SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant ☒ Filed by a Party other than the Registrant ☐
Check the appropriate box:
☐ | Preliminary Proxy Statement |
☐ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
☒ | Definitive Proxy Statement |
☐ | Definitive Additional Materials |
☐ | Soliciting Material Pursuant to § 240.14a-11(c) or § 240.14a-12 |
CLEARWATER PAPER CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
☒ | No fee required. |
☐ | Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. |
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(2) | Aggregate number of securities to which transaction applies: |
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): |
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☐ | Fee paid previously with preliminary materials. |
☐ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
(1) | Amount Previously Paid: |
(2) | Form, Schedule or Registration Statement No.: |
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Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. |
CLEARWATER PAPER CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
May 8, 2017
NOTICE OF ANNUAL MEETING
AND
PROXY STATEMENT
Clearwater Paper Corporation |
601 W. Riverside Blvd., Suite 1100 |
Spokane, WA 99201 |
Dear Stockholders:
You are cordially invited to attend Clearwater Paper Corporations 2017 Annual Meeting of Stockholders on Monday, May 8, 2017, at 9:00 a.m. Pacific time at the Grand Hyatt, 721 Pine Street, Seattle, Washington 98101.
The matters to be acted upon at the Annual Meeting of the Stockholders are described in the attached Proxy Statement and in a Notice of Internet Availability of Proxy Materials that was mailed to our stockholders on or about March 28, 2017. At the Annual Meeting of Stockholders we will also provide a brief report on our operations and respond to questions from stockholders.
Very truly yours, |
Linda K. Massman |
President and Chief Executive Officer |
Clearwater Paper Corporation |
601 W. Riverside Blvd., Suite 1100 |
Spokane, WA 99201 |
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders of Clearwater Paper Corporation will be held at the Grand Hyatt, 721 Pine Street, Seattle, Washington 98101, on Monday, May 8, 2017, at 9:00 a.m. local time.
We are holding this meeting to:
◾ | elect two directors to the Clearwater Paper Corporation Board of Directors; |
◾ | ratify the appointment of our independent registered public accounting firm for 2017; |
◾ | hold an advisory vote to approve the compensation of our named executive officers; |
◾ | hold an advisory vote on the frequency of the say-on-pay vote; |
◾ | approve the Clearwater Paper 2017 Stock Incentive Plan; and |
◾ | transact any other business that properly comes before the meeting. |
Our Board of Directors has selected March 13, 2017, as the record date for determining stockholders entitled to notice of the meeting and to vote at the meeting and at any adjournment or postponement of the meeting.
On or about March 28, 2017, we mailed a Notice of Internet Availability of Proxy Materials (the Notice) to most of our stockholders containing instructions on how to access our 2017 Proxy Statement and 2016 Annual Report to Stockholders. The Notice also provides instructions on how to vote online or by telephone and includes instructions on how to receive a paper copy of the proxy materials by mail. The Notice will also serve as an admission ticket for a stockholder to attend the 2017 Annual Meeting of Stockholders. Some of our stockholders, including stockholders that hold shares in one of our Clearwater Paper 401(k) Savings Plans, were not mailed the Notice and instead were mailed paper copies of our 2017 Proxy Statement and 2016 Annual Report on or about March 28, 2017.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the Annual Meeting of Stockholders, we urge you to vote and submit your proxy in order to ensure the presence of a quorum. Each attendee must present the Notice, or other proper form of documentation (as described in the section Annual Meeting Information in the Proxy Statement) to be admitted.
Stockholders may vote:
1. By Internet: go to www.proxyvote.com;
2. By toll-free telephone: call 1-800-690-6903; or
3. By mail (if you receive a paper copy of the proxy materials and wish to vote by mail): complete, sign, and date your proxy card and return it in the postage-paid envelope that we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY, 11717.
For Internet and telephone voting, you will need the Control Number printed on the Notice or proxy card you received. Any proxy may be revoked in the manner described in the proxy statement under the heading Revoking your Proxy.
Beneficial Stockholders. If your shares are held in the name of a broker, bank or other holder of record, follow the voting instructions you receive from the holder of record to vote your shares.
The proxy statement relating to the Annual Meeting is attached. Financial and other information concerning Clearwater Paper is contained in our Annual Report to Stockholders for the fiscal year ended December 31, 2016. This proxy statement and our 2016 Annual Report to Stockholders are available on our website at www.clearwaterpaper.com by selecting Investor Relations and then Financial Information & SEC Filings. Additionally, and in accordance with SEC rules, you may access our proxy materials at www.proxyvote.com which does not have cookies that identify visitors to the site.
By Order of the Board of Directors, |
MICHAEL S. GADD |
Senior Vice President, General Counsel and Corporate Secretary |
Clearwater Paper Proxy Summary, 2016 Highlights and Corporate Governance Facts
| The Annual Meeting of Stockholders of Clearwater Paper Corporation will be held at the Grand Hyatt, 721 Pine Street, Seattle, Washington 98101, on Monday, May 8, 2017, at 9:00 a.m. local time. |
| Stockholders who owned common stock at the close of business on March 13, 2017 , the record date for the Annual Meeting, may vote at the meeting and at any adjournment or postponement of the meeting. |
| The purpose of the meeting is to: |
◾ | elect two directors to our Board (Proposal 1); |
◾ | ratify the appointment of our independent registered public accounting firm for 2017 (Proposal 2); |
◾ | hold an advisory vote to approve the compensation of our named executive officers (Proposal 3); |
◾ | hold an advisory vote on the frequency of the say-on-pay vote. (Proposal 4); |
◾ | approve the Clearwater Paper Corporation 2017 Stock Incentive Plan. (Proposal 5). |
| The Board recommends a vote FOR each nominee, FOR proposals 2, 3 and 5 and FOR an annual say-on-pay frequency. |
| Beth E. Ford and John P. ODonnell are nominated for election at this meeting for a term expiring in 2020. You can find more information regarding our nominees in Board of Directors further in this proxy. |
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2016 Business Highlights
| We performed well in 2016 by continuing to aggressively manage costs and drive operational efficiencies throughout our manufacturing and distribution network during a year that included planned major maintenance. |
| 2016 was the second year of our three-year business plan focused on improving our operating efficiencies and cost effectiveness, including the: |
◾ | on track and on budget completion of the first phase of the installation of a continuous pulp digester at our Lewiston site; |
◾ | completion of warehouse automation at our Shelby and Las Vegas sites and initiation of warehouse automation at our Lewiston and Elwood sites; |
◾ | optimization of our operations through better asset utilization with the announced closure of our Oklahoma City converting facility and the shutdown of 2 of our highest-cost tissue machines at our Neenah facility; |
◾ | completion of 58 Lean Six Sigma projects (Black Belt and Green Belt process improvements); and |
◾ | implementation of a Total Productive Manufacturing (TPM) base with active pilot lines at 3 sites delivering significant productivity improvements through increases in overall equipment efficiency and increases in equipment performance. |
| We maintained a strong safety record within our industry. |
| We acquired Manchester Industries, which provides us a direct paper-board sales and converting platform and expands our reach into small and mid-size folding carton channels. We added new business in our consumer products division, including in the club channel with a national retailer. |
| We achieved an aggregate 68% reduction in solid waste at all facilities, surpassing our goal of 20% by 2020, and have achieved an aggregate 9% reduction in water usage. |
| We continued to return value to our stockholders through the repurchase of $65 million of our common stock. |
| We increased our borrowing capacity and options by entering into a new line of credit. |
2016 Executive Compensation Highlights
| During the three-year performance period for performance share awards granted in 2014 (for the 2014-2016 performance period), we had a 20.3% total stockholder return (TSR) compared to a median TSR for the S&P MidCap 400® Index (excluding those companies classified as members of the GICS® Financials sector) of 23.0% This placed us in the 47.6 percentile for performance compared to the index group during this period, and resulted in a payout of performance shares equal to 89.0% of target. |
| We funded our company bonus pool at 123.3% of target as a result of EBITDA and EBITDA Margin performance: |
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Corporate Governance Facts
| The Board currently has 8 members, 7 of whom are independent. |
| The Board and its committees met 25 times in 2016. Attendance for all of the Board and committee meetings was 100%. |
| There is majority voting in director elections. |
| The Chair of the Board and the CEO are separate. |
| The Board oversees risk management practices. |
| There are three standing committees made up entirely of independent directors. |
| The Board and its standing committees perform self-evaluations on an annual basis. |
| Each standing committee operates under a committee charter. |
| Independent directors regularly meet without management present. |
| The Board regularly receives information concerning, and provides input on, succession planning. |
| The Board has adopted an insider trading policy, a related persons policy, corporate governance guidelines, a code of business conduct and ethics, and a code of ethics for senior financial officers. |
| We have an anti-hedging and anti-pledging policy for our stock. |
| Directors and officers all are required to satisfy minimum stock ownership requirements. |
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CLEARWATER PAPER CORPORATION
PROXY STATEMENT
for the
2017 ANNUAL MEETING OF STOCKHOLDERS
This proxy statement is being furnished to stockholders of Clearwater Paper Corporation in connection with the solicitation of proxies by our Board of Directors for use at our 2017 Annual Meeting of Stockholders, which is described below. References to Clearwater Paper, the company, we, us or our throughout this proxy statement mean Clearwater Paper Corporation.
INTERNET AVAILABILITY OF ANNUAL MEETING MATERIALS
Under Securities and Exchange Commission (SEC) rules, we have elected to make our proxy materials available to most of our stockholders over the Internet, rather than mailing paper copies of those materials to each stockholder. On or about March 28, 2017, we mailed to most of our stockholders a Notice of Internet Availability of Proxy Materials (the Notice) directing stockholders to a website where they can access our 2017 Proxy Statement and 2016 Annual Report and view instructions on how to vote via the Internet or by phone. If you received the Notice and would like to receive a paper copy of the proxy materials, please follow the instructions printed on the Notice to request that a paper copy be mailed. Some of our stockholders were not mailed the Notice and were instead delivered paper copies of the documents accessible on the Internet.
Date, Time and Place of the Meeting
The 2017 Annual Meeting of Stockholders will be held on Monday, May 8, 2017, at 9:00 a.m., local time, at the Grand Hyatt, 721 Pine Street, Seattle, Washington 98101.
Purpose of the Meeting
The purpose of the meeting is to:
◾ | elect two directors to our Board; |
◾ | ratify the appointment of our independent registered public accounting firm for 2017; |
◾ | hold an advisory vote to approve the compensation of our named executive officers; |
◾ | hold an advisory vote on the frequency of the say-on-pay vote; |
◾ | approve the Clearwater Paper Corporation 2017 Stock Incentive Plan; and |
◾ | transact any other business that properly comes before the meeting. |
Recommendation of the Board of Directors
Our Board unanimously recommends that you vote FOR each director nominee, FOR the ratification of the appointment of our independent registered public accounting firm for 2017, FOR approval of the compensation of our named executive officers, FOR the advisory approval of the holding of a say-on-pay vote annually and FOR the approval of the Clearwater Paper Corporation 2017 Stock Incentive Plan.
Who May Vote
Stockholders who owned common stock at the close of business on March 13, 2017, the record date for the Annual Meeting, may vote at the meeting. For each share of common stock held, stockholders are entitled to one vote for as many separate nominees as there are directors to be elected and one vote on any other matter presented.
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Proxy Solicitation
Certain of our directors, officers and employees and our proxy solicitor, D.F. King & Co. may solicit proxies on our behalf by mail, phone, fax, e-mail, or in person. We will bear the cost of the solicitation of proxies, including D.F. Kings fee of $6,000 plus out-of-pocket expenses, and we will reimburse banks, brokers, custodians, nominees and fiduciaries for their reasonable charges and expenses to forward our proxy materials to the beneficial owners of Clearwater Paper common stock. No additional compensation will be paid to our directors, officers or employees who may be involved in the solicitation of proxies.
Tabulation of VotesInspector of Election
Broadridge Financial Solutions, Inc., or Broadridge, will act as the inspector of election at the Annual Meeting and we will reimburse reasonable charges and expenses related to the tabulation of votes.
Voting
You may vote your shares in one of several ways, depending upon how you own your shares.
Shares registered directly in your name with Clearwater Paper (through our transfer agent, Computershare):
◾ | Via Internet: Go to www.proxyvote.com and follow the instructions. You will need to enter the Control Number printed on the Notice you received or if you received printed proxy materials, by following the instructions provided with your proxy materials and on your proxy card or voting instruction card. |
◾ | By Telephone: Call toll-free 1-800-690-6903 and follow the instructions. You will need to enter the Control Number printed on the Notice you received or if you received printed proxy materials, by following the instructions provided with your proxy materials and on your proxy card or voting instruction card. |
◾ | In Writing: If you received printed proxy materials in the mail and wish to vote by mail, complete, sign, and date your proxy card, and return it in the postage paid envelope that was provided to you, return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY, 11717, or provide it or a ballot distributed at the Annual Meeting directly to the Inspector of Election at the Annual Meeting when instructed. |
Shares held in a Clearwater Paper 401(k) Savings Plan (through Fidelity Management Trust Company):
◾ | Via Internet: If you are a participant in the Clearwater Paper Represented 401(k) Plan or the Clearwater Paper 401(k) Plan (which we refer to as the 401(k) Savings Plans), go to www.proxyvote.com and follow the instructions. You will need to enter the Control Number printed on the voting instruction form you received. |
◾ | By Telephone: Call toll free 1-800-690-6903 and follow the instructions. You will need to enter the Control Number printed on the voting instruction form you received. |
◾ | In Writing: Complete, sign, and date the proxy card that was mailed to you, and return it in the envelope that was provided to you or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY, 11717. |
IMPORTANT NOTE TO 401(K) SAVING PLANS PARTICIPANTS: Broadridge, our proxy agent, must receive your voting instructions by 11:59 p.m., Eastern Daylight Time, on May 3, 2017, in order to tabulate the voting instructions of 401(k) Savings Plans participants who have voted and communicate those instructions to the 401(k) Savings Plans trustee, who will ultimately vote your shares.
If the 401(k) Savings Plan trustee does not timely receive voting directions from a 401(k) Savings Plans participant or beneficiary, the participant or beneficiary shall be deemed to have
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directed the 401(k) Savings Plan trustee to vote his or her company stock account in accordance with the pro rata percentage of voting directions received for the allocated stock. Conversely, if voting directions are timely received, they will proportionally control how unallocated or undirected company stocks are voted.
Shares held in street or nominee name (through a bank, broker or other nominee):
◾ | You may receive a Notice of Internet Availability of Proxy Materials or a separate voting instruction form from your bank, broker or other nominee holding your shares. You should follow the instructions in the Notice or voting instructions provided by your broker or nominee in order to instruct your broker or other nominee on how to vote your shares. The availability of telephone or Internet voting will depend on the voting process of the broker or nominee. To vote in person at the Annual Meeting, you must obtain a proxy, executed in your favor, from the holder of record. |
◾ | If you are the beneficial owner of shares held in street name by a broker, then the broker, as the holder of record of the shares, must vote those shares in accordance with your instructions. If you do not give instructions to the broker, then your broker can vote your shares for discretionary items, but cannot vote your shares for non-discretionary items. |
If you vote via the Internet, by telephone or return a proxy card by mail, but do not select a voting preference, the persons who are authorized on the proxy card, voting instruction forms and through the Internet and telephone voting facilities to vote your shares will vote FOR each director nominee, FOR the ratification of the appointment of our independent registered public accounting firm for 2017, FOR advisory approval of the vote on the compensation of our named executive officers, FOR the advisory approval of the holding of a say-on-pay vote annually and FOR the approval of the Clearwater Paper Corporation 2017 Stock Incentive Plan. If you have any questions or need assistance in voting your shares, please contact D.F. King & Co. toll-free at 1-800-578-5378 or Robin Yim, Vice President, Investor Relations at 1-509-344-5906.
Revoking your Proxy
If you are a stockholder of record, you may revoke your proxy at any time before the Annual Meeting by giving our Corporate Secretary written notice of your revocation by mailing to Clearwater Paper Corporation, Corporate Secretary, 601 West Riverside Avenue, Suite 1100, Spokane WA, 99201 and by submitting a later-dated proxy, or you may revoke your proxy at the Annual Meeting by voting by ballot. Attendance at the meeting, by itself, will not revoke a proxy. If shares are registered in your name, you may revoke your proxy by telephone by calling 1-800-690-6903 and following the instructions or via the Internet by going to www.proxyvote.com and following the instructions.
If your shares are held in one of the 401(k) Savings Plans (through Fidelity Management Trust Company), you may revoke your proxy by telephone by calling 1-800-690-6903 and following the instructions or via the Internet by going to www.proxyvote.com and following the instructions. Broadridge, our proxy agent, must receive your revocation by 11:59 p.m., Eastern Daylight Time, on May 3, 2017, in order for the revocation to be communicated to the 401(k) Savings Plans trustee.
If you are a stockholder in street or nominee name, you may revoke your voting instructions by informing the bank, broker or other nominee in accordance with that entitys procedures for revoking your voting instructions.
Quorum
On March 13, 2017, the record date, we had 16,431,236 shares of common stock outstanding. Voting can take place at the Annual Meeting only if stockholders owning a majority of the total number of shares issued and outstanding and entitled to vote on the record date are present either in person or
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by proxy. Abstentions and broker non-votes will both be treated as present for purposes of determining the existence of a quorum.
Votes Needed
The affirmative vote of a majority of the common stock present in person or by proxy at the Annual Meeting and entitled to vote is required to elect each of the nominees for director listed in Proposal 1, to ratify the appointment of our independent registered public accounting firm as set forth in Proposal 2 and to approve the Clearwater Paper Corporation 2017 Stock Incentive Plan as set forth in Proposal 5.
The votes presented in Proposal 3 and Proposal 4 are advisory votes and therefore are not binding on the company, our Compensation Committee or our Board of Directors. We, however, value the opinions of our stockholders. The Compensation Committee will, as it did with respect to previous stockholder advisory votes regarding named executive officer compensation and frequency of say-on-pay, take into account the result of the advisory vote when determining future executive compensation and when determining the frequency of the say-on-pay vote.
The inspector of election will tabulate affirmative and negative votes, abstentions and broker non-votes. For Proposals 1, 2 and 5 withheld votes and abstentions will have the same effect as negative votes. Broker non-votes will not be counted in determining the number of shares entitled to vote.
Majority Vote Standard in Uncontested Director Elections
We have adopted majority voting procedures for the election of directors in uncontested elections. In an uncontested election, each nominee is elected by the vote of a majority of the voting power of the capital stock issued and outstanding, present in person or by proxy and entitled to vote for the election of directors. As provided in our bylaws, an uncontested election is one in which the number of nominees equals the number of directors to be elected in such election.
In accordance with our bylaws, our Board of Directors may nominate or elect as a director only persons who agree to tender, promptly following his or her election or re-election to the Board, an irrevocable resignation that will be effective upon (i) the failure of the candidate to receive the required vote at the next annual meeting at which he or she faces re-election and (ii) the acceptance by the Board of such resignation.
If an incumbent director fails to receive the required vote for re-election in an uncontested election, the Nominating and Governance Committee determines whether such directors resignation should be accepted and makes a recommendation to the Board, which makes the final determination whether to accept the resignation. The Board must publicly disclose its decision within 90 days from the date of certification of the election results. If a directors resignation is accepted by the Board, then the Board may fill the resulting vacancy or may decrease the size of the Board.
Annual Meeting Attendance
We cordially invite and encourage all of our stockholders to attend the meeting. Persons who are not stockholders may attend only if invited by us. You should be prepared to present photo identification for admittance.
◾ | If you are a stockholder of record, you must bring a copy of the Notice or proxy card in order to be admitted to the meeting. |
◾ | If you hold your shares through one of the 401(k) Savings Plans, you must bring your proxy card in order to be admitted to the meeting. |
◾ | If you own shares in street or nominee name, you must bring proof of beneficial ownership (e.g., a current brokers statement) in order to be admitted to the meeting. |
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Clearwater Paper Corporation 2017
If you do not provide photo identification and comply with the other procedures outlined above, you may not be admitted to the Annual Meeting.
Other Matters Presented at Annual Meeting
We do not expect any matters, other than those included in this proxy statement, to be presented at the 2017 Annual Meeting. If other matters are presented, the individuals named as proxies will have discretionary authority to vote your shares on such matters.
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Clearwater Paper Corporation 2017
Corporate Governance Guidelines; Code of Business Conduct and Ethics
We have established a corporate governance program to help guide our company and our employees, officers and directors in carrying out their responsibilities and duties as well as to set standards for their professional conduct. Our Board has adopted Corporate Governance Guidelines, or Governance Guidelines, which provide standards and practices of corporate governance that we have designed to help contribute to our success and to assure public confidence in our company. The companys Governance Guidelines may be found on the companys website at www.clearwaterpaper.com under Investor Relations, then Corporate Governance. In addition, all standing committees of the Board operate under charters that describe the responsibilities and practices of each committee.
We have adopted a Code of Business Conduct and Ethics, or Ethics Code, which provides ethical standards and corporate policies that apply to all of our directors, officers and employees. Our Ethics Code requires, among other things, that our directors, officers and employees act with integrity and the highest ethical standards, comply with laws and other legal requirements, engage in fair competition, avoid conflicts of interest, and otherwise act in our best interests. We have also adopted a Code of Ethics for Senior Financial Officers that applies to senior management and provides for accurate, full, fair and timely financial reporting and the reporting of information related to significant deficiencies in internal controls, fraud and legal compliance.
We have established procedures for confidentially and anonymously reporting concerns and potential violations regarding accounting, internal controls and auditing matters, as well as concerns regarding, or potential violations of, our ethics codes and other matters.
The role of our Board is to oversee and provide policy guidance on our business and affairs. The Board believes that it will best serve our stockholders if the majority of its members are independent. As of March 13, 2017, our Board had eight members, seven of whom are outside (non-employee) directors. The Chair of our Board, Boh A. Dickey, is an outside director. With the exception of Linda K. Massman, who serves as our current President and Chief Executive Officer, the Board has determined that none of our directors or their immediate family members have a material relationship with the company (either directly or as a partner, stockholder or officer of an organization that has a relationship with us), and none of our directors or their immediate family members are employees of our independent registered public accounting firm, KPMG LLP. All of our outside directors are independent within the meaning of the New York Stock Exchange, or NYSE, listing standards and our Director Independence Policy.
Our Board meets regularly in executive session without members of management present and as the Board or its individual members deem necessary. Mr. Dickey, as the Chair, presides over these sessions. Each standing committee of the Board also meets in executive session regularly and as the committee or its individual members deem necessary. Our directors are also invited to attend the meetings of committees of which they are not members, and regularly do so.
Our Board and its committees met a total of 25 times in 2016. All directors attended all meetings of the Board and all meetings of Board committees for which they were a committee member during 2016. The Board does not have a policy requiring director attendance at annual meetings of our stockholders. However, all of our directors attended our 2016 annual stockholders meeting and we anticipate that all will attend our 2017 annual stockholders meeting.
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Stockholders and interested parties may contact our directors to provide comments, to report concerns, or to ask a question, by mail at the following address:
Corporate Secretary
Clearwater Paper Corporation
601 West Riverside Ave., Suite 1100
Spokane, Washington 99201
Stockholders and interested parties may also communicate with our directors as a group by using the form on our website at www.clearwaterpaper.com, by selecting Investor Relations, then Corporate Governance and Contact the Board. All communications received will be processed by our Corporate Secretary. We forward all communications, other than those that are unrelated to the duties and responsibilities of the Board, to the intended directors.
Our Audit Committee has established procedures to address concerns and reports of potential irregularities or violations regarding accounting, internal controls and auditing matters. Employees may make such reports on a confidential and anonymous basis. All such reports are directed through an independent, third-party hotline provider and are routed directly to the Chair of the Audit Committee. The procedures and hotline number are available by going to our public website at www.clearwaterpaper.com, and selecting Investor Relations, then Corporate Governance, and Procedures for the Reporting of Questionable Accounting and Auditing Matters. Our employees may also access the procedures and hotline number through our intranet site.
Our Nominating and Governance Committee, or Nominating Committee, is responsible for identifying, evaluating, recruiting and recommending qualified candidates to our Board for nomination or election. The Board nominates directors for election at each annual meeting of stockholders, and elects new directors to fill vacancies if they occur.
Our Board strives to find directors who are experienced and dedicated individuals with diverse backgrounds, perspectives and skills. Our Governance Guidelines contain membership criteria that call for candidates to be selected for their character, judgment, diversity of experience, business acumen and ability to act on behalf of all stockholders. In addition, we expect each director to be committed to enhancing stockholder value and to have sufficient time to effectively carry out his or her duties as a director. Our Nominating Committee also seeks to ensure that a majority of our directors are independent under NYSE rules as well as our policies, and that one or more of our directors is an audit committee financial expert under SEC rules.
Prior to our annual meeting of stockholders, our Nominating Committee identifies director nominees by first evaluating the current directors whose terms will expire at the annual meeting and who are willing to continue in service. These candidates are evaluated based on the criteria described above, the candidates prior service as a director, and the needs of the Board for any particular talents and experience. If a director no longer wishes to continue in service, if the Nominating Committee decides not to re-nominate a director, or if a vacancy is created on the Board because of a resignation or an increase in the size of the Board or other event, then the committee considers whether to replace such director or to decrease the size of the Board. If the decision is to replace a director, then the Nominating Committee considers various candidates for Board membership, including those suggested by committee members, by other Board members, a director search firm engaged by the committee, or our stockholders. Prospective nominees are evaluated by the Nominating Committee based on the membership criteria described above and set forth in our Governance Guidelines.
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A stockholder who wishes to recommend a prospective nominee to the Board for consideration by the Nominating Committee must notify our Corporate Secretary in writing at our principal executive office located at 601 West Riverside Avenue, Suite 1100, Spokane, WA 99201. Each notice must include the information about the prospective nominee as would be required if the stockholder were nominating a person to the Board under our Amended and Restated Bylaws, or bylaws. Such notice must be delivered to our offices by the deadline relating to stockholder proposals to be considered for inclusion in our proxy materials, as described under General InformationStockholder Proposals for 2018 in this proxy statement.
Each notice delivered by a stockholder who wishes to recommend a prospective nominee to the Board for consideration by the Nominating Committee generally must include the following information about the prospective nominee:
◾ | the name, age, business address and residence address of the person; |
◾ | the principal occupation of the person; |
◾ | the number of shares of Clearwater Paper common stock owned by the person; |
◾ | a statement whether the person, if elected, intends to tender an irrevocable resignation effective upon (i) such persons failure to receive the required vote for re-election and (ii) acceptance of such resignation by the Board; |
◾ | a description of all compensation and other relationships during the past three years between the stockholder and the person; |
◾ | any other information relating to the person required to be disclosed pursuant to Section 14 of the Exchange Act, and |
◾ | the persons written consent to serve as a director if elected. |
The Nominating Committee may require any prospective nominee recommended by a stockholder to furnish such other information as the Nominating Committee may reasonably require to determine the eligibility of such person to serve as an independent director or that could be material to a stockholders understanding of the independence, or lack thereof, of such person.
The foregoing is only a summary of the detailed requirements set forth in our bylaws regarding director nominations by stockholders that would apply when a stockholder wishes to recommend a prospective nominee to the Board for consideration by the Nominating Committee. A more detailed description of the information that must be provided as to a prospective nominee is set forth in Article 3 of our bylaws, which are available on our website at www.clearwaterpaper.com by selecting Investor Relations and then Corporate Governance.
Our Board currently has three standing committees, as described below. The current charters of each of these committees are available on our website at www.clearwaterpaper.com by selecting Investor Relations and then Corporate Governance.
The Board has elected to appoint one of its independent members to serve as Chair. Our Chair, Boh A. Dickey, acts as the lead independent director and, among other responsibilities, provides an independent contact to allow the other directors to communicate their views and concerns to management as well as presides over non-management executive sessions of Board meetings. Our Board believes that an independent Chair with prior corporate governance experience combined with a President and CEO who manages the day-to-day operations of our company while also serving as a director, provides our Board with an optimal balance in terms of leadership structure at this point in time.
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Clearwater Paper Corporation 2017
In the future, the Board may elect to have the role of Board Chair and CEO performed by the same person, as other companies in our industry do. If we were to adopt that structure, the Board would appoint one of its independent members to serve as Vice Chair, who would act as the lead independent director and, among other responsibilities, provide an independent contact to allow the other directors to communicate their views, and concerns to management as well as preside over non-management executive sessions of Board meetings.
One of the responsibilities of our Board is to provide oversight of our risk management practices to ensure appropriate risk management systems are employed throughout the company. Management, which is responsible for the day-to-day assessment and mitigation of our risks, utilizes an enterprise risk management, or ERM, program, which is an enterprise-wide program designed to enable effective and efficient identification and management of critical enterprise risks and to facilitate the incorporation of risk considerations into decision making. To assist and strengthen managements risk assessment and mitigation efforts, we have a Risk Management Committee whose management members represent a company-wide perspective and provide subject matter expertise as part of our ERM process. Through the ERM process, management identifies, monitors and manages risks and regularly reports to the Board or a committee of the Board as to the assessment and management of risks.
The Boards standing committees support the Board by regularly addressing various issues within their respective areas of oversight. The Audit Committees responsibilities include reviewing and overseeing major financial risk exposures and the steps management has taken to monitor and control these exposures. Management, on a regular basis, provides the committee with its assessment and mitigation efforts in regards to particular risks facing the company that have been identified through the ERM process. Our Audit Committee also reviews with our independent auditors the adequacy and effectiveness of our internal controls over financial reporting. Additionally, our Vice President, Internal Audit provides the Audit Committee with regular updates on our systems of internal controls over financial reporting, and our General Counsel reviews with the committee significant litigation, claims and regulatory and legal compliance matters.
The Compensation Committee assists the Board in fulfilling its risk management oversight responsibilities associated with risks arising from our compensation policies and programs. Each year management and the Compensation Committee review whether risks arising from our compensation policies and practices for our employees are reasonably likely to have a material adverse effect on the company. The Nominating Committee assists the Board in fulfilling its risk management oversight responsibilities associated with risks related to corporate governance structures and processes. Each of the committee chairs, as appropriate, reports to the full Board at regular meetings concerning the activities of the committee, any significant issues it has discussed and the actions taken by the committee.
The Boards role in risk oversight is consistent with its leadership structure. We believe that our Boards leadership structure facilitates its oversight of our risk management practices by combining the day-to-day knowledge of our business possessed by our President and CEO as a member of the Board, with the independence provided by our Chair and independent Board committees.
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Clearwater Paper Corporation 2017
The following table shows the membership of each committee as of March 13, 2017:
Name | Audit Committee |
Compensation Committee |
Nominating and Governance Committee | |||
Fredric W. Corrigan |
X | |||||
Boh A. Dickey (Chair of the Board) |
X (Chair) | |||||
Beth E. Ford |
X | X (Chair) | ||||
Kevin J. Hunt |
X (Chair) | |||||
William D. Larsson |
X | X | ||||
Linda K. Massman |
||||||
John P. ODonnell |
X | |||||
Alexander Toeldte |
X |
Audit Committee
Our Audit Committee consists of three outside directors, and is responsible for assisting the Board in its oversight of our accounting, financial reporting and internal control matters. As more fully described in its charter, the Audit Committee is also responsible for overseeing the quarterly review and the annual audit of our financial statements. The committee has sole authority to select, compensate and terminate our independent registered public accounting firm as well as the committees own consultants and advisors, and it oversees the selection, compensation and termination of our Vice President, Internal Audit. In addition, the committee oversees and administers our Related Person Transactions Policy. See Transactions with Related Persons below. The committee has appointed KPMG LLP as our independent registered public accounting firm for 2017, and pre-approves its audit fees and non-audit services and fees in accordance with criteria adopted by the committee.
Our Board has determined that all members of our Audit Committee are independent within the meaning of the NYSE listing standards and our Director Independence Policy, and that all members are financially literate. The Board also has determined that committee members Boh A. Dickey and William D. Larsson are each an audit committee financial expert as defined by SEC rules. The Audit Committee met ten times in 2016.
Compensation Committee
Our Compensation Committee consists of three outside directors, all of whom are independent within the meaning of the NYSE listing standards and our Director Independence Policy. As more fully described in its charter, the Compensation Committees primary responsibility is the oversight of our executive compensation and benefits programs, including establishing the performance measurements and targets for executive officers incentive pay, as well as annually reviewing and approving their compensation. The Compensation Committee has sole authority to select, compensate and terminate its own compensation consultants or other advisors. Additionally, the committee coordinates with our Board Chair the annual performance review of our Chief Executive Officer. The committee also reviews the Executive Compensation Discussion and Analysis contained in this proxy statement and recommends its inclusion to the full Board for approval. See Executive Compensation Discussion and Analysis in this proxy statement for a discussion of the committees role in setting executive compensation. The Compensation Committee met five times in 2016.
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Clearwater Paper Corporation 2017
Nominating and Governance Committee
Our Nominating and Governance Committee, or Nominating Committee, consists of three outside directors all of whom are independent within the meaning of the NYSE listing standards and our Director Independence Policy. As described more fully in its charter, the Nominating Committee is responsible for identifying, evaluating, recruiting and recommending to the Board nominees for election as directors, and for developing and recommending to the Board corporate governance principles. The committee also oversees the evaluation of the Board and management and has sole authority to select, compensate and terminate its own consultants and advisors. The Nominating Committee met four times in 2016.
Compensation Committee Interlocks and Insider Participation
Fredric W. Corrigan, Kevin J. Hunt, John P. ODonnell, and Michael T. Riordan served as members of our Compensation Committee during 2016. All are outside directors, and none of our named executive officers served as a director or as a member of a compensation committee of any business entity employing any of our directors during 2016. Mr. Riordan retired on May 1, 2016 and his service in the Compensation Committee ended on that date.
Transactions with Related Persons
Securities laws require us to disclose certain business transactions that are considered related person transactions. In order to comply with these requirements, our Board has adopted a Related Person Transactions Policy that applies to our directors and executive officers, any beneficial owner of more than 5% of our voting stock, any immediate family member of any of the foregoing persons, and any entity that employs any of the foregoing persons, or in which any of the foregoing persons is a general partner, principal or 10% or greater beneficial owner. Transactions covered by this policy are those in which (a) we or any of our subsidiaries participate, (b) the amount involved exceeds $120,000, and (c) any related person had, has or will have a direct or indirect material interest, as defined in the policy.
Any proposed related person transaction is reviewed by our Audit Committee at its next regularly scheduled meeting, unless our General Counsel and Corporate Secretary determines that it is not practicable or desirable to wait until the next scheduled meeting for a particular transaction, in which case the Chair of the Audit Committee has the authority to review and consider the proposed transaction. Only those transactions determined to be fair and in our best interests are approved, after taking into account all factors deemed relevant by the Audit Committee, or its Chair, as the case may be. If the Chair approves any related person transaction, then that approval is reported to the Audit Committee at its next regularly scheduled meeting.
We did not conduct any transactions with related persons in 2016 that would require disclosure in this proxy statement or that required approval by the Audit Committee pursuant to the policy described above.
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Clearwater Paper Corporation 2017
Our Board of Directors is divided into three classes serving staggered three-year terms. At the Annual Meeting, our stockholders will be asked to elect two individuals to serve as directors until the 2020 Annual Meeting. See Proposal No. 1Election of Directors. Our bylaws require our directors to be elected by a majority vote of the shares of common stock present or represented by proxy and entitled to vote at the Annual Meeting.
Below are the names and ages of our eight directors as of the date of this proxy statement, the year each of them became a director, each directors principal occupation or employment for at least the past five years, and other public company directorships held by each director during the past five years. Unless authority is withheld, the persons named as proxies in the voting materials made available to you or in the accompanying proxy will vote for the election of the nominees listed below. We have no reason to believe that any of these nominees will be unable to serve as a director. If any of the nominees becomes unavailable to serve, however, the persons named as proxies will have discretionary authority to vote for a substitute nominee.
Nominees for Election at this Meeting for a Term Expiring in 2020 (Class III)
Beth E. Ford (age 53) has been a director since January 2013. Since 2015 Ms. Ford has served as Group Executive Vice PresidentCOO at Land OLakes, Inc., a member-owned food and agricultural cooperative, where she served as Executive Vice President, President Chief Supply Chain & Operations Officer from January 2012 to 2015. From October 2008 to January 2012, Ms. Ford served as Executive Vice President and Head of Supply Chain at International Flavors & Fragrances Inc., a producer of flavors and fragrances. Since January 2015, Ms. Ford has served on the board of directors of PACCAR Inc (NASDAQ: PCAR), a manufacturer of light-, medium- and heavy-duty trucks.
The Board believes that Ms. Fords experience, knowledge, skills and expertise acquired in leadership positions of supply chain and operations management roles in multiple industries as well as her consumer products experience, add significant value to the Board. Further, Ms. Fords education in business management with a focus in finance provides the Board with additional knowledge and skills in assessing strategic options for the company. Based primarily on these considerations, the Board concluded that Ms. Ford should be nominated for re-election to our Board.
John P. ODonnell (age 56) has been a director since April 2016. Mr. ODonnell has served as President and CEO of Neenah Paper, Inc. (NYSE: NP), a global specialty materials company, since May 2011 and as a director since November 2010. He served as Neenah Papers COO from June 2010 to May 2011 and as President, Fine Paper from 2007 to June 2010. Mr. ODonnell was employed by Georgia-Pacific Corporation from 1985 until 2007 and held increasingly senior management positions in the Consumer Products division where he served as President of the North American Retail Business from 2004 through 2007, and as President of the North American Commercial Tissue business from 2002 through 2004.
The Board believes that Mr. ODonnells experience, knowledge and skills acquired in leadership positions in the consumer products paper industry add significant value to the Board. Further, Mr. ODonnells knowledge of paper products businesses, including pulp-based and consumer products, acquired as a CEO of Neenah Paper and in management positions at Georgia-Pacific is integral to the Board for assessing historical trends and strategic options for our company. Based primarily on these considerations, the Board concluded that Mr. ODonnell should be nominated for re-election to our Board.
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Clearwater Paper Corporation 2017
Directors Continuing in Office until 2018 (Class I)
Boh A. Dickey (age 72) has been a director since December 2008 and Chair of the Board since January 2013. Mr. Dickey served as the Vice Chair of the Board from May 2010 to December 2012, and previously served as Chair of the Board from December 2008 to May 2010. Mr. Dickey served as the President, COO and a director of SAFECO Corporation, an insurance and financial services company, from 1996 until his retirement in 2001. Prior to that, Mr. Dickey was the Controller and then CFO of SAFECO. Mr. Dickey also served as a director of Potlatch Corporation, a timber REIT, and Chair of its Audit Committee (NASDAQ: PCH), until his retirement from that board at the end of 2016.
The Board believes that Mr. Dickeys experience, knowledge, skills and expertise acquired as the President and COO of Safeco, including experience and understanding of the operation and governance of a public company, and as its Controller and CFO, as well as those Mr. Dickey acquired as an audit partner at an independent public accounting firm, including financial reporting expertise and understanding of internal and financial controls, add significant value to the Board. Additionally, Mr. Dickeys extensive qualifications and experience gained from serving as the chair of an audit committee for another public company provides expertise necessary for the functioning of our Board and the committees we are required to have as a NYSE listed public company. Further, Mr. Dickeys knowledge of paper products businesses, including pulp-based and consumer products, acquired as a director of our company and Potlatch is integral to the Board for assessing historical trends and strategic options for our company. Based primarily on these considerations, the Board concluded that Mr. Dickey should serve as one of our directors.
Linda K. Massman (age 50) has been a director since January 2013. Ms. Massman has served as President and CEO of Clearwater Paper since January 1, 2013, and served as President and COO from November 2011 to December 2012. Ms. Massman served as CFO and Senior Vice President, Finance from May 2011 to November 2011, and as CFO and Vice President, Finance from December 2008 to May 2011. From September 2008 to December 2008, Ms. Massman served as Vice President of Potlatch Corporation pending completion of the spin-off of Clearwater Paper Corporation. From May 2002 to August 2008, Ms. Massman was Group Vice President, Finance and Corporate Planning, for SUPERVALU Inc., a grocery retail company. Ms. Massman also serves as a director of Black Hills Corporation (NYSE: BKH), an energy company, and is a member of its Compensation Committee, as well as a director for TreeHouse Foods, Inc. (NYSE:THS) and is a member of its Audit Committee. In 2017, Ms. Massman was elected to the position of board chair for the American Forest & Paper Association (AF&PA), the national trade association of the forest products industry.
The Board believes that Ms. Massman should serve as a director because, as the CEO, Ms. Massmans knowledge of our day-to-day operations and effectiveness of our business strategies provides a valuable perspective to our Board. Additionally, Ms. Massmans experience, knowledge, skills and expertise acquired having served as CEO, COO and CFO of the company, including experience with financial reporting, capital structure optimization and transactional structuring and financing, add significant value to the Board. Further, Ms. Massmans experience in corporate and business planning are integral to the Boards assessment of business opportunities and strategic options for our company. Based primarily on these considerations, the Board concluded that Ms. Massman should serve as one of our directors.
Alexander Toeldte (age 57) has been a director since April 2016. Currently he serves as a director of Xerium Technologies, Inc. (NYSE:XRM), a global provider of industrial consumable products and services and is a member of their Compensation Committee and Governance Committee.
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Clearwater Paper Corporation 2017
Mr. Toeldte has served as the Chairman of Jitasa, Inc., a privately held provider of software and accounting services for non-profit organizations, since 2014 as well as chairman of Wevorce, a privately held software-as-a-service company since 2016. He has served as an operating director at Paine & Partners, LLC, a private equity firm, in 2015 and 2016. Mr. Toeldte served as President, CEO and a director of Boise Inc., a paper manufacturer, from February 2008 to 2013 and as its Executive Vice President, paper and packaging and newsprint segments from October 2005 to 2008. Mr. Toeldtes previous experience includes serving as Executive Vice President of Fonterra Co-operative Group, a New Zealand based global dairy company, and CEO of Fonterra Enterprises. Mr. Toeldte served in various capacities with Fletcher Challenge Limited Group, a New Zealand based group with holdings in paper, forestry, building materials, and energy, including as CEO of Fletcher Challenge Building and Fletcher Challenge Paper as well as Group CFO. Mr. Toeldte served as a partner at McKinsey & Company in Toronto, Brussels, Montreal, and Stockholm, and as Chairman of the American Forest & Paper Association in 2012.
The Board believes that Mr. Toeldtes experience, knowledge and skills acquired in leadership positions in the paper industry as well as in the consumer products industry add significant value to the Board. Further, Mr. Toeldtes knowledge of paper products businesses, including pulp-based and consumer products, acquired as CEO of Boise Inc. is integral to the Board for assessing historical trends and strategic options for our company. Based primarily on these considerations, the Board concluded that Mr. Toeldte should serve as one of our directors.
Directors Continuing in Office until 2019 (Class II)
Kevin J. Hunt (age 65) has been a director since January 2013. From January 2013 to January 2014 he served as a consultant to ConAgra Foods, Inc., which acquired Ralcorp Holdings Inc. in January 2013. Mr. Hunt served as President, CEO and a Director of Ralcorp Holdings Inc., a producer of private-brand foods and food service products from January 2012 to January 2013. He served as Co-CEO and President of Ralcorp from 2003 until 2012 and as a director from 2004 until the companys acquisition. Prior to that period, Mr. Hunt was Corporate Vice President and President of Bremner Food Group. Mr. Hunt served as an advisory director of Berkshire Partners, a private equity firm, from 2013 to 2015. He has served as a director of Vi Jon, a manufacturer of private label personal care products owned by Berkshire Partners, since 2012 and is a member of their Compensation Committee. Mr. Hunt has served as a director of Energizer Holdings, Inc. (NYSE: ENR), a manufacturer of primary batteries and portable lighting products, since its spin-off from Edgewell Personal Care Company in July 2015 and is a member of its Nominating and Compensation Committee.
The Board believes that Mr. Hunts experience, knowledge, skills and expertise acquired as a director, CEO and executive officer of Ralcorp, including experience and understanding of private label consumer product markets, as well as strategy, financial oversight and execution skills, add significant value to the Board. Further, Mr. Hunts experience and understanding of business strategy formation and execution from both a board and management perspective acquired as an executive and director of a growing company is integral to the Boards assessment of trends and strategic options for our company. Based primarily on these considerations, the Board concluded that Mr. Hunt should serve as one of our directors.
William D. Larsson (age 71) has been a director since December 2008. Mr. Larsson served as Senior Vice President and CFO of Precision Castparts Corp., an industrial manufacturing company, from August 2000 until his retirement in December 2008. Mr. Larsson serves as a director and chairman of the Nominating and Corporate Governance Committee and is a member of the Audit Committee of Schnitzer Steel Industries, Inc. (NASDAQ: SCHN), a manufacturer of recycled metal products, and served as its lead director from 2008 to 2014.
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Clearwater Paper Corporation 2017
The Board believes that Mr. Larssons experience, knowledge, skills and expertise acquired as the CFO of Precision Castparts, a Fortune 500 company, including experience with financial reporting, capital structure optimization and transactional structuring and financing, add significant value to the Board. Additionally, Mr. Larssons service and experience as a lead independent director for another public company, including active involvement in overseeing governance matters and the interaction of independent directors with a public companys management, strengthen the governance and functioning of our Board. Based primarily on these considerations, the Board concluded that Mr. Larsson should serve as one of our directors.
Directors Whose Term Ends in May 2017 After Reaching the Mandatory Retirement Age
Fredric W. Corrigan (age 74) has been a director since January 2009. Mr. Corrigan served as CEO, President and a director of the Mosaic Company, a global crop nutrition company, from October 2004 until his retirement in 2007. Prior to that, Mr. Corrigan was Executive Vice President of Cargill, Incorporated, a producer and marketer of food, agricultural, financial and industrial products and services, from 1999 to 2004. Mr. Corrigan served as a director of Xcel Energy Inc. (NYSE: XEL), a U.S. electricity and natural gas company, from 2006 to 2014, including as the chair of the nuclear, environmental & safety committee and as its lead independent director from 2006 to 2013.
The Board believes that Mr. Corrigans experience, knowledge, skills and expertise acquired as the CEO of Mosaic, including experience and understanding of business strategy formation and execution from both a board and management perspective, add significant value to the Board. Additionally, Mr. Corrigans service and experience as director and lead independent director for another public company, including active involvement in overseeing governance matters and the interaction of independent directors with a public companys management, strengthen the governance and functioning of our Board.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF THE TWO NOMINEES FOR DIRECTOR.
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Clearwater Paper Corporation 2017
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
This table shows the number of shares of our common stock beneficially owned, by each owner of more than 5% of our common stock, each of our directors, each executive officer for whom compensation is reported in this proxy statement, and all directors and executive officers as a group. Except for our 5% holders, the table shows beneficial ownership as of February 28, 2017. The number of shares reported is based on data provided to us by the beneficial owners of the shares. The percentage ownership data is based on 16,458,358 shares of our common stock outstanding as of February 28, 2017. Under SEC rules, beneficial ownership includes shares over which the person or entity exercises voting or investment power and also any shares that the person or entity has the right to acquire within 60 days of February 28, 2017. Except as noted, and subject to applicable community property laws, each owner has sole voting and investment power over the shares shown in this table.
Amount and Nature
of Common Stock Beneficially Owned |
||||||||||||
Number of Shares Beneficially Owned |
Percent of Class |
Common Stock Units(1) |
||||||||||
Stockholders Owning More Than 5% |
||||||||||||
BlackRock, Inc. |
2,060,217 | (2) | 12.52 | % | ||||||||
55 East 52nd Street |
||||||||||||
New York, NY 10055 |
||||||||||||
T. Rowe Price Associates, Inc. |
1,954,470 | (3) | 11.88 | % | ||||||||
100 E. Pratt Street |
||||||||||||
Baltimore, MD 21202 |
||||||||||||
The Vanguard Group |
1,481,886 | (4) | 9.00 | % | ||||||||
100 Vanguard Blvd. |
||||||||||||
Malvern, PA 19355 |
||||||||||||
Dimensional Fund Advisors LP |
1,163,002 | (5) | 7.07 | % | ||||||||
Building One, 6300 Bee Cave Road |
||||||||||||
Austin, TX 78746 |
||||||||||||
LSV Asset Management |
868,220 | (6) | 5.28 | % | ||||||||
155 N. Wacker Drive, Suite 4600 |
||||||||||||
Chicago, IL 60606 |
||||||||||||
Directors and Named Executive Officers |
||||||||||||
Fredric W. Corrigan |
10,000 | (7) | * | 48,312 | ||||||||
Boh A. Dickey |
10,000 | (8) | * | 49,024 | ||||||||
Beth E. Ford |
- | * | 9,519 | |||||||||
Kevin J. Hunt |
- | * | 5,716 | |||||||||
William D. Larsson |
1,000 | * | 49,024 | |||||||||
Linda K. Massman |
146,792 | 1.48 | % | 98,537 | ||||||||
John P. ODonnell |
- | * | 166 | |||||||||
Alexander Toeldte |
- | * | 166 | |||||||||
Patrick T. Burke |
270 | (9) | * | 3,736 | ||||||||
Michael S. Gadd |
81,223 | (10) | * | 9,171 | ||||||||
John D. Hertz |
25,112 | * | 11,815 | |||||||||
Kari G. Moyes |
368 | * | 1,687 | |||||||||
Directors and Executive Officers as a Group |
||||||||||||
(12 persons) |
399,711 | (11) | 2.41 | % |
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Clearwater Paper Corporation 2017
* | Less than 1% |
(1) | Represents vested common stock units as of February 28, 2017. These stock units are not actual shares of common stock and have no voting power. In the case of our directors, these stock units are credited, along with any accrued dividend equivalents, on a one-for-one basis with our common stock pursuant to our Deferred Compensation Plan for Directors (see Compensation of Directors). The units for Ms. Ford include deferred directors fees that have been converted into common stock units. Ms. Fords deferred directors fees will be converted to cash and paid according to the election made prior to deferring fees. The annual deferred awards to non-employee directors are converted to cash and paid upon separation from service as a director. |
(2) | Based on the stockholders Schedule 13G/A filed on January 12, 2017, with the SEC, the stockholder serves as a parent holding company registered under the Investment Advisors Act, with sole dispositive power over all of these shares and sole voting power over 2,020,403 of these shares. The Schedule indicates that sole dispositive power over all these shares is held as of December 31, 2016, by the following entities: BlackRock (Netherlands) B.V.; BlackRock Advisors, LLC; BlackRock Asset Management Canada Limited; BlackRock Asset Management Ireland Limited; BlackRock Asset Management Schweiz AG; BlackRock Financial Management, Inc.; BlackRock Fund Advisors; BlackRock Institutional Trust Company, N.A.; BlackRock Investment Management (Australia) Limited; BlackRock Investment Management (UK) Ltd; BlackRock Investment Management, LLC, and BlackRock Japan Co Ltd; and which as an aggregate held 12.3% of our common stock outstanding as of December 31, 2016. BlackRock Fund Advisors beneficially owns 5% or more of the total shares owned by BlackRock, Inc. |
(3) | Based on the stockholders Schedule 13G/A filed on February 7, 2017, with the SEC, the stockholder serves as an investment advisor and an investment company registered under the Investment Advisors Act, with sole dispositive power and sole voting power over all of these shares over 471,228 of these shares, aggregately representing 11.6% of the shares of our common stock outstanding as of December 31, 2016. The schedule indicates that these shares are held as of December 31, 2016, by various individual and institutional clients, including T. Rowe Price Small-Cap Value Fund, Inc. which owned 5.5% or more of the total shares owned by T. Rowe Price Associates, Inc. For the purpose of the reporting requirements of the Securities Exchange Act of 1934, T. Rowe Price Associates is deemed to be a beneficial owner of such securities; however, T. Rowe Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities. |
(4) | Based on the stockholders Schedule 13G/A filed on February 10, 2017, with the SEC, the stockholder serves as an investment advisor registered under the Investment Advisors Act, with sole dispositive power over 1,446,307 of these shares, shared dispositive power over 35,579 of these shares, sole voting power over 33,667 of these shares and shared voting power over 2,890 of these shares, aggregately representing 8.86% of the shares of our common stock outstanding as of December 31, 2016. The Schedule indicates that all these shares are held as of December 31, 2016, by various individuals and institutional investors including Vanguard Fiduciary Trust Company, which owns 32,689 shares, representing .19% and Vanguard Investments Australia, Ltd, which owns 3,868 shares or .02% of the shares. |
(5) | Based on the stockholders Schedule 13G filed on February 9, 2017, with the SEC, the stockholder serves as an investment advisor registered under the Investment Advisors Act, with sole dispositive power over all of these shares, and sole voting power over 1,100,985 of these shares, aggregately representing 6.95% of the shares of our common stock outstanding as of December 31, 2016 however, Dimensional Fund Advisors LP expressly disclaims beneficial owner of such securities. |
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Clearwater Paper Corporation 2017
(6) | Based on the stockholders Schedule 13G filed on February 6, 2017, with the SEC, the stockholder serves as an investment advisor registered under the Investment Advisors Act, with sole dispositive power over all of these shares, and sole voting power over 558,601 of these shares, aggregately representing 5.19% of the shares of our common stock outstanding as of December 31, 2016. LSV Asset Management disclaims beneficial ownership of any of the securities. |
(7) | These shares are held in the name of Mr. Corrigan and his spouse with whom Mr. Corrigan shares voting and investment power. |
(8) | These shares are held in the name of Mr. Dickey and his spouse with whom Mr. Dickey shares voting and investment power. |
(9) | Of these shares, 33 are held in Mr. Burkes individual account under our 401(k) employee savings plan. |
(10) | Of these shares, 68,472 are held in a trust over which Mr. Gadd shares voting and investment power with his spouse and 53 shares are held in Mr. Gadds individual account under our 401(k) employee savings plan. |
(11) | Includes an aggregate of 86 shares of common stock held for the executive officers benefit under our 401(k) employee savings plan. |
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Clearwater Paper Corporation 2017
The Compensation Committee of the Board of Directors has reviewed and discussed the Executive Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Committee recommended to the Board that the Executive Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into our 2016 Annual Report on Form 10-K.
The Compensation Committee Members: |
Kevin J. Hunt, Chair Fredric W. Corrigan |
John ODonnell |
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Clearwater Paper Corporation 2017
EXECUTIVE COMPENSATION DISCUSSION AND ANALYSIS
Clearwater Paper Executive Program Summary and 2016 Highlights
2016 Business Highlights
| We performed well in 2016 by continuing to aggressively manage costs and drive operational efficiencies throughout our manufacturing and distribution network during a year that included planned major maintenance. |
| 2016 was the second year of our three-year business plan focused on improving our operating efficiencies and cost effectiveness, including the: |
◾ | on track and on budget completion of the first phase of the installation of a continuous pulp digester at our Lewiston site; |
◾ | completion of warehouse automation at our Shelby and Las Vegas sites and initiation of warehouse automation at our Lewiston and Elwood sites; |
◾ | optimization of our operations through better asset utilization with the announced closure of our Oklahoma City converting facility and the shutdown of 2 of our highest-cost tissue machines at our Neenah facility; |
◾ | completion of 58 Lean Six Sigma projects (Black Belt and Green Belt process improvements); and |
◾ | implementation of a Total Productive Manufacturing (TPM) base with active pilot lines at 3 sites delivering significant productivity improvements through increases in overall equipment efficiency and increases in equipment performance. |
| We maintained a strong safety record within our industry. |
| We acquired Manchester Industries, which provides us a direct paper-board sales and converting platform and expands our reach into small and mid-size folding carton channels. We added new business in our consumer products division, including in the club channel with a national retailer. |
| We achieved an aggregate 68% reduction in solid waste at all facilities, surpassing our goal of 20% by 2020, and achieved an aggregate 9% reduction in water usage. |
| We continued to return value to our stockholders through the repurchase of $65 million of our common stock. |
| We increased our borrowing capacity by entering into a new line of credit. |
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Clearwater Paper Corporation 2017
2016 Executive Compensation Highlights
| During the three-year performance period for performance share awards granted in 2014 (for the 2014-2016 performance period), we had a 20.3% total stockholder return (TSR) compared to a median TSR for the S&P MidCap 400® Index (excluding those companies classified as members of the GICS® Financials sector) of 23.0%. This placed us in the 47.6 percentile for performance compared to the index group during this period, and resulted in a payout of performance shares equal to 89.0% of target. |
TSR PERFORMANCE
| Our target compensation mix was 78% incentive compensation and 22% base salary for our CEO and an average of 62% incentive compensation and 38% base salary for our other named executive officers or NEOs. |
| Consistent with our pay-for-performance philosophy and as a result of strong operating and financial results for the company as a whole in 2016, we paid annual bonus awards for executives and all other eligible employees for 2016 at an average of 121.3% of target, corresponding to company and individual performance targets established under our annual incentive plan. |
| We funded our company bonus pool at 123.3% of target as a result of EBITDA and EBITDA Margin performance: |
EBITDA PERFORMANCE
| Our CEOs 2016 compensation included an annual incentive bonus paid at 123.3% of target. |
| Our CEOs annual long-term incentive awards for 2016 were provided 50% in the form of three-year performance shares and 50% in stock options. |
| Our stockholders cast an advisory vote of approximately 96% in favor of the 2015 compensation of our named executive officers. |
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Clearwater Paper Corporation 2017
Executive Compensation and Governance
The following are key aspects and features of our executive compensation program:
| Our compensation target mix favors performance-based compensation. |
| Executive compensation levels are generally targeted at the market median with a range of opportunities above and below target to track actual performance. |
| Executive compensation levels and targets are measured against other similarly-sized manufacturing companies, both in and outside our industry. |
| Our long-term incentive awards are granted in the form of equity, the bulk of which is performance basedin the form of performance shares dependent on our total stockholder return (TSR) over a three-year period relative to the S&P MidCap 400® Index (excluding those companies classified as members of the GICS® Financials sector) and in stock options. In 2017, we also added an ROIC, or return on invested capital, element to our long-term incentive program to focus on the delivery of financial results from our strategic initiatives and related capital expenditures. |
| Our annual bonus program utilizes key financial measuresEBITDA as an indicator of our operational performance for the year, and EBITDA Margin, as an indicator of the profitability of each dollar of net sales we generate. We believe EBITDA and EBITDA Margin are effective measures of profitability for the year, thereby enabling us to ensure that our annual bonuses are self-funded. In 2017, to focus our executive officers on the delivery of financial results from our strategic and operational initiatives, we replaced the individual performance component for our executive officers with a company-wide productivity component. |
| Our stock ownership requirements for executives further align our executives and stockholders interests. |
| Our insider trading policy prohibits short selling, purchasing on margin, pledging of company stock or other company securities, and buying or selling puts or calls in company stock or other company securities. |
| Our stock incentive and annual incentive plans contain a broad clawback provision that provides us the right to cancel or adjust equity awards and cash bonus payments in the event of error or misconduct. |
| Neither our executive change of control plan nor our executive severance plans provide for excise tax gross-ups. |
| Our outstanding equity awards require an actual change of control to occur before any portion of the awards would be paid out. RSUs and option awards require a double trigger for accelerated vesting to occur, meaning the executive officer has to be terminated without cause or resign for good reason within one month prior to or 24 months after the change of control in order to receive the payout. |
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This Executive Compensation Discussion and Analysis outlines our 2016 compensation program for our following named executive officers:
Linda K. Massman | President and Chief Executive Officer | |
John D. Hertz | Senior Vice President, Finance and Chief Financial Officer | |
Patrick T. Burke | Senior Vice President, Group President | |
Michael S. Gadd | Senior Vice President, General Counsel and Corporate Secretary | |
Kari G. Moyes | Senior Vice President, Human Resources |
This Executive Compensation Discussion and Analysis is organized into four sections. In the first section, titled Compensation Philosophy and Objectives, we describe the key objectives and mechanics of our compensation program.
In the second section, titled Analysis of 2016 Compensation, we describe the components of our executive compensation program as well as the compensation earned by or paid to our named executive officers during 2016.
In the third section, titled 2017 Compensation Program Changes, we describe changes made for 2017 and beyond that are intended to further focus and align our executive compensation program with our strategic direction.
In the final section, titled Other Compensation Related Matters, we describe our officer stock ownership guidelines and securities trading restrictions, and the severance plans and other benefit plans covering our executives.
Compensation Philosophy and Objectives
Our compensation philosophy remains consistent and straightforwardpay our executives competitive and fair compensation that is linked to individual and company performance. The objectives of our executive compensation program are to attract, retain, motivate, and reward executives in order to enhance the long-term profitability of the company, foster stockholder value creation, and align executives interests with those of our stockholders. We target our executive compensation levels to be at or near the median of compensation paid by comparable companies, and we build in flexibility such that actual pay can be above or below the median based on our companys and our executives actual performance. We believe that a substantial portion of total compensation for our executives should be variable and dependent on company performance.
Compensation Oversight
The Compensation Committees primary responsibility is the oversight of our executive compensation and benefits programs. The committees responsibilities include determining and approving annual performance measurements for our executive officers incentive pay and reviewing, determining and approving their compensation packages.
Management Input
As part of our process for establishing executive compensation, our CEO and our Senior Vice President, Human Resources, or SVP-HR, provide information and make recommendations to the Compensation Committee. Our CEO and SVP-HR provide the Compensation Committee with a detailed review of the actual results for the company compared to the performance measures set at the beginning of the year under our annual incentive plan. Our CEO provides to the committee:
◾ | performance evaluations of the executives who report to her; |
◾ | recommendations as to changes to base salaries as well as target amounts for annual cash bonuses and equity awards for each executive officer, excluding her own; |
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◾ | recommendations regarding the individual portion of annual cash bonuses to be paid to our executive officers who report to her; |
◾ | recommendations regarding compensation packages for executives being hired or promoted; and |
◾ | proposed company performance targets. |
Recommendations regarding target and actual executive compensation components are based on the principal duties and responsibilities of each position, competitor pay levels within our industry in both regional and national markets and at comparable companies, and internal pay equity, as well as on individual performance considerations.
Compensation Consultants
The Compensation Committee has engaged Semler Brossy Consulting Group, LLC, or Semler Brossy, to advise the committee on executive compensation matters as well as the competitive design of the companys long-term and annual incentive programs. The Nominating Committee has also engaged Semler Brossy to advise that committee on director compensation matters. Semler Brossy does not advise any of our executive officers as to their individual compensation and does not perform other compensation related services for the company.
The Compensation Committees consultant performs an annual competitive market assessment of each executive officers compensation package that the committee uses to analyze each component of such compensation as well as each executive officers compensation in the aggregate. The intent of these assessments is to evaluate the proper balance and competitiveness of our executive officers compensation, as well as the form of award used to accomplish the objective of each component. The committee is also advised, on an annual basis, as to target performance measures and other executive compensation matters by its compensation consultant.
Ultimately, decisions about the amount and form of executive compensation under our compensation program are made by the Compensation Committee alone and may reflect factors and considerations other than the information and advice provided by its consultant or management.
Establishing Compensation
At meetings held in the first quarter of each year, the Compensation Committee typically takes the following actions relating to the compensation for our executive officers, and in some cases other senior employees:
◾ | approves any base salary increases; |
◾ | approves the payment of cash awards under our annual incentive plan for the prior years performance; |
◾ | approves the settlement of any performance-based equity awards previously issued under our long-term incentive program; |
◾ | establishes the performance measures and approves the target award opportunity for cash awards under our annual incentive plan for the current year; |
◾ | establishes the performance measures for any performance-based equity awards under our long-term incentive program; |
◾ | approves the threshold and maximum levels of performance under our annual and long-term incentive plans, including performance shares, as well as the payouts for achieving those levels of performance; and |
◾ | approves the grant of performance shares and any other equity awards, such as options or restricted stock units that vest based on continued employment, under our long-term incentive program. |
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Use of Tally Sheets. In connection with the committees review and approval of executive compensation, it periodically analyzes tally sheets prepared by its consultant that quantify the elements of each executive officers compensation, including estimates of amounts that would be paid out in the event of a change of control and other termination scenarios. The committee also periodically reviews, as input to its decisions establishing our executive officers compensation, an analysis of current and future equity holdings and values using different stock price performance scenarios over time. These analyses assist the committee in determining if the compensation of our executive officers is appropriate given our projected performance.
Competitive Market Assessments. The committee conducts an annual review of each of our executive officers compensation and, in connection with these assessments, analyzes competitive data provided by its compensation consultant. In December 2015 and 2016, Semler Brossy performed such an assessment for the committee.
Consistent with their approach in 2015, Semler Brossys 2016 market assessments compared the compensation of our named executive officers with that of companies in the forest products industry as well as manufacturing companies of similar size in terms of revenue and market capitalization. They also utilized market data from relevant published survey sources, including surveys from Mercer, Aon Hewitt and Willis Towers Watson for market data on paper and allied products companies, manufacturing companies, and/or general industry companies of similar size. In its competitive assessments, Semler Brossy gathered competitive compensation data that was adjusted, where feasible and appropriate, to the revenues of the company. The competitive assessments were based on executive positions that are comparable to those of our executive officers. As part of the review and modification of our executive compensation program for 2017, Semler Brossy provided the Compensation Committee with analyses of our annual incentive plan and long-term incentive plan.
Individual Performance. We adjust compensation against the median level for individual executives, as appropriate, to recognize factors such as job performance, long-term potential and experience as well as for purposes of recruitment and retention. Total direct compensation (defined as base salary plus short- and long-term incentives) earned by our executives may vary from the market median (above or below) based on these factors.
The Role of Stockholder Advisory Vote. At our annual meeting in 2016, our stockholders cast an advisory vote of approximately 96% in favor of the 2015 compensation of our named executive officers. Our Compensation Committee took the 2016 advisory vote of our stockholders into account as a factor in maintaining the overall structure of our executive compensation program. At our annual meeting in 2017, our stockholders will again be provided the opportunity to cast a non-binding advisory vote to approve the compensation of our named executive officers. This vote is set forth in Proposal 3 in this proxy statement. The Compensation Committee, as it did last year, will consider the outcome of the vote when making future compensation decisions regarding our named executive officers.
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2016 Executive Compensation Peer Group
Semler Brossy annually evaluates and makes recommendations regarding the peer companies that we use for competitive comparisons of our executive and non-employee director compensation. Based on that recommendation for fiscal year 2016, our peer group was reduced by 2 to 16 companies (the companies removed were subject to merger and acquisition activities, as noted below). The peer group includes companies of comparable size from other industries adjacent to our own (paper products and paper packaging), including metal, glass, and containers, and specialty chemicals. The following companies were used as part of the competitive market assessments of our executive compensation for 2016:
Company Name(1) | GICS® Sub-Industry | Revenue (In millions)(2) |
Market Capitalization (In millions)(3) | |||
Packaging Corp. of America |
Paper Packaging | $5,693 | $7,992 | |||
Domtar Corp. |
Paper Products | $5,138 | $2,537 | |||
Sonoco Products Co. |
Paper Packaging | $4,946 | $5,262 | |||
Graphic Packaging Holding Co. |
Paper Packaging | $4,266 | $3,963 | |||
Bemis Co., Inc. |
Paper Packaging | $3,999 | $4,481 | |||
Silgan Holdings, Inc. |
Metal & Glass Containers | $3,637 | $2,818 | |||
Greif, Inc. |
Metal & Glass Containers | $3,324 | $2,810 | |||
KapStone Paper & Packaging Corp. |
Paper Products | $3,064 | $2,131 | |||
AptarGroup, Inc. |
Metal & Glass Containers | $2,339 | $4,605 | |||
P.H. Glatfelter Co. |
Paper Products | $1,633 | $1,040 | |||
AEP Industries, Inc. |
Metal & Glass Containers | $1,089 | $594 | |||
Innospec, Inc. |
Specialty Chemicals | $892 | $1,643 | |||
Neenah Paper, Inc. |
Specialty Chemicals | $951 | $1,427 | |||
OMNOVA Solutions, Inc. |
Paper Products | $773 | $451 | |||
Schweitzer Mauduit International, Inc. |
Paper Products | $861 | $1,390 | |||
Myers Industries, Inc. |
Metal & Glass Containers | $567 | $428 | |||
25th Percentile |
$936 | $1,303 | ||||
Median |
$2,701 | $2,334 | ||||
75th Percentile |
$4,066 | $4,093 | ||||
Clearwater Paper Corporation |
Paper Products | $1,741 | $1,096 | |||
Percentile Rank |
41st percentile | 21st percentile |
(1) | MeadWestvaco merged with Rock-Tenn to become WestRock and Wausau Paper was acquired by SCA. Both were removed from the comparison peer group. |
(2) | Represents revenues for the most recent four quarters as reported by each company as of December 31, 2016. |
(3) | Share price as of December 31, 2016, using the most recently disclosed shares outstanding. |
Compensation Components
We balance our executives total direct compensation among three components:
◾ | Base salary; |
◾ | Short-term, or annual, cash incentives; and |
◾ | Long-term, equity-based incentives. |
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Compensation Component Objectives. The Compensation Committees goal in determining compensation for our executive officers is to award compensation that is consistent with our compensation philosophy. Salaries are provided to employees as compensation for basic services to the company and to meet the objectives of attracting and retaining the talent needed to run our business. Our short-term cash incentives reward employees for helping us achieve or exceed annual financial targets. Our long-term equity incentives reward employees for helping us increase the value of our stock and outperform the market with respect to stockholder return. Our long-term equity awards also provide retention incentives. Further, we set incentive and equity compensation as larger portions of total pay opportunities for executives with higher levels of responsibility. This is to ensure the interests of these senior executives are more closely aligned with those of our stockholders. See 2016 Target Compensation on page 35 for our named executive officers target pay mix.
To ensure fiscal discipline, the Compensation Committee sets threshold performance levels below which no annual or long-term performance-based incentive payments are to be made and sets caps on the aggregate amount of incentive compensation that we can pay.
Base Salary. The Compensation Committee targets executive base salaries at or near the median of competitive practice, with such adjustments as management and the committee deem necessary. The committee reviews and approves annual salaries for our executives, in part, based on competitive pay data provided by its compensation consultant. The committee also takes into account the executives level of experience, job performance, long-term potential and tenure.
Annual Cash Incentives. Our annual cash incentive program links compensation to annual company performance by awarding cash bonuses for achieving pre-defined corporate financial targets and, for 2016, individual annual performance objectives. We designed our annual incentive program with the goals of ensuring the program was self-funding based on financial and operational performance; appropriately tied to performance measures and targets; and easily understandable for participants in terms of what they could receive based upon actual company performance and individual performance. Additionally, for 2016, the Compensation Committee set a cap on the total amount a participant could be awarded under the program equal to 175% of the participants target, resulting in a cap of 175% of the aggregate target amount that could be funded and paid out by the company.
Target Opportunities. The target cash bonus amount for each participant is determined by multiplying the participants actual salary for the year by a predetermined percentage based on his or her pay grade. The Compensation Committee periodically reviews these target percentages for our executive officers and approves modifications when appropriate, based in part on the recommendations and input of its compensation consultant and management after a review of competitive practice.
Performance Measures. At the beginning of the year, the Compensation Committee determines the objective performance measures that must be achieved in order for awards to be earned by executive officers. The objective criteria are then communicated to the officers. Additionally, for 2016, individual performance objectives were established at the beginning of the year for each executive officer that align with company financial objectives.
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Program Mechanics. To encourage a unified focus on overall company performance, cash bonus opportunities for 2016 were apportioned among companywide and individual performance as follows:
AIP Participant |
Percentage Based on Company Performance |
Percentage Based on Individual Performance |
||||||
All Participating Personnel |
75 | % | 25 | % |
Separate target bonus pools were established for the company and individual performance components. The individual objectives were approved by a participants supervisor, by the CEO for executive officers, and by the Compensation Committee for the CEO. No bonus pools fund unless the companys financial performance is at least at the threshold level approved by the Compensation Committee at the beginning of the year. For 2016, the financial performance measures used were EBITDA and EBITDA Margin.
Calculation of Earned Awards. After the end of the year, actual financial performance is calculated and the results are compared to the pre-approved, objective performance measures. The attainment of the individual performance objectives were also assessed based on the individual employees annual performance against those objectives.
Earned awards are paid in cash in the first quarter of the year following the applicable performance year. If an executive officer does not meet his or her stock ownership requirement at that time, awards are paid 50% in cash and 50% in stock. Executive officers may also elect to defer annual incentive awards pursuant to our management deferred compensation program. Under our annual incentive plan, the Compensation Committee has discretionary authority to limit the amount and alter the time and form of payment of annual bonus awards, even if we meet performance criteria. The committee did not exercise this authority for 2016.
Clawback. The company has the right to cancel or adjust the amount of an annual incentive if our financial statements on which the calculation or determination of the award was based are subsequently restated due to error or misconduct and, in the judgment of the committee, the financial statements as restated would have resulted in a smaller or no award if such information had been known at the time the award had originally been calculated or determined. In addition, in the event of such a restatement, we may require an employee who received an award to repay the amount by which the award as originally calculated or determined exceeds the award as adjusted, although we may be unable to compel the repayment of an award made to an ex-employee for years prior to 2014.
Long-Term Incentives. Under our long-term equity incentive program, or LTIP, which is intended to link compensation to long-term company performance, we granted three types of equity awards in 2016:
◾ | performance shares; |
◾ | stock options; and |
◾ | restricted stock units, or RSUs. |
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Participants in our long-term incentive plan received their 2016 awards in the following proportions:
2016 LTIP Mix
Performance Shares. Performance shares granted in 2016 represent the contingent right to receive a varying number of shares of common stock based on our total stockholder return, or TSR, performance over a three-year period relative to the S&P MidCap 400® Index (excluding those companies classified as members of the GICS® Financials sector). TSR is comprised of the change in a companys stock price from the beginning of the performance period compared to the end of the performance period, and includes all cash and stock dividends paid on shares of common stock during such period. The companys stock price at the beginning and end of a performance period is measured over a fixed period of time, currently the final forty trading days in the year prior to the start of the performance period and the final forty trading days in the final year of the performance period. We use performance shares to serve three key objectives: first, to reward employees when the company achieves total stockholder returns that exceed those of the applicable index; second to encourage employees to focus on enhancing long-term stockholder value; and third to align managements interests with stockholders interests.
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The committee awards annual performance share grants to our executive officers in the first quarter of each year. Performance shares are intended to qualify as performance-based awards under Section 162(m) of the Internal Revenue Code. For the past three years, our performance shares have paid out in shares of our common stock as follows:
Payout of Performance Shares for Past Three Years
Stock Options. Stock options represent the contingent right, but not the obligation, to buy a certain amount of shares of the company at a predetermined price. These option grants generally vest over a three-year period subject to continued employment. We use stock options to focus on absolute stock performance, that is, purely on increasing our stock price to align the interests of executives with those of our stockholders and to help recruit and retain key employees. We also believe that stock options help foster a longer term orientation towards company performance among our officers and other key personnel as well as enhance retention as a result of the vesting period.
The committee awards annual stock option grants to our executive officers in the first quarter of each year. Stock options are granted at fair market value and are intended to qualify as performance-based awards under Section 162(m).
Restricted Stock Units. RSUs represent the contingent right to receive a fixed number of shares of common stock in the future if the employee remains employed through the applicable vesting period. We use RSUs to help recruit and retain key employees and to align the interests of executives with those of our stockholders. We believe that RSUs help foster a long-term ownership mentality among our officers and other key personnel as well as enhance retention as a result of the vesting period. Additionally, these awards encourage recipients to take actions aimed at increasing the underlying value of the shares associated with RSUs over the vesting period since RSUs cannot be paid out until fully vested.
The committee awards annual RSU grants in the first quarter of each year. These RSU grants generally vest over a three-year period subject to continued employment.
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Long-Term Incentive Opportunities. The committee establishes target, long-term incentive values for each executive officer annually, taking into consideration competitive long-term equity incentive opportunities, equity usage and stockholder dilution. The Compensation Committees consultant performs an annual assessment of competitive long-term equity incentive opportunities to assist the committee in establishing the target, long-term incentive values for each executive officer. The target values, which generally approximate the median of competitive practice, are then converted to a target number of performance shares, stock options and RSUs based on the average closing price for our common stock over a fixed period of time prior to the date of grant. The actual number of equity awards granted are further subject to an increase or decrease at the Compensation Committees discretion, based upon assessment of an individual executives past contributions and potential future contributions to the company.
Timing of Long-Term Incentive Awards. Compensation Committee meetings are scheduled well in advance and are not coordinated with the release of any material, non-public information. The grant date for annual equity awards is the day of the Compensation Committee meeting at which the awards are approved. However, for executive officers who are hired during the year, the committee may approve an equity award in advance of, and subject to the executive commencing employment, in which case the grant date is the executives start date. For the purpose of converting the dollar value of a grant into a set number of shares, the committee may approve the use of the price of our common stock as of the grant date or the use of an average trading price over a set period. For stock option grants, the exercise price is set at the closing price on the date of grant.
Limitations on and Adjustments to Long-Term Awards. The Compensation Committee reserves the right to reduce or eliminate any performance share award to an employee, or to all senior employees as a group, if it determines that TSR has been insufficient, or if our financial or operational performance has been inadequate.
Clawback. The company has the right to cancel or adjust the amount of any equity award if our financial statements on which the calculation or determination of the award was based are subsequently restated due to error or misconduct and, in the judgment of the committee, the financial statements as restated would have resulted in a smaller or no award if such information had been known at the time the award had originally been calculated or determined. In addition, in the event of such a restatement, we may require an employee who received an award to repay the amount by which the award as originally calculated or determined exceeds the award as adjusted.
Based upon updated market data provided by Semler Brossy and the individual performance of each of our named executive officers, the committee instituted changes described below to components of our named executives compensation to further align our executive compensation with our compensation philosophy and objectives and with the compensation programs of comparable companies.
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Salary
To more closely align compensation with the median of comparable companies and taking into consideration an individual executives experience, performance, long-term potential and tenure, the Compensation Committee set the base salary for each of our named executive officers as follows:
Name(1) | % Change | 2016 Annual Salary(2) |
2015 Annual Salary(2) |
|||||||||
Linda K. Massman President and Chief Executive Officer |
6.1 | % | $ | 875,000 | $ | 825,000 | ||||||
John D. Hertz Senior Vice President, Finance and Chief Financial Officer |
3.2 | % | $ | 480,000 | $ | 465,000 | ||||||
Patrick T. Burke Senior Vice President Group President |
10.0 | % | $ | 440,000 | $ | 400,000 | ||||||
Michael S. Gadd Senior Vice President, General Counsel and Corporate Secretary |
5.1 | % | $ | 410,000 | $ | 390,000 |
(1) | For purposes of this table, which show year-over-year changes or comparisons for our executive officers, we are not including information for Kari G. Moyes who was not a named executive officer in 2015. |
(2) | Actual salaries earned for 2015 and 2016 as shown in the 2016 Summary Compensation Table on page 43 may differ due to timing of annual salary increases. |
Annual Incentives
Financial performance goals for the 2016 performance year were based on company EBITDA and EBITDA Margin. The 2016 target bonus opportunities for our named executive officers under our annual incentive plan were as follows:
2016 AIP Target(1) | 2015 AIP Target(1) | |||||||||||||||
Name(2) | % Amount | $ Amount | % Amount | $ Amount | ||||||||||||
Linda K. Massman |
100 | % | $ | 866,700 | 100 | % | $ | 816,700 | ||||||||
John D. Hertz |
65 | % | $ | 310,400 | 65 | % | $ | 300,600 | ||||||||
Patrick T. Burke |
65 | % | $ | 281,700 | 65 | % | $ | 198,700 | ||||||||
Michael S. Gadd |
65 | % | $ | 264,300 | 65 | % | $ | 251,300 |
(1) | AIP targets are a percentage of a named executive officers actual salary for a given year and percentage amounts are established annually based in part on a competitive market assessment performed by the Compensation Committees consultant. |
(2) | For purposes of this table, which show year-over-year changes or comparisons for our executive officers, we are not including information for Kari G. Moyes who was not a named executive officer in 2015. |
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Annual Performance Measures
For purposes of determining 2016 annual cash incentives, the Compensation Committee compared the companys EBITDA and EBITDA Margin results to the targets established at the beginning of the year. Using EBITDA as a metric to measure performance ensured a self-funded bonus program and focused participants on generating income and cash flow by both increasing revenues and controlling costs. In addition, EBITDA is a common measure used by the investment community to measure the performance of companies. As a component of our annual cash incentives, EBITDA Margin is a measurement of the companys operating profitability which helps to focus participants on the quality of our income and cash flow, both through top-line growth and greater efficiencies. We believe that the use of these measures aligns our employees and stockholders interests. The company performance measures and funding of the company target bonus pool for 2016 was:
◾ 50% of Target Company Performance Pool Based on EBITDA Performance Against Target |
◾ 50% of Target Company Performance Pool Based on EBITDA Margin Performance Against Target |
The Compensation Committee approved the EBITDA and EBITDA Margin performance targets at the beginning of 2016. The performance scales for 2016 annual cash bonuses and the corresponding performance modifiers as a percentage of target were as follows:
EBITDA $ Performance Level |
Performance Modifier (Percentage of Target Bonus) | |
Threshold |
50% x Target Bonus | |
Target |
100% x Target Bonus | |
Maximum |
200% x Target Bonus |
EBITDA Margin Performance Level |
Performance Modifier (Percentage of Target Bonus) | |
Threshold |
50% x Target Bonus | |
Target |
100% x Target Bonus | |
Maximum |
200% x Target Bonus |
The performance modifiers increase or decrease depending on the payout ratio determined by the committee for performance between threshold and target levels and between target and maximum levels. There is no funding of the company pool if EBITDA performance is below the threshold level and therefore no annual award payment made from such pool to annual incentive plan participants.
A funded bonus pool for the company, which provided 75% of the target bonus for each participant, could not exceed the lesser of the pool maximum approved by the Compensation Committee or 200% of the applicable performance pool. The bonus pool for individual performance, which represents 25% of the target bonus for each participant, funds at 100% of target if company EBITDA performance is determined by the committee to be at least at the threshold performance level, and could not fund greater than 100%.
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Because the bonus pool for individual performance could not fund greater than the 100% level, the most that could be paid out by the company pursuant to the annual incentive program was 175% of the aggregate target amount of all bonuses to all participants for the year. If the company had not achieved the EBITDA threshold performance level, neither the company performance bonus pool nor the individual bonus pool would have been funded for the year. The maximum payout under our AIP would be as follows:
Plan Component | Target Weighting |
Multiplier for Maximum Performance |
Maximum Payout |
|||||||||
Financial Performance |
75 | % | 200 | % | 150 | % | ||||||
Individual Performance |
25 | % | 100 | % | 25 | % | ||||||
Total |
100 | % | - | 175 | % |
Under our annual cash incentive program, when measuring final EBITDA and EBITDA Margin results for a period relative to the EBITDA and EBITDA Margin targets for the period, the Compensation Committee may make appropriate adjustments to take into account certain events that occur during the performance period, including items the committee determines are extraordinary or otherwise not indicative of the companys core performance.
Long-Term Incentive Awards
We awarded long-term incentive awards in the form of performance shares, stock options and/or RSUs in 2016. The long-term incentive awards granted to eligible employees, excluding our CEO, in 2016 consisted of:
◾ | 37.5% in the form of performance shares that may settle in our shares based on our TSR compared to that of the S&P MidCap 400® Index (excluding those companies classified as members of the GICS® Financials sector) during the three-year performance period beginning January 1, 2016, and ending December 31, 2018; |
◾ | 37.5% in the form of stock options with three-year cliff vesting subject to continued employment; and |
◾ | 25% in the form of time-vested RSUs with three-year cliff vesting subject to continued employment. |
In 2016, our CEO received 50% performance shares and 50% stock options for her long-term incentive award.
In 2016, the long-term incentive award target values for our named executive officers were as follows:
Name(2) |
2016 LTIP Target(1) $ Amount |
2015 LTIP Target(1) $ Amount | ||
Linda K. Massman |
$2,250,000 | $1,600,000 | ||
John D. Hertz |
$475,000 | $401,000 | ||
Patrick T. Burke |
$525,000 | $312,000 | ||
Michael S. Gadd |
$380,000 | $312,000 |
(1) | LTIP targets are established annually based in part on a competitive market assessment performed by the Compensation Committees consultant. |
(2) | For purposes of this table, which show year-over-year changes or comparisons for our executive officers, we are not including information for Kari G. Moyes who was not a named executive officer in 2015. |
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Long-Term Performance Measures
For the three-year performance period beginning January 1, 2016 and ending December 31, 2018, the relative TSR performance scale and the corresponding number of shares earned as a percentage of target were set by the Compensation Committee as follows:
Performance Level | Total Stockholder Return Percentile Rank Versus S&P MidCap 400® Index (excluding those companies classified as members of the GICS® Financials sector) |
Number of Shares Earned (Percentage of Target) | ||
Threshold |
33rd Percentile | 25% of Target | ||
Target |
50th Percentile | 100% of Target | ||
Maximum |
85th Percentile | 200% of Target |
The number of performance shares earned for relative TSR performance proportionately increases or decreases between threshold and target levels and between target and maximum levels.
2016 Performance Share Index
The relative TSR performance for the performance shares we granted for the 2016-2018 period is measured against the S&P MidCap 400® Index (excluding those companies classified as members of the GICS® Financials sector). We measure TSR performance against a broad index of similarly sized companies because we believe it best represents our significant consumer products business. We believe the index we used provides a transparent and stable basis for relative performance measurement over time.
2016 Target Compensation
To better align the goals of our executives with higher levels of responsibility with our short- and long-term business goals, we compensate those executives with a higher proportion of variable compensation. The percentage amounts for salary, target annual incentive award, and target long-term incentive awards for our CEO and other named executive officers, i.e., the mix of pay, in 2016 was as follows:
CEO | Average of All Other NEOs | |
|
|
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2016 AIP Awards
Annual cash incentive awards for 2016 were paid as a result of:
◾ | the companys EBITDA and EBITDA Margin performance, as determined by the Compensation Committee; and |
◾ | each officers performance measured against his or her specific individual objectives. |
The 2016 EBITDA and EBITDA Margin targets, the year-end 2016 EBITDA and EBITDA Margin as determined by the committee, and the corresponding percentage of target award amount were as follows:
EBITDA $ | EBITDA Margin | |||||||
2016 Target (1) |
$ | 209.2 Million | 13.0 | % | ||||
2016 Year-end (2) |
$ | 214.8 Million | 12.4 | % | ||||
Approved Percentage of Target |
167% | 95 | % |
(1) | For purposes of establishing 2016 Target EBITDA and Target EBITDA Margin and the calculation of year-end results, the Compensation Committee adjusted for expenses expected to be incurred by the company in connection with adjusting directors phantom equity compensation for purposes of mark-to-market accounting requirements and costs associated with the 2014 closure of our Long Island, New York facility. |
(2) | For purposes of measuring 2016 EBITDA and EBITDA Margin, the committee adjusted for expenses incurred by the company in connection with the mark-to-market directors equity award accounting adjustments; costs associated with the 2014 closure of our Long Island, facility; a gain related to the settlement of an indemnity escrow account established in connection with the 2014 sale of our specialty business and mills; pension settlement expenses; costs associated with the announced closure of our Oklahoma City facility; costs associated with the permanent shutdown of two paper machines at our Neenah, Wisconsin facility; and costs associated with our purchase of Manchester Industries. The 2016 EBITDA for the company shown in the table is presented in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, under the heading Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) and Adjusted EBITDA, in our Annual Report on Form 10-K, filed on February 22, 2017, which we refer to as our 10-K, by taking our net earnings, and adding net interest expense (including debt retirement costs), income taxes, depreciation and amortization and $12.4 million of net expenses related to the items listed above. EBITDA Margin is calculated by dividing EBITDA, as adjusted above, by net sales. |
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Clearwater Paper Corporation 2017
2016 AIP Individual Performance
Under our annual incentive plan for 2016, 25% of the award for each named executive officer was based upon individual performance. In early 2016, objectives were established for each executive officer within the range of their responsibilities, and these objectives included: execution of our strategic objectives, advancement of our continuous improvement culture, successful implementation of our IT strategy, continued improvement of the effectiveness of safety programs and achievement of customer service objectives. The outcome of the evaluations of our named executive officers individual performance with these objectives was as follows:
Name | % of Individual Target Amount Awarded |
Amount of Individual Performance Award Paid |
Total Annual Incentive Award Paid(1) | |||
Linda K. Massman |
25% | $216,667 | $1,068,200 | |||
John D. Hertz |
25% | $77,594 | $382,500 | |||
Patrick T. Burke |
25% | $70,417 | $347,200 | |||
Michael S. Gadd |
25% | $66,083 | $325,800 | |||
Kari G. Moyes |
25% | $42,969 | $211,800 |
(1) | Includes annual incentive award for company and individual performance. |
2017 Compensation Program Changes
We last substantially modified our annual and long-term incentive programs at the beginning of 2014. Those modifications remained in place through 2016. During 2016 and early 2017, we reviewed our compensation programs to determine whether changes were warranted in terms of structure, objectives, performance measures and mechanics. In doing so, our goal was to further optimize the alignment of our incentive compensation with our corporate strategy and direction as well as with the compensation of comparable companies.
As part of this re-evaluation of our executive compensation program for 2017, Semler Brossy provided the Compensation Committee with analyses of our annual and long-term incentive plans, as well as an updated market assessment of executive compensation. Based on Semler Brossys analysis and our current corporate strategy and direction, management developed and proposed changes to our compensation programs that the Compensation Committee approved.
Annual Incentives
Our first priority in refining our annual incentive program was to ensure the program continued to be self-funding based on financial and operational performance. Our goals were to appropriately link performance measures and targets to our corporate strategy and optimal financial and operational performance. We also sought to create a greater line of sight for participants in the program between their actions and responsibilities and our performance.
Focus on Performance and Responsibilities. Because our executive officers are responsible for our overall financial and operational performance, their target annual incentives continue to have a focus on, and include performance measures for, EBITDA and EBITDA Margin. Additionally, we eliminated the individual component under the annual incentive plan for our named executive officers and for 2017 replaced it with a productivity component. This new component is intended to incentivize our named executive officers to focus on the continued delivery of financial results from our strategic and operational initiatives. Accordingly, 100% of our named executive officers annual cash bonus will be based on company performance.
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Clearwater Paper Corporation 2017
The target cash bonus amount for our named executive officers will continue to be determined as a set percentage of his or her base salary. That percentage is determined at the beginning of the year by the Compensation Committee based in part on the annual market assessment of our executives compensation performed by the Committees compensation consultant.
Performance Measures: For 2017, the company performance measures and funding of the target bonus pool for executive officers are:
◾ 37.5% of Target Corporate Performance Pool Based on EBITDA Performance Against Target |
◾ 37.5% of Target Corporate Performance Pool Based on EBITDA Margin Performance Against Target |
◾ 25% of Target Corporate Performance Pool Based on Productivity Performance Against Target |
We believe that the use and percentage balances of these measures will further improve the alignment of our named executive officers and stockholders interests. If the company does not achieve the EBITDA threshold, the corporate performance bonus pool will not be funded for the year and no cash bonuses will be paid from the annual incentive plan.
Based on a market assessment of comparable compensation programs, we increased and capped the total amount participants in the annual incentive plan, including named executive officers, could be awarded under the program to 200% of target based on performance for 2017.
Long-Term Incentives
Our first priority in refining our long-term incentive program was to keep our executive officers aligned with the interests of our stockholders by driving stock performance in both relative and absolute terms. Additionally, we want to link long-term incentives more directly to our strategic initiatives and related financial performance. Our secondary goal was to continue the talent retention and recruitment benefits of long-term incentive awards. We sought to continue to balance these outcomes over time through the form of the equity awards we granted.
Award. Target long-term incentive awards for our named executive officers will continue to be determined at the beginning of the year by the Compensation Committee based in part on the annual market assessment of our executives compensation performed by the Committees compensation consultant.
To focus on stockholder return, we will continue to award performance shares to our executive officers, although we have added an additional metric to the performance measure as discussed below. To focus on stock price growth, we will continue to issue stock options to our executive officers. To focus on talent retention and recruitment, we will continue to award RSUs, which in 2017 shall also include our CEO. Our executive officers received their 2017 long-term incentive plan awards in the following proportions:
Percentage of LTIP Award | ||||||||||||
RSUs | Options | Performance Shares |
||||||||||
Executive Officers |
25.0 | % | 37.5 | % | 37.5 | % |
This 75% majority weighting to performance shares and stock options works to align equity incentives with company performance and, ultimately, with stockholder value creation. The RSU component was
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Clearwater Paper Corporation 2017
added to our CEOs long-term awards by the Compensation Committee, in part based on the market assessment of our CEOs compensation performed by the Committees compensation consultant.
Performance Measures. For executive officers, we continue to use relative TSR performance for the performance shares we granted for the 2017-2019 period measured against the S&P MidCap 400® Index (excluding those companies classified as members of the GICS® Financials sector).
In addition, a majority of each of the 2017-2019 share grants will be based on an objective company-wide financial metric as follows:
◾ 60% Performance Share Award Based on ROIC Performance |
◾ 40% Performance Share Award Based on relative TSR |
ROIC, or return on invested capital, will be measured over a three-year period. We have added the ROIC component to focus on the delivery of financial results from our strategic initiatives and related capital expenditures.
The pay and performance markers for the relative TSR portion of performance share awards were set as follows: threshold payout at 0% of target for 25th percentile performance (a shift from a 25% payout of target for 33rd percentile performance), target payout for 50th percentile performance (unchanged), and maximum payout at 200% payout of target for 75th percentile performance (adjusted down from the 85th percentile). These thresholds and maximum objectives for 2017 continue to support a strong performance orientation and are in keeping with competitive practice.
Stock options were granted at fair market value and are intended to qualify as performance-based awards under Section 162(m).
Other Compensation Related Matters
Officer Stock Ownership Guidelines and Limitations on Securities Trading
In the interest of promoting and increasing equity ownership by our senior executives and to further align our executives long-term interests with those of our stockholders, we have adopted the following stock ownership guidelines:
Title | Value of Clearwater Paper Equity Holdings | |
Chief Executive Officer |
5x Base Salary | |
Division President |
2x Base Salary | |
Senior Vice President |
2x Base Salary |
Each executive must acquire, within five years of his or her becoming an executive officer, at least the equity value shown above. Each of our named executive officers has met his or her current equity ownership requirements.
Shares held in a brokerage account, an account with our transfer agent, an account with our stock plan administrator or in our 401(k) Plan, common stock units owned as a result of deferred awards made under our incentive programs, and any vested RSUs, all count towards the ownership requirement. Shares subject to unvested RSUs, unexercised options or unearned performance shares, however, do not count toward the ownership guidelines. The value of the shares held by an officer will be measured by the greater of the value of the shares at the (i) time acquired or fully vested or (ii) the applicable annual measurement date, based on the twenty-day average closing price of our stock before that
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Clearwater Paper Corporation 2017
measurement date. The stock ownership of all our named executive officers as of February 28, 2017, is presented on page 16. See Security Ownership of Certain Beneficial Owners and Management.
If an executive does not meet his or her ownership requirement or the ownership requirement is not maintained after it is initially met, incentive awards to be made under our annual incentive program are paid 50% in cash and 50% in stock, and any performance share award that is earned, on an after-tax basis, must be retained to the extent necessary to meet the stock ownership guidelines.
Pursuant to our Insider Trading Policy, directors, officers and other employees are prohibited from engaging in short sales of company securities, pledging company securities, purchasing company securities on margin, and engaging in transactions in puts, calls or other derivatives trading on an exchange in regard to company securities.
Executive Severance and Change of Control Plans
The Compensation Committee believes that our Executive Severance Plan and our Change of Control Plan provide tangible benefits to the company and our stockholders, particularly in connection with recruiting and retaining executives in a change of control situation. We do not provide for excise tax gross-ups upon a change of control. We do not view our change of control benefits or post-termination benefits as core elements of compensation due to the fact that a change of control or other triggering event may never occur. Our objectives in having the Executive Severance Plan and Change of Control Plan are consistent with our compensation objectives to recruit, motivate and retain talented and experienced executives. In addition, we believe these plans provide a long-term commitment to job stability and financial security for our executives and encourage retention of those executives in the face of the uncertainty and potential disruptive impact of an actual or potential change of control. Our change of control policies ensure that the interests of our executives will be materially consistent with the interests of our stockholders when considering corporate transactions and are intended to reassure executives that they will receive previously deferred compensation and that prior equity grants will be honored because decisions as to whether to provide these amounts are not left to management and the directors in place after a change of control. Our change of control and post-termination benefits are not provided exclusively to the named executive officers, but are also provided to certain other management employees.
Severance and change of control benefits are discussed in detail on pages 52-57. See Potential Payments Upon Termination or a Change of Control.
Section 162(m)
Section 162(m) of the Internal Revenue Code, or the Code, generally disallows a tax deduction to public companies for annual compensation in excess of $1 million paid to the CEO and certain other named executive officers. Companies may deduct compensation above $1 million, however, if it is performance-based compensation within the meaning of the Code. While the Compensation Committee considers the effect of this rule in developing and implementing our compensation program, in order to preserve the committees flexibility, we have not adopted a policy that all applicable compensation must qualify as deductible under Section 162(m). However, our annual incentive program and the performance share and option award portions of our long-term incentive program are intended to qualify as performance-based compensation. Our stockholders have previously approved our annual incentive plan and stock incentive plan for purposes of Section 162(m), and are being asked to approve our 2017 Stock Incentive Plan at this Annual Meeting (See Proposal 5).
Salaried Retirement Benefits
Salaried Retirement Plan. The company sponsors a Salaried Retirement Plan, or Retirement Plan, which provides a pension to salaried employees of Clearwater Paper as of December 15, 2010, including some of our named executive officers. This plan is discussed in detail on pages 49-51.
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Clearwater Paper Corporation 2017
See Post Employment Compensation. We closed the Retirement Plan to new participants effective December 15, 2010, and froze the accrual of further benefits for current participants under the plan as of December 31, 2011. In lieu of further accrual of benefits under the Retirement Plan, we are providing enhanced 401(k) contributions to provide a competitive and sustainable retirement benefit to the prior plan participants and new salaried employees.
401(k) Plan. Under the Clearwater Paper 401(k) Plan, or the 401(k) Plan, in 2016 we made matching contributions equal to 70% of a salaried employees contributions up to 6% of his or her annual cash compensation, subject to applicable tax limitations. Eligible employees who elect to participate in this plan are 100% vested in the matching contributions upon completion of two years of service. All eligible nonunion employees of Clearwater Paper and its subsidiaries, including our named executive officers, are permitted to make voluntary pre-tax and after-tax contributions to the plan, subject to applicable tax limitations. The employee contributions are eligible for matching contributions as described above.
Additionally, in connection with our decision to close the Retirement Plan and cease to accrue further benefits for participants under that plan at the end of 2011, starting in 2012 we began making enhanced contributions to employees accounts under the 401(k) Plan of 3.5% of an employees eligible annual compensation. Also, in order to transition participating employees who were at least age 45 as of December 31, 2011, from our Retirement Plan to the 401(k) Plan, we contributed additional amounts for a period of 5 years from January 1, 2012, to the employees 401(k) Plan account based upon the employees age as follows:
Age | % of Compensation |
|||
Age 45-49 |
4.0 | % | ||
Age 50-54 |
5.5 | % | ||
Age 55-59 |
7.0 | % | ||
Age 60+ |
8.5 | % |
Enhanced and transitional contributions are immediately vested.
Supplemental Benefit Plan. Our Clearwater Paper Salaried Supplemental Benefit Plan, or Supplemental Plan, provides retirement benefits to our salaried employees, including our named executive officers, based upon the benefit formulas of our Retirement Plan and 401(k) Plan. Benefits under the Supplemental Plan are based on base salary and annual bonus, including any such amounts that the employee has elected to defer, and are computed to include amounts in excess of the IRS compensation and benefit limitations applicable to our qualified plans. Otherwise, these benefits are calculated based on the qualified plan formulas and do not augment the normal benefit formulas applicable to our salaried employees. These plans are discussed in detail on pages 50-51. See Summary of Plan Benefits.
To appropriately align with the change to the Retirement Plan and the introduction of the enhanced 401(k) Plan benefits, the portion of the Supplemental Plan based on the Retirement Plan benefit formula was frozen as of December 31, 2011, and the portion of the Supplemental Plan based on the 401(k) Plan benefit formula includes any enhanced and transitional 401(k) contributions that would exceed the IRS compensation and benefit limits.
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Clearwater Paper Corporation 2017
Other Benefits
Health and Welfare Benefits. All full-time employees, including our named executive officers, may participate in our health and welfare benefit programs, including medical, dental and vision care coverage, disability insurance and life insurance.
Personal Benefits. We do not provide perquisites or other personal benefits to our officers or senior employees, with the exception of certain relocation expenses. Salaried employees, including named executive officers, who participate in our relocation program receive a tax gross-up on certain of the relocation benefits provided. Our health care and other medical insurance programs, as well as the 401(k) Plan, are the same for all U.S.-based salaried employees, including named executive officers.
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Clearwater Paper Corporation 2017
2016 Summary Compensation Table
Name and Principal Position | Year | Salary ($) |
Bonus ($) |
Stock Awards ($)(1) |
Option Awards ($)(1) |
Non-Equity Incentive Plan Compensation ($)(2) |
Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(3) |
All Other Compensation ($)(4) |
Total ($) |
|||||||||||||||||||||||||||
Linda K. Massman |
2016 | $866,346 | $1,183,417 | $1,289,537 | $1,068,200 | $30,014 | $223,468 | $4,660,983 | ||||||||||||||||||||||||||||
President and Chief Executive Officer |
2015 | $816,667 | $893,024 | $898,987 | $736,000 | $0 | $170,044 | $3,514,722 | ||||||||||||||||||||||||||||
2014 | $762,500 | $1,817,989 | $1,193,250 | $636,700 | $84,872 | $136,106 | $4,631,417 | |||||||||||||||||||||||||||||
John D. Hertz |
2016 | $477,404 | $309,292 | $204,187 | $382,500 | $0 | $87,412 | $1,460,795 | ||||||||||||||||||||||||||||
Senior Vice President, Finance and Chief Financial Officer |
2015 | $462,500 | $279,242 | $168,954 | $286,000 | $0 | $53,761 | $1,250,457 | ||||||||||||||||||||||||||||
2014 | $445,000 | $486,873 | $224,221 | $235,700 | $0 | $46,208 | $1,438,002 | |||||||||||||||||||||||||||||
Patrick T. Burke(5) |
2016 | $433,077 | $341,849 | $225,687 | $347,200 | $0 | $47,367 | $1,395,180 | ||||||||||||||||||||||||||||
Senior Vice President, Group President |
2015 | $331,083 | $223,136 | $131,478 | $189,000 | $0 | $29,952 | $904,649 | ||||||||||||||||||||||||||||
Michael S. Gadd |
2016 | $406,538 | $247,441 | $163,350 | $325,800 | $27,218 | $106,214 | $1,276,562 | ||||||||||||||||||||||||||||
Senior Vice President, General Counsel and Corporate Secretary |
2015 | $386,667 | $217,250 | $131,478 | $239,100 | $0 | $72,915 | $1,047,410 | ||||||||||||||||||||||||||||
2014 | $365,833 | $378,792 | $174,425 | $193,800 | $74,697 | $55,392 | $1,242,939 | |||||||||||||||||||||||||||||
Kari G. Moyes(6) |
2016 | $312,404 | $195,342 | $128,958 | $211,800 | $0 | $56,645 | $905,149 | ||||||||||||||||||||||||||||
Senior Vice President, Human Resources |
(1) | For 2016, the stock awards column shows the aggregate grant date fair value of the RSUs granted to all of our named executive officers, excluding our CEO, and performance shares granted to all of our named executive officers. The option awards column shows the grant date fair value of stock options granted to all of our named executive officers in 2016. |
In accordance with FASB ASC Topic 718, the grant date fair value reported for all RSUs was computed by multiplying the number of shares subject to the RSU award by the closing price of Clearwater Papers stock on the grant date.
The grant date fair values reported for all performance shares were based upon the probable outcome of the TSR performance condition, which amounts were determined consistent with the estimate of the aggregate compensation cost to be recognized over the performance period determined as of the grant date under FASB ASC Topic 718, excluding the effect of estimated forfeitures. The fair value of performance share awards for purposes of estimating compensation cost was calculated using a Monte Carlo simulation model.
We determined the grant date fair value for all stock options using the Black-Scholes model in accordance with FASB ASC Topic 718.
The assumptions underlying FASB ASC Topic 718 valuations performed for performance shares and stock options are discussed in Note 15 to our audited financial statements included in our 10-K.
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Clearwater Paper Corporation 2017
Following is the value as of the grant date of the performance shares granted to our named executive officers by us in 2016 and in 2015, assuming the highest level of TSR performance would have been or will be achieved (resulting in settlement of 200% of the shares subject to the award) in each case based on Clearwater Papers closing stock price on the applicable grant date:
Name | Grant Date Value Assuming Highest |
|||
Linda K. Massman |
||||
2016 Clearwater Performance Shares |
$2,310,198 | |||
2015 Clearwater Performance Shares |
$1,777,412 | |||
John D. Hertz |
||||
2016 Clearwater Performance Shares |
$365,800 | |||
2015 Clearwater Performance Shares |
$334,068 | |||
Patrick T. Burke |
||||
2016 Clearwater Performance Shares |
$404,318 | |||
2015 Clearwater Performance Shares |
$277,636 | |||
Michael S. Gadd |
||||
2016 Clearwater Performance Shares |
$292,640 | |||
2015 Clearwater Performance Shares |
$259,968 | |||
Kari G. Moyes |
||||
2016 Clearwater Performance Shares |
$231,028 |
(2) | This column shows cash bonuses earned under our annual incentive plan. Annual bonuses relating to performance in 2016 were actually paid in 2017. |
(3) | Represents the aggregate annual change in the actuarial present value of accumulated pension benefits under all of our defined benefit and actuarial pension plans. No portion of the amounts shown in this column is attributable to above market or preferential earnings on deferred compensation. |
(4) | All other compensation earned or allocated during the fiscal year ending December 31, 2016, is as provided in the table below: |
Name | Company Contributions | Other Benefits |
||||||||||
401(k) | Supplemental 401(k)(a) |
|||||||||||
Linda K. Massman |
$ | 22,077 | $ | 167,737 | $ | 33,654 | (b) | |||||
John D. Hertz |
$ | 14,635 | $ | 45,662 | $ | 27,115 | (b) | |||||
Patrick T. Burke |
$ | 13,512 | $ | 33,855 | $ | 0 | ||||||
Michael S. Gadd |
$ | 16,305 | $ | 61,255 | $ | 28,654 | (b)(c) | |||||
Kari G. Moyes |
$ | 20,034 | $ | 14,015 | $ | 22,596 | (b)(d) |
(a) | Allocations made under the 401(k) Plan supplemental benefit portion of our Supplemental Plan. |
(b) | In 2016, the following named executive officers received cash compensation in exchange for surrender of accrued vacation pursuant to the implementation of change in vacation accrual |
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Clearwater Paper Corporation 2017
policies for salaried employees company-wide in the following amounts: Ms. Massman ($33,654), Mr. Hertz ($27,115), Mr. Gadd ($23,654) and Ms. Moyes ($17,596). |
(c) | Includes a charitable contribution of $5,000 made by the company to Second Harvest Inland Northwest of which Mr. Gadd serves as a director. |
(d) | Includes a charitable contribution of $5,000 made by the company to the Spokane Symphony of which Ms. Moyes serves as a director. |
(5) | Mr. Burke was not a named executive officer prior to 2015, so no data is provided for 2014 in this table. |
(6) | Ms. Moyes was not a named executive officer prior to 2016, so no data is provided for 2014 or 2015 in this table. |
Grants of Plan-Based Awards for 2016
Name | Grant Date |
Estimated Possible Payouts Incentive Plan Awards(1) |
Estimated Future Payouts |
All Other Stock Number of Shares of Stocks or Units (#)(3) |
All Other Option Number of Securities Underlying Options (#)(4) |
Exercise Awards ($/Sh)(5) |
Grant Fair Value of Stock and ($)(6) |
|||||||||||||||||||||||||||||||||||||
Threshold ($) |
Target ($) |
Maximum ($) |
Threshold (#) |
Target (#) |
Maximum (#) |
|||||||||||||||||||||||||||||||||||||||
Linda K. Massman |
$541,688 | $866,700 | $1,516,725 | |||||||||||||||||||||||||||||||||||||||||
2/25/2016 | 7,452 | 29,809 | 59,618 | $1,183,417 | ||||||||||||||||||||||||||||||||||||||||
2/25/2016 | 89,427 | $38.75 | $1,289,537 | |||||||||||||||||||||||||||||||||||||||||
John D. Hertz |
$194,000 | $310,400 | $543,200 | |||||||||||||||||||||||||||||||||||||||||
2/25/2016 | 1,180 | 4,720 | 9,440 | $187,384 | ||||||||||||||||||||||||||||||||||||||||
2/25/2016 | 14,160 | $38.75 | $204,187 | |||||||||||||||||||||||||||||||||||||||||
2/25/2016 | 3,146 | $121,908 | ||||||||||||||||||||||||||||||||||||||||||
Patrick T. Burke |
$176,063 | $281,700 | $492,975 | |||||||||||||||||||||||||||||||||||||||||
2/25/2016 | 1,304 | 5,217 | 10,434 | $207,115 | ||||||||||||||||||||||||||||||||||||||||
2/25/2016 | 15,651 | $38.75 | $225,687 | |||||||||||||||||||||||||||||||||||||||||
2/25/2016 | 3,477 | $134,734 | ||||||||||||||||||||||||||||||||||||||||||
Michael S. Gadd |
$165,188 | $264,300 | $462,525 | |||||||||||||||||||||||||||||||||||||||||
2/25/2016 | 944 | 3,776 | 7,552 | $149,907 | ||||||||||||||||||||||||||||||||||||||||
2/25/2016 | 11,328 | $38.75 | $163,350 | |||||||||||||||||||||||||||||||||||||||||
2/25/2016 | 2,517 | $97,534 | ||||||||||||||||||||||||||||||||||||||||||
Kari G. Moyes |
$107,438 | $171,900 | $300,825 | |||||||||||||||||||||||||||||||||||||||||
2/25/2016 | 745 | 2,981 | 5,962 | $118,346 | ||||||||||||||||||||||||||||||||||||||||
2/25/2016 | 8,943 | $38.75 | $128,958 | |||||||||||||||||||||||||||||||||||||||||
2/25/2016 | 1,987 | $76,996 |
(1) | Actual amounts paid under our annual incentive plan for performance in 2016 were paid in March 2017, and are reflected in the Summary Compensation Table on page 43 in the column titled Non-Equity Incentive Plan Compensation. Awards granted under our annual incentive plan included an operational component related to company EBITDA and EBITDA Margin, which accounted for 75%, and an individual performance component, which accounted for 25% of the target bonus measure for 2016. The company portion of the target annual bonus amount could have been up to 200% of target depending on the respective EBITDA and EBITDA Margin performance of the company, but the individual component of the bonus could not be greater than 100% of target. This resulted in a cap on what could be paid out equal to 175% of the aggregate target amount for the year. If the company EBITDA threshold target is not met, no participant is eligible to receive a bonus, including the individual bonus component, under our annual incentive plan for that year. The threshold amounts shown in the table assume threshold company performance and 100% of the individual performance component being paid. |
(2) | Amounts shown represent performance shares granted for the performance period 2016-2018. With the exception of Ms. Massman, the named executive officers total long-term incentive grants were in the form of 37.5% performance shares that may pay out based on our TSR compared to that of a selected comparison group (companies comprising the S&P MidCap 400® Index, |
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Clearwater Paper Corporation 2017
excluding those companies classified as members of the GICS® Financials sector) during the three-year performance period, and 37.5% stock options and 25% time-vested RSUs both of which have a three-year cliff vesting subject to continuing employment. Ms. Massmans total long-term incentive grants were in the form of 50% performance shares that may pay out based on our TSR compared to that of the comparison group during the three-year performance period, and 50% stock options which have three-year cliff vesting subject to continuing employment. The grant date fair value of the performance share awards has been calculated based on the probable outcome of the TSR performance as of the grant date, consistent with FASB ASC Topic 718. |
(3) | Amounts represent RSUs with three-year cliff vesting described in footnote 2. |
(4) | Amounts represent stock options with three-year cliff vesting described in footnote 2. |
(5) | Stock exercise prices reflect the closing price of our stock on the grant date. |
(6) | The grant date fair value of the option awards has been calculated using the Black-Scholes model in accordance with FASB ASC Topic 718. |
Compensation of Chief Executive Officer
Linda K. Massman. Pursuant to Ms. Massmans employment agreement, dated effective January 1, 2016, for her service as President and CEO, her target annual bonus opportunity was 100% of her actual salary for 2016. She was paid an annual bonus of $1,068,200 for 2016. Her bonus could have ranged from zero to 175% of the target amount based on company and individual performance criteria established by the Compensation Committee. Ms. Massman also participates in our long-term incentive program on terms established by the committee, and for 2016, she was eligible for a target award of at least $2,000,000.
Ms. Massman receives other benefits generally available to our officers and other eligible employees including participation in our Supplemental Plan and Retirement Plan. See narrative following the Pension Benefits Table.
Ms. Massman is entitled to certain payments upon termination or a change of control. See Potential Payments Upon Termination or Change of Control-Ms. Massmans Employment Agreement. Ms. Massman is also prohibited from competing against us or soliciting our or our affiliates employees and from soliciting customers on behalf of any competitor for one year following termination of her employment if her employment terminated without cause, if her employment terminated more than twenty-four months after a change of control, or if she terminated her employment for good reason, and for two years following termination of her employment for any other reason.
The Compensation Committee has reviewed all components of the compensation of Ms. Massman, including base salary, annual incentive award and long-term incentive awards plus the cost of any other salaried employee benefits and projected payout obligations under several potential severance and change of control scenarios. Based on this review, the committee has determined that the total compensation of Ms. Massman is in the aggregate reasonable and not excessive and is consistent with the committees evaluation of her performance. The committee also determined, in the case of severance and change of control scenarios, that the potential payouts were appropriate.
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Clearwater Paper Corporation 2017
2016 Outstanding Equity Awards at Fiscal Year End
Option Awards(1) | Stock Awards(1) | |||||||||||||||||||||||||||||||
Number of Securities Underlying Unexercised Options (#) |
Number of Securities Underlying Unexercised Options (#) |
Option Exercise Price ($) |
Option Expiration Date |
Number of Shares or Units of Stock Not Vested (#)(2) |
Market Value of Shares or Not Vested ($)(3) |
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Rights That Have Not Vested (#)(4) |
Equity Incentive Plan Awards: Market or Payout Value of Shares, Units or That Have Not ($)(3) |
|||||||||||||||||||||||||
Name | Exercisable | Unexercisable | ||||||||||||||||||||||||||||||
Linda K. Massman |
||||||||||||||||||||||||||||||||
Performance Share Grant (2016-2018) |
59,618 | $3,907,960 | ||||||||||||||||||||||||||||||
Stock Option Grant (2016-2018) |
89,427 | $38.75 | 2/25/2026 | |||||||||||||||||||||||||||||
Performance Share Grant (2015-2017) |
3,598 | $235,849 | ||||||||||||||||||||||||||||||
Stock Option Grant (2015-2017) |
43,179 | $61.75 | 2/26/2025 | |||||||||||||||||||||||||||||
Stock Option Grant (2014-2016) |
51,903 | $66.97 | 2/24/2024 | |||||||||||||||||||||||||||||
John D. Hertz |
||||||||||||||||||||||||||||||||
Performance Share Grant (2016-2018) |
9,440 | $618,792 | ||||||||||||||||||||||||||||||
Stock Option Grant (2016-2018) |
14,160 | $38.75 | 2/25/2026 | |||||||||||||||||||||||||||||
Restricted Stock Units (2016-2018) |
3,146 | (5) | $206,220 | |||||||||||||||||||||||||||||
Performance Share Grant (2015-2017) |
676 | $44,328 | ||||||||||||||||||||||||||||||
Stock Option Grant (2015-2017) |
8,115 | $61.75 | 2/26/2025 | |||||||||||||||||||||||||||||
Restricted Stock Units (2015-2017) |
1,804 | (6) | $118,252 | |||||||||||||||||||||||||||||
Stock Option Grant (2014-2016) |
9,753 | $66.97 | 2/24/2024 | |||||||||||||||||||||||||||||
Patrick T. Burke |
||||||||||||||||||||||||||||||||
Performance Share Grant (2016-2018) |
10,434 | $683,949 | ||||||||||||||||||||||||||||||
Stock Option Grant (2016-2018) |
15,651 | $38.75 | 2/25/2026 | |||||||||||||||||||||||||||||
Restricted Stock Units (2016-2018) |
3,477 | (5) | $227,917 | |||||||||||||||||||||||||||||
Performance Share Grant (2015-2017) |
526 | $34,496 | ||||||||||||||||||||||||||||||
Stock Option Grant (2015-2017) |
1,956 | $61.75 | 2/26/2025 | |||||||||||||||||||||||||||||
Restricted Stock Units (2015-2017) |
1,403 | (6) | $91,967 | |||||||||||||||||||||||||||||
Stock Option Grant (2015-2017) |
4,359 | $67.83 | 4/1/2025 | |||||||||||||||||||||||||||||
Restricted Stock Units (2014) |
1,020 | (7) | $66,861 | |||||||||||||||||||||||||||||
Stock Option Grant (2014-2016) |
1,464 | $66.97 | 2/24/2024 | |||||||||||||||||||||||||||||
Michael S. Gadd |
||||||||||||||||||||||||||||||||
Performance Share Grant (2016-2018) |
7,552 | $495,034 | ||||||||||||||||||||||||||||||
Stock Option Grant (2016-2018) |
11,328 | $38.75 | 2/25/2026 | |||||||||||||||||||||||||||||
Restricted Stock Units (2016-2018) |
2,517 | (5) | $164,989 | |||||||||||||||||||||||||||||
Performance Share Grant (2015-2017) |
526 | $34,496 | ||||||||||||||||||||||||||||||
Stock Option Grant (2015-2017) |
6,315 | $61.75 | 2/26/2025 | |||||||||||||||||||||||||||||
Restricted Stock Units (2015-2017) |
1,403 | (6) | $91,967 | |||||||||||||||||||||||||||||
Stock Option Grant (2014-2016) |
7,587 | $66.97 | 2/24/2024 | |||||||||||||||||||||||||||||
Kari G. Moyes |
||||||||||||||||||||||||||||||||
Performance Share Grant (2016-2018) |
5,962 | $390,809 | ||||||||||||||||||||||||||||||
Stock Option Grant (2016-2018) |
8,943 | $38.75 | 2/25/2026 | |||||||||||||||||||||||||||||
Restricted Stock Units (2016-2018) |
1,987 | (5) | $130,248 | |||||||||||||||||||||||||||||
Performance Share Grant (2015-2017) |
418 | $27,367 | ||||||||||||||||||||||||||||||
Stock Option Grant (2015-2017) |
5,010 | $61.75 | 2/26/2025 | |||||||||||||||||||||||||||||
Restricted Stock Units (2015-2017) |
1,113 | (6) | $72,957 | |||||||||||||||||||||||||||||
Stock Option Grant (2014-2016) |
1,407 | $66.97 | 2/24/2024 |
(1) | For 2015 and 2016, all named executive officers annual equity awards, with the exception of the grants to Ms. Massman, were in the form of 37.5% performance shares that may pay out based on our relative TSR compared to that of the S&P MidCap 400® Index (excluding those companies classified as members of the GICS® Financials sector) during the three-year performance period, 37.5% stock options and 25% time-vested RSUs, the latter two with three-year cliff vesting subject to continued employment. Ms. Massmans 2015 and 2016 annual equity incentive grants were in the form of 50% performance shares and 50% stock options. Because the performance share awards are for three-year performance periods that end December 31, 2017, and 2018, respectively, the actual number of shares that could be issued upon settlement of these awards may be more or less than the amounts shown in this table. |
(2) | This column shows RSUs granted in 2014, 2015 and 2016. |
(3) | Values calculated using the $65.55 per share closing price of our common stock on December 30, 2016. |
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Clearwater Paper Corporation 2017
(4) | This column shows performance shares granted for the 2015-2017 and 2016-2018 performance periods, with share amounts shown at 25% of the target based on actual performance for the 2015 grant, and share amounts at 200% of the target based on actual performance for the 2016 grants, both as of December 31, 2016. |
(5) | 100% of the shares listed in the table will vest on December 31, 2018. |
(6) | 100% of the shares listed in the table will vest on December 31, 2017. |
(7) | Represents RSUs that will vest ratably over a three-year period from the date of the grant. |
2016 Option Exercises and Stock Vested Table
Option Awards | Stock Awards | |||||||||||||||
Name | Number of Shares Acquired on (#) |
Value Realized on Exercise ($) |
Number of Shares Acquired on (#)(1)(2) |
Value Realized on Vesting ($)(2)(3) |
||||||||||||
Linda K. Massman |
0 | $ | 0 | 15,398 | $ | 873,837 | ||||||||||
John D. Hertz |
0 | $ | 0 | 10,062 | $ | 620,206 | ||||||||||
Patrick T. Burke(4) |
0 | $ | 0 | 1,751 | $ | 104,940 | ||||||||||
Michael S. Gadd |
0 | $ | 0 | 3,939 | $ | 238,393 | ||||||||||
Kari G. Moyes |
0 | $ | 0 | 732 | $ | 44,313 |
(1) | Consists of the gross number of RSUs that fully vested in 2016 and the gross number of performance shares for the 2014-2016 performance period that were approved for settlement by the Compensation Committee on February 27, 2017. During the three-year performance period for these awards (2014-2016), we had a 20.3% TSR compared to a median TSR for our comparison group of 23.0%. This placed us in the 47.6 percentile for performance in our comparison group, and resulted in a payout of performance shares equal to 89.0% of target. The breakout of the gross number of RSUs and performance shares are as follows: |
Name | RSUs Settled |
Performance Shares |
||||||
Linda K. Massman |
0 | 15,398 | ||||||
John D. Hertz(a) |
22,169 | 2,893 | ||||||
Patrick T. Burke |
327 | 434 | ||||||
Michael S. Gadd |
1,688 | 2,251 | ||||||
Kari G. Moyes |
315 | 417 |
(a) | Includes shares that vested in prior years but were not paid out until the special RSU award fully vested in 2016. |
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Clearwater Paper Corporation 2017
(2) | Fully vested RSUs and performance shares that were settled were subject to tax withholding, resulting in the receipt of fewer shares by each named executive officer. The shares withheld for tax purposes were as follows: |
Name |
Shares Withheld for Tax Purposes |
Value of Shares Withheld |
||||||
Linda K. Massman |
4,202 | $238,464 | ||||||
John D. Hertz |
8,489 | $530,382 | ||||||
Patrick T. Burke |
232 | $13,958 | ||||||
Michael S. Gadd |
1,129 | $68,136 | ||||||
Kari G. Moyes |
224 | $13,478 |
(3) | Values are calculated using the per share closing price of our common stock on the vesting date of each RSU grant. |
(4) | These vested RSUs include 990 RSUs for Mr. Burke, which were not settled on the vesting date but rather will be settled on the date of full vesting of the underlying RSU award, subject to earlier settlement in the event of termination of employment. |
Pension Benefits Table
The table below shows the actuarial present value of each named executive officers accumulated benefit payable on retirement under our tax-qualified Retirement Plan and the Retirement Plan supplemental benefit portion of our non-qualified Supplemental Plan.
Name | Plan Name |
Number of Years Credited Service (1)(#) |
Present Value of Accumulated Benefit ($) |
Payments During Last Fiscal Year ($) |
||||||||||
Linda K. Massman |
Supplemental Plan(2) | 3.30 | $224,616 | $0 | ||||||||||
Retirement Plan(3) | 3.30 | $94,997 | $0 | |||||||||||
John D. Hertz |
Supplemental Plan(4) | 0.00 | $0 | $0 | ||||||||||
Retirement Plan(4) | 0.00 | $0 | $0 | |||||||||||
Patrick T. Burke |
Supplemental Plan(4) | 0.00 | $0 | $0 | ||||||||||
Retirement Plan(4) | 0.00 | $0 | $0 | |||||||||||
Michael S. Gadd |
Supplemental Plan(2) | 5.84 | $133,294 | $0 | ||||||||||
Retirement Plan(3) | 5.84 | $174,109 | $0 | |||||||||||
Kari G. Moyes |
Supplemental Plan(4) | 0.00 | $0 | $0 | ||||||||||
Retirement Plan(4) | 0.00 | $0 | $0 |
(1) | Years of credited service were frozen as of December 31, 2011. Number of years of credited service prior to December 31, 2011, include years of service with Potlatch Corporation prior to our spin-off from Potlatch Corporation for all eligible employees. |
(2) | Salaried Supplemental Benefit Plan. The Retirement Plan supplemental benefit portion of this plan ceased to accrue further benefits for participants as of December 31, 2011. |
(3) | Salaried Retirement Plan. This plan was closed to new participants effective December 15, 2010, and ceased to accrue further benefits for participants as of December 31, 2011. |
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Clearwater Paper Corporation 2017
(4) | Ms. Moyes and Messrs. Hertz and Burke were not participants in the Retirement Plan and accordingly have no retirement benefits under the Supplemental Plan. |
The following assumptions were made in calculating the present value of accumulated benefits:
◾ | discount rate of 4.45% as of December 31, 2016; |
◾ | retirement at the officers first unreduced retirement age, which is age 62; |
◾ | service as of December 31, 2011; |
◾ | mortality expectations based on the Mercer Industry Longevity Experience Study for basic materials, paper and packaging (MILES) table with generational projections using the Mercer derived projection scale MMP-2016 as of December 31, 2016; and |
◾ | IRS limitations and Social Security covered compensation through December 31, 2011. |
Summary of Plan Benefits: Full-time Clearwater Paper salaried employees, including our named executive officers, who were employed by us as of December 15, 2010, are eligible for the Retirement Plan. For purposes of calculating the Retirement Plan benefit, earnings include base salary and annual incentive awards.
Summary of Retirement Plan Benefits | ||
Eligible Employees | Full-time Clearwater Paper salaried employees, including named executive officers, who were employed as of December 15, 2010. | |
Normal Retirement Date | The first day of the month coincident with or next following the attainment of age 65. | |
Normal Retirement Benefit(1) (monthly) |
1% times Final Average Earnings(2) times Years of Credited Service
Plus 0.5% times Final Average Earnings in excess of the Social Security Benefit Base times Years of Credited service (up to 35) | |
Early Retirement Benefit (monthly) |
The Normal Retirement Benefit reduced 5/12 of 1% for every month that payment commences prior to age 62 (or age 65 if employment terminates prior to attainment of age 55 and 10 Years of Vesting Service) | |
Vesting | Participants vest in Retirement Plan benefits upon the attainment of five years of Vesting Service, or age 65. | |
Normal Form of Benefit | Single Life Annuity | |
Forms of Payment | Participants may select among various annuity forms. Benefits with an actuarial present value less than $5,000 are paid in a lump sum. |
(1) | The Normal Retirement Benefit (or Accrued Benefit) is frozen as of December 31, 2011. Years of service are frozen as of December 31, 2011. |
(2) | Final Average Earnings is the highest average monthly compensation (including base salary and incentive awards) earned during any consecutive 60-month period during the employees final 120 months of service as of December 31, 2011. Compensation in a given year is limited by Internal Revenue Code (IRC) Section 401(a)(17). |
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Clearwater Paper Corporation 2017
Summary of the Supplemental Plan Benefit | ||
Eligible Employees | All participants in the Retirement Plan whose benefits are limited due to the application of IRC Section 401(a)(17) or IRC Section 415. | |
Supplemental Benefit | The additional retirement benefit that the participant would have earned without regard to IRC Section 401(a)(17) or IRC Section 415. The benefit is adjusted for age at commencement similar to the Retirement Plan. | |
Payment of Benefits | Benefits will commence not later than 90 days following attainment of age 55 or separation of service, whichever is later. If the actuarially equivalent lump sum value of the Supplemental Benefit is not more than $50,000 it shall be paid in a lump sum. Otherwise, the participant may elect a form of payment from those provided by the Retirement Plan. Benefit payments to key employees, as defined under the IRC, are delayed for a minimum of six months following separation from service. | |
Vesting | Participants vest in Supplemental Plan benefits upon the attainment of five years of Vesting Service or age 65. |
2016 Nonqualified Deferred Compensation Table
The table below shows deferred compensation of the named executive officers, including mandatory deferral of RSUs and the fiscal year contributions made by or on their behalf under the 401(k) Supplemental Benefit portion of our nonqualified Supplemental Plan.
Name |
Executive Contributions in Last FY ($) |
Registrant Contributions in Last FY ($)(1) |
Aggregate Earnings in Last FY ($)(2) |
Aggregate Distributions ($) |
Aggregate Balance at (12/30/16) ($)(3) |
|||||||||||||||
Linda K. Massman |
$0 | $167,737 | $751,489 | ($111,238) | $2,996,209 | (4) | ||||||||||||||
John D. Hertz |
$0 | $45,662 | $13,889 | $0 | $151,425 | |||||||||||||||
Patrick T. Burke |
$0 | $33,855 | $240 | $0 | $48,957 | |||||||||||||||
Michael S. Gadd |
$0 | $61,255 | $2,898 | $0 | $243,238 | |||||||||||||||
Kari G. Moyes |
$0 | $14,015 | $54 | $0 | $14,069 |
(1) | Amounts shown in the Registrant Contributions column above are also included in the All Other Compensation column in the 2016 Summary Compensation Table. |
(2) | None of the Aggregate Earnings reported in this Table are included in the 2016 Summary Compensation Table in this proxy for the 2016 fiscal year as they do not represent above-market preferential earnings. These amounts include stock price appreciation on the mandatorily deferred RSUs. |
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Clearwater Paper Corporation 2017
(3) | The following amounts included in the Aggregate Balance column above have been reported as compensation to the named executive officers in the Summary Compensation Tables for previous fiscal years: |
Name | Amount | |||
Linda K. Massman |
$2,036,916 | |||
John D. Hertz |
$91,570 | |||
Patrick T. Burke |
$14,861 | |||
Michael S. Gadd |
$576,836 | |||
Kari G. Moyes |
$0 |
(4) | This aggregate balance includes RSUs that were previously, mandatorily deferred pursuant to RSU award agreements in 2012. The deferred stock units are entitled to dividend equivalents, if and when dividends are paid. |
In addition to the retirement benefits described above, the Supplemental Plan provides benefits to supplement our Clearwater Paper 401(k) Plan to the extent that an employees company contributions or allocable forfeitures in the Clearwater Paper 401(k) Plan are reduced due to IRC limits or because the employee has deferred an annual incentive plan award. Supplemental Plan contributions equal the difference between the company contributions and allocable forfeitures actually allocated to the employee under the Clearwater Paper 401(k) Plan for the year and the company contributions and allocable forfeitures that would have been allocated to the employee under the Clearwater Paper 401(k) Plan if the employee had deferred 6% of his or her earnings determined without regard to the IRC compensation limit ($265,000 in 2016) and without regard to deferral of any annual incentive plan award. At the participants election, contributions may be deemed invested in a stock unit account, other investments available under the Clearwater Paper 401(k) Plan or a combination of these investment vehicles. Participants vest in this Supplemental Plan benefit upon the earliest of two years of service, attainment of age 65 while an employee, or total and permanent disability. Participants may elect to have benefits paid in a lump sum or in up to 15 annual installments; however, balances that are less than the annual 401(k) contribution limit ($18,000 in 2016) at the time the employee separates from service are paid in a lump sum. Benefits commence in the year following the year of separation from service. Benefit payments to key employees, as defined under the IRC, are delayed for a minimum of six months following separation from service.
Certain employees, including the named executive officers, who earn an annual incentive plan award may defer between 50% and 100% of the award under the Management Deferred Compensation Plan. Eligible employees may also elect to defer up to 50% of base salary into the plan. At the participants election, deferrals may be deemed invested in a stock unit account, other investments available under the Clearwater Paper 401(k) Plan, or a combination of these investment vehicles. No cash is actually invested in these vehicles, rather a participant is credited for the deferred amount which is then tracked as if the amount were actually invested in company common stock or in funds available under the Clearwater Paper 401(k) Plan. If stock units are elected, dividend equivalents are credited to the units. Deferred amounts are 100% vested at all times.
Potential Payments Upon Termination or Change of Control
Severance Programs for Executive Employees
Our Executive Severance Plan (the Severance Plan) and Change of Control Plan provide severance benefits to our named executive officers and certain other employees. Benefits are payable under the Severance Plan in connection with a termination of the executive officers employment with us and under the Change of Control Plan in connection with a change of control.
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Clearwater Paper Corporation 2017
Termination Other Than in Connection with Change of Control. The following table assumes a termination of employment occurred by us without cause or by the officer for good reason and does not include termination as a result of death, disability, or retirement. The table sets forth the severance benefits payable to each of our named executive officers under our Severance Plan if the named executive officers employment is terminated in the circumstances described below, except, as noted, for those severance benefits of Ms. Massman which have been modified in accordance with her employment agreement. The following table assumes a termination of employment occurred on December 31, 2016.
Cash Severance Benefit |
Pro-Rata Annual Bonus |
Value of Equity |
Benefit Continuation |
Total | ||||||||||||||||
Linda K. Massman(2) |
$1,125,000 | $866,700 | $0 | $11,519 | $2,003,219 | |||||||||||||||
John D. Hertz |
$240,000 | $310,400 | $0 | $9,328 | $559,728 | |||||||||||||||
Patrick T. Burke |
$220,000 | $281,700 | $0 | $6,461 | $508,161 | |||||||||||||||
Michael S. Gadd |
$237,800 | $264,300 | $0 | $11,220 | $513,320 | |||||||||||||||
Kari G. Moyes |
$157,500 | $171,900 | $0 | $6,565 | $335,965 |
(1) | Our named executive officers are not entitled to accelerated vesting or other acceleration of equity awards in connection with a termination of employment except (a) for a termination of employment in connection with death, disability or retirement described below in the table titled Other Potential Payments Upon Termination; and (b) in connection with a change of control related triggering event. All equity awards have been calculated using the companys closing stock price of $65.55 on December 30, 2016. |
(2) | Pursuant to her employment agreement, Ms. Massman would have received a cash severance payment equal to one year of base compensation from the date of her separation from service plus $250,000 and a prorated annual bonus for the termination year under the applicable bonus plan. Her employment agreement is discussed below under Ms. Massmans Employment Agreement. |
Under the Severance Plan, benefits are payable to an executive officer when his or her employment terminates in the following circumstances (each a Severance Termination Event):
◾ | Involuntary termination of the executives employment for any reason other than death, disability or cause; or |
◾ | Voluntary termination of the executives employment upon one of the following events (provided a notice is given by the executive within 90 days of the event): |
◾ | a change in the executives duties or responsibilities that results in a material diminution in his or her position or function, other than a change in title or reporting relationships; |
◾ | a 10% or greater reduction in his or her base salary, target bonus opportunity, or target long-term incentive opportunity, other than in connection with an across-the-board reduction applicable to other senior executives; |
◾ | a relocation of the executives business office to a location more than 50 miles from the location at which he or she performs duties, other than for required business travel; or |
◾ | a material breach by the company or any successor concerning the terms and conditions of the executives employment. |
In addition, no severance benefits are payable in connection with termination of employment due to an asset sale, spin-off or joint venture if the executive continues employment with or is offered the same or better employment terms by the purchaser, spun-off company or joint venture.
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Clearwater Paper Corporation 2017
Upon the occurrence of a Severance Termination Event, the following severance benefits are payable to the executive officer, except for Ms. Massman as noted above:
◾ | a cash payment equal to three weeks of the executives base compensation, determined as of the date of the termination or at the rate in effect when the executives base compensation was materially reduced, whichever produces the larger amount, for each full year of service, referred to as the Severance Pay Period. The minimum period is six months of base compensation and the maximum is one year; |
◾ | continued eligibility for an annual incentive award for the fiscal year of termination, determined under the terms and conditions of the annual incentive plan and prorated for the number of days during the fiscal year in which the executive was employed; |
◾ | continued group health plan coverage as required by law (COBRA), with reimbursement of COBRA premium payments up to the amount paid by the company for the same coverage for its active senior executives until the end of the Severance Pay Period or, if earlier, the date the executive begins new employment; and |
◾ | continued basic life insurance coverage until the end of the Severance Pay Period or, if earlier, the date the executive begins new employment. |
Termination in Connection with a Change of Control. The following table sets forth the benefits payable to each of our named executive officers under the Change of Control Plan upon a termination of employment in connection with a change of control, except for Ms. Massman to the extent her benefits listed below are paid in accordance with her employment agreement as discussed below. The following table assumes the termination of employment and a change of control each occurred on December 31, 2016.
Cash Severance Benefit |
Pro-Rata Annual Bonus |
Value of Equity |
Benefit Continuation |
Total | ||||||||||||||||
Linda K. Massman |
$4,375,000 | $866,700 | $5,902,030 | $28,798 | $11,172,528 | |||||||||||||||
John D. Hertz |
$1,980,000 | $310,400 | $1,263,865 | $46,642 | $3,600,907 | |||||||||||||||
Patrick T. Burke |
$1,815,000 | $281,700 | $1,398,401 | $32,303 | $3,527,404 | |||||||||||||||
Michael S. Gadd |
$1,691,250 | $264,300 | $1,007,797 | $48,363 | $3,011,710 | |||||||||||||||
Kari G. Moyes |
$1,220,625 | $171,900 | $796,057 | $32,823 | $2,221,405 |
(1) | For purposes of calculating the value of equity acceleration in the table above, all equity awards were calculated using the companys closing stock price of $65.55 on December 30, 2016. |
Under the award agreement relating to our performance shares upon a change of control, a portion of the award based on our actual performance, prorated based on the number of complete months that have lapsed in the first twelve months of the performance period, is deemed payable and dividend equivalents, if any, are calculated on the prorated actual number of shares. Under the award agreement, if the holders employment is terminated by us without cause or by the holder for good reason within one month prior to, or 24 months after, a change of control, each RSU and stock option will fully vest unless the change of control occurs during the first year of the vesting period. If the change of control and double trigger event occur in the first year of the vesting period, a prorated portion of each RSU and stock option based on the number of complete months that have lapsed in the first twelve months of the vesting period is deemed payable.
Under the Change of Control Plan, benefits are payable to each of our executive officers upon a change of control. In general, a change of control is one or more of the following events: (1) any person acquires more than 30% of the companys outstanding common stock; (2) certain changes are made to the composition of our Board; (3) certain transactions occur that result in our stockholders owning 50% or less of the surviving corporations stock; or (4) a sale of all or substantially all of the assets of the company or approval by our stockholders of a complete liquidation or dissolution of the company.
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Clearwater Paper Corporation 2017
A change of control event does not occur upon the approval of stockholders of a merger, consolidation or sale transaction alone, but rather consummation of such a triggering event is also required.
Under the Change of Control Plan, benefits are payable to an executive officer when his or her employment terminates within two years following a change of control event in the following circumstances (each a Change of Control Termination Event):
◾ | Involuntary termination of the executives employment for any reason other than death, disability or cause; or |
◾ | Voluntary termination of the executives employment upon one of the following events (provided a notice is given by the executive within 90 days of the event): |
◾ | a change in the executives duties or responsibilities that results in a material diminution in his or her position or function, other than a change in title or reporting relationships; |
◾ | a 10% or greater reduction in his or her base salary, target bonus opportunity, or target long-term incentive opportunity, other than in connection with an across-the-board reduction applicable to other senior executives; |
◾ | a relocation of the executives business office to a location more than 50 miles from the location at which he or she performs duties, other than for required business travel; |
◾ | a failure by Clearwater Paper or any successor to provide comparable, aggregate benefits; or |
◾ | a material breach by Clearwater Paper or any successor concerning the terms and conditions of the executives employment. |
Upon the occurrence of a Change of Control Termination Event, the following severance benefits are payable to executives:
◾ | a cash benefit equal to the executives base compensation plus his or her base compensation multiplied by his or her target bonus percentage, determined as of the date of the termination or at the rate in effect when the executives base compensation was materially reduced, whichever produces the larger amount, multiplied by 2.5. The cash benefit is subject to a downward adjustment if the executive separates from service within thirty months of his or her 65th birthday; |
◾ | an annual incentive award for the fiscal year of termination, determined based on the executives target bonus and prorated for the number of days during the fiscal year in which the executive was employed; |
◾ | continued group health plan coverage for 2.5 years, or, if less, the period until the executive begins new employment, referred to as the Benefits Period, or such other period required by COBRA; |
◾ | reimbursement of COBRA premium payments during the Benefits Period up to the amount paid by the company for the same coverage for its active senior executives; |
◾ | continued basic life insurance coverage for the Benefits Period; |
◾ | a lump sum cash benefit equal to the value of that portion of the executives account in the 401(k) Plan which is unvested and the unvested portion, if any, of the executives 401(k) Plan supplemental benefit account under the Supplemental Plan; and |
◾ | for executives participating in the Retirement Plan, a lump sum cash benefit equal to the present value of the executives normal retirement benefit and retirement plan supplemental benefit determined under the Retirement Plan and Supplemental Plan, respectively, if the executive is not entitled to a vested benefit under the Retirement Plan at the time he or she separates from service. |
We do not pay tax gross-ups in connection with change of control payments. In the event an executives severance or change of control payments are subject to an excise tax, he or she will
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receive whichever provides the greater after-tax benefiteither the full amount of the change of control payments or an amount that has been reduced to a point where such payments are not subject to an excise tax.
Ms. Massmans Employment Agreement
We entered into an employment agreement with Ms. Massman effective January 1, 2016 the 2016 Agreement. Ms. Massman does not participate in the Severance Plan and Change of Control Plan.
Pursuant to Ms. Massmans 2016 Agreement, if her employment terminates on or after January 1, 2016, for any reason other than cause, death, disability, or retirement, or if she terminates her employment for good reason, she would receive (i) a cash severance payment equal to one year of base compensation, plus $250,000; (ii) a prorated annual bonus for the termination year under the applicable bonus plan based on company actual performance; and (iii) one year of continued health and welfare benefit coverage. If Ms. Massman is terminated without cause or she resigns for good reason, within the two years following a change of control, she will receive (i) a cash severance payment equal to 2.5 times her then current base salary plus target annual incentive bonus; (ii) a prorated annual bonus for the termination year under the applicable bonus plan at her target amount; and (iii) 2.5 years of continued health and welfare benefit coverage. If Ms. Massman is terminated due to death or disability she would receive a prorated annual bonus for the termination year under the applicable bonus plan based on company actual performance.
In order to be entitled to receive any separation payments, Ms. Massman agreed to covenants prohibiting disclosure of confidential information, solicitation of customers and employees and engaging in competitive activity.
Other Potential Payments Upon Termination
In addition to those termination situations addressed above, named executive officers or their beneficiaries are entitled to certain payments upon death, disability or retirement.
For annual RSU or performance share awards granted in 2016 and previously, if the holders employment terminates during the first year of the three-year vesting or performance period, because of death, disability or retirement, a prorated portion of the award, would be paid at the end of the vesting or performance period, based on the ratio of the number of calendar months the holder was employed during the calendar year in which the award is granted to twelve months. If the holders employment terminates after the first year of the vesting or performance period because of death, disability or retirement, the holders award would not be prorated and the full number of shares under the award would be paid at the end of the vesting or performance period as though his or her employment had not terminated. With respect to RSU and performance shares, dividend equivalents, if any, that would have been paid on the shares earned had the recipient owned the shares during the prorated period, are paid at the end of the vesting or performance period.
For annual stock option awards granted in 2016 and previously, if the holders employment terminates during the first year of the three-year vesting period because of death, disability or retirement, a prorated portion of the award would become exercisable at the end of the full three-year vesting period upon retirement and immediately upon death or disability, based on the ratio for the number of calendar months the holder was employed during the calendar year in which the award is granted to twelve months. If the holders employment terminates after the first year of the vesting period because of death, disability or retirement, the holders stock option award would not be prorated and the entire award would become exercisable at the end of the three-year vesting period upon retirement and immediately upon death or disability, as though his or her employment had not terminated.
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The following table summarizes the value as of December 31, 2016, that our named executive officers who were employed at such time would be entitled to receive assuming the respective officers employment terminated on that date, in connection with death, disability or retirement. No named executive officer employed on such date was eligible for retirement. As a result, the amounts shown for our named executive officers in the table reflect amounts they would be entitled to receive in connection only with death or disability.
Cash Severance Benefit |
Pro-Rata Annual Bonus(1) |
Value of Equity Acceleration(2) |
Benefit Continuation |
Total | ||||||||||||||||
Linda K. Massman |
$0 | $866,700 | $5,902,030 | $0 | $6,768,730 | |||||||||||||||
John D. Hertz |
$0 | $310,400 | $1,263,865 | $0 | $1,574,265 | |||||||||||||||
Patrick T. Burke |
$0 | $281,700 | $1,398,401 | $0 | $1,680,101 | |||||||||||||||
Michael S. Gadd |
$0 | $264,300 | $1,007,797 | $0 | $1,272,097 | |||||||||||||||
Kari G. Moyes |
$0 | $171,900 | $796,057 | $0 | $967,957 |
(1) | All named executive officers are entitled to a payment of the prorated portion of their bonus, based on the companys actual performance. As the termination event for purposes of this table is deemed to occur on December 31, 2016, and performance is not determinable on that date, the bonus represented in the table reflects the target bonus opportunity. The payout would occur at the same time as for other participants. |
(2) | For purposes of calculating the value of equity acceleration in the table above, all equity awards were calculated using the companys closing stock price $65.55 on December 30, 2016. |
Additional Termination or Change of Control Payment Provisions
Annual Incentive Plan. In the event of a change of control, each participant under our annual incentive plan, including the named executive officers, is guaranteed payment of his or her prorated standard bonus for the year in which the change of control occurs provided certain other events occur in connection with the participant. With respect to any award earned for the year prior to the year in which the change of control occurs, the participant is guaranteed payment of his or her award based on the performance results for the applicable year. The definition of change of control for purposes of our annual incentive plan is substantially similar to the definition of change of control described above with respect to the Change of Control Plan, and like certain other benefits under that plan requires a double trigger. Additionally, under our annual incentive plan, upon the death or disability of a participant, the participant or his or her beneficiary or estate, is entitled to a pro-rata portion of the annual bonus based on our actual performance.
Benefits Protection Trust Agreement. We have entered into a Benefits Protection Trust Agreement, or Trust, which provides that in the event of a change of control the Trust will become irrevocable and within 30 days of the change of control we will deposit with the trustee enough assets to ensure that the total assets held by the Trust are sufficient to cover any anticipated trust expenses and to guarantee payment of the benefits payable to our employees under our Supplemental Plan; Annual Incentive Plan; Severance Plan; Change of Control Plan; Management Deferred Compensation Plan; Deferred Compensation Plan for Directors; the Salaried Severance Plan; Ms. Massmans Employment Agreement and certain agreements between us and certain of our former employees. At least annually, an actuary will be retained to re-determine the benefit commitments and expected fees. If the Trust assets do not equal or exceed 110% of the re-determined amount, then we are, or our successor is, obligated to deposit additional assets into the Trust.
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Our Nominating Committee reviews and makes recommendations to our Board concerning director compensation. Similar to our philosophy regarding executive compensation, our philosophy regarding director compensation is to provide our directors a fair compensation package that is tied to the services they perform as well as to the performance of the company, with the objective of recruiting and retaining an outstanding group of directors.
The Nominating Committee, pursuant to the authority granted under its charter, engaged Semler Brossy to advise it on director compensation matters for 2016. Semler Brossys assessment was taken into consideration in establishing our current director compensation, which is targeted to be at the median of compensation paid by comparable companies.
2016 Compensation of Non-Employee Directors
Name | Fees Earned or Paid in Cash ($)(1) |
Stock Awards ($)(2) |
All Other Compensation |
Total ($) |
||||||||||
Fredric W. Corrigan |
$74,000 | (3) | $107,417 | - | $181,417 | |||||||||
Boh A. Dickey |
$119,000 | $107,417 | - | $226,417 | ||||||||||
Beth E. Ford |
$85,000 | (4)(5) | $107,417 | - | $192,417 | |||||||||
Kevin J. Hunt |
$74,000 | (3) | $107,417 | - | $181,417 | |||||||||
William D. Larsson |
$85,000 | (4) | $107,417 | - | $192,417 | |||||||||
John P. ODonnell |
$49,500 | $107,417 | $156,917 | |||||||||||
Michael T. Riordan |
$22,896 | (6) | $0 | - | $22,896 | |||||||||
Alexander Toeldte |
$49,500 | $107,417 | - | $156,917 |
(1) | Represents annual retainer fees for 2016, as well as any amounts earned for service as Chair or committee Chair and meeting attendance fees. |
(2) | This column shows the aggregate grant date fair value, computed in accordance with FASB ASC Topic 718, of stock units granted in 2016. In accordance with FASB ASC Topic 718, the grant date fair value reported for all stock units was computed by multiplying the number of stock units by the closing price of our stock on the grant date. The aggregate number of vested and unvested phantom common stock units credited for service as a director outstanding as of December 31, 2016 for each non-employee director was as follows: Mr. Corrigan50,112 units; Mr. Dickey50,824 units; Ms. Ford11,318 units; Mr. Hunt7,516 units; Mr. Larsson50,824 units; Mr. ODonnell1,965 units and Mr. Toeldte1,965 units. |
(3) | Fredric Corrigan served as Chair of the Compensation Committee until May 3, 2016 when Kevin Hunt became the Chair. Each received a portion of the annual retainer for the Chair position. |
(4) | Bill Larsson served as Chair of the Nominating and Governance Committee until May 3, 2016 when Beth Ford became the Chair. Each received a portion of the annual retainer for the Chair position. |
(5) | In 2015, Ms. Ford deferred her fees pursuant to our Deferred Compensation Plan for Directors. In connection with these deferrals, we credited 133 stock units to Ms. Fords account in 2016. Such amounts were determined separately for each fee payment, which consisted of quarterly meeting fees, by dividing the aggregate fee amount due by the applicable per share closing stock price pursuant to the plan. These stock units are represented in Ms. Fords fees earned or paid in cash described in footnote 1 above. |
(6) | Mr. Riordan retired as a Director on May 1, 2016. |
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During 2016, one of our directors, Linda K. Massman, also served as our CEO. As a result, she did not receive compensation for her services as a director during 2016. The compensation received by Ms. Massman is shown in the 2016 Summary Compensation Table provided elsewhere in this proxy statement.
Retainer and Fees
Our outside directors are paid cash compensation at the following rates:
Annual retainer fee |
$ | 50,000 | ||
Annual retainer fee for Chair or Vice Chair of the Board |
$ | 25,000 | ||
Annual retainer fee for Chair of the Audit Committee |
$ | 20,000 | ||
Annual retainer fee for Chair of the Compensation Committee |
$ | 15,000 | ||
Annual retainer fee for Chair of the Nominating and Governance Committee |
$ | 10,000 | ||
Attendance fee for each Board meeting |
$ | 1,500 | ||
Attendance fee for each committee meeting |
$ | 1,500 |
We also reimburse directors for their reasonable out-of-pocket expenses for attending Board and committee meetings as well as educational seminars and conferences.
Directors may defer receiving all or any portion of their fees under the terms of our Deferred Compensation Plan for Directors, or Directors Plan. When a director elects to defer fees, he or she must elect a payment date or dates for the deferred amount and elect to have the deferred fees converted into phantom common stock units or, if not converted, then credited with annual interest at 120% of the long-term applicable federal rate published by the Internal Revenue Service, with quarterly compounding. The common stock units are credited with amounts in common stock units equal in value to any dividends that are paid on the same amount of common stock. Upon separation from service as a director, the common stock units credited to the director are converted to cash based upon the then market price of the common stock and paid to the director.
Long-Term Incentive Awards. In May 2016, each of our outside directors received an annual equity award of $95,000 that vests after one year of service. These annual awards were granted in the form of phantom common stock units. The number of phantom common stock units actually awarded was determined by dividing $95,000 by the average closing price of a share of our common stock over a twenty-day period that ended on the date of the grant. The common stock units awarded are credited with additional common stock units equal in value to any dividends that are paid on the same amount of common stock. Upon separation from service as a director, the common stock units credited to the director are converted to cash based upon the then market price of the common stock and paid to the director.
Other Benefits. Directors and their spouses are also eligible to participate in our Matching Gifts to Education Program, which matches contributions of up to $1,500 per year to eligible educational institutions. In 2016 we did not make any matching donations on behalf of outside directors under this program.
Director Stock Ownership Guidelines and Limitations on Securities Trading. In the interest of promoting and increasing equity ownership by our directors and to further align our directors long-term interests with those of our stockholders, we have adopted stock ownership guidelines. Each director must acquire and hold within five years of becoming a director, Clearwater Paper Corporation stock with a value of at least $220,000. To meet the requirements, a director must increase his or her stock holdings in the first two-years he or she is subject to the guidelines to 40% of the applicable guideline value, and each year thereafter by at least 20% of the value until at least the minimum value is
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acquired. Shares held in a brokerage account, an account with our transfer agent, or in the form of vested common stock units owned as a result of deferred director fees or annual equity awards paid under our company plans, all count towards the ownership requirement. The value of the shares held by a director will be measured by the greater of the value of the shares at (i) the time acquired or vested or (ii) the applicable annual measurement date, based on the twenty-day average closing price of our stock before that measurement date. Each of our directors is in compliance with his or her current equity ownership requirement. The stock ownership of all our directors as of February 28, 2017 is presented in this proxy. See Security Ownership of Certain Beneficial Owners and Management.
Annually a report is presented to the Board detailing each directors stock ownership and progress toward meeting these guidelines.
Pursuant to our Insider Trading Policy, directors, officers and other employees, are prohibited from engaging in short sales of company securities, pledging company securities, purchasing company securities on margin and engaging in transactions in puts, calls or other derivatives trading on an exchange in regards to company securities.
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As part of fulfilling its responsibilities, the Audit Committee reviewed and discussed the companys audited financial statements for the fiscal year 2016 with management and KPMG LLP (KPMG) and discussed with KPMG those matters required by the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 1301, Communications with Audit Committees, as amended. The Audit Committee received the written disclosures and the letter from KPMG required by applicable requirements of the PCAOB regarding KPMGs communications with the Audit Committee concerning independence, and has discussed with KPMG its independence.
Based on these reviews and discussions with management, KPMG and the companys internal audit function, the Audit Committee recommended to the Board that the companys audited financial statements for the fiscal year ended December 31, 2016, be included in its Annual Report on Form 10-K filed with the Securities and Exchange Commission.
The Audit Committee Members
Boh A. Dickey, Chair
Beth E. Ford
William D. Larsson
Fees Paid to Independent Registered Public Accounting Firm
The Audit Committees policy is to evaluate and determine that the services provided by KPMG LLP in each year are compatible with the auditors independence. The following table shows fees billed for each of 2016 and 2015 for professional services rendered by KPMG for the audit of our financial statements and other services.
Audit Fees(1) | Audit-Related Fees |
Tax Fees | All Other Fees |
|||||||||||||
2016 |
$ | 1,474,000 | $ | - | $ | - | $ | - | ||||||||
2015 |
$ | 1,458,570 | $ | - | $ | - | $ | - |
(1) | Audit fees represent fees for the audit of the Companys annual financial statements, the audit of internal control over financial reporting and reviews of the quarterly financial statements, and debt compliance reports. Audit fees also include incremental work associated with the Manchester acquisition in 2016, and the adoption of the COSO 2013 Framework in 2015. |
We have adopted a policy relating to independent auditor services and fees, which provides for pre-approval of audit, audit-related, tax and other specified services on an annual basis. Under the terms of the policy, unless a type of service to be provided by the independent registered public accounting firm has received general pre-approval, it will require specific pre-approval by the Audit Committee. In addition, any proposed services anticipated to exceed pre-approved cost levels must be separately approved. The policy authorizes the Audit Committee to delegate to one or more of its members pre-approval authority with respect to permitted services. The member or members to whom such authority has been delegated must report any pre-approval decisions to our Audit Committee at its next scheduled meeting.
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Stockholder Proposals for 2018
The deadline for submitting a stockholder proposal for inclusion in the proxy materials for our 2018 Annual Meeting is November 28, 2017. Stockholder nominations for director and other proposals that are not to be included in such materials must be received by the company between January 8, 2018 and February 7, 2018. A stockholders notice relating to such a nomination or proposal must set forth the information required by our bylaws. A copy of our bylaws is available for downloading or printing by going to our website at www.clearwaterpaper.com, and selecting Investor Relations, and then Corporate Governance.
Annual Report and Financial Statements
A copy of our 2016 Annual Report to Stockholders, which includes our financial statements for the year ended December 31, 2016, was made available along with this proxy statement and other voting materials and information on the website www.proxyvote.com. You may view a copy of the 2016 Annual Report by going to our website at www.clearwaterpaper.com, and then selecting Investor Relations, and then selecting Financial Information & SEC Filings or request one by selecting Contact Us.
Section 16(a) Beneficial Ownership Reporting Compliance
Under U.S. securities laws, directors, certain executive officers and any person holding more than 10% of our common stock must report their initial ownership of the common stock and any changes in that ownership to the SEC. The SEC has designated specific due dates for these reports and we must identify in this proxy statement those persons who did not file these reports when due. Based solely on our review of copies of the reports filed with the SEC and written representations of our directors and applicable officers, we believe all persons subject to reporting filed the required reports on time in 2016.
Copies of Corporate Governance and Other Materials Available
The Board of Directors has adopted various corporate governance guidelines setting forth our governance principals and governance practices. These documents are available for downloading or printing on our website at www.clearwaterpaper.com, by selecting Investor Relations and then Corporate Governance:
◾ | Restated Certificate of Incorporation |
◾ | Amended and Restated Bylaws |
◾ | Corporate Governance Guidelines |
◾ | Code of Business Conduct and Ethics |
◾ | Code of Ethics for Senior Financial Officers |
◾ | Audit Committee Charter |
◾ | Compensation Committee Charter |
◾ | Nominating and Governance Committee Charter |
◾ | Director Independence Policy |
◾ | Related Person Transaction Policy |
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PROPOSAL 1ELECTION OF DIRECTORS
We recommend a vote FOR each nominee.
Our Board of Directors is divided into three classes serving staggered three-year terms. Each of the nominees listed below has been nominated by our Board of Directors at the recommendation of the Nominating and Governance Committee in accordance with its charter and our Amended and Restated Bylaws and Corporate Governance Guidelines.
Each nominee is now a member of the Board. If any nominee becomes unable to serve as a director before the meeting or decides not to serve, the individuals named as proxies may vote for a substitute nominee proposed by the Board or we may reduce the number of members of the Board. We recommend a vote FOR each nominee listed below.
Nominees for Election at This Meeting for a Term Expiring in 2020
Beth E. Ford
Age 53, a director since January 2013
John P. ODonnell
Age 56, a director since April 2016
The affirmative vote of a majority of the shares of common stock present in person or represented by proxy and entitled to vote at the Annual Meeting is required to elect each nominee for director listed in Proposal 1.
PROPOSAL 2RATIFICATION OF THE
APPOINTMENT OF OUR INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR 2017
We recommend a vote FOR this proposal.
Based upon its review of KPMG LLPs (KMPG) qualifications, independence and performance, the Audit Committee of the Board of Directors has appointed KPMG to serve as our independent registered public accounting firm for 2017.
The appointment of our independent registered public accounting firm is not required to be submitted for ratification by our stockholders. The listing standards of the New York Stock Exchange provide that the Audit Committee is solely responsible for the appointment, compensation, evaluation and oversight of our independent registered public accounting firm. However, as a matter of good corporate governance, the Audit Committee is submitting its appointment of KPMG as independent registered public accounting firm for 2017 for ratification by our stockholders.
If our stockholders fail to ratify the appointment of KPMG, the Audit Committee may reconsider whether to retain KPMG, and may continue to retain that firm or appoint another firm without resubmitting the matter to our stockholders. Even if our stockholders ratify the appointment of KPMG, the Audit Committee may, in its discretion, appoint a different independent registered public accounting firm for us if it determines that such a change would be in the best interests of our company and our stockholders.
The affirmative vote of a majority of the common stock present in person or represented by proxy and entitled to vote at the Annual Meeting is required to ratify the appointment of the independent registered public accounting firm.
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Representatives of KPMG are expected to attend the Annual Meeting, will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.
VOTE TO APPROVE NAMED EXECUTIVE
OFFICER COMPENSATION
The Board of Directors recommends a vote FOR this proposal.
This Proposal 3 vote, provides you with the opportunity to advise our Board of Directors and Compensation Committee regarding your approval of the compensation of our named executive officers as described in the Executive Compensation Discussion and Analysis section, accompanying compensation tables and narrative disclosure set forth in this proxy statement. This vote is not intended to address any specific item of compensation or the compensation of any particular named executive officer, but rather the overall compensation of our named executive officers as well as the philosophy and objectives of our executive compensation programs.
We encourage stockholders to read the Executive Compensation Discussion and Analysis section, which describes our executive compensation programs that are designed to attract, retain, motivate and reward our named executive officers, who are critical to our success. Under these programs, our named executive officers are rewarded for the companys achievement of financial performance targets as well as their individual achievement of specific strategic and corporate goals on an annual basis and for realization of increased stockholder return on a long-term basis. In 2016, we sought, and received, approval from our stockholders of our executive compensation program.
We are again asking our stockholders to indicate their support for our named executive officer compensation as described in this proxy statement by voting FOR the following resolution at the Annual Meeting:
RESOLVED, that the compensation paid to the companys named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Executive Compensation Discussion and Analysis, compensation tables and narrative discussion is hereby APPROVED.
The advisory vote is not binding on the company, our Compensation Committee or our Board of Directors. We value the opinions of our stockholders, however, and the Compensation Committee will take into account, as it did with respect to last years advisory vote to approve named executive officer compensation, the result of the vote when determining future executive compensation.
VOTE ON THE FREQUENCY OF SAY-ON-PAY VOTE
The Board of Directors recommends a vote to conduct an
advisory vote on executive compensation ANNUALLY.
In accordance with Section 14A of the Exchange Act, our Board of Directors is asking you to vote on a proposal, commonly known as a say-when-on-pay proposal, which gives our stockholders the opportunity to advise our Board how often we should conduct an advisory stockholder vote on the
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compensation of our named executive officers. We are required to seek an advisory stockholder vote on the frequency of future say-on-pay proposals at least once every six years, although we may seek stockholder input more frequently. You are voting on the following resolution which reads:
RESOLVED, that a non-binding advisory vote of Clearwater Paper Corporations stockholders to approve the compensation of Clearwater Paper Corporations named executive officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission (which disclosure includes the Compensation Discussion and Analysis, the Executive Compensation Tables and any related material) shall be held at an annual meeting of stockholders, beginning with the 2017 Annual Meeting of Stockholders, (i) every year, (ii) every 2 years, or (iii) every 3 years.
The enclosed proxy card gives you four choices for voting on this item. You can choose whether the say-on-pay vote should be conducted every year, every 2 years or every 3 years. You may also abstain from voting on this item. You are not voting to approve or disapprove the Boards recommendation on this item.
Our Board believes that an annual advisory vote on the compensation of our named executive officers is an important aspect of stockholder engagement. An annual say-on-pay vote facilitates direct and regular stockholder feedback on our compensation policies, which our Board and Compensation Committee value in determining the companys compensation philosophy and designing our pay practices.
Based on the results of the stockholders vote in our prior say-when-on-pay advisory vote in 2011, our Board believes that a majority of our stockholders prefer an annual vote. Since the advisory vote in 2011, we have conducted say-on-pay votes every year.
Therefore, our Board recommends that you vote for conducting an advisory vote on the compensation of our named executive officers every year, starting again with the 2017 Annual Meeting of Stockholders.
PROPOSAL 5APPROVE THE CLEARWATER PAPER CORPORATION 2017 STOCK INCENTIVE PLAN
The Board of Directors recommends a vote FOR this proposal.
The Clearwater Paper Corporation 2017 Stock Incentive Plan (the Equity Plan) will provide equity incentive awards to help promote our long-term success and the creation of stockholder value by, among other things
◾ | encouraging our employees to focus on critical long-range objectives; |
◾ | attracting and retaining employees with exceptional qualifications; and |
◾ | linking our employees directly to stockholder interests through increased stock ownership. |
The Equity Plan authorizes the issuance of shares of common stock and the grant of restricted shares, performance shares, restricted stock units, stock options, and stock appreciation rights.
The Equity Plan will replace our Amended and Restated 2008 Stock Incentive Plan (the Prior Plan). If stockholders approve the Equity Plan, no further awards will be made under the Prior Plan after June 30, 2017, but outstanding awards previously granted under the Prior Plan will continue to be administered in accordance with their terms.
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Approval under New York Stock Exchange Corporate Governance Standards
As a company whose common stock is listed on the New York Stock Exchange, we must seek stockholder approval of any equity compensation plan that provides for the delivery of our equity securities to any employee, director or other service provider as compensation for services. The Equity Plan is subject to this stockholder approval requirement.
Approval under Section 162(m) of Internal Revenue Code
The Equity Plan is intended to comply with Section 162(m) of the Internal Revenue Code. Section 162(m) places a limit of $1,000,000 on the amount that we may deduct in any one taxable year for compensation paid to each of our covered employees. Our covered employees include our Chief Executive Officer and each of our other three most highly-paid executive officers, other than the Chief Financial Officer. There is, however, an exception to this limit for compensation earned pursuant to certain performance-based awards. Stock option, stock appreciation right and performance share awards made under the Equity Plan are eligible for this exception provided certain Section 162(m) requirements are met.
One of these requirements relates to stockholder approval of the material terms of the performance goals underlying the performance-based awards. These material terms are:
◾ | The class of employees eligible to receive awards under the plan: Our Compensation Committee can designate any of our employees, outside directors and consultants as eligible to receive awards under the plan. |
◾ | The maximum number of shares for which awards can be made to any employee during a specified period: No individual can receive awards covering more than 175,000 shares of our common stock in any calendar year, except that an employee may receive awards covering up to 350,000 shares in his or her first year of employment. |
◾ | The formula by which the exercise price of stock options and stock appreciation rights is set: The exercise price for stock options and stock appreciation rights cannot be less than the fair market value of our common stock on the date of grant. |
◾ | The business criteria upon which performance goals can be based: The business criteria are listed below under Summary of the Equity PlanPerformance Criteria. |
Summary of the Equity Plan
Administration. Administration of the Equity Plan will be carried out by the Compensation Committee of our Board of Directors. The Board of Directors may also appoint one or more separate committees of the Board, each composed of one or more directors, who may administer the Equity Plan with respect to employees who are not considered officers or directors under Section 16 of the Securities Exchange Act of 1934, as amended. The Board of Directors may also authorize one or more of our officers to designate employees, other than officers under Section 16 of the Exchange Act, to receive awards and/or to determine the number of such awards to be received by such persons, provided that the Board of Directors will specify the maximum number of shares underlying all awards and the maximum number of shares underlying any individual award made by such officers during any calendar year. Currently our CEO is authorized to grant up to 4,000 stock awards to a continuing employee and up to 10,000 stock awards to a new employee, in either case except to a Section 16 officer. As used in this summary, the term administrator means the Compensation Committee or its delegate.
Eligibility. Our officers and employees will be eligible to participate in the Equity Plan. Our directors and other persons that provide consulting services to us will also be eligible to participate in the Equity Plan. As of February 28, 2017, 160 officers, employees and non-employee directors were eligible to be
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considered for the grant of awards under the Prior Plan, and the same individuals would be eligible for awards under the Equity Plan.
Prior Equity Awards. As of February 28, 2017, 1,543,157 shares had been issued under the Prior Plan, performance share awards for 327,946 shares, stock option awards for 684,812 shares, and restricted stock units for 164,406 shares were outstanding, and 1,402,739 shares remained available for future grant. Because performance share awards may result in the issuance of common stock from zero to 200% of the initial performance share award, the number of shares shown above with respect to these awards assume a 200% payout. If stockholders approve the Equity Plan, no future grants will be made under the Prior Plan after June 30, 2017.
Our named executive officers received performance share awards, stock options and restricted stock units under the Prior Plan in 2015 and 2016 as set forth in this Proxy Statement in the Grants of Plan-Based Awards for 2016 Table under 2016 Executive Compensation.
2017 Equity Awards. The following table sets forth information with respect to the performance share awards, stock option awards and restricted stock units granted under the Prior Plan in 2017 to the named executive officers, the named executive officers as a group, all current executive officers as a group, all current directors who are not executive officers as a group, and all employees and consultants (including all current officers who are not executive officers) as a group, as of February 28, 2017.
Name and Position | Performance Share Awards (1) (#) |
Stock Option Awards (#) |
Restricted Stock Unit Awards (#) |
|||||||||
Linda K. Massman |
30,102 | 45,153 | 10,033 | |||||||||
John D. Hertz |
6,442 | 9,663 | 2,147 | |||||||||
Patrick T. Burke |
7,224 | 10,836 | 2,408 | |||||||||
Michael S. Gadd |
5,058 | 7,587 | 1,685 | |||||||||
Kari G. Moyes |
4,094 | 6,141 | 1,364 | |||||||||
All named executive officers |
52,920 | 79,380 | 17,637 | |||||||||
All current executive officers |
52,920 | 79,380 | 17,637 | |||||||||
All current non-employee directors |
- | - | - | |||||||||
All other employees and consultants, including officers who are not executive officers |
15,566 | 78,378 | 48,011 |
(1) | Because performance share awards may result in the issuance of common stock from 0-200% of the initial performance share awards, we show 200% of that initial award as outstanding under the Prior Plan. |
Maximum Shares. Under the Equity Plan, the maximum number of shares of common stock available for issuance during the ten-year life of the Equity Plan is 2,100,000 shares, minus the number of shares subject to awards granted under the Prior Plan on or after May 1, 2017 and prior to July 1,
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2017, and plus the number of shares subject to outstanding awards under the Prior Plan as of July 1, 2017 which thereafter are forfeited, settled in cash, cancelled or expire (the share reserve). Awards will not be made under the Equity Plan until after June 30, 2017, and only if stockholders approve the Equity Plan.
Any shares issued in connection with stock options and stock appreciation rights will be counted against the share reserve as one share for every one share so issued. Any shares issued in connection with awards other than stock options and stock appreciation rights (such as restricted shares, restricted stock units and performance shares) will be counted against the share reserve as 2.5 shares for every one share so issued. The maximum number of shares of our common stock that may be subject to awards granted to an employee in a calendar year is 175,000 shares, except that in his or her first year of employment, an employee could be granted up to two times that amount. The grant date value of equity awards made to any outside director in a calendar year will not exceed $500,000.
The share reserve, stock award limitations and the terms of outstanding awards will be adjusted as appropriate in the event of a stock dividend, stock split, reclassification of stock or similar events. If any outstanding stock option award expires or becomes unexercisable without having been exercised in full, or any restricted share, restricted stock unit or performance share award is forfeited to or repurchased by us, the shares underlying such award will become available for future awards under the Equity Plan. We will treat shares underlying an outstanding stock appreciation right award as available for future grant or sale under the Equity Plan unless and until such shares are actually issued upon exercise of the stock appreciation right. Shares used to pay the exercise price of an award or to satisfy tax withholding obligations related to an award will become available for future grant or sale under the Equity Plan. To the extent an outstanding award is paid out in cash rather than shares, any shares underlying that award will become available for future grant or sale under the Equity Plan.
The closing price for our common stock on the New York Stock Exchange as of February 28, 2017, was $55.60 per share.
Restricted Stock Units. The administrator, or CEO in the case of certain recipients not subject to Section 16, will select the recipients who are granted restricted stock units and, consistent with the terms of the Equity Plan, will establish the terms of each restricted stock unit award. Restricted stock unit awards give a recipient the right to receive a specified number of shares of stock, or in the administrators discretion, the equivalent value in cash or a combination of shares and cash, at a future date upon the satisfaction of certain vesting conditions. The vesting conditions will generally require the recipient to continue performing services over a three year period in order to receive the full number of shares under the award, with possible exceptions for death, disability, retirement or other events. Restricted stock units may be granted in consideration of a reduction in the recipients other compensation, but no cash consideration is typically required of the recipient. Unlike restricted shares, the stock underlying restricted stock units will not be issued until the units have vested, and recipients of restricted stock units generally will have no voting or dividend rights prior to the time the vesting conditions are satisfied. The administrator may, but is not required to, grant restricted stock units that include dividend equivalent rights for the period prior to vesting, which rights would be subject to the same vesting conditions as the original award.
Performance Shares. The administrator, or CEO in the case of certain recipients not subject to Section 16, will also select the recipients who are granted performance share awards, and will establish the terms of performance share awards consistent with the Equity Plan. Performance share awards give the recipient the right to receive a specified number of shares of stock, or in the administrators discretion, the equivalent value in cash or a combination of shares and cash, at a future date upon satisfaction of certain vesting and financial performance conditions. The actual number of
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shares issued upon settlement of the award (or the equivalent amount of cash) depends upon the extent to which Clearwater Paper Corporation or designated business units meet or exceed certain financial performance targetssee the discussion below under Performance Criteria. The award recipient generally must remain employed by us during the entire performance period (or if less, one year) in order to receive any payment under the performance share award, with possible exceptions for death, disability, retirement or other events. Performance share awards may be granted in consideration of a reduction in the recipients other compensation, but no cash consideration is typically required of the recipient. The stock underlying performance share awards will not be issued until after the end of the performance period (and only if the performance targets have been achieved), and recipients of performance share awards generally will have no voting or dividend rights prior to that time. The administrator may, but is not required to, grant performance shares that include dividend equivalent rights for the performance period, which rights would be subject to the same performance conditions as the original award.
Stock Options. The Equity Plan provides for the grant of options to purchase our common stock. The administrator, or CEO in the case of certain recipients not subject to Section 16, can grant options intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code (Code) and options that are not intended to so qualify. Options intended to qualify as incentive stock options may be granted only to persons who are our employees or are employees of our subsidiaries. The administrator, or CEO in the case of certain recipients not subject to Section 16, will select the recipients who are granted options and, consistent with the terms of the Equity Plan, will prescribe the terms of each option, including the vesting rules for such option. A stock option agreement may provide for accelerated exercisability in the event of the recipients death, disability, or retirement or other events, and may provide for expiration prior to the end of its term in the event of the termination of the recipients service. The exercise price of a stock option cannot be less than 100% of the common stocks fair market value on the date the option is granted. The exercise price may be paid in cash or in any other form permitted by the administrator. The maximum period in which an option may be exercised will be fixed by the administrator but cannot exceed ten years.
Stock Appreciation Rights. The administrator, or CEO in the case of certain recipients not subject to Section 16, may select individuals to receive stock appreciation rights under the Equity Plan. Stock appreciation rights may be granted independently or in consideration of a reduction in the recipients compensation. A stock appreciation right entitles the recipient to receive a payment equal to the excess of the fair market value of a share of our common stock on the date of exercise over the exercise price of the stock appreciation right. The exercise price cannot be less than 100% of our common stocks fair market value on the date of grant. A stock appreciation right will be exercisable at such times and subject to such conditions as may be established by the administrator. A stock appreciation right may be granted either alone or in tandem with stock option awards under the Equity Plan. The amount payable upon the exercise of a stock appreciation right may be settled in cash, by the issuance of shares of common stock, or a combination of shares and cash. The maximum period in which a stock appreciation right may be exercised will be fixed by the administrator but cannot exceed ten years.
Restricted Shares. The administrator, or CEO in the case of certain recipients not subject to Section 16, may select individuals to receive awards of restricted shares and, consistent with the terms of the Equity Plan, will establish the terms of each such award. A restricted share award will be subject to vesting conditions and possibly additional transfer restrictions, if so provided by the administrator. The vesting conditions will generally require the recipient to continue performing services over a three year period in order to vest in the full number of shares under the award, with possible exceptions for death, disability, retirement or other events. The administrator may also require that certain performance criteria be achieved or that other conditions be met. Recipients who are granted restricted
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shares generally have all of the rights of a stockholder with respect to such shares, except that they will not receive any dividends on unvested shares unless and until the vesting conditions for those shares are satisfied. Restricted shares may be issued for consideration determined by the administrator, including cash, cash equivalents, full-recourse promissory notes, past services and future services.
Performance Criteria. To measure company performance for an award period, the administrator can select one or more performance criteria set forth in the Equity Plan, to be applied either individually or in any combination. Following is the list of performance criteria under our Equity Plan that the administrator can select:
◾ | Cash flow: operating cash flow, free cash flow, cash flow per share, net operating cash flow, discounted cash flow in excess of cost of capital; |
◾ | Earnings per share, including diluted earnings per share; |
◾ | Earnings: EBI, EBIT, EBITD, EBITDA, or any combination of the foregoing; |
◾ | Return: return on invested capital, return on stockholders equity, total stockholder return, return on assets, return on net assets; |
◾ | Sales: gross sales, net sales; |
◾ | Income: gross income, net income, operating income, net operating income, income from continuing operations, pre-tax income; |
◾ | Margin: gross margin, profit margin, operating margin, pre-tax operating margin (including EBI, EBIT, EBITD or EBITDA margin); |
◾ | Share: market share, market segment share, product share, customer share, channel share; |
◾ | Completion of acquisitions, divestitures, joint ventures and restructurings; |
◾ | Working capital: in absolute terms, or as a percentage of sales or net sales; |
◾ | Debt: in absolute terms (including total debt and total debt plus equity) or as a ratio of debt to debt plus equity; |
◾ | Value added: shareholder value added, market value added, economic value added; |
◾ | Customer: customer satisfaction, customer loyalty, customer retention, customer service levels; |
◾ | Cost: cost structure, cost reduction, cost savings, cost of goods sold, cost of goods sold adjusted for mix, cost of capital; |
◾ | Operating goals: performance against strategic objectives, overall equipment effectiveness, safety, employee satisfaction; |
◾ | Share price performance; and |
◾ | Economic profit. |
The performance criteria may be applied to the company and its subsidiaries as a whole or to the company, a subsidiary or a business unit, either individually or in any combination. The administrator determines whether to measure performance on an absolute basis or on a relative basis compared to a pre-established target, to previous years results or to the performance of one or more comparable companies or a designated comparison group of companies or index. In applying these criteria to a particular period, the committee may adjust any evaluation of performance to account for any of the following events:
◾ | Asset write-downs; |
◾ | Litigation or claim judgments or settlements; |
◾ | Changes in law, accounting principles or other such laws or provisions affecting reported results; |
◾ | Corporate reorganizations or restructurings; |
◾ | Mergers, acquisitions, dispositions or spin-offs; |
◾ | Discontinued operations; |
◾ | Major maintenance; |
◾ | Mark-to-market accounting adjustments for equity awards; and |
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◾ | Any adjustments for unusual or infrequently occurring items as disclosed in our financial statements (including footnotes) for the applicable year and/or in managements discussion and analysis of the financial condition and results of operations appearing in our annual report to stockholders for the applicable year. |
Vesting Restrictions on Awards. Except with respect to a maximum of five percent of the share reserve under the Equity Plan, no award under the Equity Plan may vest sooner than twelve months from the date of grant.
Clawback. Under the Equity Plan, we reserve the right to cancel or adjust the amount of any award if our financial statements on which the calculation or determination of the award was based are subsequently restated due to error or misconduct. Awards issued under the Equity Plan are also subject to deductions and clawback as may be required pursuant to any federal or state law, government regulation or stock exchange listing requirement.
Change of Control. The administrator may include provisions in individual award agreements to accelerate the vesting and exercisability of outstanding awards in the event of a change of control, as defined in the Equity Plan.
Adjustment of Shares. If we declare a stock dividend, stock split, reverse stock split, spin-off or certain other distributions or transactions materially affecting the fair market value of our common stock, the administrator will make appropriate adjustments to the outstanding awards in accordance with the plan. To the extent not previously exercised or settled, all outstanding awards shall terminate immediately prior to the dissolution or liquidation of the company. In the case of a merger, consolidation or certain other transactions involving Clearwater Paper Corporation, outstanding awards may be continued, assumed, substituted, cancelled or settled, as specified in the award agreements or the agreement relating to the transaction.
Amendment and Termination. No awards may be granted under the Equity Plan after June 30, 2027. The Board of Directors may amend or terminate the Equity Plan at any time, but an amendment will not become effective without the approval of our stockholders to the extent required by applicable laws, regulations or rules. No amendment or termination of the Equity Plan may materially impair a recipients rights under outstanding awards without the recipients consent.
Awards under the Equity Plan
Because it is within the discretion of our Compensation Committee to determine which officers, employees and consultants receive awards and the amount and type of awards received, it is not presently possible to determine the number of individuals to whom awards will be made in the future under the Equity Plan or the amount of the awards.
Federal Income Tax Aspects of the Equity Plan
This is a brief summary of the federal income tax aspects of awards that may be made under the Equity Plan based on existing U.S. federal income tax laws. This summary provides only the basic tax rules. It does not describe a number of special tax rules, including the alternative minimum tax and various elections that may be applicable under certain circumstances. It also does not reflect provisions of the income tax laws of any municipality, state or foreign country in which a holder may reside, nor does it reflect the tax consequences of a holders death. The tax consequences of awards under the Equity Plan depend upon the type of award and if the award is to an executive officer, whether the award qualifies as performance-based compensation under Section 162(m) of the Internal Revenue Code.
Incentive Stock Options. The recipient of an incentive stock option generally will not be taxed upon grant of the option. Federal income taxes are generally imposed only when the shares of stock from
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exercised incentive stock options are disposed of, by sale or otherwise. The amount by which the fair market value of the stock on the date of exercise exceeds the exercise price is, however, included in determining the option recipients liability for the alternative minimum tax. If the incentive stock option recipient does not sell or dispose of the stock until more than one year after the receipt of the stock and two years after the option was granted, then, upon sale or disposition of the stock, the excess of the proceeds received upon sale or disposition over the exercise price will be treated as long-term capital gain, and not ordinary income. If a recipient fails to hold the stock for the minimum required time, at the time of the disposition of the stock, the recipient will recognize ordinary income in the year of disposition generally in an amount equal to any excess of the market value of the common stock on the date of exercise (or, if less, the amount realized on disposition of the shares) over the exercise price paid for the shares. Any further gain (or loss) realized by the recipient generally will be taxed as short-term or long-term gain (or loss) depending on the holding period. We will generally be entitled to a tax deduction at the same time and in the same amount as ordinary income is recognized by the option recipient.
Nonqualified Stock Options. The recipient of stock options not qualifying as incentive stock options generally will not be taxed upon the grant of the option. Federal income taxes are generally due from a recipient of nonqualified stock options when the stock options are exercised. The difference between the exercise price of the option and the fair market value of the stock purchased on such date is taxed as ordinary income. Thereafter, the tax basis for the acquired stock is equal to the amount paid for the stock plus the amount of ordinary income recognized by the recipient. We will generally be entitled to a tax deduction at the same time and in the same amount as ordinary income is recognized by the option recipient by reason of the exercise of the option.
Other Awards. Recipients who receive performance share or restricted stock unit awards will generally recognize ordinary income when they receive shares upon settlement of the awards, in an amount equal to the fair market value of the shares at that time. If cash is received upon settlement instead of shares, the amount of cash received is taxed as ordinary income. Recipients who receive awards of restricted shares subject to a vesting requirement generally recognize ordinary income at the time vesting occurs, in an amount equal to the fair market value of the vested stock at that time minus the amount, if any, paid for the stock. However, a recipient who receives restricted shares which are not vested may, within 30 days of the date the shares are transferred, elect in accordance with Section 83(b) of the Internal Revenue Code to recognize ordinary compensation income at the time of transfer of the shares rather than upon the vesting dates. We will generally be entitled to a tax deduction at the same time and in the same amount as ordinary income is recognized by the recipient.
Section 409A. Deferrals made under the Equity Plan, including awards granted under the Equity Plan that are considered to be deferred compensation, may be subject to the requirements of Section 409A of the Internal Revenue Code. These requirements include limitations on election timing, acceleration of payments, and distributions. We intend to structure any deferrals made under the Equity Plan either to comply with Section 409A or to qualify for an exemption from Section 409A.
Section 162(m). Section 162(m) of the Internal Revenue Code would render non-deductible to us certain compensation in excess of $1,000,000 received in any year by certain executive officers unless such excess is performance-based compensation. The availability of the exemption for awards of performance-based compensation after the Annual Meeting depends in part upon obtaining approval of the material terms of the performance goals under the Equity Plan by our stockholders.
Required Vote
The affirmative vote of a majority of the common stock present in person or represented by proxy and entitled to vote at the Annual Meeting is required to approve this proposal.
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CLEARWATER PAPER CORPORATION
2017 STOCK INCENTIVE PLAN
(Adopted by the Board of Directors on February 28, 2017)
Clearwater Paper Corporation 2017
Table of Contents
Page | ||||||
SECTION 1. |
ESTABLISHMENT AND PURPOSE. |
A-1 | ||||
SECTION 2. |
DEFINITIONS |
A-1 | ||||
(a) |
Affiliate |
A-1 | ||||
(b) |
Award |
A-1 | ||||
(c) |
Board of Directors |
A-1 | ||||
(d) |
Business Combination |
A-1 | ||||
(e) |
Change of Control |
A-1 | ||||
(f) |
Code |
A-3 | ||||
(g) |
Committee |
A-3 | ||||
(h) |
Corporate Transaction |
A-3 | ||||
(i) |
Corporation |
A-3 | ||||
(j) |
Consultant |
A-3 | ||||
(k) |
Effective Date |
A-3 | ||||
(l) |
Employee |
A-3 | ||||
(m) |
Exchange Act |
A-3 | ||||
(n) |
Exercise Price |
A-3 | ||||
(o) |
Fair Market Value |
A-4 | ||||
(p) |
Incumbent Board |
A-4 | ||||
(q) |
ISO |
A-4 | ||||
(r) |
Nonstatutory Option or NSO |
A-4 | ||||
(s) |
Offeree |
A-4 | ||||
(t) |
Option |
A-4 | ||||
(u) |
Optionee |
A-5 | ||||
(v) |
Outside Director |
A-5 | ||||
(w) |
Outstanding Common Stock |
A-5 | ||||
(x) |
Outstanding Voting Securities |
A-5 | ||||
(y) |
Parent |
A-5 | ||||
(z) |
Participant |
A-5 | ||||
(aa) |
Performance Shares |
A-5 | ||||
(bb) |
Performance Share Agreement |
A-5 | ||||
(cc) |
Person |
A-5 | ||||
(dd) |
Plan |
A-5 | ||||
(ee) |
Prior Plan |
A-6 | ||||
(ff) |
Purchase Price |
A-6 |
A-i
Clearwater Paper Corporation 2017
(gg) |
Qualifying Performance Criteria |
A-6 | ||||
(hh) |
Restricted Share |
A-6 | ||||
(ii) |
Restricted Share Agreement |
A-6 | ||||
(jj) |
Restricted Stock Unit |
A-6 | ||||
(kk) |
Restricted Stock Unit Agreement |
A-6 | ||||
(ll) |
SAR |
A-6 | ||||
(mm) |
SAR Agreement |
A-6 | ||||
(nn) |
Service |
A-6 | ||||
(oo) |
Share |
A-6 | ||||
(pp) |
Stock |
A-6 | ||||
(qq) |
Stock Option Agreement |
A-6 | ||||
(rr) |
Subsidiary |
A-6 | ||||
SECTION 3. |
ADMINISTRATION. |
A-7 | ||||
(a) |
Committee Composition |
A-7 | ||||
(b) |
Committee for Non-Officer Grants |
A-7 | ||||
(c) |
Committee Responsibilities |
A-7 | ||||
SECTION 4. |
ELIGIBILITY. |
A-8 | ||||
(a) |
General Rule |
A-8 | ||||
(b) |
Ten-Percent Stockholders |
A-8 | ||||
(c) |
Attribution Rules |
A-8 | ||||
(d) |
Outstanding Stock |
A-8 | ||||
SECTION 5. |
STOCK SUBJECT TO PLAN. |
A-9 | ||||
(a) |
Basic Limitation |
A-9 | ||||
(b) |
Award Limitation |
A-9 | ||||
(c) |
Additional Shares |
A-9 | ||||
(d) |
Annual Limit on Awards for Outside Directors |
A-9 | ||||
SECTION 6. |
RESTRICTED SHARES. |
A-9 | ||||
(a) |
Restricted Share Agreement |
A-9 | ||||
(b) |
Payment for Awards |
A-10 | ||||
(c) |
Vesting |
A-10 | ||||
(d) |
Voting and Dividend Rights |
A-10 | ||||
(e) |
Restrictions on Transfer of Shares |
A-10 | ||||
SECTION 7. |
TERMS AND CONDITIONS OF OPTIONS. |
A-10 | ||||
(a) |
Stock Option Agreement |
A-10 | ||||
(b) |
Number of Shares |
A-10 | ||||
(c) |
Exercise Price |
A-10 | ||||
(d) |
Withholding Taxes |
A-10 |
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(e) |
Exercisability and Term |
A-11 | ||||
(f) |
Exercise of Options |
A-11 | ||||
(g) |
Effect of Change of Control |
A-11 | ||||
(h) |
No Rights as a Stockholder |
A-11 | ||||
(i) |
Restrictions on Transfer of Shares |
A-11 | ||||
(j) |
Modification or Assumption of Options |
A-11 | ||||
(k) |
Buyout Provisions |
A-11 | ||||
SECTION 8. |
PAYMENT FOR SHARES |
A-12 | ||||
(a) |
General Rule |
A-12 | ||||
(b) |
Surrender of Stock |
A-12 | ||||
(c) |
Services Rendered |
A-12 | ||||
(d) |
Cashless Exercise |
A-12 | ||||
(e) |
Other Forms of Payment |
A-12 | ||||
(f) |
Limitations under Applicable Law |
A-12 | ||||
SECTION 9. |
STOCK APPRECIATION RIGHTS. |
A-12 | ||||
(a) |
SAR Agreement |
A-12 | ||||
(b) |
Number of Shares |
A-12 | ||||
(c) |
Exercise Price |
A-12 | ||||
(d) |
Exercisability and Term |
A-12 | ||||
(e) |
Effect of Change of Control |
A-13 | ||||
(f) |
Exercise of SARs |
A-13 | ||||
(g) |
Modification or Assumption of SARs |
A-13 | ||||
(h) |
Buyout Provisions |
A-13 | ||||
SECTION 10. |
RESTRICTED STOCK UNITS. |
A-13 | ||||
(a) |
Restricted Stock Unit Agreement |
A-13 | ||||
(b) |
Payment for Awards |
A-13 | ||||
(c) |
Vesting Conditions |
A-13 | ||||
(d) |
Voting and Dividend Rights |
A-14 | ||||
(e) |
Form and Time of Settlement of Restricted Stock Units |
A-14 | ||||
(f) |
Death of Recipient |
A-14 | ||||
(g) |
Creditors Rights |
A-14 | ||||
SECTION 11. |
PERFORMANCE SHARES |
A-14 | ||||
(a) |
Performance Shares and Performance Share Agreement |
A-14 | ||||
(b) |
Payment for Awards |
A-14 | ||||
(c) |
Terms of Performance Share Awards |
A-14 | ||||
(d) |
Voting and Dividend Rights |
A-15 |
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(e) |
Form and Time of Settlement of Performance Shares |
A-15 | ||||
(f) |
Death of Recipient |
A-15 | ||||
(g) |
Creditors Rights |
A-15 | ||||
SECTION 12. |
ADJUSTMENT OF SHARES; CORPORATE TRANSACTIONS. |
A-15 | ||||
(a) |
Adjustments |
A-15 | ||||
(b) |
Dissolution or Liquidation |
A-16 | ||||
(c) |
Corporate Transactions |
A-16 | ||||
(d) |
Reservation of Rights |
A-17 | ||||
SECTION 13. |
DEFERRAL OF AWARDS. |
A-18 | ||||
(a) |
Committee Powers |
A-18 | ||||
(b) |
General Rules |
A-18 | ||||
SECTION 14. |
AWARDS UNDER OTHER PLANS. |
A-18 | ||||
SECTION 15. |
LEGAL AND REGULATORY REQUIREMENTS. |
A-18 | ||||
SECTION 16. |
WITHHOLDING TAXES |
A-19 | ||||
(a) |
General |
A-19 | ||||
(b) |
Share Withholding |
A-19 | ||||
SECTION 17. |
OTHER PROVISIONS APPLICABLE TO AWARDS |
A-19 | ||||
(a) |
Transferability |
A-19 | ||||
(b) |
Qualifying Performance Criteria |
A-19 | ||||
(c) |
Clawback |
A-21 | ||||
(d) |
Vesting Restrictions on Awards |
A-21 | ||||
SECTION 18. |
NO EMPLOYMENT RIGHTS |
A-21 | ||||
SECTION 19. |
APPLICABLE LAW |
A-21 | ||||
SECTION 20. |
DURATION AND AMENDMENTS |
A-21 | ||||
(a) |
Term of the Plan |
A-21 | ||||
(b) |
Right to Amend or Terminate the Plan |
A-22 | ||||
(c) |
Effect of Termination |
A-22 | ||||
SECTION 21. |
EXECUTION |
A-23 |
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Clearwater Paper Corporation 2017
CLEARWATER PAPER CORPORATION
2017 STOCK INCENTIVE PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The Plan was adopted by the Board of Directors on February 28, 2017, and shall be effective on July 1, 2017, subject to prior approval by the Corporations stockholders. The purpose of the Plan is to promote the long-term success of the Corporation and the creation of stockholder value by (a) encouraging Employees, Outside Directors and Consultants to focus on critical long-range objectives, (b) encouraging the attraction and retention of Employees, Outside Directors and Consultants with exceptional qualifications and (c) linking Employees, Outside Directors and Consultants directly to stockholder interests through increased stock ownership. The Plan seeks to achieve this purpose by providing for Awards in the form of Restricted Shares, Restricted Stock Units, Performance Shares, Options (which may constitute ISOs or NSOs) and SARs.
SECTION 2. DEFINITIONS.
(a) Affiliate shall mean any Person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation.
(b) Award shall mean any award of an Option, a SAR, Restricted Shares, Restricted Stock Units or Performance Shares under the Plan.
(c) Board of Directors shall mean the Board of Directors of the Corporation, as constituted from time to time.
(d) Business Combination shall mean a merger or consolidation involving the Corporation.
(e) Change of Control shall mean the occurrence of any of the following events:
(i) | Upon consummation of a Business Combination unless, following such Business Combination, |
(A) | all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Common Stock and the Outstanding Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock (or common equity) and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation or other entity resulting from such Business Combination (including a corporation or other entity which as a result of such |
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Clearwater Paper Corporation 2017
transaction owns the Corporation either directly or through one or more subsidiaries), |
(B) | no Person (excluding any corporation or other entity resulting from such Business Combination or any employee benefit plan (or related trust) sponsored or maintained by the Corporation or a Subsidiary or such other corporation or other entity resulting from such Business Combination) beneficially owns, directly or indirectly, 30% or more of, respectively, the then outstanding shares of common stock (or common equity) of the corporation or other entity resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation or other entity except to the extent that such ownership is based on the beneficial ownership, directly or indirectly, of Outstanding Common Stock or Outstanding Voting Securities immediately prior to the Business Combination, and |
(C) | at least a majority of the members of the board of directors (or similar governing body) of the corporation or other entity resulting from such Business Combination were members of the Board of Directors at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or |
(ii) | Upon the consummation of the sale, lease or exchange of all or substantially all of the assets of the Corporation; or |