DIRECTOR COMPENSATION
Prior to fiscal 2017, Versum operated under Air Products as a wholly-owned subsidiary. Our directors were not appointed to the Board of Directors (“Board”) until shortly before the Separation. Therefore, the Board did not receive compensation from us during fiscal 2016. Our CEO, who is also a director, does not receive any separate compensation for his Board activities. Non-employee director compensation is determined by the Board acting on the recommendation of the Compensation Committee of our Board (the “Versum Committee”). Compensation for non-employee directors is comprised of cash compensation and quarterly grants of our common stock with a quarterly grant date fair value of $25,000. The grant date fair value per share is equal to the closing sales price of our common stock as reported on the NYSE on the date of grant. Commencing on October 1, 2016, we compensate our non-employee directors as follows:
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Position
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Annual Compensation:
Non-Employee Directors
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Board member
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Cash
(1)
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$100,000
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Equity
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$100,000 ($25,000 value per quarter)
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Chairman of the Board
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$50,000
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Audit Committee Chairperson
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$20,000
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Compensation Committee Chairperson
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$15,000
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Corporate Governance and Nominating Committee Chairperson
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$10,000
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(1)
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Cash compensation is paid quarterly in arrears. We reimburse board members for their expenses in attending Board meetings.
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(2)
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Equity compensation in the form of common stock is granted quarterly.
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The Compensation Committee is responsible for reviewing the form and amount of compensation paid to our non-employee directors. The Versum Committee recommended and our Board approved the compensation for our non-employee directors based upon the recommendation of the independent compensation consultants, Frederic W. Cook & Co., Inc. (“FW Cook”). The total compensation for non-employee directors is in the median to 75
th
percentile range of peer group practice. For information about our peer group companies, please see “Executive Compensation—Compensation Discussion and Analysis—Versum Compensation Program for Executive Officers After the Separation—Setting Compensation Levels” on pages 28 and 29. Compensation is positioned somewhat above the peer median given the anticipated workload post the Separation for a new publicly traded company. The Versum Committee believes that a mix of cash-based and equity-based non-employee director compensation best serves the Company because it aligns the interests of our non-employee directors with the interests of our stockholders and allows us to be competitive in a tight market for the services of qualified non-employee directors. This pay mix is generally aligned with peer median.
The Board adopted the Versum Materials Deferred Compensation Program for Directors (“Director DCP”) that became effective on January 1, 2017. Under the Director DCP, our independent directors may voluntarily defer all or a part of their compensation that is paid in Company common stock. At the election of the director, a number of deferred stock units equal to the number of shares of our common stock the participant would have received on the date the compensation would otherwise have been granted will be credited to an account which is deemed to be invested in the Company’s common stock. The deferred stock units will be subject to any vesting conditions that would have applied absent the deferral election. Each deferred stock unit in the account entitles the director to receive one share of Company stock upon payout, which generally occurs within 60 days of the first anniversary of the date the director’s service on the Board ends. Deferred stock units earn dividend equivalents equal to the dividends that would have been paid on one share of stock for each unit owned by the director that are credited to each participating director’s account.
To further long-term alignment with stockholders, the Board, with assistance from FW Cook, established stock ownership guidelines for our independent directors. According to these guidelines, each independent director is required to own at least five times his or her annual cash compensation (excluding any cash retainers for chair or committee service) paid to such director by the Company. For the purposes of these guidelines, the value of the common stock owned is based upon the market price calculated by using the average of the lowest and highest closing price of our common stock during the last 60 days of our fiscal year. There is no deadline for achieving compliance, however the director is expected to refrain from selling or transferring any of our shares until achieving compliance with these guidelines. Our directors may count towards these requirements the value of shares owned (including shares owned jointly with or separately by the individual’s spouse), shares held in trust for the benefit of the individual, or one or more family members of the individual, and shares or share equivalents held in qualified or nonqualified savings, profit-sharing, or deferred compensation accounts if fully vested.
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Prior to the Separation, Versum was a wholly-owned subsidiary of Air Products and each of our Named Executive Officers (the “NEOs”) was employed by Air Products or its subsidiaries. For the fiscal years ending September 30, 2015 and September 30, 2016, and prior years where applicable, senior management and the Management Development and Compensation Committee of Air Products’ Board of Directors determined the compensation of Versum’s NEOs. In connection with the Separation, the Board of Directors of Versum formed its own Compensation Committee. In this Compensation Discussion and Analysis, we refer to the Management Development and Compensation Committee of Air Products as the “Air Products Committee” and the Compensation Committee of Versum as “our Compensation Committee” or the “Versum Committee”. As a newly independent public company, our Compensation Committee determines the Company’s executive compensation for fiscal 2017 and beyond.
This Compensation Discussion and Analysis outlines certain aspects of Versum’s post-Separation executive compensation policies and discusses Air Products’ compensation policies and decisions for 2015 and 2016 and the process for determining 2015 and 2016 compensation when Versum was part of Air Products.
Historical compensation information is presented for the Versum NEOs:
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Guillermo Novo, President and Chief Executive Officer;
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George G. Bitto, Senior Vice President and Chief Financial Officer;
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Michael W. Valente, Senior Vice President, Law and Human Resources, General Counsel and Secretary;
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Patrick Loughlin, Senior Vice President Operations and Supply Chain; and
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Edward C. Shober, Vice President, Materials-Advanced Materials.
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COMPANY PERFORMANCE HIGHLIGHTS
The Versum Committee considered certain strategic and financial accomplishments of our executive officers and key employees in designing our compensation programs, including:
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Completed spin-off from Air Products on October 1, 2016.
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Building on a three-year trend of increasing net income and margin:
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Net Income of $212 million for fiscal 2016, up 15% over the prior year.
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Net Income Margin of 21.9% for fiscal 2016, up 370 basis points over the prior year.
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Adjusted EBITDA of $327 million for fiscal 2016, up 8% over the prior year.
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Adjusted EBITDA margin of 33.7% for fiscal 2016, up 380 basis points over the prior year.
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Information regarding Adjusted EBITDA and Adjusted EBITDA margin, including reconciliations of these measures to the most directly comparable GAAP measures, may be found on page 42 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2016.
VERSUM COMPENSATION PROGRAM FOR EXECUTIVE OFFICERS AFTER THE SEPARATION
Roles of the Committee, Management, and Compensation Consultant in the Compensation Process
After the Separation on October 1, 2016, the Versum Committee became responsible to our Board and stockholders for the establishment and oversight of our executive compensation program and for approving the compensation levels of our executive officers. In determining achievement of performance targets by our executive officers for fiscal 2016, the Versum Committee reviewed and determined performance factors based upon the measures set by Air Products under the Air Products Annual Incentive Plan, which is further discussed under “Air Products Historical Compensation-Air Products Fiscal 2016 Direct Compensation Components-Air Products Annual Incentive Plan” starting on page 37. Our Compensation Committee retained FW Cook as its independent compensation consultant to advise the Versum Committee on compensation programs for its executive officers following the Separation. FW Cook advises the Versum Committee on executive as well as director compensation. See page 24 for a description of our director compensation. We expect the Versum Committee to rely, where appropriate, on input and assistance from our CEO and the other Versum executive officers regarding compensation of our executive officers.
Benchmarking Compensation of our NEOs Prior to the Separation
Prior to the Separation, the compensation of our CEO was set by the Air Products Committee and the compensation of our other NEOs was set by the senior management of Air Products. See “Air Products Historical Compensation” beginning on page 35.
FW Cook benchmarked the compensation of our named executive officers for fiscal 2016 against the Versum Peer Group described on page 29. Generally, the total direct compensation of our NEOs and each of the components was at or below the 25th percentile of the Versum Peer Group. The Versum Committee reviewed and considered this data in setting the compensation programs for our NEOs for fiscal 2017.
Overview of the Versum Executive Compensation Program
Our Compensation Committee established its own compensation programs following the Separation, which are designed to support the following objectives:
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Target Total Compensation (as described below) set in a range around the median of the Versum Peer Group (as described below)
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Set base salaries at approximately the median of the Versum Peer Group.
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Target short-term annual cash incentives and long-term incentives such as equity awards in a range around the median of compensation for the Versum Peer Group, with opportunities for a higher payout based on performance.
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Align Pay with Financial and Stock Performance
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Support the attainment of Versum’s short- and long-term financial and strategic objectives by connecting a significant portion of total compensation to financial and stock performance.
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Foster a strong relationship between stockholder value and executive compensation by emphasizing performance-based compensation contingent upon achieving corporate financial goals and creating stockholder value.
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Set the Compensation Mix with a Focus on “At Risk” Performance-based Compensation
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Align total compensation of executive officers with the interests of stockholders by designing programs with a significant portion of total compensation tied to objective measures with short-term awards tied to financial performance and long-term equity-based incentive awards tied to stock performance.
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Provide differentiated pay based on an executive’s contributions to the performance of the Company.
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Hire and Retain Key Executives
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Provide competitive levels of compensation to attract, retain and motivate highly-qualified executives to continue to drive performance and enhance long-term equity value.
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Provide continuity of leadership while transitioning to an independent public company.
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In setting compensation, the Versum Committee adopted certain compensation practices that it viewed as in the best interests of stockholders:
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Objective Performance Criteria
. Our performance-based compensation for our NEOs is based upon objective criteria- Adjusted EBITDA for our short-term incentives and relative and absolute total shareholder return for our long-term incentives.
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Stock Ownership Guidelines and Retention Requirements.
We have stock ownership guidelines and retention requirements to more closely align the interests of our NEOs and our Board with our stockholders.
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Compensation Recovery Clawbacks.
We have adopted an incentive compensation clawback policy. In addition, the employment agreements and equity award agreements of our NEOs as well as our short and long-term incentive plans contain clawback provisions.
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No Tax Gross-Ups.
No agreements with our executive officers contain tax gross-ups, nor does the Versum Committee intend to award tax gross-ups in the future other than as part of relocation benefits provided under Company policy.
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Commitment to Strong Governance Practices.
Our strong governance practices reflect our commitment to thoughtful stewardship of the Company’s resources. The following practices, among others, demonstrate our commitment to this principle:
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Our Compensation Committee is advised by FW Cook, an independent compensation consultant.
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Our Compensation Committee consists of independent directors responsible for compensation decisions.
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Our Compensation Committee meets in executive sessions.
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We prohibit hedging or pledging of Company stock.
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“Double trigger” for equity awards to accelerate in the event of a change in control.
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Capped payouts under annual and long-term incentive plans.
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No repricing of stock options or issuance of discount stock options (i.e. the exercise price must be at least the fair market value of our common stock on the date of grant) without stockholder approval.
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No excessive or unusual perquisites.
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Components of Compensation
The three primary components of our executive compensation program are:
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“at risk” short-term cash incentives; and
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“at risk” long-term incentive equity awards.
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The fiscal 2017 target allocation of the three primary components of executive compensation for our CEO is as follows:
As a result of this target allocation, 80% of the combined base salary, short-term cash incentives and long-term incentives such as equity awards (together, “Total Direct Compensation”) of our CEO is “at risk” performance-based compensation. The fiscal 2017 target allocation for our other NEOs includes a range of between 60% and 70% of “at risk” performance-based compensation. The actual compensation mix for fiscal 2017 for our CEO and other executive officers will depend on Company performance. The Versum Committee targets Total Direct Compensation for our NEOs in a range around the median of the Versum Peer Group, which peer group is further discussed below under “—Setting Compensation Levels.” Our NEOs have the opportunity to earn above-median pay if our financial results and stock performance exceed expectations.
Setting Compensation Levels
With input from Versum management, FW Cook proposed an industry peer group consisting of seventeen specialty chemicals and electronic equipment companies for reference in determining 2017 compensation, and developed benchmark executive officer and non-employee director compensation data. The Versum Committee reviewed and approved the peer group. The companies in the peer group were selected based on screening criteria that included similarity to Versum on revenue, market capitalization, total assets, international presence, research and development spending, EBITDA and EBITDA margin.
The following peers were selected (collectively, the “Versum Peer Group”):
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Advanced Energy Industries, Inc.
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Minerals Technologies, Inc.
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Albemarle Corporation
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MKS Instruments, Inc.
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Cabot Microelectronics Corporation
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NewMarket Corporation
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Chemtura Corporation
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Platform Specialty Products Corporation
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Entegris, Inc.
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Rogers Corporation
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FEI Company
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Sensient Technologies Corporation
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GCP Applied Technologies, Inc.
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Teradyne, Inc.
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Hexcel Corporation
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W.R. Grace & Co.
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Ingevity Corporation
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In terms of size, our revenues approximated the 25th percentile of the Versum Peer Group with EBITDA between the median and the 75th percentile and with EBITDA margin higher than all of the other members of the Versum Peer Group. The Versum Committee expects to review the peer group used for benchmarking compensation annually.
Overall, the Versum Committee seeks to provide a target Total Direct Compensation opportunity for Versum executive officers in a range around the median for companies in the Versum Peer Group. Actual components of target Total Direct Compensation opportunities may be established at a target greater or lesser than the median level depending on several other factors considered by the Versum Committee such as experience, skill set, expected future contributions and retention criticality for each of the NEOs, position responsibilities of each NEO relative to the market benchmark as well as internal parity among the NEOs. For fiscal 2017, the Versum Committee set target Total Direct Compensation for the Versum NEOs between the 25th percentile and the median of the Versum Peer Group. Actual compensation realized can vary significantly from the target opportunities for short-term and long-term incentives or for Total Direct Compensation, based on the performance of the Company.
Versum Fiscal 2017 Direct Compensation Components
Base Salary
We believe it is important to provide a competitive fixed level of pay to attract and retain experienced and successful executives. In connection with the Separation, the Versum Committee approved changes to the base salaries of the NEOs to reflect the fact that each of the NEOs are executive officers of a newly independent public company.
The base salaries approved for each of our NEOs for 2017 approximate or are below the median base salaries of the Versum Peer Group:
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Named Executive Officer
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Base Salary
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G. Novo
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$725,000
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G.G. Bitto
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$500,000
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M.W. Valente
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$400,000
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P.F. Loughlin
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$300,000
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E.C. Shober
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$300,000
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The Versum Committee expects to review base salaries annually or at other times when appropriate, and may adjust base salaries from time to time pursuant to such review, based upon the executive’s current compensation, time in position, any change in the executive’s position or responsibilities, including complexity and scope and the relation of his or her position to those of other executives within the Company and in similar positions at peer companies.
Short-Term Incentives
The Versum Committee, with the assistance of FW Cook, adopted a short-term incentive plan (the “STIP”), which is an annual cash incentive plan that rewards NEOs for their contributions towards specific annual financial goals. The STIP for fiscal 2017 is based upon financial performance metrics determined by the Versum Committee. For fiscal 2017, the Versum Committee choose Adjusted EBITDA as the financial performance measure for our NEOs’ annual bonus opportunity under the STIP. The Committee believes Adjusted EBITDA is both a key financial measure for our stockholders and our lenders, and also the most appropriate financial measure to assess our annual operating performance. Adjusted EBITDA excludes certain items that management and the board of directors believe are not representative of our underlying business performance. Adjusted EBITDA is calculated based upon our reported net income excluding certain items, including interest expense, income tax provision, depreciation and amortization expense, non-controlling interests, and business separation, restructuring and cost reduction actions at constant exchange rates.
Target bonus payouts are based on meeting or exceeding the Company’s Adjusted EBITDA goal. The 2017 Adjusted EBITDA target for our NEOs was set based upon our consolidated annual budget at constant exchange rates approved by our Board of Directors. The performance targets for our other employees include corporate, segment and business unit performance and are designed to align awards with value-creating performance. The fiscal 2017 annual bonus plan provides for a range of potential awards both above and below the bonus target. Threshold performance for earning any short-term annual cash incentive award requires attaining at least 90% of target budget performance. The payout amount will be interpolated linearly for results between 90% and 110% of the targeted levels of Adjusted EBITDA, with a 50% award payout at 90% of the targeted level of Adjusted EBITDA, a 100% award payout at 100% of the targeted level of Adjusted EBITDA, and a 200% award payout at 110% or more of the targeted level of Adjusted EBITDA.
Each NEO’s target annual bonus under the STIP is expressed as a percentage of his or her base salary. The target bonus opportunities as a percentage of each executive’s base salary and a maximum bonus of twice the target were approved by the Versum Committee. The Versum Committee expects to approve such targets annually.
For fiscal 2017, the NEOs’ target and maximum bonus opportunities are as follows:
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Named Executive Officer
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Target Bonus (as a % of Salary)
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Maximum Bonus (as a % of Salary)
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G. Novo
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100%
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200%
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G.G. Bitto
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75%
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150%
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M.W. Valente
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75%
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150%
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P.F. Loughlin
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50%
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100%
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E.C. Shober
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50%
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100%
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The Versum Committee has the authority to exercise negative discretion for our NEOs to decrease the bonus for safety performance or other factors.
Long-Term Incentives
Long-term incentive awards are a key component of our executive compensation program. Ownership of equity interests by our NEOs is a fundamental part of our compensation philosophy and furthers the goal of aligning management’s interests with the interests of stockholders in value creation. In addition, our long-term equity compensation is designed to reward sustained financial performance and provide our executive officers and key employees with a retention incentive, which in turn, contributes to stability in key leadership roles. For fiscal 2017, based upon the recommendation of FW Cook, the Committee granted the following awards under the Company’s Long-Term Incentive Plan:
Fiscal 2017 Annual Awards
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Performance-Based Restricted Stock Units (“PSUs”
). The PSUs are designed primarily to reward total stockholder return performance relative to the Versum Peer Group, and to a lesser extent, continued service with the Company; and
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Performance-Based Market Stock Units (“MSUs”
). The MSUs are a type of restricted stock unit that are designed primarily to reward contributions in increasing the market value of our common stock, and to a lesser extent, continued service with the Company.
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Founders RSUs
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Founders Grant Restricted Stock Units (“Founders RSUs”)
. The Founders RSUs are a one-time award of restricted stock unit that are designed to support alignment with stockholders, to retain key executives in a period of transition to a new public company and to recognize the contributions of our NEOs to the successful spin-off transaction.
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Upon vesting, each PSU, MSU and Founders RSU represents the right to receive one share of our common stock, which aligns the interests of management with the interests of stockholders in stock price appreciation and value creation. Dividend equivalent rights accrue for these awards, but do not vest unless the underlying awards vest. For a description of termination and change in control provisions in the long-term incentive award agreements, see “—Potential Payments Upon Termination or Change in Control” starting on page 56.
For each NEO, the Versum Committee set the long-term incentive opportunity for fiscal 2017 between the 25th percentile and the median of the Versum Peer Group. In addition, the aggregate value of the equity awards granted for fiscal 2017 was set by the Versum Committee based upon a range of aggregate value recommended by FW Cook. For fiscal 2017, the Versum Committee, based on the recommendation of FW Cook, implemented a fiscal 2017 long-term incentive program with performance-based awards consisting of 60% PSUs and 40% MSUs. The number of units awarded is calculated based upon the 10-trading-day average closing price of our common stock prior to the date of grant. The Versum Committee determined that the size and nature of the award was appropriate in light of our goal to retain executives, drive financial performance and align management’s interests with the interests of our stockholders in creating value.
The following table summarizes the allocation of fiscal 2017 annual awards for our NEOs:
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Type of Award
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Named Executive Officer
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Approximate Target Award
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Performance-Based Restricted Stock Units
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Performance-Based
Market Stock Units
(% of Total Award Value)
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G. Novo
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$
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2,300,000
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60%
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40%
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G.G. Bitto
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$
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750,000
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60%
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40%
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M.W. Valente
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$
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550,000
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60%
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40%
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P.F. Loughlin
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$
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300,000
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60%
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40%
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E.C. Shober
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$
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300,000
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60%
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40%
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These awards include a clawback provision whereby participant awards may be reduced or recouped in certain situations. See “—Employee Benefit Plans and Other Compensation Practices and Policies-Clawback Policy” on page 34.
Performance-Based Restricted Stock Units.
The number of PSUs awarded represents a targeted number of shares to be received upon vesting. Pursuant to the Performance-Based Restricted Stock Unit Award Agreement, the number of PSUs that vest, if any, is based on the Company’s total shareholder return (measured using the average closing stock price of our common stock over the first 20 trading days of the period compared to the last 20 trading days of the period, including for the purposes of such calculation all dividends and distributions made or declared (assuming that such dividends or distributions are reinvested in the common stock of the Company)) over the period beginning on October 1, 2016 and ending on
September 30, 2019 as compared to the total shareholder return during the same performance period for the Versum Peer Group. Depending upon total shareholder return as compared against the Versum Peer Group, between 0 and 200% of the target number of PSUs will vest on the vesting date. The maximum number of PSUs that may vest with respect to each of these grants is twice the target number awarded, and the maximum number of PSUs eligible to vest is capped at the target number awarded if our absolute total shareholder return over the performance period is negative. Subject to the executive’s continued employment and continued compliance with our code of conduct, the PSUs vest on the date that the Versum Committee certifies the payout determination under the performance goals, which date must be within 90 days after the end of the performance period. Vesting of PSUs earned, if any, is subject to certain exceptions in the event of involuntary termination by the Company, death, disability or retirement (which are described under “—Potential Payments Upon Termination or Change in Control—Treatment of Long-Term Incentive Awards Upon Termination, Death or Disability, Retirement and Change in Control” on pages 58 to 60), and is based upon the table below. The “% of Target Award Vesting” is interpolated linearly between points.
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Performance of Versum TSR relative to the TSR of the Versum Peer Group
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% of Target Award Vesting
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Less than 25
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percentile
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0
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25
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50%
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50
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100%
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75
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percentile or greater
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200%
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In connection with this award, our NEOs were granted the following “target” number of PSUs in fiscal 2017: Mr. Novo - 47,972 PSUs; Mr. Bitto - 15,649 PSUs; Mr. Valente - 11,476 PSUs; Mr. Loughlin - 6,150 PSUs; and Mr. Shober - 6,150 PSUs.
Performance-Based Market Stock Units.
The number of MSUs awarded represents a targeted number of shares to be received upon vesting. Pursuant to the Market-Based Restricted Stock Unit Award Agreement, the number of MSUs that will vest, if any, is determined based on the product of (1) the Company’s stock price multiplier (the “Company Stock Price Multiplier”), which is based on the percentage change in the price of the Company’s common stock over the period October 1, 2016 through September 30, 2019 (measured using the average closing stock price of our common stock over the first 20 trading days of the period and the last 20 trading days of the period), and (2) the target number of MSUs. If the Company Stock Price Multiplier is less than 0.5, reflecting a common stock price decrease of more than 50%, no MSUs will vest. The maximum number of MSUs that may vest with respect to each of these grants is 150% of the target number of MSUs awarded. Subject to the executive’s continued employment and continued compliance our code of conduct, the MSUs vest on the date the Versum Committee certifies the payout determination under the performance goals, which date must be within 90 days after the end of the performance period. Vesting of MSUs earned, if any, is subject to certain exceptions in the event of involuntary termination by the Company, death, disability or retirement (which are described under “—Potential Payments Upon Termination or Change in Control—Treatment of Long-Term Incentive Awards Upon Termination, Death or Disability, Retirement and Change in Control” on pages 58 to 60), and is based upon the table below. The “% of Target Award Vesting” is interpolated linearly between points.
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% Change in Common Stock Price
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Company Stock Price Multiplier
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% of Target Award Vesting
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Decrease of more than (50)%
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0
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0%
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Decrease of (50)%
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0.5
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50%
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0%
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1.0
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100%
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Increase of 150% or more
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1.5
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150%
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Our NEOs were granted the following target numbers of MSUs in fiscal 2017: Mr. Novo - 31,981 MSUs; Mr. Bitto - 10,433 MSUs; Mr. Valente - 7,650 MSUs; Mr. Loughlin - 4,100 MSUs; and Mr. Shober - 4,100 MSUs.
The Versum Committee believes the PSUs and MSUs awarded for fiscal 2017 are consistent with the Versum Committee’s concept of pay for performance. We believe that this equity-based pay for performance philosophy, coupled with our stock ownership guidelines, aligns the interests of senior management with stockholders by tying compensation to our financial performance and stockholder return over the three-year performance period, while simultaneously providing
incentives designed to attract and retain highly qualified executive officers. The aggregate burn rate for our fiscal 2017 awards, based upon target achievement and without regard to expected forfeitures and cancellations, is 0.3% of the number of outstanding shares of our common stock.
Founders RSUs
. In connection with the Separation, to support alignment with stockholders, to retain key executives in a period of transition to a new public company and to recognize the contributions of our NEOs to the successful spin-off transaction, the Versum Committee, based upon a recommendation from FW Cook, approved a one-time Founders RSU award to our NEOs. Pursuant to the Founders RSU Award Agreement, one third of the Founders RSUs vest on October 1, 2018, one third vest on October 1, 2019, and one third vest on October 1, 2020, subject to the holder’s continued employment with the Company. In addition, a pro-rated number of Founders RSUs vest upon retirement or involuntary termination without cause occurring on or after October 1, 2017. The Founders RSUs vest in full upon termination of employment due to death or disability. The aggregate burn rate for our Founders RSUs, without regard to expected forfeitures and cancellations, is 0.4% of the number of outstanding shares of our common stock. Our NEOs were granted the following numbers of Founders RSUs in fiscal 2017: Mr. Novo - 146,372 RSUs; Mr. Bitto - 47,730 RSUs; Mr. Valente - 47,730 RSUs; Mr. Loughlin - 12,728 RSUs; and Mr. Shober - 12,728 RSUs.
Granting Practices
The Versum Committee expects to generally determine annual executive long-term incentive awards each year at a meeting of the Versum Committee in the first calendar quarter of such fiscal year. In addition to annual awards, other grants may be awarded at other times (1) to attract new hires, to recognize employees for special achievements or for retention purposes; (2) to new employees as a result of the acquisition of another company; or (3) as may be desirable and prudent in other special circumstances. The exercise price of any option grant will not be less than the closing market price of our common stock on the date of grant. We expect to monitor and periodically review our equity grant policies to ensure compliance with plan rules and applicable law.
Employee Benefit Plans and Other Compensation Practices and Policies
Retirement Benefits
. The Company maintains a tax-qualified 401(k) plan (the “Versum Materials Retirement Savings Plan”) under which the Company matches 66 2/3% for each 1% contributed up to 6% of an employee’s contributions, for a maximum employer match of 4%. The Company may also make a discretionary profit sharing contribution to the plan which can range from 0-5%, but is currently set at 2% and will continue at this level or higher for at least three years after the Separation. In addition to the Company match and the discretionary profit sharing, the Company makes a core contribution of 4% of each employees’ base pay into the plan. The Versum Committee adopted the Versum Materials Deferred Compensation Plan (“Versum DCP”) which became effective on January 1, 2017. The Versum DCP provides the executive officers and certain other highly compensated employees with the opportunity to defer, annually, the receipt of a portion of their compensation as a future supplemental retirement benefit in addition to that provided under the Versum Materials Retirement Savings Plan.
Welfare Benefits
.
Our executives, including our NEOs, are eligible for specified benefits, such as group health, dental and disability insurance and basic life insurance premiums. These benefits are intended to provide competitive and adequate protection in case of sickness, disability or death, and our NEOs participate in these plans on the same basis as all other employees. All participating employees, including our NEOs, pay a portion of the cost of these welfare benefits.
Severance, Retirement and Change in Control Arrangements
.
Severance and change in control arrangements are provided to support major corporate and management transitions. The Versum Committee believes these arrangements provide benefit to Versum and its stockholders. Our severance and change in control arrangements with our NEOs are set forth in each NEOs’ employment agreement, as described starting on page 56. See “—Potential Payments Upon Termination or Change in Control” for a summary of the arrangements in our incentive plans and the other benefits applicable to our executive officers.
Executive Officer Stock Ownership
.
We have adopted a stock ownership policy for our executive officers, including our NEOs. The ownership guidelines are six times annual base salary for Mr. Novo, three times annual base salary for Messrs. Bitto, Valente and Loughlin, and one times annual base salary for Mr. Shober and our other executive officers. Until the
guidelines are met, each executive officer is required to retain a percentage of net profit shares (i.e., shares retained after satisfying tax obligations) from each equity award on exercise, vesting or payment. Our Chief Executive Officer is expected to retain 75% of such net profit shares and our other NEOs are expected to retain 50% of such net profit shares. If the ownership level drops below the guideline after the guideline is initially met, the retention requirement applies until the NEO is back in compliance. Our executive officers may count towards these requirements the value of shares owned (including shares owned jointly with or separately by the individual’s spouse), shares held in trust for the benefit of the individual, or one or more family members of the individual; and shares or share equivalents held in qualified or nonqualified savings, profit-sharing, or deferred compensation accounts if fully vested. Stock options, unvested restricted stock, unvested restricted stock units, and unearned performance-based shares and units are not counted for purposes of the ownership requirement.
Hedging and Pledging Policy
.
Our executive officers and directors may not purchase or sell options, warrants, puts and calls or the like on our stock, or sell our stock short. It is also our policy that shares of our stock owned by executive officers or directors may not be held in a margin account or pledged as collateral on a loan. In addition, our executive officers and directors may not engage in any transactions (including variable forward contracts, equity swaps, collars and exchange funds) that are designed to hedge or offset any decrease in the market value of the Company’s equity securities.
Clawback Policy
.
We have adopted an incentive compensation clawback policy. Consistent with the Company’s core values, the Versum Committee determined that it may be appropriate to recoup or “claw back” certain annual and long-term incentive compensation in specified situations. The Company may recoup paid incentive compensation if an executive officer or other employee’s conduct leads to a restatement of the Company’s financial results. The Versum Committee may, in its discretion, seek to recoup the difference between the incentive compensation paid and the lower amount that would have been paid based upon accurate information or restated financial results. The policy also provides that the Company may recoup a reasonable amount of incentive compensation for activity detrimental to the Company resulting from a material breach of employment arrangements or violations of our code of conduct. The Versum Committee has flexibility to update the policy to be consistent with any subsequent SEC rules on this topic. In addition, the Company generally includes a clawback right in its employment agreements, equity award agreements and incentive plans.
Employment Agreements
Effective October 1, 2016, we entered into an employment agreement with each of our NEOs. Other than the amounts of base annual salary and target annual bonus award and as indicated in the descriptions below, each of the employment agreements are substantially the same. For a description of termination and change in control provisions in the employment agreements, see “—Potential Payments Upon Termination or Change in Control” on pages 56 to 58. The employment agreements contain customary restrictive covenants relating to confidentiality, non-competition, non-disparagement, non-solicitation and intellectual property, and provide for the following compensation arrangements:
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•
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base annual salary, which shall be reviewed at least annually by the Board or the Compensation Committee;
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•
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target annual bonus award as a percentage of base salary, with payout amount based upon attaining certain performance goals established by the Board;
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•
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eligibility for participation in the Company’s long-term and short-term incentive plans;
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•
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participation in the Company’s employee benefit plans; and
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•
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vacation subject to Company policy.
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AIR PRODUCTS HISTORICAL COMPENSATION
The historical compensation strategy, including for compensation shown in the Summary Compensation Table for fiscal years 2015 and 2016, was designed and implemented by the Air Products Committee.
Roles of the Air Products Committee, Management, and Compensation Consultant in the Compensation Process
The Air Products Committee was responsible to the Air Products board of directors and stockholders for establishment and oversight of the Air Products’ executive compensation program and for approving compensation levels of Air Products executive officers, including for Mr. Novo who is currently President and Chief Executive Officer of Versum. For fiscal years 2015 and 2016, the Air Products Committee established overall compensation strategies and policies for Air Products’ executives; allocated executive compensation among the various components of compensation; evaluated and approved performance measures and goals relevant to the incentive compensation of the Air Products executive officers, and approved direct compensation levels for its executive officers. For Air Products employees who were not executive officers of Air Products, including Messrs. Bitto, Valente, Loughlin and Shober, award levels and targets were generally determined by employee grade levels.
Each year, the Air Products Committee:
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reviews and evaluates the appropriateness of the Air Products executive officer compensation program based on several factors, including competitiveness, of the program and alignment of compensation delivered under the program with Air Products’ strategy and performance;
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reviews whether Air Products’ compensation program design encourages excessive risk taking;
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approves peer groups for benchmarking compensation levels and practices;
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•
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reviews dilution and burn rates associated with Air Products’ equity compensation;
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•
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evaluates and approves changes to incentive compensation and benefit plans when needed;
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approves Air Products executive officer incentive compensation payouts for the current year; and
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•
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addresses other specific issues regarding management development and compensation as needed.
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While the Air Products Committee determined overall compensation strategy and policies for Air Products’ executive officers and approved their compensation, it sought input from several Versum executive officers and other Versum management employees with respect to both overall guidelines and discrete compensation decisions.
Overview of Air Products Executive Officer Compensation
The overall objective of the Air Products executive officer compensation program was to attract and retain a talented management team and provide them with the right incentives to execute Air Products’ strategic objectives and maximize its stockholders’ investment in Air Products. The same principles that governed the compensation of all Air Products salaried employees applied to the compensation of Air Products executive officers:
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Tie compensation to strategy and performance.
Air Products’ programs provided a range of incentive compensation opportunities that were designed to promote achievement of short-, medium-, and long-term strategic and financial objectives.
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Link the interests of executive officers to the interests of stockholders.
Air Products’ executive officer compensation program was designed so that factors that impact the value of its stockholders’ investment in Air Products also impact its management team’s compensation.
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•
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Provide competitive total compensation for competitive performance.
Air Products sought to offer compensation opportunities that were sufficient to attract talented and experienced managers who had a choice about where they work, and to discourage them from seeking other opportunities.
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Foster nonfinancial corporate goals.
While financial results are the primary commitment Air Products made to stockholders, its compensation program balanced financial results with other Air Products values such as safety and environmental stewardship. Certain components of the program provided flexibility to reduce or recoup compensation where insufficient attention was paid to nonfinancial Air Products objectives.
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•
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Support actions needed to respond to changing business environments.
Air Products sought to provide some elements of compensation, such as severance benefits, that gave the Air Products management team or board of directors tools to facilitate decisions about divestitures and restructurings, succession planning, or other significant corporate events that may impact the position or employment status of Air Products executive officers.
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The Air Products executive officer compensation program emphasized compensation opportunities that were linked to key performance indicators, such as earnings per share, EBITDA and total stockholder returns. The majority of compensation provided to Air Products executive officers was dependent upon the achievement of short-, medium-, and long-term performance objectives and/or appreciation in the value of Air Products stock.
Direct compensation was delivered to Air Products executive officers through the components listed in the table below, which provides a brief description of the principal components of direct compensation, and the compensation program objectives served by each component.
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Component
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Description
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Objectives
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Base Salary
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Fixed cash payment.
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Provide competitive foundational pay.
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Annual Incentive
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Short-term incentive, cash payment.
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Promote achievement of short-term financial and strategic objectives.
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Performance Shares
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Restricted stock units that pay out upon achievement of performance targets. Delivered in shares of stock with dividend equivalents also payable on vesting.
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Promote achievement of mid-term financial objectives; encourage current decisions that promote long-term value creation; align executive officers’ interests with stockholder returns.
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Restricted Stock
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Shares of stock that vest over 4 year period and pay dividends.
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Retain Air Products executive officers; align their interests with stockholder returns.
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The Air Products Committee annually reviewed and established the performance measures, target goals, and payout schedules used for the Air Products Annual Incentive Plan and the performance share component of the long-term incentive program. In determining actual performance against these metrics, the Air Products Committee decided whether to include or exclude the impact of items reported in Air Products’ financial statements that may not be reflective of underlying operating results. Adjustments from reported earnings were intended to avoid artificial inflation or deflation of awards due to unusual or non-operational items in the applicable period and aligned pay outcomes with how the Air Products Committee and management viewed the performance of the business.
Air Products Fiscal 2016 Direct Compensation Components
Within the competitive target value for each Air Products executive officer’s Total Direct Compensation established by the Air Products Committee, the Air Products Committee determined the individual compensation components of the program.
Base Salary
Changes in base salaries for Executive Officers become effective as of the first payroll period in the calendar year; so the amounts reflected in the Summary Compensation Table reflect the fiscal 2015 base salary rate for the first quarter of the fiscal year and the fiscal 2016 base salary rate for the remainder of the year. Certain of our NEOs received modest base salary increases for 2016 consistent with Air Products’ market median salary positioning. Base salaries approved for the Versum NEOs for 2015 and 2016 were as follows:
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Named Executive Officer
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2015 Base Salary Rate ($)
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2016 Base Salary Rate ($)
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% Increase
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G. Novo
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465,000
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465,000
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—
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G.G. Bitto
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357,713
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359,612
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0.5%
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M.W. Valente
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98,077
(1)
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300,000
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—
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P. F. Loughlin
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270,695
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272,834
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0.8%
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E.C. Shober
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228,762
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245,262
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7.2%
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(1)
Mr. Valente joined Air Products on June 1, 2015, so the 2015 base salary rate in the table reflects partial year compensation for him. His annualized fiscal 2015 base salary was $300,000.
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Air Products Annual Incentive Plan
Determination of annual cash incentive awards was a multi-step process which began with establishing target opportunities. At the beginning of the fiscal year, the Air Products Committee determined target annual cash incentive awards for its executive officers, including Mr. Novo, as a percentage of each Air Products executive officer’s base salary based on the Air Products Survey Reference Group competitive assessment. Air Products' Survey Reference Group consists of a group of industrial companies with revenue of $7 to $13 billion based on survey data from Mercer and Willis Towers Watson compensation databases. For Air Products employees who were not executive officers, including Messrs. Bitto, Valente, Loughlin and Shober, target levels were determined by grade. For fiscal 2016, the target award levels for the Versum NEOs were as follows:
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Named Executive Officer
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% of Base Salary
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G. Novo
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85%
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G.G. Bitto
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50%
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M.W. Valente
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40%
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P.F. Loughlin
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45%
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E.C. Shober
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35%
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An executive officer’s actual award is determined by multiplying the target award by his or her individual payout factor. As a first step in determining an Air Products executive officer’s individual payout factor, the Air Products Committee determined an initial payout factor derived from Air Products’ performance against the payout schedules established by the Air Products Committee at the beginning of the fiscal year. The Air Products Committee selected Non-GAAP adjusted earnings per share targets as the performance measure for Air Products executive officers, including Mr. Novo, under the Air Products Annual Incentive Plan. The targets and payout percentages are set out below. The “Payout %” is interpolated linearly between points.
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Air Products
2016 Non-GAAP
Earnings per Share
(% increase from 2015)
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Payout %
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<$6.60
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0%
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$6.60 (0%)
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50%
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$7.26 (10%)
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100%
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$7.62 (15%)
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200%
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The non-GAAP earnings per share targets were translated into business unit Non-GAAP adjusted EBITDA targets for Air Products non-executive officer employees, including Messrs. Bitto, Valente, Loughlin and Shober. The payout percentages for Messrs. Bitto, Valente and Loughlin were based on the performance of the Materials Technologies segment of Air Products, and those targets and payout percentages are set out below. The “Payout %” is interpolated linearly between points.
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Materials Technologies
2016 Non-GAAP
Adjusted EBITDA
($ in millions)
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Payout %
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<546.5
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0%
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546.5
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50%
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607.2
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100%
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637.6
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200%
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The payout percentage for Mr. Shober was based on the performance of the Electronic Materials division of the Air Products’ Materials Technologies segment. His performance targets were based on Non-GAAP Adjusted EBITDA for this division, as calculated by Air Products, and his payout percentage could range from 0% to 200%.
Under the Air Products program, the discretionary component of the payout factor is a range from 30 percentage points below the payout factor calculated using the schedule above based on Air Products performance for the year, to 30 points above the calculated payout factor. Actual payout factors can be adjusted within this range based on safety and individual performance, and other nonfinancial factors.
Since our Separation occurred on October 1, 2016, the day after the last day of our fiscal year, the Versum Committee, rather than the Air Products Committee, determined the payout amounts under the formula developed by the Air Products Committee, which reflected Air Products’ performance and our performance against the approved performance goals.
For fiscal 2016, Air Products’ non-GAAP adjusted earnings per share for purposes of the annual cash incentive award was $7.73 based on non-GAAP continuing operations
earnings per share of $7.55 adjusted for currency. In determining fiscal 2016 adjusted earnings per share, the Versum Committee, consistent with the approach taken by the Air Products Committee, excluded certain non-recurring items and normalized for currency and foreign exchange impacts that were not anticipated in the operating plan because of the significant negative impact of currency fluctuation, which the management team cannot influence, on financial results for fiscal 2016. The calculated payout factor, based on the financial results, was 200% for Mr. Novo. Consistent with the determination of the Air Products Committee, the Versum Committee determined not to adjust the calculated payout factor.
For fiscal 2016, the Air Products Materials Technologies segment Adjusted EBITDA was $609.3 million. Non-GAAP Adjusted EBITDA excludes business separation costs, tax costs associated with business separation, business restructuring and cost reduction actions, pension settlement loss and loss on extinguishment of debt. The calculated payout factor for the overall Materials Technologies segment under the Air Products formula was 138%. The Versum Committee determined not to adjust the calculated payout factor, which applied to Messrs. Bitto, Valente and Loughlin.
For fiscal 2016, Mr. Shober’s payout was based on the performance of the Electronic Materials division of Air Products’ Materials Technologies segment. The calculated payout factor determined under the Air Products formula was 185%. The Versum Committee determined not to adjust this payout factor for Mr. Shober.
For the year ended September 30, 2016, the Versum NEOs’ target cash incentive opportunity and their cash incentive award earned (as reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table) were as follows:
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Name
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2016 Year-End Base Salary
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Target Award as a % of Base Salary
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Target Annual Cash Incentive Opportunity
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Individual Payout Factor as a Percent of Target Award
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2016 Amount Earned Under Annual Incentive Plan
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G. Novo
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$465,000
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85%
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$395,300
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200%
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$790,600
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G.G. Bitto
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$359,612
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50%
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$179,900
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138%
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$248,200
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M.W. Valente
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$300,000
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40%
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$120,000
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138%
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$165,600
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P.F. Loughlin
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$272,835
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45%
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$122,800
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138%
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$169,500
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E.C. Shober
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$245,262
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35%
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$86,600
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185%
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$160,100
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Long-Term Incentives
For 2016, the Air Products Committee selected two balanced components for the Air Products executive officers’ long-term incentives: “performance shares” which were conditioned on performance over a three-year period (for fiscal 2016 grants, relative total shareholder return for Air Products fiscal years 2016-2018); and restricted stock, which links Air Products executive officers’ interests to stockholder returns and provides a retention incentive. For fiscal 2016, the mix of intended long-term incentive value for Air Products executive officers, including Mr. Novo, was 60% performance shares and 40% restricted stock. Each year Air Products management reviewed the competitive positioning of its global long-term incentive guidelines for employees who were not executive officers. For fiscal 2016 the mix of intended long-term incentive value for employees in graded positions, including our NEOs other than Mr. Novo, was 60% performance shares and 40% restricted stock units. The Air Products Committee chose this mix of performance shares and restricted stock or restricted stock units to provide a balance of stock-based compensation contingent on performance and retention.
The Air Products Committee determined the level of long-term incentive grants for fiscal 2016 at the beginning of the fiscal year. Prior to making the grants, the Air Products Committee established an intended long-term incentive value for each Air Products executive officer and our NEOs.
Performance Shares
2016 Performance Shares
The primary component of Air Products’ long-term incentive program for 2016 was performance shares. Performance shares entitle the recipient to receive one share of stock and
accumulated dividend equivalents for each performance share earned upon the satisfaction of performance objectives and other conditions to earning the award. Performance shares are granted each year with overlapping three-year performance cycles. The awards are paid out at the end of the three-year period based on performance if threshold performance goals were met.
Individual target share amounts were determined by calculating the value (based on the closing market value of a share of Air Products stock on the grant date) to approximate 60% of the total intended long-term incentive value for the executive officer.
The actual number of shares earned under these awards, if any, will be determined by multiplying the target number of shares by a payout factor to be approved by the Versum Committee. For fiscal 2016, the Air Products payout factor is based upon the Air Products three-year Total Shareholder Return percentile rank compared to Total Shareholder Returns of Air Products Peer Reference Group members over the three-year performance period. “TSR” or “Total Shareholder Return” is the growth in capital that would be experienced from purchasing a share of Air Products or Air Products Peer Reference Group member stock and holding it for the performance period, assuming that dividends are reinvested in Air Products stock, or Air Products Peer Reference Group member’s stock, respectively, on the record date. The Air Products Peer Reference Group consists of chemical and industrial companies with similar capital structures, asset intensity, and profitability to Air Products (size adjusted, based on data from Farient Advisors, LLC, external compensation consultant to Air Products).
The payout factor was to be determined in accordance with the following schedule:
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Air Products’s TSR Percentile Rank
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Payout %*
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>75th percentile
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200%
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50th percentile
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100%
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30th percentile
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30%
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<30th percentile
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0%
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*The Air Products Committee may adjust the calculated payout by up to 15%.
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In connection with the Separation, the performance shares granted by Air Products were converted into Versum performance shares, and will be earned based on the achievement of metrics as described below under “Treatment of Outstanding Equity Awards at the Time of Separation” on pages 41 and 42. The target number of performance shares (as converted to Versum common stock) granted to each Versum NEO for fiscal 2016 was as follows:
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Named Executive Officer
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Target #
of Shares
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G. Novo
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20,926
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G.G. Bitto
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6,650
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M.W. Valente
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3,945
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P. F. Loughlin
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3,945
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E.C. Shober
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2,147
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2016 Payout for FY2014-2016 Performance Shares
The Air Products Committee also established payout levels for performance shares granted in fiscal 2014 which were tied to Air Products average return on capital employed net of cost of capital (“Net ROCE”) and earnings per share growth (“EPS Growth”) performance for fiscal years 2014-2016. The payout factor was determined using the formula below, reflecting performance during the three-year performance period:
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67% Net
ROCE Factor
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+
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33% EPS
Growth Factor
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=
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Payout Factor
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The Air Products Committee reserved the discretion to adjust the calculated payout factor by up to 15 percentage points. The Factor Schedule excerpted below applied to the fiscal 2014 grants. The factors are interpolated linearly between points.
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2014 Performance Shares Factor Schedule
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Net ROCE (67%)
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EPS Growth (33%)
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ROCE over
Cost of Capital
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Net ROCE Factor %
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EPS Growth
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EPS
Growth Factor
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<0%
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0%
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0%
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35%
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0%
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50%
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4%
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50%
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2%
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100%
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7%
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80%
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4%
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200%
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9%
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100%
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16%
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200%
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The Net ROCE and EPS Growth factors for the fiscal year 2014-2016 performance period were determined using the Factor Schedule. The average Net ROCE over the performance period was 2.3% and the average EPS Growth was 10.7%, resulting in a calculated payout factor of 106% of the target shares. The Air Products Committee adjusted the calculated payout factor downward to 91%, the full extent permitted by the award agreements, to reflect the underperformance of certain investments made by Air Products during the performance period, in particular its Energy from Waste projects which were written off when Air Products exited the business during fiscal 2016. Consistent with the decision of the Air Products Committee, the
Versum Committee adjust the calculated payout factor downward to 91% for our eligible NEOs. The number of shares received by our eligible NEOs under these awards (as converted to Versum common stock) were as follows: Mr. Novo - 12,659; Mr. Bitto - 6,182; and Mr. Loughlin - 2,956. Our eligible NEOs also received cash payments equal to the dividend equivalents received with respect to these shares.
Restricted Stock
Restricted stock awards granted by Air Products are shares of Air Products common stock that possess voting and dividend rights but are subject to restrictions on transferability and forfeitable until vesting. The vesting conditions provided an incentive for retention, and the value of this compensation element increased or decreased in direct proportion to Air Products’ stock. Individual award amounts were determined by calculating the value (based on the closing market value of a share of Air Products stock on the grant date) to approximate 40% of the total intended long-term incentive value for the employee. Mr. Novo was granted 2,444 shares of Air Products restricted stock in fiscal 2016. None of our other NEOs received restricted stock in fiscal 2016. In connection with the Separation, Mr. Novo received one-half of a fully vested share of Versum common stock for each share of Air Products restricted stock he held at the time of the Separation, as if he held fully vested Air Products common stock on the record date for the Separation. See “—Treatment of Outstanding Equity Awards at the Time of Separation” below and on pages 41 and 42.
Restricted Stock Units
Restricted stock units granted by Air Products generally vest in full four years after the grant date. If an executive officer’s employment terminates due to death, disability or retirement, one year or more after the grant date, the units will vest. Upon involuntary termination without cause, a pro rata portion of the units will vest. Restricted stock units entitle the holder to one share of Air Products stock and dividend equivalents upon vesting. Dividend equivalents are paid in cash and equal the dividends that would have accrued on a share of stock from the grant date to the vesting date. Our NEOs were granted the following numbers of Air Products restricted stock units in fiscal 2016:
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Named Executive Officer
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Target #
of Shares
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G.G. Bitto
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5,006
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M.W. Valente
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2,632
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P. F. Loughlin
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2,632
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E.C. Shober
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1,433
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In connection with the Separation, Air Products restricted stock units were converted into Versum restricted stock units, with substantially the same terms and vesting conditions as the original Air Products awards.
Granting Practices
Equity compensation awards are provided to Air Products executive officers and other management employees under Air Products’ Long-Term Incentive Plan and (except for off-cycle recruiting and retention awards) were granted as of the first NYSE business day in the month of December. Recruiting grants were generally issued as of the first day of employment. Off-cycle retention grants were made occasionally in response to extraordinary retention needs that arise during the year.
TREATMENT OF OUTSTANDING EQUITY AWARDS AT THE TIME OF SEPARATION
Treatment of Long-Term Incentive Awards Outstanding
Long-term incentive awards granted to employees under Air Products’ Long-Term Incentive Plan that were outstanding on October 1, 2016, other than restricted stock, were adjusted using the following principles:
|
|
•
|
Awards were adjusted to maintain the economic value of those awards before and after the Separation; and
|
|
|
•
|
Other than certain performance shares, treatment of which is described below, the terms of equity awards, such as the vesting schedule and dividend equivalent rights, generally continue unchanged.
|
The following table provides additional information regarding conversion of each type of Air Products equity award:
|
|
|
|
Award Type
|
|
Conversion Methodology
|
Stock Options
|
|
Air Products stock options were converted into options to purchase Versum common stock, with the number and exercise price adjusted to maintain economic value.
|
|
|
Restricted Stock Units
|
|
Air Products restricted stock units were converted to Versum restricted stock units, with the number adjusted to maintain economic value.
|
|
|
Performance Shares
|
|
Air products performance shares were converted to Versum performance shares, with the number adjusted to maintain economic value.
|
|
|
|
Restricted Shares
|
|
Holders of Air Products restricted stock received one-half of a fully vested share of Versum common stock for every share of Air Products restricted stock held at the time of the Separation, as if such holder held fully vested Air Products common stock on the record date.
|
Air Products performance shares granted in fiscal 2014 and held by Versum executive officers and other employees were converted to Versum performance shares in an amount adjusted to maintain the economic value and were paid out based upon Air Products’ performance at the payout percentage as calculated by Air Products and approved by the Versum Committee. See “Air Products Historical Compensation—Air Products Fiscal 2016 Direct Compensation Components—Long-Term Incentives—Performance Shares—2016 Payout for FY2014-2016 Performance Shares” on page 40.
Air Products performance shares granted in fiscal 2015 and held by Versum executive officers and other employees were converted to Versum performance shares in an amount adjusted to maintain the economic value and will be earned based on the achievement of metrics to be determined by the Versum Committee, with due consideration given to Air Products’ relative TSR performance through the Separation.
Air Products performance shares granted in fiscal 2016 and held by Versum executive officers and other employees were converted into Versum performance shares and will be earned based on the achievement of metrics to be determined by the Versum Committee.
Air Products Employee Benefit Plans and Other Historical Compensation Practices and Policies
Prior to the Separation, Air Products offered employee benefit programs designed to be competitive and to provide reasonable security for its executive officers and other employees. Welfare and retirement benefits were offered at essentially the same level to all U.S. salaried employees, including the Versum executive officers.
Retirement Benefits.
Air Products executive officers participated in Air Products’ generally available U.S. salaried retirement programs. Air Products maintained qualified retirement programs for its salaried employees, including a defined benefit pension plan which has been closed to new entrants since 2005 and a savings and profit sharing plan. Air Products also maintained a nonqualified pension plan (also closed to new entrants) and nonqualified deferred compensation plan in which Air Products executive officers and other eligible employees, including the Versum executive officers, participated. The plans are discussed in more detail below in the narrative accompanying the Pension Benefits table and the Nonqualified Deferred Compensation table.
Welfare Benefits.
Air Products provided medical and dental coverage, life insurance, and disability insurance to Air Products executive officers under the same programs offered to all salaried employees, including the Versum executive officers. All participating employees, including the Versum executive officers, paid a portion of the cost of these programs.
Severance and Change in Control Arrangements.
Severance and change in control arrangements were provided to support major corporate and management transitions. The Air Products Committee believed these arrangements provided benefit to Air Products and its stockholders. The Air Products Committee periodically reviewed these arrangements in depth for market competitiveness and appropriateness for Air Products’ business.
EXECUTIVE COMPENSATION TABLES
2016 SUMMARY COMPENSATION TABLE
The following table presents summary information regarding the total compensation awarded to, earned by, or paid in the fiscal years indicated to each of our NEOs by Air Products for the fiscal year ended September 30, 2016, prior to the Separation on October 1, 2016. Long-term incentive awards depicted in the Executive Compensation Tables, except for restricted stock which was not converted, were subsequently adjusted following the Separation. See “—Treatment of Outstanding Equity Awards at the Time of Separation” on pages 41 and 42 for more information on the adjustments made.
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock Awards
(2)
($)
|
Option Awards
(3)
($)
|
Non-Equity Incentive Plan Compensation
(4)
($)
|
Change in Pension Value and Nonqualified Deferred Compensation Earnings
(5)
($)
|
All Other Compensation ($)
(6)
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
G. Novo
|
2016
|
465,000
|
-
|
830,642
|
-
|
790,600
|
5,174
|
66,772
|
2,158,188
|
President and Chief Executive Officer
|
2015
|
465,000
|
-
|
843,379
|
182,789
|
698,000
|
3,025
|
45,112
|
2,237,305
|
|
|
|
|
|
|
|
|
|
|
G.G. Bitto
|
2016
|
359,612
|
-
|
298,133
|
-
|
248,200
|
811,637
|
11,512
|
1,729,094
|
Senior Vice President and Chief Financial Officer
|
2015
|
357,713
|
-
|
302,972
|
65,603
|
323,700
|
264,138
|
11,451
|
1,325,577
|
|
|
|
|
|
|
|
|
|
|
M.W. Valente
|
2016
|
300,000
|
300,000
(1)
|
156,613
|
-
|
165,600
|
215
|
24,605
|
947,033
|
Senior Vice President, Law and Human Resources, General Counsel and Secretary
|
2015
|
98,077
|
-
|
97,471
|
21,012
|
80,300
|
14
|
6,664
|
303,538
|
|
|
|
|
|
|
|
|
|
|
P.F. Loughlin
|
2016
|
272,835
|
-
|
156,613
|
-
|
169,500
|
482,918
|
8,739
|
1,090,604
|
Senior Vice President, Operations and Supply Chain
|
2015
|
270,695
|
-
|
174,802
|
37,859
|
218,300
|
156,294
|
8,666
|
866,616
|
|
|
|
|
|
|
|
|
|
|
E.C. Shober
|
2016
|
245,262
|
-
|
85,240
|
-
|
160,100
|
402,744
|
7,851
|
907,595
|
Vice President, Materials - Advanced Materials
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Mr. Valente joined Air Products on June 1, 2015, so the amounts in the table for fiscal 2015 reflect partial year compensation for him. On the first anniversary of his employment, he received a service-based retention bonus in the amount of $300,000.
|
|
|
(2)
|
This column shows the aggregate grant date fair values of restricted stock, restricted stock units and performance shares granted by Air Products, calculated in accordance with FASB ASC Topic 718 (“Topic 718”). Generally, the expense for these awards is recognized over the vesting or performance period, unless the recipient is eligible for retirement and the award vests upon retirement, in which case the expense may be recognized entirely in the year of grant. The calculation of these amounts disregards any estimate of forfeitures related to time-based conditions.
|
The grant-date fair value of restricted stock is estimated on the date of grant based on the market price of the stock, and compensation cost is generally amortized to expense on a straight-line basis over the vesting period during which employees perform related services. Expense recognition is accelerated for retirement-eligible individuals who would meet the requirements for vesting of awards upon their retirement.
The valuation models and assumptions applicable to the grant date fair value of restricted stock units are set forth in Note 19, Share-Based Compensation, to Air Products’ audited financial statements included in its Annual Report on Form 10-K for the fiscal year ended September 30, 2016, filed with the SEC on November 21, 2016.
The fair value of performance shares was estimated using a Monte Carlo simulation model as these equity awards are tied to a market condition. The model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the grant and calculates the fair value of the awards. Air Products generally expenses the grant-date fair value of these awards on a straight line basis over the vesting period. The calculation of the fair value of performance shares used the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
Expected volatility
|
|
20.5
|
%
|
|
19.6
|
%
|
|
Risk-free interest rate
|
|
1.2
|
%
|
|
0.9
|
%
|
|
Expected dividend yield
|
|
2.2
|
%
|
|
2.5
|
%
|
|
The estimated grant-date fair value of performance shares was $135.49 and $194.51 per unit in 2016 and 2015.
The amounts shown may not correspond to the actual value that may be realized. The grant date fair values of the performance shares are based upon probable outcomes of market-based performance conditions as stipulated in the grants. If, at the grant date, the probable outcome of the performance conditions was 215% of the target number of shares (the maximum potential payout), the grant date fair values of the performance shares would increase from the amounts included in this column with respect to the performance shares by 120.5% for the fiscal 2016 grants. Maximum values are displayed in the table below. For more information on awards made in fiscal year 2016, see the “2016 Grants of Plan-Based Awards” table and the “Outstanding Equity Awards at Fiscal Year-End” table on pages 47 and 49, respectively.
Performance Shares Grant Date Values
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
Year
|
|
Value Included ($)
|
|
Maximum Value ($)
|
G. Novo
|
|
2016
|
|
493,370
|
|
1,087,702
|
|
|
|
|
|
|
|
G.G. Bitto
|
|
2016
|
|
177,107
|
|
390,457
|
|
|
|
|
|
|
|
M.W. Valente
|
|
2016
|
|
92,995
|
|
205,020
|
|
|
|
|
|
|
|
P.F. Loughlin
|
|
2016
|
|
92,995
|
|
205,020
|
|
|
|
|
|
|
|
E.C. Shober
|
|
2016
|
|
50,602
|
|
111,559
|
|
|
(3)
|
This column shows the grant date fair value of stock options granted by Air Products in fiscal 2015 as calculated in accordance with Topic 718, disregarding any estimate of forfeitures relating to time-based vesting. The terms of the awards are fixed at the grant date. The assumptions for the valuation determination are set forth below. Additional information regarding these awards is set forth in the “2016 Grants of Plan-Based Awards” and “Outstanding Equity Awards at Fiscal Year End” tables and accompanying footnotes.
|
The exercise price of stock options equals the market price of Air Products stock on the date of the grant, as converted into Versum stock options. Options generally vest incrementally over three years, and remain exercisable for ten years from the date of grant. In 2016, no stock options were awarded.
Fair values of stock options were estimated using a Black Scholes model that used the assumptions noted in the table below. Expected volatility and expected dividend yield are based on actual historical experience of our stock and dividends over the historical period equal to the expected life. The expected life represents the period of time that options granted are expected to be outstanding based on an analysis of Company-specific historical exercise data. Ranges are used when certain groups of employees exhibit different behavior, such as timing of exercise. The risk-free rate is based on the U.S. Treasury Strips with terms equal to the expected time of exercise as of the grant date.
|
|
|
|
|
|
|
|
2015
|
|
|
Expected volatility
|
|
30.3
|
%
|
|
Expected dividend yield
|
|
2.6
|
%
|
|
Expected life (in years)
|
|
7.5
|
|
|
Risk-free interest rate
|
|
2.2
|
%
|
|
The weighted average grant-date fair value of options granted by Air Products during 2015 was $37.19 per option. Compensation cost is generally recognized over the stated vesting period consistent with the terms of the arrangement (i.e., either on a straight-line or graded-vesting basis). Expense recognition is accelerated for retirement-eligible individuals who would meet the requirements for vesting of awards upon their retirement.
|
|
(4)
|
Amounts in this column reflect awards under the annual incentive plan. At their election, participants may defer awards received under this plan. Amounts deferred are also reflected as “Executive Contributions” in the “Nonqualified Deferred Compensation” table.
|
|
|
(5)
|
Amounts in this column reflect the annual change in the actuarial present value of each officer’s accumulated tax qualified and nonqualified pension benefits and interest considered to be above market interest credited to their Air Products Deferred Compensation Plan balances.
|
The pension accrual amounts represent the annual change in actuarial present value of accumulated benefits under Air Products’ tax qualified and nonqualified pension plans for Mr. Bitto, Mr. Loughlin and Mr. Shober. Messrs. Novo and Valente were not eligible for these plans. These amounts are as follows:
|
|
|
|
|
|
|
Named Executive Officer
|
|
Year
|
|
Amount ($)
|
|
|
|
|
|
G.G. Bitto
|
|
2016
|
|
802,525
|
|
|
|
|
|
|
P.F. Loughlin
|
|
2016
|
|
474,171
|
|
|
|
|
|
|
E.C. Shober
|
|
2016
|
|
402,438
|
|
Interest was calculated for the Air Products Deferred Compensation Plan accounts using a Moody’s A-rated Corporate Bond Rate because this is comparable to the rate Air Products pays its other creditors on long-term obligations. When this rate exceeds 120% of a rate set by the U.S. Internal Revenue Service, it is treated as above market interest, even though it is based on a market average for corporate bonds. The amounts included as above market interest were as follows:
|
|
|
|
|
|
Named Executive Officer
|
|
Year
|
|
Amount ($)
|
G. Novo
|
|
2016
|
|
5,174
|
|
|
|
|
|
G.G. Bitto
|
|
2016
|
|
9,112
|
|
|
|
|
|
M.W. Valente
|
|
2016
|
|
215
|
|
|
|
|
|
P.F. Loughlin
|
|
2016
|
|
8,747
|
|
|
|
|
|
E.C. Shober
|
|
2016
|
|
306
|
|
|
(6)
|
Amounts shown in this column are as follows:
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
Year
|
|
Company Contributions
Under Defined
Contribution Plans
($)
|
|
Group Term
Life Insurance
Premiums
($)
|
G. Novo
|
|
2016
|
|
65,835
|
|
937
|
|
|
|
|
|
|
|
G.G. Bitto
|
|
2016
|
|
10,788
|
|
724
|
|
|
|
|
|
|
|
M.W. Valente
|
|
2016
|
|
24,000
|
|
605
|
|
|
|
|
|
|
|
P.F. Loughlin
|
|
2016
|
|
8,187
|
|
552
|
|
|
|
|
|
|
|
E.C. Shober
|
|
2016
|
|
7,358
|
|
493
|
2016 GRANTS OF PLAN-BASED AWARDS
The following table sets forth information concerning grants of plan-based awards to each of our NEOs by Air Products during the fiscal year ended September 30, 2016. The information in the following table regarding performance shares and restricted stock units reflects the conversion of Air Products awards into Versum awards using the conversion principles disclosed under “Treatment of Outstanding Equity Awards at the Time of the Separation” on pages 41 and 42 in order to provide more meaningful disclosure to Versum stockholders. The information regarding restricted shares reflects the Air Products restricted shares granted prior to the Separation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Award Type
|
|
Grant Date
|
|
Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards
|
|
Estimated Future Payouts
Under Equity Incentive
Plan Awards
|
|
All Other Stock Awards: Number of Shares of Stock or Units
(#)
|
|
Grant Date Fair Value of Stock and Option Awards
|
|
Threshold
($)
|
Target
($)
|
Maximum
($)
|
|
Threshold
(#)
|
Target
(#)
|
Maximum
(#)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
G. Novo
|
|
Annual Incentive Plan
|
|
–
|
|
0
|
395,300
|
|
909,190
|
|
|
|
|
|
|
|
|
|
|
Performance Shares
|
|
12/1/2015
|
|
|
|
|
|
0
|
20,926
|
|
44,991
|
|
|
|
|
$493,370
|
|
Restricted Shares
|
|
12/1/2015
|
|
|
|
|
|
|
|
|
|
2,444
(1)
|
|
|
$337,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
G.G. Bitto
|
|
Annual Incentive Plan
|
|
–
|
|
0
|
179,900
|
|
413,770
|
|
|
|
|
|
|
|
|
|
|
Performance Shares
|
|
12/1/2015
|
|
|
|
|
|
0
|
7,512
|
|
16,151
|
|
|
|
|
$177,107
|
|
Restricted Stock Units
|
|
12/1/2015
|
|
|
|
|
|
|
|
|
|
5,006
|
|
|
$121,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M.W. Valente
|
|
Annual Incentive Plan
|
|
–
|
|
0
|
120,000
|
|
276,000
|
|
|
|
|
|
|
|
|
|
|
Performance Shares
|
|
12/1/2015
|
|
|
|
|
|
0
|
3,945
|
|
8,482
|
|
|
|
|
$92,995
|
|
Restricted Stock Units
|
|
12/1/2015
|
|
|
|
|
|
|
|
|
|
2,632
|
|
|
$63,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P.F. Loughlin
|
|
Annual Incentive Plan
|
|
–
|
|
0
|
122,800
|
|
282,440
|
|
|
|
|
|
|
|
|
|
|
Performance Shares
|
|
12/1/2015
|
|
|
|
|
|
0
|
3,945
|
|
8,482
|
|
|
|
|
$92,995
|
|
Restricted Stock Units
|
|
12/1/2015
|
|
|
|
|
|
|
|
|
|
2,632
|
|
|
$63,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E.C. Shober
|
|
Annual Incentive Plan
|
|
–
|
|
0
|
86,600
|
|
199,180
|
|
|
|
|
|
|
|
|
|
|
Performance Shares
|
|
12/1/2015
|
|
|
|
|
|
0
|
2,147
|
|
4,616
|
|
|
|
|
$50,602
|
|
Restricted Stock Units
|
|
12/1/2015
|
|
|
|
|
|
|
|
|
|
1,433
|
|
|
$34,638
|
(1)
Represents restricted shares in Air Products held by Mr. Novo that were not converted into Versum equity following the Separation.
|
The Grants of Plan-Based Awards table reports the dollar value of cash (non-equity) incentive awards and the number and value of equity awards granted during fiscal 2016 by Air Products. The number and value of performance awards and restricted stock units reflects the conversion into Versum awards. See “—2016 Summary Compensation Table” for additional information regarding fiscal 2016 compensation of our NEOs.
With regard to cash incentives, this table reports the range of potential value that could have been obtained; whereas the Summary Compensation Table reports the actual value realized for fiscal 2016. Equity values represent the grant date values of the awards determined under FASB ASC Topic 718 for purposes of financial statement reporting, which are based on probable outcomes of performance conditions.
Non-Equity Incentive Plan Awards
—
Air Products Annual Incentive Plan
. Air Products Annual Incentive Plan awards were based on performance for the fiscal year. The Air Products Committee approved performance measures and goals and payout schedules prior to or at the beginning of the fiscal year. Following the end of the fiscal year, since the Separation had occurred, the Versum Committee determined the range of actual amounts that were paid out under the Air Products formula which reflected performance against the Air Products approved performance goals. Individual awards were determined by the Versum Committee within the range, based solely on the formula. There is no minimum bonus under the terms of the plan, so the threshold amount is shown as 0. For more information on fiscal year 2016 targets and the award determination, see pages 37 to 39.
Equity Incentive Plan Awards
—
Performance Shares
. The Equity Incentive Plan Awards reflected in the table are performance shares awarded by Air Products in fiscal 2016. Performance shares are restricted stock units whose earn out was conditioned on Air Products’ total shareholder return during a three year performance period relative to the Air Products Peer
Reference Group. Performance shares awarded under the Air Products Long-Term Incentive Plan entitled the holder to the value of one share of Air Products stock and accumulated dividend equivalents upon satisfaction of performance conditions. Under the Air Products award terms, dividend equivalents are paid in cash and equal the dividends that would have accrued on a share of Air Products stock from the grant date of a performance share until it is paid out. Dividend equivalents are not paid until the award is vested. No dividend equivalents are paid on shares that are forfeited.
In connection with the Separation, the Air Products performance shares reflected in the table have been converted to Versum performance shares with the same terms, including vesting schedule, as the Air Products performance shares. The number of shares that will be paid out is based on a formula to be determined by the Versum Committee. The performance shares reflected in the table have a three-year performance cycle which will be completed at the end of fiscal 2018. Performance shares are generally forfeited if employment is voluntarily terminated during the performance period. If employment is terminated due to death, disability, or retirement one year or more after the grant date, a pro-rata portion of any performance share payout will be paid upon completion of the performance period. Upon involuntary termination without cause, a prorated portion of the performance share payout is received at the end of the performance period.
Other Stock Awards.
The Other Stock Awards reflected in the table are shares of Air Products restricted stock and time-vesting restricted stock units.
Restricted Stock.
Restricted stock awards granted by Air Products are shares of Air Products common stock that were issued to Mr. Novo, and not converted into Versum equity awards. The restricted stock has voting and dividend rights, but is subject to restrictions on transferability and is forfeitable until vesting. The vesting conditions provided an incentive for retention, and the value of this compensation element increased or decreased in direct proportion to Air Products’ stock. Individual award amounts were determined by calculating the value (based on the closing market value of a share of Air Products stock on the grant date) to approximate 40% of the total intended long-term incentive value for the employee. Mr. Novo was granted 2,444 shares of Air Products restricted stock in fiscal 2016. None of our other Versum NEOs received restricted stock in fiscal 2016. In connection with the Separation, Mr. Novo received one-half of a fully vested share of Versum common stock for each share of Air Products restricted stock he held at the time of the Separation, as if he held fully vested Air Products common stock on the record date for the Separation. See “Treatment of Outstanding Equity Awards at the Time of Separation” on pages 41 and 42.
Restricted Stock Units.
Time-vesting restricted stock units historically granted by Air Products vest four years after the grant date. If an executive officer’s employment terminates due to death, disability or retirement, one year or more after the grant date, the units will vest. Upon involuntary termination without cause, a pro rata portion of the units will vest. Restricted stock units entitle the holder to one share of common stock and dividend equivalents upon vesting. Under the Air Products award terms, dividend equivalents are paid in cash and equal the dividends that would have accrued on a share of stock from the grant date to the vesting date. Our NEOs were granted the following numbers of restricted stock units in fiscal 2016:
|
|
|
|
Named Executive Officer
|
|
Target #
of Shares
(1)
|
G.G. Bitto
|
|
5,006
|
M.W. Valente
|
|
2,632
|
P. F. Loughlin
|
|
2,632
|
E.C. Shober
|
|
1,433
|
(1)
Represents the number of Versum restricted stock units as converted after the Separation.
|
In connection with the Separation, Air Products restricted stock units were converted into Versum restricted stock units, with substantially the same terms and vesting conditions as the original Air Products awards.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth information regarding outstanding equity awards made to our NEOs as of September 30, 2016. The information in the following table reflects the conversion of Air Products equity awards into Versum stock options, restricted stock units and performance shares using the conversion principles disclosed above under “Treatment of Outstanding Equity Awards at the Time of the Separation” on pages 41 and 42 in order to provide more meaningful disclosure to Versum stockholders.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
(1)
|
|
Stock Awards
|
Officer
|
Option Grant Date
|
Number of Shares Underlying
Unexercised Options (#)
|
Option Exercise Price
($)
|
Option Expiration Date
|
|
Number of Shares or Units of Stock Held That Have Not Vested
(2)
(#)
|
Market Value of Shares or Units of Stock Held That Have Not Vested
(3)
($)
|
Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested
(4)
(#)
|
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units, or Other Rights That Have Not Vested
(3)
($)
|
Exercisable
|
Unexercisable
|
G. Novo
|
|
|
|
|
|
|
12,659
|
|
354,452
|
|
84,803
|
|
2,374,484
|
|
|
09/12/2013
|
46,942
|
|
—
|
18.53
|
|
09/12/2023
|
|
|
|
|
|
|
12/02/2013
|
48,180
|
|
24,095
|
|
18.87
|
|
12/02/2023
|
|
|
|
|
|
|
12/01/2014
|
9,349
|
|
18,706
|
|
25.25
|
|
12/01/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
G.G. Bitto
|
|
|
|
|
|
|
37,750
|
|
1,057,000
|
|
30,449
|
|
852,572
|
|
|
12/02/2013
|
23,516
|
|
11,759
|
|
18.87
|
|
12/02/2023
|
|
|
|
|
|
|
12/01/2014
|
3,356
|
|
6,712
|
|
25.25
|
|
12/01/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M.W. Valente
|
|
|
|
|
|
|
3,597
|
|
100,716
|
|
13,062
|
|
365,736
|
|
|
06/01/2015
|
1,073
|
|
2,152
|
|
25.84
|
|
06/01/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P.F. Loughlin
|
|
|
|
|
|
|
12,725
|
|
356,300
|
|
16,729
|
|
468,412
|
|
|
12/01/2010
|
20,880
|
|
—
|
15.14
|
|
12/01/2020
|
|
|
|
|
|
|
12/01/2011
|
22,740
|
|
—
|
14.48
|
|
12/01/2021
|
|
|
|
|
|
|
12/03/2012
|
26,622
|
|
—
|
14.30
|
|
12/03/2022
|
|
|
|
|
|
|
12/02/2013
|
11,244
|
|
5,623
|
|
18.87
|
|
12/02/2023
|
|
|
|
|
|
|
12/01/2014
|
1,935
|
|
3,875
|
|
25.25
|
|
12/01/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E.C. Shober
|
|
|
|
|
|
|
4,842
|
|
135,576
|
|
9,110
|
|
255,080
|
|
|
12/02/2013
|
—
|
5,725
|
|
18.87
|
|
12/02/2023
|
|
|
|
|
|
|
12/01/2014
|
1,050
|
|
2,112
|
|
25.25
|
|
12/01/2024
|
|
|
|
|
|
|
|
(1)
|
Grant dates for all stock options are shown in the first column. All stock options become exercisable in three consecutive, equal annual installments on the first, second, and third anniversary of the grant date. Stock options are subject to special vesting rules upon certain terminations of employment and upon a change in control of Versum. See “—Potential Payments Upon Termination or Change in Control—Treatment of Long-Term Incentive Awards Upon Termination, Death or Disability, Retirement and Change in Control” starting on page 58.
|
|
|
(2)
|
This column reflects restricted stock units and earned performance shares granted in fiscal year 2014 that vested in fiscal 2016. All restricted stock units are subject to special vesting rules for involuntary terminations or upon a change in control. See “—Potential Payments Upon Termination or Change in Control—Treatment of Long-Term Incentive Awards Upon Termination, Death or Disability, Retirement and Change in Control” starting on page 58.
|
|
|
(i)
|
Fiscal year 2014 earned performance shares are as follows:
|
|
|
|
|
Officer
|
|
Number of Shares
(1)
|
G. Novo
|
|
12,659
|
G.G. Bitto
|
|
6,182
|
P. F. Loughlin
|
|
2,956
|
(1)
Represents the number of Versum performance shares as converted after the Separation.
|
|
|
(ii)
|
This column reflects a special recruiting grant of 965 restricted stock units granted to Mr. Valente on June 1, 2015. These units are forfeited upon termination of employment other than due to death or disability prior to vesting. Mr. Valente’s units will vest on June 1, 2019.
|
This column also reflects a special retention grant of 14,271 restricted stock units made to Mr. Bitto on February 1, 2013. These units vest on February 1, 2017. The retention grant is generally forfeitable upon termination of employment prior to vesting except for death or disability.
|
|
(iii)
|
This column also reflects four-year vesting restricted stock units granted to Messrs. Bitto, Valente, Loughlin and Shober as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Units
|
Date of Grant
|
|
Vesting Date
|
|
Bitto
|
|
Valente
|
|
Loughlin
|
|
Shober
|
December 3, 2012
|
|
December 3, 2016
|
|
4,413
|
|
|
—
|
|
|
3,066
|
|
1,193
|
December 2, 2013
|
|
December 2, 2017
|
|
4,852
|
|
|
—
|
|
|
2,324
|
|
1,262
|
December 1, 2014
|
|
December 1, 2018
|
|
3,026
|
|
|
—
|
|
|
1,747
|
|
954
|
December 1, 2015
|
|
December 1, 2019
|
|
5,006
|
|
|
2,632
|
|
|
2,632
|
|
1,433
|
|
|
(iv)
|
This column excludes 1,300 Air Products restricted stock units held by Mr. Bitto and 7,497 Air Products restricted shares held by Mr. Novo that were not converted into Versum equity following the Separation.
|
|
|
(3)
|
These amounts are determined using the closing price of Versum common stock on October 3, 2016, the date our common stock began “regular way” trading on the NYSE after the Separation, of $28.00.
|
|
|
(4)
|
This column reflects performance shares that were originally granted in fiscal years 2015 and 2016. These shares are conditioned upon performance during three-year cycles ending on September 30, 2017 and September 30, 2018, respectively. These awards will earn out and be paid following the end of the relevant performance period as indicated in the chart below. The values and numbers of shares for the awards are shown at the maximum payout level of 215% of target since the Versum Committee has not yet determined the performance metrics of the converted 2015 and 2016 performance awards.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of Performance Period
|
|
|
Named Executive Officer
|
|
09/30/2017
|
|
09/30/2018
|
|
Total
|
G. Novo
|
|
39,812
|
|
|
44,991
|
|
|
84,803
|
|
G.G. Bitto
|
|
14,298
|
|
|
16,151
|
|
|
30,449
|
|
M.W. Valente
|
|
4,580
|
|
|
8,482
|
|
|
13,062
|
|
P. F. Loughlin
|
|
8,247
|
|
|
8,482
|
|
|
16,729
|
|
E.C. Shober
|
|
4,494
|
|
|
4,616
|
|
|
9,110
|
|
2016 OPTION EXERCISES AND STOCK VESTED
The following table provides information regarding Air Products options exercised and stock vested during fiscal 2016 for our NEOs. These equity awards were settled in shares of Air Products prior to the Separation and reflect pre-conversion amounts.
|
|
|
|
|
|
|
|
|
|
|
|
Officer
|
|
Option Awards
|
|
Stock Awards
|
|
Number of Shares Acquired on Exercise
(#)
|
Value Realized on Exercise
(1)
($)
|
|
Number of Shares Acquired on Vesting
(2)
(#)
|
Value Realized On Vesting
(3)
($)
|
G. Novo
|
|
25,983
|
|
1,744,759
|
|
|
3,067
|
|
444,412
|
|
G.G. Bitto
|
|
46,499
|
|
3,182,021
|
|
|
1,258
|
|
172,500
|
|
M.W. Valente
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
P. F. Loughlin
|
|
15,925
|
|
1,162,808
|
|
|
822
|
|
112,669
|
|
E.C. Shober
|
|
14,755
|
|
970,142
|
|
|
167
|
|
23,046
|
|
|
|
(1)
|
This column represents the difference between the base (or exercise) price of the Air Products option shares and the market price of the Air Products option shares at exercise. The value realized on exercise does not make any adjustment for those shares forfeited by the option holder in order to pay (a) the exercise price and (b) the amount of withholding tax due from the option holder upon exercise, pursuant to the “cashless” exercise provisions of the plan under which each stock option was granted.
|
|
|
(2)
|
The shares in this column include restricted stock units granted to Mr. Novo in fiscal 2013 which vested in September 2016, restricted stock units granted to Messrs. Bitto, Loughlin and Shober in fiscal 2012 that vested in December 2015, and performance shares granted to Messrs. Novo, Bitto and Loughlin in fiscal 2013 that vested in December 2015.
|
|
|
(3)
|
The following dividend equivalents were paid on the performance share awards and the restricted stock units, but are not included in the value realized:
|
|
|
|
|
|
Named Executive Officer
|
|
Dividend Equivalents Paid ($)
|
G. Novo
|
|
28,461
|
|
G.G. Bitto
|
|
13,217
|
|
M.W. Valente
|
|
—
|
|
P. F. Loughlin
|
|
8,585
|
|
E.C. Shober
|
|
1,919
|
|
2016 PENSION BENEFITS
The following table provides information regarding the present value of accumulated pension benefits payable to our NEOs under Air Products pension plans.
|
|
|
|
|
|
|
|
|
|
Officer
|
|
Plan Name
|
|
Number of Years Credited Service (#)
|
|
Present Value of Accumulated Benefit ($)
|
|
Payments During Last Fiscal Year ($)
|
|
|
|
|
|
|
|
|
|
G.G. Bitto
|
|
Air Products and Chemicals, Inc. Pension Plan for Salaried Employees
|
|
29.46
|
|
1,451,972
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Air Products and Chemicals, Inc. Supplementary Pension Plan
|
|
29.46
|
|
1,605,224
|
|
—
|
|
|
|
|
|
|
|
|
|
P. F. Loughlin
|
|
Air Products and Chemicals, Inc. Pension Plan for Salaried Employees
|
|
27.91
|
|
1,259,157
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Air Products and Chemicals, Inc. Supplementary Pension Plan
|
|
27.91
|
|
835,762
|
|
—
|
|
|
|
|
|
|
|
|
|
E.C. Shober
|
|
Air Products and Chemicals, Inc. Pension Plan for Salaried Employees
|
|
22.55
|
|
907,454
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Air Products and Chemicals, Inc. Supplementary Pension Plan
|
|
22.55
|
|
499,832
|
|
—
|
The table above illustrates the actuarial present value of accrued pension benefits for the participating Versum NEOs under Air Products’ defined benefit plans as of September 30, 2016. In connection with the Separation, Air Products retained liability for these plans. Mr. Novo and Mr. Valente are not included in the table above because they are not participants in these Air Products plans. All of our NEOs are eligible to participate in Versum plans. See “—
Versum Compensation Program for Executive Officers After the Separatio
n—Employee Benefit Plans and Other Compensation Practices and Policies” on pages 33 and 34.
Actuarial present values are complex calculations that rely on many assumptions. The amounts shown above have been calculated generally using the same assumptions used in determining the pension cost recognized in Air Products’ financial statements which are described in Air Products’ Form 10-K filed with the SEC on November 21, 2016 in Footnote 16, “Retirement Benefits”, to the consolidated financial statements and under “Critical Accounting Policies” in the Management Discussion and Analysis. However, in accordance with SEC requirements, these values are calculated assuming payment begins the earliest date the NEO can receive an unreduced early retirement benefit. Actual fiscal 2016 annual cash incentive awards were used in the calculation; whereas the value in the financial statements is based on estimated annual cash incentive awards.
The Air Products Pension Plan for Salaried Employees (“Salaried Pension Plan”) is a funded, tax qualified defined benefit plan funded entirely by Air Products. All U.S. salaried employees hired before October 1, 2004 were eligible to participate; however, participants as of January 1, 2005 were given the opportunity to make a one-time election to prospectively receive their primary retirement benefit under Air Products’ qualified defined contribution plan, the Retirement Savings Plan. Mr. Novo and Mr. Valente were not eligible for this Plan. Benefits under the Plan are paid after retirement in the form of a monthly annuity. Participants were able to select from monthly payments for their lifetime or smaller monthly payments for their life and the life of a beneficiary.
The amount of the benefit under the Salaried Pension Plan is based on the following formula:
|
|
1.184% x Years of Service (not to exceed 35) x Average Monthly Compensation (Up to the Average Social Security Maximum Taxable Wage Base)
|
|
Plus
|
|
1.5% x Years of Service (not to exceed 35) x Average Monthly Compensation (In excess of the Average Social Security Maximum Taxable Wage Base)
|
|
Plus
|
|
1.5% x Years of Service (in excess of 35) x Average Monthly Compensation
|
“Average Monthly Compensation” is the average monthly compensation for the 36 months (or 3 years) during which the participant’s compensation was the highest during the ten years preceding retirement; generally this is the participant’s average base salary for the three years preceding retirement. The “Average Social Security Maximum Taxable Wage Base” is the average of the U.S. Social Security Wage Bases over a 35-year period.
Benefits under the Salaried Pension Plan become vested after a participant has completed five years of service. The Normal Retirement Age under the Salaried Pension Plan is age 65. A participant with at least five years of service may retire after attaining age 55 and receive a benefit reduced by 3% per year for the number of years prior to their attaining age 62. Participants who were age 50 on or before January 1, 2005 are eligible for early retirement at age 55 with no reduction in benefit if the sum of their age and credited service under the Plan equals 80 or more at the time of retirement. Participants who had not attained age 50 on January 1, 2005 may receive the portion of their benefit accrued on that date unreduced upon retirement at age 55 or later if the sum of their age and credited service under the Plan equals 80 or more at the time of retirement.
Under U.S. federal tax laws, benefits payable under the Salaried Pension Plan, and compensation which can be considered in calculating the benefits, are limited. The Supplementary Pension Plan of Air Products and Chemicals, Inc. (“Supplementary Plan”) is a nonqualified, unfunded pension plan that provides benefits that cannot be provided under the Salaried Pension Plan due to these limits. Benefits under the Supplementary Plan are calculated using the same formula as the Salaried Pension Plan, but there is no limit on the amount of base salary that can be covered by the pension formula, and Average Monthly Compensation under the Supplementary Plan also includes Air Products Annual Incentive Plan awards.
Supplementary Plan benefits are subject to the same vesting and early retirement terms as the Salaried Pension Plan. Supplementary Plan benefits are generally payable following retirement in one of the annuity forms available under the Salaried Pension Plan or, at the election of the participant, in a lump sum. In the case of executive officers and certain other executives, distribution of benefits under the Supplementary Plan, whether in annuity or lump sum form, is delayed for six months after termination of employment to comply with U.S. federal tax laws.
2016 NONQUALIFIED DEFERRED COMPENSATION
The following table provides information as of September 30, 2016 for our NEOs who participated in the Air Products’ nonqualified Deferred Compensation Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Executive Contributions in Last FY
(1)
($)
|
|
Registrant Contributions in Last FY
(2)
($)
|
|
Aggregate Earnings in Last FY
(3)
($)
|
|
Aggregate Withdrawals/ Distributions
($)
|
|
Aggregate Balance at Last FYE
(4)
($)
|
G. Novo
|
|
30,404
|
|
48,666
|
|
17,155
|
|
—
|
|
|
465,522
|
G.G. Bitto
|
|
50,899
|
|
9,544
|
|
30,538
|
|
—
|
|
|
790,496
|
M.W. Valente
|
|
12,692
|
|
6,923
|
|
837
|
|
—
|
|
|
30,194
|
P. F. Loughlin
|
|
245,164
|
|
5,037
|
|
53,524
|
|
—
|
|
|
811,538
|
E.C. Shober
|
|
12,318
|
|
3,079
|
|
1,017
|
|
—
|
|
|
31,987
|
|
|
(1)
|
All amounts reported in this column were voluntary deferrals of base salary or Air Products Annual Incentive Plan awards by the executive officers under the Air Products nonqualified Deferred Compensation Plan. These amounts are also reported in the Summary Compensation Table.
|
|
|
(2)
|
Amounts reported in this column are matching credits based on each officer’s voluntary deferrals of base salary. In the case of Mr. Novo and Mr. Valente, a contribution credit of a percentage of their base salaries in excess of tax law limits on Retirement Savings Plan contributions and their Air Products Annual Incentive Plan awards is also included because they received their primary retirement benefit under Air Products’ defined contribution plans rather than the pension plans. The percentage is based on years of service and for fiscal 2016 was 4% in the case of Mr. Novo and Mr. Valente. These amounts are also reported in the Summary Compensation Table.
|
|
|
(3)
|
The following portion of Aggregate Earnings has been reported as compensation in the 2016 Summary Compensation Table:
|
|
|
|
|
Officer
|
|
Amount Reported in 2016 Summary Compensation Table
|
G. Novo
|
|
$5,174
|
G.G. Bitto
|
|
$9,112
|
M.W. Valente
|
|
$215
|
P.F. Loughlin
|
|
$8,747
|
E.C. Shober
|
|
$306
|
|
|
(4)
|
The following portion of Aggregate Balance at Last FYE has been reported as compensation for prior years:
|
|
|
|
|
Officer
|
|
Amount Previously Reported
|
G. Novo
|
|
$150,841
|
G.G. Bitto
|
|
$66,363
|
M.W. Valente
|
|
$9,706
|
P.F. Loughlin
|
|
$93,795
|
E.C. Shober
|
|
$0
|
Air Products provided its U.S.-based salaried employees, including the Versum NEOs, the opportunity to participate in its tax qualified Retirement Savings Plan (the “Air Products RSP”) through the date of the Separation. Currently, U.S. tax laws limit the amounts that may be contributed to tax-qualified savings plans and the amount of compensation that can be taken into account in computing benefits under the Air Products RSP. The nonqualified Deferred Compensation Plan is intended to make up, out of general assets of Air Products, an amount substantially equal to the benefits an employee did not
receive under the Air Products RSP due to these limits. The Versum NEOs were eligible to participate in the Deferred Compensation Plan through December 31, 2016. Participants could elect to defer up to 16 percent of base salary on a before-tax basis (offset by amounts deferred under the Air Products RSP). The Deferred Compensation Plan provided a matching credit in the same amounts as matching contributions under the Air Products RSP (
i.e.
75 percent of the first three percent of base salary deferred by participants and 25 percent of the next three percent of base salary deferred). In addition to base salary, participants could also elect to defer the Air Products Annual Incentive Plan awards. No matching credit was provided for these deferrals.
For employees who received their primary retirement benefit under Air Products’ defined contribution plans rather than the pension plans, including Mr. Novo and Mr. Valente, the Air Products RSP provided an enhanced matching contribution of 75% of elective deferrals up to 4% of base salary and 50% of elective deferrals of an additional 2% of base salary; and a defined contribution primary retirement benefit contribution of 4 to 6% of base salary, depending on years of service. The Air Products Deferred Compensation Plan provided a comparable matching credit and primary retirement benefit credit for base salary to the extent not covered under the Air Products RSP due to tax law limits, and a primary retirement benefit credit of 4 to 6% for Air Products Annual Incentive Plan awards. The primary retirement contributions and credits vested ratably over the participant’s first five years of service for Air Products.
Participants could have elected to have their Air Products Deferred Compensation Plan balances earn interest at a corporate bond rate or be deemed to be invested in Air Products stock, and earn dividend equivalents and market appreciation on the stock. If a participant chose the Air Products stock alternative, his account balance would be distributed in shares of Air Products stock, except for dividend equivalents.
Participants could have elected to receive payments of their Air Products Deferred Compensation Plan balances in one to ten annual installments following termination from service. Executive officers and certain other executives could not commence distribution until six months following termination to comply with tax laws.
As discussed above, we have adopted the Versum DCP, which became effective January 1, 2017. The purpose of the DCP is to provide certain management and highly compensated employees with the opportunity to defer, annually, the receipt of a portion of their cash compensation as a way of supplementing the retirement benefits provided under the Versum Materials Retirement Savings Plan (see “—
Versum Compensation Program for Executive Officers After the Separatio
n—Employee Benefit Plans and Other Compensation Practices and Policies—Retirement Benefits” on page 33). Accounts of Versum participants in the Air Products Deferred Compensation Plan were not transferred to the Versum DCP at the Separation, and any outstanding plan balances remain with Air Products.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Each of our NEOs was an employee of Air Products throughout the 2016 fiscal year until the Separation on October 1, 2016. In order to provide more meaningful disclosure to Versum stockholders, the information set forth in this section describes potential payments and benefits upon certain termination or change in control situations under existing, post-Separation agreements and plans assuming the termination or change in control occurred on October 1, 2016, the date of the Separation and one day after the end of our fiscal year.
Termination Provisions in Employment Agreements
Termination for cause or without good reason
If the employment of a Versum NEO is terminated by the Company for cause or by the executive without good reason, the executive will be entitled to receive the following:
|
|
•
|
accrued but unpaid base salary; and
|
|
|
•
|
earned but unpaid prior year annual bonus.
|
Termination prior to a change in control without cause or for good reason
If prior to a change in control, the employment of a Versum NEO is terminated by the Company without cause or, in the case of each of Messrs. Novo, Bitto and Valente, by the executive with good reason, subject to signing a release of liability in favor of the Company, the executive will be entitled to receive the following:
|
|
•
|
accrued but yet unpaid base salary;
|
|
|
•
|
earned but yet unpaid prior year annual bonus;
|
|
|
•
|
a lump sum pro rata portion based on actual performance of any annual bonus for the fiscal year in which the termination occurs;
|
|
|
•
|
healthcare benefits under COBRA for 12 months or until the executive’s COBRA eligibility ceases;
|
|
|
•
|
$20,000 for Messrs. Novo, Bitto and Valente, and $10,000 for Messrs. Loughlin and Shober, for outplacement services;
|
|
|
•
|
an amount equal to the Company’s matching and non-elective contributions to its qualified and non-qualified plans based on the executive’s most recent deferral elections and salary, respectively, at the end of the 12th month following such termination; and
|
|
|
•
|
monthly payments over 24 months, in the case of each of for Messrs. Novo, Bitto and Valente, or 12 months, in the case of each of Messrs. Loughlin and Shober, equal to the sum of (x) the executive’s monthly base salary and (y) 1/12th of the executive’s average annual bonus over the last three full fiscal years.
|
Termination following a change in control without cause or for good reason
If following a change in control the employment of a Versum NEO is terminated by the Company without cause or, in the case of each of Messrs. Novo, Bitto and Valente, by the executive with good reason, and subject in all cases to the executive signing a release of liability in favor of the Company, the executive will be entitled to receive the following:
|
|
•
|
accrued but unpaid base salary;
|
|
|
•
|
earned but unpaid prior year annual bonus;
|
|
|
•
|
a lump sum pro rata portion based upon actual performance of any annual bonus for the fiscal year in which the termination occurs;
|
|
|
•
|
a lump sum payment equal to the sum of (x) the executive’s monthly base salary at termination and (y) 1/12th of the executive’s average annual bonus over the last three full fiscal years multiplied by 36 for Mr. Novo, by 24 for the Messrs. Bitto and Valente, and by 12 for Messrs. Loughlin and Shober;
|
|
|
•
|
healthcare benefits under COBRA for 12 months or until the executive’s COBRA eligibility ceases;
|
|
|
•
|
$20,000 for Messrs. Novo, Bitto and Valente, and $10,000 for Messrs. Loughlin and Shober, for outplacement services; and
|
|
|
•
|
an amount equal to the Company’s matching and non-elective contributions to its qualified and non-qualified plans based on the executive’s most recent deferral elections and salary, respectively, at the end of the 12th month following such termination.
|
Death or Disability
In the event the employment of a Versum NEO is terminated due to death or disability, the executive will be entitled to receive:
|
|
•
|
accrued but yet unpaid base salary;
|
|
|
•
|
earned but yet unpaid prior year annual bonus; and
|
|
|
•
|
a lump sum pro rata portion based on actual performance of any annual bonus for the fiscal year in which the termination occurs.
|
Definitions
For purposes of each of the Employment Agreements, the following definitions apply.
A “change in control” means the earliest date at which:
(1)
any Person (which term shall mean any individual, corporation, partnership, group, association or other “person,” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, other than the Company or any employee benefit plans sponsored by the Company) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under such Act), directly or indirectly, of securities of the Company representing 50.1% or more of the combined voting power of the Company’s outstanding Voting Securities (which term shall mean securities which under ordinary circumstances are entitled to vote for the election of directors) other than through the purchase of Voting Securities directly from the Company through a private placement;
(2)
individuals who constitute the Board on the date hereof (the “Incumbent Board”) cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors comprising the Incumbent Board shall from and after such election be deemed to be a member of the Incumbent Board;
(3)
a merger or consolidation involving the Company or its stock or an acquisition by the Company, directly or indirectly or through one or more subsidiaries, of another entity or its stock or assets in exchange for the stock of the Company is consummated, unless, immediately following such transaction, 50.1% or more of the then outstanding Voting Securities of the surviving or resulting corporation or entity will be (or is) then beneficially owned, directly or indirectly, by the individuals and entities who were the beneficial owners of the Company’s outstanding Voting Securities immediately
prior to such transaction (treating, for purposes of determining whether the 50.1% continuity test is met, any ownership of the Voting Securities of the surviving or resulting corporation or entity that results from a stockholder’s ownership of the stock of, or other ownership interest in, the corporation or other entity with which the Company is merged or consolidated as not owned by persons who were beneficial owners of the Company’s outstanding Voting Securities immediately prior to the transaction); or
(4)
all or substantially all of the assets of the Company are sold or transferred to a Person as to which (A) the Incumbent Board does not have authority (whether by law or contract) to directly control the use or further disposition of such assets and (B) the financial results of the Company and such Person are not consolidated for financial reporting purposes.
“Cause” means:
(1)
the executive’s willful and continued failure to substantially perform the executive’s duties (other than any such failure resulting from incapacity due to physical or mental illness), after written notice from the Company requesting such substantial performance is delivered, which notice identifies in reasonable detail the manner in which the Company believes the executive has not substantially performed the executive’s duties and provides 30 days in which to cure such failure;
(2)
any act of fraud, embezzlement or theft on the executive’s part against the Company or its affiliates;
(3)
a conviction (or plea of nolo contendere) of a felony or any crime involving moral turpitude;
(4)
a breach of a material element of our code of conduct; or
(5)
any material breach of the executive’s obligations under the Employment Agreement, which, to the extent curable, has not been cured to the reasonable satisfaction of the Board within 30 days after the executive has been provided written notice of such breach.
“Good Reason” means:
(1)
a material reduction in the executive’s duties or responsibilities;
(2)
a material reduction in the executive’s base salary or target bonus opportunity;
(3)
a material breach by the Company of the Employment Agreement; or
(4)
a change of the Company’s headquarters or of the executive’s principal place of employment of more than 50 miles from Tempe, Arizona; provided, however, that such event will not constitute Good Reason unless the executive has provided the Company notice of the existence of a Good Reason condition no more than 60 days after its initial existence and the Company has failed to remedy the condition within 30 days after such notice.
Treatment of Long-Term Incentive Awards Upon Termination, Death or Disability, Retirement and Change in Control
Voluntary Termination or Termination for Cause
The terms and conditions of long-term incentive awards granted to Versum NEOs under Air Products’ Long-Term Incentive Plan, other than for restricted stock which was not converted, generally continue unchanged. The outstanding Air Products awards converted to Versum equity awards, along with the Founders RSUs and the annual award of PSUs and MSUs, will generally be forfeited upon a voluntary termination or upon any termination by the Company for cause, including all unexercisable stock options, all restricted stock units and all performance shares, whether or not earned. Exercisable stock options would continue to be exercisable for 90 days following termination and then, if unexercised, would be forfeited.
Involuntary Termination Without Cause
Upon involuntary termination or termination without cause of a Versum NEO:
|
|
•
|
Exercisable stock options remain exercisable for 180 days. Non-exercisable options are forfeited.
|
|
|
•
|
A pro rata portion of performance shares, including the annual grant PSUs and MSUs, vest based on actual performance and are paid on the original vesting date.
|
|
|
•
|
Restricted stock units granted in fiscal year 2015 or later are retained and paid out at the original vesting date.
|
|
|
•
|
Restricted stock units granted before fiscal year 2015 are paid out in full immediately without dividend equivalents.
|
|
|
•
|
Founders RSUs are forfeited if the termination is prior to October 1, 2017; otherwise a pro rata portion of Founders RSUs vest for the year of termination and are paid out on the next original vesting date.
|
Death or Disability
Upon termination due to death or disability of a Versum NEO:
|
|
•
|
Stock options continue to vest and become exercisable on the original vesting date.
|
|
|
•
|
Restricted stock and Founders RSUs immediately vest.
|
|
|
•
|
Restricted stock units and dividend equivalents are paid out immediately in the event of death, and on the original vesting date in the event of disability.
|
|
|
•
|
A pro rata portion of performance shares and annual grant PSUs and MSUs vest based on actual performance and are paid on the original vesting date.
|
Retirement
Upon retirement (as further described below), a retirement-eligible Versum NEO (i.e. having attained the age of 55 for Air Products plans and 62 for Versum plans and having satisfied a combined Air Products and Versum five-year service requirement) would receive the following treatment of their outstanding long-term incentive awards:
|
|
•
|
All outstanding stock options continue to become exercisable in accordance with the normal schedule as if the participant remained employed, and will be exercisable for the normal term.
|
|
|
•
|
Four year vesting restricted stock units continue to vest per their original terms (as if the employee remained an active employee) and are paid at the end of the four-year period.
|
|
|
•
|
Career-vesting restricted stock units and all dividend equivalents thereon would vest and be paid six months after retirement. Career-vesting restricted stock units comprise several types of awards granted that vest upon death, disability, or retirement.
|
|
|
•
|
All performance shares and dividend equivalents thereon would be paid on the normal schedule (except career-vesting performance shares). A pro-rata portion of performance shares based on actual performance and associated dividend equivalents would be paid in accordance with the normal schedule and at the normal payout level if performance thresholds are met.
|
|
|
•
|
A pro rata portion of annual grant PSUs and MSUs vest based on actual performance and are paid on the original vesting date.
|
|
|
•
|
Founders RSUs are forfeited if the termination is prior to October 1, 2017; otherwise a pro rata portion of Founders RSUs vest for the year of termination and are paid out on the next original vesting date.
|
Change in Control
Converted Awards Granted Prior to Fiscal 2015
For outstanding Air Products awards converted to Versum awards, the terms provide certain change in control protections for any outstanding awards granted prior to October 1, 2014. Specifically, upon a change in control (as defined by the Plan):
|
|
•
|
All outstanding stock options become exercisable and remain exercisable for their full term on the earlier of the change in control or six months after the grant date.
|
|
|
•
|
Restrictions lapse on all restricted stock.
|
|
|
•
|
All forms of restricted stock units, except unearned performance shares and related dividend equivalents, will fully vest and be paid immediately. A pro-rata portion of unearned performance shares and related dividend equivalents will be paid out in shares at the target performance level.
|
The Versum Committee, in its discretion, may pay out the value of stock options, restricted stock, and restricted stock units in cash.
Converted Awards Granted During or After Fiscal 2015
For awards granted on or after October 1, 2014, the awards provide for “double trigger” vesting upon a change in control of Versum instead of automatic vesting on an accelerated basis upon a change in control (“single trigger vesting”). These awards will not automatically vest on an accelerated basis as a result of a change in control if they are replaced by the surviving entity. For the double trigger provisions to apply, the replacement awards must be issued by a publicly listed company and preserve the value of, and be on terms as favorable as the existing award; performance conditioned awards must be replaced by time based vesting awards; and the replacement awards must provide that if the participant is terminated without Cause or voluntarily terminates for Good Reason within 24 months following the change in control, the award will vest immediately upon termination. The amendments also provide that, pursuant to an agreement associated with a change in control or in the discretion of the Versum board of directors or an appropriate committee thereof, awards may be settled for cash at the change in control price.
Accrued benefits under the Air Products nonqualified pension plan and Air Products deferred compensation plan would be paid out upon a change in control by Air Products, and Air Products has established grantor trusts to pay benefits to our NEOs under these plans upon a change in control. The trusts are secured by an agreement to contribute Air Products stock and are to be funded upon a change in control.
Accrued benefits under the Versum Materials Deferred Compensation Plan, which became effective on January 1, 2017, would be paid out in a lump sum, subject to the requirements of Section 409A of the Internal Revenue Code, within 90 days of a change in control of Versum.
Long-Term Incentives - FY17 Annual Awards and Founders Awards
Versum equity awards provide for “double trigger” vesting upon a change in control of Versum instead of automatic vesting on an accelerated basis upon a change in control. Upon the occurrence of a change in control of the Company prior to the end of the Performance Period, unless otherwise determined by the Committee, each of the respective award units converts into the right to receive a cash payment equal to the sum of (a) the product of the number of award units that would vest based on performance through the end of a shortened Performance Period ending on the date of the change in control of the Company and the price per share paid in such change in control and (b) interest through the end of the original
Performance Period, with such payments to be made no later than 10 business days following the end of the original Performance Period; provided that executive remains employed with the Company or any successor through the end of the original Performance Period. Notwithstanding the foregoing, if executive’s employment is terminated without cause by the Company or a resignation by the executive for good reason (as defined in the respective award agreement), in each case, during the 24-month period following such change in control but prior to the end of the original Performance Period, the cash payment will be paid within 10 days of such termination.
Other Benefits
Upon retirement (i.e. having attained the age of 62 and satisfied a combined Air Products and Versum five-year service requirement), a Versum employee, including our NEOs, would be entitled to unpaid salary and accrued vacation, and to their vested benefits in the Versum Materials Retirement Savings Plan described under “—
Versum Compensation Program for Executive Officers After the Separatio
n—Employee Benefit Plans and Other Compensation Practices and Policies—Retirement Benefits” on page 33. Our executive officers and other eligible employees would be entitled to their vested benefits in the Versum Materials Deferred Compensation Plan described on page 33, and in the Air Products nonqualified Deferred Compensation Plan described under the “2016 Nonqualified Deferred Compensation” table on pages 54 to 55.
In addition, Messrs. Bitto, Loughlin and Shober would be entitled to their vested plan benefits under the Air Products Pension Plan for Salaried Employees and under the Air Products Supplementary Pension Plan, each as described under the “2016 Pension Benefits” table on pages 52 to 53, and to Air Products retiree medical benefits on the same terms as for all other salaried Air Products employees that meet the age and service conditions required by Air Products. The retirement age under the Air Products plans is 55. Messrs. Bitto, Loughlin, and Shober are currently eligible for retirement under the Air Products plans but not under the Versum plans.
Potential Payments upon Termination or Change in Control
The following table describes the potential payments and benefits that would have been payable to our NEOs assuming a termination of employment and/or a change in control occurred, in each case, on October 1, 2016, the date of the Separation and one day after our fiscal year end. In order to provide more meaningful disclosure to Versum stockholders, the information in this table reflects certain post-Separation compensation changes, including:
|
|
•
|
the increased base salaries of our NEOs and the target STIP awards established by our Compensation Committee after the Separation and as further described above on pages 29 and 30;
|
|
|
•
|
the current terms of the converted equity awards (which terms are substantially the same as the terms of the Air Products equity awards prior to the Separation), in the amounts set forth in the “Outstanding Equity Awards at Fiscal Year-End” table;
|
|
|
•
|
annual grants of MSUs and PSUs and one-time Founders RSUs awarded in fiscal 2017; and
|
|
|
•
|
the new termination and change in control provisions in the Employment Agreements we entered into with each our NEOs after the Separation discussed above.
|
Because the disclosures in the table assume the occurrence of a termination or change in control as of a particular date and under a particular set of circumstances and therefore make a number of important assumptions, the actual amount to be paid to each of our NEOs upon a termination or change in control may vary significantly from the amounts included herein. Factors that could affect these amounts include the timing during the year of any such event, the continued availability of benefit policies at similar prices and the type of termination event that occurs. Distributions of any plan balances that would be made upon retirement, if applicable, are set forth in the “2016 Pension Benefits” and “2016 Nonqualified Deferred Compensation” tables on pages 52 and 54, respectively, and are not reflected in the following table.
Potential Payments upon Termination or Change in Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air Products Long-Term Incentive Plan
|
|
Versum Long-Term
Incentive Plan
|
Named Executive Officer
|
Severance Benefit
($)
|
Pro-rata Bonus
($)
|
Benefits
(1)
($)
|
|
Stock Options
(2)
($)
|
Restricted Stock
($)
|
Restricted Stock Units
(3)
($)
|
Performance Shares
(4)
($)
|
|
Founders RSUs
($)
|
Annual Grant PSUs and MSUs ($)
|
G. Novo
|
|
|
|
|
|
|
|
|
|
|
|
Termination Without Cause Prior to a Change in Control
|
3,625,000
|
790,600
|
42,222
|
|
-
|
628,327
|
-
|
930,299
|
|
-
|
-
|
Termination For Good Reason Prior to a Change in Control
|
3,625,000
|
790,600
|
42,222
|
|
-
|
-
|
-
|
-
|
|
-
|
-
|
Termination Without Cause Following a Change in Control
|
5,539,000
|
790,600
|
42,222
|
|
271,429
|
1,127,099
|
-
|
1,506,121
|
|
4,098,416
|
2,238,684
|
Termination For Good Reason Following a Change in Control
|
5,539,000
|
790,600
|
42,222
|
|
271,429
|
1,127,099
|
-
|
1,506,121
|
|
4,098,416
|
2,238,684
|
Change in Control
(5)
|
-
|
-
|
-
|
|
219,987
|
538,067
|
-
|
373,856
|
|
-
|
-
|
Termination Upon Death or Disability
|
-
|
790,600
|
-
|
|
271,429
|
628,327
|
-
|
930,299
|
|
4,098,416
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
G.G. Bitto
|
|
|
|
|
|
|
|
|
|
|
|
Termination Without Cause Prior to a Change in Control
|
2,035,000
|
248,200
|
42,222
|
|
125,818
|
-
|
621,730
|
382,378
|
|
-
|
-
|
Termination For Good Reason Prior to a Change in Control
|
2,035,000
|
248,200
|
42,222
|
|
125,818
|
-
|
592,066
|
382,378
|
|
-
|
-
|
Termination Without Cause Following a Change in Control
|
2,035,000
|
248,200
|
42,222
|
|
125,818
|
-
|
1,161,243
|
382,378
|
|
1,336,440
|
730,296
|
Termination For Good Reason Following a Change in Control
|
2,035,000
|
248,200
|
42,222
|
|
125,818
|
-
|
931,090
|
382,378
|
|
1,336,440
|
730,296
|
Change in Control
(5)
|
-
|
-
|
-
|
|
107,360
|
-
|
931,090
|
182,573
|
|
-
|
-
|
Termination Upon Death or Disability
|
-
|
248,200
|
-
|
|
125,818
|
-
|
1,018,856
|
382,378
|
|
1,336,440
|
-
|
Retirement
(6)
|
-
|
248,200
|
-
|
|
125,818
|
-
|
592,066
|
382,378
|
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
M.W. Valente
|
|
|
|
|
|
|
|
|
|
|
|
Termination Without Cause Prior to a Change in Control
|
1,728,000
|
165,600
|
42,222
|
|
-
|
-
|
24,837
|
47,737
|
|
-
|
-
|
Termination For Good Reason Prior to a Change in Control
|
1,728,000
|
165,600
|
42,222
|
|
-
|
-
|
-
|
-
|
|
-
|
-
|
Termination Without Cause Following a Change in Control
|
1,728,000
|
165,600
|
42,222
|
|
6,966
|
-
|
24,837
|
47,737
|
|
1,336,440
|
535,528
|
Termination For Good Reason Following a Change in Control
|
1,728,000
|
165,600
|
42,222
|
|
6,966
|
-
|
24,837
|
47,737
|
|
1,336,440
|
535,528
|
Change in Control
(5)
|
-
|
-
|
-
|
|
-
|
-
|
-
|
-
|
|
-
|
-
|
Termination Upon Death or Disability
|
-
|
165,600
|
-
|
|
6,966
|
-
|
9,240
|
47,737
|
|
1,336,440
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
P. F. Loughlin
|
|
|
|
|
|
|
|
|
|
|
|
Termination Without Cause Prior to a Change in Control
|
530,000
|
169,500
|
32,222
|
|
61,994
|
-
|
226,937
|
198,865
|
|
-
|
-
|
Termination Without Cause Following a Change in Control
|
530,000
|
169,500
|
32,222
|
|
61,994
|
-
|
286,203
|
198,865
|
|
356,384
|
287,000
|
Change in Control
(5)
|
-
|
-
|
-
|
|
51,338
|
-
|
160,670
|
87,290
|
|
-
|
-
|
Termination Upon Death or Disability
|
-
|
169,500
|
-
|
|
61,994
|
-
|
211,340
|
198,865
|
|
356,384
|
-
|
Retirement
(6)
|
-
|
169,500
|
-
|
|
61,994
|
-
|
211,340
|
198,865
|
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
E.C. Shober
|
|
|
|
|
|
|
|
|
|
|
|
Termination Without Cause Prior to a Change in Control
|
553,500
|
160,100
|
32,222
|
|
58,077
|
-
|
109,243
|
54,066
|
|
-
|
-
|
Termination Without Cause Following a Change in Control
|
553,500
|
160,100
|
32,222
|
|
58,077
|
-
|
141,511
|
54,066
|
|
356,384
|
287,000
|
Change in Control
(5)
|
-
|
-
|
-
|
|
52,269
|
-
|
73,082
|
-
|
|
-
|
-
|
Termination Upon Death or Disability
|
-
|
160,100
|
-
|
|
58,077
|
-
|
100,752
|
54,066
|
|
356,384
|
-
|
Retirement
(6)
|
-
|
160,100
|
-
|
|
58,077
|
-
|
100,752
|
54,066
|
|
-
|
-
|
|
|
(1)
|
Includes the cost of COBRA payments for Versum’s medical and dental plans and the value of outplacement benefits pursuant to each NEO’s Employment Agreement.
|
|
|
(2)
|
Stock options are shown at their intrinsic value based on their spread value (the difference between the exercise price and closing price of Versum common stock on October 3, 2016). The amount does not include exercisable stock options which could be exercised on voluntary termination.
|
|
|
(3)
|
These amounts reflect the value of time-based restricted stock units such as four-year restricted stock units and recruiting and retention grants, and dividend equivalents thereon.
|
|
|
(4)
|
Annual payouts are shown for performance shares granted in fiscal 2014. Unearned performance shares are reflected at the target payout level. Amounts include accumulated dividend equivalents.
|
|
|
(5)
|
This row shows the estimated value of long-term incentive awards (other than fiscal year 2015 and 2016 awards) that would have automatically vested upon a change in control occurring on October 1, 2016, whether or not the executive officer was terminated. These acceleration provisions apply to all Long-Term Incentive Plan participants. For Mr. Novo, most of the amounts shown would become vested or payable if his active employment continued without a change in control, but payment, lapse of restrictions, or exercisability would be accelerated upon a change in control. Fiscal 2015 awards and fiscal 2016 awards, which are also included in the table above, would not automatically vest upon change in control if they were replaced by comparable awards, but would vest if the Versum NEO was terminated within 2 years of the change in control.
|
|
|
(6)
|
Messrs. Bitto, Loughlin and Shober are retirement eligible on September 30, 2016, under the Air Products plan and award terms.
|
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of September 30, 2016 with respect to our compensation plan under which our equity securities are authorized for issuance:
|
|
|
|
|
|
|
|
|
|
|
|
Plan Category
|
|
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
|
|
Weighted average exercise
price of outstanding
options, warrants and
rights
(b)
|
|
Number of securities
remaining available
for future issuance
under the equity
compensation plan
(excluding securities
reflected in column (a))
(c)
|
|
Equity compensation plan approved by stockholders
|
|
—
|
|
|
—
|
|
|
5,000,000
|
|
(1)
|
Equity compensation plan not approved by stockholders
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
|
—
|
|
|
—
|
|
|
5,000,000
|
|
|
|
|
(1)
|
5,000,000 shares are available for issuance under the Versum Materials, Inc. Long-Term Incentive Plan, which became effective on September 30, 2016. In connection with the Separation on October 1, 2016, Air Products equity awards were generally converted into Versum equity awards and accounted for up to 982,046 shares issued under the Versum Materials, Inc. Long-Term Incentive Plan. See “Executive Compensation –Treatment of Outstanding Equity Awards at the Time of Separation” on pages 41 and 42. Therefore, as of October 1, 2016, there were 4,017,954 shares remaining available for issuance under the Plan.
|
STOCK OWNERSHIP
The following tables and accompanying footnotes show information as of January 17, 2017, regarding the beneficial ownership of our common stock by:
|
|
•
|
each person who is known by us to beneficially own more than 5% of our common stock;
|
|
|
•
|
each of our directors and named executive officers; and
|
|
|
•
|
all of our directors and executive officers as a group.
|
For our executive officers and directors, also shown are shares over which the named person could have acquired voting power or investment power within 60 days after January 17, 2017. Voting power includes the power to direct the voting of shares held, and investment power includes the power to direct the disposition of shares held. Each of our executive officers and directors listed below has sole voting and investment power over the shares of common stock reflected in the table, and their address is c/o Versum Materials, Inc., 8555 South River Parkway, Tempe, Arizona 85284.
Security Ownership of Certain Beneficial Owners
|
|
|
|
|
Name of Beneficial Owner
|
Shares of Common Stock Beneficially Owned (#)
|
Percent of Common Stock Outstanding
|
Pershing Square Capital Management, L.P.
(1)
|
8,486,538
|
|
7.8%
|
State Farm Mutual Automobile Insurance Company
(2)
|
7,742,855
|
|
7.1%
|
The Vanguard Group
(3)
|
6,460,878
|
|
5.9%
|
BlackRock, Inc.
(4)
|
5,625,205
|
|
5.2%
|
G.G. Bitto
(5)(6)
|
70,134
|
|
*
|
J. Croisetière
|
4,000
|
|
*
|
S. Ghasemi
|
177,466
|
|
*
|
P. F. Loughlin
(5)
|
95,157
|
|
*
|
G. Novo
(5)
|
150,951
|
|
*
|
Y. H. Paik
|
—
|
|
*
|
T. J Riordan
|
—
|
|
*
|
S. C. Schnabel
|
—
|
|
*
|
E. C. Shober
(5)
|
8,864
|
|
*
|
M. W. Valente
(5)
|
1,218
|
|
*
|
A. D. Wolff
|
—
|
|
*
|
Directors and executive officers as a group (14 persons)
|
542,457
|
|
*
|
|
|
*
|
Represents less than 1%
|
|
|
(1)
|
Based on information set forth in Amendment No. 3 to Schedule 13D filed with the SEC jointly by Pershing Square Capital Management L.P.; PS Management GP, LLC; Pershing Square GP, LLC; PS V GP LLC; and William A. Ackman (together, “Pershing Square”) on September 13, 2016 relating to Air Products common stock as of September 12, 2016, prior to the Separation, and reporting the beneficial ownership of shared power to vote or direct the vote and to dispose or direct the disposition of 1,973,076 shares of Air Products common stock. This amount includes 4,025,140 shares of Air Products common stock and 12,947,936 shares of Air Products common stock underlying over-the-counter American style call options. The address of Pershing Square is 888 Seventh Avenue, 42nd Floor, New York, NY 10019.
|
|
|
(2)
|
Based on information set forth in the Schedule 13G filed with the SEC by State Farm Mutual Automobile Insurance Company (“State Farm”) on February 2, 2016 relating to Air Products common stock as of December 31, 2015, prior to
|
the Separation, and reporting sole voting and dispositive power over 15,393,100 shares and shared voting and dispositive power over 92,610 shares of Air Products common stock. The address of State Farm is One State Farm Plaza, Bloomington, IL 61710.
|
|
(3)
|
Based on information set forth in Amendment No. 4 to Schedule 13G filed with the SEC by The Vanguard Group (“Vanguard”) on February 10, 2016 relating to Air Products common stock as of December 31, 2015, prior to the Separation, reporting sole voting power over 368,907 shares, shared voting power over 20,800 shares, sole power to direct disposition of 12,530,069 shares, and shared power to direct disposition of 391,687 shares of Air Products common stock. The address of Vanguard is 100 Vanguard Boulevard, Malvern, PA 19355.
|
|
|
(4)
|
Based on information set forth in the Schedule 13G filed with the SEC by BlackRock, Inc. (“BlackRock”) on February 9, 2016 relating to Air Products common stock as of December 31, 2015, prior to the Separation, and reporting sole voting power over 9,340,826 shares and sole dispositive power over 11,250,410 shares of Air Products common stock. The address of BlackRock is 55 East 52
nd
Street, New York, NY 10055.
|
|
|
(5)
|
The number of shares beneficially owned includes shares of Versum common stock issuable upon exercise of options
|
that are currently exercisable, as follows: Mr. Bitto (41,987), Mr. Loughlin (90,979), Mr. Novo (137,920), Mr. Shober (7,830) and Mr. Valente (1,073).
|
|
(6)
|
The number of shares beneficially owned by Mr. Bitto includes 14,271 RSUs granted to Mr. Bitto that will vest within 60 days after January 17, 2017.
|
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, officers and beneficial owners of more than 10% of our common stock to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC. These parties are required by SEC rules to furnish us with copies of all Forms 3, 4 and 5, and amendments thereto, that they file with the SEC.
Based solely on our review of the copies of such forms and amendments thereto we have received, we believe that with respect to the fiscal year ended September 30, 2016, all of these parties complied with all applicable filing requirements, except that (i) Air Products and Messrs. Croisetière, Novo, Valente and Bitto each filed a late Form 3 on September 16, 2016 reporting beneficial ownership upon effectiveness of our Registration Statement on Form 10 on September 14, 2016 and (ii) each of Jeffrey John White, Edward C. Shober, Dr. John G. Langan, Patrick F. Loughlin, Jessica Feather-Bowman and Jeffrey Handleman inadvertently excluded shares held by each of them in our Retirement Savings Plan in their original Form 3s filed with the SEC on October 3, 2016, which were amended on October 17, 2016 to reflect such ownership.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Review and Approval of Transactions with Related Persons
Our Board has adopted a written statement of policy regarding transactions with related persons, which we refer to as our “related person policy.” Our related person policy requires that a “related person” (as defined as in paragraph (a) of Item 404 of Regulation S-K) must promptly disclose to our general counsel, or such other person designated by our Board, any “related person transaction” (defined as any transaction that is anticipated would be reportable by us under Item 404(a) of Regulation S-K in which we were or are to be a participant and the amount involved exceeds $120,000 and in which any related person had or will have a direct or indirect material interest) and all material facts with respect thereto. The general counsel, or such other person, will then promptly communicate that information to our Board. No related person transaction will be executed without the approval or ratification of our Board or a duly authorized committee of our Board. It is our policy that directors interested in a related person transaction will recuse themselves from any vote on a related person transaction in which they have an interest.
Agreements with Air Products
In connection with the Separation and Distribution, on September 29, 2016, we entered into a Separation Agreement and several other agreements with Air Products to effect the Separation and provide a framework for the allocation between us and Air Products of Air Products’ assets, employees, liabilities and obligations (including investments, property, employee benefits, and tax-related assets and liabilities) attributable to periods prior to, at and after the Separation and that govern certain relationships between Air Products and Versum after the Separation.
The Separation Agreement
The Separation Agreement sets forth, among other things, our agreements with Air Products regarding the principal actions taken in connection with the Separation. It also sets forth other agreements that govern certain aspects of our relationship with Air Products following the Separation.
Recapitalization; Contribution of Assets and Assumption of Liabilities
. The Separation Agreement identifies assets, contracts and liabilities transferred to or assumed by us or retained by Air Products as part of the internal reorganization transactions taken in connection with the Separation, and describes when and how these transfers, assumptions and assignments occur. The Separation Agreement provides for transfers of assets and assumptions of liabilities as allocated in connection with the Separation. The Separation Agreement also provides for the settlement or extinguishment of certain liabilities and other obligations between us and Air Products. In particular, pursuant to the terms and conditions of the Separation Agreement:
|
|
•
|
All of the assets, including the equity interests of our subsidiaries, assets reflected on our pro forma balance sheet and assets exclusively relating to our business, as well as certain additional assets, were retained by or transferred to us or one of our subsidiaries, subject to certain exceptions and except as may be set forth in one of the other agreements described below.
|
|
|
•
|
All of the liabilities (whether accrued, contingent or otherwise, and subject to certain exceptions) primarily related to, arising out of or resulting from our business were retained by or transferred to us or one of our subsidiaries, except as may be set forth in one of the other agreements described below.
|
|
|
•
|
Liabilities (whether accrued, contingent or otherwise) relating to environmental matters, including liabilities relating to remediation, hazardous substances and off-site liability arising from or related to our business, property or assets; and any such liabilities related to predecessor operations of Air Products’ Electronic Materials business, were retained by or transferred to us or one of our subsidiaries.
|
|
|
•
|
Liabilities (whether accrued, contingent or otherwise) relating to, arising out of or resulting from infringement, misappropriation or other violations of any intellectual property relating to the conduct of our business were retained by or transferred to us or one of our subsidiaries.
|
|
|
•
|
Liabilities (whether accrued, contingent or otherwise) relating to, arising out of or resulting from any form, registration statement, schedule or similar disclosure document filed or furnished with the SEC, to the extent the liability arising therefrom related to matters related to our business, were retained by or transferred to us or one of our subsidiaries.
|
|
|
•
|
We generally assumed all other liabilities (whether accrued, contingent or otherwise) relating to, arising out of or resulting from disclosure documents filed with or furnished to the SEC that are related to the Separation (including the Registration Statement on Form 10).
|
|
|
•
|
Except as expressly set forth in the Separation Agreement or any other agreements, each party is responsible for its own internal fees, costs and expenses incurred following the October 1, 2016 Distribution date, including any costs and expenses relating to such party’s disclosure documents filed following the Distribution date.
|
|
|
•
|
All assets and liabilities (whether accrued, contingent or otherwise) of Air Products’ remaining businesses were retained by or transferred to Air Products or one of its subsidiaries (other than us or one of our subsidiaries), except as set forth in one of the other agreements described below and except for other limited exceptions that resulted in us retaining or assuming certain other specified liabilities.
|
The allocation of liabilities with respect to taxes, except for payroll taxes and reporting and other tax matters expressly covered by the Employee Matters Agreement, is solely covered by the Tax Matters Agreement.
Except as may expressly be set forth in the Separation Agreement or any ancillary agreement, all assets were transferred on an “as is,” “where is” basis and the respective transferees bear the economic and legal risks that any conveyance will prove to be insufficient to vest in the transferee good title, free and clear of any security interest; that any necessary consents or governmental approvals are not obtained; and that any requirements of laws or judgments are not complied with. In general, neither we nor Air Products made any representations or warranties regarding any assets or liabilities transferred or assumed, any consents or approvals that may be required in connection with such transfers or assumptions, or any other matters.
Certain of the liabilities and obligations assumed by one party or for which one party has an indemnification obligation under the Separation Agreement and the other agreements relating to the Separation are the legal or contractual liabilities or obligations of another party. Each such party that continues to be subject to such legal or contractual liability or obligation relies on the applicable party that assumed the liability or obligation or the applicable party that undertook an indemnification obligation with respect to the liability or obligation, as applicable, under the Separation Agreement, to satisfy the performance and payment obligations or indemnification obligations with respect to such legal or contractual liability or obligation.
Further Assurances; Separation of Guarantees
. To the extent that any transfers of assets or assumptions of liabilities contemplated by the Separation Agreement have not been consummated on or prior to the Distribution date, the parties agreed to cooperate with each other to effect such transfers or assumptions while holding such assets or liabilities for the benefit of the appropriate party so that all the benefits and burdens relating to such asset or liability inure to the party entitled to receive or assume such asset or liability. Each party agreed to use commercially reasonable efforts to take or to cause to be taken all actions, and to do, or to cause to be done, all things reasonably necessary under applicable law or contractual obligations to consummate and make effective the transactions contemplated by the Separation Agreement and other transaction agreements. Additionally, we and Air Products agreed to use commercially reasonable efforts to remove us as a guarantor of liabilities (including surety bonds) retained by Air Products and its subsidiaries and to remove Air Products and its subsidiaries as a guarantor of liabilities (including surety bonds) assumed by us.
Shared Contracts
. Certain shared contracts were to be assigned or amended to facilitate the Separation of our business from Air Products. If such contracts were not assigned or amended, the parties are required to take reasonable actions to cause the appropriate party to receive the benefit of the contract after the Separation is complete.
Release of Claims; Indemnification
. Except as otherwise set forth in the Separation Agreement or any ancillary agreement, each party to the Separation Agreement agreed to assume the liability for, and, with limited exceptions, control of,
all pending, threatened and future legal matters related to its own business or its assumed or retained liabilities and to indemnify the other party for any liability arising out of or resulting from such legal matters. Each party to a claim agreed to cooperate in defending any claims against the other party for events that took place prior to, on or after the Distribution date.
The Separation Agreement provides for cross-indemnities that, except as otherwise provided in the Separation Agreement, are principally designed to place financial responsibility for the obligations and liabilities allocated to us under the Separation Agreement with us and financial responsibility for the obligations and liabilities allocated to Air Products under the Separation Agreement with Air Products. Specifically, each party has agreed to, with limited exceptions, indemnify, defend and hold harmless the other party, its affiliates and subsidiaries and each of its and their officers, directors, employees and agents for any losses arising out of or due to:
|
|
•
|
the liabilities or alleged liabilities each party assumed or retained pursuant to the Separation Agreement;
|
|
|
•
|
the operation of each such party’s business, whether prior to, at, or after the Distribution; and
|
|
|
•
|
any breach by us or Air Products of any provision of the Separation Agreement or any other agreement unless such other agreement expressly provides for separate indemnification therein.
|
Additionally, Versum has agreed to indemnify, defend and hold harmless Air Products, its affiliates and subsidiaries and each of its and their officers, directors, employees and agents for any losses arising out of or due to environmental sites associated with the former Electronics Materials business of Air Products. Each party’s aforementioned indemnification obligations are uncapped; provided that the amount of each party’s indemnification obligations are subject to reduction by any insurance proceeds (net of premium increases) received by the party being indemnified. The Separation Agreement also specifies procedures with respect to claims subject to indemnification and related matters. Indemnification with respect to taxes are governed by the Tax Matters Agreement.
Legal Matters
. Except as otherwise set forth in the Separation Agreement or any ancillary agreement (or as otherwise described above), each party to the Separation Agreement assumed the liability for, and, with limited exceptions, control of, all pending, threatened and future legal matters related to its own business or its assumed or retained liabilities and agreed to indemnify the other party for any liability arising out of or resulting from such legal matters. Each party to a claim agreed to cooperate in defending any claims against the other party for events that took place prior to, on or after the Distribution date.
Cash Distribution
. The Separation Agreement provided for our cash distribution to Air Products prior to the Distribution, which was funded primarily by third-party indebtedness we incurred prior to Distribution date. Accordingly, in September 2016 we distributed cash of $550 million and $425 million of 5.5% senior notes due 2024 to Air Products, which was consideration for the contribution of assets to us by Air Products in connection with the Separation. We did not receive any cash proceeds from the issuance of the Notes.
Dispute Resolution
. If a dispute arises between us and Air Products under the Separation Agreement, the general counsels of the parties and such other representatives as the parties may designate will negotiate to resolve any disputes for a reasonable period of time. If the parties are unable to resolve the dispute in this manner then, unless otherwise agreed by the parties and except as otherwise set forth in the Separation Agreement, the dispute will be resolved through binding arbitration.
Term/Termination.
The term of the Separation Agreement is indefinite, and it may only be terminated with the prior written consent of both Air Products and Versum.
Other Matters Governed by the Separation Agreement
. Other matters governed by the Separation Agreement include access to financial and other information, confidentiality, access to and provision of records and treatment of outstanding guarantees and similar credit support.
Transition Services Agreement
Under the Transition Services Agreement, Air Products provides certain transition services to us and we have agreed to provide certain transition services to Air Products. Each party has agreed to provide such services for a limited time, generally for no longer than 12 to 24 months following the October 1, 2016 Distribution date, for specified fees, which are at cost for services provided by third parties and at cost plus approximately 5% percent for services provided by either us or Air Products, as applicable.
Tax Matters Agreement
The Tax Matters Agreement generally governs Air Products’ and Versum’s respective rights, responsibilities and obligations with respect to taxes (including taxes arising in the ordinary course of business and taxes, if any, incurred as a result of any failure of the contribution, the Distribution or certain related transactions to qualify as tax-free for U.S. federal income tax purposes), tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes for any tax period ending on or before the Distribution Date, as well as tax periods beginning after the Distribution Date.
In addition, the Tax Matters Agreement imposes certain restrictions on us and our subsidiaries (including restrictions on share issuances, business combinations, sales of assets and similar transactions) that are designed to preserve the tax-free status of the contribution, the Distribution and certain related transactions. The Tax Matters Agreement provides special rules that allocate tax liabilities in the event the contribution, the Distribution, or certain related transactions fail to qualify as tax-free for U.S. federal income tax purposes. In general, Versum is liable for taxes incurred by Air Products that may arise if Versum takes, or fails to take, as the case may be, certain actions that may result in the contribution, the Distribution or certain related transactions failing to qualify as tax-free for U.S. federal income tax purposes.
Employee Matters Agreement
The Employee Matters Agreement governs the compensation and employee benefit obligations with respect to our current and former employees and those of Air Products. The Employee Matters Agreement allocates liabilities and responsibilities relating to employee compensation and benefits plans and programs and other related matters in connection with the Distribution including, without limitation, the treatment of outstanding Air Products’ equity awards, other outstanding incentive compensation awards, deferred compensation obligations and retirement and welfare benefit obligations.
Intellectual Property Agreements
Certain of our subsidiaries entered into agreements with Air Products with respect to intellectual property. A two-way cross-license between Air Products and one of our affiliates requires one of our affiliates to exclusively license to Air Products certain patents for a defined field of use. Correspondingly, Air Products exclusively licensed certain patents to one of our affiliates for a defined field of use. Air Products also granted Versum or one of our affiliates a license under various Engineering Standards developed and owned by it as well as Safety, Health and Environmental Standards and Policies developed and owned by it, for a limited period of time in order to allow us to continue our operations and develop our own Standards and Policies.
Commercial Agreements
We entered into certain commercial agreements with Air Products, including leases and utility, supply and toll manufacturing contracts. We may in the future enter into other commercial arrangements with Air Products.
Shared Directors/Employees
Seifi Ghasemi, who serves as Chairman, President and Chief Executive Officer of Air Products, also serves as our non-executive Chairman of the Board.
Indemnification and Insurance
The Delaware General Corporation Law (the “DGCL”) authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties as directors. Our amended and restated certificate of incorporation and by-laws provide that we must indemnify our directors and officers to the fullest extent authorized by the DGCL. We are also expressly authorized to advance certain expenses (including attorneys’ fees and disbursements and court costs), subject to certain undertakings. In any action by a director or officer to enforce a right to indemnification or by us to recover advances made, the burden of proving that the indemnitee is not entitled to be indemnified is placed on the Company. We maintain liability insurance for its directors and officers to provide protection where we cannot legally indemnify a director or officer and where a claim arises under the Employee Retirement Income Security Act of 1974 against a director or officer based on an alleged breach of fiduciary duty or other wrongful act and directors’ and officers’ liability insurance for our directors and officers. We believe that these indemnification provisions and insurance are useful to attract and retain qualified directors and officers.
Our amended and restated certificate of incorporation provides that to the fullest extent permitted by the DGCL, no director shall be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (1) for any breach of the director’s duty of loyalty to the Company or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) under Section 174 of the DGCL, or (4) for any transaction from which the director derived any improper personal benefit. Under the DGCL, to the extent that a person is successful on the merits in defense of a suit or proceeding brought against such person because they are or were one of the Company’s directors or officers, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred in connection with such action. If unsuccessful in defense of a third-party civil suit or a criminal suit, or if such a suit is settled, that person shall be indemnified against both expenses, including attorneys’ fees, and judgments, fines and amounts paid in settlement if they acted in good faith and in a manner they reasonably believed to be in, or not opposed to, the Company’s best interests and, with respect to any criminal action, had no reasonable cause to believe their conduct was unlawful. If unsuccessful in defense of a suit brought by or in the Company’s right, or if such suit is settled, that person shall be indemnified only against expenses, including attorneys’ fees, incurred in the defense or settlement of the suit if they acted in good faith and in a manner they reasonably believed to be in, or not opposed to, the Company’s best interests, except that if they are adjudged to be liable for negligence or misconduct in the performance of their duty to the Company, they cannot be made whole even for expenses unless the court determines that they are fairly and reasonably entitled to indemnity for such expenses.