Deltic Timber DEF 14A 2016
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
Check the appropriate box:
DELTIC TIMBER CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
DELTIC TIMBER CORPORATION
NOTICE OF ANNUAL MEETING
To The Stockholders of
Deltic Timber Corporation:
The Annual Meeting of Stockholders of Deltic Timber Corporation (Deltic or the Company) will be held at the South Arkansas Arts Center, 110 East 5th Street, El Dorado, Arkansas, on Thursday, April 28, 2016, at 10:00 a.m., Central Daylight Savings Time, for the following purposes:
To transact such other business as may properly come before the meeting and any adjournment thereof.
Holders of record of Deltic Common Stock at the close of business on March 7, 2016, will be entitled to vote with respect to this solicitation. Stockholders are reminded that your shares of Deltic Common Stock cannot be voted unless you follow the telephonic or internet voting procedures set forth on the enclosed proxy card, or execute and return the enclosed proxy card, or make other arrangements to have your shares represented at the meeting.
A copy of the 2015 Annual Report to Stockholders and Annual Report on Securities and Exchange Commission (SEC) Form 10-K are enclosed.
By Order of the Board of Directors,
Jim F. Andrews, Jr.
El Dorado, Arkansas
March 21, 2016
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE VOTE EITHER TELEPHONICALLY OR ON THE INTERNET AS INSTRUCTED ON THE ENCLOSED PROXY CARD OR YOU MAY COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
Important notice regarding the availability of proxy materials for the Annual Meeting to be held on April 28, 2016. The Companys Proxy Statement and Annual Report to security holders for the fiscal year ended December 31, 2015 are also available at http://www.deltic.com.
DELTIC TIMBER CORPORATION
210 East Elm Street
El Dorado, Arkansas 71730
This Proxy Statement and the accompanying proxy card are being furnished in connection with the solicitation of proxies on behalf of the Board of Directors of Deltic Timber Corporation (Deltic or the Company) for the Annual Meeting of Stockholders (Annual Meeting) to be held on April 28, 2016, in El Dorado, Arkansas. Only stockholders of record at the close of business on March 7, 2016, (the Record Date) are entitled to notice of, and to vote at, the meeting. There were 12,144,139 shares of Deltic Common Stock outstanding and entitled to vote on March 7, 2016. This amount does not include 669,740 shares of treasury stock. Each share of outstanding Deltic Common Stock is entitled to one vote on each matter properly brought before the meeting.
Commencing approximately on March 21, 2016, the Company will mail its Annual Report for the year ended December 31, 2015 and its Annual Report on Form 10-K for 2015 as filed with the Securities and Exchange Commission (SEC), together with this Proxy Statement and the enclosed proxy card to holders of Deltic Common Stock on the Record Date.
VOTING OF PROXIES
Your vote is important. Shares can be voted at the Annual Meeting only if you are present in person or represented by proxy. Even if you plan to attend the meeting, you are urged to vote either telephonically or on the internet or to sign, date and return the accompanying proxy card.
When you vote by one of these three methods, stock represented by the proxy will be voted in accordance with your directions. You can specify your voting instructions by following the instructions for telephonic or internet voting on the enclosed proxy card or by marking the appropriate spaces on the proxy card and signing, dating and returning the proxy card. If you so elect when prompted in the telephonic or internet voting process, or if your proxy card is signed and returned without specific voting instructions, your shares of Deltic Common Stock will be voted as recommended by the Board of Directors: FOR the election of the four nominees for director named in the proxy card; FOR the ratification of the selection of KPMG LLP as the Companys independent auditors for 2016; and FOR the Companys executive compensation.
You may change your voting instructions or revoke your proxy at any time before it is voted at the meeting by: (a) re-voting telephonically or on the internet at any time up to 1:00 a.m. CDT on April 28, 2016, the date of the meeting (only the latest telephonic or internet votes will be counted); (b) executing a later-dated proxy; (c) voting by ballot at the meeting, however your mere attendance at the meeting will not revoke your proxy unless you vote in person at the meeting; or, (d) filing a notice of revocation with the inspectors of election in care of the Secretary of the Company at the above address.
The presence, in person or by proxy, of the holders of at least a majority of the shares of Deltic Common Stock outstanding on the Record Date is necessary to have a quorum for the Annual Meeting. Abstentions and broker non-votes are counted as present for purposes of determining a quorum. A broker non-vote occurs when a nominee holding shares of Deltic Common Stock for a beneficial owner does not vote on a particular non-routine proposal because the nominee does not have discretionary voting power with respect to that item pursuant to the applicable rules of the New York Stock Exchange (NYSE) and has not otherwise received voting instructions from the beneficial owner.
The election of directors (Item 1), and the advisory approval of the Companys executive compensation (Item 3) are considered non-routine matters under applicable NYSE rules and, therefore, if you hold your shares through a bank, broker or other similar organization, the organization may not vote your shares on these voting items absent specific instructions from you. Accordingly, there may be broker non-votes with respect to these matters.
Pursuant to Delaware law and assuming a quorum is present, the affirmative vote of a plurality of the votes cast by the shares entitled to vote in the election of directors (Item 1) at the Annual Meeting is required for the election of each nominee to the Board of Directors. Abstentions and broker non-votes are not counted as votes cast and will have no effect on the outcome of the vote.
Generally, our bylaws provide that approval of any matter presented to stockholders (other than the election of directors) requires the affirmative vote of a majority of the shares present, in person or by proxy, at the Annual Meeting and entitled to vote on the subject matter. Accordingly, the affirmative vote of a majority of the shares present, in person or by proxy, at the Annual Meeting is required to approve the appointment of KPMG LLP as independent auditors of the Company for the year 2016 (Item 2). Abstentions will have the same effect as a vote against this voting item. Brokers, banks and other nominees holding shares of Deltic Common Stock for beneficial owners have discretionary voting power on this voting item, and broker non-votes will not occur with respect to this matter.
The vote required for the approval of the Companys executive compensation (Item 3) is merely advisory and is not binding on the Company, the Board of Directors, or the Executive Compensation Committee of the Board of Directors. Despite the fact this vote is non-binding, the Board of Directors will take the results of this vote under advisement. With respect to Item 3, abstentions will have the same effect as a vote against, but broker non-votes will not be counted as votes cast and will have no effect on the outcome of the vote.
SOLICITATION OF PROXIES
Solicitation of proxies may be made by directors, officers, or employees of the Company through the mail, in person and by telecommunications. The cost of soliciting proxies will be borne by the Company. In accordance with the regulations of the SEC and the NYSE, the Company will also reimburse brokerage houses and other custodians, nominees, and fiduciaries for their expenses incurred in sending proxies and proxy materials to the beneficial owners of Deltic Common Stock.
PROCEDURES FOR STOCKHOLDER NOMINATIONS AND PROPOSALS
Nominations. Under the Companys Amended and Restated Bylaws (the Bylaws), nominations for director may be made only by the Board of Directors (or a committee of the Board of Directors), or by a stockholder that meets the requirements set forth in the Bylaws. The Bylaws require that for stockholder nominations, a written notice be delivered to the Companys Secretary at the Companys principal executive
offices, which are located at 210 East Elm Street, El Dorado, Arkansas 71730, not less than 90 days prior to the first anniversary of the most recent annual meeting of stockholders, which for the 2017 Annual Meeting of Stockholders, will be January 28, 2017. The written notice must be made by a stockholder of record at the time of giving the notice and who shall be entitled to vote for election of directors at the meeting for which the stockholders nomination relates. The written notice shall set forth as to the candidate all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, including such candidates written consent to be named in the Proxy Statement as a nominee and to serving as a director if elected. The notice shall also set forth as to the stockholder, the name and address as they appear on the Companys books of such stockholder and the number of shares of the Companys Common Stock that are beneficially owned by the stockholder. The Board of Directors Nominating and Corporate Governance Committee (Committee) has been delegated the responsibility to oversee searches for, and to identify, qualified individuals for membership on the Companys Board of Directors. The Committee will duly consider candidates for nomination that may be submitted by stockholders in compliance with the applicable provisions of the Bylaws, and will not apply different criteria to candidates submitted by a stockholder than it applies to other candidates. Generally, the Committee reviews a candidates qualifications by considering criteria approved by the Board of Directors, a candidates satisfaction of applicable independence measures (and enhanced independence, financial literacy and financial expertise standards for potential Audit Committee members), while also taking into consideration current challenges and needs of the Board of Directors regarding issues of judgment, age, skills, background and experience. In addition, although the Company does not have a specific diversity policy, it considers the diversity of the candidate with regard to viewpoint, professional experience, education and skills that are relevant to the Companys activities. Other specific criteria used by the Committee in reviewing a candidates qualifications are that the candidate shall have the highest personal and professional ethics, integrity and values and have evidenced in their personal and professional affairs proper judgment, independence, business acumen and an understanding of the Companys, or related, industries.
Proposals. The Bylaws also provide that, except for stockholder proposals submitted in a timely manner for annual stockholders meetings, no business may be brought before any stockholders meeting unless specified in the notice of meeting or at the direction of the Board of Directors. The Bylaws further set forth procedures and requirements, including notice to the Company, for stockholders to submit business for proper consideration at annual meetings. Any stockholder who is a stockholder of record at the time of his/her notice, maintains his/her stock ownership so that he/she is entitled to vote at the annual stockholders meeting and adheres to the Bylaws procedures and requirements, shall be entitled to present business for consideration at such meeting. In order to present business for consideration at an annual stockholders meeting, a stockholder must submit a notice which sets forth a description of the nature of the business to be considered, the stockholders name and address as it appears in the records of the Company, the number of shares beneficially owned and any material interest of the stockholder in the business sought to be included. In order to be timely, the notice must be received by the Companys Secretary at the principal executive office of the Company not less than 90 days prior to the anniversary of the preceding annual meeting, which for the 2017 Annual Meeting of Stockholders will be January 28, 2017. These requirements are separate and apart from, and in addition to, the SECs requirements that a stockholder must comply with in order to have a stockholder proposal included in the Companys proxy materials.
Any stockholder proposal to be presented at the 2017 Annual Meeting of Stockholders should be directed to the Secretary of the Company, and must be received by the Company on or before November 21, 2016 in order to be eligible for inclusion in the Companys proxy statement and form of proxy. Any such proposal must comply with the requirements of Rule 14a-8 of the Securities Exchange Act of 1934 (or any successor rule) and with the requirements of the Companys Bylaws.
A copy of the full text of the Companys Amended and Restated Bylaws may be obtained upon written request to the Companys Secretary at the above provided Company address.
STOCKHOLDER, EMPLOYEE, AND INTERESTED PARTY
COMMUNICATION WITH DIRECTORS
As set forth in the Companys Corporate Governance Guidelines, it is the policy of the Board of Directors that stockholders, employees, and other interested parties are able to communicate directly with members of the Board of Directors, including non-management and independent directors. All communications should be directed to the Companys Secretary, at the Companys principal executive offices, 210 East Elm Street, El Dorado, Arkansas 71730, and should prominently indicate on the outside of the envelope that it is intended for a specified director or to the non-management or independent directors of the Company as a group. Each communication intended for a director and received by the Secretary which is related to the operation or governance of the Company, and is not otherwise commercial in nature, will be promptly forwarded to the specified party following its clearance through normal security procedures. Employees of the Company may also utilize this communication procedure. Alternatively, employees may, if they so desire, utilize the confidential and/or anonymous procedures to send written, electronic, or toll-free telephonic communications through a third party as established under the Companys whistle-blower policy. Communications of a financial or fraudulent nature under the whistle-blower policy are initially directed to the Chairman of the Board of Directors Audit Committee.
The Company was incorporated in Delaware on September 4, 1996, in anticipation of the spin-off by Murphy Oil Corporation of its farm, timber and real estate business, then conducted by Deltic Farm & Timber Co. Inc., an Arkansas corporation (Deltic Farm & Timber). Effective December 17, 1996, Deltic Farm & Timber was merged with and into the Company and, effective December 31, 1996, Murphy Oil Corporation distributed all of the shares of the Companys Common Stock.
THE BOARD OF DIRECTORS
The responsibility and authority for managing the business of the Company rest with its Board of Directors (also the Board), which is elected by the Companys stockholders. The Chairman of the Board of Directors, the independent directors, and the Chief Executive Officer bring different perspectives and roles to the Companys management, oversight and strategic development. The Companys directors bring experience and expertise from both inside and outside the Company and its industry, while the Chief Executive Officer is most familiar with the Companys business and its industry, and most capable of leading the execution of the Companys strategy. The Board has determined that it remains advantageous and a benefit for the Company and its stockholders that the positions of Chairman of the Board and President and Chief Executive Officer be bifurcated because it provides the appropriate balance between strategy development and independent oversight of management. Pursuant to this structure, the Chairman is responsible for running the Board and the Chief Executive Officer is responsible for running the Company. The position of the Companys Chairman of the Board is held by Robert C. Nolan, who is not an employee or executive of the Company. As Chairman, Mr. Nolan provides leadership to the Board and facilitates communication among the directors. He also works with the Chief Executive Officer in setting the Board agenda and regularly conducts executive sessions of the Board in which management does not participate. The Board of Directors sets strategic policy, approves business plans, and delegates authority to execute its policies and plans to the President and Chief Executive Officer.
Management is responsible for the day-to-day risk management processes of the Company, subject to Board oversight. The Board exercises risk management oversight both directly and indirectly, the latter through various Board Committees. The Board reviews information regarding the Companys credit, liquidity and operations, including the risks associated with each at its regularly scheduled Board meetings and Board Committee meetings. The Companys Executive Compensation Committee is responsible for overseeing the management of
risks relating to the Companys executive compensation plans and arrangements including the retention of capable, competent, and qualified people in management positions. The Audit Committee is responsible for oversight of financial risks, including the steps the Company has taken to monitor and mitigate these risks. The Nominating & Governance Committee, in its role of reviewing and maintaining the Companys corporate governance guidelines, manages risks associated with the independence of the Board and potential conflicts of interest. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board is regularly informed through committee reports about such risks. The Boards risk management oversight role has not specifically affected the Boards leadership structure.
During 2015, Deltics Board of Directors held five regularly scheduled meetings. Also during the year, the Boards Audit Committee, Executive Committee, Executive Compensation Committee, and Nominating and Corporate Governance Committee, held nine, five, two, and nine meetings, respectively. It is the policy of the Board of Directors that directors attend stockholder, Board of Directors, and committee meetings unless extenuating circumstances make such attendance impracticable. During 2015, all directors attended at least 90% of the aggregate number of Board meetings and their respective Board committee meetings. All directors attended the Companys 2015 Annual Meeting of Stockholders.
To assist in fulfilling its responsibilities, Deltics Board of Directors has established four principal committees: the Audit Committee; the Executive Committee; the Executive Compensation Committee and the Nominating and Corporate Governance Committee. These committees are briefly described as follows:
The Audit Committee meets regularly with the Companys independent auditors and internal auditor to assist the Board of Directors in fulfilling its oversight responsibility relating to the integrity of the Companys financial statements and other public disclosures, and the Companys compliance with legal and regulatory requirements, as well as assessing the qualifications, performance and independence of the Companys independent auditors and the performance of the Companys internal audit function. The Committee is responsible for selecting the Companys independent auditors. The Committee approves all audit, audit-related and non-audit services of the independent auditors. The Committee is chaired by Mr. Roach with its other members being Messrs. Coley, Pierson, Lemmon, and Ms. Sullivan. Each member of the Committee has been affirmatively determined by the Board of Directors to be independent under applicable criteria for Committee membership under Section 10A-3(b)(1) of the Securities Exchange Act of 1934, as amended, and Section 303A of the NYSEs Corporate Governance rules, and to meet financial literacy standards. In addition, the Board of Directors has designated Mr. Roach as the Committees financial expert based upon his professional experience and attributes. A copy of the Committees written charter can be accessed on the Companys website at www.deltic.com under the Corporate Governance part of the Investor Relations section. Please see pp. 51-52 of this Proxy Statement for the Committees 2015 report.
The Executive Committee generally meets in the months that no meeting of the Board of Directors is scheduled and acts as surrogate for the Board of Directors by maintaining surveillance over operations and exercising the general powers of the Board of Directors when the Board of Directors is not in session. The Committee does not have the power, among other things, to: declare dividends; issue stock; amend the Bylaws; or, approve any merger or share exchange. The Committee is chaired by Mr. Nolan with its other members being Messrs. Dillon, Murphy, and Roach. Except for Mr. Dillon, each member of the Committee has been affirmatively determined by the Board of Directors to be independent under applicable criteria established in Section 303A of the NYSEs Corporate Governance rules.
The Executive Compensation Committee represents for some matters and otherwise acts to assist the Board of Directors, in other matters, in fulfilling its oversight responsibility for the Company, to oversee the Companys equity-based and other compensation and benefits plans and policies. The Committee administers the
Companys annual incentive and stock incentive plans and is authorized under the Companys stock incentive plans to make awards of incentive and non-qualified stock options, restricted stock, performance units and other types of awards permitted under the plans. The Committee also acts upon the recommendations of the Nominating and Corporate Governance Committee regarding equity-based compensation for the Companys non-employee directors under the Companys 2002 Stock Incentive Plan, as amended by the Companys stockholders on April 26, 2012. Additionally, the Committee reviews the performance levels of Deltics executive officers and determines base salaries and short and long-term incentive awards for such executive officers, including the Companys President and Chief Executive Officer. Further, the Committee reviews and reports to the Board of Directors on the Companys succession planning. The Committee is chaired by Mr. Murphy, with its other members being Messrs. Nolan, ex officio, Pierson, Tudor, Lemmon, Jones, and Rev. Keller. Each member has been affirmatively determined by the Board of Directors to be independent under applicable criteria established in Section 303A of the NYSEs Corporate Governance rules. A written charter for the Committee can be accessed on the Companys website at www.deltic.com under the Corporate Governance part of the Investor Relations section.
The duties of the Board of Directors Nominating and Corporate Governance Committee include: the identification of individuals qualified to become directors and recommendation to the Board of Directors of nominees for election at the next annual or special meeting of stockholders at which directors are to be elected, or to fill vacancies or newly created directorships that may occur between such meetings; recommendation of directors for appointment to the committees of the Board of Directors; oversight of the evaluation of the Board of Directors and each of its committees and members; establishment of the cash component of compensation of non-employee directors and recommendation to the Boards Executive Compensation Committee of equity components of compensation of the non-employee directors of the Company; and, the review, suggestion of changes to and oversight of compliance with the Companys Corporate Governance Guidelines and Code of Business Conduct and Ethics. More specific responsibilities of the Committee on governance related matters include: the evaluation of the appropriateness of continued membership on the Companys Board of Directors upon a change in circumstance in and to professional roles and responsibilities of a director, or upon a director deciding to serve on another public company board that would be expected to require a significant devotion of time by such director; the review of any requests for waivers from provisions of the Companys Code of Business Conduct and Ethics; the review of situations that may involve a potential conflict of interest on the part of a director; and the review of and authority to approve or disapprove all proposed related party transactions between the Company and its directors. The Committee is chaired by Rev. Keller with its other members being Messrs. Murphy, Nolan, ex officio, Roach and Coley. Each member has been affirmatively determined by the Board of Directors to be independent under applicable criteria established in Section 303A of the NYSEs Corporate Governance rules. A written charter for the Committee can be accessed on the Companys website at www.deltic.com under the Corporate Governance part of the Investor Relations section.
Preceding sections of this Proxy Statement have referenced the determination of the Board of Directors regarding the independence of the Companys directors, the Companys Code of Business Conduct and Ethics and Corporate Governance Guidelines. This section provides additional information concerning these subjects.
Annually, or if the circumstances dictate a more frequent basis, the Board of Directors considers the independence of each director. To be considered independent, a director must be affirmatively determined by resolution to have no material relation with the Company other than as a director. In each case, broad consideration is given to all relevant facts and circumstances, not only as to the respective director, but also as to persons or organizations with which the director has an affiliation. Consistent with published commentary by the NYSE regarding determinations of independence, the Board of Directors has deemed that a primary consideration is independence from the Companys management, so that the Board of Directors essential oversight role over the affairs of the Company is not compromised due to any such relationship. Ownership of
even a significant amount of the Companys stock, by itself, is not viewed as a bar to an independence determination, but rather, stock ownership by the Companys directors is required in order to align directors interests with those of all stockholders and to provide additional incentive for proper and effective stewardship.
Categorical standards adopted by the Board of Directors to assist in its independence determinations are: (a) a director will not be determined to be independent if, (i) within the preceding three years, the director was an employee of the Company or an immediate family member was employed by the Company or its subsidiaries as an executive officer, or (ii) the director is currently an employee or partner of the Companys independent auditor, or an immediate family member is a current partner or an employee of the Companys independent auditor who participated in the Companys audit, assurance or tax compliance practice, or was within the last three years (but is no longer) or the director or an immediate family member was a partner or employee of such firm and personally worked on the Companys audit within that time, or (iii) any executive officer of the Company was a member of the compensation committee of the board of directors of a company that employed either the director or an immediate family member of the director as an executive officer; (b) a director will not be determined to be independent if the director or an immediate family member has received more than $120,000 in direct compensation (not including director and committee fees) from the Company during any twelve month period within the last three years; (c) a director will not be determined to be independent under applicable standards for Audit Committee membership if the director or the directors immediate family members and/or affiliates have received during the last three years any consulting, advisory or other compensatory fee from the Company and its subsidiaries other than director and committee fees, or if the director is an affiliated person of the Company owning 10 percent or more of the Companys stock; and, (d) a director will not be determined to be independent if the director is an employee of, or whose immediate family members is a current executive officer of, another company that has made payments to or received payments from the Company for property or services in an amount that in any of the last three fiscal years exceeds the greater of $1,000,000 or two percent of the other companys consolidated gross revenues.
During its deliberations regarding director independence, in addition to the categories and factors identified above, the Board of Directors also reviewed the extent of all commercial relationships, including immaterial relationships, between the Company and its directors and their respective immediate family members and affiliates. Land management services provided by the Company were on the same terms and conditions as for all land management clients and were specifically reviewed and determined to be immaterial relationships that did not affect director independence. Sales of the Companys lumber products were similarly reviewed and determined to be immaterial relationships and did not affect direct independence. The Companys 2015 purchase of the office building used as its corporate headquarters from Union Holdings, LLC, in which Mr. Murphy has an indirect interest was also specifically reviewed and determined to be an immaterial relationship and did not affect his independence.
Following its deliberations, the Board of Directors affirmatively determined that Messrs. Coley, Jones, Lemmon, Murphy, Nolan, Pierson, Roach, Ms. Sullivan, Mr. Tudor, and Reverend Keller met applicable standards, and each was determined to be independent. In addition, specific consideration of the enhanced independence requirements for members of the Companys Audit Committee was made and all members of the Audit Committee were determined to be independent and financially literate under applicable SEC and NYSE requirements. The Board of Directors also discussed the professional experience and attributes of Mr. Roach and designated him as the Audit Committees financial expert and determined that his service as chairman of the Audit Committee of another public company would not impair his ability to effectively chair the Companys Audit Committee. Further, that Mr. Coleys and Mr. Lemmons respective service on the Audit Committee of one other public company each would not impair either directors ability to effectively serve on the Companys Audit Committee. Further, specific consideration of the enhanced independence requirements for members of the Companys Executive Compensation Committee was made and all members of the Executive Compensation Committee were determined to be independent under the applicable SEC and NYSE requirements.
All of Deltics directors and employees, including its President and Chief Executive Officer, Chief Financial Officer, and Principal Accounting Officer are required to adhere to the provisions of the Companys Code of
Business Conduct and Ethics (the Code). The Code addresses areas of professional conduct deemed to be essential in carrying out the Companys business in a legal and ethical manner. Specific areas included are employment practices, conflicts of interest, and protection of confidential information and prohibition of its use for personal gain, as well as strict adherence to all laws applicable to the conduct of Deltics business. Under the Code, employees are required to report any conduct they believe to be an actual or apparent violation of the Code. Biannual certifications of compliance with the Code are required. No waivers to the provisions of the Code have been requested, but should any waivers to the provisions of the Code ever be allowed by the Board of Directors Nominating and Corporate Governance Committee, such action will be promptly posted on the Companys website, www.deltic.com under the Corporate Governance part of the Investor Relations section, and disclosed in a current report on Form 8-K that will be filed with the SEC within four business days of such determination. The Code can be accessed on the Companys website at www.deltic.com under Corporate Governance of the Investor Relations section.
Deltics Board of Directors has also adopted written Corporate Governance Guidelines (the Guidelines) that along with the Bylaws of the Company, its policies and procedures, and the charters of the Board of Directors committees provide the framework for the governance of the Company. The Guidelines provide generally that the Companys business is conducted by its employees, managers and officers under the direction of the President and Chief Executive Officer and the oversight of the Board of Directors is to enhance the value of the Company for its stockholders. The guidelines address several important subjects, including: composition of the Board of Directors and criteria for membership; director qualifications; bifurcation of the duties of Chairman and President and Chief Executive Officer; conflicts of interest and prohibition of loans; director responsibilities, including participation and preparation for meetings; director access to management and employees and authority to hire independent legal, financial or other advisors; director orientation and continuing education; evaluation of management performance and succession; stockholder, employee, and other interested party communication with directors; and, annual performance evaluations of the Board of Directors, each of the Board of Directors committees and each individual director. The Guidelines also codify the Companys practice of conducting regular executive sessions of the independent members of the Board of Directors in lieu of regular meetings of non-management directors. Mr. Nolan, the non-employee Chairman of the Board of Directors, has been affirmatively determined to be independent, presides at all such executive sessions of the Board of Directors. Should Mr. Nolans independence status change, the Guidelines establish procedures for selection of an appropriate director to preside at such executive session meetings. The Guidelines can be accessed on the Companys website at www.deltic.com under the Corporate Governance of the Investor Relations section.
ELECTION OF CLASS II DIRECTORS
(ITEM A ON PROXY CARD)
The Board of Directors currently consists of eleven members. Directors are divided into three classes, as equal in number as possible. Directors hold office for staggered terms of three years (or less if they are filling a vacancy) until their successors are elected and qualified. One of the three classes is elected each year to succeed the directors whose terms are expiring. The directors in Class I were elected at the 2015 Annual Meeting to serve for a three-year term expiring at the Companys Annual Meeting in the year 2018. Three of the directors in Class II, Messrs. Coley, Pierson, and Roach, were elected at the 2013 Annual Meeting to serve for a three-year term. Ms. Sullivan was elected as a Class II director on June 18, 2015 to fill an additional position created on that same date by the Board of Directors in accordance with the Companys Bylaws. All Class II directors will stand for re-election for a three-year term at this years 2016 Annual Meeting. Three directors in Class III, Rev. Keller and Messrs Lemmon and Murphy, were elected at the 2014 Annual Meeting to serve for a three-year term expiring at the Companys Annual Meeting in the year 2017. Mr. Jones was elected as a Class III director on June 18, 2015 to fill an additional position created on that same date by the Board of Directors in accordance with the Companys Bylaws to serve a term expiring at the Companys Annual Meeting in the year 2017.
The Board of Directors, acting through the Nominating and Corporate Governance Committee, is responsible for assembling a group of nominees each year that have the experience, qualifications, attributes and
skills necessary and appropriate for serving as a Board member. Notwithstanding the staggered terms of office, the Board of Directors also undergoes an evaluation process each year to ensure that all members of the Board of Directors continue to meet the criteria for a Board member, as enumerated on p. 3. In addition, the Nominating and Corporate Governance Committee regularly reviews the composition of the entire Board of Directors in light of the Companys changing requirements and its assessment of the Boards performance. As a result of these reviews and evaluations, Deltics Board of Directors: (i) affirms that each member of the Board of Directors possesses the requisite experience, qualifications, attributes and skills necessary for membership on Deltics Board of Directors; and (ii) proposes the following nominees for re-election as directors at the 2016 Annual Meeting:
NOMINEES FOR CLASS II DIRECTORS
With Terms Expiring at the Annual Meeting in the Year 2019:
Randolph C. Coley
R. Hunter Pierson, Jr.
J. Thurston Roach
Lenore M. Sullivan
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF THE ABOVE-NAMED NOMINEES AS DIRECTORS FOR A TERM OF THREE YEARS.
Information is provided below with respect to each nominee for election and for each director whose term expires in subsequent years. Should one or more of these nominees be unavailable to accept nomination or election as a director, the individuals named as proxies on the enclosed proxy card will vote the shares that they represent for the election of such other persons as the Board of Directors may recommend unless the Board of Directors reduces the number of directors. The Board of Directors knows of no reason why any of the nominees will be unavailable or unable to serve if elected.
NOMINEES FOR ELECTION AS DIRECTOR
Class II Terms Expiring in 2019
Randolph C. Coley, 69, has been a director since February 15, 2007. Mr. Coley is a retired partner of King & Spalding LLP, an AmLaw 100 law firm, where his practice was concentrated in advising corporate clients in the areas of corporate law, corporate governance, and securities law. Mr. Coley was the head of the firms corporate group from 1994 to 1996, and was managing partner of the firms Houston office from 2001 to 2005. Mr. Coley was also Executive Managing Director and head of Investment Banking for Morgan Keegan & Company, Inc. from 1996 to 1998. Mr. Coley holds a law degree from Vanderbilt University and has also taught numerous accounting and legal continuing education courses.
Mr. Coleys legal practice experience in corporate governance while a partner in a nationally-recognized law firm provides invaluable corporate governance expertise and counsel to the Board. Mr. Coleys legal and investment banking experience provides an invaluable financial perspective as to Company operations and brings additional financial expertise to the Board which qualifies him to serve on the Companys Board and to serve on its Audit Committee and its Nominating and Corporate Governance Committee.
R. Hunter Pierson, Jr., 64, has been a director since December 16, 1999 and, as a result, is intimately familiar with the Companys history and operations. Following ten years as a commercial lending officer serving large private and public companies at First National Bank of Commerce, which is now JP Morgan Chase, Mr. Pierson has been engaged since 1981 in private investments, including timberlands, commercial real estate development, and securities.
Mr. Piersons career in banking, which included analyzing financial statements and analyzing credit risks, as well as his investment experience in timberlands and commercial real estate development, provides a broad base of relevant financial and operations experience to the Board. Mr. Piersons knowledge of the Company acquired through years of service to the Company, combined with his personal stake in its success, qualifies him to serve on the Companys Board and on its Audit Committee and its Executive Compensation Committee.
Class II Terms Expiring in 2019, continued
J. Thurston Roach, 74, has been a director since December 18, 2000 and, as a result, is intimately familiar with the Companys history and operations. Mr. Roach is a retired executive and has been engaged since 2002 in private investments. Previously he served as President, Chief Executive Officer, and a director of HaloSource Corporation, (2000 2001), a leading clean water and antimicrobial technology company, and as Chief Financial Officer and Senior Vice President of Owens Corning (1998 2000), a market-leading innovator of glass fiber technology. From 1979 1998, Mr. Roach served in a variety of executive positions with Simpson Timber Company and its successor, including Senior Vice President and Chief Financial Officer, President, and retiring as Vice-Chairman. Mr. Roach also holds a Master of Business Administration degree from Stanford University.
Mr. Roachs career experience as a corporate Chief Executive Officer and also as a Chief Financial Officer provides invaluable executive insight and financial expertise to the Board. His extensive timber industry experience supplements the Boards extensive collective expertise and qualifies him to serve on the Companys Board and on its Audit Committee, Executive Committee, and its Nominating and Corporate Governance Committee.
Lenore M. Sullivan, 58, has been a director since June 18, 2015 and is a retired partner from Perella Weinberg Partners where she served as portfolio manager for the firms Agility Real Return Asset Fund. She currently serves on the Investment Advisory Committee of the Employee Retirement System of Texas and previously served as the Associate Director for the Real Estate and Finance and Investment Center at the University of Texas at Austin from 2002 to 2007. From 2000 to 2002, she was Vice President of Hunt Private Equity Group, Inc. and from 1992 to 2000 she was President and co-owner of Stonegate Advisors, a private equity firm. From 1995 to 1996, Ms. Sullivan was Chief Financial Officer of Canizaro Interests and from 1990 to 1992 she was a Vice President, Treasurer and acting Chief Financial Officer of Wyndham Hotel Group. Ms. Sullivan also holds a Master of Business Administration degree from Harvard University.
Ms. Sullivans extensive knowledge of real estate, financing, and related capital markets as well as her corporate financial experience in analyzing and evaluating financial statements and her executive experience supplements the Boards extensive collective expertise in these areas and qualifies her to serve on the Companys Board and on its Audit Committee.
DIRECTORS WHOSE TERMS IN OFFICE CONTINUE
Class I Terms Expiring in 2018
Ray C. Dillon, 60, has been the Companys President and Chief Executive Officer and a director since July 1, 2003. Mr. Dillon has over 38 years experience in the paper and forest products industry. Prior to his present position, Mr. Dillon served in various executive positions with Gaylord Container Corporation, a manufacturer and distributor of corrugated containers, containerboard, unbleached kraft paper, multiwall bags, grocery bags and sacks, and specialty chemicals, from 1994 through mid-2003, including Executive Vice President from 2000 through mid-2003, Vice President Primary Products from 1997 through 2000, and Vice President Mill Operations from 1994 through 1997. Mr. Dillon also holds a Master of Business Administration degree from the University of Chicago.
Mr. Dillons day-to-day experience as the Companys President and Chief Executive Officer gives him intimate executive insight into the Companys challenges, opportunities, and operations. Mr. Dillons extensive experience in the paper and forest products industry, combined with his personal stake in the success of the Company, qualifies him to serve on the Companys Board and to serve on its Executive Committee.
Robert C. Nolan, 74, has been the Companys non-employee Chairman of the Board of Directors since December 17, 1996 and, as a result, is intimately familiar with the Companys history and operations. For more than 51 years, Mr. Nolan has been Managing Member of Munoco Company L.C., an Arkansas limited liability company, engaged in, among other activities, the exploration for and production of oil and gas and timberland management. Mr. Nolan is also Managing Member of Cherry Ridge, LLC, an Arkansas limited liability company for Munocos real estate and timberland holdings.
Mr. Nolans extensive experience in timberland management and oil and gas exploration and development provides broad and critical expertise on these subjects for the Board in its oversight of Company operations. Mr. Nolans knowledge of the Company, acquired through years of service to the Company, combined with his personal stake in its success qualifies him to serve on the Companys Board and as an ex officio member of all Board Committees (except the Audit Committee).
Class I Terms Expiring in 2018, continued
Robert B. Tudor, III, 56, has been a director since February 15, 2007. Mr. Tudor has been the Chairman and Chief Executive Officer and a partner of Tudor, Pickering, Holt & Co., LLC since 2006. Tudor, Pickering, Holt & Co., LLC is an integrated energy investment and merchant banking boutique providing high quality advice and services to institutional and corporate clients. Prior to the formation of Tudor, Pickering, Holt & Co., LLC, Mr. Tudor had a 20-year career as an investment banker with Goldman Sachs, where he worked in the New York, London, and Houston offices, in varying capacities including head of the southwest region and head of the European Industrial & Natural Resources Group. Mr. Tudor also holds a Juris Doctor degree from Tulane University Law School.
Mr. Tudors legal and investment banking experience with the internationally-recognized firm of Goldman Sachs provides an invaluable financial perspective as to Company operations and brings additional financial expertise to the Board. While at Goldman Sachs, Mr. Tudor was an advisor in the Companys spin-off from its former parent corporation. His knowledge of the Company and executive experience qualifies him to serve on the Companys Board and to serve on its Executive Compensation Committee.
DIRECTORS WHOSE TERMS IN OFFICE CONTINUE
Class III Terms Expiring in 2017
Bert H. Jones, 64, has been a director since June 18, 2015 and has been the owner and president of Mid-States Wood Preservers, LLC since 1979. From 2003 through the present, Mr. Jones has served on the Board of Governors for the softwood lumber inspection agency, Southern Pine Inspection Bureau (SPIB), and currently serves as its Vice Chairman. Mr. Jones is a former Chairman of the Board of Directors for the Treated Wood Council (TWC), with a membership of over 400 companies, which serves companies that harvest and saw wood, manufacture wood preservatives, produce pressure-treated wood products, or serve the treated wood industry.
Mr. Jones executive experience and leadership within the lumber and wood products industry provides invaluable insight and supplemental expertise to the Board for its manufacturing and marketing strategies. His extensive industry experience and his own day-to-day executive manufacturing experience qualifies him to serve on the Companys Board and to serve on its Executive Compensation Committee.
Class III Terms Expiring in 2017, continued
The Very Reverend Dr. Christoph Keller, III, 61, has been a director since December 17, 1996 and as a result, is intimately familiar with the Companys history and operations. Rev. Keller has been an Episcopal priest since 1982, and is currently the Dean and Rector of Trinity Episcopal Cathedral in Little Rock, Arkansas. He was founding pastor of St. Margarets Episcopal Church in Little Rock, Arkansas, serving from 1991 to 1998. In that role, he was in charge of all business operations of the church including budgeting, accounting and auditing. He is a member of the Board of Trustees of General Theological Seminary in New York City, and a past board member of the Episcopal Church Building Fund, also in New York City. Reverend Keller has served as manager of Keller Enterprises, L.L.C., a firm with farming operations and real estate and venture capital investments (1998-2008), has served on its board and currently chairs its Executive Compensation Committee.
Reverend Kellers farming operations and real estate experience provides relevant insights for the Boards timberland management and real estate development strategies. Reverend Kellers theological background provides a unique perspective for the Board committees upon which he serves. Reverend Kellers knowledge of the Company, acquired through years of service to the Company, combined with his personal stake in its success qualifies him to serve on the Companys Board and its Executive Compensation Committee and its Nominating and Corporate Governance Committee.
David L. Lemmon, 73, has been a director since February 15, 2007. From November 1997 until his retirement in March 2006, Mr. Lemmon served as President and Chief Executive Officer of Colonial Pipeline, an interstate common carrier of petroleum products, which delivers daily an average of 100 million gallons of gasolines, kerosenes, home heating oils, diesel fuels and national defense fuels to shipper terminals in 12 states and the District of Columbia. Prior to his tenure at Colonial Pipeline, Mr. Lemmon held various positions, including President, with Amoco Pipeline Co., which is now BP Amoco Pipelines North America, another large interstate common carrier of petroleum products, for over thirty-two years. Mr. Lemmon also holds a Bachelor of Science degree in accounting.
Mr. Lemmons experience as a corporate President and Chief Executive Officer, which included supervision of the financial officers in the preparing, auditing, analyzing, and evaluating of quarterly and annual financial statements, as well as his current service on the Audit Committee of another public company, and prior Audit Committee service to another public company, provides invaluable operational insight and financial expertise for the Board and the Board Committees on which he serves. Additionally, Mr. Lemmons knowledge and experience attained while in Board service to the National Council of Economic Education (NCEE) provides keen macroeconomic insight that qualifies him to serve on the Companys Board and its Audit Committee and Executive Compensation Committee.
Class III Terms Expiring in 2017, continued
Robert Madison Murphy, 58, has been a director since December 17, 1996 and, as a result, is intimately familiar with the Companys history and operations. Mr. Murphy is currently Chairman of the Board of Directors for Murphy USA Inc., a Fortune 500 company, and has been the Managing Member of Murphy Family Management, LLC since 1998, which is engaged in investments, farm, timber and real estate operations. Mr. Murphy has been the President of The Murphy Foundation since 1994 which is a substantial private foundation providing charitable support for a range of initiatives, predominantly in Arkansas, with an emphasis on education, scholarships and support. Mr. Murphy is also the owner of Presquile Winery and Vineyards and the owner of the Sumac Company, LLC, which is engaged in investments, timber, and vineyard operations. Prior to these positions, Mr. Murphy held various executive level positions with Murphy Oil Corporation, a Fortune 500 company, including Chairman of the Board of Directors (1994-2004) and Chief Financial Officer (1992-1994).
Mr. Murphys corporate experience, along with his current board service to Murphy USA Inc. and Murphy Oil Corporation and previous board service to BancorpSouth, Inc., provides invaluable corporate leadership and financial expertise for the Board and for the Board Committees on which he serves. Mr. Murphys extensive experience in timberland management and real estate operations provides relevant insights to the Boards timberland management and real estate development strategies. Mr. Murphys knowledge of the Company, acquired through years of service to the Company, combined with his personal stake in its success qualifies him to serve on the Companys Board and its Executive Committee, Executive Compensation Committee, and Nominating and Corporate Governance Committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Messrs. Murphy, Nolan and Rev. Keller are first cousins and Mr. Pierson is the spouse of a first cousin of Messrs. Murphy, Nolan and Rev. Keller. These four directors, their spouses, and members of their extended families directly or indirectly own in the aggregate approximately 26 percent of the outstanding stock of the Company. The members of these extended families cover four generations and number approximately in excess of a hundred individuals. There is no formal or informal agreement to act in concert or as a group regarding each family members investment in the Company. No member of these extended families is employed by the Company. See also Ownership of Directors and Officers on pp. 18-19 of this Proxy Statement.
The Nominating and Corporate Governance Committee, pursuant to its charter, reviews all related party transactions and determines whether such transactions are appropriate for the Company to undertake. With respect to Company employees, officers, and directors, the review is governed by the Companys Code of Business Conduct and Ethics (the Code), which provides that waivers are disfavored and may only be granted by the Board and must be promptly disclosed to stockholders. A copy of the Code can be accessed under the Investor Relations section on the Companys website at www.deltic.com. The review, with respect to directors, also entails an analysis of whether a proposed transaction could affect a directors independence determination under applicable rules of the NYSE and the SEC. In addition, each January, every officer and director receives a questionnaire, which asks questions, among other things, relating to possible relationships, transactions and indebtedness that could lead to a reportable related party transaction. In 2015, no reportable material related party transactions occurred and no waivers were requested or granted.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws and regulations promulgated thereunder, the Companys directors and executive officers are required to report their beneficial ownership (as defined in such laws and regulations) of the Companys Common Stock and any changes in that ownership to the SEC and NYSE. Specific due dates for the reports have been established and the Company is required to report in this Proxy Statement any failure to file by said due dates. Based solely upon a review of Form 4s filed during the year 2015, Form 5s filed with respect to such year, and information provided in the annual director and officer questionnaires, we believe each of the Companys directors and executive officers satisfied their filing requirements for our fiscal year ended December 31, 2015 except for one transaction dated December 8, 2014, which entailed a gift of 76 shares to a trust for Mr. Murphys children. Said transaction was reported on a Form 5 dated February 10, 2016.
CERTAIN STOCK OWNERSHIP
The following tables set forth information, by the categories listed, concerning beneficial ownership of Common Stock of the Company with respect to (i) each person or entity who has filed reports with the Company pursuant to applicable SEC rules disclosing ownership of as much as five percent or more of the Companys Common Stock, (ii) for each director (including those nominated for re-election), (iii) each of the named executives listed in the Summary Compensation Table on p. 32 of this Proxy Statement, and (iv) directors and officers as a group.
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
OWNERSHIP OF DIRECTORS AND OFFICERS(1)
COMPENSATION DISCUSSION AND ANALYSIS
Our Compensation Discussion and Analysis provides a detailed description of our executive compensation philosophy and programs as well as the relevant decisions and factors considered by the Executive Compensation Committee (Committee) in establishing our executive compensation programs for 2015. For 2015, our Named Executive Officers (NEOs) were:
In 2015, Deltic achieved many notable financial and operational milestones and implemented multiple strategic initiatives that will be instrumental to our future success. Key accomplishments for 2015 include:
Despite these financial and strategic achievements during 2015, Deltic did not achieve the 2015 threshold GAAP net income goal of $19 million established by the Committee under our annual cash incentive program. Therefore, the CEO (and two other NEOs, including the CFO) did not receive a cash incentive award for 2015. In addition, Deltics total shareholder return (TSR) versus the peer group established by the Committee for the performance-based restricted stock awards with a four-year vesting period ending in February 2016 (i.e., performance-based restricted stock awards granted in February 2012) was below the threshold level required for any shares to vest. Thus, the CEO (and the other NEOs) did not receive any payouts related to these awards.
Overall, our program is designed to attract and retain talented, competent, and high caliber executives capable of leading a natural resource company in meeting its fair, but aggressive, performance targets. Consistent with prior years, our 2015 executive compensation program was based upon the following guiding principles:
These guiding principles are reinforced further by the following best practices found in our compensation programs:
Shareholder Outreach and Key Changes to 2015 Executive Compensation Program
In 2015, our Say on Pay vote received over 98% support. Overall, the Committee considered this result as evidence of stockholder support of its executive compensation decisions and policies.
Consistent with prior years, the Committee viewed shareholder outreach, as it does every year, as an opportunity to receive further feedback on the Companys compensation program, as well as consider any needed modifications to the program. Comments received in 2015 along with those gathered in recent years were carefully considered and thoroughly reviewed by the Committee, with the following changes made and effective for 2015.
Key Program Changes for 2015
Based upon the comments and feedback received during our shareholder outreach efforts, as well as the annual review of our executive compensation programs against market best practices, we decided to make the following program changes that were in effect for 2015:
As in prior years, the Committee will continue to review the annual shareholder Say on Pay vote results, as well as other feedback from our shareholders, and determine whether to make any future changes in light of the comments it receives and prevailing market practices.
Key Components of Our Executive Compensation Program
The following table outlines the key components of our executive compensation program as well as how each component reinforces one or more facets of our executive compensation philosophy and goals:
Establishing Annual Compensation Levels
In setting annual compensation levels for our executive officers, the Committee thoughtfully considered all elements of Deltics compensation programs, both separately and as a total package, to help ensure that our executive compensation objectives are met. In making its decisions, the Committee considers multiple relevant internal and external factors as it deems appropriate, including but not limited to: the Companys business objectives and strategy, market best practices and trends with respect to compensation program design and levels, executive talent attraction and retention needs, and each executives role/responsibilities.
In order to ensure that our executive compensation program is reasonable and competitive in the marketplace, the Committee compares our program to those at other companies against which we compete on an operational basis and/or for executive talent. For 2015, the Committee used a holistic approach in selecting the comparator groups used to benchmark our executive compensation program. This approach considered key relevant factors, such as industry and size (defined primarily by revenue and market value) and consisted of the following sources:
This holistic approach allows the Committee to understand the competitive marketplace from multiple different perspectives, as well as adjust for Deltics size relative to the comparator group companies, when setting executive compensation levels. The total number of participants from the various comparator groups used were too numerous to be listed out individually.
The Committee (working with compensation consultants retained separately by the Committee and the Company) reviews its holistic approach annually to ensure that it continues to serve as an appropriate methodology for benchmarking our executive compensation program and levels.
Base salary levels for our NEOs are established annually and are set at competitive levels based upon market data as well as an individuals skills, experience, and performance. This helps to ensure that we attract and retain the high caliber executives necessary to successfully execute our business strategy. In general, base salaries for our NEOs have been set at or near the market median levels for comparable roles.
The following table shows the base salaries effective for the NEOs for 2015. Increases were provided to two NEOs in order to position their base salaries more competitively with the market median levels for comparable roles. Base salaries for the other three NEOs were determined to already be aligned with the market median, and thus no increases were provided:
Annual Cash Incentive Compensation
Consistent with our strong pay for performance philosophy and in order to align our executive officers interests with those of our shareholders, the Committee established an annual cash incentive program to motivate and reward executives for achieving annual performance objectives.
At the beginning of each year, the Committee establishes target annual cash incentive award opportunities, expressed as a percentage of base salary, for each of the NEOs. These target opportunities are set at competitive levels relative to comparable roles in the market based upon a review of market compensation data. For 2015, the target opportunities for the NEOs were:
Annual award opportunities are capped at 2.0x the target amounts shown in the table above.
Similar to 2013 and 2014, the Committee determined that the primary metric for the 2015 annual cash incentive program would be audited GAAP net income. The Committee selected this metric because it believes that net income is a primary driver of shareholder value, provides direct accountability for the executive officers, and is an objective component in the calculation of non-equity incentive compensation. For those NEOs with segment-specific responsibilities (Messrs. Streeter and Meghreblian), overall annual cash incentive targets are split equally between corporate-level goals and segment operating performance, which is set in accordance with the Board-approved financial budget for the year (goals for these segments are not provided given their commercially sensitive nature):
The Committee established the following performance levels and payout percentages related to the 2015 audited GAAP net income metric under the annual cash incentive plan:
For audited GAAP net income performance between the levels shown in the table above, payouts would be linearly interpolated. Given that the Company achieved less than $19 million ($2.654 million) in audited GAAP net income, no payouts were made with respect to this metric. In addition, performance for both the Woodlands and Manufacturing segments (Operations) and the Real Estate segment was below their respective target levels, resulting in payouts of 7.2% of target (for Operations) and 16.2% of target (for the Real Estate segment). Final 2015 annual cash incentive payouts are shown in the following table:
Long-Term Equity-Based Compensation (LTI)
Long-term incentive awards are intended to drive sustained value creation and are set at market competitive levels. At its annual February meeting, the Committee, with the assistance of Mercer (its independent compensation consultant), determines a specific dollar amount for each Named Executive Officer or key employee eligible for LTI awards. The specific dollar amount is calculated, taking into consideration the nature of the NEOs or key employees position, his/her responsibilities and contributions to the Company, and equivalent awards to NEOs or key employees in similar positions at companies comparable to Deltic.
As in prior years, the LTI mix for 2015 consisted of stock options, time-based restricted stock, and performance-based restricted stock. Beginning in 2015, we increased the weighting on performance-based restricted stock to 50%, with stock options and time-based restricted shares each being weighted 25%. Thus, 75% of our NEOs LTI awards are performance-based (stock options plus performance-based restricted stock). For 2015, the Committee granted the following LTI awards to our NEOs:
Performance-Based Restricted Stock
Performance-based restricted stock (PBRS) grants help to emphasize our strong pay for performance philosophy while incentivizing our executives to successfully execute our long-term business strategy.
The actual number of shares (if any) that vest for each of the Named Executive Officers will be determined at the end of a four-year period, and will be dependent upon the Companys Total Stockholder Return (TSR) performance relative to the composite TSR for a select group of companies. The TSR peer group for the 2015 performance-based restricted stock grants was comprised of the following companies (in addition to Deltic Timber Corporation):
The Committee, in its collective business judgment, selected this group as it best represents the companies against which Deltic competes for equity investment dollars. The Committee believes that TSR is a key factor for investors that choose to invest in the industry sectors in which Deltic operates and competes.
The performance scale and payout percentages for the 2015 performance-based restricted stock grants are shown in the following table:
For TSR performance between the levels shown, payouts would be linearly interpolated. Also, if Deltics absolute TSR is negative, the maximum payout is capped at 50% of target even if the Companys relative TSR versus the TSR Peer Group would indicate a higher payout percentage.
On February 16, 2015, the performance period for the 2011 award of performance-based restricted stock ended. Because the Companys TSR over this period was less than 80% of the Composite Total Stockholder
Return for the same period, no shares related to this performance cycle vested or were awarded to any participants, including the NEOs.
Time-based Restricted Stock
Time-based restricted stock grants help facilitate retention of our NEOs while ultimately linking the value they receive to value created for our shareholders via stock price performance.
Stock options serve as the second of our performance-based LTI vehicles (in addition to performance-based restricted stock) and will ultimately only have value to the extent our stock price increases and is above the exercise price.
Summary of 2015 President & CEO Compensation
The following table summarizes the difference between amounts granted (at target) to Mr. Dillon in 2015 and those amounts he actually received in 2015.
Stock Ownership Guidelines
In 2013, the Company adopted stock ownership guidelines for its executives (see the following table). Executives have until the end of February 2018 to comply with this requirement, if not already in compliance.
Both the President and Chief Executive Officer and the Vice President and Chief Financial Officer are already in compliance with this requirement, with the Companys three other Vice Presidents either also in compliance or in position to be so by or before February 2018.
Beginning in 2013, the Committee extended the clawback requirement that already existed under the Sarbanes-Oxley Act for the Companys President and Chief Executive Officer and Vice President and Chief Financial Officer to the Companys other Named Executive Officers. This requirement will remain in place until legal guidance is given pursuant to the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. At that time, the Company will implement a clawback policy for its Named Executive Officers consistent with these new requirements.
Retirement Benefits and Plans
The Company offers certain retirement benefits and a retirement savings plan to its employees, including the Named Executive Officers. These retirement benefits and retirement savings plans are described as follows:
All of the Companys current Named Executive Officers, are eligible to participate in the Retirement Plan of Deltic Timber Corporation (the Retirement Plan), a qualified defined benefit retirement plan, upon achieving 1,000 hours of service during a 12 month period after beginning employment with the Company. Participants earn the right to receive a monthly benefit for life upon retirement. The retirement benefit is defined by a calculation, which is illustrated below:
Average Monthly Compensation is calculated using the participants highest 36 consecutive months of total compensation (salary plus non-equity compensation) out of his/her final 120 months of employment covered by the Retirement Plan.
Primary Monthly Social Security Benefit is defined as the monthly amount of the estimated Social Security benefit available upon the employees retirement.
If a participant retires between the ages of 55 and 61 and has 10 or more years of vesting service, the participant can begin receiving a reduced monthly benefit as defined by the formula in the Retirement Plan. The Retirement Plan does not require participants to retire at the normal retirement age. For those participants that retire later, the benefit calculation will use the actual retirement date and in no event will such benefit be less than that accrued at the normal retirement date.
The entire cost of the Retirement Plan is paid by the Company (the Sponsor), and participants are neither required nor permitted to make contributions to the Retirement Plan. Five years of service is the vesting period for the Retirement Plan. The provisions of the Retirement Plan, and the investment of its assets, are overseen by the Companys Pension Investment and Employee Benefits Committee, whose members are appointed by the Board. These members are currently Ray C. Dillon, Kenneth D. Mann, and Jim F. Andrews, Jr., who deliver a report annually to the Executive Compensation Committee. SunTrust Institutional Investment Solutions, a subsidiary of SunTrust Bank of Nashville, Tennessee, serves as the Retirement Plans trustee and the Pension Investment and Employee Benefits Committee has retained the firm of Merrill-Lynch to assist it in investment management oversight. The independent employee benefits consulting firm of Bryan, Pendleton, Swats and McAllister of Jackson, Mississippi, serves as actuary for the Retirement Plan.
Retirement Savings Plan
The Company also offers a qualified defined contribution savings plan [Internal Revenue Code Section 401(k)] to its Named Executive Officers, known as the Thrift Plan of Deltic Timber Corporation (the Thrift Plan), for which the Company fully matches the first 5% of tax-deferred base salary and non-equity compensation contributed by employees eligible to participate in the Retirement Plan. For employees not eligible to participate in the Retirement Plan, the Company contributes the 5% match and also contributes an additional 4% of base salary to the Retirement Savings Plan on their behalf. All contributions, including the Company match, are fully vested upon contribution. No Company matching level exists beyond the employees 5% contribution, but employees are otherwise able to contribute up to the limit prescribed by the Internal Revenue Code to the plan on a pre-tax basis. All employees may also make contributions to a supplemental account on an after-tax basis.
The Thrift Plan provides various investment funds to which employee contributions, along with the Companys match, may be directed by the employee for investment. With limited exceptions as provided by the Internal Revenue Code, the before-tax invested funds may not be withdrawn until the participate reaches age 59 1/2. The provisions of the Thrift Plan, and the investment of its assets, are overseen by the Companys Pension Investment and Employee Benefits Committee, described above. SunTrust Bank of Nashville, Tennessee serves as the trustee and the administrator. The Thrift Plan began in 1983 and was amended to its current form, in conjunction with the Companys stock becoming publicly traded, effective January 1, 1997.
Supplemental Executive Retirement Plan
In addition to the Retirement Plan and Thrift Plan listed above, which are provided to all employees, the Company provides a supplemental executive retirement plan (the SERP) to its Named Executive Officers. The current SERP was amended and restated effective January 1, 2005 for conformance with the requirements of Internal Revenue Code Section 409A and has the intended purpose of restoring Retirement Plan and Thrift Plan benefits that would otherwise be unavailable to the Named Executive Officer due to limitations imposed by the Internal Revenue Code. The SERP constitutes an unsecured promise of the Company to pay benefits to the Named Executive Officers, and their beneficiaries, in the future upon the occurrence of certain payment events. Currently, the SERP is unfunded for federal tax purposes and for purposes of Title I of the Employee Retirement Income Security Act (ERISA) of 1974. Though unfunded, the SERP account of each Named Executive Officer remains an unsecured contractual obligation of the Company. The amounts of those obligations are detailed in the 2015 Non-Qualified Deferred Compensation Table, p. 41.
The provisions of the SERP, and the investment of its assets, are overseen by the Committee. Investment options available to the Named Executive Officers in their SERP accounts are the same as those available to all employees under the Thrift Plan. Accordingly, the earnings on these investments are not regarded as preferential.
Perquisites and Other Benefits
Overall, we provided limited perquisites to our NEOs, and our NEOs also receive the same benefits as those provided to all other employees. For the 2015 fiscal year, none of the NEOs reported receiving total perquisites and personal benefits that met the disclosure threshold of $10,000. Like other employees of the Company, the NEOs receive a Company match on Thrift Plan contributions and the sale of up to two weeks accrued, but unused, vacation time back to the Company each year. These other income items are detailed for each of the NEOs in the 2015 All Other Compensation Table in footnote 7 on p. 33.
Role of Executive Officers in Compensation Decisions
The Committee annually reviews each component of the total compensation paid to each Named Executive Officer during its February meeting. This review covers base salary as well as the establishment of performance targets related to the Companys incentive compensation plans, among other issues. At this meeting, the President and Chief Executive Officer presents his evaluation of the performance of the other Named Executive Officers and his compensation recommendations to the Committee. The Committee exercises its discretion in accepting or modifying these recommendations and independently makes the performance evaluation and compensation decisions with regard to the President and Chief Executive Officer. No other Named Executive Officer presents compensation recommendations to the Committee. The Committee members also interact with the Named Executive Officers through the Companys internal reporting procedures and during the Board meetings and Board Committee meetings during which their own personal performance evaluations of the Named Executive Officers can be made.
Role of Executive Compensation Committee
The Executive Compensation Committee administers our executive compensation programs and establishes and monitors the overall compensation strategy to ensure that these programs support the Companys goals and objectives. The Committee is responsible for setting the compensation of the CEO and all other executive officers. As part of this process, the Committee, with assistance from its compensation consultant, reviews the total compensation packages (including using tally sheets), the components of the compensation packages, and market best practices with respect to comparable executives at similarly-situated companies. The Committee also consults with the other independent directors on the Board before setting annual compensation for our executive officers. In addition, the Chairman of the Committee regularly reports on Committee actions at Board meetings.
Role of Independent Compensation Consultant
To assist in its review, the Committee retained the services of a compensation consultant, Mercer, an independent and nationally recognized firm. At its meeting on February 17, 2016, the Committee affirmatively determined that neither Mercer, nor its representative, had a conflict of interest with either the Company or the Committee in regard to the compensation consulting services provided.
Compensation Risk Assessment
On an annual basis, the Company conducts a risk assessment with respect to compensation of the executive officers, with the assistance of Mercer. This risk assessment includes an analysis of the alignment of the Boards expressed compensation philosophy and compensation goals with the Companys strategic goals, short-term and long-term focus and timing issues, compensation drivers and potential risks of each type of pay component, vesting periods, stock ownership, and other factors. Benefit plans, stock plans, and compensation policies are also examined. This assessment is also reviewed annually with the Committee. As a result of this process, the conclusion was that the Companys 2015 compensation policies were not reasonably likely to have a material adverse effect on the Company.
Agreements between the Company and the NEOs
Deltic does not have employment agreements with any of its NEOs. Each of the NEOs is subject to a Change-in-Control Agreement and in the case of Mr. Dillon only, an Involuntary Severance Agreement that provides for certain levels of compensation related to select events. Additional details on these provisions and amounts can be found in the section of this proxy entitled 2015 Potential Payments Upon Termination or Change In Control Table beginning on page 44.
Non-Qualified Deferred Compensation
The tax rules applicable to non-qualified deferred compensation arrangements were impacted by the enactment of the American Jobs Creation Act on October 22, 2004, codified as Internal Revenue Code Section 409A. As of December 31, 2015, the Company is in full compliance with Internal Revenue Code Section 409A.
Tax Deductibility of Executive Compensation
The Committee annually reviews and considers the deductibility of executive officer compensation under Section 162(m) of the Internal Revenue Code, which is discussed herein on p. 50.
Executive Compensation Committee Report
The Executive Compensation Committee of the Board of Directors for Deltic Timber Corporation has reviewed and discussed the contents of this Compensation Discussion and Analysis, required by Item 402(b) of SEC Regulation S-K, with the Companys management and its executive officers, and based on such review and discussions, recommended to the Board that it be included in this Proxy Statement.
THE EXECUTIVE COMPENSATION COMMITTEE
R. Madison Murphy, Chairman
Christoph Keller, III
Robert C. Nolan, ex officio
R. Hunter Pierson, Jr.
Bert H. Jones
David L. Lemmon
Robert B. Tudor, III
2015 SUMMARY COMPENSATION TABLE
The Summary Compensation Table shown below summarizes the total compensation earned by the Companys Chief Executive Officer, Chief Financial Officer, and its three other most highly compensated officers the Named Executive Officers or NEOs for the year ended December 31, 2015. Messrs. Dillon, Mann, Streeter, Meghreblian and Andrews served in their individual capacities, as designated below, during the entire year.
As shown below, the Named Executive Officers received base salary, equity awards, option awards, non-equity incentive plan compensation, and other forms of compensation during the year. The Companys method for determining the total compensation paid to these officers is discussed under the heading Compensation Discussion and Analysis starting at p. 19.
The 2002 Stock Incentive Plan
The 2002 Stock Incentive Plan. The Deltic Timber Corporation 2002 Stock Incentive Plan or (the 2002 SIP) was approved by the Companys stockholders at its Annual Meeting of Stockholders on April 25, 2002 as the successor plan to the 1996 Deltic Timber Corporation Stock Incentive Plan. The Company filed its registration statement for 1,800,000 common shares designated for the 2002 SIP with the Securities and Exchange Commission on June 7, 2002. At the Companys 2012 Annual Meeting, the Companys stockholders approved a ten-year extension for the term of the 2002 SIP, which will now expire on April 26, 2022. As of December 31, 2015, there were 796,413 common shares previously registered with the Securities and Exchange Commission on June 7, 2002 that remained available for award of equity-based compensation under the 2002 SIP.
The Executive Compensation Committee administers the 2002 SIP and has broad discretion in the granting of awards including, but not limited to, the number of shares and provisions regarding grant price, expiration date, exercisability, vesting, forfeiture, transfer restrictions and payment and the impact, if any, of termination of employment on the foregoing. Awards that may be granted to the Companys employees, including its Named Executive Officers, and its non-employee directors by the Committee include:
(1) Options. The Committee may grant incentive stock options (ISOs) or non-qualified stock options, which are the contractual right to purchase a specified number of shares of the Companys common stock at a specified price (the exercise price) within a time period not to exceed ten years after the grant date. Originally, the Company granted a combination of both ISOs and non-qualified stock options, but has not issued any ISOs since 1999. Exercise of options, subject to the rules imposed by the Committee, may be paid in whole or in part in (i) cash, (ii) whole shares of common stock valued at the fair market value on the date of exercise, (iii) by a combination, or (iv) by such methods of payment or other consideration as shall be approved by the Committee.
(2) Performance Units. The Committee may grant performance units, subject to the terms of the plan, which may be payable in cash, stock (to include restricted stock), other securities, or other awards or other property, and which shall confer on the participant a contractual right to redeem, in whole or in part, upon the achievement of such performance goals as the Committee shall establish for the respective performance period. The Committee determines the performance goals (discussed in the Compensation Discussion and Analysis section) to be achieved, the length of the performance period, the amount of the performance units granted and the amount of any payment or transfer to be made pursuant to any performance unit. Thus far, the performance units that have been granted have been in the form of performance-based restricted stock.
(3) Restricted Stock and Restricted Stock Units. The Committee may grant restricted stock and restricted stock units, although, to date, only restricted stock has been issued. Shares of restricted stock will be subject to the conditions as the Committee may impose, which may include prohibitions against selling, transferring, pledging, assigning or other alienation or hypothecation until such time or until the satisfaction of such conditions or the occurrence of such events as shall be determined by the Committee either at or after the time of grant. Participants holding shares of restricted stock may exercise full voting rights with respect to those shares during the time such are restricted and, subject to forfeiture and transfer restrictions, be entitled to receive all dividends and other distributions paid with respect to those shares.
(4) Other Stock-Based Awards. The Committee may grant other stock-based awards including stock appreciation rights (SARs), rights to dividends, and dividend equivalents, but, to date, has not issued any such awards. An SAR represents the contractual right to receive, upon exercise, an amount equal to the excess, if any, of the fair market value of underlying shares over the pre-established exercise price. SARs may be granted to participants at such times as shall be determined by the Committee and subject to the terms and conditions, not inconsistent with the plan, as the Committee may impose.
2015 GRANTS OF PLAN-BASED AWARDS TABLE
The 2015 Grants of Plan-Based Awards Table shown below details the non-equity incentive (cash) awards and the equity-based awards granted to the Named Executive Officers by the Executive Compensation Committee on February 18, 2015. The equity-based awards were granted under the Companys 2002 Stock Incentive Plan. These grants include stock options, time-based restricted stock awards and performance-based restricted stock awards.
As to all footnote references to gross-ups under this table, the Company has discontinued the payment of gross-ups on all equity awards granted after December 31, 2012. Gross-ups for income taxes on equity awards granted prior to said date will remain payable upon vesting in accordance with the Companys executive compensation program in effect at the time of grant.
2015 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
The 2015 Outstanding Equity Awards At Fiscal Year-End Table shown below details the number of stock options, both vested and unvested, and their respective exercise prices and expiration dates held by each of the Named Executive Officers as of December 31, 2015. The table also shows the number of shares of restricted stock or performance units, and the respective vesting status, also held by each of the Named Executive Officers as of December 31, 2015. All awards shown below were granted under the provisions of the Companys 2002 Stock Incentive Plan, as amended by the Companys stockholders in 2012.
As to all footnote references to gross-ups under this table, the Company has discontinued the payment of gross-ups on all equity awards granted after December 31, 2012. Gross-ups for income taxes on equity awards granted prior to said date will remain payable upon vesting in accordance with the Companys executive compensation program in effect at the time of grant. Information pertaining to these grant dates is provided below in the footnotes to this table.
2015 OPTION EXERCISES AND STOCK VESTED TABLE
The 2015 Option Exercises and Stock Vested Table shown below details the value received by the Named Executive Officers upon their exercise of vested stock option awards (Option Awards) during the year ended December 31, 2015. These awards are measured in shares. The table also details the number of shares and value realized by each affected NEO upon the vesting of time-based stock on February 16, 2015. No performance-based stock awards vested for any of the Named Executive Officers during 2015.
2015 PENSION BENEFITS TABLE
The 2015 Pension Benefits Table below shows the actuarial present values of accumulated benefits payable to each of the Named Executive Officers, upon retirement, under The Retirement Plan of Deltic Timber Corporation (Retirement Plan) and under The Supplemental Executive Retirement Plan of Deltic Timber Corporation (SERP) as of December 31, 2015. All NEOs were participants in the SERP. Details regarding the accounting policies used by the Company for its pension plans are discussed under Item 8, Financial Statements and Supplementary Data, at Note 1, Significant Accounting Policies and at Note 16, Employee and Retiree Benefit Plans in the Companys annual report filed on Form 10-K with the SEC on March 4, 2016. Information regarding these plans, such as the Retirement Plan benefit formula, can be found under the heading Retirement Benefits and Plans at p. 28-29.
2015 NON-QUALIFIED DEFERRED COMPENSATION TABLE
The 2015 Non-Qualified Deferred Compensation Table shown below details the elections of non-qualified deferral of salary amounts, in excess of Internal Revenue Code limits for 401(k) contributions, by each of the Named Executive Officers for the year 2015. These deferrals are made under the Companys Supplemental Executive Retirement Plan (SERP) and include the Companys matching contributions. The SERP, discussed supra, exists to restore retirement savings benefits, on a pre-tax basis, to the Named Executive Officers that would otherwise be lost due to limitations imposed by the Internal Revenue Code. Deferred salary contribution amounts are permitted up to 50% of salary.
2015 DIRECTOR COMPENSATION TABLE
A combination of cash and equity-based compensation is utilized to attract, retain, and compensate qualified candidates to serve on the Companys Board of Directors. Director compensation, which consists of fees paid for meetings attended and an annual retainer, is determined by the Nominating and Corporate Governance Committee. Equity awards (granted under the Companys 2002 SIP), are granted by the Executive Compensation Committee based upon the determination of the Boards Nominating and Corporate Governance Committee. For the year ended December 31, 2015, the non-employee directors were entitled to receive an annual cash retainer of $35,000, $1,500 for each Board meeting physically attended and $750 for each Board meeting telephonically attended, $1,000 for each Board committee meeting physically attended and $500 for each Board committee meeting telephonically attended, except for Audit Committee meetings, which were compensated at $1,000 per meeting regardless of physical or telephonic attendance. The Chairman of each of the Boards committees received additional compensation, as detailed below, for the additional responsibility that each assumed in those roles. Retainer fees and meeting fees are paid quarterly in arrears. Directors are also reimbursed for their travel, meal, and lodging expenses for attending meetings. A portion of director compensation is based on equity awards to further align their financial interests with those of the Companys stockholders.
2015 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL TABLE
The 2015 Potential Payments upon Termination or Change in Control Table shown below reflects the amount of compensation payable, as of December 31, 2015, to each of the Named Executive Officers in the event of: (1) involuntary severance without cause; (2) a change in control of the Company with involuntary dismissal within two years without cause or (i) a reduction in salary and potential bonus and/or (ii) a meaningful diminution in job responsibility as a result of such change; (3) voluntary severance other than retirement; (4) death; (5) long-term disability; (6) early retirement and (7) retirement at normal retirement age. In each case, the actual amounts to be paid can only be determined at the time the Named Executive Officer separates from the Company.
2015 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL TABLE, continued
Unless otherwise denoted, all payments shown above represent amounts payable in lump sum and without tax gross-up or tax reimbursement.
In the case of an involuntary severance without cause, and except in the case of Mr. Dillon as shown above, the Named Executive Officers retention of his vested stock options, restricted stock, and performance units is subject to Company approval. Otherwise, such are forfeited. In the case of involuntary severance for cause, all vested and unvested stock options, restricted stock, and performance units are forfeited. Also, in the cases of an involuntary severance without cause and involuntary severance for cause, the Named Executive Officer may continue to participate in the Companys health care coverage under the provisions of the Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA). Except in the case of Mr. Dillon, as shown above, such participation is not funded by the Company.
For the Named Executive Officers and in the case of change in control