Primo Water Corporation
Primo Water Corp (Form: DEF 14A, Received: 03/29/2017 16:18:23)

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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[x]  Definitive Proxy Statement

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[  ]  Soliciting Material Pursuant to Rule 14a-12

 

 PRIMO WATER CORPORATION

 (Name of Registrant as Specified in its Charter)

 

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

 

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Primo Water Corporation

101 North Cherry Street, Suite 501

Winston-Salem, North Carolina 27101

 

 

March 29, 2017          

 

Dear Stockholder:

 

We are pleased to invite you to the 2017 annual meeting of stockholders of Primo Water Corporation to be held at 1:00 p.m., Eastern Time, on April 27, 2017 at our corporate headquarters at 101 North Cherry Street, Suite 501, Winston-Salem, North Carolina 27101.

 

The agenda for the 2017 annual meeting of stockholders includes:

 

 

the election of two (2) Class I directors for three-year terms;

 

 

an advisory vote on our executive compensation;

 

 

an advisory vote on the frequency of future advisory votes on our executive compensation;

 

 

the approval of Amendment No. 2 to the Amended and Restated 2010 Omnibus Long-Term Incentive Plan, which increases the number of shares reserved for issuance thereunder by 2,500,000, increases individual award limits and reapproves performance measures under the plan for purposes of Section 162(m) of the Internal Revenue Code, and establishes limits on non-employee director awards;

 

 

the approval of Amendment No. 2 to the 2010 Employee Stock Purchase Plan increasing the number of shares reserved for issuance thereunder by 150,000; and

 

 

the ratification of the appointment of BDO USA, LLP as the Company’s independent registered public accounting firm for our 2017 fiscal year.

 

The Board of Directors unanimously recommends that you vote FOR election of the director nominees, FOR the approval, on an advisory basis, of the compensation paid to our named executive officers, FOR the option of “three years” as the frequency of future advisory votes on our executive compensation, FOR Amendment No. 2 to the Amended and Restated 2010 Omnibus Long-Term Incentive Plan, FOR Amendment No. 2 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,

 

 

Billy D. Prim

Chairman and Chief Executive Officer

 

 
 

 

   

PRIMO WATER CORPORATION

101 North Cherry Street, Suite 501

Winston-Salem, North Carolina 27101

 

 

Notice of 2017 Annual Meeting of Stockholders

 

 

Time and Date:

1:00 p.m., Eastern Time, on Thursday, April 27, 2017

     

Place:

Primo Water Corporation’s corporate headquarters

101 North Cherry Street, Suite 501

Winston-Salem, North Carolina 27101

     

Items of Business:

1.

Election of two directors nominated by our Board of Directors as Class I directors to serve until the 2020 annual meeting of stockholders;

     
  2.

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

     
  3.

Advisory vote on the frequency of future advisory votes on compensation paid to our named executive officers;

     
  4.

Approval of Amendment No. 2 to the Amended and Restated 2010 Omnibus Long-Term Incentive Plan to increase the number of shares available for issuance thereunder by 2,500,000, increase individual award limits and reapprove performance measures under the plan for purposes of Section 162(m) of the Internal Revenue Code, and establish annual limits on non-employee director awards;

     
  5.

Approval of Amendment No. 2 to the 2010 Employee Stock Purchase Plan to increase the number of shares available for issuance thereunder by 150,000;

     
  6.

Ratification of the Audit Committee’s appointment of BDO USA, LLP as our independent registered public accounting firm for 2017; and

     
  7.

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 3, 2017.

     

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 3, 2017, holders of valid proxies for the annual meeting and our invited guests.

   

By Order of the Board of Directors,

 

     

 

 

Mark Castaneda

 

 

 

Chief Financial Officer

 

       

 

 

March 29, 2017

 

 

 
 

 

 

Important Notice Regarding the Availability of

Proxy Materials for the 2017 Annual Meeting of Stockholders

to be held on April 27, 2017

 

Our Proxy Statement and Annual Report on Form 10-K for the year ended December 31, 2016 are available at www.proxyvote.com .

 

 

 
 

 

 

Table of Contents

 

  Page
General Information   

2

Principal Stockholders   

8

Proposal 1:

Election of Directors

12

 

Nominees and Continuing Directors

12

 

Corporate Governance

16

 

The Board of Directors

16

 

Board Committees

16

 

Board Leadership Structure

17

 

Director Meeting Attendance

18

 

Director Independence

18

 

Director Nomination Process

19

 

Stockholder Recommendations of Director Candidates

19

 

The Board’s Role in Risk Oversight

20

 

Code of Conduct

20

 

Policy for Review of Related Person Transactions

20

 

Communications with the Board of Directors

20

 

Executive Officers

21

 

Director Compensation

22

 

Executive Compensation

24

 

Compensation Discussion and Analysis

24

 

2016 Summary Compensation Table

37

 

Grant of Plan Based Awards Table

38

 

Outstanding Equity Awards at Fiscal Year-End 2016 Table

40

 

Option Exercises and Stock Vested Table

41

 

Nonqualified Deferred Compensation Table

42

 

Potential Payments Upon Termination or Change of Control Table

43

 

Employment Agreements and Change of Control Arrangements

45

 

Equity Compensation Plan Information

49

 

Additional Information About Directors and Executive Officers

50

 

Section 16(a) Beneficial Ownership Reporting Compliance

50

 

Audit Committee Report

50

 

Related Party Transactions

52

Proposal 2:

Advisory Vote on Executive Compensation

53

Proposal 3:

Advisory Vote on the Frequency of Future Advisory Votes on Executive Compensation

54

Proposal 4:

Approval of Amendment No. 2 to Amended and Restated 2010 Omnibus Long-Term Incentive Plan

56

Proposal 5:

Approval of Amendment No. 2 to 2010 Employee Stock Purchase Plan

65

Proposal 6:

Ratification of Appointment of Independent Registered Public Accounting Firm

68

 

Independent Registered Public Accounting Firm Fees

69

 

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

71

Additional Information   

71

 

Multiple Stockholders Sharing Same Address

71

 

2016 Annual Report to Stockholders

71

 

 

 
1

 

 

PROXY STATEMENT

______________

 

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, April 27, 2017, 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 29, 2017.

 

General Information

 

Why am I receiving these materials?

 

You are receiving these proxy materials because our Board of Directors is soliciting your proxy to vote your shares at the annual meeting. The proxy statement includes information that we are required to provide you under Securities and Exchange Commission (“SEC”) rules and is designed to assist you in voting your shares.

 

What is a proxy?

 

Our Board of Directors is asking for your proxy. This means you authorize persons selected by us to vote your shares at the annual meeting in the way that you instruct. All shares represented by valid proxies received before the annual meeting will be voted in accordance with the stockholder’s specific voting instructions.

 

What is included in these materials?

 

These materials include:

 

 

the Proxy Statement for the annual meeting;

 

 

a proxy card for the annual meeting; and

 

 

our Annual Report on Form 10-K for the year ended December 31, 2016.

   

What items will be voted on at the annual meeting?

 

There are six proposals scheduled to be voted on at the annual meeting:

 

 

the election of the two directors nominated by our Board of Directors as Class I directors to serve until the 2020 annual meeting of stockholders;

 

 

an advisory vote on the compensation paid to our named executive officers;

 

 

an advisory vote on the frequency of future advisory votes on our executive compensation;

 

 

 
2

 

 

 

the approval of Amendment No. 2 to the Amended and Restated 2010 Omnibus Long-Term Incentive Plan, which increases the number of shares reserved for issuance thereunder by 2,500,000, increases individual award limits and reapproves performance measures under the plan for purposes of Section 162(m) of the Internal Revenue Code, and establishes annual limits on non-employee director awards;

 

 

the approval of Amendment No. 2 to the 2010 Employee Stock Purchase Plan increasing the number of shares reserved for issuance thereunder by 150,000; and

 

 

the ratification of the Audit Committee’s appointment of BDO USA, LLP (“BDO”) as our independent registered public accounting firm for 2017.

 

The Board of Directors is not aware of any other matters to be brought before the meeting. If other matters are properly raised at the meeting, the proxy holders may vote any shares represented by proxy in their discretion.

 

What are the board’s voting recommendations?

 

Our Board of Directors recommends that you vote your shares:

 

 

“FOR ” the two directors nominated by our Board of Directors as Class I directors to serve until the 2020 annual meeting of stockholders;

 

 

FOR ,” the approval of the proposal regarding the compensation paid to our named executive officers;

 

 

To conduct future advisory votes on our executive compensation every “three years;”

 

 

FOR ” the approval of Amendment No. 2 to the Amended and Restated 2010 Omnibus Long-Term Incentive Plan to increase the number of shares authorized for issuance thereunder by 2,500,000, increase individual award limits and reapprove performance measures under the plan for purposes of Section 162(m) of the Internal Revenue Code, and establish annual limits on non-employee director awards;

 

 

FOR ” the approval of Amendment No. 2 to the 2010 Employee Stock Purchase Plan to increase the number of shares authorized for issuance thereunder by 150,000; and

 

 

FOR ” the ratification of the Audit Committee’s appointment of BDO as our independent registered public accounting firm for 2017.

 

Who can attend the annual meeting?

 

Admission to the annual meeting is limited to:

 

 

stockholders as of the close of business on March 3, 2017;

 

 

holders of valid proxies for the annual meeting; and

 

 

our invited guests.

 

 

 
3

 

 

Each stockholder may be asked to present valid picture identification such as a driver’s license or passport and proof of stock ownership as of the record date.

 

When is the record date and who is entitled to vote?

 

The Board of Directors set March 3, 2017 as the record date. All record holders of Primo common stock as of the close of business on that date are entitled to vote. Each share of common stock is entitled to one vote. As of the record date, there were 29,573,383 shares of common stock outstanding.

 

What is a stockholder of record?

 

A stockholder of record or registered stockholder is a stockholder whose ownership of Primo stock is reflected directly on the books and records of our transfer agent, Wells Fargo Bank, N.A. If you hold stock through an account with a bank, broker or similar organization, you are considered the beneficial owner of shares held in “street name” and are not a stockholder of record. For shares held in street name, the stockholder of record is your bank, broker or similar organization. We only have access to ownership records for the registered shares. If you are not a stockholder of record, we will require additional documentation to evidence your stock ownership as of the record date, such as a copy of your brokerage account statement, a letter from your broker, bank or other nominee or a copy of your notice or voting instruction card. As described below, if you are not a stockholder of record, you will not be able to vote your shares unless you have a proxy from the stockholder of record authorizing you to vote your shares.

 

How do I vote?

 

You may vote by any of the following methods:

 

 

In person . You may vote in person at the meeting. If you hold shares in street name, you must also obtain a proxy from the stockholder of record authorizing you to vote your shares.

 

 

By mail . You may vote by signing and returning the proxy card or voting instruction card provided.

 

 

Via the Internet. You may vote via the Internet by following the instructions provided in the accompanying proxy card or the voting instruction card provided.

 

 

Beneficial owners of shares held in “street name.” You may vote by following the instructions provided by your bank or broker.

 

How can I change or revoke my vote?

 

You may change or revoke your vote as follows:

 

 

Stockholders of record. You may change or revoke your vote by submitting a written notice of revocation to Primo Water Corporation, Attention: Corporate Secretary at 101 North Cherry Street, Suite 501, Winston-Salem, North Carolina 27101 or by submitting another vote on or before April 27, 2017. For all methods of voting, the last vote cast will supersede all previous votes.

 

 

 
4

 

 

 

Beneficial owners of shares held in “street name.” You may change or revoke your voting instructions by following the specific directions provided to you by your bank or broker.

 

What happens if I do not give specific voting instructions?  

 

Stockholders of record. If you are a stockholder of record and you sign and return a proxy card without giving specific voting instructions, then the proxy holders will vote your shares in the manner recommended by the Board of Directors on all matters presented in this proxy statement and as the proxy holders may determine in their discretion for any other matters properly presented for a vote at the meeting.

 

Beneficial owners of shares held in “street name.” If you are a beneficial owner of shares held in street name and do not provide the organization that holds your shares with specific voting instructions, the organization that holds your shares may generally vote on routine matters but cannot vote on non-routine matters. If the organization that holds your shares does not receive instructions from you on how to vote your shares on a non-routine matter, the organization that holds your shares will inform the inspector of election that it does not have the authority to vote on this matter with respect to your shares. This is referred to as a “broker non-vote.”

 

Which ballot measures are considered “routine” or “non-routine”?

 

The election of directors (“Proposal 1”), the advisory vote on compensation paid to our named executive officers (“Proposal 2”), the advisory vote on the frequency of future advisory votes on compensation paid to our named executive officers (“Proposal 3”), the approval of the amendment to the Amended and Restated 2010 Omnibus Long-Term Incentive Plan (“Proposal 4”) and the approval of the amendment to the 2010 Employee Stock Purchase Plan (“Proposal 5”) are considered to be non-routine matters under applicable rules. A broker or other nominee cannot vote without instructions on non-routine matters, and therefore there may be broker non-votes on Proposals 1, 2, 3, 4 and 5.

 

The ratification of the appointment of BDO as our independent registered public accounting firm for 2017 (“Proposal 6”) is considered to be a routine matter under applicable rules. A broker or other nominee may generally vote on routine matters, and we do not expect there to be any broker non-votes with respect to Proposal 6.

 

What is the quorum for the annual meeting?

 

The presence, in person or by proxy, of the holders of a majority of the shares entitled to vote is necessary for the transaction of business at the annual meeting. This is called a quorum.

 

What is the voting requirement to approve each of the proposals?

 

The following are the voting requirements for each proposal:

 

 

Proposal 1, Election of Directors . The two nominees receiving the highest number of votes will be elected as the Class I directors to serve until the 2020 annual meeting of stockholders.

 

 

Proposal 2, Advisory Vote on Executive Compensation . The compensation paid to our named executive officers will be considered approved if a majority of the votes of stockholders present in person or by proxy with respect to this matter are cast in favor of the proposal.

 

 

 
5

 

 

 

Proposal 3, Advisory Vote on Frequency of Future Advisory Votes on Executive Compensation . The option of every year, every two years or every three years that receives the highest number of votes cast by stockholders will be considered to be the recommendation of the stockholders on the advisory vote regarding the frequency of future advisory votes on the compensation paid to our named executive officers.

 

 

Proposal 4 . Amendment No. 2 to the Amended and Restated 2010 Omnibus Long-Term Incentive Plan to increase the number of shares reserved for issuance thereunder by 2,500,000, increase individual award limits and reapprove performance measures under the plan for purposes of Section 162(m) of the Internal Revenue Code, and establish annual limits on non-employee director awards will be approved if a majority of the votes of stockholders present in person or by proxy with respect to this matter are cast in favor of the proposal.

 

 

Proposal 5 . Amendment No. 2 to the 2010 Employee Stock Purchase Plan to increase the number of shares reserved for issuance thereunder by 150,000 will be approved if a majority of the votes of stockholders present in person or by proxy with respect to this matter are cast in favor of the proposal.

 

 

Proposal 6, Ratification of Independent Registered Public Accounting Firm . The ratification of the Audit Committee’s appointment of BDO as our independent registered public accounting firm for 2017 will be approved if a majority of the votes of stockholders present in person or by proxy with respect to this matter are cast in favor of the proposal.

 

How are abstentions and broker non-votes treated?

 

Broker non-votes and abstentions are counted for purposes of determining whether a quorum is present. Broker non-votes and abstentions are not counted as votes cast on any proposal considered at the annual meeting and, therefore, will have no effect on the proposal regarding the election of directors, the advisory vote on the compensation paid to our named executive officers, the advisory vote on the frequency of future advisory votes on the compensation paid to our named executive officers, the amendment to the Amended and Restated 2010 Omnibus Long-Term Incentive Plan and the amendment to the 2010 Employee Stock Purchase Plan. We expect no broker non-votes on the proposal regarding the ratification of the appointment of BDO as our independent registered public accounting firm for 2017, and abstentions will have no effect on this proposal.

 

Who pays for solicitation of proxies?

 

We are paying the cost of soliciting proxies. We will reimburse brokerage firms and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for sending proxy materials to stockholders and obtaining their votes. In addition to soliciting the proxies by mail, certain of our directors, officers and regular employees, without compensation, may solicit proxies personally or by telephone, facsimile and email.

 

Where can I find the voting results of the annual meeting?

 

Primo will announce preliminary or final voting results at the annual meeting and publish final results in a Form 8-K filed with the SEC within four business days of the completion of the meeting.

 

 

 
6

 

 

What is the deadline to propose actions for consideration or to nominate individuals to serve as directors at the 2018 annual meeting of stockholders?

 

Requirements for Stockholder Proposals to Be Considered for Inclusion in Primo’s Proxy Materials. Stockholder proposals to be considered for inclusion in the proxy statement and form of proxy relating to the 2018 annual meeting of stockholders must be received no later than November 28, 2017. In addition, all proposals will need to comply with Rule 14a-8 of the Securities Exchange Act of 1934, which lists the requirements for the inclusion of stockholder proposals in company-sponsored proxy materials. Stockholder proposals must be delivered to Primo’s Corporate Secretary at 101 North Cherry Street, Suite 501, Winston-Salem, North Carolina 27101.

 

Requirements for Stockholder Proposals to Be Brought Before the 2018 Annual Meeting of Stockholders. Notice of any director nomination or other proposal that you intend to present at the 2018 annual meeting of stockholders, but do not intend to have included in the proxy statement and form of proxy relating to the 2018 annual meeting of stockholders, must be delivered to Primo’s Corporate Secretary at 101 North Cherry Street, Suite 501, Winston-Salem, North Carolina 27101 not earlier than the close of business on December 28, 2017 and not later than the close of business on January 27, 2018. In addition, your notice must set forth the information required by our bylaws with respect to each director nomination or other proposal that you intend to present at the 2018 annual meeting of stockholders.

 

 
7

 

 

Principal Stockholders 

 

The following table provides information about the beneficial ownership of our common stock as of March 3, 2017 by:

 

 

each person that owned more than 5% of our outstanding common stock as of such date;

 

 

each of our directors and director nominees;

 

 

each of our named executive officers; and

 

 

all of our directors, director nominees and current executive officers as a group.

 

Beneficial ownership is determined in accordance with the rules of the SEC and includes any shares over which a person exercises sole or shared voting or investment power. Under these rules, beneficial ownership also includes any shares as to which the individual or entity has the right to acquire beneficial ownership of within 60 days of March 3, 2017 through the exercise of any warrant, stock option or other right. Except as noted, and subject to community property laws where applicable, we believe that the stockholders named in the table below have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. Unless otherwise indicated in the notes below, the address for each of the individuals listed below is c/o Primo Water Corporation, 101 North Cherry Street, Suite 501, Winston-Salem, North Carolina 27101.

 

Name of Beneficial Owner

 

Amount and Nature of

Beneficial Ownership (#)

 

Percentage of

Common Stock

Outstanding (%) (1)

         

Billy D. Prim

 

2,561,842 (2)

 

8.6

         

BlackRock, Inc.

 

2,288,954 (3)

 

7.7

         

Manatuck Hill Partners, LLC

 

1,725,000 (4)

 

5.8

         

Akre Capital Management, LLC

 

1,679,313 (5)

 

5.7

         

Richard A. Brenner

 

163,411 (6)

 

*

         

Susan E. Cates

 

26,470 (7)

 

*

         

Jack C. Kilgore

 

146,254 (8)

 

*

         

Malcolm McQuilkin

 

473,129 (9)

 

1.6

         

Charles A. Norris

 

437,319 (10)

 

1.5

         

David L. Warnock

 

77,325 (11)

 

*

         

Mark Castaneda

 

479,575 (12)

 

1.6

         

Matthew T. Sheehan

 

279,316 (13)

 

*

         

Directors, director nominees and current executive officers as a group (10 individuals)

 

4,774,023 (14)

 

15.8

___________

* Represents beneficial ownership of less than 1.0%.

 

(1)

A total of 29,573,383 shares of common stock were outstanding on March 3, 2017.

 

 

 
8

 

 

(2)

Consists of (a) 2,346,092 shares of common stock held directly (419,705 of which are pledged as security); (b) 39,089 shares of common stock issuable upon the exercise of warrants held directly that are presently exercisable (4,218 of which are pledged as security); (c) 109,583 shares of common stock issuable upon the exercise of stock options held directly that are presently exercisable or become exercisable within 60 days of the record date; (d) 4,791 shares of common stock held by BD Prim, LLC (as to which he has shared voting and investment power); (e) 4,791 shares held by the Billy D. Prim Revocable Trust (as to which he has shared voting and investment power); (f) 23,957 shares of common stock held by 2010 Irrevocable Trust fbo Sarcanda W. Bellissimo (as to which he has shared voting and investment power); (g) 23,957 shares of common stock held by 2010 Irrevocable Trust fbo Anthony Gray Westmoreland (as to which he has shared voting and investment power); (h) 4,791 shares of common stock held by the 2010 Irrevocable Trust fbo Jager Grayln Dean Bellissimo (as to which he has shared voting and investment power); and (i) 4,791 shares of common stock held by the 2010 Irrevocable Trust fbo Joseph Alexander Bellissimo (as to which he has shared voting and investment power). Excludes 8,032 shares of common stock held directly by Deborah W. Prim, Mr. Prim’s spouse. Also excludes (a) 872,642 deferred stock units earned in March 2016 under the Company’s Amended and Restated Value Creation Plan and deferred pursuant to the Company’s Deferred Compensation Plan, for which shares of common stock are to be issued with respect to such deferred stock units in equal annual installments in January of 2018, 2019, 2020, 2021 and 2022 and (b) 414,725 deferred stock units earned in March 2017 under the Company’s Amended and Restated Value Creation Plan and deferred pursuant to the Company’s Deferred Compensation Plan, for which shares of common stock are to be issued with respect to such deferred stock units in equal annual installments in January of 2018, 2019, 2020, 2021 and 2022.

 

(3)

This information is derived solely from Amendment No. 1 to Schedule 13G filed with the SEC on January 25, 2017 in which BlackRock, Inc., a Delaware corporation (“BlackRock”), is reported as the beneficial owner of 2,288,954 shares of the Company’s common stock with sole voting power with respect to 2,234,662 shares and sole power to dispose or direct the disposition of 2,288,954 shares. BlackRock beneficially owns these shares through its subsidiaries BlackRock Advisors, LLC, BlackRock Financial Management, Inc., BlackRock Fund Advisors, BlackRock Institutional Trust Company, N.A., BlackRock International Limited, BlackRock Investment Management, LLC and BlackRock Japan Co Ltd. The address for each of the entities or persons listed in this footnote is 55 East 52nd Street, New York, NY 10055.

 

(4)

This information is derived solely from Amendment No. 1 to Schedule 13G filed with the SEC on February 13, 2017 in which Manatuck Hill Partners, LLC, a Delaware limited liability company, is reported as the beneficial owner of 1,725,000 shares of the Company’s common stock with shared voting power with respect to 1,725,000 shares and shared power to dispose or direct the disposition of 1,725,000 shares. The address for each of the entities or persons listed in this footnote is 1465 Post Road East, Westport, CT 06880.

 

(5)

This information is derived solely from Amendment No. 4 to Schedule 13G filed with the SEC on February 13, 2017 in which Akre Capital Management, LLC, a Delaware limited liability company, Charles T. Akre, Jr., a resident of the United States, and Braddock Partners Offshore, L.P., a limited partnership organized in the Cayman Islands, are reported as the beneficial owners of 1,679,313 shares of the Company's common stock with shared voting power with respect to 1,679,313 shares of the Company’s common stock and shared power to dispose or direct the disposition of 1,679,313 shares of the Company’s common stock. The address for each of the entities or persons listed in this footnote is P.O. Box 998, Middleburg, VA 20118.

 

(6)

Consists of (a) 140,474 shares of common stock held directly; (b) 568 shares of common stock issuable upon the exercise of warrants held directly that are presently exercisable; (c) 22,085 shares of common stock issuable upon the exercise of options held directly that are presently exercisable or become exercisable within 60 days of the record date; (d) 142 shares of common stock issuable upon the exercise of warrants held by the ALB-3 Trust, of which he is the trustee, that are presently exercisable; and (e) 142 shares of common stock issuable upon the exercise of warrants held by the ALB-5 Trust, of which he is the trustee, that are presently exercisable. Mr. Brenner may be deemed to have voting and investment power with respect to securities held by the ALB-3 Trust or the ALB-5 Trust and expressly disclaims beneficial ownership of any such securities, except to the extent of his pecuniary interest therein, if any.

 

 

 
9

 

 

(7)

All such shares of common stock held directly.

 

(8)

Consists of (a) 118,455 shares of common stock held directly; (b) 5,714 shares of common stock issuable upon the exercise of warrants held directly that are presently exercisable; and (c) 22,085 shares of common stock issuable upon the exercise of options held directly that are presently exercisable or become exercisable within 60 days of the record date.

 

(9)

Consists of (a) 64,179 shares of common stock held directly; (b) 57,143 shares of common stock issuable upon the exercise of warrants held directly that are presently issuable; (c) 22,085 shares of common stock issuable upon the exercise of options held directly that are presently exercisable or become exercisable within 60 days of the record date; (d) 313,607 shares of common stock held by the Malcolm McQuilkin Living Trust; and (e) 16,115 shares of common stock issuable upon the exercise of warrants held by the Malcolm McQuilkin Living Trust that are presently exercisable. Mr. McQuilkin is a co-trustee of the Malcolm McQuilkin Living Trust and, as such, he may be deemed to have shared voting and investment power with respect to such shares. Mr. McQuilkin expressly disclaims beneficial ownership of any such securities held in such trust, except to the extent of his pecuniary interest therein, if any.

 

(10)

Consists of (a) 163,274 shares of common stock held directly (115,924 of which are held in escrow pursuant to that certain Agreement and Plan of Merger, dated as of October 9, 2016, by and among the Company, Primo Subsidiary, Inc., a Delaware corporation, Glacier Water Services, Inc., a Delaware corporation, and David Shladovsky (the “Merger Agreement”)) and (b) 274,045 shares of common stock held by The Charles A. Norris & Margaret T. Norris TR UA 18-Jun-02 Norris Trust (the “Norris Trust”) (194,572 of which are held in escrow pursuant to the Merger Agreement). Mr. Norris is a co-trustee of the Norris Trust and, as such, he may be deemed to have shared voting and investment power with respect to such shares. Mr. Norris expressly disclaims beneficial ownership of any such securities held in the Norris Trust, except to the extent of his pecuniary interest therein, if any.

 

(11)

Consists of (a) 52,250 shares of common stock held directly; (b) 1,924 shares of common stock issuable upon the exercise of options held directly that are presently exercisable or become exercisable within 60 days of the record date; (c) 20,388 shares of common stock held by Camden Partners Strategic Fund III, L.P.; (d) 846 shares of common stock held by Camden Partners Strategic Fund III-A, L.P.; and (e) 1,917 shares of common stock held by Camden Partners Holdings, LLC. Mr. Warnock is the managing member of the general partner or manager of each of Camden Partners Strategic Fund III, L.P., Camden Partners Strategic Fund III-A, L.P., and Camden Partners Holdings, LLC, and as such, he may be deemed to have voting and investment power with respect to all securities beneficially owned by such entities. Mr. Warnock expressly disclaims beneficial ownership of all the above described securities except to the extent of his pecuniary interest therein, if any.

 

(12)

Consists of (a) 227,285 shares of common stock held directly; (b) 3,248 shares of common stock issuable upon the exercise of warrants held directly that are presently exercisable; and (c) 249,041 shares of common stock issuable upon the exercise of options held directly that are presently exercisable or become exercisable within 60 days of the record date. Excludes 698 shares of common stock held directly by Christina V. Castaneda, Mr. Castaneda’s spouse. Also excludes (a) 464,560 deferred stock units earned under the Company’s Value Creation Plan and deferred pursuant to the Company’s Deferred Compensation Plan, for which shares of common stock are to be issued with respect to such deferred stock units in equal annual installments in January of 2018, 2019, 2020 and 2021 and (b) 276,483 deferred stock units earned in March 2017 under the Company’s Amended and Restated Value Creation Plan and deferred pursuant to the Company’s Deferred Compensation Plan, for which shares of common stock are to be issued with respect to such deferred stock units in January 2018.

 

(13)

Consists of (a) 98,483 shares of common stock held directly and (b) 180,833 shares of common stock issuable upon the exercise of options held directly that are presently exercisable or become exercisable within 60 days of the record date. Excludes (a) 580,592 deferred stock units earned under the Company’s Amended and Restated Value Creation Plan and deferred pursuant to the Company’s Deferred Compensation Plan, for which shares of common stock are to be issued with respect to such deferred stock units in equal annual installments in January of 2018, 2019, 2020 and 2021 and (b) 345,604 deferred stock units earned in March 2017 under the Company’s Amended and Restated Value Creation Plan and deferred pursuant to the Company’s Deferred Compensation Plan, for which shares of common stock are to be issued with respect to such deferred stock units in January 2018.

 

 

 
10

 

 

(14)

Brian H. McInerney, our Executive Vice President and President of Refill Operations, was appointed as an executive officer of the Company on March 2, 2017. This amount includes 114,964 shares of common stock held by The McInerney Family Trust Dated May 10, 2004 (the “McInerney Trust”) (81,625 of which are held in escrow pursuant to the Merger Agreement). Mr. McInerney is a co-trustee of the McInerney Trust and, as such, he may be deemed to have shared voting and investment power with respect to such shares. Mr. McInerney expressly disclaims beneficial ownership of any such securities held in the McInerney Trust, except to the extent of his pecuniary interest therein, if any.

   

 
11

 

 

Proposal 1 – Election of Directors

 

Our Board of Directors consists of three classes of directors, each serving a staggered three-year term. Billy D. Prim and Jack C. Kilgore are both nominated as Class I directors to serve three-year terms until the annual meeting of stockholders in 2020 and until their successors are elected and qualified. Messrs. Prim and Kilgore both currently serve as directors and have agreed to be named in this proxy statement and serve if elected.

 

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

 

The two nominees receiving the highest number of affirmative votes will be elected as directors to serve until the 2020 annual meeting of stockholders. Votes withheld by stockholders, broker non-votes and abstentions will have no effect on the outcome of the director elections.

 

The Board of Directors recommends a vote “FOR” the election of Billy D. Prim and Jack C. Kilgore to our Board of Directors.

 

Nominees and Continuing Directors

 

Listed below are (i) the two nominees for election to the Board of Directors and (ii) the other members of our Board of Directors whose terms expire in 2018 (our Class II directors) and 2019 (our Class III directors). The following paragraphs include information about each nominee and continuing director’s business background, as furnished to us by the nominee or director, and additional experience, qualifications, attributes or skills that led our Board of Directors to conclude that such individual should serve on our Board of Directors.

 

Name of Nominee

 

Age

 

Position with the Company

 

Director

Since

 

Director

Class

                 

Billy D. Prim

 

61

 

Chairman and Chief Executive Officer

 

2004

 

I

                 

Jack C. Kilgore

 

68

 

Director

 

2011

 

I

                 

Name of Continuing

Director

 

Age

 

Position with the Company

 

Director

Since

 

Director

Class

                 

Malcolm McQuilkin

 

70

 

Director

 

2005

 

II

                 

Matthew T. Sheehan

 

43

 

President, Chief Operating Officer and Director

 

2016

 

II

                 

David L. Warnock

 

59

 

Director

 

2005

 

II

                 

Richard A. Brenner

 

53

 

Director

 

2005

 

III

                 

Susan E. Cates

 

46

 

Director

 

2014

 

III

                 

Charles A. Norris

 

71

 

Director

 

2016

 

III

 

 

 
12

 

 

Billy D. Prim

 

Mr. Prim has been our Chairman and Chief Executive Officer since he founded Primo in 2004. 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. He 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., at which time he was elected to the Ferrellgas board of directors on which he served until November 2008. Mr. Prim previously served on the board of directors of Towne Park Ltd. and Southern Community Bank and Trust. 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 our Board of Directors. Mr. Prim’s service as an executive and a director of Primo provides our Board of Directors with a vital understanding and appreciation of our business. In addition, Mr. Prim’s leadership abilities, his experience at Blue Rhino and his extensive knowledge of the bottled water industry position him well for service on our Board of Directors.

 

Richard A. Brenner

 

Mr. Brenner has been the Vice Chairman of Entrematic (formerly Amarr Garage Doors, a manufacturer and distributor of garage doors) since November 2013. Mr. Brenner previously served as its Chief Executive Officer from July 2002 until November 2013 and its President from July 1993 until June 2002. Mr. Brenner serves on several boards of private and nonprofit entities, including ABC of North Carolina, Wake Forest Innovation Quarter and Computer Credit, Inc., and was a member of the board of directors of Blue Rhino Corporation from 1998 to 2004. Mr. Brenner also serves on the Wake Forest University Health Sciences Board. Mr. Brenner’s significant executive and board service experience qualify him for service on our Board of Directors.

 

Susan E. Cates

 

Ms. Cates has served as chief operating officer of 2U, Inc. (NASDAQ: TWOU), a company that partners with leading colleges and universities to deliver online degree programs, since March 2016. Prior to joining 2U, Inc., Ms. Cates served as the President of Executive Development at the University of North Carolina at Chapel Hill’s Kenan-Flagler Business School from 2008 to 2016, and the 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. Prior to joining Best Associates, Ms. Cates was part of the founding team of ThinkEquity Partners, a boutique investment bank in New York, which she co-founded with former colleagues from Merrill Lynch & Co. At ThinkEquity, she headed the education investment banking practice with responsibility for business development, client relationships and deal execution. Prior to co-founding ThinkEquity Partners, Ms. Cates worked in investment banking at Merrill Lynch in New York, as well as in corporate lending at Wachovia Bank in Atlanta. A North Carolina native, Ms. Cates earned her MBA from the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill and received a BA from Duke University in public policy studies. Ms. Cates’ extensive executive and managerial experience position her well to serve as a member of our Board of Directors.

 

Jack C. Kilgore

 

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 oversaw the company’s consumer packaged goods business. Mr. Kilgore joined Rich Products Corporation in 1978 as a sales and marketing administrator and advanced through the company serving in roles as a region manager, division manager, national sales manager and various other sales and market leadership positions before being named President of the Consumer Products Division. Mr. Kilgore retired from Rich Products Corporation on December 31, 2014. Mr. Kilgore serves on the board as Chairman of South Coast Bank & Trust and as a director of the bank holding company, WBT BankShares Inc., is a former chairman of the National Fisheries Institute and is serving and has previously served in various leadership positions for a number of not-for-profit entities. Mr. Kilgore’s extensive knowledge of and experience in the consumer goods industry as well as his extensive executive and managerial experience position him well to serve as a member of our Board of Directors.

 

 

 
13

 

 

Charles A. Norris

 

Mr. Norris joined the Primo Board of Directors in December 2016 upon completion of the Company’s acquisition of Glacier Water Services, Inc, the owner and operator of the largest network of filtered drinking water vending machines in the United States and Canada. Mr. Norris served as Chairman of Glacier’s Board of Directors from June 2001 until the completion of Primo’s acquisition of Glacier in December 2016. Mr. Norris is the retired President of McKesson Water Products Company, a bottled water company and wholly-owned subsidiary of McKesson Corporation, where he served as President from 1990 until he retired in October 2000. From 1981 to 1990, Mr. Norris served as President of Deer Park Spring Water Company (now a subsidiary of Nestlé Waters North America) and served in various operational executive positions with Nestlé in both Switzerland and the United States from 1973 to 1985. Mr. Norris is a past Chairman of the International Bottled Water Association, and he is the current Chairman of the Board of Freshpet, Inc. (Nasdaq: FRPT), a pet food company located in Secaucus, New Jersey. Mr. Norris’ familiarity with Glacier’s operational and financial history, his background in consumer goods and his board experience qualify him to serve as a member of our Board of Directors.

 

Malcolm McQuilkin

 

Mr. McQuilkin is the President of Blue Rhino Global Sourcing, LLC (an import and design company and a wholly-owned subsidiary of Ferrellgas Propane Partners) and was the Chief Executive Officer of Uniflame, Inc. from 1990 until it was acquired by Blue Rhino Global Sourcing, LLC in 2000. As the current President of Blue Rhino Global Sourcing, Mr. McQuilkin provides our Board of Directors with significant leadership and executive experience. Mr. McQuilkin’s leadership abilities, his international business expertise (particularly with respect to outsourcing) and his extensive knowledge of complex financial and operational issues facing large companies qualify him to serve as a member of our Board of Directors.

 

Matthew T. Sheehan

 

Mr. Sheehan joined the Primo Board of Directors in October 2016. Mr. Sheehan has served as our Chief Operating Officer since December 2012 and as our President since June 2013.  Prior to joining Primo, Mr. Sheehan was most recently with Coinstar, Inc. (a publicly-traded automated retail solutions provider), where he served as Strategic Venture Advisor of Coinstar’s Redbox business from June 2011 to December 2011 and as Vice President, General Manager of the first automated retail venture at Redbox from 2008 until 2011.  Redbox was acquired by Coinstar in 2008.  Mr. Sheehan also served at Redbox as Vice President, Sales and Business Development from 2006 to 2008 and Director of Business Development from 2005 to 2006.  Mr. Sheehan received a Bachelor of Business Management and Communications degree from Bentley College in Waltham, Massachusetts and an MBA from the Smeal College of Business at Pennsylvania State University. Mr. Sheehan’s financial, managerial and leadership expertise and experience at Primo position him well to serve on our Board of Directors.

 

 

 
14

 

 

David L. Warnock

 

Mr. Warnock is a founder and senior partner of Camden Partners Holdings, LLC (a private investment management firm established in 1995 and formerly known as Cahill Warnock & Company, LLC). Mr. Warnock serves as the Chairman of New Horizons Worldwide, Inc. and Calvert Education Services, LLC and also serves on the boards of Questar Assessment, Inc., Ranir LLC, Triumph Higher Education Group, Network for Good and previously served on the boards of directors of Blue Rhino Corporation, Nobel Learning Communities, Inc., American Public Education, Inc., and Towne Park, Ltd. Mr. Warnock has also served as a member of the board of directors of several private companies and not-for profit entities. 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 qualify him to serve on our Board of Directors.  

 

 
15

 

 

Corporate Governance

 

The Board of Directors

 

Primo is governed by a Board of Directors and various committees of the board that meet throughout the year. The 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 the Board of Directors. Our Board of Directors currently consists of eight 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.

 

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.

 

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

 

 

Director

 

 

Audit

 

 

Compensation

 

Nominating

and

Governance

             

Richard A. Brenner

 

X

 

X

   
             

Susan E. Cates

 

Chair

     

X

             

Jack C. Kilgore

 

X

 

Chair

   
             

Malcolm McQuilkin

     

X

 

X

             

David L. Warnock

     

X

 

Chair

 

Each committee operates under a written charter adopted by the Board of Directors. These charters are available on our corporate website ( www.primowater.com ) in the “Investor Relations” section under “Corporate Governance.”

 

Audit Committee . The principal responsibilities and functions of our Audit Committee are to assist the Board of Directors in fulfilling its oversight of (i) the integrity of our financial statements, (ii) the effectiveness of our internal controls over financial reporting, (iii) our compliance with legal and regulatory requirements, (iv) the qualifications and independence of our registered public accounting firm, and (v) the performance of our registered public accounting firm. In carrying out its oversight responsibilities and functions, our Audit Committee, among other things, oversees and interacts with our independent auditors regarding the auditors’ engagement and/or dismissal, duties, compensation, qualifications and performance; reviews and discusses with our independent auditors the scope of audits and our accounting principles, policies and practices; reviews and discusses our audited annual financial statements with our independent auditors and management; and reviews and approves or ratifies (if appropriate) related party transactions. In addition, the Audit Committee oversees management’s efforts in managing our key financial and other risk exposures and developing our enterprise risk management policies and procedures. Our Audit Committee met four times in 2016.

 

 

 
16

 

 

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 the Audit Committee 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 the Audit Committee meets the requirements for financial literacy under the applicable rules and regulations of the SEC and The Nasdaq Stock Market.

 

Compensation Committee . The principal functions of our Compensation Committee include (i) reviewing our compensation practices and policies, (ii) reviewing and approving the compensation for our senior executives, (iii) evaluating the performance of our Chief Executive Officer, and (iv) assisting in Primo’s compliance with the regulations of the SEC regarding executive compensation disclosure. Our Board of Directors has determined that all members of the Compensation Committee are “independent” within the meaning of the applicable Nasdaq listing standards. Our Compensation Committee met six times in 2016.

 

Nominating and Governance Committee . The principal functions of our Nominating and Governance committee are to (i) establish membership criteria for our Board of Directors, (ii) establish and communicate to stockholders a method of recommending potential director nominees for the Nominating and Governance Committee’s consideration, (iii) identify individuals qualified to become directors consistent with such criteria and select the director nominees, (iv) plan for continuity on our Board of Directors, (v) recommend action to our Board of Directors upon any vacancies on our Board of Directors, (vi) facilitate the annual evaluation of the performance of our Board of Directors and its committees, (vii) periodically review management succession plans, and (viii) consider and recommend to our Board of Directors other actions relating to our Board of Directors, its members and its committees. Our Board of Directors has determined that all members of the Nominating and Governance Committee are “independent” within the meaning of the applicable Nasdaq listing standards. Our Nominating and Governance Committee met two times in 2016.

 

Board Leadership Structure

 

Mr. Prim serves as both the Chairman of the Board of Directors and the Chief Executive Officer of Primo. Primo does not have a lead independent director. Our bylaws permit these positions to be held by the same person, and the Board of Directors believes that it is in the best interests of Primo to retain flexibility in determining whether to separate or combine the roles of Chairman and Chief Executive Officer based on our circumstances. Similarly, our bylaws do not require our Board of Directors to appoint a lead independent director and it has not otherwise determined to do so.

 

While the Board of Directors does not have a general policy regarding the separation of the roles of Chairman and Chief Executive Officer, the 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 between (i) effective independent oversight of the Company’s business, (ii) the Board’s activities and (iii) consistent corporate leadership. The Board is open to different structures that provide such an optimal leadership structure, particularly given the dynamic and competitive environment in which the Company operates.

 

 

 
17

 

 

The Board of Directors – which consists entirely of independent directors other than Messrs. Prim and Sheehan – exercises a strong, independent oversight function. This oversight function is enhanced by the fact that our Audit, Compensation and Nominating & Governance Committees are comprised entirely of independent directors. Further, our Board meetings include regular executive sessions of the independent directors and an annual evaluation of our CEO’s performance against pre-determined goals. The 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.

 

Director Meeting Attendance

 

The Board of Directors held five meetings during 2016. No director attended less than 75 percent of the board and applicable committee meetings during 2016. Each director is encouraged to attend the annual meeting of stockholders in person. Of our current directors then in office, only Richard Brenner was unable to attend our 2016 annual meeting of stockholders in person.

 

Director Independence

 

The Board of Directors 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 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 Ms. Cates and Messrs. Brenner and Kilgore, who comprise our Audit Committee, Messrs. Kilgore, Brenner, McQuilkin and Warnock, who comprise our Compensation Committee, and Messrs. Warnock and McQuilkin and Ms. Cates, 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.

 

 

 
18

 

 

Director Nomination Process

 

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

 

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.

 

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 and judgment, and whether the candidate possesses and maintains throughout service on the Board a reputation in the community at large of integrity, trust, respect, competence and adherence to the highest ethical standards;

 

 

relevant knowledge and diversity of background, viewpoints and experience;

 

 

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

 

 

applicable listing standards of Nasdaq.

 

Diversity of background, viewpoints and experience is one of the various factors the Nominating and Governance Committee may consider in identifying director nominees, but the Nominating and Governance Committee does not have a formal policy regarding board diversity.

 

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.

 

Recommendations by stockholders for director candidates to be considered for the 2018 annual meeting of stockholders must be delivered to Primo’s Corporate Secretary not earlier than the close of business on December 28, 2017 and not later than the close of business on January 27, 2018. Recommendations by stockholders for director candidates to be considered for inclusion in the proxy statement and form of proxy relating to the 2018 annual meeting of stockholders must be received no later than November 28, 2017. 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.

 

 

 
19

 

 

The Board’s Role in Risk Oversight

 

Management is responsible for managing the risks that Primo faces. The Board of Directors is responsible for overseeing management’s approach to risk management. The involvement of the full Board of Directors in reviewing our strategic objectives and plans is a key part of the board’s assessment of management’s approach and tolerance to risk. While the Board of Directors has ultimate oversight responsibility for overseeing management’s risk management process, various committees of the board assist it in fulfilling that responsibility.

 

In particular, the Audit Committee assists management in its review of the policies and procedures regarding identifying, monitoring, evaluating and managing Primo’s key financial and other risk exposures. The Audit Committee also oversees the development of our enterprise risk management policies and procedures and reports regularly to the Board of Directors regarding Primo’s risk management process.

 

In addition, the 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.

 

Code of Conduct  

 

Our Board of Directors has adopted a Code of Business Conduct and Ethics. This code applies to all of the directors, officers and employees of Primo and its subsidiaries. A copy of our Code of Business Conduct and Ethics is available on our corporate website ( www.primowater.com ). We expect that any amendments to the code, or any waivers of its requirements, will be disclosed on our website.

 

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 the 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.

 

 

 
20

 

 

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.”

 

Mark Castaneda

 

Mr. Castaneda, age 52, has served as our Chief Financial Officer and Assistant Treasurer since March 2008. Prior to joining Primo, he served as Chief Financial Officer for Tecta America, Inc. (a private national roofing contractor) from October 2007 until March 2008, as Chief Financial Officer for Interact Public Safety (a private software company) from September 2006 until October 2007 and as Chief Financial Officer for Pike Electric Corporation (a publicly-traded energy solutions provider) from October 2004 until August 2006, where he helped lead its initial public offering in July 2005. Mr. Castaneda served Blue Rhino Corporation as its Chief Financial Officer from November 1997 until October 2004 and as a Director from September 1998 until April 2004. Along with Mr. Prim, Mr. Castaneda helped lead Blue Rhino’s initial public offering in May 1998. Mr. Castaneda began his career with Deloitte & Touche in 1988 and is a certified public accountant.

 

Brian McInerney

 

Mr. McInerney, age 50, has served as Executive Vice President of Primo and President of Primo’s self-service refill drinking water business in the United States and Canada since the completion of the Glacier acquisition in December 2016. Mr. McInerney served as Glacier’s President and Chief Executive Officer from 2001 until December 2016. Prior to joining Glacier, Mr. McInerney was the Vice President, Worldwide Autolite Products for Honeywell International (previously AlliedSignal), a manufacturing company. Mr. McInerney joined AlliedSignal in 1997 and served in various marketing management positions. Mr. McInerney began his marketing career at Nabisco, a diversified food company. Prior thereto, Mr. McInerney was employed by KPMG, a global accounting and consulting firm, as a financial auditor.

 

 

 
21

 

 

Director Compensation

 

The following table shows the compensation paid to each non-employee director who served on our Board of Directors in 2016:

 

2016 Director Compensation Table

 

 

 

Name

 

Fees Earned or

Paid in Cash

($) (1)

 

Stock Awards

($) (2) (3)

 

Total

($)

             

Richard A. Brenner

 

57,000

 

65,237

 

122,237

             

Susan E. Cates

 

55,000

 

62,948

 

117,948

             

Jack C. Kilgore

 

60,000

 

68,671

 

128,671

             

Malcolm McQuilkin

 

47,500

 

54,364

 

101,864

             

Charles A. Norris

 

-

 

-

 

-

             

David L. Warnock

 

38,000

 

43,491

 

81,491

 

(1)

The amounts shown in this column represent fees earned under our Non-Employee Director Compensation Policy described below. Each director elected to receive 100% of his or her board fees earned in the form of Company stock.

 

(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 2016 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 option awards, shares of restricted stock and shares subject to outstanding restricted stock unit awards held by each non-employee director as of December 31, 2016 :


 

 

Name

 

Shares Subject

to Outstanding

Option Awards

(#)

     

Richard A. Brenner

 

22,085

     

Susan E. Cates

 

-

     

Jack C. Kilgore

 

22,085

     

Malcolm McQuilkin

 

22,085

     

Charles A. Norris

 

-

     

David L. Warnock

 

1,924

 

 

 
22

 

 

Under our current Non-Employee Director Compensation Policy, which was approved effective May 2, 2014, each non-employee director receives (1) an annual retainer of $25,000 and (2) meeting attendance fees of (a) $2,500 per Board of Directors or committee meeting attended in person and (b) $1,000 per Board of Directors or committee meeting attended telephonically. In advance of each annual meeting of the stockholders, each non-employee director may choose to receive his or her annual retainer and attendance fees for the following year in one the three following forms: (Option 1) 100% in cash, (Option 2) 100% in equity, or (Option 3) 50% in cash and 50% in equity. If a director elects Option 1, the director receives a one-time payment of $25,000 in cash on the business day immediately prior to the next annual meeting. If a director elects Option 2 or Option 3, the director receives a one-time grant of restricted stock units valued at $25,000 or $12,500, respectively. These restricted stock units are granted, and vest in full, 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 on the date of the annual meeting that preceded the grant date. With respect to the meeting attendance fees, if a director elects Option 1 or Option 3, the director receives a lump sum cash payment, based on the aggregate fees payable for Board and Committee meetings attended during the year, following the next annual meeting. If a director elects Option 2, the director is granted restricted stock in a single grant, based on the aggregate fees payable for Board and Committee meetings attended during the year, on of the business day immediately prior to the next annual meeting. The number of shares of restricted stock is determined based on the closing stock price on the date of the prior annual meeting and such restricted stock vest in full immediately.

 

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.

 

 

 
23

 

 

Executive Compensation

 

Compensation Discussion and Analysis

 

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

 

(1)     our principal executive officer (Billy D. Prim);

 

(2)     our principal financial officer (Mark Castaneda); and

 

(3)     our president and chief operating officer (Matthew T. Sheehan).

 

This discussion and analysis should be read together with the compensation tables and related disclosures set forth below. This discussion and analysis 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 discussion and analysis 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 discussion.

 

Executive Summary

 

Our compensation discussion and analysis discusses the total compensation for our NEOs and describes our overall compensation philosophy, objectives and practices. The principal components of our compensation program consist of:

 

 

base salary;

 

 

annual cash and equity incentive arrangements;

 

 

equity compensation; and

 

 

long-term incentive compensation.

 

Our compensation philosophy and objectives generally apply to all of our employees and all of our employees are eligible to the first three components described above. Our long-term incentive compensation arrangements are generally available only for our executive officers and officers.

 

The relative amount and value of each of these components for individual employees varies based on job role and responsibility as well as our financial performance.

 

With respect to our 2016 compensation programs, we did not make any significant changes. Instead, generally consistent with past practice:

 

 

base salaries for each of our NEOs were adjusted in accordance with their existing employment agreements, each as amended in October 2016;

 

 

 
24

 

 

 

we established an annual incentive plan for 2016 with target adjusted EBITDA of $23.6 million and a target bonus pool of approximately $1.4 million;

 

 

we provided long-term equity incentive compensation for our NEOs by granting (i) Messrs. Prim, Sheehan and Castaneda restricted stock units with respect to 15,000, 12,500 and 12,500 shares of our common stock, respectively and (ii) Mr. Sheehan an option to purchase 100,000 shares of our common stock; and

 

 

we monitored performance under our Amended and Restated Value Creation Plan and the Company’s progress with respect to the $24.0 million adjusted EBITDA target.

 

Compensation Philosophy and Objectives

 

Our compensation practices are designed to offer our executive officers compensation and benefits that are competitive and meet our goals of attracting, retaining and motivating highly skilled management, which is necessary to achieve our financial and strategic objectives and create long-term value for our stockholders. The principal elements of our executive compensation program have historically included:

 

 

base salary;

 

 

annual cash and equity incentive arrangements;

 

 

equity compensation in the form of restricted stock, restricted stock units and stock options; and

 

 

our Amended and Restated Value Creation Plan, a long-term incentive arrangement.

 

Accordingly, our executive officer compensation program is designed to link annual and long-term cash and stock incentives to the achievement of Company and individual performance goals and to align the interests of executive officers with the creation of stockholder value.

 

We believe compensation should be determined within a framework that is intended to reward individual contribution and the achievement of Company objectives. Within this overall philosophy, our objectives are to:

 

 

attract, retain and motivate our executives by providing a total compensation program that takes into consideration competitive market requirements and strategic business needs;

 

 

align the financial interests of executive officers with those of our stockholders, both in the short and long term;

 

 

provide incentives for achieving and exceeding annual and long-term performance goals; and

 

 

reward executive officers for creating long-term stockholder value.

 

Each of Messrs. Prim, Sheehan and Castaneda have entered into an employment agreement with the Company. The material terms of those employment agreements are described below under “Employment Agreements and Change of Control Agreements.”

 

 

 
25

 

 

Determining Executive Compensation

 

Since becoming a public company, our Compensation Committee has informally considered, reviewed and compared compensation paid to other individuals in positions similar to our named executive officers at companies of similar size and stage of development in structuring and setting the compensation paid to our named executive officers. This consideration has been based on the general knowledge possessed by members of our Compensation Committee and Board of Directors and also has included consultations with our Chief Executive Officer along with other individuals possessing relevant experience and information. As we have gained and continue to gain experience as a public company, we expect that the specific direction, emphasis and components of our executive compensation program will continue to evolve.

 

Our Compensation Committee typically considers, but is not required to accept, our Chief Executive Officer’s recommendations regarding proposed base salaries, bonus and incentive awards, and equity awards for our other NEOs. Our Compensation Committee may also request the assistance of our Chief Financial Officer in evaluating the financial, accounting and tax implications of various compensation awards paid to our NEOs. However, our Chief Financial Officer does not recommend or determine the amounts or types of compensation paid to our NEOs. Our Chief Executive Officer and our other NEOs may attend Compensation Committee meetings, as requested by the chairman of the Compensation Committee. Our NEOs, including our Chief Executive Officer, do not attend any portion of our Compensation Committee meetings during which their compensation is established and approved.

 

We believe the levels of compensation we provide should be competitive, reasonable and appropriate for our business needs and circumstances. Our Compensation Committee has historically not engaged compensation consultants. Rather, our Compensation Committee and our Chief Executive Officer have applied discretion to make compensation decisions and have not used a specific formula or matrix to set compensation in relation to compensation paid by other companies. To date, our Compensation Committee has not established any percentile targets for the levels of compensation provided to our NEOs. Similarly, our Compensation Committee has not specifically compared our compensation programs to those of similarly-situated companies, nor has it engaged in benchmarking of compensation paid to our NEOs. Our historical approach has been to consider competitive compensation practices and other factors such as the level of compensation necessary to recruit and retain an executive and individual performance, rather than establishing compensation at specific benchmark percentiles. This approach has enabled us to respond to market dynamics and provided us with flexibility in maintaining and enhancing our NEOs’ engagement, focus, motivation and enthusiasm for our future. Following the completion of our acquisition of Glacier, we formally engaged Korn Ferry as a compensation consultant to provide strategic advice in setting and structuring our compensation programs and policies. The engagement of Korn Ferry did not impact our compensation determinations for the year ended December 31, 2016. In 2017 and going forward, we will consider the advice and recommendations of compensation consultants we engage in setting and structuring our compensation programs.

 

Our Compensation Committee is comprised of Messrs. Brenner, Kilgore, McQuilkin and Warnock, with Mr. Kilgore acting as chair. Each of the members of our Compensation Committee is “independent” within the meaning of applicable Nasdaq listing standards. Our Compensation Committee’s charter provides, among other things, that our Compensation Committee’s principal duties include (i) reviewing our compensation policies and practices, (ii) reviewing and approving the compensation for our senior executives, (iii) evaluating the performance of our senior executives and (iv) assisting in the Company’s compliance with the regulations of the SEC regarding executive compensation disclosure.

 

 

 
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The amount of past compensation, including annual bonus and incentive awards and amounts realized or realizable from prior restricted stock, restricted stock unit and stock option awards, is generally not a significant factor in our Compensation Committee’s considerations because these awards would have been earned based on performance in prior years. Our Compensation Committee does, however, consider prior awards when considering the retention aspects of our compensation program.

 

Our NEOs are not subject to mandated stock ownership or stock retention guidelines. Our Compensation Committee believes that the equity component of our executive compensation program ensures that our NEOs are also owners and those components work to align the NEOs’ goals with the long-term best interests of our stockholders.

 

Elements of Our Executive Compensation Program

 

The principal elements of our executive compensation program have to date been (a) base salary, (b) annual cash and equity incentive arrangements, (c) equity compensation in the form of restricted stock, restricted stock units and stock options, and (d) our Amended and Restated Value Creation Plan, a long-term incentive arrangement. Each of those compensation elements satisfies one or more of our compensation objectives.

 

We have not adopted any policies with respect to long-term versus currently-paid compensation, but feel that both elements are necessary for achieving our compensation objectives. Compensation in the form of a base salary provides financial stability for each of our NEOs, and annual increases in base salary provide a reward for short-term Company and individual performance. Annual incentive awards likewise provide a reward for short-term Company and individual performance. Long-term equity compensation and our Amended and Restated Value Creation Plan reward achievement of strategic long-term objectives and contribute toward overall stockholder value.

 

While we have not adopted any policies with respect to cash versus non-cash compensation (or among different forms of non-cash compensation), we feel that it is important to encourage or provide for a meaningful amount of equity ownership by our NEOs to help align their interests with those of our stockholders, which is one of our compensation objectives. We have also in the past used equity compensation in order to preserve the Company’s cash to the extent practicable in order to facilitate our growth and development. We combine the compensation elements for each NEO in a manner that our Compensation Committee believes, in its discretion and judgment, is consistent with the executive’s contributions to our Company and our overall goals with respect to executive compensation.

 

On December 22, 2016, our Compensation Committee approved the termination of the Amended and Restated Value Creation Plan, effective December 31, 2016. The Compensation Committee determined that the Amended and Restated Value Creation Plan had met its intended purpose of incentivizing the Company’s executive officers and officers to improve the Company’s adjusted EBITDA and to align the interests of our executive officers and officers with those of our stockholders generally, including by increasing the Company’s share price.

 

The Board of Directors and Compensation Committee continually evaluate the need for additional long-term incentive compensation arrangements in order to meet the Company’s goals of attracting, retaining and motivating highly skilled management, and in February 2017, our Compensation Committee adopted and approved a new long-term incentive compensation plan administered under our Omnibus Plan. The new long-term incentive compensation plan is designed to align the interests of our executive officers and officers with those of the Company by providing for equity awards with vesting tied to performance-based goals related to the Company’s adjusted EBITDA and free cash flow, as the Company seeks to maximize its earnings and generate sufficient cash to repay indebtedness incurred in connection with our acquisition of Glacier Water Services, Inc. in December 2016.

 

 

 
27

 

 

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 NEOs and is critical to recruiting and retaining our executives. Base salary is also designed to recognize the scope of responsibilities assigned to each NEO 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.

 

In June 2013, we entered into amended and restated employment agreements with Messrs. Prim and Castaneda and an employment agreement with Mr. Sheehan. In October 2016, we entered into further amendments to such agreements. The employment agreements and subsequent amendments provided base salaries at the amounts set forth below for 2016.

 

Name

 

Base Salary

(Pre-October 2016

Amendment)

($)

 

Base Salary

(Post-October 2016

Amendment)

($)

         

Billy D. Prim

 

439,824

 

439,824

         

Matthew T. Sheehan

 

309,384

 

450,000

         

Mark Castaneda

 

274,331

 

325,000

 

Annual Cash and Equity Incentive Arrangements

 

We established an annual incentive plan for 2016, which created an annual bonus pool and set payout bands for our officers, including our NEOs, 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. Our Compensation Committee approved the following 2016 annual incentive plan bonus pool with a Target Adjusted EBITDA level of $23.6 million:

 

Percentage of

Target Adjusted

EBITDA achieved:

Size of Annual

Bonus Pool

90%

$403,000

95%

$805,000

100%

$1,425,000

105%

$1,728,000

110%

$1,964,000

115%

$2,318,000

120%

$2,790,000

 

 

 
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Adjusted EBITDA is calculated as income from continuing operations before depreciation and amortization, interest expense, net, non-cash fair value changes in warrant value, non-cash stock-based compensation expense, non-recurring costs, and loss on disposal of property and equipment and other. Our actual pre-bonus, adjusted EBITDA for 2016 was $23.6 million (before taking into account the Glacier acquisition), or 100% of the $23.6 million adjusted EBITDA goal for 2016, which resulted in an annual bonus pool for 2016 of approximately $1.4 million. Our Compensation Committee targeted annual payouts under the 2016 annual incentive plan for Messrs. Prim, Sheehan and Castaneda at 100%, 75% and 50% of their base salaries, respectively, and adjusted such amounts downward based on the size of the annual bonus pool and the number of other employees that participated in the 2016 annual incentive plan. Additionally, our Compensation Committee adjusts the payouts to officers under the Company’s annual incentive plans up or down based on the achievement of individual and team performance metrics. Our Compensation Committee has the discretion to make awards under the annual incentive plan in cash, stock or a combination of both. With respect to our NEOs, our Compensation Committee determined to pay the 2016 annual incentive awards 87.7% in cash and 12.3% in stock. The following table shows our NEOs’ target annual incentive awards and the actual payout amounts made under the 2016 annual incentive plan:

 

Named Executive Officer

Target Annual Incentive

Payout

Actual 2016 Annual

Incentive Payout

Billy Prim

$439,824

$290,710

Matthew Sheehan

$252,309

$166,793

Mark Castaneda

$142,031

$93,883

   

Equity Compensation

 

Historically, we have provided long-term equity compensation primarily through grants of restricted stock, restricted stock units and stock options. We have in the past granted restricted stock, restricted stock units and stock options through annually-adopted executive incentive plans, initial grants to new employees and 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 NEOs 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.

 

On March 11, 2016, our Compensation Committee approved 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 NEOs as a result of this action:

 

Named Executive Officer

Restricted Stock Units

(#)

Billy Prim

15,000

Matthew Sheehan

12,500

Mark Castaneda

12,500

 

 

 
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The restricted stock units granted to each of our executive officers vest in substantially equal annual installments on March 11 of each of 2017, 2018, and 2019.

 

In addition, in October 2016, we entered into an amendment to Mr. Sheehan’s employment agreement which, in part, awarded Mr. Sheehan stock options to purchase 100,000 shares of the Company’s common stock. This option award was formally granted by the Compensation Committee on November 4, 2016 and vests in four equal annual installments on November 4 of each of 2017, 2018, 2019 and 2020.

 

It is our current intention to issue all foreseeable equity compensation plan awards under our Amended and Restated 2010 Omnibus Long-Term Incentive Plan.

 

Amended and Restated Value Creation Plan

 

We originally established our Value Creation Plan in May 2012 in order to create a long-term incentive arrangement for our executive officers and officers that is aligned with our stockholders’ interests. The Value Creation Plan was amended and restated in May 2013, and further amended and restated on March 3, 2016. On December 22, 2016, the Amended and Restated Value Creation Plan was terminated by our Compensation Committee, effective December 31, 2016.

 

Prior to the March 2016 amendment and restatement, the Value Creation Plan 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. The Compensation Committee set these targets at very aspirational levels as the Company’s adjusted EBITDA for 2011 was $3.4 million. On March 3, 2016, our Compensation Committee approved the (second) Amended and Restated Value Creation Plan that (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.

 

On December 22, 2016, our Compensation Committee approved the termination of the Amended and Restated Value Creation Plan, effective December 31, 2016. All awards granted under the Amended and Restated Value Creation Plan that were outstanding as of December 31, 2016 are still governed by the Amended and Restated Value Creation Plan and were subject to the achievement of the adjusted EBITDA performance targets for the year ended December 31, 2016. All references to the “Amended and Restated Value Creation Plan” are to the plan as was in effect upon its termination by our Compensation Committee effective December 31, 2016.

 

Overview

 

The Amended and Restated Value Creation Plan provided that once the Company achieved the $15 million adjusted EBITDA target for a given fiscal year (which, as described below, it did for 2015), the adjusted EBITDA target increased to $24 million for subsequent fiscal years. Similarly, once the Company achieved the $24 million adjusted EBITDA target for a given fiscal year (which, as described below, it did for 2016), the adjusted EBITDA target would have increased to $28 million for subsequent fiscal years.

 

The award pool payable to our executive officers and officers upon achievement of the adjusted EBITDA targets is tied to the increase in the Company’s market capitalization and is calculated as follows:

 

 

upon the Company’s achievement of $15 million in adjusted EBITDA, the award pool for the first issuance is equal to 15% of the appreciation in the market capitalization of the Company’s common stock from May 11, 2012 to the closing price on the third trading day after public announcement of financial results for the year in which the $15 million target is obtained (the “date of first issuance”);

 

 

 
30

 

 

 

upon the Company’s achievement of $24 million in adjusted EBITDA, the award pool for the second issuance would be equal to 17.5% of the appreciation in the market capitalization of the Company’s common stock from the date of first issuance to the closing price on the third trading day after public announcement of financial results for the year in which the $24 million target is obtained (the “date of second issuance”); and

 

 

upon the Company’s achievement of $28 million in adjusted EBITDA, the award pool for the third issuance would be equal to 20% of the appreciation of the market capitalization of the Company’s common stock from the date of second issuance to the closing price on the third trading day after public announcement of financial results for the year in which the $28 million target is obtained.

 

The Value Creation Plan was originally adopted in May 2012 and was designed to incent our executive officers to improve the Company’s financial results and create stockholder value. The Company’s adjusted EBITDA for 2011, the year prior to the adoption of the Value Creation Plan, was $3.4 million, and the market price of the Company’s common stock on May 11, 2012, the day prior to the adoption of the original Value Creation Plan, was $1.39. The Value Creation Plan was designed to incent our executive officers and officers to improve the Company’s adjusted EBITDA and to align the interests of our executive officers and officers with those of our stockholders generally as awards were payable following the achievement of the adjusted EBITDA targets only to the extent the market capitalization of the Company’s common stock increased. In March 2016, our Compensation Committee amended and restated the Value Creation Plan upon its determination that the Company’s strong performance in 2015 was expected to continue for several more years based on, in part, the improvements that the executive team implemented during the preceding three years in which the Value Creation Plan was in place. As such, the Compensation Committee determined that the remaining adjusted EBITDA targets should be increased to provide further stretch goals for the executive team. The Compensation Committee concluded that increasing the remaining adjusted EBITDA targets (from $20 million and $25 million to $24 million and $28 million, respectively) would serve to enhance the alignment of the Value Creation Plan with its purpose, which was to reward the participants for increasing overall stockholder value. In light of the Compensation Committee’s decision to increase the remaining adjusted EBITDA targets, the Compensation Committee determined that it would be equitable to extend the term of the Value Creation Plan for one additional year.

 

As more fully described below, the Company’s actual adjusted EBITDA for 2016 was $24.1 million, and an award pool of approximately $19.3 million was established as a result of the appreciation in the Company’s market capitalization following the increase in the Company’s common stock price from $9.39 per share to $14.07 per share. For all awards, market capitalization is determined by reference to the 23,749,212 shares of our common stock outstanding on May 11, 2012.

 

Awards to our executive officers and officers under the Amended and Restated Value Creation Plan may be paid in the form of cash, our common stock or other equity securities. It is the Company’s intention that all awards under the Amended and Restated Value Creation Plan will be in the form of shares of common stock issued under our Amended and Restated 2010 Omnibus Long-Term Incentive Plan.

 

Deferred Compensation Plan

 

On June 29, 2015, our Board and our Compensation Committee approved the Primo Water Corporation Executive Deferred Compensation Plan (the “Deferred Compensation Plan”).  The Deferred Compensation Plan is an unfunded, nonqualified deferred compensation plan designed to allow our executive officers and officers to defer the payment of awards under the Amended and Restated Value Creation Plan.

  

 

 
31

 

 

The 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 Amended and Restated Value Creation Plan for a performance year.  The Company establishes an account for each participant in the 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 Amended and Restated Value Creation Plan, 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 the 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 the Deferred Compensation Plan, such that the value of the participant’s account under the 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 stockholders.

 

Payment of 2015 Awards

 

The Company achieved the $15 million adjusted EBITDA target for the year ended December 31, 2015, and an award pool of approximately $28.5 million was established. All of our NEOs deferred their awards under the Amended and Restated Value Creation Plan with respect to the achievement of the $15 million adjusted EBITDA target into the Deferred Compensation Plan. In the year ended December 31, 2016, after withholding shares with respect to Medicare and FICA taxes, Messrs. Prim, Sheehan and Castaneda were awarded 872,642, 725,740 and 580,699 deferred stock units, respectively, under the Deferred Compensation Plan. On January 25, 2017, Messrs. Sheehan and Castaneda received 79,741 and 65,873 shares of common stock, respectively, upon the release of deferred stock units from their respective “in-service accounts” (after giving effect to tax withholding requirements).

 

2016 Awards

 

The Company achieved the $24 million adjusted EBITDA target for the year ended December 31, 2016 (after giving effect to payment of bonuses and the Glacier acquisition), and an award pool of approximately $19.3 million was established. The amount of the award pool is calculated based on 17.5% of the appreciation in the Company’s market capitalization resulting from the price of the Company’s common stock increasing from $9.39 on March 11, 2016 to $14.07 on March 20, 2017. Pursuant to the terms of their employment agreements, Messrs. Prim, Sheehan and Castaneda are entitled to at least 30%, 25% and 20%, respectively, of the award pool under the Amended and Restated Value Creation Plan in any fiscal year.

 

 

 
32

 

 

All of our NEOs deferred their awards under the Amended and Restated Value Creation Plan with respect to the achievement of the $24 million adjusted EBITDA target into the Deferred Compensation Plan. Our other officers also deferred substantially all of their awards with respect to 2016 performance into the Deferred Compensation Plan. After withholding shares with respect to Medicare and FICA taxes, awards to our NEOs were as follows:

 

Name

 

  Total Deferred

Award

Value (1)

 

Net Stock Units

Deferred (2) (3)

         

Billy D. Prim

 

$5,835,181

 

398,207

         

Matthew Sheehan

 

$4,862,648

 

331,839

         

Mark Castaneda

 

$3,890,116

 

265,471

     

(1)

In accordance with the terms of their employment agreements, represents 30%, 25% and 20% of the value of the total award pool for 2016 performance with respect to Messrs. Prim, Sheehan and Castaneda, respectively.

 

(2)

Messrs. Prim, Sheehan and Castaneda each deferred 100% of their awards into the Deferred Compensation Plan and will be credited with approximately the indicated number of deferred stock units after net withholding for estimated FICA and Medicare taxes. Messrs. Prim, Sheehan and Castaneda were credited with 414,725, 345,604 and 276,483 total deferred stock units, respectively, under the Deferred Compensation Plan prior to such withholding.

 

(3)

Subject to accelerated payment following termination of employment, Mr. Prim has elected to have his shares of common stock paid out pursuant to the Deferred Compensation Plan in five equal installments, commencing in January 2018, of 79,641 shares per year. Subject to accelerated payment following termination of employment, each of Messrs. Sheehan and Castaneda has elected to have his shares of common stock paid out pursuant to the Deferred Compensation Plan in one installment in January 2018 of 331,839 and 265,471 shares, respectively.

 

 
33

 

 

 

With respect to the awards granted for the achievement of the $24 million adjusted EBITDA target for the year ended December 31, 2016, a total of 1,370,316 stock units were originally creditable under the Deferred Compensation Plan to all eligible participants with respect to the Amended and Restated Value Creation Plan. A total of 1,292,513 stock units are expected to be actually credited under the Deferred Compensation Plan to eligible participants after withholding for estimated federal, state, FICA and Medicare taxes. Subject to accelerated payment following termination of employment, these deferred stock units are currently estimated to be paid in shares of common stock as follows:

 

Date

 

Number of Shares

May & October 2017 (1)

 

73,197

January 2018

 

788,886

January 2019

 

118,224

January 2020

 

118,224

January 2021

 

105,195

January 2022

 

88,787

TOTAL:

 

1,292,513

     
(1) Relates to payments to terminated participants.

   

The Amended and Restated Value Creation Plan was designed to incent our executive officers to improve the Company’s adjusted EBITDA with the award pool based on any resultant increase in the Company’s market capitalization. The Company’s common stock price was $9.39 per share on March 11, 2016, the third full trading day following the Company’s announcement of its earnings results for the year ended December 31, 2015, and increased to $14.07 per share for purposes of calculating the payout with respect to the Company’s achieving the $24 million adjusted EBITDA target.

 

Termination of the Amended and Restated Value Creation Plan

 

On December 22, 2016, our Compensation Committee approved the termination of the Amended and Restated Value Creation Plan, effective December 31, 2016. The Compensation Committee determined that the Amended and Restated Value Creation Plan had met its intended purpose of incentivizing the Company’s executive officers and officers to improve the Company’s adjusted EBITDA and to align the interests of our executive officers and officers with those of our stockholders generally, including by increasing the Company’s share price. All awards granted under the Amended and Restated Value Creation Plan that were outstanding as of December 31, 2016 will continue to be governed by the Amended and Restated Value Creation Plan and were subject to the achievement of the $24 million adjusted EBITDA target for the year ended December 31, 2016.

 

Restrictions on Hedging and Pledging of Company Securities

 

Our Insider Trading Policy prohibits short sales of our securities by our directors and executives. Our Insider Trading Policy also prohibits directors and executives 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. 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.

 

Perquisites and Other Benefits

 

As a general matter, we do not offer perquisites or other benefits to any executive officer, including our NEOs, 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.

 

 

 
34

 

 

Employment and Severance and Change of Control Benefits

 

We believe that a strong, experienced management team is essential to the best interests of the Company and our stockholders. We recognize that the possibility of a change of control could arise and that such a possibility could result in the departure or distraction of members of the management team to the detriment of our Company and our stockholders. In June 2013, we entered into amended and restated employment agreements with Messrs. Prim and Castaneda and an employment agreement with Mr. Sheehan. Further, in October 2016, we entered into amendments to each of these employment agreements with Messrs. Prim, Sheehan and Castaneda, respectively. Each of these actions was intended, in part, to minimize employment security concerns should we be involved in a change of control transaction. A more detailed description of the change of control provisions provided in these employment agreements is available under the section captioned “Employment Agreements and Change of Control Agreements” below, and the change of control benefits are quantified in the section captioned “Potential Payments Upon Termination or Change of Control.”

 

Role of Stockholder Say-on-Pay Votes

 

We provide our stockholders with the opportunity to cast an advisory vote on executive compensation (a "say-on-pay proposal") every three years. At the Company's annual meeting of stockholders held in May 2014, approximately 98% of the votes cast on the say-on-pay proposal at the meeting were voted in favor of the proposal. Our Compensation Committee believes this vote affirms our stockholders’ support of the Company’s approach to executive compensation and did not make specific changes to our executive compensation program in response to the vote. However, our Compensation Committee continues to review and refine the design and administration of our executive pay practices. Our Compensation Committee also will continue to consider the outcome of the Company's say-on-pay votes when making future compensation decisions for our NEOs.

 

At our 2017 annual meeting, stockholders will cast advisory stockholder votes on the compensation paid to our NEOs for the year ended December 31, 2016 and on the frequency of future advisory votes on the compensation paid to our named executive officers. Our Board of Directors and Compensation Committee will continue to consider the outcome of these votes when making future compensation decisions for our NEOs and when establishing the frequency of such future votes.

 

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.

 

 

 
35

 

 

Tax Deductibility of Compensation

 

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 will generally disallow a corporate tax deduction for compensation paid to certain officers in excess of $1 million, unless the compensation meets an exception as performance-based compensation. The Compensation Committee retains the flexibility and discretion to award compensation that may not be tax deductible. Moreover, even if we intend to grant compensation that qualifies as performance-based compensation under Section 162(m), we cannot guarantee that such compensation will so qualify or will ultimately be deductible by us.

 

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, 2016.

 

Submitted by the Compensation Committee of the Board of Directors.

 

Jack C. Kilgore, Chair

Richard A. Brenner

Malcolm McQuilkin

David L. Warnock

 

 
36

 

 

2016 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

 

2016

    439,804       140,850       -       290,142       7,185       877,981  
Chairman, Chief  

2015

    455,048       -       71,709       286,680       7,950       821,387  
Executive Officer  

2014

    422,769       -       47,967       93,916       3,900       568,552  
                                                     

Matthew T. Sheehan

 

2016

    336,411       117,375       532,390       166,467       4,587       1,157,230  
President and Chief  

2015

    320,125       -       59,758       151,259       -       531,142  
Operating Officer  

2014

    313,202       -       39,973       50,516       -       403,691  
                                                     

Mark Castaneda

 

2016

    284,062       117,375       -       93,699       7,950       503,086  
Chief Financial  

2015

    283,854       -       59,758       89,414       7,950       440,976  
Officer  

2014

    264,235       -       39,973       29,350       3,900       337,458  


___________

 

Salaries (Column (c))

 

Base salaries for Messrs. Prim, Sheehan and Castaneda are specified in their employment agreements, which are described in greater detail in “Employment Agreements and Change of Control Agreements” below.

 

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, 2016. 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.

 

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, 2016. 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 NEOs was entitled in 2014, 2015 and 2016 to a target annual incentive award equal to a specified percentage of his base salary, which was 100% for Mr. Prim, 75% for Mr. Sheehan and 50% for Mr. Castaneda. The actual amounts of the annual incentive awards were determined by our Compensation Committee following the end of the calendar years based on the Company’s achievement of certain adjusted EBITDA targets after the Compensation Committee made adjustments based on the achievement of individual and team performance metrics. In 2014, the Compensation Committee determined that each NEO was entitled to receive 20.9% of his target annual incentive award, and that such awards would be paid 42.3% in cash and 57.7% in stock. In 2015, the Compensation Committee determined that each NEO was entitled to receive 63.0% of his target annual incentive award, and that such awards would be paid 52.5% in cash and 47.5% in stock. In 2016, the Compensation Committee determined that each NEO was entitled to receive 66.0% of his target annual incentive award, and that such awards would be paid 87.7% in cash and 12.3% in stock. Our 2016 annual incentive plan is described in greater detail in the “Compensation Discussion and Analysis” above under “Annual Cash and Equity Incentive Arrangements.”

 

 

 
37

 

 

All Other Compensation (Column (g))

 

Amounts shown in this column relate to matching contributions to our NEOs’ accounts under Primo’s 401(k) plan.

 

Total (Column (h))

 

Amounts shown in this column for 2014 reflect non-equity incentive plan compensation that was not disclosed in the proxy statement for the 2015 annual meeting. These amounts are also reflected in the Non-Equity Incentive Plan Compensation column for 2014.

 

2016 Grants of Plan-Based Awards

 

The following table shows grants of plan-based awards made to our NEOs during the year ended December 31, 2016 .

 

 

 

 

Estimated Future Payouts Under Non-Equity

Incentive Plan Awards

($) (3)

   

All Other

Stock

Awards:

   

All Other

Option

Awards:

   

 

   

Grant

Date Fair

 
  Name   Grant Date  

Threshold

($)

   

Target

($)

   

Maximum

($)

   

Number of

Shares of

Stock or

Units

(#)

   

Number of

Shares

Underlying

Options

(#)

   

Exercise

Price of

O ption

Awards

($/Sh)

   

Value of

Stock and

Option

Awards

($) (4)

 
                                                           

Billy D. Prim

03/11/16 (1)

                            15,000                       140,850  
        44,464       290,710       520,640                                  
                                                           

Matthew T. Sheehan

03/11/16 (1)

                            12,500                       117,375  
 

11/04/16 (2)

                                    100,000       12.00       532,390  
        25,500       166,793       298,700                                  
                                                           

Mark Castaneda

03/11/16 (1)

                            12,500                       117,375  
        14,374       93,883       168,136                                  

__________

(1)

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

   

(2)

Amounts set forth in this row reflect a grant of stock options under our Amended and Restated 2010 Omnibus Long-Term Incentive Plan. These stock options vest in equal installments on the first, second, third and fourth anniversary of the grant date.

 

 

 
38

 

 

(3)

Amounts set forth in these columns reflect threshold, target and maximum award opportunities for 2016 performance under our 2016 annual incentive plan. Further information regarding the terms and conditions of awards under our 2016 annual incentive plan can be found in the “Compensation Discussion and Analysis” above under “Annual Cash and Equity Incentive Arrangements.”

    

(4)

Amounts set forth in this column represent the grant date fair value of the stock option awards described in Footnote (1) above 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, 2016.

 

 
39

 

 

Outstanding Equity Awards at Fiscal Year-End 2016

 

The following table sets forth information regarding outstanding equity awards held by our NEOs as of December 31, 2016.

 

   

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

 

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 ($)

 
                                           

Billy D. Prim

    1,917       -       13.04  

01/25/17

               
      9,583       -       20.66  

05/01/18

               
      40,000       -       12.33  

03/29/21

               
      20,000       -       1.39  

05/11/22

               
      20,000       10,000 (1)     3.43  

03/14/24

               
      10,000       20,000 (2)     5.33  

05/05/25

               
                                293,432 (3)     3,603,345 (4)
                                15,000 (5)     184,200 (6)
                                           

Matthew T. Sheehan

    10,000       -       1.07  

11/12/22

               
      100,000       -       1.05  

12/04/22

               
      50,000       -       1.76  

06/10/23

               
      16,667       8,333 (1)     3.43  

03/14/24

               
      8,334       16,666 (2)     5.33  

05/05/25

               
      -       100,000 (7)     12.00  

11/04/26

               
                                244,526 (3)     3,002,779 (4)
                                12,500 (5)     153,500 (6)
                                           

Mark Castaneda

    14,375       -       20.66  

05/01/18

               
      3,833       -       13.04  

01/29/19

               
      30,000       -       12.33  

03/29/21

               
      17,500       -       1.39  

05/11/22

               
      150,000       -       1.07  

11/12/22

               
      16,667       8,333 (1)     3.43  

03/14/24

               
      8,334       16,666 (2)     5.33  

05/05/25

               
                                195,621 (3)     2,402,226 (4)
                                12,500 (5)     153,500 (6)


___________

 

(1)

These options vest on March 14, 2017.

   

(2)

These options vest in equal annual installments on May 5, 2017 and 2018.

   

(3)

Reflects hypothetical units outstanding under the VCP as of December 31, 2016 for each of our NEOs based on (a) the Company’s achievement of the $24 million adjusted EBITDA target under the VCP during the 2016 fiscal year, (b) an increase in our share price from $9.39 (the closing price of our common stock on the third full trading day following announcement of our earnings results in March 2016 after the achievement of the first incentive target of $15 million adjusted EBITDA) to $12.28 on December 31, 2016 (and a corresponding increase in our market capitalization for purposes of determining the value of the VCP pool) and (c) the respective NEO’s interest in the overall VCP pool. Further information regarding calculation of amounts under, and the vesting terms and conditions of, the VCP awards can be found in the “Compensation Discussion and Analysis” above under “Amended and Restated Value Creation Plan.”

   

 
40

 

 

(4)

Reflects the value of the hypothetical units outstanding under our VCP as of December 31, 2016 for each of our NEOs (as described in Footnote 5 immediately above) multiplied by the closing market price of our common stock on December 31, 2016 ($12.28). Further information regarding calculation of amounts under, and the vesting terms and conditions of, the VCP awards can be found in the “Compensation Discussion and Analysis” above under “Amended and Restated Value Creation Plan.”

   

(5)

Reflects the unvested portions of a restricted stock unit award that vests in substantially equal annual installments on March 11, 2017, 2018 and 2019.

   

(6)

The market value of the unvested restricted stock units is based on the closing price of our common stock on December 31, 2016 ($12.28).

   

(7)

These options vest in equal annual installments on November 4, 2017, 2018, 2019 and 2020.

   

Option Exercises and Stock Vested

 

The following table shows the number of shares acquired and the value realized during the fiscal year ended December 31, 2016 upon vesting of restricted stock units previously or simultaneously granted to each of our NEOs. No stock options were exercised by our NEOs during fiscal 2016.

 

   

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

($) (1)

 
                                 

Billy D. Prim

    -       -       14,502       136,174  
                                 

Matthew T. Sheehan

    -       -       7,652       71,852  
                                 

Mark Castaneda

    -       -       4,524       42,480  

___________

 

(1)

The amounts set forth in this column were calculated by multiplying the closing market price of our common stock on the vesting date ($9.39) by the number of shares vesting on such date.

   

 

 

 
41

 

 

Nonqualified Deferred Compensation Table

 

The following table provides information for each of our NEOs regarding aggregate contributions, aggregate earnings for 2016 and year-end account balances under the Deferred Compensation Plan.

 

Name

 

Executive Contributions in Last FY ($) (1)

   

Aggregate Earnings in Last FY ($) (2)

   

Aggregate Withdrawals/Distributions ($)

   

Aggregate Balance at Last FYE ($)

 
                                 

Billy D. Prim

    8,194,108 (3)     2,521,936       -       10,716,044  
                                 

Matthew T. Sheehan

    6,814,699 (4)     2,097,388       -       8,912,087  
                                 

Mark Castaneda

    5,452,764 (5)     1,678,220       -       7,130,984  

   

(1)

Represents the value of the net number of deferred stock units credited to each NEO’s account under the Deferred Compensation Plan based on the closing market price of our common stock on the deferral date ($9.39 on March 11, 2016), after withholding shares for Medicare and FICA taxes.

 

(2)

Represents the stock price appreciation of the underlying deferred stock units based on the closing market price of our common stock on the deferral date, March 11, 2016, through December 31, 2016.

 

(3)

In the year ended December 31, 2016, Mr. Prim received 910,512 deferred stock units based upon the Company’s achievement of the $15 million adjusted EBITDA target in connection with his award under the Amended and Restated Value Creation Plan. Mr. Prim’s withholding tax obligations for these deferred stock units amounted to $355,604, and 37,870 deferred stock units were withheld from his award to satisfy these obligations.

 

(4)

In the year ended December 31, 2016, Mr. Sheehan received 758,760 deferred stock units based upon the Company’s achievement of the $15 million adjusted EBITDA target in connection with his award under the Amended and Restated Value Creation Plan. Mr. Sheehan’s withholding tax obligations for these deferred stock units amounted to $310,059, and 33,020 deferred stock units were withheld from his award to satisfy these obligations.

 

(5)

In the year ended December 31, 2016, Mr. Castaneda received 607,008 deferred stock units based upon the Company’s achievement of the $15 million adjusted EBITDA target in connection with his award under the Amended and Restated Value Creation Plan. Mr. Castaneda’s withholding tax obligations for these deferred stock units amounted to $247,045, and 26,309 deferred stock units were withheld from his award to satisfy these obligations.

 

 
42

 

 

2016 Potential Payments Upon Termination or Change of Control

 

The following table sets forth hypothetical amounts that would have been payable to Messrs. Prim, Sheehan and Castaneda upon termination of employment under various scenarios or a change of control of Primo, assuming any such event had occurred on December 31, 2016.

 

Benefits and Payments
upon Termination

 

Termination for Cause or without Good Reason prior to Retirement

($)

   

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

($)

   

Retirement

($)

   

Change of Control
(No Termination)

($)

 
                                                 

Billy D. Prim:

                                               

Base Salary (1)

    -       439,824       2,199,120       -       -       -  

Non-Equity Incentive Plan Compensation (2)

    -       288,411       1,442,055       -       -       -  

Value Creation Plan (3)

    -       3,603,345       3,603,345       3,603,345       3,603,345       -  

Vesting of Equity Awards

    -       219,400 (4)     411,700 (5)     411,700 (6)     -       411,700 (5)

Health Insurance (7)

    -       15,756       31,512       -       -       -  

Life Insurance (7)

    -       72       144       -       -       -  

Disability Coverage (7)

    -       361       722       -       -       -  

Total:

    -       4,567,169       7,688,598       4,015,045       3,603,345       411,700  
                                                 

Matthew Sheehan:

                                               

Base Salary (8)

    -       450,000       675,000       -       -       -  

Non-Equity Incentive Plan Compensation (9)

    -       158,863       238,295       -       -       -  

Value Creation Plan (3)

    -       3,002,779       3,002,779       3,002,779       3,002,779       -  

Vesting of Equity Awards

    -       314,327 (4)     502,583 (5)     502,583 (6)     -       502,583 (5)

Health Insurance (10)

    -       22,963       34,445       -       -       -  

Life Insurance (10)

    -       72       108       -       -       -  

Disability Coverage (10)

    -       361       542       -       -       -  

Total:

    -       3,949,365       4,453,752       3,505,362       3,002,779       502,583  
                                                 

Mark Castaneda:

                                               

Base Salary (8)

    -       325,000       487,500       -       -       -  

Non-Equity Incentive Plan Compensation (9)

    -       91,557       137,336       -       -       -  

Value Creation Plan (3)

    -       2,402,226       2,402,226       2,402,226       2,402,226       -  

Vesting of Equity Awards

    -       182,827 (4)     343,083 (5)     343,083 (6)     -       343,083 (5)

Health Insurance (10)

    -       14,165       21,248       -       -       -  

Life Insurance (10)

    -       72       108       -       -       -  

Disability Coverage (10)

    -       361       542       -       -       -  

Total:

    -       3,016,208       3,392,043       2,745,309       2,402,226       343,083  


___________

 

(1)

Represents a payment equal to Mr. Prim’s highest base salary in effect during the 12 months immediately prior to the termination date in the case of a termination without Cause or for Good Reason and a payment equal to 5.0 times Mr. Prim’s highest base salary in effect during the 12 months immediately prior to the termination date in the case of a termination without Cause or for Good Reason in connection with a Change of Control.

   

(2)

Represents a payment equal to the average annual bonus earned by Mr. Prim for the most recent two fiscal years ending prior to the termination date in the case of a termination without Cause or for Good Reason and a payment equal to 5.0 times the average annual bonus earned by Mr. Prim for the most recent two fiscal years ending prior to the termination date in the case of a termination without Cause or for Good Reason in connection with a Change of Control.

 

 

 
43

 

 

(3)

Represents a payment equal to the amount of the award that would otherwise be due to the NEO under the Amended and Restated Value Creation Plan (“VCP”) related to 2016, based upon (a) the Company’s achievement of the $24 million adjusted EBITDA target under the VCP during the 2016 fiscal year, (b) an increase in our common stock price from $9.39 on March 11, 2016, the third full trading day following the Company’s announcement of its earnings results for the year ended December 31, 2015 to $12.28 on December 31, 2016 (and a corresponding increase in our market capitalization for purposes of determining the amount of the VCP pool) and (c) the respective NEO’s interest in the overall VCP pool.

   

(4)

Represents the value of option and restricted stock unit awards held at December 31, 2016 which are scheduled to vest within six months of such date, based upon the closing market price on December 31, 2016 ($12.28) of our shares of common stock.

   

(5)

Represents the value of option and restricted stock unit awards held at December 31, 2016, based upon the closing market price on December 31, 2016 ($12.28) of the shares of common stock. These option and restricted stock unit awards would vest in full upon a Change of Control.  

   

(6)

Represents the value of option and restricted stock unit awards held at December 31, 2016, based upon the closing market price on December 31, 2016 ($12.28) of our shares of common stock. Pursuant to the NEO’s option award agreement, these option and restricted stock unit awards would vest in full upon the executive’s death or Disability (as defined in the NEO’s award agreement).

   

(7)

In the case of a termination without Cause or for Good Reason, represents the estimated incremental cost to maintain coverage under the applicable policy for 12 months. In the case of a termination without Cause or for Good Reason in connection with a Change of Control, represents the estimated incremental cost to us to maintain coverage under the applicable policy for 24 months.

   

(8)

Represents a payment equal to such NEO’s highest base salary in effect during the 12 months immediately prior to the termination date in the case of a termination without Cause or for Good Reason and a payment equal to 1.5 times such NEO’s highest base salary in effect during the 12 months immediately prior to the termination date in the case of a termination without Cause or for Good Reason in connection with a Change of Control.

   

(9)

Represents a payment equal to the average annual bonus earned by the NEO for the most recent two fiscal years ending prior to the termination date in the case of a termination without Cause or for Good Reason and a payment equal to 1.5 times the average annual bonus earned by the NEO for the most recent two fiscal years ending prior to the termination date in the case of a termination without Cause or for Good Reason in connection with a Change of Control.

   

(10)

In the case of a termination without Cause or for Good Reason, represents the estimated incremental cost to maintain coverage under the applicable policy for 12 months. In the case of a termination without Cause or for Good Reason in connection with a Change of Control, represents the estimated incremental cost to us to maintain coverage under the applicable policy for 18 months.

 

Unless noted otherwise, all capitalized terms in the foregoing footnotes have the meanings given to them in the respective NEO employment agreements.

 

 
44

 

 

Employment Agreements and Change of Control Arrangements 

 

Billy D. Prim and Mark Castaneda

 

The following summaries of our employment agreements with Messrs. Prim and Castaneda describe the agreements with such individuals that were amended and restated in June 2013 and further amended in October 2016.

 

Mr. Prim’s employment agreement provides for a base annual salary of $439,824, which may be adjusted up but not down by our Board of Directors. Mr. Prim is also eligible to receive bonuses and awards of equity and non-equity compensation as approved by our Board of Directors. The employment agreement entitles Mr. Prim to participate in all other benefits generally available to our other senior executives. Mr. Prim’s employment agreement provides Mr. Prim the right to receive at least 30% of the bonus pool awarded to all participants under the Company’s Amended and Restated Value Creation Plan in any fiscal year. Mr. Prim’s employment agreement also provides that, upon termination of the Amended and Restated Value Creation Plan or the cessation of awards granted thereunder, if the Company adopts a new long-term incentive plan, Mr. Prim will be granted awards under the new plan commensurate with his position as Chairman and Chief Executive Officer. Mr. Prim’s employment agreement also provides for: (i) an annual automatic cost of living increase to base salary based on the Consumer Price Index; (ii) long-term disability coverage at 100% of base annual salary; (iii) an annual physical paid for by Primo; (iv) a Section 4999 excise tax gross-up payment to cover certain taxes and penalties; and (v) Primo’s payment of certain attorneys’ fees incurred in the event Mr. Prim has to take action to enforce his rights under the employment agreement. We have agreed to maintain insurance coverage for and indemnify Mr. Prim in connection with his service as a director and officer of our Company.

 

Our employment agreement with Mr. Prim provided for an initial three-year employment term that originally commenced April 1, 2010 and that automatically extends for additional one-year periods unless terminated by Mr. Prim or us upon at least 90 days’ prior written notice of intention not to renew. The agreement may also be terminated by us or Mr. Prim for other reasons and, subject to the conditions set forth in the employment agreement, provides for certain payments to Mr. Prim upon a termination of his employment or a change of control of Primo, as described below.

 

Our employment agreement with Mr. Castaneda is substantially similar to our employment agreement with Mr. Prim, except that the economic terms differ between the agreements and Mr. Castaneda’s employment agreement does not provide for: (i) an annual automatic cost of living increase to base salary; (ii) additional long-term disability coverage; (iii) a Primo-paid annual physical; (iv) a Section 4999 excise tax gross-up payment to cover certain taxes and penalties; and (v) our payment of certain attorney fees;. Mr. Castaneda’s employment agreement provides for a base annual salary of $325,000, which base salary may be adjusted up but not down by our Board of Directors. Mr. Castaneda is also eligible to receive bonuses and awards of equity and non-equity compensation as approved by our Board of Directors. The employment agreement entitles Mr. Castaneda to participate in all other benefits generally available to our other senior executives. Mr. Castaneda’s employment agreement provides Mr. Castaneda the right to receive at least 20% of the bonus pool awarded to all participants under the Company’s Amended and Restated Value Creation Plan in any fiscal year. We have agreed to maintain insurance coverage for and indemnify Mr. Castaneda in connection with his service as an officer of our Company.

 

Our employment agreement with Mr. Castaneda provided for an initial three-year employment term that originally commenced April 1, 2010 and that automatically extends for additional one-year periods unless terminated by Mr. Castaneda or us upon at least 90 days’ prior written notice of intention not to renew. The agreement may also be terminated by us or Mr. Castaneda for other reasons and, subject to the conditions set forth in the employment agreement, provides for certain payments to be made to Mr. Castaneda upon a termination of his employment or a change of control of Primo, as described below.

 

 

 
45

 

 

Under our agreements with Messrs. Prim and Castaneda, these individuals are entitled to certain benefits upon their termination or upon a Change of Control (as defined in the employment agreement).

 

Under these employment agreements, if either of Messrs. Prim or Castaneda is terminated without Cause (as defined in the respective employment agreement) or if either of Messrs. Prim or Castaneda resigns for Good Reason (also as defined in the respective employment agreement), then such individual is entitled to the following benefits:

 

 

severance payments in an amount equal to (i) his highest annual base salary in effect during the 12 months immediately prior to his termination date plus (ii) the average annual bonus earned by him for the most recent two fiscal years ending prior to his termination date;

 

 

coverage under health, dental, life, accident, disability and similar benefit plans offered to (and on the same terms as) the other senior executive officers for the 12 months following his termination date; and

 

 

the immediate vesting of any restricted stock, stock option or other equity compensation awards scheduled to vest within six months of his termination date.

 

If either Mr. Prim or Mr. Castaneda is terminated without Cause or resigns for Good Reason or his employment is otherwise terminated due to death, disability, or retirement from the Company in good standing, such executive will remain eligible for an award under the Company’s Amended and Restated Value Creation Plan for the fiscal year in which such termination occurs and may receive a full current-year award based on the Company’s progress towards the applicable target at the time of such termination.

 

Under his employment agreement, if Mr. Prim (i) is terminated without Cause; (ii) he resigns for Good Reason; (iii) dies or (iv) becomes Disabled (as defined in Mr. Prim’s employment agreement), in each case, in connection with or within two years following a Change of Control, then he is entitled to the following benefits under his employment agreement:

 

 

severance payments in an amount equal to 5.0 times the sum of (i) his highest annual base salary in effect during the 12 months immediately prior to his termination date plus (ii) the average annual bonus earned by him for the most recent two fiscal years ending prior to his termination date; and

 

 

coverage under health, dental, life, accident, disability and similar benefit plans offered to (and on the same terms as) the other senior executive officers for the 24 months following his termination date.

 

Under his employment agreement, if Mr. Castaneda is terminated without Cause or he resigns for Good Reason, in either case, in connection with or within two years following a Change of Control, then he is entitled to the following benefits under his employment agreement:

 

 

severance payments in an amount equal to 1.5 times the sum of (i) his highest annual base salary in effect during the 12 months immediately prior to his termination date plus (ii) the average annual bonus earned by him for the most recent two fiscal years ending prior to his termination date; and

 

 

 
46

 

 

 

coverage under health, dental, life, accident, disability and similar benefit plans offered to (and on the same terms as) the other senior executive officers for the 18 months following his termination date.

 

In addition, any restricted stock, stock option or other equity compensation awards held by Mr. Prim or Mr. Castaneda that are unvested will immediately vest as of the date of the Change of Control.

 

Matthew T. Sheehan

 

The following summary of the employment agreement of Mr. Sheehan describes our employment agreement with Mr. Sheehan that was entered into in June 2013 and that was amended in October 2016.

 

Our employment agreement with Mr. Sheehan has an initial term expiring on June 10, 2016 with automatic one-year renewals and provides for an annual base salary of $450,000. Mr. Sheehan has a target bonus level under the Company’s annual incentive plan of 100% of his base salary. Mr. Sheehan’s employment agreement also provides him the right to participate in the Company’s Amended and Restated Value Creation Plan and the right to receive at least 25% of the bonus pool awarded to all participants under the Amended and Restated Value Creation Plan in any fiscal year. Mr. Sheehan’s employment agreement provides that, upon termination of the Amended and Restated Value Creation Plan or the cessation of awards thereunder, if the Company adopts a new long-term incentive plan, Mr. Sheehan will be granted awards under the new plan commensurate with his position as President and Chief Operating Officer. In October 2016, we entered into an amendment to Mr. Sheehan’s employment agreement, which, in part, provided for an award to Mr. Sheehan of an option to purchase up to 100,000 shares of the Company’s common stock, in recognition of services previously rendered. These options vest in four equal annual installments beginning on the first anniversary of the grant date. We have agreed to maintain insurance coverage for and indemnify Mr. Sheehan in connection with his service as an officer of our Company.

 

Mr. Sheehan’s employment agreement provides that if he is terminated without Cause (as defined in Mr. Sheehan’s employment agreement) or resigns for Good Reason (also as defined in Mr. Sheehan’s employment agreement), Mr. Sheehan will receive (i) base salary through the termination date, (ii) any applicable prorated annual bonus, based on actual performance for the year of termination as determined by the Company’s Board in its discretion, (iii) any accrued but unpaid annual bonus for the fiscal year immediately preceding the year of termination, and (iv) any accrued vacation and any other amounts Mr. Sheehan is entitled to under the Company’s employee benefit plans. If Mr. Sheehan is terminated without Cause or resigns for Good Reason or his employment is otherwise terminated due to death, disability, or retirement from the Company in good standing, he will remain eligible for an award under the Value Creation Plan for the fiscal year in which such termination occurs and may receive a full current-year award based on the Company’s progress towards the applicable target at the time of such termination

 

If the Company does not renew Mr. Sheehan’s employment agreement at the end of the initial term or any renewal term or Mr. Sheehan is terminated without Cause or resigns for Good Reason, Mr. Sheehan will receive an amount equal to the sum of (A) one year’s base salary (which will be his highest annual base salary in effect during the 12 months immediately prior to his termination date) plus (B) the average annual bonus (including amounts paid under the Value Creation Plan) earned by Mr. Sheehan for the most recent two fiscal years ending prior to the termination date. Additionally, if the Company does not renew Mr. Sheehan’s employment agreement at the end of the initial term or any renewal term or Mr. Sheehan is terminated without Cause or resigns for Good Reason, Mr. Sheehan will receive continuation of health benefits or payment of COBRA health insurance premiums for up to 12 months following termination and any equity compensation awards granted by the Company (a) that were otherwise scheduled to vest within six months after the termination date for all options that have a monthly or quarterly vesting schedule and (b) that were otherwise scheduled to vest at the next vesting date for all options that have an annual vesting schedule will vest immediately.

 

 

 
47

 

 

The employment agreement provides that if Mr. Sheehan (i) is terminated by the Company for any reason other than Cause; (ii) resigns for Good Reason; (iii) dies or (iv) becomes Disabled (as defined in Mr. Sheehan’s employment agreement), in each case, in connection with or within two years of a Change of Control (as defined in Mr. Sheehan’s employment agreement), Mr. Sheehan will receive in addition to any amounts otherwise payable under the employment agreement in connection with the termination of employment an amount equal to 1.5 times the sum of (A) the highest base salary in effect during the 12 months immediately prior to his termination plus (B) the average annual bonus earned by Mr. Sheehan for the most recent two fiscal years ending prior to the termination date. In such case, Mr. Sheehan will also be entitled to an additional six months of health benefits continuation or payment of COBRA health insurance premiums and immediate vesting of all outstanding unvested equity awards.

 

 

 
48

 

 

Equity Compensation Plan Information 

 

The following table provides information as of December 31, 2016, with respect to compensation plans under which our equity securities are available for issuance.

 

Plan category

 

Number of securities to be issued upon exercise of outstanding options, warrants and rights

(a)

 

Weighted-average exercise price of outstanding options, warrants and rights

(b)

 

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))

(c)

Equity compensation plans approved by security holders

 

  5,066,804 (1)

 

$3.76

 

39,171

             

Equity compensation plans not approved by security holders

 

  -

 

-

 

-

             

Total

 

5,066,804

 

$3.76 (2)

 

39,171 (3)(4)

 

(1)

Consists of 1,988,936 stock options and 202,030 restricted stock units outstanding under the Amended and Restated 2010 Omnibus Long-Term Incentive Plan and 2,875,838 deferred stock units outstanding under the Deferred Compensation Plan, which deferred stock units currently are to be settled using shares under the Amended and Restated 2010 Omnibus Long-Term Incentive Plan (or shares otherwise issued in a manner compliant with all applicable laws and securities exchange requirements).

 

(2)

The weighted average exercise price in this column takes into account only the stock options reflected in column (a); it does not take into account the restricted stock units or deferred stock units reflected in column (a).

 

(3)

Consists of 39,171 shares available for issuance under the 2010 Employee Stock Purchase Plan.

 

(4)

There were 912,888 shares remaining available for future issuance under the Amended and Restated 2010 Omnibus Long-Term Incentive Plan as of December 31, 2016, excluding for the effect of the deferred stock units then outstanding under the Deferred Compensation Plan. The Company currently anticipates that the majority of those deferred stock units will be settled in five-year installments beginning in 2017.

 

   

 
49

 

 

Additional Information About Directors and Executive Officers

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers, directors and certain persons who beneficially own more than 10% of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Executive officers, directors and such greater than 10% stockholders are required to furnish us copies of all ownership reports they file. Based solely on our review of the copies of the reports that we received and written representations that no other reports were required, we believe that our executive officers, directors and greater than 10% stockholders complied with all applicable filing requirements on a timely basis during 2016, except that David Warnock filed two late Forms 4 with respect to the sale of shares of common stock and one late Form 4 with respect to the exercise of warrants