prmw20190326_def14a.htm

 

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A
(Rule 14a-101)

 

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.      )

 

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☒ 

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to Rule 14a-12

 

PRIMO WATER CORPORATION

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 Primo Water Corporation
101 North Cherry Street, Suite 501
Winston-Salem, North Carolina 27101

 

March 28, 2019

 

Dear Stockholder:

 

We are pleased to invite you to the 2019 annual meeting of stockholders of Primo Water Corporation to be held at 1:00 p.m., Eastern Time, on May 2, 2019 at our corporate headquarters at 101 North Cherry Street, Suite 501, Winston-Salem, North Carolina 27101.

 

The agenda for the 2019 annual meeting of stockholders includes:

 

the election of three (3) Class III directors for three-year terms;

 

an advisory vote on our executive compensation;

 

the approval of the Primo Water Corporation 2019 Omnibus Long-Term Incentive Plan;

 

the approval of Amendment No. 3 to the 2010 Employee Stock Purchase Plan; and

 

the ratification of the appointment of BDO USA, LLP as the Company’s independent registered public accounting firm for our 2019 fiscal year.

 

Our Board of Directors unanimously recommends that you vote FOR election of the director nominees, FOR the advisory vote on our executive compensation, FOR the approval of the Primo Water Corporation 2019 Omnibus Long-Term Incentive Plan, FOR the approval of Amendment No. 3 to the 2010 Employee Stock Purchase Plan and FOR ratification of the appointment of BDO USA, LLP.

 

Whether or not you plan to attend the meeting, we encourage you to vote as soon as possible to ensure that your shares are represented at the meeting. The proxy statement explains more about proxy voting, so please read it carefully.

 

We look forward to your continued support.

 

Sincerely,

 

 

Matthew T. Sheehan
President and Chief Executive Officer    

 

 

 

PRIMO WATER CORPORATION
101 North Cherry Street, Suite 501
Winston-Salem, North Carolina 27101

 

Notice of 2019 Annual Meeting of Stockholders

 

Time and Date:

1:00 p.m., Eastern Time, on Thursday, May 2, 2019

Place:

Primo Water Corporation’s corporate headquarters
101 North Cherry Street, Suite 501
Winston-Salem, North Carolina 27101

Items of Business:

1.

Election of three directors nominated by our Board of Directors as Class III directors to serve until the 2022 annual meeting of stockholders;

 

2.

Advisory vote on the compensation paid to our named executive officers;

 

3.

Approval of Primo Water Corporation 2019 Omnibus Long-Term Incentive Plan;

 

4.

Approval of Amendment No. 3 to the 2010 Employee Stock Purchase Plan;

 

5.

Ratification of the Audit Committee’s appointment of BDO USA, LLP as our independent registered public accounting firm for 2019; and

 

6.

Other matters if properly raised.

Record Date:

You may vote at the annual meeting if you were a stockholder of record at the close of business on March 12, 2019.

Voting:

For voting instructions, please refer to your enclosed proxy card or the voting instruction card provided by your bank or broker. Additional information about voting is also included in the accompanying proxy statement. Please vote as soon as possible to record your vote, even if you plan to attend the annual meeting in person.

Meeting Admission:

Attendance at the annual meeting is limited to stockholders as of the close of business on March 12, 2019, holders of valid proxies for the annual meeting and our invited guests.

 

 

By Order of the Board of Directors,

 

David J. Mills
   
Chief Financial Officer and Secretary
March 28, 2019

 

 

Important Notice Regarding the Availability of
Proxy Materials for the 2019 Annual Meeting of Stockholders
to be held on May 2, 2019

 

Our Proxy Statement and Annual Report on Form 10-K for the year ended December 31, 2018 are available at www.proxyvote.com.

 

 

TABLE OF CONTENTS

 

 

1

2019 Proxy Statement Summary 1

Your Vote

1

How to Vote

1

Summary of Voting Proposals and Primo’s Voting Recommendations

2

Nominees for Election as Directors and Continuing Directors

3

Proposal 1 – Election of Directors 4

Director Nomination Process

5

Nominees for Director and Continuing Directors

7

Corporate Governance

12

Recent Corporate Governance Enhancements

12

Our Board of Directors

13

Board Leadership Structure

18

Director Independence

20

Board Committees

21

Management Succession Planning

24

Environmental, Social and Governance Matters

25

Our Board’s Role in Risk Management

27

Stockholder Engagement

28

Policy for Review of Related Person Transactions

28

Communications with our Board of Directors

28

Executive Officers

29

Director Compensation

30

Executive Compensation 32

Compensation Discussion and Analysis

32

Compensation Philosophy and Objectives

32

Executive Compensation Program Design

34

Other Compensation Matters

43

Executive Compensation Tables

46

Additional Information About Directors and Executive Officers

62

Audit Committee Report

63

Related Party Transactions

64

Proposal 2 – Advisory Vote on Executive Compensation 65
Proposal 3 – Approval of Primo Water Corporation 2019 Omnibus Long-Term Incentive Plan 66

Background and the Proposal

66

Vote Required for Approval

66

Summary of the 2019 Plan

67

Eligibility

67

Administration

67

 

 

Number of Authorized Shares

67

Adjustments

67

Types of Awards

68

Award Limits for Non-Employee Directors

69

No Repricing

69

Clawback

69

Transferability

69

Change in Control

69

Term, Termination and Amendment of the 2019 Plan

70

New Plan Benefits

70

Federal Income Tax Information

70

Proposal 4 – Approval of Amendment No. 3 to 2010 Employee Stock Purchase Plan 72

Background and the Proposal

72

Vote Required for Approval

72

Summary of ESPP Amendment No. 3

73

General

73

Reasons for Amendment

73

Material Features of the Plan

73

Proposal 5 – Ratification of Appointment of Independent Registered Public Accounting Firm 76

Independent Registered Public Accounting Firm Fees

77

Audit Committee Pre-Approval of Audit and Non-Audit Services

77

Principal Stockholders 77
Additional Information 81

Multiple Stockholders Sharing the Same Address

81

2018 Annual Report to Stockholders 81
Questions and Answers 81
Annex A – Primo Water Corporation 2019 Omnibus Long-Term Incentive Plan A-1
Annex B – Amendment No. 3 to Primo Water Corporation 2010 Employee Stock Purchase Plan B-1

 

 

PRIMO WATER CORPORATION
101 NORTH CHERRY STREET, SUITE 501
WINSTON-SALEM, NORTH CAROLINA 27101

 

2019 Proxy Statement Summary

 

The Board of Directors of Primo Water Corporation (“Primo” or the “Company”) is providing these materials to you in connection with Primo’s annual meeting of stockholders. The annual meeting will take place on Thursday, May 2, 2019, at 1:00 p.m. Eastern Time. The annual meeting will be held at our corporate headquarters at 101 North Cherry Street, Suite 501, Winston-Salem, North Carolina 27101. The annual meeting notice, proxy statement and form of proxy are expected to be first sent to stockholders on or about March 28, 2019.

 

This summary highlights information contained elsewhere in this Proxy Statement. It does not contain all of the information that you should consider. Please read the entire Proxy Statement carefully before voting.

 

Your Vote

 

Your vote is very important. Our Board of Directors is requesting you to allow your shares of Common Stock to be represented at our 2019 annual meeting of stockholders by proxies named on the proxy card.

 

How to Vote

 

You may vote if you were a stockholder as of the close of business on March 12, 2019. Stockholders of record may vote their shares prior to the annual meeting via the Internet, by mail or in person. Beneficial owners of shares held in “street name” may vote by following the voting instructions provided to them by their bank or broker.

 

 

 

Summary of Voting Proposals and Primo’s Voting Recommendations

 

Proposals

Board Recommendation

Page

PROPOSAL 1. Election of Directors

We are asking stockholders to vote on each director nominee to our Board of Directors named in this Proxy Statement.

FOR ALL

4

PROPOSAL 2. Advisory Vote on Executive Compensation

We are asking our stockholders to indicate their support for the compensation paid to our named executive officers in 2018 as described in this Proxy Statement.

FOR

65

PROPOSAL 3. Approval of Primo Water Corporation 2019 Omnibus Long-Term Incentive Plan

We are asking our stockholders to approve the Primo Water Corporation 2019 Omnibus Long-Term Incentive Plan.

FOR

66

PROPOSAL 4. Approval of Amendment No. 3 to the 2010 Employee Stock Purchase Plan

We are asking our stockholders to approve Amendment No. 3 to the 2010 Employee Stock Purchase Plan.

FOR

72

PROPOSAL 5. Ratification of Appointment of Independent Registered Public Accounting Firm

We are asking our stockholders to approve our Audit Committee’s appointment of BDO USA, LLP to serve as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2019.

FOR

76

 

 

Nominees for Election as Directors and Continuing Directors

 

 

 

 

 

 

Committee Membership

Name

Age

Director

Since

Director
Class

Primary Occupation

AC

CC

N&G

Nominees for Election as Class III Directors

Richard A. Brenner*

55

2005

Class III

CEO, Image Wizards, LLC

 

Susan E. Cates*

48

2014

Class III

Lead Independent Director, Primo Water; Former Chief Operating Officer, 2U, Inc. (NASDAQ: TWOU)

 

Charles A. Norris*

73

2016

Class III

Chairman of the Board, FreshPet, Inc. (NASDAQ: FRPT); Former Chairman of the Board, Glacier Water Services, Inc.

 

Continuing Directors

Emma S. Battle*

58

2019

Class I

President and CEO, MarketVigor; President and CEO, Higher Education Works; Former Senior Director of Online Marketing, Red Hat (formerly NYSE: RHT)

 

Jack C. Kilgore*

70

2011

Class I

Former President of Consumer Products Division, Rich Products Corporation

 

Billy D. Prim

63

2004

Class I

Executive Chairman of the Board of Directors of Primo Water; Former CEO of Primo Water; Former CEO and Chairman of Blue Rhino Corporation

 

 

 

Malcolm McQuilkin*

72

2005

Class II

President, Pioneer Strategic Sourcing, LLC; Former President of Blue Rhino Global Sourcing, LLC

 

Matthew T. Sheehan

44

2016

Class II

President and CEO, Primo Water

 

 

 

David L. Warnock*

61

2005

Class II

Founder and Senior Partner, Camden Partners Holdings, LLC

 

*

Independent

  

Chair

Member

 

AC = Audit Committee;    CC = Compensation Committee;    N&G = Nominating and Governance Committee

 

The above committee memberships were recommended by our Nominating and Governance Committee and approved by our Board of Directors in February 2019 and will become effective at the 2019 Annual Meeting. For a complete list of committee members effective until the 2019 Annual Meeting, please see “Board Committees” beginning on page 21 below.

 

 

Proposal 1 – Election of Directors

 

Proposal 1 – Election of Directors

 

WHAT YOU ARE VOTING ON:

 
At the 2019 Annual Meeting, three Class III directors are to be elected to hold office until the 2022 Annual Meeting and until their successors are elected and qualified, or until the directors either resign or are removed from office.

 

Our Board of Directors consists of three classes of directors, each serving a staggered three-year term. Upon the recommendation of our Nominating and Governance Committee of our Board of Directors, Richard A. Brenner, Susan E. Cates and Charles A. Norris are each nominated as a Class III director to serve three-year terms until the annual meeting of stockholders in 2022 and until their successors are elected and qualified. Messrs. Brenner and Norris and Mrs. Cates each currently serves as a director and has agreed to be named in this proxy statement and serve if elected.

 

Although we know of no reason why any nominee would not be able to serve, if any such nominee is unavailable for election, the proxies intend to vote your shares for any substitute nominee proposed by our Board of Directors.

 

Corporate Governance Enhancement – Majority Voting Policy

 

The three nominees receiving the highest number of affirmative votes will be elected as directors to serve until the 2022 annual meeting of stockholders. Votes withheld by stockholders, broker non-votes and abstentions will have no effect on the outcome of the director elections.

 

In January 2019, our Board of Directors adopted new Corporate Governance Guidelines which provide that, in any uncontested election of directors, in the event that a nominee does not receive a majority of the votes cast in respect of such director’s election, the Board of Directors expects such nominee to tender his or her resignation to the Nominating and Governance Committee and the Board of Directors, regardless of whether such nominee received the votes necessary for election under our Bylaws. The Nominating and Governance Committee will act on an expedited basis to determine whether to recommend to the Board of Directors whether to accept such director’s resignation. The Board of Directors will make, and publicly disclose, its decision with respect to the acceptance or rejection of a resignation tendered pursuant to this policy within 90 days after the certification of the results of the meeting of stockholders at which such director’s nomination was considered, and such public disclosure will include the rationale underlying such decision. The Nominating and Governance Committee and the Board of Directors expect the director whose resignation is under consideration to abstain from participating in any decision regarding such resignation.

 

 

 

Proposal 1 – Election of Directors

 

Director Nomination Process

 

Our Board of Directors has a standing Nominating and Governance Committee comprised solely of independent directors. Our Board of Directors has delegated to its Nominating and Governance Committee the responsibility for establishing membership criteria for our Board of Directors, identifying individuals qualified to become directors consistent with such criteria and recommending the director nominees.

 

Our Nominating and Governance Committee actively searches for director nominees whose complementary knowledge, experience and skills provide a broad and diverse spectrum of perspectives and leadership experience in the beverage sector and broader consumer product goods industry, strategic planning, finance and accounting, risk management, marketing and distribution, corporate governance and other skills important to the development, execution and oversight of our long-term strategy. In identifying potential director candidates, the Nominating and Governance Committee seeks input from its Committee members, other directors and management. The Nominating and Governance Committee may engage the services of search firms and advisors to help identify and screen potential director nominees. The Nominating and Governance Committee will also consider director candidates appropriately recommended by stockholders, and the Nominating and Governance Committee will discuss with the Board of Directors any candidates who were considered by the Nominating and Governance Committee but not recommended for election or re-election.

 

In identifying and assessing director candidates, the Nominating and Governance Committee considers, among other things:

 

roles and contributions valuable to the business community;

 

personal qualities of leadership, character, judgment and whether the candidate possesses and maintains throughout Board service a reputation of integrity, trust, respect, competence and adherence to the highest ethical standards;

 

relevant knowledge and diversity of background, viewpoint and experience;

 

whether the candidate is free of conflicts and has the time and willingness required for active preparation, participation and attendance at all meetings;

 

applicable Nasdaq listing standards;

 

the number of other public and private company boards on which a director candidate serves;

 

a commitment to protecting stockholder value and

 

the current needs of the Board, including the need for specific industry or professional experience.

 

Our Board of Directors believes that diverse membership with varying perspectives and breadth of experience is an important attribute to a well-functioning Board of Directors, promotes the inclusion of different perspectives and ideas, and results in both better corporate governance and improved corporate performance. Our Board of Directors believes that the benefits of inclusion and diversity are critical to our long-term success and viability in an increasingly dynamic and competitive business environment. To this end, as set forth in our Board Diversity and Qualifications Policy, diversity (based on factors commonly associated with diversity such as race, gender, national origin, religion or sexual orientation or identity, as well as on broader principles such as diversity of perspective and experience) is one of many elements to be considered in evaluating a particular candidate for appointment to the Board of Directors. Please see “Board Diversity” beginning on page 21 of this Proxy Statement for a more in-depth discussion of the consideration of diversity-related factors by the Board of Directors in its nomination considerations.

 

 

Proposal 1 – Election of Directors

 

Our Board of Directors also assesses director age and tenure of Board service and seeks to attain a reasonable balance between the perspectives of new directors and the industry and institutional knowledge offered by existing directors. In determining whether to recommend a director for re-election to the Board of Directors, our Nominating and Governance Committee will consider, among other factors, the director’s participation in and contributions to the Board, the results of the most recent Board evaluation, and the director’s record of past attendance at Board and committee meetings. Further, under our Corporate Governance Guidelines, no person is eligible for election or re-election as a director if, at the time of such election, he or she is 75 or more years of age, unless our Board of Directors affirmatively determines otherwise.

 

All director candidates, including candidates appropriately recommended by stockholders, are evaluated in accordance with the process described above.

 

Stockholder Recommendations of Director Candidates

 

Stockholders who wish to recommend director candidates for consideration by the Nominating and Governance Committee may do so by submitting a written recommendation to our Corporate Secretary at 101 North Cherry Street, Suite 501, Winston-Salem, North Carolina 27101. Such recommendation must include a detailed background of the suggested candidate that demonstrates how the individual meets the criteria set forth above. If a candidate proposed by a stockholder or other source meets such criteria, the individual will be considered on the same basis as other candidates in accordance with the director nomination process set forth above.

 

Recommendations by stockholders for director candidates to be considered for the 2020 annual meeting of stockholders must be delivered to Primo’s Corporate Secretary not earlier than the close of business on January 3, 2020 and not later than the close of business on February 2, 2020. Recommendations by stockholders for director candidates to be considered for inclusion in the proxy statement and form of proxy relating to the 2020 annual meeting of stockholders must be received no later than November 28, 2019. Notice of a director nomination must be submitted in accordance with the requirements set forth in our bylaws which include requirements to provide the name and address of the stockholder making the recommendation, a representation that the recommending stockholder is a record holder of our common stock, all information regarding the nominee that would be required to be set forth in a proxy statement and the consent of the nominee to serve as a director. Appropriate submission of a recommendation by a stockholder does not guarantee the selection of the stockholder’s candidate or the inclusion of the candidate in our proxy statement; however, the Nominating and Governance Committee will consider any such candidate in accordance with the director nomination process described above.

 

 

Nominees for Director and Continuing Directors

 

Nominees for Director and Continuing Directors

 

Set forth below are the names and ages of nominees to be elected at the 2019 Annual Meeting and each of the continuing directors and each of their principal occupations, business experience. We also discuss below the qualifications, attributes and skills that make each nominee and continuing director a strong fit for service on our Board of Directors.

 

Nominees for Class III Directors

 

Richard A. Brenner

Director Since: 2005

Age: 55


   


Position: Director
Current Class of Director: III
Current Term Expiration: 2019

Richard A. Brenner has served on our Board of Directors since 2005. He leverages his broad and extensive experience serving as a member on numerous boards and as a long-tenured executive leading various companies.
   
Mr. Brenner is currently the Chief Executive Officer of Image Wizards, LLC (a leading provider of metal prints) and previously served as the Vice Chairman of Entrematic (formerly Amarr Garage Doors, a manufacturer and distributor of garage doors). Mr. Brenner also served as Entrematic’s Chief Executive Officer from July 2002 until November 2014 and its President from July 1993 until June 2002.
   
Mr. Brenner currently serves on several boards of private and nonprofit entities, including ABC of North Carolina, Samet Corporation, Fuel Rod, Computer Credit, Inc., Winston-Salem Chamber of Commerce and the Wake Forest University Health Sciences Board, where he has been a member of the Audit, Compliance, and Investment Policy Committees. He previously served on the board of directors of Blue Rhino Corporation (“Blue Rhino”), a provider of propane cylinder exchange and complementary propane and non-propane products from 1998 to 2004 at which time he led the independent special committee that oversaw its sale. Mr. Brenner previously served on the board of directors of Southern Community Bancshares, Inc. from 2002 to 2004 where he was a member of the Loan and Trust Committees. Mr. Brenner earned a bachelor’s degree in business from the University of Georgia.
   
Mr. Brenner’s significant executive and board service experience position him well on the Board of Directors.

 

 

Nominees for Director and Continuing Directors

 

Susan E. Cates

Director Since: 2014

Age: 48


   
Position: Lead Independent Director
Current Class of Director: III
Current Term Expiration: 2019

 

Susan E. Cates has served on our Board of Directors since 2014, currently serves as the Chair of the Audit Committee, and was appointed as the Lead Independent Director in January 2019. Ms. Cates leverages her 20+ years in finance as an advisor, investor, and operator to counsel several early stage to mature companies as well as to advise public and private universities, including the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill (“UNC”), where she co-chairs the Nominations and Governance Committee of the Board of Advisors.
   
Ms. Cates served as the Chief Operating Officer of 2U, Inc. (NASDAQ: TWOU) (“2U”) from 2016 to 2017, a leading provider of digital education services to universities around the world. At 2U, Ms. Cates oversaw all aspects of delivery of the company’s services to universities, including marketing, technology, content and university relationship management, as well as human resources. Over the course of her tenure at 2U, where she co-led the company’s sole international acquisition in South Africa and created centralized data analytics and talent management functions, the company approximately doubled its size in terms of employees, market capitalization, and revenue. Prior to joining 2U, Ms. Cates served as the President of Executive Development at UNC’s Kenan-Flagler Business School from 2008 to 2016, and as the founding Executive Director of MBA@UNC from 2010 to 2016. Prior to joining UNC, Ms. Cates was a partner with Best Associates, a Dallas-based private equity firm, where she led the identification, acquisition and oversight of multiple domestic and international companies operating in the education sector, including leading M&A efforts for Best Associates’ largest portfolio company and closing a series of acquisitions and partnerships in South America. Ms. Cates developed extensive experience identifying and acquiring a foothold in highly regulated industries while bringing in new strategies to accelerate growth. Prior to joining Best Associates, she co-founded ThinkEquity Partners (“ThinkEquity”), a boutique investment bank in New York, with former colleagues from Merrill Lynch & Co. (“Merrill Lynch”). At ThinkEquity, Ms. Cates headed the education investment banking practice with responsibility for business development, client relationships and deal execution. Prior to co-founding ThinkEquity, she worked in investment banking at Merrill Lynch in New York, as well as in corporate lending at Wachovia Bank in Atlanta.
   
Ms. Cates earned a bachelor’s degree in public policy studies from Duke University and a MBA from the Kenan-Flagler Business School at UNC.
   
Ms. Cates’ extensive executive, financial and transactional experience position her well to serve as a member of the Company’s Board of Directors.

Charles A. Norris

Director Since: 2016

Age: 73


   
Position: Director
Current Class of Director: III
Current Term Expiration: 2019

 

Charles A. Norris has served on our Board of Directors since the Company’s acquisition of Glacier Water Services Inc. (“Glacier Water”) in December 2016.
   
Mr. Norris previously served as the Chairman of Glacier Water from 2001 until its sale to Primo. Mr. Norris served as President of McKesson Water Products Company, a bottled water company and division of McKesson Corporation (NYSE: MCK), from 1990 until he retired in October 2000. From 1981 through 1989, Mr. Norris served as President of Deer Park Spring Water Company, initially a division of Nestle USA, and led an investor group that acquired the business in 1985 before selling it to Clorox in 1987. He remained with Clorox through 1989 following their acquisition of Deer Park. From 1973 to 1985, Mr. Norris served in various operational executive positions with Nestle in both Switzerland and the United States. Mr. Norris served as President of the International Bottled Water Association from 1981 to 1982, and is a former Trustee of the Drinking Water Research Foundation.
   
Mr. Norris is currently Chairman of the Board of FreshPet, Inc. (NASDAQ: FRPT, a pet food manufacturer), a role that he has held since its founding in 2006. He was previously a member of the board of directors of Advanced Engineering Management and MP Holdco LLC and was Chairman of the Board of Day Runner, Inc. from September 2001 until it was acquired in November 2003. Mr. Norris earned a bachelor’s degree from the University of Rochester and an MBA from Northeastern University.
   
Mr. Norris provides the Board of Directors with extensive director and executive leadership experience, particularly within the water industry, having completed dozens of acquisitions, both domestically and internationally, and having led some of the top private and public companies in the water industry as they achieved superior shareholder returns.

 

 

Nominees for Director and Continuing Directors

 

Continuing Directors – Class I

 

Emma S. Battle

Director Since: 2019

Age: 58


   
Position: Director
Current Class of Director: I
Current Term Expiration: 2020

Emma S. Battle is currently the President and Chief Operating Officer of MarketVigor, LLC, a strategic consulting, e-commerce marketing and digital analytics firm. Ms. Battle was previously the President and Chief Operating Officer of CRISP Agency, before which she was a Senior Director at Red Hat (formerly NYSE: RHT) and a Vice President at Hanesbrands Inc. (NYSE: HBI). Ms. Battle holds a BA in Economics from Duke University and an MBA from Harvard Business School.
   
Ms. Battle also applies the leadership and operational skills that she gained in the private sector to benefit non-profit organizations dedicated to improving the quality of local education and culture. As some of Primo’s largest shareholders call for boards and management to oversee the sustainable initiatives of their businesses, Ms. Battle’s dedication to volunteerism and local service will markedly enhance the our Board of Directors.

Jack C. Kilgore

Director Since: 2011

Age: 70


   
Position: Director
Current Class of Director: I
Current Term Expiration: 2020

Jack C. Kilgore has served on our Board of Directors since 2011 and currently serves as the Chair of the Compensation Committee. He leverages his 36+ years of food industry experience with major retailers nationwide, extensive knowledge of and experience in the consumer packaged goods industry, board and compensation committee experience, and substantial executive and managerial experience.
   
From 2004 to 2014, Mr. Kilgore served as President of the Consumer Products Division of Rich Products Corporation (a leading supplier and solutions provider to the foodservice, in-store bakery, and retail marketplaces) where he led the company’s consumer packaged goods business, managed several acquisitions, and oversaw global food safety and quality assurance. He joined Rich Products Corporation in 1978 where he advanced through various levels of increasing responsibility to the executive level.
   
Mr. Kilgore currently serves as Chairman of the Board of South Coast Bank & Trust (a community bank based in Georgia) and as Chair of the Compensation Committee, and also serves as a director of the bank’s holding company, WBT BankShares Inc. He also serves on the board of PB2 Foods, Inc. (a maker of plant-based food products) and is the former Chairman of the National Fisheries Institute. Mr. Kilgore is also currently serving and has previously served in various leadership positions for a number of not-for-profit entities. Mr. Kilgore earned a bachelor’s degree in industrial management from Georgia Tech.
   
Mr. Kilgore’s abundant experience as an executive in the food and consumer packaged goods industries, along with his vast executive and managerial experience, position him well to serve as a member of the Board of Directors.

 

 

Nominees for Director and Continuing Directors

 

Billy D. Prim

Director Since: 2004

Age: 63


   
Position: Executive Chairman
Current Class of Director: I
Current Term Expiration: 2020

Billy D. Prim founded Primo in 2004 and has served on the Board of Directors since inception and has served as Executive Chairman since June 2017. Previously, Mr. Prim was the Company’s Chairman and Chief Executive Officer. Prior to founding Primo, Mr. Prim founded Blue Rhino Corporation, a provider of propane cylinder exchange and complementary propane and non-propane products, in March 1994 and served as its Chief Executive Officer and Chairman of the Board. Mr. Prim led Blue Rhino’s initial public offering in May 1998 and remained its Chief Executive Officer until April 2004, when Blue Rhino was acquired by Ferrellgas Partners, L.P. (“Ferrellgas”) at which time he was elected to the board of directors of Ferrellgas on which he served until November 2008. Mr. Prim previously served on the board of directors of Southern Community Bank and Trust from 1996 through 2005, its previous parent company, Southern Community Financial Corporation, and Towne Park Ltd. Mr. Prim also serves on the Wake Forest School of Business Board of Visitors and the Wake Forest Institute for Regenerative Medicine Advisory Board.
   
Mr. Prim brings extensive business, managerial and leadership experience to the Company’s Board of Directors. His service as an executive and a director of the Company provides the Board of Directors with a vital understanding and appreciation of the business. Mr. Prim has accumulated substantial corporate and shareholder governance expertise through his many years of public company experience. In addition, Mr. Prim’s leadership abilities, his experience at Blue Rhino Corporation and his extensive knowledge of the bottled water industry position him well for service on the Company’s Board of Directors.

 

Continuing Directors – Class II

 

Malcolm McQuilkin

Director Since: 2005

Age: 72


   
Position: Director
Current Class of Director: II
Current Term Expiration: 2021

Malcolm McQuilkin has served on our Board of Directors since 2005. Mr. McQuilkin is currently the President of Pioneer Strategic Sourcing LLC., an OEM supplier to the auto industry, and he previously served as the President of Blue Rhino Global Sourcing, LLC, an import and design company and a wholly-owned subsidiary of Ferrellgas Propane Partners. From 1990 until 2000, Mr. McQuilkin was the Chief Executive Officer of Uniflame, Inc., which was acquired by Blue Rhino in 2000.
   
Mr. McQuilkin has extensive international business expertise, which includes building sales and distribution networks in Asia, Europe, South America, and Canada. Mr. McQuilkin’s strong leadership experience and his extensive knowledge of complex financial and operational issues facing large companies make him an invaluable member of the Board of Directors.

 

 

Nominees for Director and Continuing Directors

 

Matthew T. Sheehan

Director Since: 2016

Age: 44


   
Position: President, Chief Executive
Officer and Director
Current Class of Director: II
Current Term Expiration: 2021

Matthew T. Sheehan has served as our President and Chief Executive Officer since May 2017 and as a director since October 2016. From June 2013 until May 2017, Mr. Sheehan served as our President and Chief Operating Officer, and he served as Chief Operating Officer from December 2012 until June 2013. He leverages his vast financial, managerial, and leadership experience in the bottled water industry.
   
Prior to joining our Company he held the following positions in Sales and Business Development at Redbox (a leading retailer specializing in movie and video game rental services via automated retail kiosks): Vice President, Strategic Venture Advisor in 2011; Vice President, Sales and Business Development from 2006 to 2011; and Director of Business Development from 2005 to 2006. Prior to Redbox, Mr. Sheehan served as the Sales Director, Transportation Solutions at Manhattan Associates, a provider of supply chain software for retail, distribution, transportation, and manufacturing industries. Mr. Sheehan began his career with Streamline.com, a home grocery delivery business, in Supply Chain and Logistics as well as Business Services. Mr. Sheehan is Chairman-elect of the Alumni Advisory Board of the MBA program at Pennsylvania State University (“Penn State”). Mr. Sheehan earned a bachelor’s degree in communications and business management from Bentley University and a MBA from the Penn State College of Business.
   
Mr. Sheehan’s extensive financial, managerial and leadership experience and knowledge of the bottled water industry and Primo’s operations position him well for service on the Board of Directors.

David L. Warnock

Director Since: 2005

Age: 61


   
Position: Director
Current Class of Director: II
Current Term Expiration: 2021

David L. Warnock has served on our Board of Directors since 2005 and currently serves as the Chair of the Nominating and Governance Committee. Throughout his extensive career in private investment management, Mr. Warnock served on the boards of various businesses and not-for-profit entities.
   
Mr. Warnock is a founder and senior partner of Camden Partners Holdings, LLC (a private investment management firm established in 1995). He serves as the Chairman of New Horizons Worldwide, Inc. and Calvert Education Services, LLC. Mr. Warnock also serves on the board of numerous private companies in the context of his role as a general partner of Camden Partners funds. He also serves as a member of the board of several not-for profit entities, including Green Street Academy and the Georgia O’Keeffe Museum. Mr. Warnock earned a bachelor’s degree in history from the University of Delaware and a master’s in finance from the University of Wisconsin.
   
Mr. Warnock brings to our Board of Directors a unique and valuable perspective from his years of experience in private investment management. Mr. Warnock’s business acumen and his financial, managerial, leadership and board service experience position him well to serve on our Board of Directors.

 

 

Corporate Governance

 

Corporate Governance

 

Recent Corporate Governance Enhancements

 

Earlier this year, our Board of Directors approved a series of corporate governance-related enhancements to strengthen and improve our commitment to adopting and enforcing strong corporate governance practices.

 

Summary of Corporate Governance Enhancements

Majority Voting Policy

In the event that a director nominee does not receive a majority of the votes cast in respect of such director’s election in an uncontested election, the Board expects such nominee to tender his or her resignation to the Nominating and Governance Committee and the Board. The Board will act on an expedited basis to determine whether to accept such resignation.

Board Diversity Policy

Our Board of Directors adopted its Board Diversity and Qualifications Policy to formally codify the consideration given by the Board to diversity and other important qualifications in its identification and assessment of director nominees.

Corporate Governance Guidelines

Our Board of Directors adopted a new set of Corporate Governance Guidelines to assist the Board and its committees in the exercise of its responsibilities and to establish a common set of expectations and guidelines to provide a strong and robust governance framework for the Company. Topics covered include, among others, (i) the majority voting policy summarized above; (ii) director tenure and age limits; (iii) limits on service on other public company boards and (iv) Board and Committee self-evaluations.

Lead Independent Director

The independent members of our Board of Directors elected Susan Cates to serve as Lead Independent Director, and her key responsibilities and obligations are set forth below under “Duties of Lead Independent Director.

Committee Membership Refreshment

Formally codified within our Corporate Governance Guidelines our Board’s policy to periodically recommend rotation of the chairperson and memberships of the Compensation Committee on a periodic basis, in each case, giving consideration to the duration of each director’s tenure on the Compensation Committee (including a director’s tenure as chair of the Compensation Committee) and the qualifications and attributes of each director. For all other committees, the Board of Directors expects but does not mandate periodic rotation of committee assignments and chairs. In connection with this committee refreshment policy, in February 2019, our Board approved a substantial refreshment of the composition of the committees of the Board of Directors, including a new chairperson and two new committee members of the Compensation Committee.

Committee Charters

Each committee approved newly amended and restated committee charters to enact a number of “best practices” approaches developed since the last committee charter adoptions.

Stockholder Engagement

Our Board and senior management team engaged in extended and thorough discussions with key stockholders throughout the last twelve months to discuss enhancements to our corporate governance and executive compensation practices, policies, programs and procedures.

 

 

Corporate Governance

 

Our Board of Directors

 

Structure and Composition

 

Primo is governed by our Board of Directors and various committees of the board that meet throughout the year. Our Board of Directors and its committees have general oversight responsibility for the affairs of Primo.

 

Our certificate of incorporation provides that our Board of Directors will consist of between three and 12 members with the precise number to be determined by our Board of Directors. Our Board of Directors currently consists of nine directors. Our certificate of incorporation also provides that any vacancies or newly-created directorships may be filled only by the remaining members of our Board of Directors.

 

Since our initial public offering in 2010, our Board of Directors has been classified into three separate and equal classes (Classes I, II and III), with one class of directors nominated for re-election each year. Our Board of Directors believes the classification of the Board is important to our philosophy of managing and promoting the Company’s long-term growth. Given the highly competitive nature of our business and the complexity and evolution of the retail industry more broadly, it can take several years to gain a robust understanding of our business and strategy, the Company’s organization and structure, our customers and our industry. Having each of our directors stand for re-election every three years is intended to promote continuity and stability of strategy and business direction for the best long-term interests of our stockholders, the confidence of our customers and retail partners, and the long-term expectations of other stakeholders.

 

Board Qualifications

 

The Nominating and Governance Committee Charter specifies eight criteria which our Nominating and Governance Committee considers as it identifies and assesses candidates for membership to the Board of Directors, consisting of (i) roles and contributions valuable to the business community; (ii) personal qualities of leadership, character, judgment and whether the candidate possesses and maintains throughout Board service a reputation of integrity, trust, respect, competence and adherence to the highest ethical standards; (iii) relevant knowledge and diversity of background, viewpoint and experience; (iv) whether the candidate is free of conflicts and has the time and willingness required for active preparation, participation and attendance at all meetings; (v) applicable Nasdaq listing standards; (vi) the number of other public and private company boards on which a director candidate serves; (vii) a commitment to protecting stockholder value and (viii) the current needs of the Board, including the need for specific industry or professional experience. The Board of Directors also assesses director age and tenure of Board service and seeks to attain a reasonable balance between the perspectives of new directors and the industry and institutional knowledge offered by existing directors.

 

 

Corporate Governance

 

In addition to the eight criteria set forth above, in connection with a series of enhancements to Primo’s corporate governance policies, practices and procedures, in January 2019 the Board of Directors adopted, upon the recommendation of the Nominating and Governance Committee, a new Board Diversity and Qualifications Policy which reflects the Board of Directors’ commitment to selecting ideal candidates for Board service (the “Board Diversity Policy”). As set forth in the Board Diversity Policy, the Board of Directors has identified the following qualifications, attributes, experiences and skills important to be represented on the Board of Directors as a whole, considering Primo’s current and future goals:

 

Leadership Experience:

Senior leadership experience as board chair, chief executive officer or president or other leadership experience in consumer goods and packaging, retail or similar industries; experience in mergers, acquisitions, strategic partnerships and strategic planning

Marketing and Consumer Experience:

Experience in consumer packaging and goods omni-channel branding and marketing; managing retailers’ transition to omni-channel approach; e-commerce, digital and online marketing; retailer relationships

Financial Expertise:

Accounting or related financial management expertise; experience with public company annual and quarterly reporting requirements; knowledge of finance, lending and credit markets; financial oversight; prior audit committee service

Manufacturing and Distribution Experience:

Experience in manufacturing, distribution and logistics in the consumer packaging and goods; international commerce; retail omni-channels

Risk Assessment and Capital Management Experience:

Enterprise risk management experience; knowledge of capital allocation and/or business risk

Corporate Governance Enhancement – Board Diversity

 

Our Board of Directors believes in diversity as a core value and recognizes that diversity is a strategic driver of our success. Our Board of Directors believes that diverse membership with varying perspectives and breadth of experience is an important attribute to a well-functioning Board of Directors, promotes the inclusion of different perspectives and ideas, and results in both better corporate governance and improved corporate performance. Our Board of Directors believes that the benefits of inclusion and diversity are critical to our long-term success and viability in an increasingly dynamic and competitive business environment. In addition, our Board’s commitment to diversity aligns its interests with those of many of its key constituencies, including our customers, the consumers of its products and services, its employees and its stockholders. To this end, as set forth in the Board Diversity and Qualifications Policy, diversity (based on factors commonly associated with diversity such as race, gender, national origin, religion or sexual orientation or identity, as well as on broader principles such as diversity of perspective and experience) is one of many elements to be considered in evaluating a particular candidate for appointment to the Board of Directors. A number of these factors of diversity, and specifically the factors of racial and gender diversity, have been considered by the Board of Directors in filling all vacancies arising on the Board of Directors since the adoption of the Board Diversity and Qualifications Policy, including in respect of the appointment of Emma S. Battle in February 2019.

 

The Board Diversity and Qualifications Policy also provides that the Nominating and Governance Committee is responsible, on an annual basis, for reviewing and evaluating the size, composition, function and duties of the Board of Directors consistent with its needs and, in connection with such review, our Nominating and Governance Committee and our Board will consider the benefits of all aspects of diversity, including the factors set forth above, and will consider whether, and if so how, to identify new candidates for service on the Board of Directors. In addition, in connection with its annual self-performance evaluation, our Nominating and Governance Committee will consider the balance of skills, experience, independence and knowledge of our business on our Board of Directors and the diversity of representation of our Board of Directors, including how our Board of Directors works together as a unit and other factors relevant to effectiveness. Our Nominating and Governance Committee will also review whether the Board’s approach to diversity is functioning effectively.

 

 

Corporate Governance

 

In addition, the Board Diversity and Qualifications Policy provides that the Nominating and Governance Committee will discuss and agree, on an annual basis, on any and all measureable objectives for achieving diversity on the Board of Directors. At any given time, the Board of Directors may seek to improve one or more aspects of its diversity and measure progress accordingly. The Board Diversity and Qualifications Policy provides that our Nominating and Governance Committee, when identifying potential new Board members or filling a vacancy on the Board of Directors, will seek women and diverse candidates.

 

 

Director Responsibilities

 

Each director has the basic and essential responsibility to exercise their business judgment to act in a manner he or she reasonably believes to be in the best interests of the Company and its stockholders and to carry out his or her obligations in accordance with their duties of loyalty, good faith and due care. In carrying out these obligations, our directors rely on the honesty, integrity and good faith of the Company’s senior executives, outside advisors and independent auditors.

 

Board Administration

 

Code of Conduct. We are committed to operating with the highest level of integrity, responsibility and accountability. Our Board of Directors has adopted a Code of Business Conduct and Ethics that applies to all directors, officers and employees, including our Executive Chairman and Chief Executive Officer. The Code of Business Conduct and Ethics describes each director’s, officer’s and employee’s responsibility to conduct business with the highest standards of conduct in every business relationship—within Primo and with our customers, business partners and competitors. Among other matters, the Code of Business Conduct and Ethics is designed to deter wrongdoing and to promote (i) honest and ethical conduct by everyone associated with the Company, including the ethical handling of actual or apparent conflicts of interest; (ii) full, fair, accurate, timely and understandable disclosure in reports and documents that we submit to the SEC and in our other public communications; (iii) compliance with applicable laws, rules and regulations; (iv) prompt internal reporting of any violation of the Code of Business Conduct and Ethics to the appropriate Primo personnel and (v) accountability for adherence to the Code of Business Conduct and Ethics. A copy of our Code of Business Conduct and Ethics is available on our corporate website (www.primowater.com). Our Board of Directors is strongly predisposed not to waive any provisions of the Code of Business Conduct and Ethics. We expect that any amendments to the code, or any waivers of its requirements, will be disclosed on our website.

 

 

Corporate Governance

 

Meetings and Executive Session. Directors are expected to attend meetings of the Board of Directors and its committees and the annual meeting of stockholders. In 2018, our Board of Directors held 6 meetings. No director attended fewer than 75% of the total number of meetings of the Board of Directors and the committees to which such director was assigned except for Mr. Brenner who attended 70% of the total number of meetings of the committees to which he was assigned in 2018. In addition, all directors serving on our Board of Directors at the time of the 2018 annual meeting of stockholders attended the annual meeting. The independent directors meet regularly in executive session without the presence of management directors or other Primo officers or employees. The Lead Independent Director presides over all executive sessions.

 

 

Corporate Governance

 

Corporate Governance Enhancement – Corporate Governance Guidelines

   

 

Earlier this year, our Board of Directors approved a series of corporate governance-related enhancements to strengthen and improve our commitment to adopting and enforcing strong corporate governance practices. Our Board of Directors adopted a new set of Corporate Governance Guidelines to assist the Board and its committees in the exercise of its responsibilities and to establish a common set of expectations and guidelines to provide a strong and robust governance framework for the Company. Among other topics, the Corporate Governance Guidelines address the following matters:

   

 

• 

Board Evaluation. Our Board of Directors assessed that a vigorous annual evaluation process of the Board, its committees and each director is necessary and critical to maintain and enhance our corporate governance practices. Accordingly, in March 2019, our Board of Directors completed its first confidential performance evaluation to determine whether it and its committees are performing adequately and effectively. Our Board of Directors will conduct such an evaluation annually. As part of the evaluation, each director completes a written self-assessment questionnaire with a variety of questions designed to gather suggestions for improving the effectiveness of the Board of Directors and to solicit feedback on a range of issues, including Board composition, Board dynamics, the Board’s relationship with senior management, Board agendas and meetings, Board processes and Board committees. The Lead Independent Director works in conjunction with the chair of the Nominating and Governance Committee to design, implement, monitor and oversee the performance evaluation process.

   

 

Availability for Board Service. Our Board of Directors recognizes that its members benefit from service on the boards of other companies. However, our Board of Directors also believes it is critical that directors have the ability to dedicate sufficient time and energy to their service on the Primo Board of Directors. To that end, our Board of Directors imposes the following limitations on each director’s service on boards of other public companies: (i) directors cannot serve on more than three public company boards in addition to the Primo Board of Directors (for a total of four public company boards); (ii) a Board member who also serves as chief executive officer of another public company cannot serve on more than one other public company board in addition to the Primo Board of Directors (for a total of two public company boards) and (iii) directors cannot serve on more than three public company audit committees (including our Audit Committee). Directors who are considering joining the board of another entity (whether for-profit or non-profit) must provide timely notice to the Executive Chairman and the chair of the Nominating and Governance Committee before accepting the invitation to serve on such board.

   

 

Age and Tenure. Under our Corporate Governance Guidelines, no person is eligible for election or re-election as a director if, at the time of such election, he or she is 75 or more years of age, unless our Board of Directors affirmatively determines otherwise. Other than this mandatory retirement age, our Board of Directors does not impose term limits on directors, though the Nominating and Governance Committee will review the continuation of each director nominated for election and monitor each director’s performance through the evaluation process described above.

   

 

Director Orientation and Education. In order to become familiar with Primo and the functioning of our Board of Directors, newly-appointed directors receive a variety of materials which provide an overview of Primo, its operations and organization, which may include presentations by senior management to familiarize new directors with our senior management and strategic plans, significant financial, accounting and risk management issues, our internal and independent auditors, and our governance and compliance programs, policies and procedures. Each director is also encouraged to take advantage of continuing education opportunities that enhance their ability to fulfill their responsibilities, including programs familiarizing directors with Primo’s business units, recent financial performance, accounting and risk management programs and programs, and the directors’ responsibilities under law and Nasdaq listing standards.

 

 

Corporate Governance

 

Board Leadership Structure

 

Executive Chairman and Lead Independent Director

 

Our Board of Directors is committed to impartial, independent leadership of our Board of Directors and its committees. Our Board of Directors believes that impartial and active oversight of management is necessary to achieve Primo’s long-term, strategic corporate goals and generating value for Primo stockholders. Our Board of Directors does not have a formal policy regarding the separation of the roles of Chairman and Chief Executive Officer. Our Board of Directors believes that it is in the best interests of Primo and its stockholders to retain flexibility in determining whether to separate or combine the roles of Chairman and Chief Executive Officer based on our circumstances.

 

Corporate Governance Enhancement – Appointment of Lead Independent Director

 

In January 2019, in connection with a broader enhancement of our corporate governance policies, practices and procedures and in connection with feedback from and engagement with stockholders, our Board of Directors adopted new Corporate Governance Guidelines which provide that, at any time where the Board appoints a Chairman who is not independent under applicable Nasdaq listing standards, the independent members of the Board of Directors will annually elect a Lead Independent Director from among the independent directors. In connection with the adoption of the Corporate Governance Guidelines, the independent members of the Board of Directors elected Susan Cates to serve as Lead Independent Director. The Lead Independent Director’s key responsibilities and obligations are set forth below under “Duties of Lead Independent Director”.

 

Our Board of Directors believes that the current leadership structure, which separates the roles of Chairman and Chief Executive Officer, is appropriate in light of the recent leadership transition and Primo’s current operating environment. In particular, our Board of Directors believes this structure clearly establishes the individual roles and responsibilities of the Chairman and Chief Executive Officer, streamlines decision-making, enhances accountability of the senior management team to our Board of Directors and emphasizes the independence of our Board of Directors. Further, our Board of Directors believes that the appointment of Billy Prim as Executive Chairman and Susan Cates as Lead Independent Director provides robust, active and impartial oversight of the senior management team that, at this time, will best drive long-term value for our stockholders.

 

Our Corporate Governance Guidelines empower our Lead Independent Director with well-defined duties that are further summarized below. In addition, our Board of Directors is comprised of experienced and committed independent directors who are committed to engaging with stockholders to ensure our Board leadership structure is most appropriate to generate long-term value for our stockholders. Our Board of Directors believes that our Board leadership structure, taken as a whole, provides for robust and impartial leadership, effective engagement with and oversight of management, and a unified voice that is accountable to our stockholders.

 

Duties of Executive Chairman

 

In his role as Executive Chairman of the Board of Directors, Mr. Prim serves a critical role as a bridge between the senior management of the Company and its stockholders, key customers and suppliers and other important stakeholders. Given Mr. Prim’s extensive history as our founder and Chief Executive Officer, his leadership abilities and his knowledge of the bottled water industry and Primo’s operating environment, our Board of Directors believes that Mr. Prim’s service as Executive Chairman continues to ensure Primo’s best position for success while emphasizing independence and accountability of Primo’s management team to our Board of Directors.

 

 

Corporate Governance

 

Executive Chairman Duties

Chairs all meetings of the Board of Directors and annual and special meetings of stockholders

Assists the Chief Executive Officer and other members of the senior management team in short- and long-range planning activities, including acquisition and growth strategies

Establishes, monitors and assesses, with the assistance of the Board of Directors and the input of the senior management team, the development of the Company’s corporate and strategic objectives

Participates in the review and negotiation of the structure, terms and conditions of key strategic transactions, including mergers and acquisitions, dispositions, strategic partnerships and joint ventures, including the Company’s recent Mexico partnership to bring the Company’s Refill business to Mexico

Participates actively and extensively in engagement with stockholders and key stakeholders

With the Chief Executive Officer, leads outreach to and engagement with key customers, retailers and suppliers

With the Lead Independent Director, the Chair of the Nominating and Governance Committee and the Chief Executive Officer, reviews and oversees the development and implementation of senior management succession plans

Advises the Board of Directors and the Compensation Committee with respect to the performance of the members of the senior management team, including the Chief Executive Officer

With the input of the Lead Independent Director and other members of the Board, establishes agendas for meetings of the Board of Directors and annual and special meetings of stockholders

With the Lead Independent Director and the Nominating and Governance Committee, monitors and assesses our corporate governance policies, practices, programs and procedures, including the Company’s execution of its commitment to ESG-related initiatives

Performs such other duties and responsibilities as the Board may determine

 

Duties of Lead Independent Director

 

Our Corporate Governance Guidelines empower our Lead Independent Director with robust, well-defined duties.

 

Lead Independent Director Duties

Guides the Board of Directors’ governance process

Presides at all meetings of the Board of Directors in which the Chairman is not present, including all executive sessions of the independent directors, and regularly meets with the Chairman and the Chief Executive Officer for discussion of appropriate matters arising from these sessions

Serves as a liaison between the other independent directors, the Chairman and the Chief Executive Officer

Seeks input from the independent directors regarding agenda items and the content of meeting materials, and advises the Chairman and the Chief Executive Officer as to an appropriate annual schedule of regular Board meetings and major agenda topics

Provides input into the design of annual Board and committee performance evaluation process and assists in implementation of changes arising from such evaluation

Along with the Chairman and members of the Nominating and Governance Committee, interviews all candidates for director election and advises the Nominating and Governance Committee as to his or her recommendation

Advises the Nominating and Governance Committee on recommendations for selection of Board committees and chairpersons of such committees

In conjunction with the Compensation Committee, assists in determining performance criteria for evaluating the Executive Chairman (if one is appointed) and the Chief Executive Officer and in coordinating the annual performance reviews of the Executive Chairman (if one is appointed) and the Chief Executive Officer

Works with the Compensation Committee, the Chair of the Nominating and Governance Committee, the Chief Executive Officer and the Chairman to guide the Board’s review and evaluation of management succession plans

Performs such other duties and responsibilities as the Board may determine

 

 

Corporate Governance

 

Review of Board Leadership Structure

 

Our Board of Directors recognizes that one of its key responsibilities is to evaluate and determine its optimal leadership structure so as to provide strong, independent oversight of senior management, a highly engaged Board of Directors, and the right balance among (i) effective independent oversight of the Company’s business, (ii) our Board’s activities and (iii) consistent corporate leadership. Our Board of Directors is open to – and regularly engages with stockholders regarding – different structures that provide such an optimal leadership structure, particularly given the dynamic and competitive environment in which the Company operates.

 

Director Independence

 

Our Board of Directors – which consists entirely of independent directors other than Messrs. Prim and Sheehan – exercises a strong, robust and independent oversight function. This oversight function is enhanced by the fact that our Audit, Compensation and Nominating and Governance Committees are comprised entirely of independent directors. Our Board of Directors can and will change its leadership structure if it determines that doing so is in the best interest of the Company and its stockholders.

 

Our Board of Directors, on an annual basis, determines the independence of its members based on the standards specified by NASDAQ. Under the applicable NASDAQ listing standards, independent directors must comprise a majority of a listed company’s board of directors. In addition, NASDAQ’s rules require that, subject to specific exceptions, each member of a listed company’s audit committee and those members of the board of directors determining executive compensation and director nominations be independent. Audit Committee members also must satisfy the independence criteria set forth in rule 10A-3 under the Securities Exchange Act of 1934. Under NASDAQ rules, a director will only qualify as an “independent director” if, in the opinion of the company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

 

In order to be considered independent for purposes of Rule 10A-3 under the Securities Exchange Act of 1934, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors or any other board committee: (1) accept, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries or (2) be an affiliated person of the listed company or any of its subsidiaries.

 

Our Board of Directors has reviewed the relationships between Primo and each director to determine compliance with the NASDAQ listing standards and has determined that none of Ms. Battle, Mr. Brenner, Ms. Cates, Mr. Kilgore, Mr. McQuilkin, Mr. Norris and Mr. Warnock has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under NASDAQ rules. Our Board of Directors also determined that Mess. Battle and Cates and Messrs. Brenner, McQuilkin and Norris, who comprise our Audit Committee, Ms. Cates and Messrs. Kilgore, Norris and Warnock, who comprise our Compensation Committee, and Ms. Battle and Messrs. Brenner, Kilgore, McQuilkin and Warnock, who comprise our Nominating and Governance Committee, satisfy the independence standards for those committees established by applicable SEC and NASDAQ rules. In making these determinations, our Board of Directors considered the relationships that each non-employee director has with Primo and all other facts and circumstances our Board of Directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director. There is no family relationship between any director, executive officer or person nominated to become a director or executive officer.

 

 

Corporate Governance

 

Board Committees

 

Our Board of Directors has established an Audit Committee, a Compensation Committee and a Nominating and Governance Committee. Each committee is currently comprised entirely of non-employee directors. Our Board of Directors may establish other committees from time to time to facilitate our corporate governance.

 

Corporate Governance Enhancement – Committee Membership Refreshment

 

In connection with the adoption of our Corporate Governance Guidelines, the Corporate Governance Guidelines formally codified the Board’s policy to periodically recommend rotation of the chairperson and memberships of the Compensation Committee, in each case, giving consideration to the duration of each director’s tenure on the Compensation Committee (including a director’s tenure as chair of the Compensation Committee) and the qualifications and attributes of each director. For all other committees, the Board of Directors expects but does not mandate periodic rotation of committee assignments and chairs. In connection with this committee refreshment policy, in February 2019, upon the recommendation of the Nominating and Governance Committee, the Board of Directors approved a substantial refreshment of the membership of the Board’s committees, including a new chairperson and two new committee members of the Compensation Committee.

 

Corporate Governance Enhancement – Conditioning Directors’ Committee Compensation on Committee Meeting Attendance

 

In 2018, we amended our Non-Employee Director Compensation Policy to provide that all compensation payable to a non-employee director for service on our Board’s committees is conditioned on such director attending at least 75% or more of the applicable committee’s meetings for the year for which such compensation is being paid.

 

Corporate Governance Enhancement – Committee Charters

 

Each committee operates under a written charter adopted by our Board of Directors. In connection with our corporate governance enhancements undertaken in the first quarter of 2019, each committee approved newly amended and restated committee charters to enact a number of “best practices” approaches developed since the last committee charter adoptions. These charters are available on our corporate website (www.primowater.com) in the “Investor Relations” section under “Corporate Governance.”

 

The current members of our Board’s committees are identified in the following table:

 

Director

Audit

Compensation

Nominating
and
Governance

Emma S. Battle

X

 

X

Richard A. Brenner

X

X

 

Susan E. Cates

Chair

 

X

Jack C. Kilgore

X

Chair

 

Malcolm McQuilkin

 

X

X

Charles A. Norris

X

 

X

David L. Warnock

 

X

Chair

 

 

Corporate Governance

 

Upon the recommendation of our Nominating and Governance Committee, in February 2019 our Board of Directors approved a refreshment of our committee memberships. Effective upon our 2019 Annual Meeting, our committee memberships will be as follows:

 

Director

Audit

Compensation

Nominating
and
Governance

Emma S. Battle

X

 

X

Richard A. Brenner

X

 

Chair

Susan E. Cates

Chair

X

 

Jack C. Kilgore

 

X

X

Malcolm McQuilkin

X

 

X

Charles A. Norris

X

X

 

David L. Warnock

 

Chair

X

 

The chairperson of each committee approves the agenda and materials for each meeting with input from other committee members. Each committee has the authority to retain independent advisors to assist it in carrying out its responsibilities.

 

The duties of each of our committees are summarized below:

 

AUDIT COMMITTEE

  Number of Meetings in 2018: 5

MEMBERS AS OF 2019 ANNUAL MEETING
   

  AMONG OTHER THINGS, OUR AUDIT COMMITTEE:

•   Ms. Cates (Chair)
   
•   Ms. Battle
   
•   Mr. Brenner
   
•   Mr. McQuilkin
   
•   Mr. Norris

  »

Reviews, monitors and assesses Primo’s overall control environment, including controls related to financial reporting, disclosure, compliance and significant strategic, financial, operational, reporting and compliance risks.

   

 

  »

Oversees the appointment, qualifications, performance and independence of Primo’s independent registered public accounting firm.

   

 

  »

Oversees performance of Primo’s internal audit function.

   

 

  »

Reviews and discusses with Primo’s independent registered public accounting firm the scope of audits and Primo’s accounting principles, policies and practices.

   

 

 

  »

Reviews and approves (or ratifies) related party transactions in accordance with the Audit Committee Charter and applicable SEC rules and regulations.

 

   

 

 

  »

Implements, monitors and assesses procedures for addressing complaints relating to accounting, internal accounting controls or auditing matters.

 

   

 

 

  »

Oversees the development of Primo’s enterprise risk management policies and procedures.

 

 

 

Our Board of Directors has determined that Ms. Cates is an audit committee financial expert, as defined under the applicable rules of the SEC, and that all members of our Audit Committee, including Ms. Cates, are “independent” within the meaning of the applicable listing standards of The NASDAQ Stock Market, LLC (“NASDAQ”) and the independence standards of rule 10A-3 of the Securities Exchange Act of 1934. Each of the members of our Audit Committee meets the requirements for financial literacy under the applicable rules and regulations of the SEC and NASDAQ.

 

 

Corporate Governance

 

COMPENSATION COMMITTEE

  Number of Meetings in 2018: 5

MEMBERS AS OF 2019 ANNUAL MEETING

 

  AMONG OTHER THINGS, OUR COMPENSATION COMMITTEE:

 

•   Mr. Warnock (Chair)
   
•   Ms. Cates
   
•   Mr. Kilgore
   
•   Mr. Norris

  »

Reviews and oversees Primo’s compensation philosophy, structure, programs, practices and policies, including administration of Primo’s equity incentive plans and programs.

   

 

  »

Annually reviews, analyzes and approves the compensation arrangement for Primo’s executive officers.

   

 

  »

Reviews the impact of Primo’s executive compensation policies, programs and practices, and the performance metrics underlying Primo’s compensation program, on Primo’s overall risk profile.

   

 

 

  »

Monitors and evaluates engagement by Primo and the Board of Directors with stockholders to solicit feedback on Primo’s compensation philosophy, structure, programs, practices and policies.

 

   

 

 

  »

Reviews and oversees the development and implementation of senior management succession plans in consultation with the CEO, Executive Chairman, Lead Independent Director and Chair of the Nominating and Governance Committee.

 

   

 

 

  »

Reviews and recommends to the Board of Directors the form and amount of non-employee director compensation.

 

   

 

 

  »

Assists in the preparation of, and reviews and recommends, the Compensation Discussion & Analysis for inclusion in Primo’s proxy statement for its annual meeting of stockholders.

 

   

 

 

  »

Oversees the development of Primo’s enterprise risk management policies and procedures.

 

 

 

Each member of our Compensation Committee is a non-employee director as defined in Rule 16b-3 of the Exchange Act. Our Board of Directors has determined that each member of our Compensation Committee is also an independent director within the meaning of NASDAQ’s director independence standards and applicable SEC rules.

 

 

Corporate Governance

NOMINATING AND GOVERNANCE COMMITTEE

  Number of Meetings in 2018: 1

MEMBERS AS OF 2019 ANNUAL MEETING

 

  AMONG OTHER THINGS, OUR NOMINATING AND GOVERNANCE COMMITTEE:

 

•   Mr. Brenner (Chair)
   
•   Ms. Battle
   
•   Mr. Kilgore
   
•   Mr. McQuilkin
   
•   Mr. Warnock

  »

Identifies and assesses all candidates for election to the Board of Directors and recommends to the Board of Directors nominees for election to the Board of Directors.

   

 

  »

Reviews and evaluates all stockholder nominees for election to the Board of Directors.

   

 

  »

Reviews the leadership structure of the Board of Directors, including reviewing and making recommendations with respect to the combination of the Chairman and CEO positions, whether the Board of Directors should have a Lead Independent Director and, if so, recommending candidates to serve in such role.

   

 

  »

Reviews and recommends to the Board of Directors the structure of its committees and appointment of committee members and chairpersons.

   

 

 

  »

Oversees Primo’s corporate governance practices.

 

   

 

 

  »

Develops and oversees the implementation of an annual performance evaluation of the Board of Directors and its committees.

 

 

 

Our Board of Directors has determined that each member of our Nominating and Governance Committee is an independent director within the meaning of the NASDAQ director independence standards and applicable rules of the SEC.

 

Management Succession Planning

 

Our goal is to develop well-rounded and experienced senior leaders. High potential executives are challenged regularly with additional responsibilities, new positions or promotions to expose them to a broad spectrum of our operations. Our Board of Directors recognizes that one of its most important duties is to ensure continuity in these senior leadership positions by overseeing the development of executive talent and planning for the succession of our senior management, including our Chief Executive Officer.

 

Our Compensation Committee is charged with reviewing and overseeing the development and implementation of senior management succession plans, in consultation with the Chief Executive Officer, the Executive Chairman, the Lead Independent Director and the chair of the Nominating and Governance Committee. Together with the Executive Chairman, the Lead Independent Director, the Chief Executive Officer and the chair of the Nominating and Governance Committee, the Compensation Committee will periodically report to the Board of Directors on (i) such management succession plans, including recommendations and evaluations of potential successors to the Chief Executive Officer and other members of senior management and (ii) any development plans for then-current members of senior management.

 

In addition, the Compensation Committee is responsible for recommending to the Board of Directors management succession plans in the event of an emergency in order that Primo can maintain operations and minimize potential disruption to its business in the face of unexpected vacancies in positions of senior leadership, including those resulting from catastrophe.

 

 

Corporate Governance

 

Environmental, Social and Governance Matters

 

We believe that integrating and promoting best practices in the areas of environmental, social responsibility and corporate governance (ESG) into our day-to-day operations underscores the importance of conducting business ethically and responsibly by delivering value to our customers, building strong communities, leveraging innovation and supporting the expertise, dedication and commitment of our employees and the communities in which they work. ESG is firmly rooted in how we deliver sustainable growth to our employees, customers and stockholders, reflects our corporate values – including our corporate vision, The Primo Way – and the personal values of our management team and employees at large, presents significant business opportunities and allows us to create shared success with our customers, employees, stockholders and communities.

 

Environmental Stewardship

 

We are uniquely positioned within the water and beverage industries to deliver products and services that can assist communities in their transition to a healthier and more environmentally sustainable lifestyle. Traditional water consumption, particularly via single-serve plastic water bottles, is environmentally unsustainable. 2017 data shows that, globally, approximately 1 million plastic bottles are purchased each minute, and that approximately 70% of plastic bottles once consumed are not recycled. Given that a single plastic bottle can take over 1,000 years to completely biodegrade, the current bottled and purified water consumption business model requires fundamental changes to meet consumer preferences for environmentally-friendly products. Recently proposed legislation reflects these concerns with the passage of “bottle bills” in many jurisdictions that tax the purchase of plastic water bottles, require deposits with the purchase of certain plastic bottles, prohibit the use of government funds to purchase plastic water bottles and ban certain plastic bottles from landfills.

 

As a purpose-driven company aiming to inspire healthier lives through better water, we are building our Refill, Exchange and Dispenser businesses in a manner that seeks to achieve a sustainable solution to the world’s problem of excessive plastic consumption and disposal. We have implemented and continue to develop business practices that are environmentally conscious and effective. We estimate that approximately 1,100 single-serve plastic bottles are saved by a single five-gallon bottle used in our Refill or Exchange water. Further, each of our multi-gallon Exchange water bottles can be sanitized and reused up to 40 times before being taken out of use, crushed and recycled, substantially reducing landfill waste compared to consumption of equivalent volumes of single-serve bottled water. We estimate that, since 2004, approximately 14.5 billion single-serve plastic bottles have been saved by consumer adoption of our Refill, Exchange and Dispenser products and offerings. We believe our focus on achieving an environmentally sustainable solution to the delivery and consumption of purified and filtered water provides a competitive advantage as we aim to meet the demands of consumers increasingly favoring products with a lower environmental impact with a “reuse, recycle, reduce” mindset becoming a common driver of their behavior.

 

Our Refill systems provide safe and economical drinking water to consumers by means of our environmentally friendly business model. Consumers reuse their water bottles by refilling them with sterilized high purity reverse osmosis water from our dispensers. This eliminates the need to purchase expensive, resource-consuming single-serve bottled water, which, when finished, are often disposed in landfill sites, oceans and other receiving streams.

 

Further, we have strategically placed over 24,000 Refill systems at grocery/retail locations across the United States and Canada. This ensures that refill water purchases are made efficiently during regular shopping trips, reducing the transportation time and related carbon emissions. There are no isolated, stand-alone Primo refill systems or systems located in water treatment specialty shops.

 

Recent improvements and investments in systems technology may substantially reduce our carbon footprint by cutting down on the number of driving hours by our service technicians. Our Refill service routes and dispatches are now managed by means of sophisticated routing and equipment maintenance software. This software monitors and directs our field service technicians via cellular and GPS technology to perform scheduled or emergency service. The system knows the location, schedule, traffic conditions and associated tasks for our technicians and will assign service calls in the most efficient manner.

 

 

Corporate Governance

 

Our Exchange business model is also environmentally friendly. Consumers return their empty 5 or 3 gallon bulk water bottles to grocery/retail locations throughout the United States and Canada, and exchange it for a full prefilled bottle of Primo water. The empty bottle returns to the bottling plant and is cleaned, sanitized and refilled.

 

The water and wastewater infrastructure in the United States and Canada was given a D- grade by the American Society of Civil Engineers in 2017. Trillions of dollars will be required to bring water treatment and drinking water distribution into compliance with applicable laws and standards over the next twenty years. In addition, many sources of drinking water are now contaminated with known and emerging contaminants which will likely require sophisticated water treatment technologies to render tap water safe. Providing safe drinking water now will fall to forward thinking companies such as Primo who not only provide water that consumers trust but also provide products that align with a sustainable, environmentally friendly business model. While many water filtration manufacturers promote their faucet filters and other products to remove heavy metals from tap water, the onus is on the user to dispose of them responsibly. A used faucet filter cartridge loaded with lead and or arsenic that is tossed into the residential garbage collection will likely end up in a landfill site, which may contribute to contamination of the groundwater there in years to come. We believe The Primo Way is a better way.

 

Corporate Social Responsibility

 

We have built our corporate vision on these and other principles established in our vision statement, The Primo Way, and work daily to maintain an environment which is open, diverse and inclusive, and where our team members feel valued and included in our broader mission. Examples of our active and engaged commitment to our communities and social responsibility more broadly can be seen in, among other matters:

 

Active responses to communities affected by hurricanes, wildfires and other natural disasters, including assistance with disaster relief efforts and the donation of Primo bottles and dispensers to affected communities;

 

Donation of bottles and dispensers to several charitable and community service initiatives including the Pan-Mass challenge, the Los Angeles Chinatown Firecracker Run and the National MS Tour to Tanglewood;

 

Nationwide support of local non-profit organizations by providing water, dispensers and volunteer support to offset related costs and volunteer needs, including for the benefit of the American Diabetes Association and the Specially Fit Foundation, a non-profit organization encouraging active participation in exercise activities by those in underserved communities, including individuals with special needs and children living in foster care;

 

Support for a variety of animal welfare organizations, including chapters of the Society for Prevention of Cruelty to Animals (SPCA) throughout the country through donations of water and dispensers at SPCA animal shelters, pet food banks, pet training facilities, public veterinary centers, vaccination clinics and adoption drives.

 

Support of a wide range of nonprofits and community organizations addressing social and economic challenges, including programs seeking to (i) advance social inclusion; (ii) develop women and other diverse leaders; (iii) strengthen communities and families and (iv) support education in low-income communities; and

 

Active and extensive participation in community-wide corporate giving campaigns.

 

 

Corporate Governance

 

An Inclusive and Diverse Work Environment

 

A critical focus of our ESG-related efforts is creating a strong, diverse and supportive workplace environment for our employees. Our culture reflects how we operate our business everyday, and in order to achieve the vision set forth in The Primo Way, we are constantly striving to create a workplace where our employees feel engaged, empowered and committed to our business, its customers and our communities for the long term. Our commitment to workplace diversity reflects the importance of this initiative, where more than 43% of our global workforce is racially or ethnically diverse. In addition, we believe our workplace fosters a supportive environment that encourages employees to have open and honest dialogue on topics important to them and to create awareness of employees’ experiences and perspectives arising out of differences in background, experience and viewpoints, such as class, age, gender, sexual orientation and ethnicity. We continue to focus on offering innovative and cost-effective benefits and supporting our employees’ physical, financial and emotional well-being.

 

Our Board’s Role in Risk Management

 

While management is primarily responsible for managing the risks that Primo faces, our Board of Directors is responsible for overseeing management’s approach to risk management. Our Board of Directors oversees management in exercising its responsibility managing risk, assessing our framework of practices, programs, policies and procedures related to risk management in order to identify, monitor, evaluate and manage risks across Primo.

 

While our Board of Directors has ultimate oversight responsibility for management’s risk management process, various committees of the Board assist it in fulfilling that responsibility. In particular, our Audit Committee assists management in its review of the practices, programs, policies and procedures regarding identifying, monitoring, evaluating and managing Primo’s financial reporting risk and investment, tax and other financial risks. Our Audit Committee also oversees the development of our enterprise risk management policies and procedures and reports regularly to our Board of Directors regarding Primo’s risk management process. In addition, our Compensation Committee reviews our compensation practices and policies to ensure they do not create inappropriate or unintended significant risks to Primo as a whole, and provides oversight and direction regarding these practices, policies and compensation-related risk management.

 

Cybersecurity and Data Protection Risk Management

 

Protecting the privacy of our customers’ and employees’ information and the security of our systems and networks has long been and will continue to be a priority for Primo and our Board of Directors. We have technical, administrative and physical safeguards in place to help protect against unauthorized access to, use or disclosure of customer and employee information and data we collect and store (including data from credit card payment machines installed on our Refill machines). In addition, our comprehensive information security program includes, among other aspects, vulnerability management, antivirus and malware protection, file integrity monitoring, encryption and access control.

 

Consistent with our Board of Director’s risk management and oversight structure, our Audit Committee has primary responsibility for overseeing our risk management practices, programs, policies and procedures related to data privacy, data protection and network security. Management provides our Audit Committee and our Board of Directors with updates about cybersecurity practices, programs, policies and procedures, the status of projects designed to strengthen internal cybersecurity and data protection. Our Board of Directors and our Audit Committee also discusses recent incidents throughout our industry and any significant emerging threats.

 

 

Corporate Governance

 

Stockholder Engagement

 

We believe effective corporate governance requires regular, constructive and thoughtful engagement with our stockholders on a number of topics, including operating performance, corporate governance, long-term strategy, executive compensation and ESG issues. Our Executive Chairman, Lead Independent Director and senior management team play a central role in our stockholder engagement efforts and regularly engage stockholders throughout the year and consider their input. In addition, our Compensation Committee is charged with monitoring and evaluating the Company’s engagement with stockholders to solicit feedback on the Company’s compensation philosophy, structure, programs, practices and policies.

 

Our Board of Directors and senior management team has enhanced its commitment to solicit ongoing feedback from major stockholders and to provide for continued and robust stockholder engagement throughout the year. Our Board welcomes feedback on its corporate governance and executive compensation practices and policies and believes that this continued engagement with stockholders will further align the long-term interests of our Board of Directors, the Company, its management and its stockholders.

 

Corporate Governance Enhancement – Stockholder Engagement

 

In January 2019, as a result of extensive stockholder engagement and outreach, our Board of Directors approved a series of corporate governance-related enhancements to strengthen and improve our commitment to adopting and enforcing strong corporate governance practices. Among others, the Board of Directors adopted a new set of Corporate Governance Guidelines to assist the Board and its committees in the exercise of its responsibilities and to establish a common set of expectations and guidelines to provide a strong and robust governance framework for the Company.

 

Further, the Board of Directors appointed Susan Cates to serve as Lead Independent Director. In her new role as Lead Independent Director, Ms. Cates will be responsible for helping to set agendas for meetings of the Board of Directors, leading the Board’s review of management performance and the succession planning process currently underway. Ms. Cates will also lead executive sessions of the independent members of the Board and, if requested by major stockholders, ensure her availability for consultation and direct communication as part of a Primo-wide initiative to enhance stockholder outreach and communication. Please see “Board Leadership Structure” beginning on page 18 for a more detailed discussion on the role and responsibilities of the Lead Independent Director.

In addition, the Board of Directors adopted a Board Diversity and Qualifications Policy that reinforces and reflects the Board’s belief that diversity is a core value of Primo, a strategic driver of its success, and that diverse membership of the Board of Directors with varying perspectives and breadth of experience promotes the inclusion of different perspectives and ideas and results in both better corporate governance and improved corporate performance. In addition, the Board of Directors and each of its committees approved amended and restated committee charters requiring and promoting certain best practices in the operation of each committee.

 

Policy for Review of Related Person Transactions

 

Our Audit Committee reviews and approves any transaction between Primo and a related person which would be required to be disclosed by the rules of the SEC.

 

Communications with our Board of Directors

 

Stockholders may communicate with any of our directors by sending a written communication to a director c/o our Corporate Secretary at 101 North Cherry Street, Suite 501, Winston-Salem, North Carolina 27101. All communications received in accordance with these procedures will be reviewed by the Corporate Secretary and forwarded to the appropriate director or directors unless such communications are considered, in the reasonable judgment of the Corporate Secretary, to be improper for submission to the intended recipient, such as communications unrelated to our business, advertisements or frivolous communications.

 

 

Corporate Governance

 

Executive Officers

 

The following paragraphs set forth information regarding the current executive officers of Primo other than Messrs. Prim and Sheehan. Information pertaining to Messrs. Prim and Sheehan, each of whom is both a director and an executive officer of Primo, may be found in the section entitled “Nominees and Continuing Directors.”

 

David W. Hass

 


   
Position: Chief Strategy Officer

David W. Hass, age 40, has served as our Chief Strategy Officer since May 2017. Mr. Hass previously served as our Vice President of Corporate Strategy and Financial Planning & Analysis and General Manager of Canada and Primo Direct Operations from January 2013 until May 2017. Mr. Hass joined Primo in 2011 as Director of Financial Planning & Analysis. Prior to joining Primo, Mr. Hass served as Vice President in Consumer Investment Banking for Stifel Nicolaus Weisel (NYSE:SF) and as an Associate in Consumer Investment Banking at Thomas Weisel Partners. Mr. Hass began his career with Accenture (NYSE:ACN).
   
Mr. Hass leverages his experience in finance to lead the team responsible for Primo’s core strategy, mergers and acquisitions, financial analyses, and strategic ventures.
   
Mr. Hass received a bachelor’s degree in Finance from Northern Illinois University and an MBA in Finance from Southern Methodist University’s Cox School of Business.

David J. Mills

 

 

  
Position: Chief Financial Officer,
Secretary and Assistant Treasurer
 

 

David J. Mills, age 52, has served as our Chief Financial Officer, Secretary and Assistant Treasurer since January 2018. Mr. Mills joined Primo in 2009 as Controller and was promoted to Vice President of Finance and Treasurer in 2011. Prior to joining Primo, Mr. Mills served as Controller and Treasurer of InterAct Public Safety Systems, a private software company. Prior to his service at InterAct, Mr. Mills served as Director of Accounting and Financial Reporting at Krispy Kreme Doughnut Corporation, a global retailer of coffee and sweet treats. Mr. Mills began his career in public accounting at Ernst & Young, where he last served as Audit Senior Manager.
   
Mr. Mills is responsible for investor relations, corporate finance, treasury, financial reporting and risk management.
   
Mr. Mills earned a bachelor’s degree in accounting from Virginia Tech and is a CPA.

 

 

Director Compensation

 

Director Compensation

 

The following table shows the compensation paid to each non-employee director for his or her service on our Board of Directors in 2018:

 

Name

 

Fees Earned or
Paid in Cash
($)
(1)

   

Stock
Awards
($)
(2)(3)

   

Total
($)

 

Emma S. Battle(4)

                 

Richard A. Brenner

    40,000             40,000  

Susan E. Cates

    42,500       4,321       46,821  

Jack C. Kilgore

    51,000       2,542       53,542  

Malcolm McQuilkin

    47,000       2,542       49,542  

Charles A. Norris

    38,000       3,864       41,864  

David L. Warnock

    47,000       4,779       51,779  

 

(1)

The amounts shown in this column represent fees earned under our Non-Employee Director Compensation Policy described below. Each of Ms. Cates and Messrs. Norris and Warnock elected to receive 100% of his or her Board fees earned in the form of Company stock. Mr. Brenner elected to receive 100% of his Board fees earned in the form of cash and Messrs. Kilgore and McQuilken elected to receive their annual retainer in the form of Company stock and the remainder of their compensation in the form of cash.

 

(2)

The amounts shown in this column represent the grant date fair value computed in accordance with ASC 718 of the incremental shares granted to directors in 2018 (for service from our 2017 annual meeting of stockholders to our 2018 annual meeting of stockholders) under our Non-Employee Director Compensation Policy resulting from the number of equity awards granted under the policy being determined based on the closing price of our common stock on the date of the previous annual meeting of our stockholders.

 

(3)

The following table shows the number of shares subject to outstanding stock option awards held by each non-employee director as of December 31, 2018:

 

Name

 

Shares Subject
to Outstanding
Option Awards
(#)
 

Emma S. Battle(4)

 

 

Richard A. Brenner

 

22,085

 

Susan E. Cates

 

 

Jack C. Kilgore

 

22,085

 

Malcolm McQuilkin

 

1,924

 

Charles A. Norris

 

 

David L. Warnock

 

1,924

 

 

(4)

Ms. Battle became a director in February 2019.

 

Under our current Amended and Restated Non-Employee Director Compensation Policy (the “Director Compensation Policy”), which was approved effective February 28, 2019, each non-employee director receives the following compensation.

 

Initial Compensation

 

Upon a non-employee director’s initial election or appointment to the Board, such director receives a grant of restricted stock units having a value equal to 150% of the Total Annual Retainer (as defined in the Director Compensation Policy) in effect at the time of such non-employee director’s election or appointment, with the number of restricted stock units to be issued being determined based on the closing price of the Company’s common stock on the date of grant. Such restricted stock units vest in three equal annual installments beginning on the first anniversary of the date of grant.

 

 

Director Compensation

 

Annual Cash Compensation

 

Each non-employee director receives, on an annual basis, (1) a cash retainer in an amount equal to 25% of the Total Annual Retainer (as defined in the Director Compensation Policy), which such 25% currently equals $25,000, (2) committee chairmanship fees payable in cash equal to $15,000 for the chair of the Audit Committee, $10,000 for chair of the Compensation Committee and $5,000 for chair of each other standing committee (currently only the Nominating and Governance Committee), (3) committee membership fees payable in cash equal to $7,500 for Audit Committee membership, $5,000 for Compensation Committee Membership and $2,500 for membership of each other standing committee and (4) an additional $15,000 payable in cash to the Chairman of the Board (if such Chairman is an independent director) or to the Lead Independent Director (if there is no independent Chairman of the Board) (clauses (1) through (4), collectively, the “Cash Compensation”).

 

Committee membership fees in clause (3) above are only payable to a non-employee director if such director attends at least 75% or more of the applicable committee’s meetings in respect of the year for which such compensation is being paid.

 

In advance of each annual meeting of the stockholders, each non-employee director may choose to receive his or her Cash Compensation for the following year 100% in cash (Option 1) or 100% in equity (Option 2). If a director elects Option 1, the director receives a one-time payment of the Cash Compensation within 14 days of the annual meeting of stockholders immediately following the year for which such compensation is payable. If a director elects Option 2, the director receives a one-time grant of fully-vested restricted stock units valued at the Cash Compensation on the business day immediately prior to the next annual meeting, and the number of restricted stock units is determined based on the closing price of the Company’s common stock on the date of the annual meeting of stockholders that preceded the grant date.

 

Annual Equity Compensation

 

Each non-employee director, on an annual basis, is granted a number of restricted stock units having a value equal to 75% of the Total Annual Retainer (as defined in the Director Compensation Policy), which such 75% currently equals $75,000, with the number of restricted stock units to be issued being determined based on the closing price of the Company’s common stock on the date of the annual meeting of stockholders that preceded the grant date.

 

Grants made under the Non-Employee Director Compensation Policy are made pursuant to our Amended and Restated 2010 Omnibus Long-Term Incentive Plan. Messrs. Prim and Sheehan receive no compensation for their service on our Board or Directors.

 

 

Executive Compensation

 

Executive Compensation

 

Compensation Discussion and Analysis

 

The following compensation discussion and analysis (“CD&A”) relates to our compensation arrangements for the following named executive officers (“Named Executive Officers”), whose compensation information is presented in the CD&A and the compensation tables following the CD&A in accordance with the SEC’s rules:

 

Named Executive Officers

Matthew T. Sheehan

President and Chief Executive Officer

Billy D. Prim

Executive Chairman

David J. Mills

Chief Financial Officer, Secretary and Assistant Treasurer

David W. Hass

Chief Strategy Officer

Mark Castaneda*

Former Chief Financial Officer

 

*

Mr. Castaneda served as Chief Financial Officer (our principal financial officer) from January 1, 2018 until his retirement from Primo on January 12, 2018

 

This CD&A should be read together with the compensation tables and related disclosures following the CD&A, including under the section titled “Executive Compensation Tables” beginning on page 46 of this proxy statement. This CD&A includes statements regarding financial and operating performance targets in the limited context of our executive compensation programs, and investors should not evaluate these statements in any other context. This CD&A also contains forward-looking statements that are based on our current considerations, expectations and determinations regarding future compensation programs. The actual amount and form of compensation and the compensation programs that we adopt in the future may differ materially from current or planned programs as summarized in this CD&A.

 

Compensation Philosophy and Objectives

 

Compensation Governance

 

Our Compensation Committee oversees the design and implementation of our executive compensation program and approves the target compensation (including base salaries, short-term and long-term incentive compensation with both performance and fixed targets) for each of our Named Executive Officers.

 

Our Compensation Committee exercises robust, independent and vigorous oversight of the compensation payable to all of our Named Executive Officers, including our Executive Chairman and Chief Executive Officer. Our Compensation Committee reviews and approves financial, strategic and operational goals and objectives related to the compensation payable to the Executive Chairman and the Chief Executive Officer, and evaluates the performance of each of the Executive Chairman and the Chief Executive Officer in light of these goals and objectives.

 

Our Compensation Committee periodically consults with our Executive Chairman and Chief Executive Officer for their views on whether the existing executive compensation practices and policies support our long-term strategic objectives and whether such practices and policies are properly aligned with the long-term interests of our stockholders. Our Compensation Committee also consults with our Executive Chairman and Chief Executive Officer on the total compensation opportunities for our other Named Executive Offices, but our Compensation Committee is not required to accept any recommendations from such individuals. In addition, our Compensation Committee periodically consults with our Chief Financial Officer in evaluating the financial, accounting and tax implications of our executive compensation program. However, our Compensation Committee retains ultimate authority for the design, implementation and oversight of our executive compensation program, and none of our Named Executive Officers are present during any deliberation or voting with respect to his or her compensation.

 

 

Executive Compensation

 

In 2016, our Compensation Committee formally engaged The Korn Ferry Hay Group (“Korn Ferry”) as a compensation consultant to provide strategic advice in setting and structuring our compensation programs and policies for 2017 as well as going forward. Our Compensation Committee did not engage the services of Korn Ferry or any other independent compensation consultant in 2018. Going forward, our Compensation Committee will consider the advice and recommendations of compensation consultants we may engage in setting and structuring our executive compensation programs.

 

Shareholder Engagement and Executive Compensation Enhancements

 

Our Board of Directors, its Compensation Committee and our senior management team value the input of our shareholders regarding the design, implementation and effectiveness of our executive compensation program. Our Compensation Committee regularly monitors and evaluates such engagement with shareholders to solicit and consider feedback on such design, implementation and effectiveness. Throughout 2018 and into 2019, our Board of Directors, its Compensation Committee, the Executive Chairman, Chief Executive Officer or Chief Financial Officer engaged in extensive and constructive dialogue with holders of over 40% of our outstanding Common Stock on a number of executive compensation-related topics, including, among others, the frequency of our say-on-pay votes on Named Executive Officer compensation, the Compensation Committee’s choice of performance measures for short- and long-term incentive compensation, and compensation disclosure initiatives.

 

As a result of these discussions, in order to increase the alignment of our executive compensation programs with the long-term interests of our shareholders, our Compensation Committee and Board of Directors implemented a number of enhancements to our executive compensation program since our 2018 Annual Meeting of Stockholders, highlights of which are set forth below.

 

Executive Compensation Enhancements

In May 2018, the Board voted to hold a say-on-pay vote on an annual basis beginning at the 2019 Annual Meeting (instead of holding such vote every three years).

In January 2019, the Board voted to rotate and refresh membership of the Compensation Committee, including the naming of a new Chair, David Warnock, and the addition of two new members, including Susan Cates, our Lead Independent Director.

In January 2019, the Board adopted an amended and restated Compensation Committee Charter with updated best practices for Compensation Committee operation and administration, including requiring the Compensation Committee’s approval for any special or supplemental compensation to Named Executive Officers and individuals who formerly served as Named Executive Officers, including retirement benefits and perquisites provided during and after employment.

In February 2019, the Compensation Committee approved long-term, performance-based equity awards covering the three-year period beginning in January 2019 based upon the achievement of free cash flow- and revenue-based performance-based metrics in response to discussions with shareholders regarding the use of duplicate performance measures, such as adjusted EBITDA, for both short- and long-term incentive compensation.

 

Compensation Objectives

 

Attract and Retain High-Performing Executives. The labor market for highly talented executives in the beverage segment and consumer products goods industry more broadly is extremely competitive. We are constantly evaluating and adjusting our executive compensation program to meet the challenges of a rapidly evolving marketplace for such senior managers. Our Compensation Committee relies on market analyses, third-party compensation surveys, publicly available data and other market information specific to the roles and responsibilities of each executive officer. Our Compensation Committee does not specifically tie the total compensation opportunities to specific market percentiles, and such total compensation opportunities may be below or above median amounts on account of a number of factors, including an executive’s specific skill set and his or her tenure with the Company.

 

 

Executive Compensation

 

Shareholder-Aligned Performance Pay. Our incentive compensation arrangements are tied to specific performance measures that are designed to promote the Company’s long-term growth, the achievement of strategic objectives and enhanced, long-term value creation for our shareholders. Our engagement of Korn Ferry in 2016 enhanced the link between our executive compensation and shareholder value when we adopted our Long-Term Performance Plan, which is discussed further below under “Long-Term Equity Incentive Compensation”.

 

Manage Excessive Compensation-Related Risks. The Compensation Committee aims to design our executive compensation program in a manner that includes design features that balance short-term and long-term incentive compensation and discourage unnecessary and excessive risk-taking by our executives, both in the short- and long-term. We ceased granting stock option awards on a regular basis in 2015, we do not offer guaranteed bonuses, and we do not provide excessive perquisites. In addition, we have adopted a policy that prohibits pledging, hedging and trading in derivatives of our securities, which is discussed further under “Other Compensation Matters” beginning on page 43 of this proxy statement.

 

Executive Compensation Program Design

 

Components of Executive Compensation

 

Our Compensation Committee determines the appropriate balance between fixed and performance-based pay components, short- and long-term pay components, and cash and equity-based pay components when determining total compensation opportunities for each of our Named Executive Officers.

 

The current principal components of our executive compensation program are (a) base salary, (b) annual cash and equity performance-based compensation and (c) long-term time-based equity compensation in the form of restricted stock units and performance-based equity compensation in the form of awards made under our Long-Term Performance Plan (“LTPP”), a long-term, performance-based incentive arrangement established in February 2017 as a replacement of our Value Creation Plan, a long-term, performance-based incentive arrangement which was terminated by our Compensation Committee in December 2016. As described below, each of those compensation elements satisfies one or more of our compensation objectives described above.

 

 

Executive Compensation

 

Total Target Compensation Objectives for 2018. For total annual target compensation for Named Executive Officers our Compensation Committee reviews the balance of short- and long-term compensation, the balance of fixed and performance-based compensation as well as the balance of cash and equity compensation.

 

For 2018, the total annual target compensation for the Named Executive Officers that was long-term in nature was between 45% and 50%. In addition, for 2018 the total annual target compensation that was performance-based in nature was between 50% and 70%. Further, for 2018 the total target compensation that was equity-based was between 45% and 50%.

 

Of the equity-based target compensation for 2018, between 75% and 85% was subject to performance-based vesting conditions measured over a three-year period, in each case, in order to promote the proper incentives within our Named Executive Officers and to further align their interests with our shareholders’ interests.

 

Pay Component

Nature of Pay Component

Compensation Committee Rationale

Base Salary

Fixed cash compensation determined annually by Compensation Committee

Attract and retain high-performing executives

Annual Cash and Equity Performance-based Incentive Compensation

Performance-based bonus opportunity tied to achievement of predetermined Adjusted EBITDA performance metric, which can be paid in cash or equity at the election of the Compensation Committee

Encourage executives to achieve and exceed aggressive short-term performance goals based upon a metric used by our Board, senior management, creditors and analysts to evaluate performance Company-wide and to further align management incentives with those of stakeholders

Long-Term Equity Incentive Compensation

Restricted stock unit awards subject to three-year, time-based vesting schedule
   
Awards made under our Long-Term Performance Plan subject to achievement of predetermined free cash flow- and revenue-based performance metrics over three-year period

Time-based awards granted to encourage long-term retention of high-performing executives
   
Performance-based awards granted under Long-Term Performance Plan align executives’ long-term interests with those of shareholders and promote executives to generate long-term value

 

Each of these pay components, including the utilization of each such component in establishing total compensation opportunities for our Named Executive Officers in 2018, is discussed in further detail below.

 

Each of Messrs. Prim, Sheehan and Mills have entered into an employment agreement with the Company, Mr. Castaneda was subject to the terms of an employment agreement with the Company while employed by the Company in the year ended December 31, 2018. The material terms of those employment agreements are described below under “Employment Agreements and Change of Control Agreements.” Mr. Hass has not yet entered into an employment agreement with the Company.

 

Base Salary

 

We believe that a competitive base salary is an important component of compensation as it provides a degree of financial stability for our Named Executive Officers and is critical to recruiting and retaining our executives. Base salary is also designed to recognize the scope of responsibilities assigned to each Named Executive Officer and reward each executive for his or her unique leadership skills, management experience and contributions. We make a subjective determination of base salary after considering such factors collectively. Our Board of Directors established base salaries for each of our Named Executive Officers at the amounts set forth below for 2018.

 

 

Executive Compensation

Name

Base Salary ($)

Billy D. Prim

454,904

Matthew T. Sheehan

458,100

David J. Mills

250,000

David W. Hass

257,500

Mark Castaneda*

 

*

Mr. Castaneda had an annual base salary of $325,000 in effect at the time of his retirement from Primo on January 12, 2018.

 

Annual Cash and Equity Performance-based Incentive Compensation

 

We established an annual performance-based incentive plan for 2018, which created an annual bonus pool and set payout bands for our officers, including our Named Executive Officers, based on the Company’s achievement of certain adjusted EBITDA goals. Our Compensation Committee structured and implemented this plan to motivate our executive officers to achieve our annual strategic and financial goals. Each year, our Compensation Committee establishes the potential value of the awards under the annual incentive plan and the performance targets required to achieve these awards, and our Compensation Committee sets these targets to challenge our Named Executive Officers to drive business results that generate stockholder return. Our Compensation Committee approved the following 2018 annual incentive plan bonus pool with a Target Adjusted EBITDA level of $65.0 million:

 

Percentage of Target Adjusted

EBITDA Achieved:

Size of Annual Bonus Pool

95%

$1,625,000

100%

$3,250,000

105%

$3,575,000

110%

$3,900,000

115%

$4,225,000

120%

$4,550,000

 

Adjusted EBITDA under our 2018 annual incentive plan is calculated in the same manner as set forth in our Credit and Guaranty Agreement entered into in June 2018 with SunTrust Bank, and generally includes income (loss) from continuing operations before depreciation and amortization, interest expense, net, income tax benefit, non-cash change in fair value of warrant liability, non-cash stock-based compensation expense, special items (which include non-recurring and acquisition-related costs), and impairment charges and other. Our Compensation Committee has recently utilized adjusted EBITDA as the operational performance measure for our Annual Incentive Plan because the Compensation Committee believes that achievement of adjusted EBITDA-based goals is consistent with our strategic goals, including our operating performance, overall growth, the cost to us of achieving such growth, and our ability to repay our outstanding indebtedness. Further, adjusted EBITDA is utilized by our management, shareholders, creditors and analysts as a key indicator of our ongoing operational performance and profitability.

 

Our actual pre-bonus, adjusted EBITDA for 2018 was $55.4 million, or 85.2% of the $65.0 million adjusted EBITDA goal for 2018, which resulted in no annual bonus payable by the Company under the 2018 Annual Incentive Plan.

 

 

Executive Compensation

 

Long-Term Equity Incentive Compensation

 

Overview and Background

 

Long-term equity incentive compensation is a fundamental tenet of our executive compensation program. Our Compensation Committee believes that long-term equity incentive compensation rewards the performance of our Named Executive Officers over the longer term and further aligns the interests of our Named Executive Officers with those of our shareholders. In 2018, the total annual target incentive compensation for the Named Executive Officers that was long-term in nature was between 45% and 50%.

 

Our long-term equity incentive compensation is comprised of time-based restricted stock units and performance-based awards granted under our LTPP, which are further discussed below. Our Compensation Committee establishes a Named Executive Officer’s award opportunity as a percentage of base salary, and the Compensation Committee assumes that each Named Executive Officer will earn 100% of the RSUs and LTPP awards for purposes of determining such Named Executive Officer’s total compensation opportunity.

 

Each of our time-based RSU awards vests in three equal annual installments beginning on the first anniversary of the grant date. Our Compensation Committee believes this vesting schedule is appropriate for our time-based awards as it promotes stability in our experienced management team for our employees, shareholders and other stakeholders and also properly incentivizes each of our Named Executive Officers to remain in employment with the Company for an extended period of time in order to oversee and implement the Company’s long-term strategies.

 

Each of our performance-based awards granted under our LTPP is subject to a three-year performance cycle, with cliff vesting at the end of the three-year period with respect to all of the LTPP awards earned by each Named Executive Officer at the end of such three-year performance cycle. In addition to further promoting the long-term stability and Named Executive Officer retention, our Compensation Committee believes that a three-year performance cycle is appropriate because it enables the Compensation Committee and our shareholders to meaningfully evaluate the execution of our long-term strategies and the impact on shareholder value.

 

Historically, we have provided long-term equity compensation primarily through grants of restricted stock units and performance-based awards through annual grants approved by our Board of Directors or our Compensation Committee. We intend to continue these practices in the future as we believe such grants further our compensation objectives of aligning the interests of our Named Executive Officers with those of our stockholders, encouraging long-term performance, and providing a simple and easy-to-understand form of equity compensation that promotes executive retention. We view such grants both as incentives for future performance and as compensation for past accomplishments.

 

Adoption and Implementation of Long-Term Performance Plan

 

Prior to the adoption of the Long-Term Performance Plan (“LTPP”), in May 2012, we established our Value Creation Plan (“VCP”). The VCP was amended and restated in May 2013, and further amended and restated in March 2016 prior to being terminated in December 2016. Prior to the March 2016 amendment and restatement, the VCP provided for up to three separate awards to be issued to participants based upon the Company’s achieving adjusted EBITDA targets of $15 million, $20 million and $25 million for any fiscal year through the end of 2018. Our Compensation Committee set these targets at very aspirational levels as the Company’s adjusted EBITDA for 2011 was $3.4 million. In March 2016, our Compensation Committee (a) increased the second adjusted EBITDA target from $20 million to $24 million, (b) increased the third adjusted EBITDA target from $25 million to $28 million, and (c) extended the performance period under the plan from the end of 2018 through the end of 2019. In December 2016 and prior to the final award being issued, our Compensation Committee approved the termination of the VCP. All awards granted under the VCP that were outstanding as of December 31, 2016 were governed by the VCP and subject to the achievement of the adjusted EBITDA performance targets for the year ended December 31, 2016.

 

 

Executive Compensation

 

Our Board and Compensation Committee believe that the VCP successfully and rapidly achieved its designed goals of maximizing shareholder value and promoting the long-term performance and operational success of our Company. In the period covered by the awards granted under our VCP, our adjusted EBITDA increased by 619% from $3.4 million for the fiscal year ended December 31, 2011 to $24.1 million for the fiscal year ended December 31, 2016. Building upon the success of the VCP, our Board of Directors, Compensation Committee and senior management engaged with our shareholders as we sought to restructure our long-term equity incentive compensation program to reflect the evolving strategic and operational goals of a larger organization, including the establishment of additional performance-based metrics by which our Board of Directors and Compensation Committee could promote the long-term growth mindset.

 

After the success of our VCP in promoting our Named Executive Officers to achieve aspirational adjusted EBITDA targets in a short period of time, and in connection with and following extensive engagement with our key shareholders and other important stakeholders, our Board and Compensation Committee undertook a redesign of our long-term equity compensation plan structure. After the termination of the VCP our Board and Compensation Committee, following thorough consultation with, and upon the recommendation of, Korn Ferry, established our LTPP in February 2017. Like the VCP, we believe our LTPP serves to attract and retain highly qualified executive officers, officers and key employees and to motivate such executive officers, officers and key employees to serve the Company and expend maximum effort to improve the long-term business results of the Company and to further align the interests of our Named Executive Officers with the long-term interests of our stockholders. Our Compensation Committee believes that the LTPP is properly designed to take into account the Company’s increased size, complexity and long-term strategic growth objectives. Further, because the value of our LTPP awards to our Named Executive Officers is tied to both our stock price and the performance targets discussed below in more detail, our Compensation Committee believes that LTPP awards provide a strong incentive to executives to deliver value to our shareholders.

 

Our LTPP is administered under the Omnibus Plan as a sub-plan of the Omnibus Plan.

 

Structure of LTPP Awards

 

The period in which performance is measured, and to which the achievement of the performance-based metrics described below is tied, begins on January 1 of the grant year and ends on December 31 of the third year following the grant year (the “Performance Period”).

 

Of the LTPP awards issued in 2018, 60% are subject to the achievement of certain Adjusted EBITDA targets during the Performance Period (the “AE LTPP Units”), with adjusted EBITDA measured in accordance with the Company’s current credit agreement, and 40% are subject to the achievement of certain free cash flow targets during the Performance Period (the “FCF LTPP Units” and, with the AE LTPP Units, the “LTPP Units”). Free cash flow is defined as net cash provided by operating activities plus non-recurring and acquisition-related costs minus net cash used in investing activities excluding acquisitions and intangibles.

 

For the 2018 LTPP Awards, the LTPP Units are generally earned upon the achievement of at least 80% of target adjusted EBITDA and target free cash flow during the Performance Period, as applicable, at which time 50% of the AE LTPP Units and/or FCF LTPP Units, respectively, are earned. The LTPP Units are capped at achievement of 120% of target adjusted EBITDA and target Free Cash Flow during the Performance Period, as applicable, at which time 140% of the AE LTPP Units and/or FCF LTPP Units, respectively, are earned. The number of LTPP Units earned between 80% of the applicable target and 120% of the applicable target are subject to a linear interpolation of the applicable target. See below under “2018 LTPP Awards” for further discussion and detail on the LTPP Awards granted in 2018.

 

 

Executive Compensation

 

Executive Compensation Enhancement – New LTPP Performance Metric

In February 2019, in connection with a detailed review of the Long-Term Performance Plan by our Compensation Committee to ensure its success in linking executive performance with long-term growth and shareholder value, and in conjunction with recent and extensive feedback from our engagement with shareholders, our Compensation Committee approved 2019 LTPP Awards which are subject to the achievement of certain revenue and free cash flow targets during the applicable Performance Period, which will run from January 1, 2019 until December 31, 2021.

 

Our Compensation Committee understands that, as a matter of best practices in executive compensation, it was important to provide that the performance-based metrics utilized in our short-term performance-based incentive compensation (adjusted EBITDA) were different from those utilized in our long-term performance-based incentive compensation so as not to place undue influence on the performance and behavior of our management team to achieve one performance-based metric, which may create misalignment between executives and the long-term interests of shareholders if they fail to sufficiently focus on other important metrics. As a result, the Compensation Committee approved 2019 LTPP Awards that substituted revenue for adjusted EBITDA as one of two applicable performance-based metrics. For the 2019 LTPP Awards, 50% are subject to the achievement of certain Revenue targets and 50% are subject to the achievement of Free Cash Flow targets.

 

Our Compensation Committee believes that revenue is also an important performance-based metric for the Company’s long-term strategic growth. Following our acquisition of Glacier Water in December 2016, leveraging our newly increased scale and related synergies to drive top-line growth from our businesses and, in particular, our Refill business, is a core element of our long-term growth strategies.

 

Our Compensation Committee believes that free cash flow is an important indicator of our continued, long-term success as it measures our ability to generate cash from operations, which may be used, among other ways, to repay our outstanding indebtedness on an accelerated timeframe, or return capital to shareholders in the form of future share repurchase programs (subject to the terms of any financing arrangements in place at any given time).

 

Impact of Change of Control Transaction on LTPP Awards

 

Except for Messrs. Prim, Sheehan and Mills, discussed below, there is no acceleration of LTPP awards in the event of a change of control transaction. Upon a change of control, the performance of each award recipient under the terms of each then-outstanding LTPP award is measured against the applicable performance metrics and related targets for the respective LTPP award, assuming the applicable performance period terminates upon the change of control transaction. If the threshold, target or maximum performance criteria have been satisfied as of such change of control date, then such award recipient will receive the number of shares of Common Stock as provided under the applicable LTPP award agreement. However, in the event the threshold performance criteria has not been achieved as of such change of control date, the LTPP award will be immediately cancelled and forfeited. No performance metrics and related targets are reduced by any amount due to the reduction in time to achieve such performance targets as a result of the change of control.

 

With respect to Messrs. Prim, Sheehan and Mills, the terms of each of their respective employment agreements control in the event of any inconsistency with any LTPP awards granted to them. As discussed further below under “Employment Agreements and Change of Control Arrangements” beginning on Page 55, all equity compensation awards held by Messrs. Prim, Sheehan and Mills that are unvested immediately prior to a change of control transaction will immediately vest as of the date of a change of control transaction, including any LTPP awards then-outstanding. As discussed further below, for each of Messrs. Prim, Sheehan and Mills, the “Potential Payments upon a Change of Control” table below assumes and reflects the receipt of an amount of shares of our common stock equal to the threshold levels under each LTPP award outstanding as of December 31, 2018.

 

 

Executive Compensation

 

Amended and Restated Executive Deferred Compensation Plan

 

On June 29, 2015, our Board and our Compensation Committee approved the Primo Water Corporation Executive Deferred Compensation Plan. Our Deferred Compensation Plan is an unfunded, nonqualified deferred compensation plan designed to allow our officers to defer the payment of awards under the VCP. On February 28, 2017, our Board and our Compensation Committee approved an amended and restated Executive Deferred Compensation Plan in order to allow our officers to defer payment of awards under our LTPP. The Amended and Restated Primo Water Corporation Executive Deferred Compensation Plan as in effect on February 28, 2017 is referred to as the “Deferred Compensation Plan.”

 

Deferred Compensation Plan Promotes Responsible Executive Compensation Program

 

Our Deferred Compensation Plan allows participating employees, including each of our Named Executive Officers, to elect to defer up to 100% of his or her award that may become payable under the VCP and/or LTPP for a performance year, as applicable. Any amounts otherwise payable under our VCP and/or LTPP that are deferred into our Deferred Compensation Plan are not taxable to the participants for income tax purposes until the time such awards are actually received by the participant. This allows each of our Deferred Compensation Plan participants, including our Named Executive Officers, the ability to achieve more efficient tax planning and structuring of their awards under the VCP and/or the LTPP. Participation in our Deferred Compensation Plan by our Named Executive Officers increases the receptiveness of our Named Executive Officers to awards issued under our VCP and/or LTPP and allows our Compensation Committee to utilize such long-term equity incentive compensation arrangements to further align the interests of our Named Executive Officers with those of our shareholders and other key stakeholders.

 

Operational Summary of Deferred Compensation Plan

 

Our Deferred Compensation Plan permits a participating employee to elect to defer up to 100% of his or her award that may become payable under the VCP and/or LTPP for a performance year, as applicable. The Company establishes an account for each participant in our Deferred Compensation Plan, and a participant’s account is then credited with a number of deferred stock units equal to the number of shares of Company common stock that would have been payable to the participant under the VCP and/or our LTPP, as applicable, but for the deferral election.

 

A participant’s account will be distributed based on the participant’s payment election made at the time of deferral. A participant can elect to have deferrals credited to a “post-service account,” to be paid in a lump sum or installments (of up to 10 years) commencing the seventh month after a separation from service. Alternatively, a participant can elect to have deferrals credited to an “in-service account,” to be paid in a lump sum or installments (of up to 10 years) commencing in a year specified by the participant at the time of the deferral election. With respect to a deferral to an “in-service account,” a participant can also elect to have payment commence the seventh month after a separation from service that occurs prior to the specified payment year.

 

When due, payments under our Deferred Compensation Plan will be made in the form of a number of shares of the Company’s common stock equal to the number of stock units payable to the participant, in the manner elected by the participant and provided for in our Deferred Compensation Plan, such that the value of the participant’s account under our Deferred Compensation Plan will rise and fall with the value of our common stock, creating further alignment between the long-term interests of participants and our shareholders.

 

 

Executive Compensation

 

2018 Long-Term Equity Incentive Compensation Awards

 

Time-Based Restricted Stock Units

 

On February 26, 2018, our Compensation Committee approved, effective March 9, 2018, grants of restricted stock unit awards to certain of our executive officers and key employees. The following table shows the number of restricted stock units granted to our Named Executive Officers as a result of this action:

 

Named Executive Officer

Restricted Stock Units (#)

Billy D. Prim

9,000

Matthew T. Sheehan

9,000

David J. Mills

6,000

David W. Hass

6,000

Mark Castaneda*

 

*

Mr. Castaneda retired from the Company on January 12, 2018 and was not employed at the time the Compensation Committee approved the above grants of restricted stock unit awards.

 

The restricted stock units granted to each of our executive officers vest in three substantially equal annual installments on March 9 of each of 2019, 2020, and 2021.

 

In addition, in January 2018, in connection with his appointment as Chief Financial Officer of the Company upon Mr. Castaneda’s retirement, we granted Mr. Mills restricted stock units covering an additional 10,000 shares of our Common Stock which will vest in four equal annual installments on January 15 of each of 2019, 2020, 2021 and 2022.

 

It is our current intention to issue all foreseeable equity compensation plan awards under the Primo Water Corporation 2019 Omnibus Long-Term Incentive Plan if such plan is approved by our stockholders at the 2019 Annual Meeting and, if such plan is not approved by our stockholders at the 2019 Annual Meeting, under our Amended and Restated 2010 Omnibus Long-Term Incentive Plan until its termination.

 

 

Executive Compensation

 

2018 LTPP Awards

 

For our 2018 LTPP awards, the tables below summarize (i) the adjusted EBITDA and free cash flow targets that the Company must achieve in order for our Named Executive Officers to earn LTPP Units and (ii) the number of LTPP Units that our Named Executive Officers earn upon the achievement of the applicable adjusted EBITDA and free cash flow targets.

 

Adjusted EBITDA

Adjusted EBITDA – $210.0 million target

Number of AE LTPP Units Earned Upon Achievement of
Applicable Adjusted EBITDA Amounts

 

 

Prim:

16,376

80% of Target – $168.0 million 50% of target AE LTPP Units

Sheehan:

16,492

Mills:

6,000

   

Hass:

6,180

   

 

 

 

Prim:

32,753

100% of Target – $210.0 million 100% of target AE LTPP Units

Sheehan:

32,983

Mills:

12,000

   

Hass:

12,360

   

 

 

 

Prim:

45,854

120% of Target – $252.0 million 140% of target AE LTPP Units

Sheehan:

46,177

Mills:

16,800

   

Hass:

17,304

   

 

Between 80% and 120% of Target

Linear interpolation applies.

 

Free Cash Flow

Free Cash Flow – $82.0 million target

Number of FCF LTPP Units Earned Upon Achievement of
Applicable Free Cash Flow Amounts

 

 

Prim:

10,918

80% of Target – $65.6 million 50% of target FCF LTPP Units

Sheehan:

10,994

Mills:

4,000

   

Hass:

4,120

   

 

 

 

Prim:

21,835

100% of Target – $82.0 million 100% of target FCF LTPP Units

Sheehan:

21,989

Mills:

8,000

   

Hass:

8,240

   

 

 

 

Prim:

30,570

120% of Target – $98.4 million 140% of target FCF LTPP Units

Sheehan:

30,784

Mills:

11,200

   

Hass:

11,536

   

 

Between 80% and 120% of Target

Linear interpolation applies

 

Mr. Castaneda retired from the Company on January 12, 2018 and was not employed at the time the Compensation Committee approved the above grants to our Named Executive Officers.

 

The Performance Period covering the 2018 LTPP awards is January 1, 2018 to December 31, 2020.

 

 

Executive Compensation

 

2017 LTPP Awards

 

Our Compensation Committee approved the first set of awards under our LTPP in February 2017. Performance under the 2017 LTPP awards will be assessed following the end of the three-year performance period ending on December 31, 2019. The number of shares of Common Stock to be earned under the 2017 LTPP awards will be based upon an assessment of our aggregate adjusted EBITDA and aggregate free cash flow during the performance period against the applicable metric goals.

 

For our 2017 LTPP awards, 60% of each award is subject to the achievement of a target adjusted EBITDA of $183.4 million, and 40% of each award is subject to the achievement of a target free cash flow of $66.4 million.

 

LTPP Units subject to our 2017 LTPP awards follow the same vesting schedule as our 2018 LTPP awards. Under our 2017 LTPP awards, LTPP Units are generally earned upon the achievement of at least 80% of target Adjusted EBITDA and target Free Cash Flow during the Performance Period, as applicable, at which time 50% of the AE LTPP Units and/or FCF LTPP Units, respectively, are earned. The LTPP Units are capped at achievement of 120% of target Adjusted EBITDA and target Free Cash Flow during the Performance Period, as applicable, at which time 140% of the AE LTPP Units and/or FCF LTPP Units, respectively, are earned. The number of LTPP Units earned between 80% of the applicable target and 120% of the applicable target are subject to a linear interpolation of the applicable target.

 

As of December 31, 2018, our aggregate adjusted EBITDA was approximately $110.1 million, and our aggregate free cash flow was approximately $15.3 million.

 

Other Compensation Matters

 

Securities Trading Compliance Policy

 

Our Securities Trading Compliance Policy prohibits short sales of our securities by our directors, executives and certain other employees, including any employee who is in possession of material non-public information, each of whom is referred to as a “Covered Person”. Our Securities Trading Compliance Policy also prohibits Covered Persons from trading in derivatives of our securities and from holding our securities in a margin account or pledging such securities as collateral for a loan. All Covered Persons are also prohibited from engaging in any hedging or monetization transactions, including transactions that permit ownership of Company securities while reducing the exposure to the risks and rewards of such ownership. An exception to the prohibition on pledging our securities may be permitted in certain limited circumstances with the advance written approval of the Chief Financial Officer.

 

Our Securities Trading Compliance Policy also requires all Covered Persons to seek pre-clearance from the Company’s Chief Financial Officer before trading or gifting any Company securities, including the establishment of any 10b5-1 trading plans. In the event a Covered Person wishes to establish a 10b5-1 trading plan, such Covered Person must seek the approval of such plan from our Chief Financial Officer. Each 10b5-1 plan must specify the amount, pricing and timing of transactions in advance or delegate discretion of those matters to an independent third party, and, once the 10b5-1 plan is established, the Covered Person is prohibited from exercising any influence over the amount, pricing and timing of transactions under it.

 

 

Executive Compensation

 

Perquisites and Other Benefits

 

As a general matter, we do not offer perquisites or other benefits to any executive officer, including our Named Executive Officers, with an aggregate value in excess of $10,000 annually, because we believe we can provide better incentives for desired performance with compensation in the forms described above. We recognize that, from time to time, it may be appropriate to provide some perquisites or other benefits in order to attract, motivate and retain our executives, with any such decision to be reviewed and approved by our Compensation Committee.

 

Our executive officers are eligible to participate in our customary employee benefit plans, including medical, dental, vision, life and other employee benefit and insurance plans made available to our employees generally. We maintain a 401(k) plan, which is intended to be a tax-qualified defined contribution plan under Section 401(k) of the Internal Revenue Code of 1986, as amended, or the Code. In general, all of our employees are eligible to participate in this plan.

 

Employment and Severance and Change of Control Benefits

 

A detailed description of our employment agreements with our Named Executive Officers is available under the section captioned “Employment Agreements and Change of Control Agreements” below, and the benefits are quantified in the section captioned “Potential Payments Upon Termination or Change of Control.”

 

Risk Assessment

 

As a publicly-traded company, we are subject to the SEC’s rules regarding risk assessment. Those rules require a publicly-traded company to determine whether any of its existing incentive compensation plans, programs or arrangements create risks that are reasonably likely to have a material adverse effect on the company. We do not believe that our incentive compensation plans, programs or arrangements create risks that are reasonably likely to have a material adverse effect on the Company.

 

Accounting and Tax Implications

 

Our Compensation Committee considers the accounting and tax impact reflected in our financial statements when establishing the amount and forms of long-term and equity compensation. The forms of long-term compensation selected are intended to be cost-efficient. We account for all awards settled in equity in accordance with FASB ASC Topic 718, pursuant to which the fair value of the grant, net of estimated forfeitures, is expensed over the service/vesting period based on the number of options, shares or units, as applicable, that vest. The estimated payout amount of performance awards, along with any changes in that estimate, is recognized over the performance period under “liability” accounting. Our ultimate expense for performance awards will equal the value earned by/paid to the executives.

 

Tax Deductibility of Compensation; Tax Cuts and Jobs Act

 

We seek to maximize long-term stockholder value when determining all elements of compensation. As a result, tax deductibility is not the only consideration in awarding compensation. Section 162(m) of the Internal Revenue Code (“Section 162(m)”) limits the deductibility of compensation in excess of $1.0 million paid to any one covered employee in any calendar year. Under the tax rules in effect before 2018, compensation that qualified as “performance-based” under Section 162(m) was deductible without regard to this $1.0 million limit. However, the Tax Cuts and Jobs Act, which was signed into law December 22, 2017, eliminated this performance-based compensation exception effective January 1, 2018, subject to a special rule that “grandfathers” certain awards and arrangements that were in effect on or before November 2, 2017. As a result, compensation that our Compensation Committee structured in 2017 and prior years with the intent of qualifying as performance-based compensation under Section 162(m) that is paid on or after January 1, 2018 may not be fully deductible, depending on the application of the special grandfather rules. Moreover, from and after January 1, 2018, compensation awarded in excess of $1.0 million to our Named Executive Officers generally will not be deductible. While the Tax Cuts and Jobs Act will limit the deductibility of compensation paid to our covered employees, our Compensation Committee will—consistent with its past practice—continue to retain flexibility to design compensation programs that are in the best long-term interests of the Company and our stockholders, with deductibility of compensation being one of a variety of considerations taken into account.

 

 

Executive Compensation

 

Compensation Committee Report

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management and, based on such review and discussions, recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and Primo’s Annual Report on Form 10-K for the year ended December 31, 2018.

 

Submitted by the Compensation Committee of the Board of Directors.

 

Jack C. Kilgore, Chair
Richard A. Brenner
Malcom McQuilkin
David L. Warnock

 

 

Executive Compensation Tables

 

Executive Compensation Tables

 

2018 Summary Compensation Table

 

Name and Principal
Position
(a)

Year
(b)

 

Salary
($)
(c)

   

Stock
Awards
($)
(d)

   

Option
Awards
($)
(e)

   

Non-Equity
Incentive Plan
Compensation
($)
(f)

   

All Other
Compensation
($)
(g)

   

Total
($)
(h)

 
                                                   

Billy D. Prim

2018

    452,584       759,877                   5,500       1,217,961  

Executive Chairman,

2017     432,685       800,273             196,601       13,084       1,442,643  

Former Chief

2016     439,804       140,850             290,142       7,185       877,981  
Executive Officer                                                  
                                                   

Matthew T. Sheehan

2018

    455,763       764,465                   5,500       1,225,728  
President and Chief 2017     432,987       805,005             198,035       11,746       1,447,773  
Executive Officer 2016     336,411       117,375       532,390       166,467       4,587       1,157,230  
                                                   

David J. Mills

2018

    245,479       441,700                   7,297       694,476  

Chief Financial

Officer

                                                 
                                                   

David W. Hass

2018

    255,337       317,870                   7,660       580,867  
Chief Strategy 2017     217,432       308,347             51,170       8,015       584,964  
Officer                                                  
                                                   

Mark Castaneda*

2018

    26,972       52,359                   809       80,140  
Former Chief 2017     310,919       411,045             71,533       12,027       805,524  
Financial Officer 2016     284,062       117,375             93,699       7,950       503,086  
                                                   

 

*

Mr. Castaneda retired from the Company on January 12, 2018.

 

Salaries (Column (c))

 

Base salaries for Messrs. Prim, Sheehan and Mills are specified in their employment agreements, which are described in greater detail in “Employment Agreements and Change of Control Agreements” below. Mr. Hass’ base salary is determined by our Compensation Committee.

 

 

Executive Compensation Tables

 

Stock Awards (Column (d))

 

The amounts shown in this column indicate the grant date fair value of stock awards computed in accordance with ASC 718. Generally, the grant date fair value is the amount that we would expense in our financial statements over the award’s vesting schedule. For additional information regarding the assumptions made in calculating these amounts, see the Notes to our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. These amounts reflect our accounting expense for these awards and do not correspond to the actual value that will be recognized by our Named Executive Officers. The amounts set forth in this column also include the grant date fair value as of March 9, 2018 ($11.95) of target award opportunities in connection with awards issued to our Named Executive Officers under our LTPP computed in accordance with ASC 718. Assuming the achievement of the maximum share target amount under each award, maximum amounts (calculated as of the grant date) issued to our Named Executive Officers with respect to such awards would be approximately $913,267, $919,684, $344,600 and $344,638 for Mr. Prim, Mr. Sheehan, Mr. Mills and Mr. Hass, respectively. In addition, the $52,359 for Mr. Castaneda is attributable to the incremental accounting charge incurred by the Company in 2018 in connection with the Compensation Committee’s decision to extend the exercise period for all of Mr. Castaneda’s vested stock options from 30 days to one year following his retirement from the Company in January 2018.

 

Option Awards (Column (e))

 

The amounts shown in this column represent the aggregate grant date fair value of the option awards computed in accordance with ASC 718. Generally, the grant date fair value is the amount that we would expense in our financial statements over the award’s vesting schedule. For additional information regarding the assumptions made in calculating these amounts, see the Notes to our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. These amounts reflect our accounting expense for these awards and do not correspond to the actual value that will be recognized by our Named Executive Officers.

 

Non-Equity Incentive Plan Compensation (Column (f))

 

Each of our Named Executive Officers was entitled in 2018 to a target annual performance-based incentive award equal to a specified percentage of his base salary, which was 100% for Mr. Prim, 100% for Mr. Sheehan and 50% for each of Mr. Mills and Mr. Hass. Mr. Castaneda retired from the Company on January 12, 2018 and was not eligible for an annual incentive award. Our actual pre-bonus, adjusted EBITDA for 2018 was $55.4 million, or 85.2% of the $65.0 million adjusted EBITDA goal for 2018, which resulted in no annual bonus payable by the Company under the 2018 annual incentive plan. Our 2018 annual performance-based incentive plan is described in greater detail in the “Compensation Discussion and Analysis” above under “Annual Cash and Equity Performance-based Incentive Compensation.”

 

All Other Compensation (Column (g))

 

Amounts shown in this column relate to matching contributions to our Named Executive Officers’ accounts under Primo’s 401(k) plan. In addition, with respect to the amounts set forth in this column for Mr. Castaneda, such amounts include certain payments paid to Mr. Castaneda in connection with his retirement from the Company on January 12, 2018, as more fully described below in “Employment Agreements and Change of Control Arrangements”.

 

 

Executive Compensation Tables

 

2018 Grant of Plan-Based Awards Table

 

The following table shows grants of plan-based awards made to our Named Executive Officers during the year ended December 31, 2018.

 

 

 

Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
($)
(1)

Estimated Future Payouts Under
Equity Incentive Plan Awards
(#)
(2)

All Other
Stock
Awards:

Grant Date
Fair Value

Name

Grant Date


   
Threshold
($)

Target
($)

Maximum
($)

Threshold
(#)

Target
(#)

Maximum
(#)

Number of
Shares of
Stock or
Units
(#)
of
Stock and
Option
Awards
($)
(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Billy D. Prim

 

03/09/18

(4) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,000

 

 

107,550

 

 

 

 

 

 

192,122

 

 

384,244

 

 

537,941

 

 

27,294

 

 

54,588

 

 

76,424

 

 

 

 

 

652,327

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Matthew T. Sheehan

 

03/09/18

(4) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,000

 

 

107,550

 

 

 

 

 

 

193,471

 

 

386,943

 

 

541,720

 

 

27,486

 

 

54,972

 

 

76,961

 

 

 

 

 

656,915

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

David J. Mills

 

01/15/18

(5) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,000

 

 

131,000

 

 

 

03/09/18

(4) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,000

 

 

71,700

 

 

 

 

 

 

52,103

 

 

104,206

 

 

145,588

 

 

10,000

 

 

20,000

 

 

28,000

 

 

 

 

 

239,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

David W. Hass

 

03/09/18

(4) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,000

 

 

71,700

 

 

 

 

 

 

54,195

 

 

108,391

 

 

151,747

 

 

10,300

 

 

20,600

 

 

28,840

 

 

 

 

 

246,170

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark Castaneda

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Amounts set forth in these columns reflect threshold, target and maximum award opportunities for 2018 performance under our 2018 annual incentive plan. Further information regarding the terms and conditions of awards under our 2018 annual incentive plan can be found in the “Compensation Discussion and Analysis” above under “Annual Cash and Equity Incentive Arrangements.”

 

(2)

Amounts set forth in these columns reflect threshold, target and maximum award opportunities under awards issued in March 2018 under our LTPP. Further information regarding the terms and conditions of awards under our LTPP can be found in the “Compensation Discussion and Analysis” above under “Long-Term Equity Incentive Compensation.”

 

(3)

Amounts set forth in this column represent the grant date fair value of the restricted stock unit awards and awards issued under our LTPP described in Footnotes (2), (4) and (5), in each case, computed in accordance with FASB ASC Topic 718. For additional information regarding the assumptions made in calculating these amounts, see the notes to our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

 

(4)

Amounts set forth in this row reflect grants of restricted stock units under our Amended and Restated 2010 Omnibus Long-Term Incentive Plan (the “Omnibus Plan”). These restricted stock units vest in equal installments on the first, second and third anniversaries of the grant date.

 

(5)

Amounts set forth in this row reflect grant of restricted stock units under our Omnibus Plan. These restricted stock units vest in equal installments on the first, second, third and fourth anniversaries of the grant date.

 

 

Executive Compensation Tables

 

Outstanding Equity Awards at Fiscal Year-End 2018 Table

 

The following table sets forth information regarding outstanding equity awards held by our Named Executive Officers as of December 31, 2018.

 

 

Option Awards

Stock Awards

Name

Number of
Shares
Underlying
Unexercised
Options (#)
Exercisable

Number of
Shares
Underlying
Unexercised
Options (#)
Unexercisable

Option
Exercise
Price
($)

Option
Expiration
Date

Number of
Shares or
Units of
Stock that
Have Not
Vested (#)

Market
Value of
Shares or
Units of
Stock that
Have Not
Vested($)
(1) 

Equity Incentive Plan
Awards: Number of
Unearned Shares, Units
or Other Rights That
Have Not Vested (#)

Equity Incentive Plan
Awards: Market or
Payout Value of
Unearned Shares,
Units or Other Rights
That Have Not
Vested ($)
(1)

Billy D. Prim

 

40,000

 

 

 

 

12.33

 

 

03/29/21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,000

 

 

 

 

1.39

 

 

05/11/22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30,000

 

 

 

 

3.43

 

 

03/14/24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30,000

 

 

 

 

5.33

 

 

05/05/25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,000

(2) 

 

70,050

 

 

23,939

(3) 

 

335,385

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,000

(4) 

 

84,060

 

 

27,294

(5) 

 

382,389

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,000

(6) 

 

126,090

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Matthew T. Sheehan

 

10,000

 

 

 

 

1.07

 

 

11/12/22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

100,000

 

 

 

 

1.05

 

 

12/04/22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50,000

 

 

 

 

1.76

 

 

06/10/23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25,000

 

 

 

 

3.43

 

 

03/14/24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25,000

 

 

 

 

5.33

 

 

05/05/25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50,000

 

 

50,000

(7) 

 

12.00

 

 

11/04/26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,166

(2) 

 

58,366

 

 

24,107

(3) 

 

337,739

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,000

(4) 

 

84,060

 

 

27,486

(5) 

 

385,079

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,000

(6) 

 

126,090

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

David J. Mills

 

14,375

 

 

 

 

12.84

 

 

01/28/20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,000

 

 

 

 

12.33

 

 

03/29/21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,000

 

 

 

 

2.65

 

 

12/15/21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,000

 

 

 

 

1.39

 

 

5/11/22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50,000

 

 

 

 

1.07

 

 

11/12/22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,000

 

 

 

 

3.43

 

 

03/14/24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,000

 

 

 

 

5.33

 

 

05/05/25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,500

(2) 

 

35,025

 

 

5,464

(3) 

 

76,551

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,666

(4) 

 

37,351

 

 

10,000

(5) 

 

140,100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,000

(8) 

 

140,100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,000

(6) 

 

84,060

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

David W. Hass

 

15,000

 

 

 

 

4.66

 

 

08/15/21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,000

 

 

 

 

1.39

 

 

05/11/22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,000

 

 

 

 

1.07

 

 

11/12/22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,000

 

 

 

 

3.43

 

 

03/14/24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,000

 

 

 

 

5.33

 

 

05/05/25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,500

(2) 

 

35,025

 

 

5,464

(3) 

 

76,551

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,666

(4) 

 

37,351

 

 

10,300

(5) 

 

144,303

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,000

(9) 

 

84,060

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,000

(6) 

 

84,060

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark Castaneda

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The market value of the unvested restricted stock units issued under our Omnibus Plan and performance-based stock units issued under our LTPP is based on the closing price of our common stock on December 31, 2018 ($14.01).

 

(2)

Reflects the unvested portion of a restricted stock unit award that vests on March 11, 2019.

 

 

Executive Compensation Tables

 

(3)

Reflects the unearned portion of performance-based stock units issued under our LTPP, which vest based upon the achievement of certain adjusted EBITDA-based and free cash flow-based performance targets in a performance period beginning on January 1, 2017 and ending on December 31, 2019. In accordance with SEC rules, the amounts represent the threshold amounts payable in connection with such LTPP awards.

 

(4)

Reflects the unvested portion of a restricted stock unit award that vests in equal annual installments on March 20, 2019 and 2020.

 

(5)

Reflects the unearned portion of performance-based stock units issued under our LTPP, which vest based upon the achievement of certain adjusted EBITDA-based and free cash flow-based performance targets in a performance period beginning on January 1, 2018 and ending on December 31, 2020. In accordance with SEC rules, the amounts represent the threshold amounts payable in connection with such LTPP awards.

 

(6)

Reflects the unvested portion of a restricted stock unit award that vests in equal annual installments on March 9, 2019, 2020 and 2021.

 

(7)

These options vest in equal annual installments on November 4, 2019 and 2020.

 

(8)

Reflects the unvested portion of a restricted stock unit award that vests in equal annual installments on January 15, 2019, 2020, 2021 and 2022.

 

(9)

Reflects the unvested portion of a restricted stock unit award that vests in equal annual installments on May 31, 2019, 2020 and 2021.

 

 

Executive Compensation Tables

 

Option Exercises and Stock Vested Table

 

The following table shows the number of shares acquired and the value realized during the fiscal year ended December 31, 2018 upon the exercise of stock options and the vesting of restricted stock units previously or simultaneously granted to each of our Named Executive Officers.

 

 

Option Awards

  Stock Awards

Name

Number of
Shares Acquired
on Exercise
(#)

Value Realized on
Exercise
($)

  Number of
Shares Acquired
on Vesting
(#)

Value Realized
on Vesting
($)

 

 

 

 

 

 

 

 

 

 

Billy D. Prim

 

 

 

16,452

 

196,601

(1) 

 

 

 

 

 

 

5,000

 

59,750

(2) 

 

 

 

 

 

 

3,000

 

34,020

(3) 

 

 

 

 

 

 

 

 

 

 

Matthew T. Sheehan

 

 

 

16,572

 

198,035

(1) 

 

 

 

 

 

 

4,167

 

49,796

(2) 

 

 

 

 

 

 

3,000

 

34,020

(3) 

 

 

 

 

 

 

 

 

 

 

David J. Mills

 

 

 

2,787

 

33,305

(1) 

 

 

 

 

 

 

2,500

 

29,875

(2) 

 

 

 

 

 

 

1,334

 

15,128

(3) 

 

 

 

 

 

 

 

 

 

 

David W. Hass

 

 

 

4,282

 

51,170

(1) 

 

 

 

 

 

 

2,500

 

29,875

(2) 

 

 

 

 

 

 

1,334

 

15,128

(3) 

 

 

 

 

 

 

2,000

 

33,960

(4) 

 

 

 

 

 

 

 

 

 

 

Mark Castaneda

 

242,999

 

2,251,657

 

5,986

 

71,533

(1) 

 

(1)

The amounts set forth in this field were calculated by multiplying the closing market price of our common stock on the vesting date, March 9, 2018 ($11.95), by the number of shares vesting on such date.

 

(2)

The amounts set forth in this field were calculated by multiplying the closing market price of our common stock on March 9, 2018 ($11.95), the last trading day immediately preceding the vesting date, March 11, 2018, by the number of shares vesting on such date.

 

(3)

The amounts set forth in this field were calculated by multiplying the closing market price of our common stock on the vesting date, March 20, 2018 ($11.34), by the number of shares vesting on such date.

 

(4)

The amounts set forth in this field were calculated by multiplying the closing market price of our common stock on the vesting date, May 31, 2018 ($16.98), by the number of shares vesting on such date.

 

 

Executive Compensation Tables

 

Nonqualified Deferred Compensation Table

 

Our Deferred Compensation Plan is an unfunded, nonqualified deferred compensation plan which allows participating employees, including each of our Named Executive Officers, to elect to defer up to 100% of his or her award that may become payable under the VCP and/or LTPP for a performance year, as applicable. Any amounts otherwise payable under our VCP and/or LTPP that are deferred into our Deferred Compensation Plan are not taxable to the participants for income tax purposes until the time such awards are actually received by the participant. Each of our Named Executive Officers has deferred amounts otherwise payable under the VCP into an account under our Deferred Compensation Plan, which is then credited with a number of deferred stock units equal to the number of shares of Company common stock that would have been payable to the participant under the VCP and/or our LTPP, as applicable, but for the deferral election

 

The following table provides information for each of our Named Executive Officers regarding aggregate contributions, aggregate earnings for 2018 and year-end account balances under our Deferred Compensation Plan.

 

Name

Executive
Contributions
in Last FY ($)

Aggregate
Earnings in Last
FY ($)
(1)

Aggregate
Withdrawals/Distributions ($)
(2)

Aggregate
Balance at Last
FYE ($)

 

 

 

 

 

 

 

 

 

 

 

 

 

Billy D. Prim

 

 

 

1,470,941

(3) 

 

3,200,992

 

 

14,236,878

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Matthew T. Sheehan

 

 

 

641,328

(4) 

 

6,001,204

 

 

6,100,570

 

 

 

 

 

 

 

 

 

 

 

 

 

 

David J. Mills

 

 

 

128,068

(5) 

 

1,203,716

 

 

1,218,113

 

 

 

 

 

 

 

 

 

 

 

 

 

 

David W. Hass

 

 

 

198,862

(6) 

 

576,009

 

 

1,921,415

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark Castaneda

 

 

 

2,756,992

(7) 

 

11,931,043

 

 

 

 

(1)

The amounts set forth in this column represent earnings on Deferred Stock Units (“DSUs”) based upon the increase of market price of the common stock underlying such DSUs while such DSUs were held in each NEO’s Deferred Compensation Plan account in 2018. None of the amounts in this column have been reported as compensation in the Summary Compensation Table in respect of 2018 as none of such earnings were “above-market” or “preferential” in nature.

 

(2)

Represents the value of DSUs at the time such DSUs settled into shares of our common stock into such Named Executive Officer’s account under the Deferred Compensation Plan pursuant to the terms of our Executive Deferred Compensation Plan and the elections made by each of our Named Executive Officers thereunder.

 

(3)

Consists of (x) earnings of $7,622 on 254,047 deferred stock units (“DSUs”) held by Mr. Prim from December 31, 2017 until the settlement of such DSUs on January 10, 2018, based on the increase of the market price of the common stock underlying such DSUs from $12.57 on December 31, 2017 to $12.60 on January 10, 2018 and (y) earnings of $1,463,319 on 1,016,194 DSUs held by Mr. Prim throughout fiscal year 2018 based on the increase of the market price of the common stock underlying such DSUs from $12.57 on December 31, 2017 to $14.01 on December 31, 2018.

 

(4)

Consists of (x) earnings of $14,289 on 476,286 DSUs held by Mr. Sheehan from December 31, 2017 until the settlement of such DSUs on January 10, 2018, based on the increase of the market price of the common stock underlying such DSUs from $12.57 on December 31, 2017 to $12.60 on January 10, 2018 and (y) earnings of $627,039 on 435,444 DSUs held by Mr. Sheehan throughout fiscal year 2018 based on the increase of the market price of the common stock underlying such DSUs from $12.57 on December 31, 2017 to $14.01 on December 31, 2018.

 

(5)

Consists of (x) earnings of $2,866 on 95,533 DSUs held by Mr. Mills from December 31, 2017 until the settlement of such DSUs on January 10, 2018, based on the increase of the market price of the common stock underlying such DSUs from $12.57 on December 31, 2017 to $12.60 on January 10, 2018 and (y) earnings of $125,202 on 86,946 DSUs held by Mr. Mills throughout fiscal year 2018 based on the increase of the market price of the common stock underlying such DSUs from $12.57 on December 31, 2017 to $14.01 on December 31, 2018.

 

 

Executive Compensation Tables

 

(6)

Consists of (x) earnings of $1,372 on 45,715 DSUs held by Mr. Hass from December 31, 2017 until the settlement of such DSUs on January 10, 2018, based on the increase of the market price of the common stock underlying such DSUs from $12.57 on December 31, 2017 to $12.60 on January 10, 2018 and (y) earnings of $197,490 on 137,146 DSUs held by Mr. Hass throughout fiscal year 2018 based on the increase of the market price of the common stock underlying such DSUs from $12.57 on December 31, 2017 to $14.01 on December 31, 2018.

 

(7)

Consists of (x) earnings of $11,442 on 381,417 DSUs held by Mr. Castaneda from December 31, 2017 until the settlement of such DSUs on January 10, 2018 based on the increase of the market price of the common stock underlying such DSUs from $12.57 on December 31, 2017 to $12.60 on January 10, 2018 and (y) earnings of $2,745,550 on 348,420 DSUs held by Mr. Castaneda from December 31, 2017 until the settlement of such DSUs on August 21, 2018 based on the increase of the market price of the common stock underlying such DSUs from $12.57 on December 31, 2017 to $20.45 on August 21, 2018.

 

 

Executive Compensation Tables

 

2018 Potential Payments Upon Termination or Change of Control Table

 

The following table sets forth hypothetical amounts that would have been payable to Messrs. Prim, Sheehan, Mills and Hass upon termination of employment under various scenarios or a change of control of Primo, assuming any such event had occurred on December 31, 2018. Mark Castaneda retired as our Chief Financial Officer on January 12, 2018 and was not entitled to receive any amounts upon a termination or change of control as of December 31, 2018.

 

Benefits and Payments

Termination
without
Cause or for
Good Reason
($)

Termination
without Cause
or for Good
Reason
following
a Change of
Control
($)

Termination
due to
Disability or
Death
($)

Change of
Control
(No
Termination)
($)

 

 

 

 

 

 

 

 

 

 

 

 

 

Billy D. Prim:

 

 

 

 

 

 

 

 

 

 

 

 

Base Salary(1)

 

454,904

 

 

2,274,520

 

 

 

 

 

Non-Equity Incentive Plan Compensation(2)

 

98,301

 

 

491,505

 

 

 

 

 

Vesting of Equity Awards

 

871,884

(3) 

 

 

 

997,974

(4) 

 

997,974

(4) 

Health Insurance(5)

 

15,516

 

 

31,032

 

 

 

 

 

Life Insurance(5)

 

110

 

 

220

 

 

 

 

 

Disability Coverage(5)

 

1,296

 

 

2,592

 

 

 

 

 

Parachute Tax Gross-up(6)

 

 

 

1,788,462

 

 

 

 

 

Total:

 

1,442,011

 

 

4,588,331

 

 

997,974

 

 

997,974