Agreement with Jeffrey W. Edwards.” Under the terms of his employment agreement, Mr. Edwards is entitled to certain severance benefits in the event his employment is

 

 

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terminated by the Company without “Cause” or by Mr. Edwards for “Good Reason,” as defined in the employment agreement. These benefits include salary continuation and payment of certain performance-based incentive awards. Details of the arrangement with Mr. Edwards are described under “Potential Payments Upon Termination or Change in Control” below. We have entered into non-compete agreements with Messrs. Edwards (as part of his employment agreement), Miller, Elliott, Fry and Niswonger.

Retirement / Post-Employment Benefits

The Company does not provide any retirement programs or similar benefits to its NEOs other than our 401(k) program, which is generally available to all of our employees.

Equity Grant Practices

The Compensation Committee’s practice has been to grant equity awards to our NEOs during the first quarter of each year. We do not engage in the practice of timing grants with the release of non-public information. In 2017, we did not grant any stock options or other stock-based compensation, other than restricted stock.

Tax Considerations

Section 162(m) of the Internal Revenue Code (“Section 162(m)”) generally limits the deductibility of compensation paid to a public company’s chief executive officer and the three other most highly compensated executive officers (excluding the chief financial officer) to $1 million during any fiscal year. Until 2018, this limitation generally does not apply to compensation that is “performance-based” and provided under a plan approved by the company’s stockholders.

The deduction limitations under Section 162(m) do not apply during a “reliance period” under the Treasury Regulations under Section 162(m) for companies that have recently become public companies. In our case, the reliance period ends on the first annual meeting of our stockholders for the election of directors occurring after the close of the third calendar year following the calendar year in which our initial public offering occurred. Under the reliance period exception, Section 162(m) will not apply to our compensation deductions until 2018.

Effective for taxable years beginning after December 31, 2017, the legislation known as the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) extended the coverage of Section 162(m) to a company’s chief financial officer and repealed the exemption from Section 162(m)’s deduction limit for performance-based compensation. However, the Tax Act provided transition relief to certain arrangements in effect on November 2, 2017, and not modified in any material respect on or after that date. Future compensation paid to our covered executive officers in excess of $1 million may not be deductible unless it qualifies for the transition relief.

The Compensation Committee believes that its primary responsibility is to provide a compensation program that attracts, retains and rewards the executives necessary for our success. The Compensation Committee believes that the total compensation program for our executive officers should be managed in accordance with the objectives outlined in the Company’s compensation philosophy and in the best overall interests of the Company’s stockholders. The Compensation Committee considers deductibility to be only one factor in determining executive compensation, and will maintain the flexibility to award compensation that it determines to be consistent with the objectives of our executive compensation program, even if the awards are not fully tax deductible. No assurance can be given that all compensation paid to our NEOs will be deductible for federal income tax purposes under Section 162(m).

Tax Gross-Ups

We do not provide tax gross-ups for perquisites provided to our NEOs, and none of our NEOs received a tax gross-up for any benefits in 2017.

 

 

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Stock Ownership Guidelines

The Compensation Committee has established a Named Executive Officer Stock Ownership Policy for the purpose of requiring executives to hold our common stock in a multiple of base salary to strengthen their alignment with the interests of our stockholders and promote achievement of long-term business objectives:

 

Position    Stock Ownership Level

Chief Executive Officer

   5 times base salary

Chief Financial Officer

   3 times base salary

Chief Operating Officer

   3 times base salary

Chief Accounting Officer

   1 times base salary

Senior Vice President, Finance and Investor Relations

   1 times base salary

If an executive chooses to meet this requirement using fully vested shares of common stock issued under the Company’s equity incentive plan, the stock is valued for purposes of meeting the requirement at the greater of the value of the common stock on the grant date or the date on which ownership is measured (the last trading day of the year of measurement). An executive has five years from the date of his or her first election as an executive officer (or if later, the date of an increase in the amount of common stock required to be held) to meet this requirement. If an executive officer does not meet the ownership requirement at a measurement date, he or she is prohibited from selling any of our common stock, and fifty percent (50%) of his or her annual incentive bonus will be paid in the form of common stock in lieu of cash. All of our named executive officers either currently own shares in excess of these requirements or are on an appropriate track to meet the requirements within the five year time frame of their first becoming a named executive officer. None of our executive officers has any shares of Company stock pledged as collateral for personal loans or other obligations.

Recoupment Policy

In 2017, the Compensation Committee recommended, and the Board of Directors adopted, an incentive compensation and other compensation recoupment policy, or “clawback” policy, the purpose of which is to deter our executives from taking actions that could potentially harm the Company and our stockholders. The clawback policy applies to all incentive cash and equity compensation awards (and all other compensation) granted on or after the effective date of the policy to any current or former executive officer, including our named executive officers. Under the policy, if we are required to restate our financial statements due to material noncompliance with financial reporting requirements under the securities laws where the restatement was caused, or substantially caused, by the intentional misconduct of the executive officer, then the amount, if any, of the incentive-based cash and equity compensation paid during the three-year period preceding the restatement in excess of what would have been paid under the restatement is subject to recoupment.

In addition, if the Compensation Committee reasonably determines that an executive officer has engaged in grossly negligent or intentional misconduct that was a significant contributing factor to an accounting restatement, any significant increase in the value of such executive’s incentive compensation or any substantial financial or reputational harm to the Company, the Compensation Committee may (i) recover any incentive-based cash and equity compensation awards or other compensation of any kind granted on or after the effective date of the policy and paid prior to the date of determination, (ii) cancel any compensation of any kind not paid or otherwise settled prior to the date of the determination, and (iii) withhold or eliminate any compensation of any kind that could be paid or awarded after the date of determination. The Compensation Committee may also dismiss the executive officer, authorize legal action against him or her for breach of fiduciary duty or other violation of law, and/or take such other action as the Compensation Committee may deem appropriate.

 

 

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EXECUTIVE COMPENSATION

 

Executive Compensation Tables

 

Summary Compensation Table

The following table contains information regarding the compensation paid to or earned by each of our named executive officers during the three most recently completed fiscal years (compensation is shown with respect to 2016 and 2015 for individuals who were named executive officers in such years):

 

Name and Principal Position      Year      Salary
($)
   Stock Awards
($)(1)
  

Non Equity

Incentive Plan

Compensation

($)(2)

  

All Other

Compensation

($)(3)

   Total
($)

Jeffrey W. Edwards

   2017    660,000      3,392,821      508,125      31,761      4,592,707  

President, Chief Executive Officer and Chairman

   2016    642,923      958,006      -        28,190      1,629,119  
   2015    600,000      300,005      60,264      29,782      990,051  

Michael T. Miller

   2017    330,000      1,260,921      178,860      15,391      1,785,172  

Executive Vice President and Chief Financial Officer

   2016    321,462      393,908      -        18,383      733,753  
   2015    286,154      125,009      22,599      16,734      450,496  

Jay P. Elliott

   2017    385,000      1,211,989      256,095      20,579      1,873,663  

Chief Operating Officer

   2016    375,038      323,544      90,000      17,764      806,347  
   2015    336,154      150,002      94,700      17,899      598,755  

Todd R. Fry

   2017    241,346      143,847      56,910      18,602      460,705  

Chief Accounting Officer and Treasurer

                           

Jason R. Niswonger

   2017    241,464      122,668      50,813      18,916      433,860  

Senior Vice President, Finance & Investor Relations

                           

 

 

(1)  For the 2017 fiscal year, amounts in this column represent the aggregate grant date fair value of time-based restricted stock awards (granted April 19, 2017, the amount of which was based on performance in 2016) and performance-based and time-based restricted stock awards (granted February 24, 2017, the amount of which was based on performance in 2017) to each NEO assuming the achievement of the performance criteria computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation-Stock Compensation (FASB ASC Topic 718). The grant date fair value was determined by multiplying the number of shares of the underlying common stock by the closing stock price of $41.00 and $52.00, respectively, on the grant dates of April 19, 2017 and February 19, 2017, respectively (see table below for each component of the “Stock Awards” column for 2017). For additional information regarding the assumptions made in calculating these amounts, see Notes 2 and 11 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017. See “2017 Performance-Based Equity Awards” and “2017 Time-Based Equity Awards” above and “Grants of Plan-Based Awards for 2017” and “Potential Payments Upon Termination or Change in Control” below for more information concerning the time-based restricted stock and performance-based and time-based restricted stock awarded to the NEOs in 2017.

 

 

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The following table provides additional detail on the stock awards granted April 19, 2017, the amount of which was based on performance in 2016, and the stock awards granted February 24, 2017, the amount of which was based on performance in 2017:

 

     Time-Based      Performance-Based and  Time-Based         
Name    Restricted
Stock Award
(#)
     Restricted
Stock Award
Grant Date
Fair Value
($)
     Restricted
Stock Target
(#)
     Restricted Stock
Potential Payout
Grant Date Fair
Value
($)
     Total Stock
Awards
Grant Date
Fair Value
($)
 

Jeffrey W. Edwards

     32,266        1,677,832        41,829        1,714,989        3,392,821  

Michael T. Miller

     11,749        610,948        15,853        649,973        1,260,921  

Jay P. Elliott

     10,808        562,016        15,853        649,973        1,211,989  

Todd R. Fry

     1,228        63,856        1,951        79,991        143,847  

Jason R. Niswonger

     965        50,180        1,768        72,488        122,668  

 

(2)  The amounts in this column represent the performance-based annual cash incentives earned by our NEOs in the applicable fiscal year. These amounts were not actually paid to Messrs. Edwards, Miller and Elliott. As discussed previously, Messrs. Edwards, Miller, and Elliott agreed in advance to waive all or a portion of their 2017 performance-based cash award payments in order to offset partially the expense of the Company under the financial wellness program. Consequently, despite the fact that performance was satisfied at 81.3% of target, Messrs. Edwards, Miller and Elliott actually received a payout of $0, $0 and $90,000, respectively, with the amounts of $508,125, $178,860 and $166,095, respectively, being used to offset the cost of the Company match under the financial wellness program for 2017. See “2017 Performance-Based Cash Incentive Awards” above for more information concerning our 2017 annual performance-based cash incentive program.

 

(3)  The following table describes each component of the “All Other Compensation” column for fiscal 2017:

 

Name    Company
Car
($)
     Company
Paid Car
Insurance
($)
     Company
Paid
Parking
($)
     401(K)
Match
($)
     Company
Paid
Mobile
Phone
($)
     Cancellation
of Debt
Income from
Dissolved
Subsidiary
($)
     All Other
Compensation
($)
 

Jeffrey W. Edwards

     23,486        1,429        -            1,477        3,282        2,087        31,761  

Michael T. Miller

     6,398        1,429        1,920        4,125        1,519        -            15,391  

Jay P. Elliott

     10,161        1,430        1,920        3,430        2,275        1,363        20,579  

Todd R. Fry

     9,866        1,429        1,920        4,500        887        -            18,602  

Jason R. Niswonger

     13,038        1,430        1,920        1,811        717        -            18,916  

Grants of Plan-Based Awards for 2017

The following table contains information regarding grants of plan-based incentive awards granted to each of our NEOs for 2017 under our 2014 Omnibus Incentive Plan:

 

 

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                                                      All Other
Stock
Awards:
Number of
Shares of
     Grant Date
Fair Value
of Stock
 
            Estimated Future Payments
Under Non-Equity Incentive
Plan Awards
     Estimated Future Payments
Under Equity Incentive Plan
Awards
       
Name    Grant Date      Threshold
($)(1)
     Target
($)(1)
     Maximum
($)(1)
     Threshold
(#)(2)
     Target
(#)(2)
     Maximum
(#)(2)
    

Stock

(#)(3)

    

Awards

($)(4)

 

Jeffrey W. Edwards

     –              500,000        625,000        –                         –          -      

Performance-Based Award

     2/24/2017                       33,463        41,829        –               1,714,989  

Restricted Stock Award

 

    

 

4/19/2017

 

 

 

                                  

 

32,266

 

 

 

    

 

1,677,832

 

 

 

Michael T. Miller

     –              176,000        220,000        –                         –          -      

Performance-Based Award

     2/24/2017                       12,682        15,853        –               649,973  

Restricted Stock Award

 

    

 

4/19/2017

 

 

 

                                  

 

11,749

 

 

 

    

 

610,948

 

 

 

Jay P. Elliott

     –              252,000        315,000        –                         –          -      

Performance-Based Award

     2/24/2017                       12,682        15,853        –               649,973  

Restricted Stock Award

 

    

 

4/19/2017

 

 

 

                                  

 

10,808

 

 

 

    

 

562,016

 

 

 

Todd R. Fry

     –              56,000        70,000        –                         –          -      

Performance-Based Award

     2/24/2017                       1,561        1,951        –               79,991  

Restricted Stock Award

 

    

 

4/19/2017

 

 

 

                                  

 

1,228

 

 

 

    

 

63,856

 

 

 

Jason R. Niswonger

     –              50,000        62,500        –                         –          -      

Performance-Based Award

     2/24/2017                       1,414        1,768        –               72,488  

Restricted Stock Award

     4/19/2017                                      965        50,180  

 

 

 

(1)  The amounts shown reflect the threshold and target amounts that each named executive officer was eligible to receive for 2017 based on achievement of the Adjusted EBITDA performance goal established by the Compensation Committee. No maximum award was established. Actual payouts are reported in the “Summary Compensation Table” under the heading “Non-Equity Incentive Plan Compensation.” The material terms of the 2017 non-equity incentive awards are described above under “2017 Performance-Based Cash Incentive Awards.” In accordance with a prior decision made by the Compensation Committee in consultation with Messrs. Edwards Miller and Elliott, even though performance in 2017 was satisfied at 81.3% of target, given Messrs. Edwards, Miller and Elliott’s desire to implement the financial wellness program for our employees, Messrs. Edwards, Miller and Elliott received a payout of $0, $0 and $90,000, respectively, with $508,125, $178,860 and $166,095, respectively, being used to offset the cost of the Company match under the financial wellness program for 2017.

 

(2)  The amounts shown reflect the threshold and target amounts that each named executive officer was eligible to receive for 2017 based on achievement of the Adjusted EBITDA performance goal established by the Compensation Committee. No maximum award was established. Actual payouts are reported in the footnote to the “Summary Compensation Table.” The material terms of the 2017 equity incentive awards are described above under “2017 Performance-Based Equity Awards.”

 

(3)  Shares of time-based restricted stock awarded April 19, 2017 that vest in three equal installments (rounded to the nearest whole share) on each of April 20, 2018, 2019 and 2020, except that 5,606 shares of restricted stock awarded to Mr. Elliott vest on April 20, 2018 and the remaining 5,202 shares awarded to Mr. Elliott vest in two equal installments on April 20, 2019 and April 20, 2020, generally subject to the NEO’s continued employment on the applicable vesting date.

 

(4) 

The grant date fair value was determined by multiplying the closing price of the Company’s common stock on February 24, 2017 and April 19, 2017 ($41.00 and $52.00, respectively,) by the number of shares awarded. For additional information regarding the assumptions made in calculating these amounts, see Notes 2 and 11 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The awards of time-based restricted stock made in April 2017 were based on

 

 

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performance in 2016 and the awards of performance-based and time-based restricted stock made in February 2017, were based on performance in 2017.

Outstanding Equity Awards Table

The following table contains information regarding outstanding equity awards held by each of our NEOs as of December 31, 2017:

 

                   Stock Awards
Name            Grant Date     

Number of
Shares or
Units of Stock
that Have Not
Vested

(#)

    

Market Value
of Shares or
Units of Stock
that Have Not
Vested

($)(1)

    

Equity

Incentive Plan

Awards:

Number of

Unearned

Shares or

Units of Stock

that Have Not

Vested

(#)

  

Equity
Incentive Plan
Awards:
Market or
Payout Value of
Unearned
Shares or Units
of Stock that
Have Not
Vested

(#)(1)

Jeffrey W. Edwards

     (2     

 

3/20/2015

 

 

 

     4,589        348,535          
     (3     

 

4/7/2016

 

 

 

     23,672        1,797,888          
     (4     

 

2/24/2017

 

 

 

             34,007        2,582,832    
     (5      4/19/2017        32,266        2,450,603          

    

                           

Michael T. Miller

     (2     

 

3/20/2015

 

 

 

     1,912        145,216          
     (3     

 

4/7/2016

 

 

 

     9,733        739,221          
     (4     

 

2/24/2017

 

 

 

             12,888        978,844    
     (5      4/19/2017        11,749        892,337          

    

                           

Jay P. Elliott

     (2     

 

3/20/2015

 

 

 

     2,294        174,229          
     (3     

 

4/7/2016

 

 

 

     7,995        607,220          
     (4     

 

2/24/2017

 

 

 

             12,888        978,844    
     (5      4/19/2017        10,808        820,868          

    

                           

Todd R. Fry

     (2     

 

3/20/2015

 

 

 

     765        58,102          
     (3     

 

4/7/2016

 

 

 

     1,371        104,127          
     (4     

 

2/24/2017

 

 

 

             1,586        120,457    
     (5      4/19/2017        1,228        93,267          

    

                           

Jason R. Niswonger

     (3     

 

4/7/2016

 

 

 

     1,208        91,748          
     (4     

 

2/14/2017

 

 

 

             1,437        109,140    
     (5      4/19/2017        965        73,292          

 

 

 

 

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  (1)  The market value of unearned stock which has not vested was determined by multiplying the closing price of the Company’s common stock on December 31, 2017 ($75.95) by the number of shares of unvested stock.

 

  (2)  Shares awarded March 20, 2015, which vest on March 31, 2018.

 

  (3)  Shares awarded April 7, 2016, which vest in two equal installments (rounded to the nearest whole share) on April 20, 2018 and 2019.

 

  (4)  Although the performance criteria has been satisfied for the 2017 performance period, the shares are still subject to a time-based vesting schedule. The shares vest in two equal installments (rounded to the nearest whole share) on April 20, 2019 and 2020.

 

  (5)  Shares awarded April 19, 2017, which vest in three equal installments (rounded to the nearest whole share) on April 20, 2018, 2019 and 2020, except that 5,606 shares of restricted stock awarded to Mr. Elliott vest on April 20, 2018 and the remaining 5,202 shares awarded to Mr. Elliott vest in two equal installments on April 20, 2019 and April 20, 2020.

Stock Vested as of December 31, 2017

The following table contains information regarding equity awards held by each of our NEOs that vested during the fiscal year ended December 31, 2017:

 

     Stock Awards  
Name          

Number of
Shares Acquired
on Vesting

(#)

    

Value Realized
on Vesting

($)

 
       

Jeffrey W. Edwards

     (1     4,589        242,070  
       
       (2     11,836        624,941  
       

Michael T. Miller

     (1     1,912        100,858  
       
       (2     4,867        256,978  
       

Jay P. Elliott

     (1     2,295        121,061  
       
       (2     3,997        211,042  
       

Todd R. Fry

     (1     765        40,354  
       
       (2     685        36,168  
       

Jason R. Niswonger

     (2     604        31,891  

 

                                
(1)    The value realized on vesting was determined by multiplying the closing price of our common stock on the vesting date of March 31, 2017 ($52.75) by the number of shares acquired on vesting.
(2)    The value realized on vesting was determined by multiplying the closing price of our common stock on the vesting date of April 20, 2017 ($52.80) by the number of shares acquired on vesting.

 

 

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Pension Benefits

We do not provide any qualified or nonqualified defined pension benefit plans for our NEOs. The Compensation Committee may elect to adopt such plans in the future if it determines that doing so best serves our compensation philosophy and objectives.

Non-Qualified Deferred Compensation

We do not provide any deferred compensation programs or benefits for our named executive officers, but the Compensation Committee may elect to do so in the future.

Employment Agreements, Severance and Change in Control Benefits

 

Employment Agreement with Jeffrey W. Edwards

Prior to November 1, 2013, Mr. Edwards served as a consultant and non-employee officer to the Company. On November 1, 2013, we entered into an employment agreement with Mr. Edwards pursuant to which he agreed to continue to serve as our Chief Executive Officer and President for an initial employment term through November 1, 2016, with automatic one-year renewals on the expiration date of the initial term and each anniversary thereafter, unless either party provides at least 90 days’ prior notice of non-renewal. The agreement provides Mr. Edwards with a minimum annual base salary of $600,000, subject to adjustment by the Compensation Committee, and an opportunity to participate in our annual incentive programs, as well as our employee benefit plans and programs in effect from time to time.

Mr. Edwards’ employment agreement was amended on November 1, 2016 to extend the initial employment term to November 1, 2019 and to provide that Mr. Edwards must give 90 days’ prior written notice of a voluntary termination of employment without “Good Reason” (as defined in the employment agreement).

During his employment, Mr. Edwards is required to devote the amount of his business time necessary to conduct our business and affairs, and to use his best efforts to perform faithfully his duties and responsibilities as our Chief Executive Officer and President. However, to the extent such activities do not create a conflict of interest or substantially interfere with the performance of Mr. Edwards’ duties and responsibilities to the Company, he may (i) manage his personal and family financial and legal affairs, (ii) participate in charitable, civic, educational, professional, community and industry affairs (including serving on boards or committees of such entities), (iii) serve on the boards of directors of the Salvation Army and the Columbus Museum of Art and (iv) continue to engage in non-competitive operational activities for a real estate development business in which he participated prior to entering into his employment agreement with us.

Mr. Edwards is entitled to receive certain severance benefits in the event of termination of his employment by us without “Cause” or if Mr. Edwards terminates his employment for “Good Reason,” in each case as defined in the employment agreement. See “Potential Payments Upon Termination or Change in Control” below for a summary of these severance benefits. In the event of Mr. Edwards’ termination for any reason, we are required to pay him for his accrued and unpaid vacation as of the date of termination.

While employed and for two years after termination of his employment, Mr. Edwards is subject to non-competition and customer and employee non-solicitation restrictions as well as confidentiality restrictions that last during his employment and thereafter.

 

 

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Potential Payments Upon Termination or Change in Control

As described above in “Employment Agreement with Jeffrey W. Edwards,” we entered into an employment agreement with Mr. Edwards which provides certain benefits in the event of a termination of employment under certain circumstances.

None of our other named executive officers are entitled to benefits (other than vested benefits and awards) upon a resignation, termination or a change in control, except that if an NEO’s employment is terminated due to retirement or disability (or death, in the case of equity awards granted prior to 2017), the Compensation Committee may, in the exercise of its discretion, determine to accelerate vesting of restricted stock awards and to waive any limitations placed on performance-based cash awards. Beginning in 2017, if an NEO’s employment is terminated due to the executive’s death, all earned but unvested restricted stock awards automatically vest in full. Our 2014 Omnibus Incentive Plan does not provide for automatic acceleration of vesting of any incentive-based awards in the event of a change in control.

Payments upon Termination of Mr. Edwards without Cause or Resignation for Good Reason

If we terminate Mr. Edwards without “Cause” or if Mr. Edwards terminates his employment with us for “Good Reason,” then subject to his compliance with certain restrictive covenants and upon his signing an effective release of claims, we are required to pay Mr. Edwards (i) base salary continuation payments for 18 months; (ii) any earned unpaid annual incentive bonus with respect to the performance year prior to the year in which the termination occurs; and (iii) a pro-rated incentive bonus for the year of termination, based upon the Company’s actual performance. If such termination occurs within two years following a change in control (other than as a result of a sale of all of Mr. Edwards’ equity interests in the Company), then Mr. Edwards will be entitled to receive the severance benefits described in the foregoing sentence, but the base salary continuation payments will be made for 24 months instead of 18 months.

“Cause” generally means: (i) conviction of or a plea of guilty to a felony; (ii) willful commission of an act of fraud, dishonesty or other willful misconduct in the course of Mr. Edwards’ duties having a significant adverse effect on the Company; (iii) willful failure to perform prescribed duties after the Company has delivered a written demand for performance; or (iv) any material breach by Mr. Edwards of the employment agreement that remains uncured for 30 days.

“Good Reason” generally means any of the following events with respect to Mr. Edwards occurring without his consent: (i) a material diminution in base salary; (ii) a material diminution in duties, authorities or responsibilities; (iii) a relocation of a primary work location by more than 50 miles; or (iv) any material breach by the Company of the employment agreement.

The following table shows the value of the termination payments that Mr. Edwards would receive if (i) we had terminated him without “Cause” or if he had terminated his employment with us for “Good Reason,” or (ii) we had terminated him without “Cause” or if he had terminated his employment with us for “Good Reason,” following a change in control, in each case on December 31, 2017 and excluding distributions under our 401(k) retirement plan and any additional benefits that are generally available to all of our salaried employees:

 

Name    Termination
Without Cuase or
for Good Reason
(Base Salary for 18
Months)
($)
   Termination
Without Cause or
for Good Reason in
Connection with
Change in Control
(Base Salary for 24
Months)
($)

Jeffrey W. Edwards

   990,000      1,320,000  

 

 

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Payments to NEOs upon Death, Retirement or Disability

The following table summarizes the value of unvested restricted stock that would vest in the event of an NEO’s death, assuming such death occurred on December 31, 2017, and further assuming that the Compensation Committee elected to accelerate vesting of pre-2017 restricted stock awards. The value was determined by multiplying the closing price of our common stock on December 31, 2017 ($75.95) by the number of shares that would have vested on such date.

 

Name    Unvested
Restricted Stock
($)
 

Jeffrey W. Edwards

     7,179,857  

Michael T. Miller

     2,755,618  

Jay P. Elliott

     2,581,161  

Todd R. Fry

     375,953  

Jason R. Niswonger

     274,180  

If an NEO’s employment is terminated due to death, retirement or disability, the Compensation Committee may also, in the exercise of its discretion, determine to waive any limitations placed on performance-based incentive cash awards.

Chief Executive Officer Pay Ratio

 

Pay Ratio

As required by SEC rules, we are providing the following information about the ratio of the annual total compensation of all of our employees, other than our CEO, to the annual total compensation of our CEO. For 2017, (1) the annual total compensation of our median employee was $47,665; and (2) the annual total compensation of our CEO was $4,592,707. Based on this information, for 2017 the ratio of the annual total compensation of our CEO to the median of the annual total compensation of all employees was approximately 96 to 1.

We believe that it is important to note that the compensation of our CEO shown in the “Total” column of the Summary Compensation Table included in this Proxy Statement includes an annual incentive amount of $508,125 which our CEO elected not to receive and instead directed it to offset the Company’s cost of the Company’s employee financial wellness program. Taking into account our CEO’s decision to redirect the $508,125 annual incentive payment, our CEO’s annual compensation would be $4,084,582 for 2017, which would have produced a ratio of approximately 86 to 1.

In addition, we believe that it is important to note that due to the transition from purely time-based restricted stock awards to performance-based and time-based restricted stock awards, for the 2017 fiscal year, our CEO received time-based restricted stock awards (granted April 19, 2017, based on performance in 2016) and performance-based and time-based restricted stock awards (granted February 24, 2017, earned based on performance in 2017 and subject to two additional years of vesting). Due to SEC reporting requirements, we are required to report both awards as 2017 compensation in the Summary Compensation Table included in this proxy statement. In future years, the Compensation Committee intends to make only one award of performance-based equity in any year. Taking into account our CEO’s decision to redirect his $508,125 performance-based annual incentive payment and removing from consideration our CEO’s $1,677,832 time-based restricted stock award that was based on 2016 performance, our CEO’s annual compensation would be $2,406,740 for 2017, which would have produced a ratio of approximately 50 to 1.

 

 

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We believe that the ratios referenced above are reasonable estimates calculated consistent with Regulation S-K Item 402(u). SEC rules allow companies to use a variety of assumptions, adjustments, methodologies and estimates. Therefore, the ratio figures reported above may not be capable of comparison to the ratio figures reported by companies in our peer group or by any other company.

The methodology and the material assumptions, adjustments, and estimates that we used for this calculation were as follows:

We determined that, as of our testing date of December 31, 2017, our employee population consisted of approximately 6,367 employees, including our CEO. After taking into consideration the adjustments permitted by SEC rules and excluding 55 employees from Blind Ambitions, LLC, a business we acquired on December 29, 2017, our measurable employee population was approximately 6,190 individuals.    

With respect to the annual total compensation used to determine our “median employee,” we used a consistently applied compensation measure, which we applied separately for salaried and hourly employees. For salaried employees, we used their base salary rate. For hourly employees, we estimated annual wages based on the employee’s hourly wage rate and normal weekly schedule. For piece rate employees, we used earned production wages. For salespersons, wages included commissions. We annualized the compensation of employees who were employed on our December 31 testing date, but who worked less than a full year.

Once we identified our median employee, we combined all of the elements of such employee’s compensation for 2017 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $47,665. With respect to the annual total compensation of our CEO, we used the amount reported in the “Total” column of the Summary Compensation Table included in this Proxy Statement, and as adjusted in the manner described above.

 

 

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PROPOSAL 4 –VOTE TO APPROVE THE MATERIAL TERMS AND PERFORMANCE CRITERIA OF OUR 2014 OMNIBUS

INCENTIVE PLAN

 

Overview

 

We are submitting our 2014 Omnibus Incentive Plan to our stockholders for approval at the Annual Meeting. We are not proposing any amendments or changes to the 2014 Omnibus Incentive Plan.

The 2014 Omnibus Incentive Plan was adopted by the Board and approved by the Company’s stockholders on January 30, 2014. In 2017, the Board adopted an amendment to the 2014 Omnibus Incentive Plan to add meaningful limits on potential awards to non-employee directors. All current and prospective eligible employees and consultants of ours and our affiliates, and all of our non-employee directors, are eligible to be granted non-qualified stock options, restricted stock awards, performance-based cash awards and other stock-based awards under the 2014 Omnibus Incentive Plan. However, only employees of ours and of our subsidiaries are eligible to be granted incentive stock options, or ISOs, under the 2014 Omnibus Incentive Plan. The purpose of the 2014 Omnibus Incentive Plan is to enhance the profitability and value of the Company for the benefit of its stockholders by enabling the Company to offer eligible employees, consultants and non-employee directors incentive awards to attract, retain and reward such individuals and strengthen the mutuality of interests between such individuals and the Company’s stockholders.

Section 162(m) of the Internal Revenue Code of 1986, as amended (“Section 162(m)”), generally places a $1 million limit on the amount of compensation a company can deduct in any one year for certain executive officers. Section 162(m) provides an exception to the $1 million limit for compensation that qualifies as performance-based compensation (within the meaning of Section 162(m) and related regulations). While the Compensation Committee considers the deductibility of awards as one factor in determining executive compensation, the Compensation Committee also looks at other factors in making its decisions, and retains the flexibility to award compensation that it determines to be consistent with the goals of our executive compensation program even if the awards are not deductible by the Company for tax purposes.

Applicable IRS regulations provide that, in the case of a company that becomes a publicly held company, the $1 million deduction limit does not apply to any compensation paid pursuant to a plan or agreement that existed during the period in which the company was not publicly held. However, in the case of such a company that becomes publicly held in connection with an initial public offering, the company can rely on this exception only until the earliest of (i) the expiration of the plan; (ii) the material modification of the plan; (iii) the issuance of all stock and other compensation that has been allocated under the plan; or (iv) the first meeting of stockholders at which directors are to be elected that occurs after the close of the third calendar year following the calendar year in which the initial public offering occurs (the “IPO Exception”). Since the Company’s initial public offering occurred in 2014, the IPO Exception expires effective on the date of this year’s Annual Meeting.

The legislation known as the Tax Cuts and Jobs Act of 2017 (the “Tax Cuts Act”) repealed the performance-based compensation exemption from Section 162(m)’s deduction limit effective for taxable years beginning after December 31, 2017. However, the Tax Cuts Act provided transition relief for certain arrangements in effect on November 2, 2017 and not modified in any material respect on or after that date. Compensation paid to our covered executive officers in excess of $1 million generally will not be deductible unless it qualifies for the transition relief.

 

 

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Accordingly, we are seeking approval of the material terms and performance criteria set forth below and in the terms of the 2014 Omnibus Incentive Plan at this time to preserve our ability to qualify for the transition relief provided by the Tax Cuts Act for certain performance-based compensation and thus, (i) to the increase the likelihood that certain cash and stock-based incentive awards made by the Compensation Committee during this fiscal year and prior fiscal years may be deductible under the performance-based compensation exception and the IPO Exception, and (ii) to preserve the Compensation Committee’s ability, in its discretion and to the extent allowed, to make cash and stock-based incentive awards that are intended to satisfy the requirement for performance-based compensation within the meaning of Section 162(m). We are not proposing any changes to the 2014 Omnibus Incentive Plan.

In light of the recent change in tax law pursuant to the Tax Cuts Act, if our stockholders fail to approve the material terms and performance criteria set forth below and in the terms of the 2014 Omnibus Incentive Plan, the Compensation Committee will retain the right to continue to grant awards under the 2014 Omnibus Incentive Plan in accordance with the current terms and conditions of the 2014 Omnibus Incentive Plan, but the Company may not be able to deduct certain performance-based compensation under Section 162(m). The Compensation Committee believes it is important to preserve flexibility in administering compensation programs in a manner designed to promote varying corporate goals and objectives. As such, the Compensation Committee has not adopted a policy that all compensation must qualify as deductible under Section 162(m). Failure to approve the material terms and performance criteria set forth below and in the terms of the 2014 Omnibus Incentive Plan will not affect the validity of our obligations under awards made prior to the Annual Meeting.

The material terms of the 2014 Omnibus Incentive Plan are described below, which is qualified in its entirety by the 2014 Omnibus Incentive Plan attached as Appendix A to this Proxy Statement.

Su mmary of the 2014 Omnibus Incentive Plan

 

Administration. The Board appointed the Compensation Committee to administer the 2014 Omnibus Incentive Plan. The Compensation Committee is authorized to grant awards to eligible employees, consultants and non-employee directors. All members of the Compensation Committee are “non-employee directors” within the meaning of Rule 16b-3 under the Exchange Act, “outside directors” within the meaning of Section 162(m) and “independent directors” under applicable NYSE rules. The Compensation Committee has the full authority and discretion to grant and administer awards under the 2014 Omnibus Incentive Plan, including, but not limited to, the authority to: select the eligible employees, consultants and non-employee directors to whom awards may from time to time be granted; determine the number of shares of common stock to be covered by each award; determine the type and terms and conditions of each award; condition the grant, vesting or payment of any award on the attainment of performance criteria over a performance period, set such goals and certify the attainment of such goals; and construe and interpret the terms and provisions of the 2014 Omnibus Incentive Plan and any award agreements thereunder.

Eligibility. Awards under the 2014 Omnibus Incentive Plan, including performance-based awards, may be made to consultants, non-employee directors, and eligible employees, including key employees who are, or during the performance period covered by an award may become, “covered employees” for purposes of Section 162(m). As of March 31, 2018, there are approximately 7,000 employees and five non-employee directors eligible to participate in the 2014 Omnibus Incentive Plan, and approximately 900 of our employees and non-employee directors have been granted awards under the 2014 Omnibus Incentive Plan through December 31, 2017.

Award Types, Available Shares, and Award Limits. Stock options (both incentive stock options and non-qualified stock options), restricted stock, other stock-based awards, and performance-based cash awards are available for grant under the 2014 Omnibus Incentive Plan. A maximum of 3,000,000 shares of Company common stock may be issued in connection with awards made under the 2014 Omnibus Incentive Plan, including incentive stock options. No eligible employee or consultant may be granted awards (other than stock options or other stock-based awards in the form of stock appreciation rights) in respect of more than 500,000 shares of common stock, or cash-based awards for more than $3,000,000, in any fiscal year.

 

 

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Adjustments. The number and kind of shares authorized for grant under the 2014 Omnibus Incentive Plan, the number of shares subject to an award, the exercise price of awards, and the individual participant award limits (other than the cash limits) shall be adjusted by the Compensation Committee as the Compensation Committee determines, in good faith, to be necessary or advisable to prevent substantial dilution or enlargement of the rights of participants under the 2014 Omnibus Incentive Plan in the event of any change in the capital structure or business of the Company by reason of any stock split, reverse stock split, stock dividend, combination or reclassification of shares, recapitalization, merger, consolidation, spin-off, split-off, reorganization or partial or complete liquidation, issuance of rights or warrants to purchase common stock or securities convertible into common stock, sale or transfer of all or part of the Company’s assets or business, or other corporate transaction or event that would be considered an “equity restructuring” for purposes of FASB ASC Topic 718.

Non-Transferability of Awards. Except as the Compensation Committee may permit, at the time of grant or thereafter, awards granted under the 2014 Omnibus Incentive Plan are generally not transferable by a participant other than by will or the laws of descent and distribution. Shares of our common stock acquired by a permissible transferee will continue to be subject to the terms of the 2014 Omnibus Incentive Plan and the applicable award agreement.

Effect of Certain Transactions; Change in Control. In the event of a change in control, except as otherwise provided by the Compensation Committee in an award agreement, unvested awards will not vest. Instead, the Compensation Committee may, in its sole discretion provide for outstanding awards to be treated in accordance with one of the following methods: (i) awards (whether or not vested) may be continued, assumed or substituted for; (ii) awards may be purchased for an amount of cash equal to the change in control price per share; and/or (iii) stock options or other stock-based appreciation awards may be cancelled if the change in control price is less than the applicable exercise price. However, the Compensation Committee may in its sole discretion provide for the acceleration of vesting and lapse of restrictions of an award at any time. For the purposes of the foregoing, a “change in control” generally means the occurrence of one of the following events: (i) the acquisition (including through purchase, reorganization, merger or consolidation) by a person or entity of 45% or more of the voting power of the securities entitled to vote to elect our Board; (ii) an election of individuals to our Board that causes a change in two-thirds of the Board, unless the individuals elected are approved by a vote of at least two-thirds of the directors then in office who either were directors as of the effective date of the 2014 Omnibus Incentive Plan or whose election or nomination for election was previously so approved; or (iii) the sale or other disposition of all or substantially all of our assets.

In addition, upon the occurrence of an “acquisition event” (as defined below), the Compensation Committee may terminate all outstanding and unexercised options (or any other stock-based awards that are subject to exercise by the holder thereof) (referred to as the “exercisable awards”), effective as of the date of the acquisition event, by delivering a termination notice to each participant at least 20 days prior to the date of the acquisition event. During the period after which notice is provided, each participant may exercise all of his or her then outstanding and vested exercisable awards, subject to the occurrence of the acquisition event. Any exercisable award that has an exercise price that is equal to or greater than the fair market value of our common stock on the date of the acquisition event may be canceled by the Compensation Committee without consideration. Under the 2014 Omnibus Incentive Plan, an “acquisition event” means (i) a merger or consolidation in which we are not the surviving entity, (ii) any transaction that results in the acquisition of all or substantially all of our outstanding common stock by a single person or group of persons, or (iii) the sale or transfer of all or substantially all of our assets.

Performance Criteria. The Compensation Committee sets the terms of awards made under the 2014 Omnibus Incentive Plan, including any objective formula or standards for calculating the maximum amount payable to each participant, in accordance therewith. Under the 2014 Omnibus Incentive Plan, performance criteria established for purposes of the grant or vesting of performance-based awards of restricted stock, other stock-based awards or performance-based cash awards that are intended to be “performance-based” under Section 162(m) will be based on one or more of the following performance criteria, subject to adjustment as described below:

 

 

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  (1) enterprise value or value creation targets;

 

  (2) income or net income; operating income; net operating income or net operating income after tax; operating profit or net operating profit;

 

  (3) cash flow including, but not limited to, from operations or free cash flow;

 

  (4) specified objectives with regard to limiting the level of increase in all or a portion of bank debt or other long-term or short-term public or private debt or other similar financial obligations, or other capital structure improvements, which may be calculated net of cash balances or other offsets and adjustments as may be established by the Compensation Committee;

 

  (5) net sales, revenues, net income or earnings before income tax or other exclusions;

 

  (6) operating margin; return on operating revenue or return on operating profit;

 

  (7) return measures (after tax or pre-tax), including return on capital employed, return on invested capital; return on equity, return on assets, return on net assets;

 

  (8) market capitalization, fair market value of the shares of the Company’s common stock, franchise value (net of debt), economic value added;

 

  (9) total stockholder return or growth in total stockholder return (with or without dividend reinvestment);

 

  (10) proprietary investment results;

 

  (11) estimated market share;

 

  (12) expense management/control or reduction (including without limitation, compensation and benefits expense);

 

  (13) customer satisfaction;

 

  (14) technological improvements/implementation, new product innovation;

 

  (15) collections and recoveries;

 

  (16) property/asset purchases;

 

  (17) litigation and regulatory resolution/implementation goals;

 

  (18) leases, contracts or financings (including renewals, overhead, savings, G&A and other expense control goals);

 

  (19) risk management/implementation;

 

  (20) development and implementation of strategic plans or organizational restructuring goals;

 

  (21) development and implementation of risk and crisis management programs; compliance requirements and compliance relief; productivity goals; workforce management and succession planning goals;

 

  (22) employee satisfaction or staff development;

 

 

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  (23) formations of joint ventures or partnerships or the completion of other similar transactions intended to enhance revenue or profitability or to enhance its customer base; or

 

  (24) completion of a merger, acquisition or any transaction that results in the sale of all or substantially all of the stock or assets.

All performance criteria may be based upon the attainment of specified levels of our (or affiliate, division, other operational unit, business segment or administrative department of the Company or any affiliate) performance under one or more of the measures described above and may be measured relative to the performance of other corporations (or an affiliate, subsidiary, division, other operational unit, business segment or administrative department of another corporation or its affiliates). Any goal may be expressed as a dollar figure, on a percentage basis (if applicable) or on a per share basis, and goals may be either absolute, relative to a selected peer group or index, or a combination of both. To the extent permitted under Section 162(m), the Compensation Committee may: (i) designate additional business criteria on which the performance criteria may be based or (ii) adjust, modify, or amend the aforementioned business criteria. Except as otherwise determined by the Compensation Committee at grant, the measures used in performance criteria set under the 2014 Omnibus Incentive Plan shall be determined in accordance with generally accepted accounting principles (“GAAP”) and in a manner consistent with the methods used in the Company’s regular reports on Forms 10-K and 10-Q, without regard to any of the following unless otherwise determined by the Compensation Committee consistent with the requirements of Section 162(m) and the regulations thereunder:

 

  (a) all items of gain, loss or expense for the fiscal year or other applicable performance period that are related to special, unusual or non-recurring items, events or circumstances affecting the Company (or affiliate, division, other operational unit, business segment or administrative department of the Company or any affiliate) or the financial statements of the Company (or affiliate, division, other operational unit, business segment or administrative department of the Company or any affiliate);

 

  (b) all items of gain, loss or expense for the fiscal year or other applicable performance period that are related to (i) the disposal of a business or discontinued operations or (ii) the operations of any business acquired by the Company (or affiliate, division, other operational unit, business segment or administrative department of the Company or any affiliate) during the fiscal year or other applicable performance period; and

 

  (c) all items of gain, loss or expense for the fiscal year or other applicable performance period that are related to changes in accounting principles or to changes in applicable law or regulations.

To the extent any performance criteria are expressed using any measures that require deviations from GAAP, such deviations shall be at the discretion of the Compensation Committee as exercised at the time the performance criteria are set and, following the IPO Exception transition period, to the extent permitted under Section 162(m).

The 2014 Omnibus Incentive Plan is structured to give the Compensation Committee the ability, in its discretion, to make cash and stock-based incentive awards that are intended to satisfy the requirement for performance-based compensation within the meaning of Section 162(m). Although the exemption for performance-based compensation was recently repealed with respect to taxable years beginning after December 31, 2017, certain awards made before November 2, 2017 in respect of the Company’s current fiscal year or pursuant to contracts entered into prior to the repeal will, in many circumstances, remain eligible for this exemption, and the 2014 Omnibus Incentive Plan will therefore continue to be applicable to such awards.

Negative Discretion. The Committee may exercise negative discretion with respect to performance-based awards by providing in award agreement the discretion to pay an amount less than otherwise would be provided under the applicable level of attainment of the performance criteria.

Term. Awards under the 2014 Omnibus Incentive Plan may not be made after January 30, 2024, but awards granted prior to such date may extend beyond that date.

 

 

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Amendment and Termination. The Board may at any time amend, in whole or in part, any or all of the provisions of the 2014 Omnibus Incentive Plan, or suspend or terminate it entirely, retroactively or otherwise. Except as required to comply with applicable law, no such amendment may reduce the rights of a participant with respect to awards previously granted without the consent of such participant. In addition, without the approval of stockholders, no amendment may be made that would: increase the aggregate number of shares of our common stock that may be issued under the 2014 Omnibus Incentive Plan; increase the maximum individual participant share limitations for a fiscal year or year of a performance period; change the classification of individuals eligible to receive awards under the 2014 Omnibus Incentive Plan; extend the maximum option term; alter the performance criteria; amend the terms of any outstanding stock option or other stock appreciation award to reduce the exercise price thereof (i.e., reprice); cancel any outstanding “in-the-money” stock option or other stock appreciation award in exchange for cash, other awards or stock option or other stock appreciation award with a lower exercise price; require stockholder approval in order for the 2014 Omnibus Incentive Plan to continue to comply with Section 162(m) or Section 422 of the Internal Revenue Code; or require stockholder approval under the rules of any exchange or system on which the Company’s securities are listed or traded.

Federal Income Tax Consequences

 

The following is a summary of the principal United States federal income tax consequences to the Company and to participants subject to U.S. taxation with respect to awards granted under the 2014 Omnibus Incentive Plan. This summary is not intended to be exhaustive and does not discuss the income tax laws of any city, state or foreign jurisdiction in which a participant may reside. Participants are advised to consult with their own tax advisors with respect to the tax consequences inherent in the ownership and/or exercise of the awards, and the ownership and disposition of any underlying securities.

Non-Qualified Stock Options. A participant who is granted a nonqualified stock option under the 2014 Omnibus Incentive Plan will not recognize any income for federal income tax purposes on the grant of the option. Generally, on the exercise of the option, the participant will recognize taxable ordinary income equal to the excess of the fair market value of the shares on the exercise date over the option price for the shares. Upon disposition of the shares purchased pursuant to the stock option, the participant will recognize long-term or short-term capital gain or loss, as the case may be, equal to the difference between the amount realized on such disposition and the basis for such shares, which basis includes the amount paid for the shares and the amount previously recognized by the participant as ordinary income. If the common stock received upon exercise of an option is restricted stock, the rules regarding restricted stock will apply.

Incentive Stock Options. A participant who is granted an incentive stock option, or ISO, will not recognize any taxable income for federal income tax purposes either on the grant or exercise of the ISO. The aggregate fair market value of common stock (determined at the grant date) with respect to which ISOs can be exercisable for the first time during any calendar year cannot exceed $100,000. Any excess will be treated as a non-qualified stock option. If the participant disposes of the shares purchased pursuant to the ISO more than two years after the date of grant and more than one year after the issuance of the shares to the participant (the required statutory “holding period”), (a) the participant will recognize long-term capital gain or loss, as the case may be, equal to the difference between the selling price and the option price; and (b) the Company will not be entitled to a deduction with respect to the shares of stock so issued. If the holding period requirements are not met, any gain realized upon disposition will be taxed as ordinary income to the extent of the excess of the lesser of (i) the excess of the fair market value of the shares at the time of exercise over the option price, and (ii) the gain on the sale. Also in that case, the Company will be entitled to a deduction in the year of disposition in an amount equal to the ordinary income recognized by the participant. Any additional gain will be taxed as short-term or long-term capital gain depending upon the holding period for the stock. A sale for less than the option price results in a capital loss. The excess of the fair market value of the shares on the date of exercise over the option price is, however, includable in the option holder’s income for alternative minimum tax purposes.

Restricted Stock. A participant will not be taxed at the date of grant of an award of restricted stock, but will be taxed at ordinary income rates on the fair market value of any shares of restricted stock as of the date that the restrictions

 

 

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lapse and the shares vest, unless the participant elects under Section 83(b) of the Internal Revenue Code to include in income the fair market value of the restricted stock as of the date of such grant. Any disposition of shares after restrictions lapse will be subject to the regular rules governing long-term and short-term capital gains and losses, with the basis for this purpose equal to the fair market value of the shares at the end of the restricted period (or on the date of the grant of the restricted shares, if the participant has made an election under Section 83(b) of the Internal Revenue Code). To the extent unrestricted dividends are paid during the restricted period under the applicable award agreement, any such dividends will be taxable to the participant at ordinary income tax rates and will be deductible by the company unless the participant has made a Section 83(b) election, in which case the dividends will thereafter be taxable to the participant as dividends and will not be deductible by the Company.

Other-Stock Based Awards. A participant generally will not recognize taxable income upon the grant of an other stock-based award. When the conditions and requirements for the grants have been satisfied and the award is settled, any cash received or the fair market value of any common stock received will constitute ordinary income to the participant. If a participant sells any shares of stock acquired pursuant to the grant of an other stock-based award, the difference between the amount realized on the sale and the participant’s tax basis with respect to those shares (which, generally, will be equal to the amount of income the participant reported with respect to the payment of the shares of common stock) will be taxed as short- or long-term capital gain or loss, depending on whether the one-year capital gain holding period is met.

Performance-Based Awards. Any award under the 2014 Omnibus Incentive Plan may be granted with performance vesting conditions. The federal income tax effects of such a performance award would generally be the same as described above for that type of award. A participant would not be taxed at the time of grant of a performance-based cash award. If the performance targets and/or the other requirements for a payment of performance-based cash awards are achieved, a participant will receive a cash payment and will recognize ordinary income in an amount equal to any cash received on the date of receipt.

Company Tax Deduction. To the extent that a participant recognizes ordinary income in the circumstances described above, the Company or affiliate for which the participant performs services will generally be entitled to a corresponding federal income tax deduction, provided that, among other things, the income meets the test of reasonableness, is an ordinary and necessary business expense, is not an “excess parachute payment” within the meaning of Internal Revenue Code Section 280G, and is not disallowed by the $1,000,000 limitation on certain executive compensation under Section 162(m). No assurance can be given that compensation intended to satisfy the requirements for exemption from Section 162(m) in fact will. Further, the Compensation Committee reserves the right to modify compensation that was initially intended to be exempt from Section 162(m) if it determines that such modifications are consistent with Company’s business needs.

Benefits to Directors, Named Executive Officers and Others

 

Awards under the 2014 Omnibus Incentive Plan are at the discretion of the Compensation Committee. Accordingly, future awards under the 2014 Omnibus Incentive Plan are not determinable.

Required Vote and Recommendation of the Board

 

The affirmative vote of a majority of the shares present or represented by proxy at the Annual Meeting and entitled to vote is required for approval of the material terms and performance criteria of our 2014 Omnibus Incentive Plan. Abstentions will have the same effect as votes “AGAINST” this proposal. Broker non-votes will have no effect on the outcome of this proposal. Unless otherwise instructed, the persons named as proxies will vote “FOR” this proposal.

 

 

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THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” APPROVAL OF THE MATERIAL TERMS AND PERFORMANCE CRITERIA OF OUR 2014 OMNIBUS INCENTIVE PLAN.

 

 

 

 

 

    

 

 

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STOCK OWNERSHIP INFORMATION

 

Stock Ownership Table

 

The following table shows the beneficial ownership of our common stock as of March 31, 2018 by:

 

    each person whom we know to beneficially own more than 5% of our outstanding common stock;
    each director;
    each named executive officer; and
    all directors and executive officers as a group.

Unless otherwise indicated, the address of each executive officer and director is c/o Installed Building Products, Inc., 495 South High Street, Suite 50, Columbus, Ohio 43215.

The number of shares of common stock “beneficially owned” by each stockholder is determined under certain SEC rules and is not necessarily indicative of ownership for any other purpose. Under these rules, beneficial ownership includes any shares as to which the stockholder has sole or shared voting power or investment power and any shares as to which the stockholder has the right to acquire beneficial ownership within 60 days after March 31, 2018, including any shares that could be purchased by the exercise of options or warrants. Each stockholder’s percentage ownership is based on 31,518,607 shares of common stock outstanding as of March 31, 2018.

Unless otherwise indicated below, to our knowledge, all persons named in the table have sole voting and investment power with respect to their shares of our common stock.

 

 

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     Shares of Common
Stock Beneficially Owned
Name of Beneficial Owner    Number                Percent        

5% Stockholders:

        

PJAM IBP Holdings, Inc. (1)

     4,027,819             12.8%  

BlackRock, Inc. (2)

     3,035,309             9.6%  

Installed Building Systems, Inc. (1)

     2,940,882             9.3%  

Spruce House Investment Management LLC (3)

     2,800,000             8.9%  

Directors and Named Executive Officers:

        

Margot L. Carter

     4,654             *  

Jeffrey W. Edwards (1)(4)

     7,797,492             24.7%  

Jay P. Elliott (5)

     60,505             *  

Todd R. Fry (6)

     5,447             *  

Lawrence A. Hilsheimer

     18,431             *  

Janet E. Jackson

     8,761             *  

Michael T. Miller (7)

     158,453             *  

Jason R. Niswonger (8)

     5,417             *  

J. Michael Nixon (9)

     1,453,658             4.6%  

Robert H. Schottenstein

     8,761             *  

Michael H. Thomas

     12,761             *  

Vikas Verma

     233,306             *  

Directors and Named Executive Officers as a Group (13 persons)

             9,808,182           31.1%  

 

* Less than one percent
                        
(1)    Information reported is based on a Schedule 13G/A as filed with the SEC on February 8, 2018 reporting beneficial ownership as of December 31, 2017, as updated by a Form 4 as filed with the SEC on February 23, 2018, in which PJAM IBP Holdings, Inc. (“PJAM”) and IBP Holding Company, the sole shareholder of PJAM, reported shared voting and dispositive power over 4,027,819 shares of our common stock, Installed Building Systems, Inc. (“IBS”) reported shared voting and dispositive power over 2,940,882 shares of our common stock and Jeffrey W. Edwards reported (i) sole voting and dispositive power over 538,807 shares of our common stock, (ii) shared voting and dispositive power over 6,968,701 shares of our common stock directly held by PJAM and IBS, and (iii) shared voting and dispositive power over 289,984 shares of our common stock held by Michael A. Edwards, as Trustee. Mr. Edwards disclaims any beneficial ownership of such shares in which he does not have a pecuniary interest. The address for PJAM, IBP Holding Company, IBS and Jeffrey W. Edwards is 495 South High Street, Suite 150, Columbus, OH 43215. Mr. Edwards, PJAM and IBS no longer have any outstanding pledges of Company stock.
(2)    Information reported is based on a Schedule 13G/A, as filed with the SEC on January 23, 2018, reporting beneficial ownership as of December 31, 2017, in which BlackRock, Inc. reported sole voting power over 2,996,915 shares of our common stock and sole dispositive power over 3,035,309 shares of our common stock. The address for BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055.
(3)    Information reported is based on a Schedule 13G/A as filed with the SEC on February 14, 2018, reporting beneficial ownership as of December 31, 2017, in which Spruce House Investment Management LLC, Spruce House Capital LLC, The Spruce House Partnership LP, Zachary

 

 

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   Sternberg and Benjamin Stein reported shared voting and dispositive power over 2,800,000 shares of our common stock. The address for Spruce House Investment Management LLC, Spruce House Capital LLC, The Spruce House Partnership LP, Zachary Sternberg and Benjamin Stein is 435 Hudson Street, 8th Floor, New York, NY 10014.
(4)    Includes 4,589 shares of restricted stock that vest on March 31, 2018, 23,672 shares of restricted stock that vest in equal installments (rounded to the nearest whole share) on each of April 20, 2018 and 2019, 32,266 shares of restricted stock that vest in equal installments (rounded to the nearest whole share) on each of April 20, 2018, 2019 and 2020 and 34,007 shares of performance-based restricted stock that vest in equal installments (rounded to the nearest whole share) on each of April 20, 2019 and 2020, generally subject to Mr. Edwards’ continued employment on the applicable vesting date. These shares of restricted stock are included in the 538,807 shares reflected in note (1) with respect to which Mr. Edwards has sole voting and dispositive power.
(5)    Includes 2,294 shares of restricted stock that vest on March 31, 2018, 7,995 shares of restricted stock that vest in equal installments (rounded to the nearest whole share) on each of April 20, 2018 and 2019, 10,808 shares of restricted stock with 5,606 shares that vest on April 20, 2018 and the remaining 5,202 shares of restricted stock vest in two equal installments (rounded to the nearest whole share) on April 20, 2019 and 2020 and 12,888 shares of performance-based restricted stock that vest in equal installments (rounded to the nearest whole share) on each of April 20, 2019 and 2020, generally subject to Mr. Elliott’s continue employment on the applicable vesting date.
(6)    Includes 765 shares of restricted stock that vest on March 31, 2018, 1,371 shares of restricted stock that vest in equal installments (rounded to the nearest whole share) on each of April 20, 2018 and 2019, 1,228 shares of restricted stock that vest in equal installments (rounded to the nearest whole share) on each of April 20, 2018, 2019 and 2020 and 1,586 shares of performance-based restricted stock that vest in equal installments (rounded to the nearest whole share) on each of April 20, 2019 and 2020, generally subject to Mr. Fry’s continue employment on the applicable vesting date.
(7)    Includes 1,912 shares of restricted stock that vest on March 31, 2018, 9,733 shares of restricted stock that vest in equal installments (rounded to the nearest whole share) on each of April 20, 2018 and 2019, 11,749 shares of restricted stock that vest in equal installments (rounded to the nearest whole share) on each of April 20, 2018, 2019 and 2020 and 12,888 shares of performance-based restricted stock that vest in equal installments (rounded to the nearest whole shares) on each of April 20, 2019 and 2020, generally subject to Mr. Miller’s continued employment on the applicable vesting date. Includes 113,479 shares held in a trust of which Mr. Miller is the sole trustee and beneficiary and exercises sole voting and dispositive power.
(8)    Includes 1,208 shares of restricted stock that vest in equal installments (rounded to the nearest whole share) on each of April 20, 2018 and 2019, 965 shares of restricted stock that vest in equal installments (rounded to the nearest whole share) on each of April 20, 2018, 2019 and 2020 and 1,437 shares of performance-based restricted stock that vest in equal installments (rounded to the nearest whole share) on each of April 20, 2019 and 2020, generally subject to Mr. Niswonger’s continue employment on the applicable vesting date.
(9)    Information reported is based on a Schedule 13G/A as filed with the SEC on February 8, 2018, reporting beneficial ownership as of December 31, 2017, as updated by a Form 4 as filed with the SEC on January 18, 2018, in which TCI Holdings, LLC (“TCI”) reported sole voting and dispositive power over 1,453,658 shares of our common stock. J. Michael Nixon is a member of and the manager of TCI. Subsequent to December 31, 2017, TCI sold an aggregate of 20,000 shares of our common stock, which sales were reported on Forms 4 filed with the SEC on behalf of Mr. Nixon on January 18, 2018. As the manager of TCI, Mr. Nixon has sole voting and dispositive power over the shares held by TCI. The address for TCI and Mr. Nixon is 12540 Broadwell Road, Suite 1202, Alpharetta, GA 30004. In August 2016, TCI pledged 1.1 million shares of our common stock to

 

 

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   secure a loan made by a financial institution to TCI. This pledge by TCI was recently reduced to 600,000 shares.

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers, directors and persons who beneficially own more than ten percent of our common stock to file with the SEC reports of their initial stock ownership as well as changes in their stock ownership. Based solely on our review of the reports and other information, we believe that in 2017 our directors and executive officers who were subject to Section 16(a) timely met all applicable filing requirements except as follows: due to a technical filing issue, a Form 4 filed one day late on January 30, 2017 by Michael T. Miller reporting the disposition of shares that occurred on January 25, 2017; a Form 4 filed one day late on August 18, 2017 by TCI Holdings, LLC, in which J. Michael Nixon, one of our directors, is the manager, reporting the disposition of shares that occurred on August 15, 2017 and a Form 4 filed one day late on December 12, 2017 by TCI Holdings, LLC reporting the disposition of shares that occurred on December 7, 2017.

Securities Authorized for Issuance under Equity Compensation Plans

 

The following table sets forth information regarding the shares of our common stock issuable under our 2014 Omnibus Incentive Plan as of December 31, 2107. The plan authorizes the grant of stock options, stock appreciation rights, stock equivalent units, restricted stock, restricted stock units, bonus awards, performance shares, performance units and other stock-based awards. The aggregate number of shares of our common stock initially reserved for issuance under the plan was 3,000,000. As of December 31, 2017, there were 202,331 shares issuable pursuant to outstanding restricted stock awards that have been granted under the plan. No equity-based awards have been issued under the plan other than shares of restricted stock.

 

      Number of Securities
Remaining Available for
Future Issuance under Equity
Compensation Plans
(#)
 

Equity compensation plans approved by security holders:
2014 Omnibus Incentive Plan

     2,578,516  

Equity compensations not approved by stockholders

     -      

Total

     2,578,516  
        

 

 

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CERTAIN RELATIONSHIPS AND RELATED-PARTY

TRANSACTIONS

 

Jeff Edwards, Peter Edwards Jr., Anne Edwards and Michael Edwards, and the investment entities through which they directly and indirectly beneficially own shares of our common stock, are referred to throughout this section as the Edwards Investors. Peter Edwards Jr., Anne Edwards and Michael Edwards are the siblings of Jeff Edwards.

Registration Rights

 

We entered into a registration rights agreement (“Registration Rights Agreement”) on November 6, 2013 with Cetus Capital II, LLC, IBP Investment Holdings, LLC, IBP Management Holdings, LLC and TCI Holdings, LLC, (collectively, the “Investors”). Under the Registration Rights Agreement, the Investors had demand, piggyback and Form S-3 registration rights. Subject to conditions and limitations as set forth in the Registration Rights Agreement, including our right to defer a demand registration under certain circumstances at any time that we were not eligible to register securities on Form S-3, the Investors could require that we register for public resale on Form S-1 under the Securities Act of 1933 all or part of the shares held by such Investors, so long as the securities being registered in each registration statement were proposed to be sold at an aggregate price to the public of at least $15 million. If we were eligible to register the sales of securities on Form S-3 under the Securities Act of 1933, the Investors had the right to require us to register the sale of common stock held by them on Form S-3 at an aggregate price to the public of at least $15 million. We were not obligated to effectuate more than one demand registration on Form S-1 or more than two demand registrations on Form S-3 during any calendar year. Subject to certain exceptions, the Investors were also entitled to piggyback registration rights with respect to any registration effected by us. We were responsible, subject to certain exceptions, for the expenses of any offering of our shares of common stock offered pursuant to the agreement other than underwriting discounts and selling commissions.

The Registration Rights Agreement expired in February 2017 on the third anniversary of the closing of our initial public offering.

Related-Party Sales

 

Certain of our operating subsidiaries install building products in the ordinary course of their businesses to entities affiliated with certain of our directors and executive officers. These transactions are performed on terms comparable to those that could be obtained in an arm’s-length transaction with an unrelated third party and are approved and monitored by the Audit Committee. In 2017, these sales were to:

 

    Edwards Investors affiliates, including Michael Edwards Building and Design, Inc., Multicon, Inc., Edwards Communities Construction Company, LLC and its affiliates, Duffy Homes, Inc. and its affiliates, Urban Five Construction, LLC and its affiliates and Tuttle Grove Limited Partnership and its affiliates: $1.7 million.
    M/I Homes, Inc. and its affiliates, including M/I Homes of Central Ohio, M/I Homes of Cincinnati and M/I Showcase Homes, for which Mr. Schottenstein, one of our directors, is the Chief Executive Officer: $8.0 million.
    Galaxy Builders, which is owned by a family member of Mr. Verma, one of our directors: $556,600.

 

 

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Real Property Leases

 

Prior to May 2017, we leased our headquarters in Columbus, Ohio from 495 South High Street, L.L.C., an entity affiliated with the Edwards Investors. In May 2017, the property was sold to an unrelated third party and our headquarters building is now under a master lease between the new owner and The Edwards Companies, LLC, an entity affiliated with the Edwards Investors, to which we pay rent payments. Base rent payments for 2017 were $278,000.

We lease two branch locations in Columbus, Ohio from Peter H. Edwards, an immediate family member of Jeff Edwards. Base rent payments for 2017 were $140,000 and $76,000, respectively.

We lease two branch locations in Jacksonville, Florida and Nashville, Tennessee from entities in which J. Michael Nixon, one of our directors, has a 33% interest. Base rent payments for 2017 were $90,000 and $45,000, respectively. The Nashville, Tennessee property was sold to an unrelated party in the third quarter of 2017.

We lease six locations in Marietta, Georgia (two), Charlotte, North Carolina and Universal City, Round Rock and Grapevine, Texas from entities in which Vikas Verma, one of our directors, has a 75% interest. Base rent payments for 2017 were $158,000, $60,000, $73,000, $118,000, $108,000, and $6,800, respectively. The Grapevine, Texas lease was terminated in the first quarter of 2017 when the property was sold to an unrelated third party.

In each case under the applicable lease, we are also obligated to pay our proportionate share of certain common area maintenance charges, taxes, insurance premiums and other costs of operation, depending on the terms of the lease.

Estimating Agreement

 

Alpha Insulation and Water Proofing Company and Alpha Insulation and Water Proofing, Inc., two of our subsidiaries, are parties to an Independent Contract Agreement for job estimating services with an entity in which Vikas Verma, one of our directors, has a 75% interest. The annual fee under this agreement is $388,800, subject to adjustment if the number of estimating jobs exceeds a prescribed amount. The agreement has an initial term of one year expiring on January 1, 2018, with automatic one year extensions unless either party provides notice of intent to terminate at least 180 days in advance of the expiration of the then-current term. Payments in 2017 under this contract totaled $438,800.

Alpha Acquisition

 

The Company acquired the Alpha companies in January 2017. The aggregate consideration for the acquisition was $116.7 million (including post-closing adjustments and an earnout payment), consisting of the issuance of 282,577 shares of our common stock valued at $10.9 million, $103.8 million in cash, seller obligations totaling approximately $2.0 million and the assumption of $0.1 million in debt of the Alpha companies. Vikas Verma, one of our directors, indirectly beneficially owned 75% of the Alpha companies and received his proportionate share of the consideration in connection with the acquisition. Following the acquisition, Mr. Verma continues to serve as the Chief Executive Officer of the Alpha companies, which became our subsidiaries. In connection with the acquisition, Mr. Verma entered into a non-compete agreement with the Company. See “Corporate Governance – Director Compensation Table.”

Policies and Procedures for Related-Party Transactions

 

Our Board of Directors has adopted a Related-Party Transaction Policy (“Policy”) for the review and approval or ratification of certain related-party transactions. The Policy is administered by the Audit Committee with the assistance of our General Counsel, Chief Financial Officer and Chief Accounting Officer.

The Policy applies to any transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which:

 

 

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    the Company or one of our subsidiaries is a participant;
    the amount involved exceeds $120,000; and
    a Related Party (as defined below) had, has or will have a direct or indirect material interest.

Any transaction meeting these criteria is a “Related-Party Transaction.”

Under the Policy, a “Related Party” is any person who: (i) is, or, at any time since the beginning of our last fiscal year, was, a director, executive officer or director nominee, or an immediate family member of any such person; or (ii) is known by us to be the beneficial owner of more than 5% of our common stock, or an immediate family member of such person.

The Policy includes procedures for addressing potential Related-Party Transactions prior to their consummation as well as procedures for addressing Related-Party Transactions that have not been previously approved. Prior to entering into a potential Related-Party Transaction, the Related Party (or the director, executive officer, nominee or 5% beneficial owner whose immediate family member is the Related Party) or any member of management who knows about the transaction must provide notice to our General Counsel, Chief Financial Officer or Chief Accounting Officer of the facts and circumstances of the proposed transaction. The General Counsel, the Chief Financial Officer or Chief Accounting Officer will assess whether the proposed transaction is a Related-Party Transaction subject to the Policy. If it is determined that the proposed transaction is a Related-Party Transaction, it is submitted to the Audit Committee for consideration at its next meeting. If it is not practicable or desirable to wait until the next Audit Committee meeting, the transaction may be submitted to the Chair of the Audit Committee for consideration (with the action taken by the Chair to be reported to the Audit Committee at its next regularly scheduled meeting).

When considering a proposed Related-Party Transaction, the Audit Committee will review all of the relevant available facts and circumstances, including:

 

    the benefits of the transaction to the Company;
    the impact on a director’s independence if the Related Party is a director or an immediate family member of a director;
    the availability of other sources or buyers of comparable products or services;
    the terms of the transaction;
    whether the transaction is on terms comparable to those obtainable in an arm’s-length transaction with an unrelated party; and
    the extent of the Related Party’s interest in the transaction.

The Audit Committee will approve a Related-Party Transaction only if it determines that the transaction is in, or is not inconsistent with, the best interests of the Company and our stockholders. No member of the Audit Committee may participate in the review, consideration or approval of a transaction as to which he or she or any member of his or her immediate family is the Related Party.

If a director or a member of management becomes aware of a Related-Party Transaction that has not been previously approved by the Audit Committee, he or she must promptly notify our General Counsel, Chief Financial Officer or Chief Accounting Officer. If the transaction is pending or ongoing, it is submitted to the Audit Committee for review, and the Audit Committee will consider all of the relevant facts and circumstances and evaluate all options, including ratification, amendment or termination of the transaction. If the transaction is completed, the Audit Committee will determine if rescission of the transaction and/or disciplinary action is appropriate.

At least once each year, the Audit Committee reviews all Related-Party Transactions that remain ongoing and have a remaining term of more than six months. Based on the facts and circumstances and taking into consideration our

 

 

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contractual obligations, the Audit Committee will determine if it is in the best interests of the Company and our stockholders to continue, modify or terminate the Related-Party Transaction.

All of the transactions described in this section were approved by the Audit Committee in accordance with the Policy.

 

 

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PROPOSALS OF STOCKHOLDERS FOR THE 2019 ANNUAL

MEETING

 

Pursuant to SEC rules, if a stockholder wishes to present a proposal to be included in our proxy statement for our 2019 Annual Meeting of Stockholders (the “2019 Annual Meeting”), the proposal must be received in writing by our Corporate Secretary at Installed Building Products, Inc., 495 South High Street, Suite 50, Columbus, Ohio 43215 no later than December 21, 2018. Any such proposal may be included in our 2019 proxy statement if it complies with SEC rules.

Under our Bylaws, in order to nominate a candidate for director at our 2019 Annual Meeting, or to bring any other business before the 2019 Annual Meeting that will not be included in our proxy statement, stockholders must comply with the requirements set forth in our Bylaws. Our Bylaws provide that stockholders desiring to nominate a candidate for director or to bring any other business before the 2019 Annual Meeting must provide notice to us no earlier than the close of business on January 31, 2019, and no later than the close of business on March 4, 2019, unless the date of the 2019 Annual Meeting is more than 30 days before, or more than 70 days after, the anniversary of this Annual Meeting, then notice must be received by us no earlier than the close of business 120 days prior to the 2019 Annual Meeting and no later than the close of business 90 days prior to the 2019 Annual Meeting (or 10 days following the day on which we publicly disclose the date of the 2019 Annual Meeting). All such stockholder nominations and proposals must set forth certain information specified in our Bylaws and must be submitted in writing to our Corporate Secretary, Installed Building Products, Inc., 495 South High Street, Suite 50, Columbus, Ohio 43215.

Under SEC rules, if a stockholder intends to present a proposal at the 2019 Annual Meeting that will not be included in our proxy statement and we do not receive written notice of the proposal on or before March 6, 2019, or if we meet other requirements of SEC rules, proxies solicited by the Board for the 2019 Annual Meeting will confer discretionary authority to vote on such proposal.

Under our Bylaws, if the number of directors to be elected at an annual meeting of stockholders is increased and we do not make a public announcement naming the nominees for the additional directorship(s) at least 100 days prior to the anniversary of the previous year’s annual meeting, a stockholder nomination with respect to the additional directorship(s) shall be considered timely if delivered to our Corporate Secretary no later than 10 days following the day when we publicly announce the increase in the number of directors.

A copy of our Bylaws may be obtained free of charge from our Corporate Secretary at Installed Building Products, Inc., 495 South High Street, Suite 50, Columbus, Ohio 43215, or may be found on our website at www.installedbuildingproducts.com under the “Investors” section. A nomination or proposal that does not comply with our Bylaws and/or applicable SEC rules will be disregarded or excluded from our proxy materials in accordance with applicable SEC rules. Compliance with the above procedures does not necessarily require us to include the proposed nominee or proposal in our proxy materials. We reserve the right to omit from our proxy statements any proposals that we are not required to include under applicable SEC rules. Please carefully review our Bylaws and applicable SEC rules prior to submitting any nominations or proposals.

 

 

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ADDITIONAL INFORMATION

 

 

Householding of Proxy Materials

 

The SEC has adopted a “householding” rule concerning the delivery of proxy materials. It permits us, with your permission, to send a single set of our proxy materials to any household at which two or more registered stockholders reside if we believe they are members of the same family. We intend to deliver only one copy of our proxy materials to multiple registered stockholders sharing the same address unless we have received contrary instructions from one or more of the stockholders. We will promptly deliver upon written or oral request a separate copy of our proxy materials to a stockholder at a shared address to which we provided a single copy. A stockholder who wishes to receive a separate copy of any of our proxy materials, or wishes to stop receiving separate copies of such materials, may make a request by writing to Computershare Investor Services, 462 South 4th Street, Suite 1600, Louisville, KY 40202 or by calling (781) 575 3100.

A number of brokerage firms have instituted householding. If you and members of your household have multiple accounts holding shares of our common stock, you may have received a householding notification from your broker, bank or other nominee. Please contact that organization directly if you have questions, require additional copies of our proxy materials or wish to revoke your decision to household.

Incorporation by Reference

 

Neither the Compensation Committee Report nor the Audit Committee Report included in this Proxy Statement is “soliciting material,” and is not deemed filed with the SEC. Neither shall be deemed incorporated by reference into any prior or future filings made by us with the SEC irrespective of any general incorporation language, except to the extent that we specifically incorporate such information by reference. This Proxy Statement includes several website addresses, which are intended to provide textual references only. The information contained on or accessible through these websites is not part of this Proxy Statement.

Availability of SEC Filings, Code of Ethics and Committee Charters

 

Copies of our reports filed with the SEC on Forms 10-K, 10-Q and 8-K, including amendments, our Code of Business Conduct and Ethics, the charters of the Board committees