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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

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

 

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Nexeo Solutions, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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3 Waterway Square Place, Suite 1000

The Woodlands, Texas 77380

 

December 13, 2018

 

Dear Stockholders:

 

On behalf of the Board of Directors and senior management team of Nexeo Solutions, Inc., I am pleased to invite you to participate in our Annual Meeting of Stockholders, which will be held at 3 Waterway Square Place, Suite 1000, The Woodlands, Texas  77380 on Tuesday, January 29, 2019 at 3:00 p.m. Central Time.

 

This stockholder package describes the key business items to be discussed during the Annual Meeting and contains the Notice of Annual Meeting of Stockholders and the proxy statement. Along with additional information, the proxy statement includes:

 

·                A summary that highlights the voting matters we are asking you to consider, along with the supporting details found elsewhere in the proxy statement and the Board’s voting recommendation for each item;

 

·                A detailed discussion and analysis of Nexeo Solutions’ compensation program for senior executives, including our philosophy for aligning pay and performance, and the individual components that drive executive compensation decisions;

 

·                  Information regarding the qualifications of our directors; and

 

·                  A review of Nexeo Solutions’ corporate governance.

 

 

Your vote is important, regardless of the number of shares you own. To ensure your shares are represented and voted as you intend, we urge you to carefully read the proxy statement and respond as soon as possible with your instructions. Whether or not you plan to attend the Annual Meeting, we request that you cast your votes now – by telephone, Internet voting system, or by completing, signing and returning the enclosed proxy card.

 

We thank you for your continued support of Nexeo Solutions and look forward to seeing you at the Annual Meeting.

 

	Very truly yours,
	Dan F. Smith
	Chairman of the Board

 

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3 Waterway Square Place, Suite 1000

The Woodlands, Texas 77380

 

Notice of Annual Meeting of Stockholders

To Be Held January 29, 2019

 

The annual meeting of stockholders (Annual Meeting) of Nexeo Solutions, Inc. (the Company or Nexeo Solutions) will be held on Tuesday, January 29, 2019 at 3:00 p.m., Central Time, at 3 Waterway Square Place, Suite 1000, The Woodlands, Texas 77380. If you owned shares of common stock of Nexeo Solutions as of the close of business on December 4, 2018, the record date, you may vote at the Annual Meeting.

 

At the Annual Meeting, we plan to ask you to:

 

1.                          Elect three (3) directors nominated by the Board of Directors (the Board) to serve as Class III directors until the 2022 annual meeting of stockholders;

 

2.                          Ratify the appointment by our Audit Committee of PricewaterhouseCoopers LLP as our independent registered public accounting firm for our 2019 fiscal year;

 

3.                          Approve a non-binding resolution regarding compensation of the Company’s named executive officers for 2018 (say-on-pay);

 

4.                          Transact any other business which properly may be presented at the meeting or any adjournment or postponement of the meeting.

 

Please consider the issues presented in the attached proxy statement and vote your shares as promptly as possible by following the voting instructions included in the proxy statement.

 

This notice and proxy statement and our annual report on Form 10-K for the fiscal year ended September 30, 2018 are also available online at https://www.cstproxy.com/nexeosolutions/2019

 

	On behalf of the Board of Directors,
	Michael B. Farnell, Jr.
	Corporate Secretary

 

December 13, 2018

 

IF YOU PLAN TO ATTEND:  Attendance at the meeting is limited to Nexeo Solutions’ stockholders. No guests will be admitted. Admission will be on a first-come, first-served basis. Registration will begin at 2:00 p.m. and the meeting will begin promptly at 3:00 p.m. Each stockholder holding shares of Nexeo Solutions common stock in brokerage accounts is required to bring a copy of a brokerage statement reflecting stock ownership as of December 4, 2018. Please note that you will be asked to present valid photo identification, such as a driver’s license or passport.

 

 

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SUMMARY	3
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING	6
PROPOSAL 1: ELECTION OF DIRECTORS	10
CORPORATE GOVERNANCE	14
AUDIT COMMITTEE REPORT	18
COMPENSATION DISCUSSION AND ANALYSIS	20
EXECUTIVE OFFICERS	39
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	41
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS	44
AUDIT FEES AND SERVICES	46
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	47
PROPOSAL 3: ADVISORY VOTE TO APPROVE EXECUTIVE OFFICER COMPENSATION	48
OTHER INFORMATION	49

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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NEXEO SOLUTIONS, INC.

 

2019 PROXY STATEMENT SUMMARY

 

This summary highlights information about Nexeo Solutions, Inc. (the Company or Nexeo Solutions) and the Company’s upcoming 2019 annual meeting of stockholders (Annual Meeting). This summary does not contain all the information you should consider in advance of the meeting, and you should read the entire proxy statement carefully before voting. The proxy statement and annual report on Form 10-K for the fiscal year ended September 30, 2018 will be mailed on or about December 19, 2018.

 

 

Annual Meeting of Stockholders

 

 

 

 

 

Voting Matters and Board Recommendation

 

 

 

 

 

 

 

 

 

 

 

 

Nexeo Solutions, Inc. | 2019 Proxy Statement | page 3

 

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Board and Board Committees

 

Name

Age

Director Since

Principal Occupation

Independent

Committee Memberships

Other Public Company Boards

Nominees Standing for Election

Kenneth M. Burke

69

2011

Retired Partner, Ernst & Young

ü

AUD

EQT Corporation

Thomas E. Zacharias

64

2014

President of real estate investment firm

ü

AUD, NGC

Fred’s Inc.

Robert J. Zatta

69

2017

Retired Chief Financial Officer

ü

AUD

Innophos Holdings

Continuing Directors with Terms Expiring in 2020

David A. Bradley

47

2011

President and Chief Executive Officer

No

Dan F. Smith

72

2011

Retired President and Chief Executive Officer

ü

COMP, NGC

Kraton Corporation, Orion Engineered Carbons Magnolia Oil and Gas Corp.

Christopher J. Yip

37

2011

Principal at private equity firm

ü

NGC

No

Continuing Directors with Terms Expiring in 2021

Brian A. Selmo

41

2017

Partner at investment advisory firm

ü

COMP

No

Nathan H. Wright

52

2011

Senior Advisor to private equity firm

ü

COMP

No

 

Length of service on the Board by Messrs. Bradley, Burke, Smith, Wright, and Yip includes service on the Nexeo Holdings board of directors prior to the Business Combination. See page 5 of this proxy statement for information on the Business Combination.

 

The standing committees of our Board of Directors are the Audit Committee (AUD), Compensation Committee (COMP), and Nominating and Governance Committee (NGC).

 

Our Board of Directors is divided into three classes, divided as equally as possible with each class having a term of three years.

 

For the year ended September 30, 2018, each Nexeo Solutions director attended 96% or more of all meetings of the Board and the Board committees on which the director served. Overall attendance at such meetings was over 98%.

 

 

Other Governance Highlights

 

·                 8 directors (7 independent) ·                 Independent Chairman of the Board ·                 Lead Independent Director ·                 All members of the Audit, Compensation, and Nominating and Governance Committees are independent under Nasdaq rules

·                 Annual review by the Audit Committee of major financial and enterprise risks ·                 Annual say-on-pay advisory vote ·                 Frequent meetings of independent directors in executive session

 

 

Nexeo Solutions Fiscal Year 2018 Business Highlights   ·                 Record gross profit and adjusted EBITDA, a 16% and 13% increase over fiscal 2017, respectively ·                 Significant earnings growth with net income and earnings per share doubling fiscal 2017’s performance ·                 Net leverage of 3.5x, a decrease from 4.3x in fiscal 2017 ·                 Free cash flow generation of $74 million, a 23% increase over fiscal 2017 ·                 Received authorization from 17 new specialty suppliers, nearly doubling the number of awards in fiscal 2017

·                 Published the Company’s first sustainability report which follows the Global Reporting Initiative (GRI) Standards, resulting in a Silver Award rating by EcoVadis ·                 New website launched putting the customer experience at the forefront, providing visitors a comprehensive understanding of the Company’s value proposition, overall service offerings, and easy access to product information

 

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Executive Compensation Highlights

 

Nexeo Solution’s compensation program is designed to reward our named executive officers when the Company achieves strong financial and operational results. The primary components of our fiscal year 2018 compensation program were base salary and annual and long-term performance-based incentive compensation with total compensation packages for our named executive officers generally weighted in favor of at-risk compensation through annual and long-term performance-based incentive awards.

 

·                Our CEO’s target annual compensation in fiscal year 2018 was 61% performance-based, while 48% of our NEO’s target annual compensation was performance-based (excluding the impact of relocation expenses)

·                Performance-based compensation consists of non-equity annual incentive bonuses, discretionary bonuses, and long-term performance stock units

·      Non-performance-based compensation is comprised of base salary, 401(k) contributions, nonqualified deferred compensation, and other benefits as described in our Compensation Discussion and Analysis

 

Our compensation program, which is overseen by our Compensation Committee, contains many good governance elements with performance-based compensation paid under our 2016 LTIP subject to forfeiture and clawback, a “double-trigger” payout upon termination of employment in the event of a change of control for severance benefits, and a prohibition on hedging and pledging of our common stock by all employees.

 

 

 

Important Dates for 2020 Annual Meeting of Stockholders

 

·                 Stockholder proposals submitted for inclusion under Securities and Exchange Commission (SEC) rules in the proxy statement for our 2020 annual meeting of stockholders must be submitted in writing and received by our Corporate Secretary on or before August 21, 2019.

 

·                 Under our bylaws, stockholder proposals to be presented in person at the 2020 annual meeting of stockholders (but not included in the 2020 proxy statement) must be submitted in writing and received by our Corporate Secretary not earlier than the close of business on October 1, 2019 and not later than the close of business on October 31, 2019.

 

For additional information, see “Stockholder Proposals for the 2020 Annual Meeting of Stockholders” on page 49 of this proxy statement.

 

 

 

Important Corporate Historical Information   We were originally incorporated in Delaware on March 24, 2014, as WL Ross Holding Corp. (WLRH). WLRH was a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more businesses.   On June 9, 2016 (Closing Date), WLRH acquired Nexeo Solutions Holdings, LLC (Nexeo Holdings) through a series of mergers (Business Combination) and changed its name to “Nexeo Solutions, Inc.” which survives today as the Company. On the Closing Date, the Company also changed its fiscal year end to September 30.   In connection with the Business Combination, the Company and certain of its affiliates, including WL Ross Sponsor LLC (WLRS) and TPG Global LLC (TPG) entered into a Shareholders’ and Registration Rights Agreement (Shareholders’ Agreement) granting certain rights to WLRS and TPG with respect to the Company following the Closing Date.

 

 

 

 

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Nexeo Solutions, Inc.

3 Waterway Square Place, Suite 1000

The Woodlands, Texas 77380

 

 

PROXY STATEMENT

 

 

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING

 

 

What items will be voted on at the Annual Meeting?

 

Stockholders will vote on the following items at the Annual Meeting:

 

1.                          The election to the Company’s Board of Directors of Kenneth M. Burke, Thomas E. Zacharias and Robert J. Zatta to serve as Class III directors until the 2022 annual meeting of stockholders (Proposal 1);

 

2.                          The ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2019 (Proposal 2);

 

3.                          The approval of a non-binding resolution regarding the compensation of the Company’s named executive officers for the year ended September 30, 2018 (Proposal 3); and

 

4.                          Such other business as may properly be presented at the Annual Meeting or any adjournment or postponement of the meeting.

 

As of the date of this proxy statement, we are not aware of any matters other than those set forth in Proposals 1 through 3 that will be brought before the Annual Meeting.

 

What are the Board’s voting recommendations on each proposal?

 

Your Board of Directors recommends that you vote FOR Proposals 1, 2, and 3.

 

How do I vote by proxy?

 

Whether you plan to attend the Annual Meeting or not, we urge you to complete, sign and date the proxy card provided and return it promptly in the postage-prepaid envelope provided, or follow the instructions contained in the proxy card. Returning the proxy card will not affect your right to attend the Annual Meeting or to vote in person.

 

If you properly complete your proxy card and send it to us in time to vote, your proxy (one of the individuals named on your proxy card) will vote your shares as you have directed on the proxy card. If you sign the proxy card but do not give voting instructions for a particular proposal, then your proxy will vote your shares FOR each of Proposals 1, 2 and 3.

 

How do I vote in person?

 

Only holders of Nexeo Solutions common stock as of the close of business on December 4, 2018, or their proxy holders, may attend the Annual Meeting and vote in person. If you plan to attend the Annual Meeting and vote in person, we will give you a ballot when you arrive. If you wish to attend the Annual Meeting in person but you hold your shares of Nexeo Solutions common stock through someone else, such as a broker, you must bring proof of your ownership and photo identification to the Annual Meeting. For example, you may bring an account statement showing that you beneficially owned shares of Nexeo Solutions, Inc. as of December 4, 2018 as acceptable proof of ownership. In addition, you must bring a legal proxy from the broker, bank or other nominee holding your shares, confirming your beneficial ownership of the shares and giving you the right to vote your shares.

 

 

 

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Who is entitled to vote at the Annual Meeting, and how many votes do I have?

 

You may vote at the Annual Meeting if you held common stock of Nexeo Solutions as of the close of business on December 4, 2018. For each Proposal presented, you have one vote for each share of Nexeo Solutions common stock you own.

 

How many votes must be present to hold the Annual Meeting?

 

A quorum is necessary to conduct business at the Annual Meeting. A majority of the outstanding shares of Nexeo Solutions common stock, present or represented by proxy, constitutes a quorum. You are part of the quorum if you attend the Annual Meeting in person or if you have returned a proxy. Abstentions and broker non-votes are also counted as shares present in determining whether a quorum is present. As of December 4, 2018, the record date for the meeting, there were 89,698,331 shares of common stock of the Company issued and outstanding.

 

What if my shares are held in street name?

 

If your shares of Nexeo Solutions common stock are registered in the name of a broker, bank or other nominee (typically referred to as being held in “street name”), you will receive instructions from your broker, bank, or other nominee that must be followed in order for your broker, bank, or other nominee to vote your shares per your instructions. Many brokerage firms and banks have a process for their beneficial holders to provide instructions via the Internet or over the telephone.

 

In the event you do not provide instructions on how to vote, your broker may not have authority to vote your shares of Nexeo Solutions common stock. This is called a “broker non-vote.”

 

What is a broker non-vote?

 

If you are a beneficial owner whose shares of Nexeo Solutions common stock are held of record by a broker, bank or other holder of record, you have the right to direct your broker, bank or other holder of record in voting your shares.  If you do not provide voting instructions, your shares will not be voted on any proposal on which the broker, bank or other holder of record does not have discretionary authority to vote.  This is called a “broker non-vote.”  Under the rules that govern brokers who are voting with respect to shares that are held in street name, brokers have the discretion to vote such shares on routine matters, but not on non-routine matters. Routine matters include the ratification of the appointment of our independent registered public accounting firm, but not the election of directors or advisory proposals on executive compensation. If your shares are held by a broker, your broker cannot vote your shares for the election of the Class III directors unless you provide voting instructions. Your vote is important, and we request that you instruct your broker regarding how to vote your shares on these matters promptly.

 

If you hold shares through a broker, bank, or other nominee and wish to be able to vote in person at the Annual Meeting, you must obtain a “legal proxy” from your broker, bank, or other nominee and present it to the inspector of election with your ballot at the Annual Meeting.

 

What vote is required to approve each proposal?

 

The following are the voting requirements to elect the three (3) nominees to the Board and approve the other proposals presented in this proxy statement and the discretionary authority of brokers, banks, or other holders of record with respect to each proposal.

 

 

 

 

 

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Abstentions from voting will not be taken into account in determining the outcome of the election of directors. Abstentions will be included in the voting tally and will have the same effect as a vote against all other proposals.

 

Why would the Annual Meeting be adjourned or postponed?

 

The Board intends to adjourn and postpone the Annual Meeting if, as of January 29, 2019, the number of shares of Nexeo Solutions common stock present at the Annual Meeting, in person or represented by proxy, is insufficient to either constitute a quorum or approve any of the proposals described in this proxy statement to be submitted to stockholders for consideration.

 

What if I have Founder Shares? Can I vote my Founder Shares?

 

Yes. Each Founder Share has the same voting rights as one share of Nexeo Solutions common stock and therefore is entitled to one vote on each matter that is voted on by our stockholders at the Annual Meeting.

 

May I revoke my proxy?

 

If you give a proxy, then you may revoke it at any time before it is voted, as follows:

 

1.                     You may send in another proxy with a later date;

 

2.                    You may notify the Company in writing (if the stockholder is an entity, under its seal, by an officer or other authorized person of the entity) at the Company’s headquarters, located at 3 Waterway Square Place, Suite 1000, The Woodlands, Texas 77380, before the Annual Meeting that you are revoking your proxy;  or

 

3.                     You may vote in person at the Annual Meeting.

 

Can I change my vote after I have voted?

 

You may revoke your proxy and change your vote at any time before the final vote at the Annual Meeting. You may vote again by signing and returning a new proxy card with a later date or by attending the Annual Meeting and voting in person if you are a stockholder of record. However, your attendance at the Annual Meeting will not automatically revoke your proxy unless you vote again at the Annual Meeting or specifically request that your prior proxy be revoked by delivering a written notice of revocation to the Company’s Secretary at the Company’s headquarters, located at 3 Waterway Square Place, Suite 1000, The Woodlands, Texas 77380, prior to the Annual Meeting.

 

Please note, however, that if your shares of Nexeo Solutions common stock are held of record by a brokerage firm, bank or other nominee, you must instruct your broker, bank or other nominee that you wish to change your vote by following the procedures on the materials provided to you by the broker, bank or other nominee. If your shares are held in street name, and you wish to attend the Annual Meeting and vote at the Annual Meeting, you must bring to the Annual Meeting a legal proxy from the broker, bank or other nominee holding your shares, confirming your beneficial ownership of the shares and giving you the right to vote your shares.

 

Will my shares be voted if I do not provide my proxy?

 

If you hold your shares of Nexeo Solutions common stock directly in your own name, they will not be voted if you do not provide a proxy. Your shares may be voted under certain circumstances if they are held in the name of a brokerage firm. See “What if my shares are held in street name?” above.

 

 

 

 

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What should I do if I receive more than one set of voting materials?

 

You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards. For example, if you hold your shares in more than one brokerage account, you will receive separate voting materials for each brokerage account in which you hold shares. If you are a stockholder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card that you receive in order to cast your vote with respect to all of your shares. If your shares are held in street name, please comply with your brokerage firm or bank’s instructions on how to vote such shares.

 

Is my vote kept confidential?

 

Proxies, ballots and voting tabulations identifying stockholders are kept confidential and will not be disclosed except as may be necessary to meet legal requirements.

 

Where do I find the voting results of the Annual Meeting?

 

We will announce preliminary voting results at the Annual Meeting. The final voting results will be tallied by the inspector of election and published in the Company’s Current Report on Form 8-K, which the Company is required to file with the Securities and Exchange Commission (SEC) within four business days following the Annual Meeting.

 

Who bears the cost of soliciting proxies?

 

The cost of soliciting proxies in this proxy statement will be paid by the Company. The Company will also reimburse brokerage firms and others for expenses involved in forwarding proxy materials to beneficial owners or soliciting their execution. In addition to solicitations by mail, directors and officers of the Company may solicit proxies in person, by telephone or by electronic means, however, they will not receive any special compensation for these efforts.

 

Where are the Company’s principal executive and administrative offices?

 

The principal executive and administrative offices of the Company are located at 3 Waterway Square Place, Suite 1000, The Woodlands, Texas 77380 and the telephone number is 281-297-0700.

 

How can I obtain additional information about the Company?

 

A copy of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018 (our Annual Report), which contains audited consolidated financial statements for the fiscal year ended September 30, 2018, is enclosed with this proxy statement. Stockholders may obtain a copy of our Annual Report, including the financial statements and financial schedules (without exhibits), without charge, by writing to our Investor Relations department at 3 Waterway Square Place, Suite 1000, The Woodlands, Texas 77380, or by calling 281-297-0856.

 

We also file reports, proxy statements and other information with the SEC. The SEC maintains a website that contains reports, proxy and information statements and other information regarding registrants, including the Company, that file electronically with the SEC. The SEC’s website address is http://www.sec.gov.

 

Who can help answer any additional questions?

 

You can contact our transfer agent, Continental Stock Transfer & Trust, by telephone at 917-262-2373, by email at proxy@continentalstock.com, or by sending a letter to One State Street, 30th Floor, New York, NY 10004-1561, with any questions about how to vote your shares of Nexeo Solutions common stock.

 

 

 

 

 

 

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PROPOSAL 1: ELECTION OF DIRECTORS

 

 

Our Board of Directors is divided into three classes, being divided as equally as possible with each class having a term of three years. At the Annual Meeting, three Directors are nominated for election as Class III Directors to hold office until the 2022 annual meeting of stockholders. The Board of Directors has nominated the following individuals as Class III Directors, for election at the Annual Meeting:

 

·                  Kenneth M. Burke

·                  Thomas E. Zacharias

·                  Robert J. Zatta

 

Shareholders’ Agreement – TPG

 

Under the terms of the Shareholders’ Agreement, TPG is entitled to designate two directors for appointment to the Board of Directors and to maintain a representative on each committee of the Board of Directors other than the Audit Committee, so long as TPG continues to meet certain stock ownership thresholds.

 

·                  Mr. Wright, who was elected as a Class II Director at last year’s annual meeting of stockholders, with a term expiring at the 2021 annual meeting of stockholders, was designated as a director by TPG under the Shareholders’ Agreement.

·                  Christopher J. Yip, who was elected as a Class I Director at the 2017 annual meeting of stockholders, with a term expiring at the 2020 annual meeting of stockholders, was designated as a director by TPG under the Shareholders’ Agreement.

 

TPG was also given the right to designate two unaffiliated directors in connection with the closing of the Business Combination. This was not a continuing entitlement and the nomination of directors for these seats on the Board is made by the Board’s Nominating and Governance Committee upon the expiration of the terms of these Directors.

 

·                  Kenneth M. Burke, nominated for election at the Annual Meeting, was designated by TPG as an unaffiliated Director with a term expiring at the Annual Meeting.

·                  Dan F. Smith was initially designated by TPG as an unaffiliated Director and the Nominating and Governance Committee nominated Mr. Smith for re-election at the 2017 annual meeting of stockholders. Mr. Smith’s current term expires at the 2020 annual meeting of stockholders.

 

The following biographical information is furnished for each director, including the nominees for election at the Annual Meeting. The information includes their age as of December 13, 2018, present position, if any, with Nexeo Solutions, period served as a director, and other business experience during at least the past five years.  The length of service on our Board for Messrs. Bradley, Burke, Smith, Wright and Yip includes service on the Nexeo Holdings board of directors prior to the Business Combination.

 

The Board of Directors recommends that you vote FOR the election of both director nominees listed below. Properly dated and signed proxies, and proxies properly submitted over the Internet and by telephone, will be so voted unless stockholders specify otherwise.

 

 

 

 

 

 

 

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NOMINEES FOR DIRECTOR STANDING FOR ELECTION

 

 

Kenneth M. Burke

Director since November 3, 2011

Age 69

 

Mr. Burke retired in 2004 after a 31-year career with Ernst & Young LLP.  During his time with Ernst & Young LLP, Mr. Burke held various positions including the National Director of Energy Services, Managing Partner of Assurance and Advisory Business Services for the Gulf Coast Area and Coordinating Partner for various energy and oilfield service companies.  Mr. Burke has served as a director and as chairman of the Audit and Conflict Committees of AXIP Energy Services, LLC since January 2010 and as a director, Audit Committee member and Public Policy and Corporate Responsibility Committee member of EQT Corporation since January 2012.  He joined the Board of Directors of both EQT Midstream Services, LLC and EQT GP Services, LLC in September 2018 and serves as a member of the Audit Committee for both companies.  Mr. Burke is a former director, chairman of the Nominating and Governance Committee and member of the Compensation and Audit Committees of Pride International, Inc.  Mr. Burke is a former director and chairman of the Audit Committee of Trico Marine Services, Inc.  Mr. Burke received his B.S. in Accounting from the University of New Orleans.

 

Mr. Burke has extensive experience in the field of accounting, including more than three decades with a major accounting firm.  Mr. Burke’s background in accounting, together with his prior board experience, enables Mr. Burke to provide important counsel to the Board of Directors.

 

Thomas E. Zacharias

Director since June 2, 2014

Age 64

 

Mr. Zacharias currently serves as President of Zacharias & Co. LLC, a real estate investment and advisory firm.  From March 2005 to March 2017, he served as Chief Operating Officer (COO) of W. P. Carey Inc. and as head of the Asset Management Department and Managing Director since April 2002. In his capacity as COO, he also served as Chief Operating Officer and Managing Director of Corporate Property Associates (referred hereafter as “CPA®”), 17 — Global between September 2007 and March 2017, and of CPA®:18 — Global between September 2012 and March 2017, and served as Chief Operating Officer of Carey Watermark Investors between September 2010 and March 2017, and of Carey Watermark Investors 2 between May 2014 and March 2017. Mr. Zacharias had also served as Chief Operating Officer and Managing Director of CPA®:16 — Global from May 2011 to January 2014 (when CPA®:16 merged with W. P. Carey). Mr. Zacharias has been a member of the Board of Directors of Payless Holdings, LLC since August 2017.  He joined the Board of Directors of Fred’s Inc. in May 2018 and also serves as Chairman of the Audit Committee.  Mr. Zacharias received his undergraduate degree, magna cum laude, from Princeton University in 1976 and an M.B.A. from Yale School of Management in 1979. He is a member of the Urban Land Institute and NAREIT.

 

In light of Mr. Zacharias’ directorship and management experiences, we believe that he is well qualified to serve as a director on the Board of Directors.

 

Robert J. Zatta

Director since March 6, 2017

Age 69

 

Mr. Zatta has been an Independent Director of Innophos Holdings, Inc. since January 11, 2016, where he also serves on the Compensation Committee and as Chairman of the Audit Committee. Previously, he served as the Chief Financial Officer of Rockwood Holdings, Inc., a publicly-traded specialty chemicals company, from April 2001 until January 2015, when Rockwood Holdings, Inc. was acquired by Albemarle Corporation. From July 2014 until January 2015, he also served as the Acting Chief Executive Officer of Rockwood Holdings, Inc. Prior to joining Rockwood, he spent twelve years with the Campbell Soup Company, where he held several significant financial management positions, including his final position as Vice President responsible for Corporate Development and Strategic Planning. He also served as a Member of the Supervisory Board at CeramTec GmbH. He is a former Member of the Board of Trustees at Merrimack College and served as Chairman of the Audit and Risk Management Committee. Mr. Zatta has a B.S. in Business Administration from Merrimack College and an M.B.A. in Finance from Fairleigh Dickinson University.

 

 

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Mr. Zatta is well qualified to serve as a director due to his financial, management and corporate background in both the public and private sectors, as well as his board experience.

 

 

CONTINUING DIRECTORS WITH TERMS EXPIRING IN 2020

 

David A. Bradley

Chief Executive Officer since March 15, 2011

Director since April 29, 2011

Age 47

 

Mr. Bradley, has served as Nexeo Holdings’ and Solutions’ President and Chief Executive Officer since March 15, 2011.  Mr. Bradley served as Chief Operating Officer of Kraton Corporation (formerly Kraton Performance Polymers, Inc.) from December 2009 through January 2011, as Vice President of Global Operations from December 2004 until December 2009 and as Vice President of Business Transformation from April 2004 until December 2004.  Prior to joining Kraton Corporation, Mr. Bradley served as the Lexan Manufacturing Manager at GE Plastics’ Mount Vernon, Indiana, site.  Mr. Bradley served in a variety of leadership positions for GE Plastics from 1994 to 2004, which included roles in business process development and Six Sigma.  Mr. Bradley holds a B.S. degree in Chemical Engineering from the University of Louisville and serves on the Industrial Board of Advisors for the Speed School of Engineering at the University of Louisville since May 2015.

 

Mr. Bradley has had a notable career in the chemical industry, including several years as an executive officer. Mr. Bradley’s extensive experience, together with his training in chemical engineering and broad industry knowledge, enable Mr. Bradley to provide the Board of Directors with executive counsel on a full range of business, strategic and professional matters.

 

Dan F. Smith

Director since April 29, 2011

Age 72

 

Mr. Smith began his career with Atlantic Richfield Company (ARCO) in 1968 as an engineer.  He was employed by Lyondell Chemical Company from 1975 through 2007, where he was elected President in 1994, Chief Executive Officer in 1996 and served as a director from November 1989 through December 2007, including as Chairman from May 2007 through December 2007.  Mr. Smith retired in December 2007 as Chairman, President and Chief Executive Officer of Lyondell Chemical Company following the acquisition of Lyondell Chemical Company by Basell AF.  Mr. Smith has served as the Chairman of the Board of Kraton Corporation and AXIP Energy Services, LP, (f/k/a Valerus Services, L.P.) since February 2008 and December 2009, respectively.  He serves as a member of the Compensation Committee for Kraton Corporation and as Chairman of the Compensation Committee for AXIP Energy Services, L.P.  Mr. Smith became Chairman of the Board and a Director for Orion Engineered Carbons S.A. in May 2014 and also serves as Chairman of the Compensation Committee.  Mr. Smith joined the Board of Directors of Magnolia Oil and Gas Corp. (f/k/a TPG Pace Energy Holdings Corp.) in July 2017 and serves as a member of the Audit Committee; since July 2018, he also serves as Chairman of the Compensation Committee.  Mr. Smith served on the board of Northern Tier Energy LLC and Northern Tier Energy GP LLC from May 2011 to June 2016, where he served as Chairman from November 2011 to January 2014.  He also serves as a member of the College of Engineering Advisory Council at Lamar University.  Mr. Smith is a graduate of Lamar University with a B.S. degree in Chemical Engineering.

 

Mr. Smith has had a long and distinguished career in the chemical industry and is widely recognized as an expert in the field. He has extensive experience at the highest levels, including several years as the Chief Executive Officer of a major chemical company.  Mr. Smith’s international business experience, together with his background in chemical engineering, is of tremendous value to the Board of Directors.

 

 

 

 

 

 

 

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Christopher J. Yip

Director since April 29, 2011

Age 37

 

Mr. Yip is currently a principal at TPG where he is involved in the firm’s industrial and chemical sector investing efforts.  Prior to joining TPG in 2005, Mr. Yip was employed by McKinsey & Company, Inc., a management consulting firm.  Mr. Yip joined the Board of Directors of FleetPride, Inc. in November 2012.  Mr. Yip holds an A.B. degree in Economics (cum laude) and an S.M. degree in Computer Science from Harvard University.  Mr. Yip holds an M.B.A. degree from the Stanford Graduate School of Business, where he was an Arjay Miller Scholar.

 

Mr. Yip’s experience investing in the industrial and chemical industries, together with his experience in corporate and private equity finance and business consulting, is of great value to the Board of Directors.

 

CONTINUING DIRECTORS WITH TERMS EXPIRING IN 2021

 

Brian A. Selmo

Director since September 13, 2017

Age 41

 

Mr. Selmo is a partner at First Pacific Advisors, LLC (FPA), Portfolio Manager and Director of Research for the Contrarian Value Strategy at FPA, and Vice President and Portfolio Manager for FPA Crescent Fund and Source Capital, Inc.  Prior to joining First Pacific Advisors in 2008, he was Portfolio Manager of Eagle Lake Capital, LLC/Coast Asset Management, LLC from 2003 to 2008.  Mr. Selmo earned a Bachelor’s degree in Economics (with honors) from The Johns Hopkins University, where he graduated Phi Beta Kappa.  He is a CFA Charterholder.

 

Mr. Selmo’s vast experience across numerous industries, together with his long-term approach to reviewing companies, is of great value to the Board of Directors.

 

Nathan H. Wright

Director since April 29, 2011

Age 52

 

Mr. Wright is a Senior Advisor at TPG where he was previously a Partner and a member of the firm’s Operating Group.  Mr. Wright began his career with TPG in 2000 where he has supported some of TPG’s most complex transformation efforts including ON Semiconductor Corporation and Altivity Packaging, LLC.  Since January 2013, Mr. Wright has served on the Board of Directors of FleetPride, Inc.  Mr. Wright previously served on the Board of Directors of Kraton Polymers, LLC and Kraton Corporation from 2005 through 2011 and was a member of the Compensation Committee.  Mr. Wright holds a B.S. degree in Mechanical Engineering from the Rose-Hulman Institute of Technology and an M.B.A. degree from the Tuck School of Business at Dartmouth College.

 

Mr. Wright’s engineering experience and business background in supporting transformational efforts within a broad range of companies and industries, together with his significant board experience, provides invaluable insight to the Board of Directors.

 

 

 

CONTACT THE BOARD

 

 

 

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CORPORATE GOVERNANCE

 

 

ROLE OF THE BOARD OF DIRECTORS

 

 

 

BOARD LEADERSHIP STRUCTURE

 

 

INDEPENDENCE OF DIRECTORS

 

 

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BOARD ROLE IN RISK OVERSIGHT

 

 

CODE OF BUSINESS CONDUCT

 

 

BOARD COMMITTEES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Nominating and Governance Committee
Chris J. Yip	Meetings Held in FY 2018: 2
Committee Chair
Additional Committee Members:  Dan F. Smith and Thomas E. Zacharias.
Primary Responsibilities: The Nominating and Governance Committee is responsible for, among other matters:
·      identifying individuals qualified to become members of the Board, consistent with criteria approved by the Board;
·      overseeing the organization of the Board to properly and efficiently discharge the Board’s duties and responsibilities;
·      reviewing and approving the compensation of directors; and
·      identifying best practices and recommending corporate governance guidelines principles.

 

PROCESS FOR THE SELECTION OF NEW DIRECTORS

 

 

QUALIFICATIONS OF DIRECTORS

 

 

 

STOCKHOLDER NOMINATIONS FOR DIRECTORS

 

 

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Audit Committee
Kenneth M. Burke	Meetings Held in FY 2018:  8
Committee Chair
Additional Committee Members:  Thomas E. Zacharias and Robert J. Zatta.
Primary Responsibilities: The Audit Committee is responsible for, among other matters:
·      reviewing and discussing with management and the independent registered public accounting firm the annual audited financial statements, and recommending to the Board whether the audited financial statements should be included in our Annual Report on Form 10-K;
·      discussing with management and the independent registered public accounting firm significant financial reporting issues and judgments made in connection with the preparation of our financial statements;
·      discussing with management major risk assessment process and certain risk management policies;
·      monitoring the independence of the independent registered public accounting firm;
·      verifying the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law;
·      reviewing and approving all related-party transactions;
·      inquiring and discussing with management our compliance with applicable laws and regulations;
·      pre-approving all audit services and permitted non-audit services to be performed by our independent registered public accounting firm, including the fees and terms of the services to be performed;
·      appointing or replacing the independent registered public accounting firm;
·      determining the compensation and oversight of the work of the independent registered public accounting firm (including resolution of disagreements between management and the independent registered public accounting firm regarding financial reporting) for the purpose of preparing or issuing an audit report or related work; and
·      establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or reports which raise material issues regarding our financial statements or accounting policies.
Independence: All members of the Audit Committee qualify as independent directors for audit committee membership according to the rules and regulations of the SEC and Nasdaq. All members of the Audit Committee are financially literate and Mr. Burke qualifies as our “audit committee financial expert,” as defined under SEC rules.

 

 

 

 

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AUDIT COMMITTEE REPORT

 

 

 

 

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Compensation Committee
Dan F. Smith	Meetings Held in FY 2018: 10
Committee Chair
Additional Committee Members:  Brian A. Selmo and Nathan H. Wright.
Primary Responsibilities: The Compensation Committee is responsible for, among other matters:
·      reviewing key employee compensation goals, policies, plans and programs;
·      reviewing and approving the compensation of our chief executive officer and other executive officers;
·      reviewing and approving employment agreements and other similar arrangements between us and our executive officers; and
·      administering our stock plans and other incentive compensation plans.
Independence:  Each member of the Compensation Committee qualifies as an independent director for compensation committee membership according to the rules and regulations of the SEC and Nasdaq.
Compensation Committee Interlocks and Insider Participation: None of the members of the Compensation Committee has served as an officer or employee of Nexeo Solutions. Further, none of Nexeo Solutions’ executive officers has served as a member of the board of directors or compensation committee of any entity that had one or more of its executive officers serving on the Board or the Compensation Committee.
Compensation Consultant: The Compensation Committee charter provides that the Compensation Committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other adviser and will be directly responsible for the appointment, compensation and oversight of the work of any such adviser. However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the Compensation Committee will consider the independence of each such adviser, including pursuant to the factors set forth in the Compensation Committee charter; provided, however, that nothing in the Compensation Committee charter requires that any such compensation consultant, legal counsel or other compensation adviser be independent.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Named Executive Officers

 

This Compensation Discussion and Analysis provides a detailed description of our compensation philosophy, objectives, policies, and practices in place during fiscal year 2018, and explains the factors considered by the Compensation Committee of our Board of Directors (the Compensation Committee or the Committee) in making compensation decisions during fiscal year 2018. This Compensation Discussion and Analysis focuses on the compensation of our named executive officers or “NEOs” for fiscal year 2018, namely:

 

Name:		Title:
David A. Bradley		President, Chief Executive Officer and Director
Ross J. Crane		Executive Vice President and Chief Financial Officer
Michael B. Farnell, Jr.		Executive Vice President, Chief Administrative Officer and Secretary
Brian K. Herington		Executive Vice President, Chemicals
Shawn D. Williams		Executive Vice President, Plastics

 

These NEOs, together with the other members of our Senior Executive Management whose compensation is determined by the Compensation Committee and our Board of Directors, are referred to as our Senior Executive Management.

 

Our Executives Are Invested

 

In connection with the formation of Nexeo Holdings, certain of our NEOs invested a portion of their personal net worth in Series A units of Nexeo Holdings.  The Series A units were converted as part of the Business Combination into Series A units of Nexeo Holdco, LLC which continues to hold 1,791,182 shares of Nexeo Solutions common stock (including 268,433 Founder shares) and 311,166 deferred payment rights acquired in the Business Combination. In addition, following the closing of the Business Combination, David A. Bradley has purchased in excess of $1 million of Nexeo Solutions common stock and, in December 2017, Brian A. Herington purchased in excess of $417,000 of Nexeo Solutions common stock.  The Compensation Committee considers the Series A units of Nexeo Holdco, LLC and Nexeo Solutions common stock purchased by Messrs. Bradley and Herington to be investments, rather than compensation, because the NEOs purchased the units or shares at market prices using their own personal cash resources. Consequently, the values attributable to these investments and any distributions made with respect to those units or shares of Nexeo Solutions common stock are not included in the summary compensation table.

 

Philosophy

 

The main objective of our compensation philosophy is to align the compensation of our NEOs with Company performance and individual performance. We drive that alignment with a total compensation package comprised of base salary, annual cash bonus awards, equity incentives, and a competitive benefits program. Together these elements are designed to achieve the following primary objectives:

 

·      Provide a clear and direct relationship between executive pay and Company performance, both on a short-and long-term basis;

 

·      Emphasize operating and financial performance measures;

 

·      Link executive pay to measures of stockholder value;

 

·      Recruit and retain talented individuals for key leadership positions; and

 

·      Generally target base salary, short-term incentives, long-term incentives, and total compensation levels near the 50th percentile of the competitive market for good performance and above the 50th percentile of the competitive market for consistent, outstanding performance over time, but also consider other factors, including differences in the responsibilities of a particular position compared to our peers, experience, retention risk, and internal equity.

 

Our executive compensation program is regularly reviewed to ensure that the program’s components continue to align with the above objectives. The Compensation Committee oversees our executive compensation program and receives input from Pearl Meyer, the independent compensation consultant, and from our Senior Executive Management in making its decisions. The Compensation Committee also considers the results of prior advisory stockholder votes on executive compensation.  In light of the favorable vote received at the 2018 annual meeting, the Compensation Committee did not make any changes to our overall executive compensation program as a result of the vote.

 

 

 

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Key Components of Our Compensation Program

 

We design our compensation program to keep our NEOs focused on the long-term success of the Company by making a significant portion of their compensation subject to the achievement of specific performance measures and granting stock-based awards with multi-year vesting periods. Our executive compensation program is comprised of both fixed and variable compensation elements to meet the objectives described above. The fixed elements consist of base salary and health and welfare benefits to provide stability and reliability to the NEOs. These fixed elements are important because they allow our NEOs to focus on our business objectives. However, we believe that variable compensation elements, such as long-term incentive awards and annual cash bonuses, create alignment between the goals of the NEOs and of our stockholders. In addition, the “pay for performance” approach of our annual cash bonuses and our Performance Share Unit awards allows us to incentivize and reward NEOs in years where they have provided the Company with superior services.

 

For each NEO, the Compensation Committee reviews and approves annually each component of compensation and the resulting total compensation. The Committee refers to the individual components of compensation and total compensation to the peer group of companies the Committee selects. In setting the compensation for each NEO, the Committee also considers other factors, including the scope and complexity of his position, level of performance, skills and experience, and contribution to the overall success of the Company. As a result, we do not set compensation for our NEOs in a formulaic manner.

 

Policies and Practices

 

The following is a summary of our compensation policies and practices in place to ensure that our compensation program reflects good governance practices and pay for performance.

 

 

Compensation Consultant

 

Under its charter, the Compensation Committee is authorized to retain a compensation consultant and has the sole authority to approve the consultant’s fees and other retention terms. While the Compensation Committee believes that using third-party consultants is an efficient way to keep current regarding competitive compensation practices, the Committee does not accord undue weight to the advice of outside professional advisors, but instead makes changes in our compensation program in light of whether the program’s intended objectives are being achieved. In fiscal year 2018, the Compensation Committee used the services of one compensation consulting firm, Pearl Meyer & Partners (Pearl Meyer). The Compensation Committee engaged and managed its relationship with the Pearl Meyer executive compensation consultants directly. In addition, Pearl Meyer reported directly to the Compensation Committee with respect to all executive and non-executive director compensation matters.

 

The nature and scope of Pearl Meyer’s engagement by the Compensation Committee included advising the Compensation Committee, as it needed, with respect to all executive compensation matters within the Compensation Committee’s purview. The material elements of the instructions or directions given to Pearl Meyer with respect to the performance of its duties to the Compensation Committee included providing the Compensation Committee with: (1) a competitive market study of executive compensation for our Senior Executive Management; (2) regular updates on notable legislative and regulatory activities; and (3) a review of the risk profile of the proposed incentive performance metrics for fiscal year 2019.

 

 

 

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Selected Peer Group

 

The Committee structures executive compensation so that target total cash compensation and equity incentive compensation opportunities are competitive with comparable positions within comparable companies.

 

The Compensation Committee uses an industry-specific peer group in measuring relative Company performance for purposes of our compensation program. We believe that using an industry-specific group is appropriate because it provides us with the best comparisons for competitive compensation offered by publicly held companies with similar business challenges and the type of leadership talent needed to achieve success over the long-term. Our peer group is comprised of a wide spectrum of companies with respect to revenue and market value in an effort to represent the entirety of the industry where the median is aligned more closely with the revenue and market value of the Company.

 

Our selected peer group consisted of a group of companies in the chemicals and plastics business and a group of companies in the distribution business:

 

 

 

In setting base salaries, target total cash compensation and target long-term compensation, the Committee generally focused on the median of the last reported data from the peer group. The Committee also referred to survey information from nationally recognized compensation surveys.

 

Setting Executive Compensation

 

The Committee does not rely exclusively on peer group data or survey data in establishing target levels of compensation, or employ a rigid or formulaic process to set pay levels. The Committee does utilize peer group data and survey data as one of many tools. In setting compensation levels, the Committee considers the following factors:

 

·                  Competitive data (peer group and other survey data), focusing on the median data as a starting point;

 

·                  Each NEO’s performance;

 

·                  Each NEO’s scope of responsibility and impact on the Company’s performance;

 

·                  Internal equity – an NEO’s compensation relative to his or her peers, direct reports and supervisors;

 

·                The recommendations of the Board’s independent executive compensation consultant, Pearl Meyer, with respect to the NEOs; and

 

·                  The CEO’s recommendations for his direct reports.

 

The Committee evaluates the performance of each NEO in light of our overall financial performance and non-financial performance goals and strategic objectives approved by the Committee and the Board. For fiscal year 2018, as in past years, the Committee structured

 

 

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a compensation package for our NEOs comprised of base salary and benefits coupled with annual and long-term incentives, which we believe provides an appropriate mix of financial security, risk and reward.

 

Base Salary

 

Base salary provides our NEOs with a base level of financial security and supports the Committee’s objectives in attracting and retaining top talent. Base salaries for our NEOs other than the CEO are recommended by our CEO and are reviewed and approved by the Committee. Base salary for our CEO is recommended by the Committee and approved by the Board.

 

Name		2017 Year-End Base Salary		Increase in Annual Salary		2018 Year-End Base Salary
Mr. Bradley		$900,000		--		$900,000
Mr. Crane		$500,000		--		$500,000
Mr. Farnell		$425,000		$35,000		$460,000
Mr. Herington		$450,000		$10,000		$460,000
Mr. Williams		$410,000		$40,000		$450,000

 

2018 base salaries for each of the NEOs were determined in recognition of the responsibilities of their positions, their contributions to the success of the Company, internal equity, and their relative position to the market. The Committee believes that each NEO’s salary was reasonable and appropriate.

 

Bonuses

 

Our Annual Incentive Plan (the Bonus Plan) was adopted to reward Senior Executive Management for improving financial results for our stockholders, to provide a means to link cash compensation to the Company’s short-term performance, and to attract and retain key leaders. The Bonus Plan is a performance program under the stockholder-approved 2016 Nexeo Solutions, Inc. Long-Term Incentive Plan (2016 LTIP). We provide for short-term incentives in order to motivate and reward achievement of, and performance in excess of, the Company’s annual goals.

 

In November 2017, the Compensation Committee met to determine the fiscal year 2018 target award percentages of base salary for our NEOs under the Bonus Plan. The target award percentages of base salary among our NEOs were generally set to be consistent with the median target awards of similar positions within our peer group as provided below.

 

Name		Increase to Target Bonus % of Base Salary		FY 2018 Target Bonus Opportunity % of Base Salary
Mr. Bradley		0%		125%
Mr. Crane		0%		75%
Mr. Farnell		0%		70%
Mr. Herington		0%		65%
Mr. Williams		0%		65%

 

 

 

Each year, the Committee and the Board approve the performance goals under the Bonus Plan, and the Compensation Committee is responsible for certifying the results of the performance goals with respect to bonuses payable to our NEOs. Upon attainment of a threshold performance metric, bonuses under the Bonus Plan for our NEOs are authorized at the highest level, which is then reduced by the Committee to reflect the actual business performance goals achieved and individual performance results. These performance goals are intended to ensure that our NEOs execute on short-term financial and strategic initiatives that drive our business strategy and long-term stockholder value.

 

Key features of the fiscal year 2018 Bonus Plan include the following:

 

·                  A primary emphasis on sustained Company financial performance as measured by Adjusted EBITDA and Adjusted Free Cash Flow; and

 

·                  The recognition of individual achievements, leadership and the overall contribution of participants by making the award subject to an individual performance modifier (which can result in a reduction in the award earned).

 

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The Committee chose Adjusted EBITDA and Adjusted Free Cash Flow as the fiscal year 2018 Bonus Plan metrics because they were considered the key measures of financial performance in the Company’s fiscal 2018 annual operating plan.

 

·                  The level of Adjusted EBITDA aligned with the Target payout level was the fiscal year 2018 operating plan amount, and represented growth over fiscal year 2017 Adjusted EBITDA. Adjusted EBITDA is defined as total earnings before interest, tax, depreciation and amortization, as adjusted for any one-time, non-recurring items, and non-recurring gains and losses.

 

·                  The Committee focuses on Adjusted Free Cash Flow as a performance measure aligned with our objectives of generating cash for debt reduction and growth and reducing our investment in working capital. The target payout level represented significant growth over fiscal year 2017 Adjusted Free Cash Flow. Adjusted Free Cash Flow is defined as cash flow from operating activities, as shown on the Statement of Cash Flows, adjusted for non-recurring, non-operating and special items.

 

·                  The superior performance levels for both of these goals were set at levels by the Committee that were believed to be realistic, but only as the result of exceptional performance.

 

·                 Both metrics may be adjusted as the Compensation Committee deems necessary to reflect extraordinary or non-recurring events such as acquisitions, divestitures and other similar transactions or in its sole discretion as it deems necessary or advisable.

 

The Committee may take into account extraordinary, unusual or infrequently occurring events or significant corporate transactions in deciding to adjust the results used to determine whether or not the Bonus Plan objectives have been met. The Committee retains the right to exercise discretion in determining the final level of the awards paid in order to ensure that the Bonus Plan remains consistent with its stated objectives.

 

Individual Performance

 

At the beginning of fiscal year 2018, individual objectives were set for each NEO. Performance goals typically include both leadership objectives and strategic business objectives. Under the Bonus Plan, NEOs can earn up to 250% of their base target bonus based on Company performance and on the NEO’s individual performance.

 

When the Company’s Adjusted EBITDA performance reaches the threshold level set by the Compensation Committee, bonuses for the NEOs are authorized at the highest level of 250%, and then adjusted downward using an individual performance factor to align the bonus with the Company’s relative achievement of its performance objectives and the NEO’s individual performance.

 

Individual performance was evaluated both by comparing actual performance to the pre-established leadership objectives and considering individual accomplishments not contemplated in the setting of the pre-established objectives. The Committee assessed the performance of the CEO, and the CEO presented his assessment of each other NEO to the Committee. The individual assessment results in an individual performance factor for each participant approved by the Compensation Committee so that the final bonus amount takes into account both Company results and individual performance. In all cases, the Compensation Committee has the exclusive right and sole discretion to reduce or eliminate the bonus amount without regard to achievement of Company or individual performance objectives.

 

Performance Against Our Fiscal 2018 Bonus Plan

 

The following table summarizes the threshold, target and superior performance levels set by the Committee and actual results for the Adjusted EBITDA and Adjusted Free Cash Flow metrics for fiscal year 2018.

 

Performance at the threshold level paid out 70% for the Adjusted EBITDA metric and 30% for the Adjusted Free Cash Flow metric, performance at the target level paid out 100%, and performance at the superior (maximum) level paid out 250%. We used linear interpolation to determine awards for performance between the identified points.

 

 

 

 

 

 

 

 

 

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FY 2018 Bonus Plan
Company Performance Variables	Weight	Threshold	Target	Superior	FY 2018 Results	Achievement Against Target	Achievement Weighting	Performance Factor
Adjusted EBITDA (expressed in millions)	70%	168.0	198.0	278.0	209	119%	70%	83%
Adjusted free cash flow (expressed in millions)	30%	52.0	64.0	102.0	66	108%	30%	32%
						Company Factor:			1.15%

 

 

 

Name		Base Salary ($)		Maximum Bonus ($)		Actual Bonus ($)
Mr. Bradley		900,000		2,812,500		2,587,500
Mr. Crane		500,000		937,500		431,250
Mr. Farnell		460,000		805,000		518,420
Mr. Herington		460,000		747,500		550,160
Mr. Williams		450,000		731,250		538,200

 

Long-Term Equity-Based Incentives

 

Long Term Incentive Plan

 

We believe it is important to provide a long-term incentive opportunity to our NEOs charged with driving sustainable growth and long-term value creation for the Company, further aligning their interests with those of our stockholders. In fiscal year 2018, we did this through grants of Non-Statutory Stock Options, Restricted Stock (RSAs) and Performance Share Units (PSUs), which are designed to ensure an incentive that is performance-based and retentive in nature.

 

The Compensation Committee considers grant values and grant terms from both our peer group and survey information when establishing long-term incentives for management. While the Committee generally believes that median values and typical terms are competitive and provide an appropriate balance of opportunity and reward to management without heightened compensation-related risk, the Committee will authorize values above or below the median and different terms where it believes it is in the interest of the Company and its stockholders to do so in light of the factors mentioned above.

 

The Non-Statutory Stock Options and RSAs granted in fiscal year 2018 each vest over a three-year period.  The PSU grant performance measure for awards granted in fiscal 2018 is Return on Invested Capital (ROIC) measured over a three-year performance period. The ROIC metric was selected to emphasize the linkage between our pay-for-performance philosophy and our stockholders’ interests, and is intended to focus Company leadership on superior value creation during the three-year performance period and beyond. Earned PSU grants cliff vest at the end of the three-year performance period.

 

The Committee believes that the 2018 grants result in an equity incentive approach that aligns the pay for performance of our executives with the investment returns experienced by our long-term stockholders.

 

On September 17, 2018, the Company and Univar entered into a Merger Agreement providing for the acquisition of the Company by Univar, pursuant to which the PSUs will be cancelled in exchange for the grantee’s right to receive merger consideration under the Merger Agreement with respect to a number of Shares subject to such PSUs based on the Company’s actual performance through the consummation of the transactions contemplated by the Merger Agreement.  On December 11, 2018, the Company amended the award agreements pursuant to which the 2016 PSUs were granted to provide that actual performance will be based on the actual levels of performance through the consummation of the transactions contemplated by the Merger Agreement, or if greater, at the threshold levels of performance.

 

 

 

 

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Executive Agreements - David A. Bradley Employment Agreement

 

On June 9, 2016, in connection with the closing of the Business Combination, the Company entered into a new employment agreement with David A. Bradley (the Employment Agreement) for Mr. Bradley to serve as President and Chief Executive Officer of the Company. The Employment Agreement provides for an initial employment term ending on September 30, 2019, and automatically renews for successive one-year periods unless otherwise terminated by either party in accordance with the Employment Agreement. The Employment Agreement further provides that Mr. Bradley (1) will receive an annual base salary of at least $900,000, which may be increased from time to time as determined by the Board, (2) is eligible to receive a target annual bonus of 1.25 times his annual base salary provided certain pre-established performance criteria are met, and (3) is entitled to participate in the long-term incentive and benefit plans of the Company and its affiliates.

 

None of the other NEOs have a formal employment agreement with the Company.

 

Severance and Change in Control Benefits

 

As more fully discussed in the “Potential Payments Upon Termination or a Change in Control” section below, Mr. Bradley’s employment agreement contains provisions that provide for severance and change-in-control benefits. Additionally, the Non-Statutory Stock Option, Restricted Stock and PSU award agreements granted to NEOs contain accelerated vesting provisions upon a change-of-control.  Acceleration of the PSUs is subject to satisfaction of certain applicable performance goals of the Company.  NEOs other than Mr. Bradley are also covered under the Company’s Amended and Restated Nexeo Solutions, Inc., Severance Plan for US Officers and Executives (Severance Plan), which is more fully discussed in the “Potential Payments Upon Termination or a Change of Control” section below.

 

We believe that the severance protection and change-of-control provisions that cover our NEOs create important retention tools for the Company and allow our NEOs to focus their attention and energy on making the business decisions that are in the best interests of the Company and our stockholders without clouding the decision-making process with personal considerations.

 

Clawback Policy

 

The 2016 LTIP contains a forfeiture and recoupment policy provision for cash and equity awards paid to an awardee (including NEOs and other recipients) in the event of a restatement of financial results due to the misconduct of the awardee or the failure of the awardee to prevent such misconduct. Awards may also provide for cancellation, forfeiture, reduction, or recoupment upon the occurrence of certain specified events, such as termination of employment for cause, violation of Company policies, breach of noncompetition or confidentiality covenants, or other conduct by an employee that is detrimental to the business or reputation of the Company.

 

Deductibility of Executive Compensation

 

In determining the total compensation of each NEO, the Committee considers the tax deductibility of compensation. The Committee believes it is in our best interest and that of our stockholders to provide compensation that is tax deductible by the Company. While the Committee intends that all compensation be deductible, there may be instances where potentially non-deductible compensation is provided to reward executives consistent with our compensation philosophy for each compensation element.

 

Other Benefits

 

NEOs participate in the same health and welfare benefit plans offered to other Nexeo Solutions employees, including 401(k), medical, prescription drug, dental, vision, short- and long-term disability, and the wellness and employee assistance programs. The same contribution amounts, deductibles and plan design provisions are generally applicable to all employees.  We also maintain an executive deferred compensation plan for our Senior Executive Management, including NEOs (Excess Benefit Plan). More information is provided below under the heading “Excess Benefit Plan.” Payouts under the Excess Benefit Plan are included in the Summary Compensation Table below and described in further detail under the heading “Nonqualified Deferred Compensation.”

 

Perquisites

 

Our perquisites are intended to be limited in nature, and are focused in areas directly related to a business purpose, or in helping to foster the health, security and well-being of our senior executives for the benefit of the Company.

 

When an NEO is required to geographically relocate in order to join the Company, or is asked to relocate due to a change in their work location after joining the Company, they are entitled to participate in our relocation benefit program, and receive benefits available to other similarly situated employees. The relocation benefits include temporary living assistance and moving costs that typically occur

 

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during the first twenty-four months of his or her employment with the Company. Certain relocation expenses are grossed-up for taxes, as is the competitive practice within our peer group, and more broadly, in the general marketplace.

 

We also pay the cost of executive physical exams and our policy is to not provide tax gross-ups on such amounts to NEOs. Perquisites for NEOs are included in the Summary Compensation Table below.

 

Pension Benefits

 

We do not sponsor or maintain any plans that provide for specified retirement payments or benefits, such as tax-qualified defined benefit plans or supplemental executive retirement plans, for our NEOs.

 

Other Compensation Items

 

We do not structure our compensation program according to any particular tax or accounting policies, nor do we have an official equity ownership policy for our NEOs.

 

Chief Executive Officer Pay Ratio

 

As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of Mr. David A. Bradley, our Chief Executive Officer.

 

The principles that guide us for our executive compensation program are not different than those for the organization at large:

 

·                     We use the market median as our reference point for our compensation and benefits program.

 

·                     The market median is specific for the country in which we compete for talent.

 

·                     The market median is also specific for the job level for each of our employees.

 

·                  The market median also determines the mix between base pay, short term incentive pay, long term equity and benefits; as the job level increases we typically see an increase on total compensation as well as an increase in that portion of total compensation that is equity based and the portion that is based on performance.

 

We disclose below the ratio of Mr. David A. Bradley, our Chief Executive Officer’s (CEO’s), annual total compensation relative to the annual total compensation of the median employee of the Company for the year ended September 30, 2018. As permitted or required by Item 402(u) of Regulation S-K, our process for determining the total employee population and the median employee annual total compensation included the following factors.

 

·                     Employee population

 

○             We used our global system of record for all of our employees worldwide.

 

○              We included all employees, whether a salaried employee or an hourly worker, and whether employed on a full-time, part-time or seasonal basis.

 

○              We used September 30, 2018 as our determination date.

 

○              To allow for comparisons across international jurisdictions, we converted into U.S. dollars any base cash compensation amounts denominated in non-U.S. currencies.

 

○              We did not adjust for global cost of living differences.

 

·                     Consistently applied compensation measure

 

○              We determined the median employee annual total compensation by using a consistently applied compensation measure, namely, base salary or wages (“base cash compensation”), for all individuals, excluding our CEO, who were employed by us on September 30, 2018.

 

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○              For part-time workers, we did not adjust base cash compensation to the equivalent for a full time employee.

 

○              For hourly employees, base cash compensation is based on their hourly rate in combination with an assumption of 2080 hours per year.

 

Applying these and other relevant factors, we identified a median employee with total compensation (calculated in accordance with Item 402(c)(2)(x) of Regulation S-K) of $53,830 for the year ended September 30, 2018. Total compensation for our CEO for the year ended September 30, 2018, including bonus, long-term incentives and all other compensation, was $5,726,564. Accordingly, for the year ended September 30, 2018, the ratio of our CEO’s total compensation to that of our median employee was approximately 106 to one.

 

We believe that the above pay ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K. In addition, because the Securities and Exchange Commission rules for identifying the median employee allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.

 

 

 

 

 

 

 

COMPENSATION COMMITTEE REPORT

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis section of this Proxy Statement with management and, based on such review and discussion, recommended to the Board of Directors that it be included in this Proxy Statement.

 

	Compensation Committee
	Dan F. Smith, Chair
	Brian A. Selmo
	Nathan H. Wright

 

December 7, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Summary Compensation Table for the 2018 Fiscal Year

 

The table below sets forth the annual compensation earned by our NEOs during the 2016, 2017, and 2018 fiscal years.

 

Name and Principal Position		Year		Salary ($)(1)			Bonus ($)(2)			Option Awards ($)(3)			Non-Equity Incentive Plan Compensation ($)(4)			Stock Awards ($)(5)			All Other Compensation ($)(6)			Total ($)
David A. Bradley		2018		$	900,000		$	—		$	764,730		$	2,587,500		$	1,348,380		$	125,954		$	5,726,564
Chief Executive
Officer		2017		$	900,000		$	—		$	—		$	787,500		$	440,100		$	91,146		$	2,218,746
		2016		$	913,077		$	—		$	42,857		—			$	2,739,000		$	154,070		$	3,849,004
Ross J. Crane		2018		$	500,000		$	—		$	195,202		$	431,250		$	343,665		$	61,530		$	1,531,647
Chief Financial
Officer		2017		$	500,000		$	52,500		$	—		$	262,500		$	81,500		$	76,134		$	972,634
		2016		$	513,200		$	—		$	—		$	262,500		$	1,004,300		$	69,643		$	1,849,643
Michael B. Farnell, Jr.		2018		$	460,000		$	—		$	195,202		$	518,420		$	343,665		$	49,321		$	1,566,608
Chief Administrative Officer
		2017		$	419,808		$	52,500		$	—		$	208,250		$	326,000		$	57,667		$	1,064,225
		2016		$	425,769		$	—		$	—		$	184,500		$	639,100		$	51,255		$	1,300,624
Brian K. Herington		2018		$	460,000		$	—		$	172,237		$	550,160		$	303,240		$	54,206		$	1,539,843
Executive Vice President,
Chemicals (7)		2017		$	443,077		$	—		$	—		$	204,750		$	345,200		$	272,364		$	1,265,391
		2016		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Shawn D. Williams,		2018		$	450,000		$	—		$	172,237		$	538,200		$	303,240		$	49,855		$	1,513,532
Executive Vice President,
Plastics		2017		$	406,769		$	—		$	—		$	186,550		$	40,750		$	56,321		$	690,390
		2016		$	388,154		$	—		$	—		$	171,000		$	821,700		$	53,914		$	1,434,768

 

(1)	Amounts in this column reflect the salary earned by each of the executive officers. At the beginning of the 2018 fiscal year, the base salaries for Messrs. Bradley, Crane, Farnell, Herington, and Williams were $900,000, $500,000, $425,000, $450,000, and $410,000, respectively. On November 2, 2017, the Compensation Committee voted to adjust the base salary for Messrs. Farnell, Herington and Williams to $460,000, $460,000 and $450,000, respectively.
(2)	Amounts in this column for the 2017 fiscal year reflect discretionary bonuses awarded which were paid concurrent with the fiscal year 2017 Bonus Plan awards on December 8, 2017. The bonuses were paid to recognize performance during the 2017 fiscal year.

 

 

 

 

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(3)	The values in this column for fiscal year 2018 represent the value of the stock options granted to Nexeo Holdings’ NEOs on November 2, 2017, in accordance with ASC Topic 718 under the Company’s current long term incentive plan.  The amounts for fiscal year 2018 were calculated using a grant date fair value of $2.84.  The fair value of each stock option granted in fiscal year 2018 was determined using a discounted cash flow analysis and a Black-Scholes Option Pricing Model with the following valuation assumptions:  expected term of 6 years, expected price volatility of 35.0%, a risk-free interest rate of 2.12% and an expected distribution yield of 0%.  The values in this column for prior fiscal years represent the grant date fair value of Holdings Series B Units granted to Nexeo Holdings’ NEOs on the respective date of each grant computed in accordance with ASC Topic 718 under the Company’s previous long-term incentive plan. We believe that, despite the fact that the Holdings Series B Units did not require the payment of an exercise price, they are most similar economically to stock options, and as such, they are properly classified as “options” under the definition provided in Item 402(a)(6)(i) of Regulation S-K as an instrument with an “option-like feature.” The amount included for Mr. Bradley for a grant during fiscal year 2016, was calculated using a $0.12 weighted average unit price based on the respective date of the grants.  The fair value of each unit of profits interest granted in fiscal year 2016 was determined using a discounted cash flow analysis and a Black-Scholes Option Pricing Model with the following valuation assumptions: expected term between 1 and 4 years, expected price volatility of 39.6% to 47.1%, a risk-free interest rate of 0.61% to 1.18% and an expected distribution yield of 0%.
(4)	Bonus Plan awards for fiscal year 2018 were paid on December 7, 2018.
(5)	The amounts in this column for fiscal year 2018 reflect the grant date fair value of PSUs and RSAs awarded to the NEOs on the respective date of each grant computed in accordance with ASC Topic 718.  The amount for each NEO was calculated using the grant date fair value of $7.50 per unit based on the date of the grants, November 2, 2017, based on the Company’s closing stock price at that date.   Mr. Bradley was granted 89,892 number of PSUs and RSAs.  Messrs. Crane and Farnell were each granted 22,911 number of PSUs and RSAs.  Messrs. Herington and Williams were each granted 20,216 number of PSAs and RSAs.
(6)	The amounts in this column for fiscal year 2018 reflect the total dollar value of taxable relocation assistance paid, retirement plan contributions, and other benefits earned by NEOs as indicated in the table below.
(7)	No amounts are reflected for Mr. Herington for fiscal year 2016 because he did not begin his employment with the Company until September 30, 2016, receiving his first payment for services in October 2017.

 

Name		Taxable Relocation Assistance			401(k) Contributions			Excess Benefit Plan Contributions(1)			Other(2)			Total
Mr. Bradley		$	—		$	36,200		$	84,125		$	5,629		$	125,954
Mr. Crane		$	—		$	23,225		$	34,025		$	4,280		$	61,530
Mr. Farnell		$	—		$	21,690		$	26,821		$	810		$	49,321
Mr. Herington		$	—		$	20,937		$	30,404		$	2,866		$	54,207
Mr. Williams		$	—		$	19,558		$	22,324		$	7,974		$	49,856

 

(1)	The amounts in this column represent excess plan contributions made by the Company to each NEO’s account thereunder during fiscal year 2018.
(2)	The amounts in this column represent the aggregate amounts paid by the Company or taxable to the respective NEO for life insurance premiums, executive physicals, or executive spousal travel, none of which exceeded $10,000 as a category for any NEO.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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