Deltic Timber DEF 14A 2017
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 ☒
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 27, 2017, at 10:00 a.m., Central Daylight Savings Time (CDT), 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 6, 2017, 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 Companys 2016 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 20, 2017
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 27, 2017. The Companys Proxy Statement and Annual Report to security holders for the fiscal year ended December 31, 2016 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 27, 2017 in El Dorado, Arkansas. Only stockholders of record at the close of business on March 6, 2017, (the Record Date) are entitled to notice of, and to vote at, the meeting. There were 12,183,879 shares of Deltic Common Stock outstanding and entitled to vote on March 6, 2017. This amount does not include 630,744 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 20, 2017, the Company will mail its Annual Report for the year ended December 31, 2016 and its Annual Report on Form 10-K for 2016 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: (1) FOR the election of the four nominees for Class III director named in the proxy card; (2) FOR the ratification of the selection of KPMG LLP as the Companys independent auditors for 2017; (3) FOR the advisory approval of the Companys executive compensation; and (4) FOR the advisory approval of the Companys annual executive compensation vote.
You may change your voting instructions or revoke your proxy at any time before it is voted at the meeting by: (1) re-voting telephonically or on the internet at any time up to 1:00 a.m. CDT on April 27, 2017, the date of the meeting (only the latest telephonic or internet votes will be counted); (2) executing a later-dated proxy; (3) 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, (4) 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 A on the proxy card), as well as the advisory approval of the Companys executive compensation (Item C on the proxy card) and the advisory approval of the Companys executive compensation on an annual basis (Item D on the proxy card), 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 A on the proxy card) 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 Companys bylaws and certificate of incorporation 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 2017 (Item B on the proxy card). 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 votes required for the approval of the Companys executive compensation (Item C on the proxy card) and the advisory approval of the Companys executive compensation on an annual basis (Item D on the proxy card) are merely advisory and are not binding on the Company, the Board of Directors, or the Executive Compensation Committee of the Board of Directors. Despite the fact these votes are non-binding, the Board of Directors will take the results of these votes under advisement. With respect to Item C and Item D, 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 these votes.
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. Solicitation of proxies on behalf of the Company may also be made by Georgeson, LLC. The cost of soliciting these 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 as of the Record Date.
PROCEDURES FOR STOCKHOLDER NOMINATIONS AND PROPOSALS
Nominations. Under the Companys Amended and Restated Bylaws (hereinafter the Bylaws), nominations for director may be made only by the Companys 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 2018 Annual Meeting of Stockholders, will be January 26, 2018. 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 the 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 2018 Annual Meeting of Stockholders will be January 26, 2018. 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 2018 Annual Meeting of Stockholders should be directed to the Secretary of the Company, and must be received by the Company on or before November 19, 2017 in order to be eligible for inclusion in the Companys 2018 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-listed 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 an independent 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. Deltic is a natural resources company focused on the efficient and environmentally responsible management of its land holdings. The Company owns approximately 530,000 acres of timberland, operates two sawmills and a medium density fiber-board plant, and is engaged in real estate development. Headquartered in El Dorado, Arkansas, the Companys operations are located primarily in Arkansas and north Louisiana.
THE BOARD OF DIRECTORS
During 2016 the Company was served by its Board of Directors, which included: Mr. Randolph C. Coley; Mr. Ray C. Dillon (retired on October 10, 2016); Mr. Bert H. Jones; the Reverend Dr. Christoph Keller, III; Mr. D. Mark Leland; Mr. David L. Lemmon; Mr. R. Madison Murphy; Mr. Robert C. Nolan; Mr. R. Hunter Pierson, Jr.; Mr. J. Thurston Roach; Ms. Lenore M. Sullivan; and Mr. Robert B. Tudor, III. On March 8, 2017, upon his employment as the Companys President and Chief Executive Officer (CEO), Mr. John D. Enlow, Sr. was elected by the Companys Board of Directors to fill the director vacancy created by the retirement of Mr. Dillon.
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 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 and cyber 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.
During 2016, Deltics Board of Directors held five regularly scheduled meetings and two special 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 three meetings, respectively. It is the policy of the Board of Directors that directors attend stockholder meetings, Board of Directors meetings, and Board committee meetings unless extenuating circumstances make such attendance impracticable. During 2016, all directors attended at least 90% of the aggregate number of Board meetings and their respective Board committee meetings. Also, all directors attended the Companys 2016 Annual Meeting of Stockholders and all are expected to attend the 2017 Annual Meeting of Stockholders.
Per the Companys Corporate Governance Guidelines, 75 years of age has been determined to be an appropriate retirement age for directors and those who reach the age of 75 during their term are to retire no later than the date of the Companys Annual Meeting following their 75th birthday. Accordingly, Messrs. Lemmon, Nolan, and Roach will retire from service after the Annual Meeting on April 27, 2017. Coincident with Mr. Nolans retirement, a new independent non-employee Chairman of the Board of Directors will be elected by the Board at its annual organizational meeting immediately following the Annual Meeting of Stockholders on April 27, 2017.
To assist in fulfilling its responsibilities, Deltics Board of Directors has established four principal committees: (1) the Audit Committee; (2) the Executive Committee; (3) the Executive Compensation Committee; and (4) the Nominating and Corporate Governance Committee. These committees are briefly described as follows:
The Audit Committee meets regularly, including in executive sessions, 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 and approves all audit as well as all audit-related and non-audit services of the independent auditors. Additionally, the Committee assists the Board of
Directors in fulfilling its oversight responsibility relating to the Companys cyber risks. The Committee is chaired by Mr. Roach with its other members being Messrs. Coley, Lemmon, Pierson, and Ms. Sullivan. Mr. Leland served on the Committee during 2016 from the time of his election to the Board on June 16, 2016 through the date of his election as the Companys Interim President and CEO on October 10, 2016. Due to the NYSEs independence requirements for service on the Committee and Mr. Lelands interim loss of independence while serving as the Companys Interim President and CEO, Mr. Leland resigned from the Committee on October 10, 2016. Upon the Board of Directors election of John D. Enlow, Sr. as the Companys new President and CEO on March 8, 2017, Mr. Leland regained his independent director status and was reappointed to the Committee. During their service, and except as previously noted, each member of the Committee was 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. With the upcoming retirement of Mr. Roach on April 27, 2017, the Companys Board will appoint a new Audit Committee Chairman and will designate a new financial expert during its annual organizational meeting immediately following the Annual Meeting of Stockholders on April 27, 2017. 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 p. 57 of this Proxy Statement for the Committees 2016 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 the Companys operations and exercising the general powers of the Board of Directors when the Board of Directors is not in session. However, the Committee does not have the power, among other things, to: (1) declare dividends; (2) issue stock; (3) amend the Bylaws; or (4) approve any merger or share exchange. The Committee is chaired by Mr. Nolan with its other members being Messrs. Dillon and Leland during their respective periods as the Companys President and CEO during 2016, and Messrs. Murphy and Roach. With his election as the Companys new President and CEO, John D. Enlow, Sr. was appointed to the Committee by the Board on March 8, 2017. Except for Mr. Leland, and due only to his interim service as the Companys President & CEO, and except for Messrs. Dillon and Enlow due to their respective periods of service as the Companys permanent President & CEO, each member of the Committee was 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 acts to assist the Board of Directors in fulfilling its oversight responsibility for the Company by overseeing 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-term and long-term incentive awards for such executive officers, including the Companys President and CEO. 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. Jones, Keller, Lemmon, Nolan, ex officio, Pierson, Tudor, and Ms. Sullivan. 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, but are not limited to: (1) 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; (2) the review of any requests for waivers from provisions of the Companys Code of Business Conduct and Ethics; (3) the review of situations that may involve a potential conflict of interest on the part of a director; and (4) 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. Coley, Jones, Murphy, Nolan, ex officio, and Roach. 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 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 relationship 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 may have 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 per the Companys Corporate Governance Guidelines 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: (1) a director will not be determined to be independent if within the preceding three years, except in periods following a directors interim employment as an executive officer, 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 (a) 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 (b) 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; (2) 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; (3) a director will not be determined to be independent under applicable standards for Audit Committee membership if, subject to Rule 10A-3 under the Securities Exchange Act of 1934 , 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, (4) a director will not be determined to be independent if the director is an employee of, or whose immediate family members are 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 and, in the aggregate, had a total dollar value less than the required disclosure threshold. Similarly, sales of the Companys lumber products were also reviewed and determined to be immaterial relationships and did not affect director independence and, in the aggregate, had a total dollar value less than the required disclosure threshold. Payments to Deborah M. Cannon, a director candidate for this years Annual Meeting, while previously serving as a consultant to the Board were also reviewed and also had a dollar value less than the required disclosure threshold.
During its deliberations, the Board of Directors affirmatively determined that Messrs. Coley, Jones, Reverend Keller, and Messrs. Lemmon, Murphy, Nolan, Pierson, Roach, as well as Ms. Sullivan and Mr. Tudor met the applicable independence standards and each was determined to be independent. Due only to his interim service as the Companys President and CEO, Mr. Leland was determined not to be independent during his interim service period of October 10, 2016 through March 8, 2017. Mr. Dillon, now retired, was deemed not to be an independent director during his employment as the Companys President and CEO during 2016. Similarly, Mr. Enlow was deemed not to be an independent director upon his employment as the Companys President and CEO on March 8, 2017. Additionally, 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, Mr. Lelands, and Mr. Lemmons respective service on the audit committee of one other public company each would not impair their 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. Annual 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 CEO 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, but not limited to: (1) composition of the Board of Directors and criteria for membership; (2) director qualifications; (3) bifurcation of the duties of Chairman and President and CEO; (4) conflicts of interest and prohibition of loans; (5) director responsibilities, including participation and preparation for meetings; (6) director access to management and employees and authority to hire independent legal, financial or other advisors; (7) director orientation and continuing education; (8) evaluation of management performance and succession; (9) stockholder, employee, and other interested party communication with directors; and (10) 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. 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.
As discussed in our Annual Report on SEC Form 10-K filed on March 7, 2017 for the year ended December 31, 2016, the Companys Interim Chief Executive Officer and Interim Chief Financial Officer concluded that the Companys disclosure controls and procedures were not effective as of December 31, 2016, due to a material weakness in the Companys internal control over financial reporting. The Company had ineffective controls over the cash disbursements process for certain expenditures that required payment on an expedited basis, including ineffective segregation of duties between the initiation and authorization of cash disbursements. As a result, the Companys former Chief Financial Officer was able to misappropriate an immaterial amount, of the Companys cash, less than the amount of his forfeited 2016 cash incentive award ($177,000) as herein reported at p. 39, over a two year period for personal use while misrepresenting the nature of such disbursements in the Companys books and records. As reported on SEC Form 8-K as filed on February 27. 2017, following the discovery of the misappropriation on February 20, 2017, the Board terminated the employment of the Companys former Chief Financial Officer for cause on February 24, 2017. Upon the completion of the Companys internal investigation which including analysis performed by third party forensic accountants, it was determined that the misappropriation did not have a material impact on the amounts reported in previously issued financial statements.
Although no material misstatements were identified in our consolidated financial statements, this control deficiency created a reasonable possibility that a material misstatement to the consolidated financial statements would not be prevented or detected on a timely basis. We have concluded that our internal control over financial reporting was not effective as of December 31, 2016.
During the first quarter of 2017, as the result of the misappropriation of assets and related control deficiencies described above, the Company initiated comprehensive remediation efforts to ensure that the deficiencies that contributed to the material weakness are remediated. We have reviewed the design, implementation and operation of the controls and have made enhancements and identified new controls that are currently being considered for implementation as part of the remediation efforts. These efforts include
establishing a segregation of duties between the initiation and authorization of cash disbursements for expenditures and enhancing documentation requirements around check authorizations.
We believe that such efforts, once implemented and operating for a sufficient period of time, will effectively remediate the reported material weakness. However, the material weakness will not be considered remediated until the controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
ELECTION OF DIRECTORS
(ITEM A ON THE PROXY CARD)
The Board of Directors currently consists of twelve members. The Companys directors are divided into three classes as equal in number and tenure 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. Each year, one of the three classes of directors is elected by the stockholders at the Companys Annual Meeting to succeed the directors whose terms are expiring. For the Companys 2017 Annual Meeting, four Class III directors will be elected. Information regarding each of the Companys three classes of directors, the directors serving in each of those classes, and the Boards director candidates, is presented in the following paragraphs:
Class I Directors. Two of the four directors currently serving in Class I, Mr. Nolan and Mr. Tudor, were elected at the 2015 Annual Meeting to serve for a three-year term expiring at the Companys Annual Meeting in the year 2018. Mr. Leland was elected as a Class I director on June 16, 2016 to fill an additional Class I position created on that same date by the Board of Directors as permitted by the Companys Bylaws to serve a term expiring at the Companys Annual Meeting in the year 2018. Former Class I director and former President and CEO, Ray C. Dillon, retired from service on October 10, 2016 and, as permitted by the Companys Bylaws, his successor, John D. Enlow, Sr., was elected by the Board to serve out the remainder of Mr. Dillons term, which expires at the Companys Annual Meeting in the year 2018. Pursuant to the Companys Corporate Governance Guidelines, Mr. Nolan is scheduled to retire from the Board after the 2017 Annual Meeting on April 27, 2017.
Class II Directors. The four directors currently serving in Class II, Messrs. Coley, Pierson, Roach, and Ms. Sullivan, were elected at the 2016 Annual Meeting to serve for a three-year term expiring at the Companys Annual Meeting in the year 2019. Pursuant to the Companys Corporate Governance Guidelines, Mr. Roach is scheduled to retire from the Board after the 2017 Annual Meeting on April 27, 2017.
Class III Directors. Three of the four 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 on April 27, 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, as permitted by the Companys Bylaws, to serve a term expiring at the Companys Annual Meeting in the year 2017. Rev. Keller and Messrs. Jones and Murphy will stand for reelection by the stockholders at the 2017 Annual Meeting. Pursuant to the Companys Corporate Governance Guidelines, Mr. Lemmon is scheduled to retire from the Board after the 2017 Annual Meeting on April 27, 2017 and his seat is scheduled to be filled by the election of the Boards director nominee, Deborah M. Cannon.
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. As three directors, one from each Class, are retiring from service upon the conclusion of this years Annual Meeting and a successor candidate has been nominated for this years Class III elections, the Board will remain open to considering and reviewing qualified candidates as possible future successors for the vacancies that will result in Class I and Class II. Notwithstanding the staggered terms of office, the Board of Directors also undergoes an evaluation process each year to ensure
that all incumbent members of the Board of Directors continue to meet the criteria for service as 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: (1) 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; (2) will, as permitted by the Companys Bylaws, adjust the membership of Class I and Class II to three directors each upon the conclusion of this years Annual Meeting; and (3) proposes the following four nominees for election as Class III directors by the stockholders at the 2017 Annual Meeting:
NOMINEES FOR CLASS III DIRECTORS
With Terms Expiring at the Annual Meeting in the Year 2020:
Deborah M. Cannon
Bert H. Jones
Rev. Dr. Christoph Keller, III.
R. Madison Murphy
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 as a Class III director by the stockholders at the Annual Meeting, and for each director whose term expires in subsequent years. Should one or more of these Class III 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 III Terms Expiring in 2020
Deborah M. Cannon, age 65, is the former President and Chief Executive Officer of Houston Zoo, Inc. from 2005 to 2015. From 1974 to July 2004, Ms. Cannon served in a number of different positions with Bank of America, including as Executive Vice President and President of the Houston Region. Additionally, Ms. Cannon has served on the boards of several non-profit community organizations, including Memorial Hermann Health System where she currently serves as Chairman, the United Way of the Texas Gulf Coast and Greater Houston Partnership. Ms. Cannon has also served as an advisor to Deltics Board since June 2016.
Ms. Cannon will bring invaluable banking and financial knowledge and expertise from her years of experience in the financial services industry, including her current public company board service with BancorpSouth, Inc., to Deltics Board of Directors. She will also bring invaluable leadership experience from her work in the civic and non-profit community to Deltic.
Bert H. Jones, 65, 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, the Southern Pine Inspection Bureau (the SPIB), and currently serves as its Vice Chairman. Mr. Jones is a former Chairman of the Board of Directors for the Treated Wood Council (the 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 Deltics Board for its manufacturing and marketing strategies as well as its governance and compensation duties. His extensive industry experience and his own day-to-day executive manufacturing experience qualifies him to serve on Deltics Board and to serve on its Executive Compensation Committee and on its Nominating and Corporate Governance Committee.
The Very Reverend Dr. Christoph Keller, III, 62, has been a director since December 17, 1996 and as a result, is intimately familiar with Deltics history and operations since its spin-off from Murphy Oil Corporation. 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 the 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.
Class III Terms Expiring in 2020, continued
Reverend Kellers farming operations and real estate experience, combined with his other public company board service, provides highly relevant insights for the Boards timberland management and real estate development strategies and for its governance and compensation duties. Reverend Kellers theological background provides a unique perspective for the Board committees upon which he serves. Reverend Kellers knowledge of Deltic, acquired through years of service to the Company, combined with his personal stake in its success and his professional experience qualifies him to serve on the Companys Board and its Executive Compensation Committee and its Nominating and Corporate Governance Committee.
Robert Madison Murphy, 59, has been a director since December 17, 1996 and, as a result, is intimately familiar with Deltics history and operations since its spin-off from Murphy Oil Corporation. 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 vineyard operations and investments and timber, respectively. 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 his 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 Deltic, acquired through years of service to the Company, combined with his personal stake in its success and his professional experience qualifies him to serve on the Companys Board and its Executive Committee, Executive Compensation Committee, and Nominating and Corporate Governance Committee.
DIRECTORS WHOSE TERMS IN OFFICE CONTINUE
Class I Terms Expiring in 2018
John D. Enlow, Sr., age 49, was elected by the Companys Board of Directors as the Companys President and Chief Executive Officer and as a Class I director on March 8, 2017 to fill the vacancies created by the retirement of Ray C. Dillon on October 10, 2016. Prior to his election as the Companys President and Chief Executive Officer and as a Class I director, Mr. Enlow served as Vice President of Southern Timberlands and Real Estate for Weyerhaeuser Company, from 2014 to 2016. Prior to that, Mr. Enlow was employed by Rayonier Inc., which he joined in 1997 and where he served as Region Director, Northern and Region Director, Atlantic from 2012 to 2014, and Region Director, Atlantic from 2007 to 2012. Mr. Enlow began his professional career at Union Camp Corporation, where he was employed from 1990 to 1997. He currently serves as a member of the Board of Directors of the Georgia Forestry Association & Wood Supply Research Institute. Mr. Enlow received his B.S. in Forestry from Mississippi State University in 1990 and his M.B.A. from Brenau University in 1992.
Mr. Enlows significant and diverse forestry experience, combined with his proven executive capabilities provides an invaluable and new perspective in regard to strategy and direction for Deltic and for its core asset its timberlands. Mr. Enlows professional experience qualifies him for service on the Companys Board and on its Executive Committee.
D. Mark Leland, age 55, served as the Companys Interim President and Chief Executive Officer from October 10, 2016 through March 8, 2017 and has been a director since June 16, 2016. Mr. Leland has served on Rice Midstream Partners general partners board of directors since December 2014 and currently serves as chairman of the audit committee and as a member of the conflicts committee. Mr. Leland has served on the board of directors of the general partner of Oiltanking Partners, L.P. from June 2012 to February 2015 and on the board of directors of KiOR, Inc. from June 2013 to March 2015. Mr. Leland served as Executive Vice President of El Paso Corporation and President of El Pasos midstream business unit from October 2009 to May 2012, and as Director of El Paso Pipeline Partners, L.P. from its formation in 2007 to May 2012. Mr. Leland also previously served as Executive Vice President and Chief Financial Officer of El Paso Corporation from August 2005 to October 2009. He served as Executive Vice President of El Paso Exploration & Production Company from January 2004 to August 2005, and as Chief Financial Officer from April 2004 to August 2005. Mr. Leland served as Senior Vice President and Chief Operating Officer of the general partner of GulfTerra Energy Partners, L.P. from January 2003 to December 2003, and as Senior Vice President and Controller from July 2000 to January 2003.
Mr. Lelands extensive executive, operational, and financial experience including his certifications as an Internal Auditor and Management Accountant, as well as his prior service as Deltics Interim President and CEO, provides invaluable insight to the Board in its oversight of Deltics operations, financial performance, and its management and development of natural resources and qualifies him for service on the Companys Board and its 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 Deltics financial resources, its operations, and its capital markets, and brings vital 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, Murphy Oil Corporation. His knowledge of the Company before its spin-off and since its spin-off, combined with his extensive executive and financial experience qualifies him to serve on the Companys Board and to serve on its Executive Compensation Committee.
DIRECTORS WHOSE TERMS IN OFFICE CONTINUE
Class II Terms Expiring in 2019
Randolph C. Coley, 70, 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, corporate law, and securities law while a partner in a nationally-recognized law firm provides invaluable corporate governance and corporate legal expertise to Deltics Board. Also, Mr. Coleys investment banking experience combined with his legal experience, provides an additional and invaluable financial perspective for the Companys operations and its Board. This experience qualifies him to serve on the Companys Board and to serve on its Audit Committee and its Nominating and Corporate Governance Committee.
Class II Terms Expiring in 2019, continued
R. Hunter Pierson, Jr., 65, has been a director since December 16, 1999 and, as a result, is intimately familiar with Deltics history and operations since its spin-off from Murphy Oil Corporation. 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 Deltics Board. Mr. Piersons knowledge of the Company acquired through years of service to the Company, combined with his personal stake in its success and his professional experience, qualifies him to serve on Deltics Board and on its Audit Committee and its Executive Compensation 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 Deltics Board and on its Audit Committee and Executive Compensation 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. The foregoing persons, their spouses, and members of their extended families directly or indirectly own in the aggregate an estimated 20 percent, or more, 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. 22-23 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 2016, no reportable material related party transactions occurred and no waivers were requested or granted.
2016 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, 2016, the non-employee directors were entitled to receive an annual cash retainer of $40,000, $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.
Footnotes to Director Compensation Table, continued
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 the SEC Forms 3 and 4 filed during the year 2016, and 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, 2016, except that a Form 4 disclosing two separate purchases of Company shares by Robert C. Nolan was inadvertently filed less than one week late on November 9, 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 (1) 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, (2) for each director (including those nominated for re-election), (3) each of the named executives listed in the Summary Compensation Table on p. 39 of this Proxy Statement, and (4) directors and officers as a group.
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Footnotes to Ownership of Certain Beneficial Owners Table
Footnotes to Ownership of Directors and Officers Table, continued
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 2016. For 2016, our Named Executive Officers (NEOs) were:
CEO Transitions 2016 2017
On October 10, 2016, Ray C. Dillon, the Companys President and CEO since July 1, 2003, retired from service. Mr. Dillon also retired from service to the Companys Board of Directors on that same date and the Company entered into a retirement agreement with Mr. Dillon. The announcement of Mr. Dillons retirement was reported on SEC Form 8-K filed on October 12, 2016 and a copy of his retirement agreement was attached thereto as Exhibit 10.1. Per the retirement agreement, Mr. Dillon received a lump sum cash payment and the accelerated vesting of all time-based restricted stock and all unvested stock options, an additional grant of 2016 performance-based restricted stock as well as accelerated vesting of a portion of his performance-based restricted stock and forfeiture of a portion of his performance-based restricted stock.
With Mr. Dillons retirement, the Companys Board of Directors appointed independent director, D. Mark Leland, as the Companys interim President and CEO on October 10, 2016. Mr. Lelands appointment and compensation was also reported on SEC Form 8-K filed on October 12, 2016. Per the Boards agreement with Mr. Leland, his compensation consisted of an annual base salary prorated for his period of interim service and a grant of time-based restricted stock with a one-year vesting period, but with accelerated prorated vesting in the event that the Company found a replacement for Mr. Leland within said one-year period to serve as the permanent President and CEO.
On February 27, 2017, the Company announced the appointment of John D. Enlow, Sr. as the Companys new permanent President and CEO, effective March 8, 2017. The announcement of Mr. Enlows appointment was reported on SEC Form 8-K filed on February 27, 2017 and a copy of the executed offer letter between the Company and Mr. Enlow was attached thereto as Exhibit 10.1. Mr. Enlows beginning compensation consisted of an annual base salary, a target cash incentive opportunity equal to 85 percent of his base salary, a sign-on bonus, and long term incentive (LTI) equity awards.
CFO Transition in 2017
On February 24, 2017, the Company terminated the employment of its CFO, Kenneth D. Mann for cause and the Companys Controller, Byrom L. Walker, was named as interim CFO. These events were reported on SEC Form 8-K filed on February 27, 2017.
The foregoing transitions in the CEO and CFO positions affected the reporting of 2016 compensation. Accordingly, additional details regarding the 2016 compensation for Messrs. Dillon, Leland, and Mann are reflected, as applicable, in the tables and related footnotes that follow.
Executive Summary of 2016 Key Accomplishments and Milestones
In 2016, Deltic achieved many notable financial and operational milestones and implemented multiple strategic initiatives that will be instrumental to our future success. Key accomplishments and milestones for 2016 include:
Because of these financial and operational achievements during 2016, Deltic achieved 74.92 percent of the 2016 threshold GAAP net income goal of $17.2 million established by the Committee under our annual cash incentive program. Therefore, the Companys NEOs, other than those serving as CEO (due to partial year service) and CFO (due to termination), received a cash incentive award for 2016.
In regard to Deltics total shareholder return (TSR) versus the peer group established by the Committee for the performance-based restricted stock (PBRS) awards with a four-year vesting period ending in February 2016 (i.e., the PBRS awards granted in February 2012), the TSR was below the threshold level required for any shares to vest. Thus, none of the Companys NEOs received any payouts related to these awards. As to time-based restricted stock awards with a four-year vesting ending in February 2016, all of the Companys NEOs, except Mr. Leland due to his interim service and Mr. Mann due to his termination, vested in these shares originally granted in February 2012.
Overall, our executive compensation 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 2016 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 the Executive Compensation Program
In 2016, the Say on Pay vote on our executive compensation program received over 99 percent shareholder approval at our annual meeting of shareholders. Overall, the Committee considered this result as evidence of strong stockholder support of its executive compensation decisions and policies.
Consistent with prior years, the Committee viewed shareholder outreach as an opportunity to receive further feedback on the Companys executive compensation program, as well as consider any needed modifications to the program. Comments received in 2016, along with those gathered in recent years, were carefully considered and thoroughly reviewed by the Committee. Based on this outreach, consideration, and the results of the 2016 stockholder Say on Pay vote, no key changes were made to the program during 2016. However, key changes made in 2015 received strong shareholder support in 2016 and, as a result, have remained a part of our executive compensation program. Below is a recap of the key changes that were made in 2015 and continued for 2016.
Recap of Key Program Changes Made in 2015 and Continued for 2016
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 effective in 2015 and continue them for 2016:
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 the 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 considers 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, and each NEOs performance in his/her role.
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. Consistent with prior years, for 2016, 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 2016. Increases were provided to three NEOs in order to position their base salaries more competitively with the market median levels for
comparable roles. Base salaries for the other 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 2016, 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 previous years, the Committee determined that the primary metric for the 2016 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):
At the beginning of 2016, the Committee established the following performance levels and payout percentages related to the 2016 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 $9.245 million in audited 2016 GAAP net income, which for purposes of cash incentive calculations was adjusted to $12.334 million by the Board in February 2017 to offset the unexpected and nonrecurring nature of the corporate expenses related to Mr. Dillons retirement and expenses associated with the Companys CEO search, payouts were made, on a linearly interpolated basis at 74.92 percent of target with respect to this metric as the Board determined the aforementioned expenses should not be charged against 2016 NEO performance or against the 2016 performance of the Companys other employees. The adjustment made by the Board was applicable to all qualifying employees, including, and as applicable and as discussed herein, the NEOs. In addition, performance for the Woodlands and Manufacturing segments (Operations) was below their respective target levels, but still qualified for a partial payout, while the performance for the Real Estate segment was above its respective target level, resulting in payouts of
8.58 percent of target (for Operations) and 107.17 percent of target (for Real Estate). Final 2016 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 NEO eligible for LTI awards. The specific dollar amount is calculated, taking into consideration the nature of the NEOs position, his/her responsibilities and contributions to the Company, and equivalent awards to NEOs in similar positions at companies comparable to Deltic.
As in prior years, the LTI mix for 2016 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 percent, with stock options and time-based restricted stock each being weighted 25 percent.
Thus, 75 percent of our NEOs LTI awards are performance-based (stock options plus performance-based restricted stock). For 2016, 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 TSR for a select group of companies. The TSR peer group for the 2016 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 of companies 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 2016 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 percent of target even if the Companys relative TSR versus the TSR Peer Group would indicate a higher payout percentage.
On February 15, 2016, the performance period for the 2012 award of performance-based restricted stock ended. Because the Companys TSR over this period was less than 80 percent of the Composite Total Stockholder Return for the same period, the threshold performance level adopted for the 2012 PBRS grant, no shares related to TSR performance during this performance cycle vested or were awarded to any participants, including the NEOs, except as otherwise herein reported for Mr. Dillon in conjunction with his retirement agreement dated October 10, 2016.
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.
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.
Presently, the Vice Presidents, including Byrom L. Walker, the Interim Chief Financial Officer, (all NEOs) are already in compliance with this requirement. As Mr. Leland served as the Companys Interim President and Chief Executive Officer, he was not required to meet this particular stock ownership requirement for NEOs. Rather, as a director of the Company, he has a separate stock ownership requirement (see p. 19). On March 8, 2017, John D. Enlow, Sr. was appointed as the Companys new permanent President and CEO and will be required to meet the above-listed stock ownership requirement for his position within five years.
Clawback Policy, Hedging Policy, & Restrictions on Pledging
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.
The Company has a written policy that prohibits directors, officers, and employees from engaging in any hedging transactions including, but not limited to transactions involving any publicly traded options, puts, calls, prepaid variable forward contracts, equity swaps, collars, exchange funds or other derivatives that are designed to hedge or speculate on any change in the market value of the Companys securities without the full risks and rewards of ownership.
The Company also has a written policy that prohibits any pledging of Company securities, including the holding of Company securities in a margin account, by the Companys directors and officers unless they have met their minimum equity ownership requirement. Once such minimum equity ownership has been achieved, the directors and officers must seek preclearance from the Companys General Counsel prior to pledging any of the Companys securities in excess of their minimum equity ownership requirement.
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 including Mr. Dillon (now retired), but except Mr. Leland due to his interim service as the Companys President and Chief Executive Officer beginning on October 10, 2016 and concluding March 8, 2017, are eligible to participate in the Retirement Plan of Deltic Timber Corporation (the Retirement Plan), a qualified defined benefit retirement plan. Eligible participants are employees who achieved 1,000 hours of service during a 12 month period after beginning their employment with the Company if such employment began no later than December 31, 2014. Eligible participants earn the right to receive a monthly benefit for life upon retirement. Effective January 1, 2015, the Committee discontinued eligibility for participation in the Retirement Plan for all newly hired and for re-hired employees. Accordingly, Mr. Enlow, with a hire date of March 8, 2017, is not an eligible participant in the Retirement Plan. Rather he, like other employees hired after December 31, 2014, have the benefits of the Companys qualified defined contribution savings plan (See description under the heading Retirement Savings Plan). As for the Retirement Plans eligible participants, 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. During 2016, these committee members were Ray C. Dillon (January 1, 2016 October 10, 2016), D. Mark Leland, who began service on October 10, 2016, 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 independent 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 employees, including the Named Executive Officers, except Mr. Leland due to his interim service as the Companys President and Chief Executive Officer, known as the Thrift Plan of Deltic Timber
Corporation (the Thrift Plan), for which the Company fully matches the first five percent 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 five percent match and also contributes an additional four percent of base salary, with a three-year vesting period, to the Retirement Savings Plan on their behalf. All employee contributions, and the Companys five percent match, are fully vested upon contribution. No Company matching level exists beyond the employees five percent 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 employees as described above, 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, including Mr. Dillon (now retired), but except Mr. Leland due to his interim service as the Companys President and Chief Executive Officer, 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 2016 Non-Qualified Deferred Compensation Table, p. 49.
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. Like other employees of the Company, the NEOs receive a Company match on Thrift Plan contributions and the sale of up to three 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 2016 All Other Compensation Table in footnote 7 on p. 41.
Role of Executive Officers in Compensation Decisions
The Committee annually reviews each component of the total compensation paid to each NEO 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 NEOs and his compensation recommendations for all NEOs, except himself, 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 15, 2017, 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 2016 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, the terms of which were previously disclosed by the Company on SEC Form 8-K. Formerly, and in the case of Mr. Dillon only, an Involuntary Severance Agreement had been in place that provided for certain levels of compensation related to select events. However, effective upon Mr. Dillons retirement on October 10, 2016, said agreement was no longer applicable and was not extended to Mr. Leland in his succession as Interim President and CEO of the Company. However, Mr. Enlow was provided with a Change-in-Control Agreement upon his hire date on March 8, 2017 as previously disclosed by the Company on SEC Form 8-K. Additional details on these provisions and amounts can be found in the section of this proxy entitled 2016 Potential Payments Upon Termination or Change In Control Table beginning on page 50.
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, 2016, 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. 56.
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
Lenore M. Sullivan
2016 SUMMARY COMPENSATION TABLE
The Summary Compensation Table shown below summarizes the total compensation earned by the Companys Interim Chief Executive Officer, Former 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, 2016. Messrs. Mann, Streeter, Meghreblian and Andrews served in their individual capacities, as designated below, during the entire year. During 2016, Mr. Dillon served as President and CEO from January 1, 2016 until his retirement on October 10, 2016 and thereafter Mr. Leland served as the Interim President and CEO from October 10, 2016 through December 31, 2016.
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. 24.
Footnotes to Summary Compensation Table, continued
Footnotes to Summary Compensation Table, continued
Footnotes to Table in Footnote 7
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, 2016, there were 731,102 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.
2016 GRANTS OF PLAN-BASED AWARDS TABLE
The 2016 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 the dates listed below. 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.
Footnotes to Grants of Plan-Based Awards Table
2016 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
The 2016 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, 2016. 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, 2016. All awards shown below were granted under the provisions of the Companys 2002 Stock Incentive Plan, as amended by the Companys stockholders in 2012.
Footnotes to 2016 Outstanding Equity Awards at Fiscal Year-End Table
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. Accordingly, 2016 was the last year for which a tax gross-up will be applied. Information pertaining to these grant dates is provided below in the footnotes to this table.
2016 OPTION EXERCISES AND STOCK VESTED TABLE
The 2016 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, 2016. 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 15, 2016.
2016 PENSION BENEFITS TABLE
The 2016 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, 2016. Except for Mr. Leland, 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 15, Employee and Retiree Benefit Plans in the Companys annual report filed on Form 10-K with the SEC on March 7, 2017. Information regarding these plans, such as the Retirement Plan benefit formula, can be found under the heading Retirement Benefits and Plans at p. 35.
2016 NON-QUALIFIED DEFERRED COMPENSATION TABLE
The 2016 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 2016 except Mr. Leland. 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.
2016 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL TABLE
The 2016 Potential Payments upon Termination or Change in Control Table shown below reflects the amount of compensation payable, as of December 31, 2016, to each of the listed 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.
Footnotes to table on pp. 52-53.
2016 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL TABLE, continued