UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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BENEFYTT TECHNOLOGIES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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3450 Buschwood Park Dr., Suite 200
Tampa, Florida 33618
April 17, 2020
Dear Stockholder:
You are cordially invited to attend the 2020 Annual Meeting of Stockholders of Benefytt Technologies, Inc. (the “Annual Meeting”), which will be held on Tuesday, May 12, 2020, beginning at 12:30 p.m., Eastern Time. The meeting will be held at 3450 Buschwood Park Dr., Suite 200, Tampa, Florida 33618. We currently intend to hold the Annual Meeting in person. However, we are actively monitoring the coronavirus (COVID-19) situation, as we are sensitive to the public health and travel concerns our stockholders may have and the protocols that federal, state, and local governments and health officials may impose or recommend. In the event we determine it is not possible or advisable to hold the Annual Meeting in person, we will publicly announce alternative arrangements for the meeting as promptly as practicable before the meeting, which may include holding the meeting solely by means of remote communication (i.e., a virtual-only annual meeting). Please monitor our website at www.benefytt.com for updated information. If you are planning to attend our meeting, please check the website prior to the meeting date.
The purpose of the Annual Meeting is to consider and vote upon the business described in the accompanying notice of Annual Meeting of Stockholders and the proxy statement.
A formal notice describing the business to come before the Annual Meeting, a proxy statement and a proxy card are enclosed. We have also enclosed our 2019 Annual Report to Stockholders for your review, which includes a copy of our Annual Report on Form 10-K and contains detailed information concerning our financial performance and activities during 2019.
It is important that your shares be represented at the Annual Meeting. Whether or not you plan to attend the Annual Meeting in person, please vote your shares by completing, signing and dating the enclosed proxy card, and returning it in the enclosed, postage-paid envelope. If you later decide to attend the Annual Meeting and vote in person, or if you wish to revoke your proxy for any reason before the vote at the Annual Meeting, you may do so and your proxy will have no further effect.
Sincerely, | |
 | |
Gavin D. Southwell | |
President and Chief Executive Officer | |
3450 Buschwood Park Dr., Suite 200
Tampa, Florida 33618
NOTICE OF 2020 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 12, 2020
The 2020 Annual Meeting of Stockholders of Benefytt Technologies, Inc. (the “Annual Meeting”) will be held on Tuesday, May 12, 2020, beginning at 12:30 p.m., Eastern Time. The meeting will be held at 3450 Buschwood Park Dr., Suite 200, Tampa, Florida 33618, for the following purposes:
1. | to elect as directors the seven nominees named in the accompanying proxy statement to hold office until the 2021 Annual Meeting of Stockholders and until their successors are duly elected and qualified; |
2. approval of, on an advisory basis, Named Executive Officer compensation;
3. to ratify the appointment of Grant Thornton LLP as independent auditors of the Company; and
4. | to consider and act upon such other business as may properly come before the Annual Meeting or at any adjournments or postponements thereof. |
We are not currently aware of any other business to be brought before the Annual Meeting. Stockholders of record at the close of business on March 30, 2020 are entitled to notice of the Annual Meeting and are entitled to vote at the Annual Meeting in person or by proxy. Only stockholders or their proxy holders are invited to attend the Annual Meeting.
We currently intend to hold the Annual Meeting in person. However, we are actively monitoring the coronavirus (COVID-19) situation, as we are sensitive to the public health and travel concerns our stockholders may have and the protocols that federal, state, and local governments and health officials may impose or recommend. In the event we determine it is not possible or advisable to hold the Annual Meeting in person, we will publicly announce alternative arrangements for the meeting as promptly as practicable before the meeting, which may include holding the meeting solely by means of remote communication (i.e., a virtual-only annual meeting). Please monitor our website at www.benefytt.com for updated information. If you are planning to attend our meeting, please check the website prior to the meeting date.
By Order of the Board of Directors |
 |
Erik M. Helding |
Chief Financial Officer, Treasurer, and Secretary |
April 17, 2020 |
TABLE OF CONTENTS
PROXY STATEMENT FOR 2020 ANNUAL MEETING OF STOCKHOLDERS
You have received this proxy statement and the accompanying notice of Annual Meeting and proxy card as a stockholder of Benefytt Technologies, Inc. in connection with the solicitation of proxies by the Board of Directors (the “Board”) for use at Benefytt Technologies’ 2020 Annual Meeting of Stockholders (the “Annual Meeting”) or at any adjournments or postponements thereof.
Unless the context requires otherwise, references in this proxy statement to “Benefytt Technologies,” “Benefytt,” the “Company,” “we,” “us,” or “our” refer to Benefytt Technologies, Inc. and its consolidated subsidiaries, and references to “common stock” refer collectively to our Class A common stock, $0.001 par value, and Class B common stock, $0.001 par value, together as a single class.
Your vote is very important. For this reason, the Board is requesting that you allow your common stock to be represented at the Annual Meeting by the proxies named on the enclosed proxy card. We are first mailing this proxy statement and the proxy card on or about April 17, 2020.
INFORMATION ABOUT THE 2020 ANNUAL MEETING AND VOTING
Time and Place | May 12, 2020 12:30 p.m., Eastern Time Benefytt Technologies, Inc. 3450 Buschwood Park Dr., Suite 200 Tampa, Florida 33618 |
Items to be Voted Upon at the Meeting | You are being asked to: 1. elect seven nominees specified under "Proposal 1: Election of Directors" to hold office until the 2021 Annual Meeting of Stockholders and until their successors are duly elected and qualified; 2. approve, on an advisory basis, Named Executive Officer compensation; 3. to ratify the appointment of Grant Thornton LLP as independent auditors of the Company; and 4. consider and act upon such other business as may properly come before the Annual Meeting or at any adjournments or postponements thereof. |
Who May Vote | You are entitled to vote your common stock if our records show that you held your shares as of the close of business on the record date, March 30, 2020 (the “Record Date”). Each share of our Class A common stock and Class B common stock will entitle its holder to one vote on all matters to be voted on by stockholders. Holders of Class A common stock and holders of Class B common stock will vote together as a single class on the election of directors and on all other matters presented to stockholders for their vote or approval, except as otherwise required by law. As of the Record Date, there were 13,203,527 shares of the Company’s Class A common stock outstanding and 1,016,667 shares of the Company’s Class B common stock outstanding. |
How to Vote | You may vote in person or by proxy at the Annual Meeting. We recommend you vote by proxy even if you plan to attend the Annual Meeting. You can always change your vote at the Annual Meeting. If you hold shares in “street name” (that is, through a bank, broker, or other nominee) and would like to attend the Annual Meeting, you will need to bring the following items to the Annual Meeting: (1) an account statement or other acceptable evidence of ownership of our common stock as of the close of business on the Record Date and (2) a legal proxy obtained from your bank, broker, or other nominee. |
Voting Shares Held in the Name of a Bank, Broker, or other Nominee | If your shares are held in “street name” through a bank, broker, or other nominee, the record holder should have given you instructions regarding how to direct the record holder to vote your shares. It will be the record holder’s responsibility to vote your shares for you in the manner you direct. Please complete, execute and return the proxy card or other instructions in the envelope provided by the record holder. Voting your shares in this manner will not affect your right to vote in person if you decide to attend the Annual Meeting; however, you must first request a legal proxy from the record holder. |
Banks, brokers, and other nominees generally may vote on matters that are considered “routine” under applicable rules, but may not vote on “non-routine” matters unless they have received voting instructions from the person for whom they are holding shares. If there is a non-routine matter presented to stockholders at the Annual Meeting and the record holder does not receive instructions from you on how to vote on that matter, the record holder will return the proxy card to us, indicating the record holder does not have the authority to vote on that matter. This is generally referred to as a “broker non-vote.” If you do not provide directions to your record holder as how you want your shares voted with respect to a non-routine matter, a "broker non-vote" will result and the record holder will not have the authority to vote on Proposals 1 and 2. | |
Proxy Card | If you complete, sign, date, and return your proxy card before the Annual Meeting, we will vote your shares as you direct. For Proposal 1, you may (1) vote for all of the nominees, (2) withhold your vote for all the nominees, or (3) vote for all of the nominees except those you designate. For Proposal 2, you may vote for or against the proposal, or abstain from voting. An abstention will not be counted as either a vote cast for or against Proposal 2. For Proposal 3, you may vote for or against the proposal, or abstain from voting. An abstention will not be counted as either a vote cast for or against Proposal 3. |
If you properly execute and return your signed proxy card but do not specify how you want to vote your shares, we will vote your shares: 1. “FOR” the election of all seven nominees for director identified on pages 9 through 11 (Proposal 1); 2. "FOR" the approval of, on an advisory basis, Named Executive Officer compensation (Proposal 2); 3. "FOR" the ratification of the appointment of Grant Thornton LLP as independent auditors of the Company (Proposal 3); and 4. in our discretion as to other business that properly comes before the Annual Meeting or at any adjournments or postponements thereof. | |
Changing Your Vote | If you are a registered stockholder (meaning a stockholder who holds share certificates issued in his or her name and therefore appears on our share register), you can revoke your proxy at any time before it is voted at the Annual Meeting by: |
1. submitting a new proxy with a later date by signing and returning a proxy card to the Company; 2. attending the Annual Meeting and voting in person; or 3. sending written notice of revocation addressed to Erik M. Helding, our Chief Financial Officer, Treasurer and Secretary, at the address of the Company. | |
If your shares are held in the name of a bank, broker, or other nominee, you should follow the voting instructions you receive from the record holder to revoke or change your vote. | |
Quorum | A quorum is required to conduct business at the Annual Meeting. A quorum will consist of a majority of the votes entitled to be cast by holders of shares of our common stock at the Annual Meeting. |
Votes Required | Nominees for election as a director are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present. Any other matters will be approved by the affirmative vote of the majority of the outstanding shares present at the meeting and entitled to vote on the subject matter at a meeting at which a quorum is present unless a greater number of affirmative votes is required for approval of that matter under our Amended and Restated Certificate of Incorporation, our Amended and Restated Bylaws or the Delaware General Corporation Law. All votes will be tabulated by an inspector of election appointed for the Annual Meeting, who will separately tabulate affirmative and negative votes and abstentions. As provided in our Amended and Restated Bylaws, abstentions and broker non-votes will be counted for the purpose of determining the presence of a quorum, but will not be counted as votes cast and, thus, will have no effect on Proposals 1, and 2. |
Solicitation | The Board is soliciting proxies on behalf of the Company, and thus we will bear the entire cost of soliciting such proxies, including preparation, assembly, printing, and mailing of this proxy statement, the proxy card, and any additional information furnished to stockholders. In addition to solicitations by mail, our directors, officers, and other regular employees of the Company, without additional compensation, may solicit proxies by telephone, facsimile, e-mail, or in person. We have engaged Alliance Advisors, LLC. (“Alliance”), to assist us with the solicitation and distribution of proxies. We expect to pay Alliance approximately $30,000 (plus out-of-pocket expenses) for its services. We have requested that banks, brokers, and other custodians and nominees who hold shares of our Class A common stock on behalf of beneficial owners forward soliciting materials to those beneficial owners. Upon request, we will reimburse banks, brokerage houses, fiduciaries and custodians for their costs of forwarding solicitation materials to beneficial owners of our Class A common stock. |
Access by Remote Communication | We currently intend to hold the Annual Meeting in person. However, we are actively monitoring the coronavirus (COVID-19) situation, as we are sensitive to the public health and travel concerns our stockholders may have and the protocols that federal, state, and local governments and health officials may impose or recommend. In the event we determine it is not possible or advisable to hold the Annual Meeting in person, we will publicly announce alternative arrangements for the meeting as promptly as practicable before the meeting, which may include holding the meeting solely by means of remote communication (i.e., a virtual-only annual meeting). Please monitor our website at www.benefytt.com for updated information. If you are planning to attend our meeting, please check the website prior to the meeting date. |
PROPOSAL 1
ELECTION OF DIRECTORS
Our Amended and Restated Bylaws provide that our Board shall consist of not less than three or more than nine directors. Directors need not be stockholders. Our Board is currently comprised of seven members. Prior to April 9, 2020, our Board consisted of eight members, but following the resignation of Ellen M. Duffield as a director on April 9, 2020, the size of our Board was reduced to seven members.
Vacancies on the Board resulting from death, resignation, removal or otherwise and newly created directorships resulting from any increase in the number of directors may be filled solely by a majority of the directors then in office or by the sole remaining director. Each director so elected shall hold office until his or her successor is elected and qualified or until his or her earlier death, resignation or removal. Directors are elected by a plurality of the votes present in person or represented by proxy and entitled to vote at the Annual Meeting. Shares represented by executed proxies will be voted, if authority to do so is not withheld, for the election of the nominees named below. If any nominee should be unavailable for election as a result of an unexpected occurrence, such shares will be voted for the election of any substitute nominee proposed by the Board.
Based on the recommendation of our Nominating and Corporate Governance Committee, the Board has nominated Paul E. Avery, Anthony J. Barkett, John A. Fichthorn, Paul G. Gabos, Robert S. Murley, Peggy B. Scott, and Gavin D. Southwell for election at the Annual Meeting for a one-year term.
The text of the resolutions with respect to this Proposal 1 are as follows:
RESOLVED, by separate resolutions, to elect the following director nominees:
(a) Paul E. Avery | (e) Robert S. Murley | |
(b) Anthony J. Barkett | (f) Peggy B. Scott | |
(c) John A. Fichthorn | (g) Gavin D. Southwell | |
(d) Paul G. Gabos | ||
Set forth below is biographical information as of the date of this proxy statement for each person nominated. Each person nominated for election has agreed to serve if elected, and we have no reason to believe that any nominee will be unable to serve.
Nominees for Election for a One-Year Term Expiring at the 2021 Annual Meeting of Stockholders
Paul E. Avery (age 60). Paul E. Avery has served as a director since February 2013. Since January 2013, Mr. Avery has been President and Chief Executive Officer of World of Beer Franchising, Inc., a chain of taverns with owned and franchised locations in multiple states and countries. Previously, Mr. Avery served as Chief Operating Officer of OSI Restaurant Partners, Inc. from May 2005 until his retirement in July 2009, where he oversaw operation of Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, Cheeseburger in Paradise, Lee Roy Selmon’s, Ala Carte Pavilion and Outback International. He was promoted to Chief Operating Officer of Outback Steakhouse, Inc. ("Outback") in January 2004 and served as President of Outback starting in April 1997. Mr. Avery was elected to Outback's board of directors in 1998 and served until April 2004. Mr. Avery has an Associate Degree in Hotel and Restaurant Management from Middlesex County College and a Bachelor of Science degree from Kean University, both in New Jersey. Mr. Avery currently serves on the board of directors for Suntrust Bank – Tampa Bay and The Friedreich’s Ataxia Research Alliance. He is a Trustee for Paul Smith’s College NY. We believe Mr. Avery is qualified to serve on our Board because he provides our Board with insights from his management of large-scale operations and his expertise in customer engagement and building sustainable consumer brands.
Anthony J. Barkett (age 73). Anthony J. Barkett has served as a director since March 2013. Mr. Barkett currently serves as Vice-President at Amalie Oil Co., an oil company that develops high-quality petroleum products, a position he has held since 1977. At Amalie Oil, Mr. Barkett is responsible for overseeing and coordinating activities in accounting, marketing, sales, operations, information technology and administration. He is also responsible for developing and approving internal controls. From 2007 to 2012, Mr. Barkett was a board member of the Florida Hospital Foundation and he is currently a committee member at The Friedreich’s Ataxia Research Alliance. We believe Mr. Barkett is qualified to serve on our Board because of his knowledge of internal controls over financial reporting, an understanding of financial statements and experience with diverse aspects of business operations.
John A. Fichthorn (age 46). Mr. Fichthorn has served as a director since December 2017. Mr. Fichthorn has served since April 2017 as Head of Alternative Investments for B. Riley Capital Management, LLC, which is an SEC-registered investment adviser and
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wholly owned subsidiary of B. Riley Financial, Inc. Prior to that, Mr. Fichthorn was a co-founder of Dialectic Capital Management, LLC, an investment management firm, and has been a portfolio manager of the firm since 2003. Mr. Fichthorn served as a director of California Micro Devices from September 2009 until the company's sale in February 2010. From 2000 to 2003, Mr. Fichthorn was employed by Maverick Capital, most recently as Managing Director of the technology group. From 1999 to 2000, Mr. Fichthorn was an analyst at Alliance Capital working across multiple hedge fund products and as a member of the technology team. From 1997 to 1999, Mr. Fichthorn was an analyst at Quilcap Corporation, a short-biased hedge fund where he covered all sectors, with a focus on technology. From 1995 to 1997, Mr. Fichthorn worked at Ganek & Orwicz Partners where his responsibilities included small cap research, international closed-end fund arbitrage and operations. After graduating from college, Mr. Fichthorn briefly worked at Aviation Week and Space Technology. We believe Mr. Fichthorn is qualified to serve on our Board because of his understanding of the capital markets and of complex financial matters, his unique insights into effective stockholder communication and engagement and stockholder value creation, and his experience serving on other public company boards.
Paul G. Gabos (age 55). Paul G. Gabos has served as a director since August 2013 and was appointed as Chairman of the Board in November 2016. From June 1997 until December 2012, Mr. Gabos was the Chief Financial Officer of Lincare Holdings Inc. ("Lincare"), a home healthcare services company that was NASDAQ-listed until its acquisition in August 2012. Prior to his service as Chief Financial Officer, Mr. Gabos was employed by Lincare in positions of increasing responsibility for approximately five years. Prior to his employment with Lincare, Mr. Gabos held positions with Dean Witter Reynolds Inc. and Coopers & Lybrand. Since 2002, Mr. Gabos has been a member of the board of directors of publicly-traded MEDNAX, Inc., a physician practice management company, where he serves as Audit Committee Chairman and a member of the Executive Committee. Mr. Gabos holds a B.S. in Economics from The Wharton School of the University of Pennsylvania. We believe Mr. Gabos is qualified to serve on our Board because he provides the Board with years of financial reporting and capital markets experience in the healthcare industry, expertise in merger and acquisition transactions and effective business integration strategies, knowledge of healthcare delivery markets, and familiarity with the operation of public company boards of directors and their committees.
Robert S. Murley (age 70). Robert S. Murley has served as a director since October 2014. Mr. Murley is currently a Senior Advisor of Credit Suisse, LLC, having served in a number of senior leadership roles for almost 45 years with the firm after beginning his career in New York. He later relocated to the Chicago office, where he served as the office head from 1991 to 2005. In 1999, he co-founded the Global Industrial and Services Group, one of the firm’s largest industry practices. In 2005, Mr. Murley was appointed as Chairman of Investment Banking for the Americas, serving in that position until April 2012, when he was appointed Senior Advisor. Mr. Murley currently serves as a director and non-executive chairman of one other publicly-traded company: Stericycle Inc (NASDAQ: SRCL). His civic activities include serving as Chair of the Board of Advisors of the UCLA Anderson School of Management, Emeritus Trustee of Princeton University, Emeritus Chairman of the Board of the Educational Testing Service, Vice Chair of the Ann & Robert H. Lurie Children’s Hospital of Chicago, member of the board and former Chair of the Lurie Children’s Foundation, trustee of the Museum of Science and Industry of Chicago, trustee of the Berklee College of Music, trustee of the Woodrow Wilson Academy of Teaching and Learning and trustee of Lake Forest College. Mr. Murley received his B.A. from Princeton University, his M.B.A. from the UCLA Anderson School of Management and his M.S. in International Economics from the London School of Economics. Mr. Murley’s existing public company board experience and his deep knowledge of the capital markets, the economy and his long history of advising many large corporations on advisory and capital raising assignments makes him a valuable member of the Board.
Peggy B. Scott (age 68). Ms. Scott has served as a director since May 2019. Ms. Scott advises innovative health care and technology companies and is a former executive with CEO/CFO/Chief Strategy Officer experience spanning major health insurers and providers in domestic and international markets, including Spanish-speaking markets and financial services. From 2005 to 2015, Ms. Scott served as Executive Vice President, Chief Operating Officer and Chief Financial Officer of Blue Cross Blue Shield ("BCBS") of Louisiana and concurrently as Chief Strategy Officer (2005-2012), where she oversaw rapid product expansion in diverse health insurance products, including Affordable Care Act (ACA) and non-ACA plans, Medicare, Group Health, Life and other ancillary and supplemental products, and guided new risk-based delivery and payment models. During Ms. Scott’s tenure at BCBS of Louisiana, the company was recognized for the highest membership growth, retention and provider satisfaction among all BCBS companies. Prior to BCBS, Ms. Scott held senior operations and financial executive positions in U.S. and International companies, including Novant Health, Pan-American and General Health, where she led transformations, growth strategies, and operations across 42 U.S. states and seven Latin American countries, and was an office Managing Partner with Deloitte. Ms. Scott is the Board Chair of CLECO Corporate Holdings, LLC and served as its Interim Chief Executive Officer in 2017. Ms. Scott also serves on the board of the Eastern Company (NASDAQ: EML). Ms. Scott is a CPA and certified in Valuations and Forensics and holds an M.B.A. from Tulane University and a B.S. in Accounting from Louisiana State University, where she now serves as a Board Member and past Board President for the College of Business’ Dean’s council. We believe Ms. Scott is qualified to serve on our Board because she brings to our Board deep C-Suite experience in U.S. and international health care markets with companies undergoing rapid growth and transformational market changes.
Gavin D. Southwell (age 42). Gavin D. Southwell has served as our Chief Executive Officer since November 2016 and served as our President since July 2016. Previously, from May 2009 to January 2016, Mr. Southwell was Chief Operations Officer at Cooper Gay Swett & Crawford ("CGSC"), one of the world’s largest independent global wholesale and reinsurance broking groups, with a network of over 60 offices across the Americas, Europe, and Asia, employing over 1,800 skilled professionals. In this capacity, Mr. Southwell
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was responsible for CGSC's operations and technology and for establishing the commercial strategy for each region, the set-up of new offices and integration of acquired businesses, and the design and implementation of a target operating model by business type. Prior to joining CGSC, Mr. Southwell served, from October 2007 to April 2009, as the Risk Manager of Beazley plc, one of the largest Lloyd’s insurers and the parent company of Beazley Insurance Company Inc., an A.M. Best A-rated carrier licensed in all 50 states. Beazley is a market leader globally in professional lines, accident and health, property, marine, reinsurance and contingency business. During his time at Beazley, Mr. Southwell was responsible for risk management, preparation for the new capital requirements under Solvency II, and leading the internal management committee responsible for delegated underwriting. We believe Mr. Southwell is qualified to serve on our Board because of his detailed knowledge and extensive insurance background, including having worked in senior executive positions for a broker, MGU, insurer and reinsurer, and his proven track record of delivering enhanced performance with a customer focused approach.
OUR BOARD RECOMMENDS A VOTE “FOR” EACH OF THE DIRECTOR NOMINEES NAMED ABOVE. | ||||
Director Compensation
The Company’s non-employee directors are entitled to an annual cash retainer of $55,000 and an annual grant of restricted shares of the Company's Class A common stock having a fair market value of $75,000. The annual restricted stock grant will be made under the Company's Long Term Incentive Plan, and the grant will vest 50% on the first anniversary of the grant date and 50% of the second anniversary, subject to the terms of the Long Term Incentive Plan, and the applicable award agreement.
The Chairman of the Board also receives an additional annual cash retainer of $35,000, and members of Board committees are also paid the following additional annual retainers: Audit Committee members: $7,500 ($15,000 for committee chair); Compensation Committee members: $5,000 ($10,000 retainer for committee chair); Nominating and Corporate Governance Committee Members: $2,500 ($5,000 retainer for committee chair); and Acquisition Committee members: $1,500. No specific cash retainer is paid with respect to membership on the Risk and Compliance Committee. Directors do not receive per-meeting fees, either for Board meetings or committee meetings.
Non-employee directors are not entitled to retirement benefits, incentive compensation or perquisites. All directors are reimbursed for their out-of-pocket expenses for meeting attendance. The following table sets forth total compensation to persons not employed by the Company who served as a director at any time during 2019:
Name(1) | Fees Earned or Paid in Cash ($) | Stock Awards ($)(2) | Option Awards ($)(3) | Total ($) | |||||||
Paul E. Avery(4) | 64,036 | 75,000 | — | 139,036 | |||||||
Anthony J. Barkett(4) | 73,922 | 75,000 | — | 148,922 | |||||||
Ellen M. Duffield(4)(6) | 43,086 | 75,000 | — | 118,086 | |||||||
John A. Fichthorn(4) | 55,910 | 75,000 | — | 130,910 | |||||||
Paul G. Gabos(4) | 113,263 | 75,000 | — | 188,263 | |||||||
Michael W. Kosloske(5) | 27,500 | — | — | 27,500 | |||||||
Robert S. Murley(4) | 59,300 | 75,000 | — | 134,300 | |||||||
Peggy B. Scott(4) | 46,832 | 75,000 | — | 121,832 | |||||||
(1) | Mr. Southwell's compensation is reflected under the Summary Compensation Table as a Named Executive Officer. As an employee, Mr. Southwell is not entitled to participate in the compensation plan for non-employee directors. |
(2) | The amounts in the "Stock Awards" column represent the aggregate grant date fair value pursuant to ASC 718 for restricted stock granted in 2019. The assumptions used in determining the grant date fair value under ASC 718 can be found in Notes 1 and 12 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 4, 2020. As of December 31, 2019, each then-serving director held unvested restricted stock shown in the following table: |
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Name | Unvested Restricted Stock as of December 31, 2019 | ||
Paul E. Avery | 4,817 | ||
Anthony J. Barkett | 4,817 | ||
Ellen M. Duffield | 3,513 | ||
John A. Fichthorn | 4,817 | ||
Paul G. Gabos | 4,817 | ||
Robert S. Murley | 4,817 | ||
Peggy B. Scott | 3,513 | ||
(3) | No stock options or stock appreciation rights relating to the Company’s Class A common stock ("SARs") were granted to our non-employee directors during 2019. As of December 31, 2019, each then-serving director had the following outstanding SARs: |
Name | Outstanding Stock Options as of December 31, 2019 | ||
Paul E. Avery | 30,000 | ||
Anthony J. Barkett | 30,000 | ||
Ellen M. Duffield | — | ||
John A. Fichthorn | — | ||
Paul G. Gabos | 20,000 | ||
Robert S. Murley | 20,000 | ||
Peggy B. Scott | — | ||
(4) | Each non-employee director received an award of 3,513 shares of restricted stock with an estimated value of $75,000 on May 14, 2019. |
(5) | Compensation paid to Mr. Kosloske reflects amounts paid for services through the 2019 Annual Meeting as a non-employee director, at which time he ceased being a director of the Company. |
(6) | Ms. Duffield resigned from the Board on April 9, 2020. |
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CORPORATE GOVERNANCE
Principles and Governance Guidelines
The Board has adopted and adheres to Corporate Governance Principles and a Code of Business Conduct and Ethics that the Board and senior management believe represent sound practices. We have a longstanding belief that ethical behavior and respect for the law are fundamental to our culture and our business practices. It is the foundation of the policies and practices of our Code of Business Conduct and Ethics to manage our Company with integrity and in our stockholders’ best interests. We are committed to conducting our business in strict compliance with both the letter and the spirit of the law and with the highest standards of professional and ethical conduct. Each director, officer and employee is responsible for conducting our business in adherence to these high standards. Our Corporate Governance Principles and Code of Business Conduct and Ethics can be found on the Investors section of our website at www.benefytt.com. We regularly post or otherwise make available information on the Investors section of our website that may be important to investors. Information on, or linked from, our website does not constitute a part of this proxy statement.
Director Independence
A majority of our Board is comprised of independent directors, as determined under NASDAQ rules. The Board has determined that, aside from Mr. Southwell, all of our current directors, which comprise all of the director nominees nominated for election to the Board at the Annual Meeting, meet the criteria for independence, as determined under NASDAQ rules. It is expected that a majority of our Board will continue to be comprised of independent directors, as determined under NASDAQ rules, following the Annual Meeting.
Board Leadership Structure
We believe that the Board’s leadership structure at any time should reflect both the Company’s needs, as well as the unique talents and availability of the Board’s members. Our Amended and Restated Bylaws permit the roles of Chairman of the Board and Chief Executive Officer to be filled by the same or different individuals. The Board has determined that currently the Company is best served by separating the roles of Chief Executive Officer and Chairman of the Board. The Board is currently led by Mr. Gabos, as Chairman of the Board, while Mr. Southwell serves as our Chief Executive Officer. The Board believes that our stockholders are best served at this time by having Mr. Gabos, who is an independent director, serve as Chairman of the Board.
Risk Oversight
The Board takes an active role, as a whole and at the committee level, in overseeing the management of the Company’s risks. The Board regularly reviews information regarding the Company’s operations, legal matters, financial condition and liquidity, as well as the risks associated with each. The Company’s Audit Committee supervises the management of financial risks and potential conflicts of interests. The Company’s Compensation Committee is responsible for overseeing the management of risks associated with the Company’s executive compensation plans and arrangements. The Nominating and Corporate Governance Committee manages risks associated with the independence of the Board and the duties and responsibilities of its members. The Company's Acquisition Committee manages risks associated with potential strategic transactions. The Risk and Compliance Committee performs detailed reviews of the Company’s operational, business, and compliance risks and monitors the Company’s compliance with applicable laws, regulations and frameworks, and reports its actions to the Board. The Risk and Compliance Committee is also responsible for evaluating and managing cybersecurity risks and engages in regular discussions with management regarding cybersecurity risk mitigation and prevention, incident management and response, compliance with applicable cybersecurity laws and regulations, the evolving cybersecurity threat environment, vulnerability assessments and efforts to monitor, detect, and prevent cyber threats to the Company. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board is regularly informed through attendance at committee meetings or committee reports about such risks.
Board Meetings and Committees
The Board has an Audit Committee, a Nominating and Corporate Governance Committee, a Compensation Committee, an Acquisition Committee, and a Risk and Compliance Committee. During 2019, the Board held 11 meetings. All of the directors attended 75% or more of the combined total meetings of the Board and 75% or more of the combined total meetings of the committees on which they served during 2019. We encourage our directors to attend our Annual Meetings of our Stockholders and all seven directors attended our 2019 Annual Meeting of Stockholders.
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Executive Sessions of the Board
Our Board holds executive sessions of the non-management directors generally following all regularly scheduled Board meetings. The non-management directors may also meet without management present at other times as requested by any non-management director. The Chairman of the Board serves as chair at the executive sessions.
The following table indicates the current membership of each committee and how many times the Board and each committee met in 2019:
Name | Board | Audit | Nominating and Corporate Governance | Compensation | Acquisition | Risk and Compliance | |||||
Paul E. Avery | Member | Chair | Member | Member | |||||||
Anthony J. Barkett | Member | Member | Chair | Member | |||||||
John A. Fichthorn | Member | Member | Chair | Member | |||||||
Paul G. Gabos | Chair | Chair | Member | Member | Member | ||||||
Robert S. Murley | Member | Member | Chair | ||||||||
Peggy B. Scott | Member | Member | Member | ||||||||
Gavin D. Southwell | Member | Member | Member | ||||||||
Number of Meetings | 11 | 5 | 1 | 2 | 1 | 4 | |||||
Committee Responsibilities
Following are descriptions of the primary areas of responsibility for each of the five committees:
Audit Committee
Our Audit Committee, which consists of Mr. Gabos (Chair), Mr. Barkett, and Ms. Scott, assists the Board in overseeing our accounting and financial reporting processes and related internal controls and the audit of our financial statements. In addition, the Audit Committee is directly responsible for the appointment, compensation, retention, and oversight of the work of our independent registered certified public accounting firm. Additionally, our Audit Committee is responsible for evaluating related party transactions and overseeing the administration of the Company’s procedures for the approval and ratification of such transactions as determined from time to time by the Board. Although the Company has not adopted formal procedures for the review, approval or ratification of transactions with related persons, we adhere to a general policy that such transactions should only be entered into if they are on terms that, on the whole, are no more favorable, or no less favorable, than those available from unaffiliated third parties and their approval is in accordance with applicable law. Such transactions require the approval of our Board. The term “related party transaction” refers to transactions required to be disclosed in our filings with the SEC pursuant to Item 404 of Regulation S-K.
The Board has determined that Mr. Gabos qualifies as an “audit committee financial expert,” as such term is defined in the rules of the Securities and Exchange Commission (the “SEC”) and that Mr. Gabos, Mr. Barkett, and Ms. Scott are independent as defined by NASDAQ and SEC rules and have an understanding of financial statements as required by NASDAQ rules. The Audit Committee has a written Audit Committee Charter which can be found on the Investors section of our website at www.benefytt.com.
Compensation Committee
Our Compensation Committee consists of Messrs. Barkett (Chair), Avery, and Gabos. Our Compensation Committee is responsible for setting our overall compensation policy, and reviews and determines the compensation paid to our executive officers and directors. The Compensation Committee annually reviews and approves our goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers and evaluates the performance of these officers in light of those goals and objectives. The Compensation Committee also periodically reviews and has the authority to determine and approve all other senior executive officer compensation. Our Compensation Committee also reviews and recommends to our Board incentive compensation and equity-based plans that are subject to Board approval. Messrs. Barkett, Avery, and Gabos qualify as independent as defined by NASDAQ and SEC rules. The Compensation Committee has a written Compensation Committee Charter which can be found on the Investors section of our website at www.benefytt.com.
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The Compensation Committee may form and delegate authority and responsibilities to any subcommittee or any member of the Compensation Committee for any purpose that the Compensation Committee deems appropriate. The Compensation Committee has the authority to retain outside professionals, consultants, or advisors as it determines appropriate to assist in the performance of its functions, including sole authority to retain and terminate any compensation consultant used to assist the Compensation Committee in the evaluation of compensation for our executive officers and directors, and to approve the outside consultant’s or advisor’s fees and other retention terms. The Company’s Chief Executive Officer and Chief Financial Officer may recommend to the Compensation Committee salary, annual bonus, and other compensation elements, but neither is present during voting or deliberations relating to his compensation.
The Compensation Committee engaged an independent compensation consultant, Pearl Meyer, in 2017 to provide advice in connection with its decisions regarding executive compensation, as described in further detail under “Executive Compensation—Compensation Discussion and Analysis (CD&A).” The Compensation Committee engaged Pearl Meyer to perform competitive pay assessments, stock ownership and equity stake analysis, and review the Company's equity grant practices, among other things. The Compensation Committee assessed the independence of Pearl Meyer pursuant to SEC rules and NASDAQ listing standards and concluded that Pearl Meyer’s work for the Compensation Committee did not raise any conflict of interest. The Compensation Committee did not engage a consultant to advise on executive or director compensation in 2019.
Nominating and Corporate Governance Committee
Our Nominating and Corporate Governance Committee consists of Messrs. Avery (Chair), Fichthorn, and Murley. The Nominating and Corporate Governance Committee’s responsibilities include: evaluating the governance of our Board and its committees and recommending director committee appointments; evaluating and recommending candidates for election to our Board including any stockholder nominees; reviewing and overseeing our Code of Business Conduct and Ethics; and performing any other activities the committee deems appropriate that are set forth in the Corporate Governance Principles or that are requested by the Board. Messrs. Avery, Fichthorn, and Murley qualify as independent as defined by NASDAQ and SEC rules. The Nominating and Corporate Governance Committee has a written Nominating and Corporate Governance Committee Charter which can be found on the Investors section of our website at www.benefytt.com.
Acquisition Committee
Our Acquisition Committee consists of Messrs. Fichthorn (Chair), Gabos and Southwell. The Acquisition Committee consults with the officers of the Company to evaluate and approve certain acquisitions and equity investments, and any policy relating to the consummation by the Company of acquisitions and equity investments in entities that are not affiliated with the Company that may from time to time be adopted by the Board.
Risk and Compliance Committee
Our Risk and Compliance Committee consists of Mr. Murley (Chair), Mr. Avery, Mr. Barkett, Mr. Fichthorn, Mr. Gabos, Ms. Scott and Mr. Southwell. Our Risk and Compliance Committee is responsible for assisting the Board in fulfilling its oversight responsibilities with respect to (i) management’s identification and evaluation of the Company’s key risk and regulatory exposures, including the Company’s risk management framework and policies, procedures and practices to manage risks, and (ii) the Company’s compliance programs. The Risk and Compliance Committee has a written Risk and Compliance Committee Charter which can be found on the Investors section of our website at www.benefytt.com.
Compensation Committee Interlocks and Insider Participation
During 2019, and as of the date of this Proxy Statement, none of the members of the Compensation Committee were, or are, an officer or employee of the Company, and no executive officer of the Company served, or serves, on the compensation committee or board of any company that employed or employs any member of the Company’s Compensation Committee or the Board.
Employee, Officer and Director Hedging Policies
Under our Statement of Policy Concerning Securities Trading and Related Matters (our “Insider Trading Policy”) our directors, officers, employees and consultants are discouraged from frequently trading in or hedging the Company’s stock through instruments such as prepaid variable forward contracts, equity swaps, collars and exchange funds. Moreover, our Insider Trading Policy expressly prohibits our directors, officers, employees and consultants from (i) engaging in short sales of the Company’s stock, (ii) trading in any put, call and other type of option on, or other speculative right or obligation with respect to, the Company’s equity securities, including trading
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any Company-granted options, and (iii) purchasing securities of the Company on margin or holding securities of the Company in a margin account without prior consultation with our Chief Financial Officer.
DIRECTOR NOMINATION PROCEDURES
The Nominating and Corporate Governance Committee assists our Board in identifying director nominees consistent with criteria established by our Board. Although the Nominating and Corporate Governance Committee does not currently have a specific policy with regard to consideration of director candidates recommended by stockholders, the Board and the Nominating and Corporate Governance Committee believe that the Nominating and Corporate Governance Committee would provide such recommendations the same consideration as other candidates. Any recommendation submitted by a stockholder to the Nominating and Corporate Governance Committee should include information relating to each of the qualifications outlined below concerning the potential candidate along with the other information required by the rules of the SEC and our Amended and Restated Bylaws for stockholder nominations.
Generally, nominees for director are identified and suggested to the Nominating and Corporate Governance Committee by the members of the Board or management using their business networks and evaluation criteria they deem important, which may or may not include diversity. While the Company does not have a specific policy regarding diversity and has not established minimum experience or diversity qualifications for director candidates, when considering the nomination of directors, the Nominating and Corporate Governance Committee does generally consider the diversity of its directors and nominees in terms of knowledge, experience, background, skills, expertise and other demographic factors. The Company does not impose formal term limits on its directors.
STOCKHOLDER COMMUNICATIONS
Stockholders may communicate with the Board by writing to Benefytt Technologies, Inc., Attn: Board of Directors (or, at the stockholder’s option, to a specific Committee), c/o Board Liaison, 3450 Buschwood Park Dr., Suite 200, Tampa, FL 33618. Our Board Liaison will ensure that the communication is delivered to the Board or the specified director, as the case may be.
For more information, please see the Investors section of our website at www.benefytt.com.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial ownership of our common stock as of March 30, 2020 (based on shares of Class A common stock and Class B common stock outstanding) by:
• | each person known by us to be a beneficial owner of more than 5.0% of any class of our outstanding common stock; |
• | each of our directors and director nominees; |
• | each of our Named Executive Officers; and |
• | all directors and executive officers as a group. |
The amounts and percentage of common stock beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed a beneficial owner of securities as to which he or she has no economic interest. As of March 30, 2020, we had 13,203,527 shares of Class A common stock outstanding and 1,016,667 shares of Class B common stock outstanding. Each share of our Class A common stock is entitled to one vote per share. Each share of our Class B common stock is entitled to one vote per share.
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Except as indicated by footnote, the persons named in the following table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.
Shares of Class A Common Stock Beneficially Owned | Shares of Class B Common Stock Beneficially Owned | Combined Voting Power(1) | ||||||||
Name of Beneficial Owner | Number of Shares | Percent of Class | Number of Shares | Percent of Class | ||||||
Named Executive Officers and Directors: | ||||||||||
Gavin D. Southwell(2)(4) | 682,804 | 5.1% | — | — | 4.8% | |||||
Michael D. Hershberger(4)(14) | 166,868 | 1.3% | — | — | 1.2% | |||||
John A. Fichthorn(2)(4)(13) | 123,483 | * | — | — | * | |||||
Anthony J. Barkett(2)(4) | 89,288 | * | — | — | * | |||||
Paul G. Gabos(2)(4) | 87,816 | * | — | — | * | |||||
Robert S. Murley(2)(4) | 58,005 | * | — | — | * | |||||
Paul E. Avery(2)(4) | 44,100 | * | — | — | * | |||||
Erik M. Helding(2)(4) | 30,000 | * | — | — | * | |||||
Ellen M. Duffield (Former Director)(2)(4)(15) | 3,513 | * | — | — | * | |||||
Peggy B. Scott(2)(4) | 3,513 | * | — | — | * | |||||
All executive officers and directors as a group (10 persons)(5) | 1,289,390 | 9.8% | — | — | 8.3% | |||||
Other 5 % Stockholders: | ||||||||||
P2 Capital Partners, LLC(10) | 1,630,000 | 12.3% | — | — | 11.5% | |||||
Michael W. Kosloske(3) | 1,339,598 | 10.1% | 1,016,667 | 100% | 9.4% | |||||
No Street GP, LP(6) | 1,150,000 | 8.7% | — | — | 8.1% | |||||
Voss Capital, LLC(12) | 1,121,701 | 8.5% | — | — | 7.9% | |||||
Vanguard Group(8) | 1,072,872 | 8.1% | — | — | 7.5% | |||||
Cannell Capital, LLC(7) | 958,080 | 7.3% | — | — | 6.7% | |||||
Atom Investors, LP(11) | 826,809 | 6.3% | — | — | 5.8% | |||||
BlackRock, Inc.(9) | 737,867 | 5.6% | — | — | 5.2% | |||||
* | Less than 1.0%. |
(1) | Except as otherwise required by law, holders of Class A common stock and Class B common vote together as a single class with each share of either class entitled to one vote. Subject to the terms of an exchange agreement, each share of our Class B common stock, together with a Series B Membership Interest of Health Plan Intermediaries Holdings, LLC, our operating subsidiary (“HPIH”), is exchangeable for a share of our Class A common stock on a one-for-one basis. See “Certain Relationships and Related Party Transactions-- Exchange Agreement.” In this table, beneficial ownership of the Class B common stock and the related Series B Membership Interests in HPIH are reflected as beneficial ownership of the shares of Class A common stock for which they may be exchanged. When a share of Class B common stock is so exchanged, it is canceled, and accordingly, the percentage ownership of Class A common stock is the same as the combined voting power for each beneficial owner. |
(2) | The business address for Ms. Duffield and Ms. Scott, and Messrs. Southwell, Avery, Barkett, Fichthorn, Gabos, Helding, and Murley, is c/o Benefytt Technologies, Inc., 3450 Buschwood Park Dr., Suite 200, Tampa, Florida 33618. |
(3) | The shares of Mr. Kosloske include 1,005,701 shares of Class B common stock held of record by Health Plan Intermediaries, LLC (“HPI”) and 10,966 shares of Class B common stock held by Health Plan Intermediaries Sub, LLC (“HPIS”). Mr. Kosloske is the primary manager of HPI, and has sole voting and dispositive power over the shares held by HPI. HPI is the sole managing member of HPIS and has sole voting and dispositive power over the shares held by HPIS. Mr. Kosloske, by virtue of his control of HPI and HPI’s control of HPIS, is deemed to beneficially own all the shares of Class B common stock held of record by each of HPI and HPIS. The shares of Class B common stock, together with the Series B Membership Interests of HPIH are exchangeable, at Mr. Kosloske’s election, for equal number of shares of Class A common stock. On February 12, 2020, Mr. Kosloske notified the Company that he has elected to exchange all remaining shares of Class B common stock, together with an equal number of Series B Membership Interests in HPIH, into an aggregate of 1,016,667 shares of our Class A common stock. Under the terms of the Exchange Agreement, the closing of the Final Class B Exchange is scheduled to occur on April 7, 2020 unless the Company elects to effectuate the Final Class B Exchange on an earlier date. Upon the closing of the Final Class B Exchange, the Company will cease to have any shares of Class B common stock outstanding and will own 100% of the equity interest in HPIH. Based solely on information obtained from a Form 4 filed by Michael Kosloske with the SEC on February 19, 2020 and without independent investigation of the disclosures contained therein, the shares of Mr. Kosloske also include 317,288 shares of Class A common stock owned directly by Mr. Kosloske and 5,643 shares of Class A common stock owned by Mr. Kosloske’s wife, Lori Kosloske. The business address of Mr. Kosloske, listed in the Form 4 is 16221 Villarreal de Avila, Tampa, FL 33613. |
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(4) | The shares for certain of our executive officers and directors include awards of restricted shares of Class A common stock that have not vested as of March 30, 2020, as follows: Mr. Southwell: 387,500 shares, Mr. Helding: 30,000 shares, Messrs. Murley, Avery, Barkett, Fichthorn, and Gabos, each: 4,817 shares, and Ms. Duffield and Ms. Scott, each: 3,513 shares. The shares for certain of our executive officers and directors include shares subject to outstanding SARs that are exercisable as of March 30, 2020 or within 60 days thereof, as follows: Mr. Southwell: 128,333, Mr. Hershberger: 88,472, and Mr. Murley: 20,000. |
(5) | The shares for all current executive officers and directors as a group include 448,611 unvested restricted shares. |
(6) | Based solely on information obtained from a Form 13G filed by No Street GP LP with the SEC on February 14, 2020 and without independent investigation of the disclosures contained therein. The business address of No Street GP LP listed in the Schedule 13G is 505 Montgomery Street, Suite 1250, San Francisco, CA 94111. |
(7) | Based solely on information obtained from a Schedule 13F filed by Cannell Capital, LLC with the SEC on February 13, 2020 and without independent investigation of the disclosures contained therein. The business address of Cannell Capital, LLC. listed in the Schedule 13F is 245 Meriwether Circle, Alta, WY 83414. |
(8) | Based solely on information obtained from a Schedule 13G filed by Vanguard Group Inc. with the SEC on February 11, 2020 and without independent investigation of the disclosures contained therein. The business address of Vanguard Group Inc. listed in the Schedule 13G is 100 Vanguard Blvd., Malvern, PA 19355. |
(9) | Based solely on information obtained from a Schedule 13G/A filed by BlackRock, Inc. with the SEC on February 5, 2020 and without independent investigation of the disclosures contained therein. The business address of BlackRock, Inc. listed in the Schedule 13G/A is 55 East 52nd Street, New York, NY 10055. |
(10) | Based solely on information obtained from a Schedule 13F filed by P2 Capital Partners, LLC with the SEC on February 14, 2020 and without independent investigation of the disclosures contained therein. The business address of P2 Capital Partners, LLC listed in the Schedule 13F is 590 Madison Avenue, 25th Floor, New York, NY 10022. |
(11) | Based solely on information obtained from a Schedule 13G/A filed by Atom Investors LP with the SEC on February 14, 2020 and without independent investigation of the disclosures contained therein. The business address of Atom Investors LP listed in the Schedule 13G/A is 3711 S. Mopac Expressway, Building One, Suite 100, Austin, TX 78746. |
(12) | Based solely on information obtained from a Schedule 13D/A filed by Voss Capital, LLC with the SEC on March 5, 2020 and without independent investigation of the disclosures contained therein. The business address of Voss Capital, LLC listed in the Schedule 13D/A is 3773 Richmond, Suite 500, Houston, Texas 77046. |
(13) | Includes 109,362 shares held by Dialectic Antithesis Partners, LP. BR Dialectic Capital Management, LLC is the investment manager of Dialectic Antithesis Partners, LP and, as such, shares voting and dispositive power over the securities held by Dialectic Antithesis Partners, LP. Mr. Fichthorn is a portfolio manager for BR Dialectic Capital Management, LLC and therefore shares voting and dispositive power over the securities, but Mr. Fichthorn disclaims beneficial ownership of any securities in which he does not have a pecuniary interest or that he does not directly own. BR Dialectic Capital Management, LLC is a wholly owned subsidiary of B. Riley Financial, Inc., a publicly traded Delaware corporation. |
(14) | Based solely on information obtained from a Form 4 filed by Michael D. Hershberger with the SEC on November 14, 2019 and without independent investigation of subsequent transactions of the disclosures contained therein. The last known business address of Michael D. Hershberger listed in the Form 4 is 15438 N. Florida Ave., Suite 200, Tampa, FL 33613. |
(15) | Ms. Duffield resigned as a director of the Company on April 9, 2020. |
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EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS (CD&A)
TABLE OF CONTENTS
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Compensation Overview
This Compensation Discussion and Analysis ("CD&A") describes the 2019 compensation of our Named Executive Officers ("NEOs") who are identified in the following table:
Name | Title | |
Gavin D. Southwell | President and Chief Executive Officer | |
Erik M. Helding | Chief Financial Officer, Secretary and Treasurer | |
Michael D. Hershberger (1) | Former Chief Financial Officer, Secretary and Treasurer | |
(1) | Mr. Hershberger’s service as the Company’s Chief Financial Officer, Treasurer and Secretary ceased effective November 15, 2019. Mr. Hershberger remained employed by the Company until December 31, 2019. |
Compensation Principles
We believe that a skilled, experienced and dedicated senior management team is essential to the future performance of our Company and to building stockholder value. We have sought to establish competitive compensation programs that enable us to attract and retain executive officers with these qualities as well as to motivate management to maximize performance while building stockholder value. Therefore, NEO performance is assessed based on the key metrics our Compensation Committee (the "Committee") considers when making executive compensation decisions for the NEOs. Ultimately, the pay delivered to our NEOs is based on our pay-for-performance philosophy, and we have structured our compensation programs to increasingly emphasize performance-based elements.
Executive Compensation Governance Practices | |
What We Do | |
ü | 100% independent Compensation Committee |
ü | Incentive compensation based on clear, measurable goals with key financial metrics that drive business performance |
What We Don't Do | |
û | No excessive perquisites |
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Compensation Elements
We achieve our executive compensation objectives for our NEOs primarily through the following direct compensation elements:
Element | Description | Objectives | ||
Base Salary | Annual cash compensation | Retention Competitive practices Individual contribution | ||
Annual Cash Incentives | Annual cash incentive with target awards and performance goals established in advance Payments can be higher (subject to a 200% cap) or lower than target, based on adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") | Drive superior performance Competitive practices Retention Stockholder alignment | ||
Long-Term Incentives | Equity-based time-vesting and performance-vesting awards established on an individual basis Performance vesting awards are earned only if Adjusted EBITDA goals are achieved | Drive superior performance Focus on long-term success Executive equity ownership Competitive practices Retention Stockholder alignment | ||
Pay Mix
Executive compensation is linked to the financial performance of the Company. In 2019, approximately 92 percent of our Chief Executive Officer’s target total direct compensation was linked to metrics assessing company performance and therefore meaningfully at risk. Approximately 23 percent of the other NEOs’ target total direct compensation, on average, was in line with a similar risk profile. A significant amount of the Chief Executive Officer's at-risk compensation is delivered through performance-based restricted stock awards. See the forthcoming section of this CD&A titled "Compensation Details for Fiscal Year 2019" for further compensation details.
The following charts show NEO target total fixed and variable compensation:
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How Compensation Decisions Are Made
The Committee is responsible for making recommendations to our Board concerning the components of our executive compensation program, consistent with the compensation principles described above, and the executive compensation packages offered to our NEOs. The Board then provides final approval of our executive compensation program. The Committee makes recommendations, and the Board determines, our executive pay levels. The Committee also administers our annual incentive plan and our Long Term Incentive Plan and makes awards under both plans. The Committee reviews data from our peer group companies, which are described below under “Assessing External Market Practice,” and retains an independent compensation consultant to assess our competitive position with respect to total executive compensation.
Linking Pay Levels to the Market and Company Performance. The Committee and our Board take various factors into account in setting compensation levels and do not use a formulaic approach, but generally seek to align target total direct compensation (i.e., the sum of base salary, target annual incentives and target long-term incentives) for our NEOs based on the median levels paid by our peer group companies for similarly situated executive positions. To the extent compensation exceeds targeted levels, it is generally attributable to performance that we believe increases stockholder value and exceeds measurable, clearly defined performance goals. Conversely, total compensation can be less than target for performance that falls short of pre-established threshold levels.
Setting Targets Based on Market Conditions. Our annual incentives and the performance restricted share awards are based on measurable and objective performance metrics. Annual incentive performance targets were set based on Adjusted EBITDA goals. Five-year target goals for performance restricted shares were set based on our long-term operating plans.
Stockholder Advisory Vote. In setting compensation, we also consider the results of the advisory vote of our stockholders on the compensation of our NEOs. At our annual meeting in 2019, which occurred after most of the compensation decisions described in this CD&A had taken place, more than 97% of votes cast in the advisory vote on the compensation of our NEOs were cast in favor of such compensation. In light of this show of strong support for the compensation of our NEOs, we did not make significant changes to our compensation programs in response to the vote.
Role of Independent Consultant
The Committee’s charter provides that the Committee has sole authority to engage the services of an independent compensation consultant for the Committee and approve fees paid to the consultant by the Company. In 2017, the Committee engaged Pearl Meyer as an independent compensation consultant to provide advice on executive compensation matters. The Committee found that Pearl Meyer provided important perspectives about market practices for executive compensation, peer company analysis and selection, the levels and structure of the compensation program, and compensation governance. The Committee assessed the independence of Pearl Meyer pursuant to SEC rules and NASDAQ listing standards and concluded that Pearl Meyer's work for our Committee did not raise any conflict of interest. During 2017, the period of our last review cycle, at the Committee’s request, Pearl Meyer performed the following specific services:
• | Competitive pay assessment; |
• | Stock ownership and equity stake analysis; |
• | Review of the Company's equity grant practices; |
• | Business performance analysis; |
• | "ISS Pay for Performance Analysis;" and |
• | Provided the Company with a two-year compensation proposal. |
The Committee did not engage a consultant to advise on executive compensation in 2019 but considered the results of Pearl Meyer's 2017 review when structuring 2019 executive compensation.
Assessing External Market Practice
During the review cycle, the Committee, in consultation with management and with support from its independent compensation consultant, develops a peer group comprised of companies that are:
• | In similar industries and where the Company competes for business; |
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• | Likely sources of, or competition for, executive talent; |
• | Reasonably comparable in size, as measured by revenue and market capitalization; and |
• | Reasonably similar in organizational structure and complexity. |
For our most recent review cycle in 2017, our peer group, which was reviewed with and approved by the Committee, included 17 public companies within the insurance, health care technology, or technology services sector:
Peer Group Companies(1) | |||||||||
Company | Market Capitalization ($ in millions) | Revenue ($ in millions) | Employee Population | ||||||
Actua Corporation | 515 | 109 | 700 | ||||||
Atlas Financial Holdings, Inc. | 217 | 178 | 230 | ||||||
Baldwin & Lyons, Inc. | 380 | 319 | 455 | ||||||
Benefitfocus, Inc. | 884 | 233 | 1,430 | ||||||
Blucora, Inc. | 615 | 456 | 476 | ||||||
Castlight Health, Inc. | 513 | 102 | 381 | ||||||
Citizens, Inc. | 492 | 240 | 455 | ||||||
eHealth, Inc. | 195 | 187 | 944 | ||||||
HCI Group, Inc. | 402 | 262 | 322 | ||||||
HealthStream, Inc. | 795 | 226 | 1,065 | ||||||
Heritage Insurance Holdings, Inc. | 455 | 439 | 310 | ||||||
Independence holding Company | 334 | 354 | 450 | ||||||
Kinsale Capital Group, Inc. | 713 | 142 | 144 | ||||||
Majesco | 222 | 126 | 2,134 | ||||||
Patriot National, Inc. | 125 | 233 | 1,145 | ||||||
State National Companies, Inc. | 581 | 217 | 400 | ||||||
The Rubicon Project, Inc. | 364 | 278 | 572 | ||||||
25th Percentile | 334 | 178 | 381 | ||||||
Median | 455 | 233 | 455 | ||||||
75th Percentile | 581 | 278 | 944 | ||||||
Benefytt Technologies, Inc.(2) | 294 | 221 | 173 | ||||||
(1) | Market capitalization, revenue, and employee count were as of December 31, 2016, reflecting the most up-to-date information used at the time of the last periodic review cycle performed by the Company. |
(2) | Data for the Company reflects projections used at the time of the last periodic review cycle performed by the Company. |
Compensation Details For Fiscal Year 2019
Base Salary
We pay our NEOs a base salary to compensate them for services rendered and to provide them with a steady source of income for living expenses throughout the year. In general, the base salary of each NEO was initially established through arm’s-length negotiations at the time the individual was hired, taking into account the individual’s qualifications, experience and level of responsibility, as well as internal pay equity considerations. As described above, in 2017, the Committee engaged Pearl Meyer to perform a competitive pay assessment and provide recommendations to the Committee for potential changes to compensation, including base salary. Generally, the Committee considers salaries within +/– 10% of median peer group levels to be competitive, but in some circumstances considers a higher salary level necessary to ensure an overall competitive compensation structure and appropriately compensate individuals with uniquely valuable skills and experience.
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Based on the Committee’s review and with consideration of Pearl Meyer’s 2017 recommendations, in connection with the second amended and restated employment agreement of Mr. Southwell, the Committee approved a base salary increase effective January 2, 2019 for Mr. Southwell. Mr. Southwell’s salary was increased to $750,000. Mr. Southwell’s salary is above the 75th percentile of peer group base salaries for chief executive officers, but our Committee and our Board believed this was appropriate to ensure a competitive overall compensation structure and appropriately recognize his uniquely valuable skills and experience. Mr. Hershberger’s salary was not changed in 2019.
On November 12, 2019, the Board elected Erik M. Helding as the Chief Financial Officer, Treasurer and Secretary of the Company effective as of November 15, 2019. The Committee set Mr. Helding’s base salary in connection with his election based on his qualifications, experience and level of responsibility, as well as internal pay equity considerations.
Our NEOs’ annual base salaries for 2019 were as follows:
NEO | 2019 Annual Base Salary | |||
Gavin D. Southwell | $ | 750,000 | ||
Erik M. Helding | $ | 450,000 | ||
Michael D. Hershberger | $ | 350,000 | ||
The amount of base salary that we actually paid to each of our NEOs in 2019 can be found in the “Salary” column of the Summary Compensation Table below.
Annual Incentive Cash Plan
In 2019, our Board approved an updated 2019 annual incentive cash plan (the “Cash Bonus Plan”), including applicable target award amounts, for our NEOs. Target and maximum award levels under the Cash Bonus Plan were based on a percentage of the NEO's base salary, and cash incentive awards are earned based on performance against metrics, which for 2019 were based on the Company’s annual Adjusted EBITDA in the 2019 fiscal year. Final payouts are subject to such adjustments as the Board or the Committee may determine in its discretion.
For 2019, the Committee set the target and maximum award levels for our NEOs at the following levels as a percentage of base salary, taking into account the peer group company data:
Name | Target Award Level as a Percentage of Base Salary | Maximum Award Level as a Percentage of Base Salary | ||
Gavin D. Southwell | 100% | 200% | ||
Erik M. Helding | 100% | 150% | ||
Michael D. Hershberger | 60% | 120% | ||
For 2019, the threshold, target, and superior performance goal levels for Mr. Southwell were as follows ($ in thousands):
Performance Measure | Threshold | Target | Superior | Actual | ||||||||||||
Adjusted EBITDA | $ | 70,800 | $ | 78,700 | $ | 86,600 | $ | 83,300 | ||||||||
For purposes of the Cash Bonus Plan for 2019, Adjusted EBITDA was calculated as GAAP net income plus interest, taxes, depreciation and amortization, further adjusted for items such as stock-based compensation and related costs, and items that are not generally a part of regular operating activities, including tax receivable adjustments, indemnity and other related legal costs, severance, restructuring, and acquisition costs, and amounts for Company bonuses that were accrued above Target amounts. For further details on the calculation of Adjusted EBITDA, please see Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K filed with the SEC on March 4, 2020.
For 2019, actual Adjusted EBITDA was 106% of target. Mr. Southwell therefore achieved and earned 80% of the superior performance level under the Cash Bonus Plan for 2019. The bonus that we actually paid to Mr. Southwell for 2019 performance can be found in the “Non-Equity Incentive Compensation” column of the Summary Compensation Table below.
Mr. Hershberger did not receive any payment under the Cash Bonus Plan for 2019 due to his separation of service from the Company, although he received a payment of $210,000 in satisfaction of the Company’s obligation to pay an accrued bonus under his employment
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agreement, as described below under the heading “Employment Agreements.” Mr. Helding did not receive any award or payment under the Cash Bonus Plan for 2019 due to his late-year hire as Chief Financial Officer.
Long-Term Incentive Awards
CEO Long-Term Incentive Awards
In 2019, the Committee recommended, and the Board approved, an award of performance based restricted shares of the Company's Class A common stock to our Chief Executive Officer, under the Long Term Incentive Plan.
Performance-Vesting Restricted Stock. The performance based restricted shares were intended to represent a multi-year grant and accordingly they would vest in five equal annual installments following the grant date, subject to the achievement of the performance metrics described below and Mr. Southwell's continued employment with us on the applicable vesting date. Any performance based restricted shares that do not vest as a result of a performance goal not being achieved for a particular fiscal year (the “Measurement Year”) shall be forfeited unless the Company’s cumulative Adjusted EBITDA for the Measurement Year and the immediately succeeding fiscal year (the “Succeeding Year”) taken together exceed the sum of the performance goals for both of such years, in which event the restricted shares that did not vest for the Measurement Year (the “Catch-Up Vesting Shares”) will vest on the date on which the Company’s Annual Report on Form 10-K is filed for the Succeeding Year. If the Adjusted EBITDA for the Measurement Year and Succeeding Year do not exceed the sum of the performance goals for such years, then the Catch-Up Vesting Shares shall be permanently forfeited on the date on which the Company’s Annual Report on Form 10-K for the Succeeding Year is filed.
The final determination whether the restricted shares would vest would be subject to such adjustments as the Board or the Committee determined in its discretion. Mr. Southwell vested in 20% of the restricted shares, or 50,000 total restricted shares on the day the Company filed its 2019 Annual Report. The performance goals, and our actual performance for fiscal year 2019, for Mr. Southwell were as follows ($ in thousands):
Measurement Year | Adjusted EBITDA Performance Goal (%) | Adjusted EBITDA Performance Goal ($) | Adjusted EBITDA Actual | |||||||
2018 Base Year | — | $ | 59,431 | |||||||
2019 | 1.13(a) | $ | 77,157 | $ | 83,300 | |||||
2020 | 1.28 | $ | 87,399 | — | ||||||
2021 | 1.45 | $ | 99,007 | — | ||||||
2022 | 1.64 | $ | 111,980 | — | ||||||
2023 | 1.86 | $ | 127,002 | — | ||||||
(a) | The Committee determined that an upward adjustment of $10.0 million to the 2019 Adjusted EBITDA performance goal was warranted in light of the expected performance of the Company's 2019 acquisitions as disclosed in Note 2 of its Annual Report on Form 10-K filed with the SEC on March 4, 2020. Adjusted EBITDA was calculated for purposes of the performance based restricted shares in the same manner as the calculation used for purposes of the Cash Bonus Plan, as described above under the heading “Annual Incentive Cash Plan.” |
The Committee recommended, and the Board approved, the award taking into consideration the multi-year nature of the award, the median of the peer group company data relative to long-term incentives, management's recommendations, and the objectives of our compensation programs to provide appropriate retention and performance incentives.
Time-Vesting Restricted Stock. During the term of Mr. Southwell's employment agreement, following each fiscal year beginning with the 2019 fiscal year, Mr. Southwell will also be eligible for a grant of restricted shares of Class A common stock grant under the Company’s Long Term Incentive Plan having a value of up to 100% of Mr. Southwell’s salary then in effect based on performance during the immediately preceding fiscal year. If awarded, these grants will vest 25% on each of the first four anniversaries of the applicable grant date. As of March 30, the Committee had not made a determination if an additional grant would be made for the 2019 fiscal year.
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Long-Term Incentive Awards Granted to NEOs Other Than the CEO in 2019
Pursuant to his employment agreement, the Company granted to Mr. Helding 50,000 SARs on November 15, 2019. The SARs will vest in increments of 25% on each of the first four anniversaries of the grant date, subject to acceleration upon a change in control or certain defined termination events.
In addition, pursuant to his employment agreement, the Company granted to Mr. Helding 30,000 restricted shares of the Company’s Class A common stock. The restricted shares will vest in increments of 25% on each of the first four anniversaries of the grant date, subject to acceleration upon a change in control.
We determined the amount and form of the long-term incentive awards to grant to Mr. Helding based on his qualifications, experience and level of responsibility, as well as internal pay equity considerations and negotiations with Mr. Helding.
Mr. Hershberger did not receive a long-term incentive award in 2019.
Other Benefits and Perquisites
Our NEOs participate in the full range of health, welfare and retirement benefits and are covered by the same plans as other exempt employees. Perquisites do not constitute a major element of our executive compensation program for our NEOs. During 2019, Mr. Southwell received approximately $21,200 for housing allowance, $7,900 in club related dues, and personal use of the Company's condominium valued at approximately $44,200. Mr. Hershberger received $17,300 for combined housing and auto allowance and approximately $9,000 in club related dues. Mr. Helding received no additional benefits or perquisites from the Company. We decided to provide these benefits to ensure that our compensation programs were competitive and provide additional retention incentives. The aggregate incremental cost to us of these benefits is included in the “All Other Compensation” column of the Summary Compensation Table and described in the footnotes.
Employment Agreements
Our NEOs have employment agreements that govern their base pay and non-equity incentive plan compensation. Additional information regarding the employment arrangements and compensation agreements of each NEO are as follows:
Gavin D. Southwell. On July 20, 2016, we entered into an employment agreement with Mr. Southwell with a term beginning on that date and ending on July 20, 2017 effective upon the attainment of an O-1 Visa which was granted September 6, 2016. Under this agreement, Mr. Southwell was named President of the Company. On November 15, 2016, in connection with Mr. Southwell’s promotion to Chief Executive Officer, we entered into an amendment to Mr. Southwell’s employment agreement. On June 14, 2017 we entered into another amendment to Mr. Southwell’s amended and restated employment agreement. Under this agreement, Mr. Southwell was entitled to an annual salary of $650,000 during 2018. On January 2, 2019 we entered into a second amended and restated employment agreement with Mr. Southwell. This agreement has a term of five years and will be automatically extended by successive one-year terms unless prior written notice of termination is given. Under this agreement, Mr. Southwell is entitled to an annual salary of $750,000 during 2019. Mr. Southwell will be eligible for performance based annual bonus and long-term incentive awards as determined at the sole discretion of the Board. Mr. Southwell's target bonus under the Company’s management bonus plan is to equal 100% of his salary then in effect. Mr. Southwell will be eligible to participate in any equity incentive plan, restricted share plan, share award plan, stock appreciation rights plan, stock option plan, or similar plan adopted by the Company on the same terms and conditions applicable to other senior Company executives, with the amount of such awards to be determined by the Board in its sole discretion.
Erik M. Helding. On November 12, 2019, we entered into an employment agreement with Mr. Helding, effective November 15, 2019 with a term beginning on that date as our Chief Financial Officer, Secretary, and Treasurer. Under this agreement, Mr. Helding is entitled to an annual salary of $450,000. Mr. Helding shall be eligible for performance based, annual bonus and long-term incentive awards as determined at the sole discretion of the Board. Mr. Helding was awarded 30,000 restricted stock awards and 50,000 SARs on the effective date that will vest 25% on each of the first four anniversaries of the effective date. Mr. Helding’s target bonus under the Company’s management bonus plan is to equal 100% of his salary then in effect. Mr. Helding shall be eligible to participate in any equity incentive plan, restricted share plan, share award plan, stock appreciation rights plan, stock option plan, or similar plan adopted by the Company on the same terms and conditions applicable to other senior Company executives, with the amount of such awards to be determined by the Board in its sole discretion.
Michael D. Hershberger. On November 15, 2019, Mr. Hershberger ceased serving as the Company's Chief Financial Officer, Secretary and Treasurer, and the Company entered into a Separation Agreement (the “Separation Agreement”) with Mr. Hershberger pursuant to which (among other things) Mr. Hershberger’s employment with the Company terminated effective December 31, 2019 (the “Termination Date”) and such termination was deemed to be a “Termination Without Cause” under his employment agreement, dated
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September 16, 2015 and amended on June 14, 2017 (the “Hershberger Employment Agreement”). Under the Separation Agreement, the Company agreed to pay Mr. Hershberger severance in an amount equal to 12 months of his base salary under his employment agreement (i.e., $350,000), and $210,000 in satisfaction of the Company’s obligation under the Hershberger Employment Agreement to pay an accrued bonus. In addition, under the Separation Agreement, the 88,472 stock appreciation rights held by Mr. Hershberger as of the date of the Separation Agreement, all of which had already vested, are exercisable for a period of one year after the Termination Date, and the Company agreed to vest 27,500 of the 44,000 unvested restricted shares previously granted to Mr. Hershberger.
Other Compensation Considerations
Tax and Accounting Considerations
In setting compensation for our NEOs, the compensation committee considers the deductibility of compensation under the Internal Revenue Code. Section 162(m) of the Internal Revenue Code limits the tax deductibility of compensation that we pay to certain covered employees, generally including our NEOs, to $1,000,000 in any year. Prior to the changes made to Section 162(m) by the Tax Cuts and Jobs Act, this limitation did not apply to performance-based compensation if certain conditions were met. Starting with 2018, performance-based compensation is generally subject to the $1,000,000 limit. Qualifying performance-based compensation that we pay pursuant to a binding contract in effect on November 2, 2017 and not materially modified will continue to be exempt from the deduction limit under a grandfathering rule. As a result of the changes to Code Section 162(m), any compensation that we pay in the future pursuant to compensation arrangements entered into or materially modified after November 2, 2017, even if performance-based, will be subject to the $1,000,000 fiscal year deduction limit if paid to a covered employee. The compensation committee believes that our interests and those of our stockholders are best served by providing competitive levels of compensation, even if not fully deductible, so some of the compensation that we provide to our executive officers in the future may not be deductible as a result of the changes made to Code Section 162(m).
Executives
We are led by a team of executives that is chosen by the Board. Currently, we have two executive officers. Set forth below is biographical information for the Company's Chief Financial Officer and former Chief Financial Officer. Mr. Southwell's biographical information is included with the biographical information of our directors.
Erik M. Helding (age 47). Erik M. Helding was appointed as our Chief Financial Officer, Treasurer and Secretary effective as of November 15, 2019. Prior, Mr. Helding served as Executive Vice President and Chief Financial Officer of CNO Financial Group, Inc. (NYSE: CNO) (“CNO”) from April 2016 through March 2019. CNO is a holding company for a group of insurance companies operating throughout the United States that develop, market and administer health insurance, annuity, individual life insurance and other insurance products. From August 2012 to April 2016, Mr. Helding served as Senior Vice President, Treasury and Investor Relations of CNO. Mr. Helding also served as Vice President, Financial Planning and Analysis of CNO prior to August 2012 and held various other finance positions after he joined CNO in 2004. During his time at CNO as Chief Financial Officer, Mr. Helding was responsible for the financial operations of the company, including accounting, controls and reporting, financial planning and analysis, investor relations, treasury, and tax.
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Summary Compensation Table For Fiscal Year 2019
The following table sets forth the total compensation of our Chief Executive Officer and other Named Executive Officers (as defined by SEC rules and regulations) for 2019, 2018, and 2017:
Name and Principal Position | Year | Salary ($)(1) | Bonus ($) | Stock Awards ($)(2)(3) | Option Awards ($)(2)(4) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($) | Total ($) | ||||||||
Gavin D. Southwell(5) | 2019 | 750,000 | — | 8,382,500 | — | 1,200,000 | 73,316 | 10,405,816 | ||||||||
President and Chief Executive Officer | 2018 | 650,000 | — | — | — | 1,500,000 | 88,600 | 2,238,600 | ||||||||
2017 | 605,000 | 650,000 | 7,682,500 | — | 1,300,000 | 74,717 | 10,312,217 | |||||||||
Erik M. Helding | 2019 | 45,000 | — | 702,000 | 689,000 | — | — | 1,436,000 | ||||||||
Chief Financial Officer | ||||||||||||||||
Michael D. Hershberger(6) | 2019 | 350,000 | — | — | — | — | 586,376 | 936,376 | ||||||||
Former Chief Financial Officer | 2018 | 350,000 | — | — | — | 420,000 | 45,400 | 815,400 | ||||||||
2017 | 332,000 | 175,000 | 1,448,700 | — | 420,000 | 57,400 | 2,433,100 | |||||||||
(1) | Reflects actual earnings for 2019, 2018 and 2017, which may differ from approved base salaries due to the effective dates of salary increases. |
(2) | The assumptions used in determining the grant date fair value of the equity awards to our NEOs under Financial Accounting Standards Board ASC 718 (“ASC 718”) can be found in Note 10 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019. |
(3) | Stock Award amounts equal the aggregate grant date fair value pursuant to ASC 718 for the performance share and restricted stock grants in 2019 and 2017. These amounts do not reflect the actual economic value realized by the NEOs. Although the award agreement for Mr. Southwell’s grant of performance based restricted shares shown in this table was dated January 2, 2019, for financial reporting purposes under ASC 718 the grant date did not occur until March 14, 2019 because the performance goals were not finalized until the filing of our Annual Report on Form 10-K for the year ended December 31, 2018 on that date. In accordance with the SEC’s regulations, the grant date fair value shown in this table and the Grants of Plan- Based Awards for Fiscal Year 2019 table is based on the stock price on March 14, 2019, the grant date under ASC 718, rather than January 2, 2019. The grant date fair value of the performance share grants is based on the probable outcome of the performance conditions as of the date of grant, assuming maximum performance. |
(4) | Option Award amounts include the aggregate grant date fair value pursuant to ASC 718 for SARs granted. These amounts do not reflect the actual economic value realized by the NEO. |
(5) | Included within All Other Compensation for Mr. Southwell for 2019 is approximately $21,200 for housing allowance, $7,900 in club related dues, and personal use of the Company's condominium valued at approximately $44,200. |
(6) | Mr. Hershberger's employment agreement was amended on November 11, 2019 at which point he ceased acting as the Company's Chief Financial Officer, Secretary, and Treasurer. Pursuant to the agreement, Mr. Hershberger's employment with the Company terminated on December 31, 2019. Included within All Other Compensation for Mr. Hershberger for 2019 is approximately $17,300 for combined housing and auto allowance, approximately $9,000 in club related dues, $210,000 for accrued bonus paid in connection with his separation from the Company and $350,000 in severance, an amount equal to the sum of his annual base salary payable in 12 equal monthly installments. |
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Grants of Plan-Based Awards For Fiscal Year 2019
The following table provides information regarding all incentive awards we granted to our NEOs during fiscal 2019:
Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units | All Other Option Awards: Number of Securities Underlying Options | Exercise or base price of option awards | Grant date fair value of stock and option awards | |||||||||||||||||||||||||||
Name* | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold ($) | Target ($) | Maximum ($) | (#) | (#) | ($/Sh) | ($) | |||||||||||||||||||||
Gavin D. Southwell | 1/2/2019 (1) | 187,500 | 750,000 | 1,500,000 | — | — | — | 250,000 | — | — | 8,382,500 | |||||||||||||||||||||
Erik M. Helding | 11/15/2019 | — | — | — | — | — | — | 30,000 | 50,000 | 23.40 | 1,391,000 | |||||||||||||||||||||
* | Mr. Hershberger had no grants of plan-based awards in fiscal year 2019. |
(1) | The grant date of January 2, 2019 for Mr. Southwell’s award of performance based restricted shares shown in this table is the date on which the Board approved the award and the date of the award agreement. However, the grant date for financial reporting purposes under ASC 718 was March 14, 2019 because the performance goals were not finalized until the filing of our Annual Report on Form 10-K for the year ended December 31, 2018 on that date. In accordance with the SEC’s regulations, the grant date fair value shown in this table and the Summary Compensation Table for Fiscal Year 2019 is based on the stock price on March 14, 2019, the grant date under ASC 718, rather than January 2, 2019. |
Outstanding Equity Awards at Fiscal Year-End 2019
The following table provides information on the holdings of SARs and stock awards by our NEOs at December 31, 2019. This table includes unexercised and unvested SARs awards and unvested stock awards.
SAR Awards | Stock Awards | |||||||||||||||||
Name | Grant Date(1) | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($)(2) | Option Expiration Date | Number of Shares that have not Vested (#) | Market Value of Shares of Stock that have not Vested ($)(3) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or other Rights That Have Not Vested(4) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or other Rights That Have Not Vested ($)(3) | |||||||||
Gavin D. Southwell | 9/6/2016(5) | 33,333 | — | 5.96 | 9/6/2023 | — | — | — | — | |||||||||
4/26/2016(6) | 20,000 | — | 6.10 | 4/26/2023 | — | — | — | — | ||||||||||
11/15/2016(7) | 75,000 | 25,000 | 10.30 | 11/15/2023 | — | — | — | — | ||||||||||
6/14/2017 | — | — | — | — | 125,000 | 2,411,250 | — | — | ||||||||||
6/14/2017(8) | — | — | — | — | 50,000 | 964,500 | — | — | ||||||||||
11/15/2016(8) | — | — | — | — | 25,000 | 482,250 | — | — | ||||||||||
1/2/2019 | — | — | — | — | — | — | 250,000 | 4,822,500 | ||||||||||
Erik M. Helding | 11/15/2019(7) | — | 50,000 | 23.40 | 11/15/2026 | 30,000 | 578,700 | — | — | |||||||||
Michael D. Hershberger | 7/1/2015(5) | 15,000 | — | 4.95 | 7/1/2022 | — | — | — | — | |||||||||
9/16/2015(5) | 22,500 | — | 4.99 | 9/16/2022 | — | — | — | — | ||||||||||
9/16/2016(5) | 40,972 | — | 5.20 | 9/16/2023 | — | — | — | — | ||||||||||
5/21/2014(9) | 10,000 | — | 10.45 | 5/21/2021 | — | — | — | — | ||||||||||
(1) | All of the outstanding equity awards described in the footnotes below were granted under our Long Term Incentive Plan. |
(2) | This column represents the closing price of Benefytt Technologies' Class A common stock as reported on the NASDAQ Global Market on the date of grant. |
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(3) | Market value was determined by multiplying the number of shares set forth in the preceding column by $19.29, the closing price of Benefytt’s Class A common stock as reported on the NASDAQ Global Market on December 31, 2019, the last trading day of the year. This valuation does not reflect any diminution in value due to the restrictions applicable to such awards. |
(4) | This column represents the executive's January 2, 2019 performance restricted share grant. Performance restricted shares are performance-vesting equity incentive awards under the Company’s Long Term Incentive Plan, that vest ratably based on the Company’s performance against metrics relating to annual Adjusted EBITDA in each of fiscal years 2019 through 2023. Any restricted shares that do not vest as a result of a performance goal not being achieved for a particular fiscal year (the “Measurement Year”) shall be forfeited unless the Company’s cumulative Adjusted EBITDA for the Measurement Year and the immediately succeeding fiscal year (the “Succeeding Year”) taken together exceed the sum of the performance goals for both of such years, in which event the restricted shares that did not vest for the Measurement Year (the “Catch-Up Vesting Shares”) will vest on the date on which the Annual Report is filed for Succeeding Year. If the Adjusted EBITDA for the Measurement Year and Succeeding Year do not exceed the sum of the performance goals for such years, then the Catch-Up Vesting Shares shall be permanently forfeited on the date on which the Annual Report for the Succeeding Year is filed. The final determination of whether the performance restricted shares vest will be determined by the Board or the Committee and will be subject to such adjustments as the Board or the Committee may determine in its discretion. Because performance as measured against the metrics was trending above target as of December 31, 2019, as required by the SEC’s regulations, the performance restricted share grants are shown at the maximum level. |
(5) | Reported amounts represent SARs that vest in annual increments of 25%, 25%, and 50% on the grant anniversary dates subject to continued service to us through each vesting date. |
(6) | Reported amounts represent SARs that vest in annual increments of 50% on the grant anniversary dates subject to continued service to us through each vesting date. |
(7) | Reported amounts represent SARs that vest in annual increments of 25% on the grant anniversary dates subject to continued service to us through each vesting date. |
(8) | Reported amounts represent Restricted Stock Awards that vest in annual increments of 25% on the grant anniversary dates subject to continued service to us through each vesting date. |
(9) | Reported amounts represent SARs that vest in annual increments of 20%, 20%, 20%, and 40% on the grant anniversary dates subject to continued service to us through each vesting date. |
Option Exercises and Stock Vested For Fiscal Year 2019
Option Awards(1) | Stock Awards(2) | |||||||||||
Name* | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | ||||||||
Gavin D. Southwell | — | — | 146,388 | 3,689,982 | ||||||||
Michael D. Hershberger | — | — | 48,967 | 1,075,988 | ||||||||
* | Mr. Helding had no option award exercises or stock awards vest during 2019. |
(1) | The Company has no options outstanding, so any amounts shown in these columns would relate to SAR grants. |
(2) | We computed the aggregate dollar value realized on vesting by multiplying the number of shares of stock that vested by the closing price of our common stock on the vesting date. |
We did not offer any nonqualified deferred compensation arrangements or defined benefit pension plans in 2019 in which our NEOs participated.
CEO Pay Ratio
For the year ended December 31, 2019:
• | the median of the annual total compensation of all employees of our company (other than our CEO) was $56,796; and |
• | the annual total compensation of our CEO was $10,405,816. |
Based on this information, for 2019, the ratio of the annual total compensation of our CEO to the median of the annual total compensation of all other employees was 183:1. This estimate is calculated in a manner consistent with Item 402(u) of Regulation S-K under the Exchange Act. As permitted by SEC rules, to identify our median employee for 2019, we selected total direct compensation as our consistently applied compensation measure, which we calculated as actual salary paid to our employees for 2019 (including overtime for hourly employees), actual bonus or sales commission earned by our employees in 2019. Further, we used December 31, 2019 to determine our employee population and used the consistently applied compensation measure as described
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above to determine our median employee. In determining this population, we included all full-time, part-time, seasonal and temporary employees other than our CEO. We did not include any contractors or workers employed through a third-party provider, whose compensation was determined by such third-party provider, in our employee population.
Based on this approach, we selected the individual who represented the median employee for 2019. We then calculated the annual total compensation for this individual using the same methodology we used for our named executive officers in our 2019 Summary Compensation Table.
Mr. Southwell’s 2019 total compensation as reported in the Summary Compensation Table For Fiscal Year 2019 and as used in determining the pay ratio disclosed above includes the full value of the performance based restricted share award granted to Mr. Southwell in 2019, although, as noted above under “Long-Term Incentive Awards,” this equity award was intended as a multi-year grant covering a five-year performance period from 2019-2023. In order to provide a more complete depiction of our pay ratio for 2019, a supplemental pay ratio was calculated using Mr. Southwell’s 2019 compensation as disclosed in the Summary Compensation Table For Fiscal Year 2019, adjusted to exclude four-fifths of the value of his five-year equity award, or $6,706,000. The ratio of Mr. Southwell’s total compensation calculated in this manner to the compensation of the median employee was approximately 65:1.
Potential Payments Upon Termination Or Change In Control
Our NEOs are entitled to certain payments or other benefits upon qualifying terminations of employment or a change in control of our Company, as described below.
Under the employment agreements of Messrs. Southwell and Helding, unless prior written notice of termination is given by either party prior to the agreement expiration dates, the term of the agreements will be automatically extended for additional successive one-year periods. In the event that we determine not to extend Messrs. Southwell's or Helding’s agreement or terminate their employment without cause (as defined in their respective agreements), or either executive terminates his employment for good reason (as defined in their respective agreements), the executive will be entitled to an amount equal to the sum of his annual base salary ($750,000 for Mr. Southwell and $450,000 for Mr. Helding) plus a pro rata portion of any bonus to which he would have otherwise earned, payable in 12 equal monthly installments beginning on the termination date provided that a general release is executed in our favor. “Good reason” generally includes certain changes in responsibilities or duties, reductions in salary, or a material reduction in benefits or a material breach by the Company of the agreement that remains uncured following notice of the breach. “Cause” generally includes (1) the commission of a willful act of dishonesty in the course of the executive’s duties, (2) conviction of, or plea of no contest to, a felony or conviction in respect of, or plea of no contest to, any act involving fraud, dishonesty or moral turpitude, (3) performance under the influence of controlled substances (other than those taken pursuant to a medical doctor’s orders), or continued habitual intoxication, during working hours, (4) frequent or extended, and unjustifiable, absenteeism, (5) personal misconduct or refusal to timely perform duties and responsibilities or to timely carry out the lawful directives of the Board (following notice and a cure period), or (6) material non-compliance with the terms of the employment agreement (following notice and a cure period). Messrs. Southwell and Helding are subject to non-competition, non-disparagement, and non-solicitation covenants that expire two years following termination of employment, and to customary confidentiality obligations.
Under the award agreements for our equity-based awards granted to our NEOs under our Long Term Incentive Plan, upon a change in control of the Company, vesting of restricted stock would be accelerated in full. The Committee would determine the treatment of unearned performance shares in its discretion. The Long Term Incentive Plan provides for full vesting upon any termination of employment without cause during the two-year period following a change in control. A “change in control” is defined in the Plan generally to include (1) certain changes in ownership of more than 50% of the voting power of our outstanding equity securities, (2) certain changes in the majority of the Board that is not approved by incumbent Board members, (3) the consummation of a merger or consolidation (other than certain mergers or consolidations that would represent a continuation in ownership of at least 50% of the combined voting power and total fair market value of our securities or a surviving entity) or (4) the consummation of any sale, lease, exchange or other transfer of all or substantially all of our assets.
Under the award agreement for the performance-based restricted shares granted to Mr. Southwell in 2019, upon any termination of service prior to full vesting, any then-unvested shares would be forfeited. Likewise, under the award agreement for the restricted stock granted to Mr. Helding in 2019, upon any termination of service prior to full vesting, any then-unvested shares would be forfeited.
The award agreements for restricted stock and performance shares granted in 2017 under which restricted shares were issued to Messrs. Southwell and Hershberger in March 2019 provide for awards to be forfeited upon a termination of employment prior to vesting except for a termination of service related to death, disability, termination without cause, or resignation for good reason. In the case of a termination of service due to death or disability, a termination without cause or a resignation for good reason, the award agreements provide for the awards to be 100% vested and non-forfeitable.
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Under the award agreement for the SARs granted to Mr. Helding in 2019, upon any termination of service other than for death or disability prior to full vesting, all of the SARs would be forfeited. Upon a termination of service due to death or disability, the SARs would become 100% vested and non-forfeitable.
The award agreements for the SARs granted prior to 2019 provide for awards to be forfeited upon a termination of employment prior to vesting except for termination of service related to death, disability, termination without cause, or resignation for good reason. In the case of a termination of service due to death or disability, a termination without cause or a resignation for good reason, the award agreements, the award agreements provide for the awards to be 100% vested and non-forfeitable. As described above under, “Employment Agreements,” Mr. Hershberger became entitled to severance and accelerated vesting of equity awards in connection with his separation from service in 2019. The estimated value of these benefits was approximately $1.1 million.
The estimated value of the payments and other benefits that would be received by Messrs. Southwell and Helding upon certain hypothetical triggering events are shown in the following table, applying the assumptions that the triggering event(s) occurred on December 31, 2019. The value of equity-based awards was estimated using a per share price of $19.29, which was the closing price of the Company's Class A common stock as reported on the NASDAQ Global Market on December 31, 2019, the last trading day of the year.
Name | Termination Without Cause or Resignation for Good Reason ($) | Termination due to Death ($) | Termination due to Disability ($) | Termination Upon a Change in Control ($) | Change in Control ($) | ||||||||||
Gavin D. Southwell | |||||||||||||||
Severance | 750,000 | — | — | 750,000 | — | ||||||||||
Annual Incentive | 750,000 | — | — | — | — | ||||||||||
Restricted Stock | 6,751,500 | 6,751,500 | 6,751,500 | 6,751,500 | 6,751,500 | ||||||||||
Performance Shares | 3,616,875 | 3,616,875 | 3,616,875 | 3,616,875 | 3,616,875 | ||||||||||
Stock Appreciation Rights | 224,750 | 224,750 | 224,750 | 224,750 | 224,750 | ||||||||||
Total | 12,093,125 | 10,593,125 | 10,593,125 | 11,343,125 | 10,593,125 | ||||||||||
Erik M. Helding | |||||||||||||||
Severance | 450,000 | — | — | 450,000 | — | ||||||||||
Annual Incentive | 450,000 | — | — | — | — | ||||||||||
Restricted Stock | 578,700 | 578,700 | 578,700 | 578,700 | 578,700 | ||||||||||
Stock Appreciation Rights(a) | — | — | — | — | — | ||||||||||
Total | 1,478,700 | 578,700 | 578,700 | 1,028,700 | 578,700 | ||||||||||
(a) | SARs grant price is higher than the Company's closing price on December 31, 2019, therefore SARs have no value as of the measurement date. |
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COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed with management the CD&A and, based on that review and discussion, has recommended to the Board that the CD&A be included in this Proxy Statement and incorporated by reference in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.
THE COMPENSATION COMMITTEE
Anthony J. Barkett, Chair
Paul E. Avery
Paul G. Gabos
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In addition to the compensation arrangements with directors and NEOs described under “Executive Compensation,” the following is a description of each transaction that occurred during the year ended December 31, 2019 or currently proposed, in which:
• | we have been or are to be a participant; |
• | the amount involved exceeded or will exceed $120,000; and |
• | any of our directors or director nominees, executive officers, beneficial holders of more than 5% of our capital stock, or any member of their immediate family or person sharing their household had or will have a direct or indirect material interest. |
Amended and Restated Limited Liability Company Agreement of Health Plan Intermediaries Holdings, LLC
We operate our business through our subsidiary Health Plan Intermediaries Holdings, LLC (“HPIH”) and its consolidated subsidiaries. The operations of HPIH, and the rights and obligations of its members, are governed by the amended and restated limited liability company agreement of HPIH, to which the Company became a party February 13, 2013 in connection with our initial public offering ("IPO"). We serve as the sole managing member of HPIH. As such, we control its business and affairs and are responsible for the management of its business.
The amended and restated limited liability company agreement of HPIH establishes two classes of equity: Series A Membership Interests and Series B Membership Interests. Series A Membership Interests may be issued only to us as the sole managing member of HPIH. Series B Membership Interests may be issued only to persons or entities we permit, which are currently HPI and its subsidiary, HPIS, which are beneficially owned by Mr. Kosloske. During the year ended December 31, 2019, HPIH paid cash distributions of $2.3 million to HPI and HPIS related to estimated federal and state income taxes pursuant to the amended and restated limited liability company agreement of HPIH.
Exchange Agreement
On February 13, 2013 in connection with our IPO, we entered into an exchange agreement with the existing and certain future holders of Series B Membership Interests of HPIH (the "Exchange Agreement"), which are currently HPI and HPIS, which are entities beneficially owned by Mr. Kosloske. Pursuant to and subject to the terms of the Exchange Agreement and the amended and restated limited liability company agreement of HPIH, holders of Series B Membership Interests, at any time and from time to time, may exchange one or more Series B Membership Interests, together with an equal number of shares of our Class B common stock, for shares of our Class A common stock on a one-for-one basis, subject to equitable adjustments for stock splits, stock dividends and reclassifications. In connection with each exchange, HPIH cancels the delivered Series B Membership Interests and issues to us Series A Membership Interests on a one-for-one basis. Thus, as holders exchange their Series B Membership Interests for Class A common stock, our interest in HPIH increases.
Tax Receivable Agreement
On February 13, 2013 in connection with our IPO, we entered into a tax receivable agreement (the "TRA") with the holders of the HPIH Series B Membership Interests, which holders are beneficially owned by Mr. Kosloske. The TRA requires us to pay to such holders 85% of the cash savings, if any, in U.S. federal, state and local income tax we realize (or are deemed to realize in the case of an early termination payment, a change in control, or a material breach by us of our obligations under the TRA) as a result of any possible future increases in tax basis and of certain other tax benefits related to entering into the TRA, including tax benefits attributable to payments under the TRA itself. This is the Company's obligation and not an obligation of HPIH. The Company will benefit from the remaining 15% of any realized cash savings. For purposes of the TRA, cash savings in income tax is computed by comparing our actual income tax liability with our hypothetical liability had we not been able to utilize the tax benefits subject to the TRA itself. The TRA became effective upon completion of the IPO and will remain in effect until all such tax benefits have been used or expired, unless the Company exercises its right to terminate the TRA for an amount based on the agreed payments remaining to be made under the TRA or the Company breaches any of its material obligations under the TRA in which case all obligations will generally be accelerated and due as if the Company had exercised its right to terminate the TRA. Any potential future payments will be calculated using the market value of our Class A common stock at the time of the relevant exchange and prevailing tax rates in future years and will be dependent on us generating sufficient future taxable income to realize the benefit. Payments are generally due under the TRA within a specified period of time following the filing of our tax return for the taxable year with respect to which payment of the obligation arises.
Exchanges of Series B Membership Interests, together with an equal number of shares of our Class B common stock, for shares of our Class A common stock, are expected to increase our tax basis in our share of HPIH’s tangible and intangible assets. These increases in tax basis are expected to increase our depreciation and amortization deductions and create other tax benefits and, therefore, may reduce
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the amount of tax that we would otherwise be required to pay in the future. As of December 31, 2019, Series B Membership Interests, together with an equal number of shares of Class B common stock have been exchanged for a total of 7,650,000 shares of Class A common stock subsequent to the IPO.
As a result of the exchanges noted above, we have recorded a liability of $29.1 million pursuant to the TRA as of December 31, 2019, of which, the entire amount was included in due to member within long-term liabilities on our consolidated balance sheet for the year ended December 31, 2019.
As of December 31, 2019, we have made $3.7 million of cumulative payments under the TRA to affiliates of Mr. Kosloske.
Registration Rights Agreement
On February 13, 2013 in connection with our IPO, we entered into a registration rights agreement with HPI and HPIS to register for sale under the Securities Act of 1933 shares of our Class A common stock to be delivered in exchange for Series B Membership Interests of HPIH pursuant to the Exchange Agreement in certain circumstances. This agreement provided these two entities (and their affiliates) with the right to require us to register shares of our Class A common stock held by such entities or their affiliates. On February 1, 2014, a registration statement on Form S-3 became effective under which we registered 8,566,667 shares of our Class A common stock for resale from time to time by the selling stockholders identified in the registration statement, of which all such shares are issuable upon the exchange of an equivalent number of Series B Membership Interests in HPIH (together with an equal number of shares of our Class B common stock). As of March 30, 2020, 4,725,000 shares of Class A common stock have been resold pursuant to this registration statement as mentioned above.
Other Relationships
None.
DELINQUENT SECTION 16(a) REPORTS
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers, and holders of more than 10% of the Company’s common stock to file with the SEC reports regarding their ownership and changes in ownership of our securities. The Company is not aware that, during 2019, any of its directors, executive officers or 10% stockholders failed to timely file any reports required to be filed by Section 16(a) of the Securities Exchange Act of 1934, as amended, except for (i) an inadvertent late Form 4 filing on November 20, 2019 by Mr. Southwell for the disposition of shares withheld by the Company incident to the vesting of a restricted share award on November 15, 2019, (ii) an inadvertent late Form 4 filing by Mr. Avery on March 25, 2019 for the purchase of 3,000 shares on March 20, 2019, (iii) a late Form 4 filing by Ms. Scott on May 20, 2019 for the grant of 3,513 restricted shares made on May 14, 2019, due to administrative delays in obtaining SEC EDGAR filing codes, and (iv) a late Form 4 filing by Ms. Duffield on May 28, 2019 (who resigned as a director for the Company on April 9, 2020) for the grant of 3,513 restricted shares made on May 14, 2019, due to administrative delays in obtaining SEC EDGAR filing codes. In making these statements, the Company has relied upon examination of the copies of Forms 3, 4, and 5, and amendments thereto, provided to the Company and the written representations of its directors, executive officers and 10% stockholders.
EQUITY COMPENSATION PLAN INFORMATION
The following table contains information about the Long Term Incentive Plan, which is our sole equity compensation plan, as of December 31, 2019.
Equity Compensation Plan Information | |||||||||
(a) | (b) | (c) | |||||||
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | ||||||
Equity compensation plans approved by security holders | 220,528 | $ | 13.70 | 728,627 | |||||
Equity compensation plans not approved by security holders | — | — | — | ||||||
Total | 220,528 | 728,627 | |||||||
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PROPOSAL 2
APPROVAL OF, ON AN ADVISORY BASIS, NAMED EXECUTIVE OFFICER COMPENSATION
Executive compensation is an important matter for our stockholders. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires that we provide you with the opportunity to vote to approve, on a nonbinding advisory basis, the compensation of our Named Executive Officers ("NEOs"), as disclosed in this Proxy Statement in accordance with the compensation disclosure rules of the SEC (sometimes referred to as “Say-on-Pay”).
The Compensation Committee has approved the compensation arrangements for our NEOs described in our Compensation Discussion and Analysis in this Proxy Statement. We urge you to read the Compensation Discussion and Analysis for a more complete understanding of our executive compensation plans, including our compensation philosophy and objectives and the 2019 compensation of NEOs.
Vote Required
The affirmative vote of a majority of the shares of our Class A common stock and Class B common stock, voting together as a single class, present or represented by proxy and entitled to vote at the Annual Meeting is required for approval of this proposal. Pursuant to the terms of our Amended and Restated Bylaws, a vote to abstain will not be treated as a vote cast for purposes of this proposal. If you own shares through a broker, bank, or other nominee, you must instruct your broker, bank, or other nominee on how to vote your shares to ensure that your shares will be represented and voted on this proposal because the subject matter thereof is deemed a non-routine matter under applicable rules. If you do not provide instructions on how your shares should be voted, a broker non-vote will occur, and pursuant to our Amended and Restated Bylaws, your shares will be counted for purposes of determining a quorum, but shall not be not be voted and shall not be counted as a vote cast.
We are asking stockholders to vote in favor of the following resolution:
RESOLVED, that, on a nonbinding, advisory basis, the compensation paid to the Company’s Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables, and the related narrative discussion, is hereby APPROVED.
As an advisory vote, this proposal is nonbinding. Although the vote is nonbinding, the Board and the Compensation Committee value the opinions of our stockholders and will consider the outcome of the vote when making future compensation decisions for NEOs.
It is expected that the next Say-on-Pay vote will occur at our 2021 Annual Meeting.
OUR BOARD RECOMMENDS A VOTE “FOR” THE ADVISORY PROPOSAL TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION. | ||||
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PROPOSAL 3
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Appointment of Independent Registered Public Accounting Firm
The Audit Committee has appointed Grant Thornton LLP (“Grant Thornton”) as our independent registered public accounting firm for the fiscal year ending December 31, 2020, and the Board has directed that management submit the appointment of Grant Thornton as our independent registered public accounting firm for the fiscal year ending December 31, 2020 for ratification by the stockholders at the Annual Meeting. A representative of Grant Thornton is expected to be present at the Annual Meeting and will have an opportunity to make a statement if he or she so desires and will be available to respond to appropriate questions.
Stockholder ratification of the selection of Grant Thornton as our independent registered public accountants is not required by our Amended and Restated Bylaws or otherwise. However, the Board is submitting the appointment of Grant Thornton to the stockholders for ratification as a matter of corporate practice. If our stockholders fail to ratify the appointment, the Audit Committee will reconsider whether or not to retain Grant Thornton. Even if the selection is ratified by our stockholders, the Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the Audit Committee determines that such a change would be in the Company’s and our stockholders’ best interests.
The affirmative vote of the holders of a majority of the votes cast in person or by proxy and entitled to vote at the Annual Meeting is required for ratification of the appointment of Grant Thornton as our independent registered public accounting firm for the fiscal year ending December 31, 2020. Abstentions and broker non-votes will not have any effect on the outcome of this proposal.
The text of the resolution with respect to this Proposal 3 is as follows:
RESOLVED, that the stockholders approve that ratification of the appointment of Grant Thornton LLC as the Company's independent registered public accounting firm for the fiscal year ending December 31, 2020.
OUR BOARD RECOMMENDS A VOTE OF "FOR" FOR THE RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | ||||
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INFORMATION REGARDING INDEPENDENT REGISTERED ACCOUNTING FIRM
Grant Thornton LLP (“Grant Thornton") has served as the Company’s independent registered public accounting firm since 2014.
Pre-Approval of Services
The Audit Committee pre-approves all audit, audit-related, tax, and other services proposed to be provided by the Company’s independent registered certified public accounting firm as the need arises and following consideration of the material facts and circumstances surrounding a proposed engagement. Consideration and approval of such services occurs at Audit Committee meetings. The Audit Committee has not delegated the authority to approve the audit, audit-related, tax and other services to its individual members. None of the non-audit services were reported to and approved by the Audit Committee after the provision of services.
Fees Paid to Independent Registered Certified Public Accounting Firm in 2019 and 2018
Our Audit Committee Charter requires that the Audit Committee be solely and directly responsible for the appointment, compensation, evaluation, and oversight of the work of the independent auditors, including but not limited to, approving fees, evaluating the scope of the audit, and pre-approving all audit and non-audit services. Aggregate fees for professional services rendered to us by Grant Thornton for work performed during the fiscal years ended December 31, 2019 and 2018, respectively, were as follows:
Type of Fees | 2019 | 2018 | ||||||
Audit Fees* | $ | 1,166,187 | $ | 1,340,000 | ||||
Audit-Related Fees** | 154,080 | — | ||||||
Tax Fees*** | 261,285 | 386,000 | ||||||
All Other Fees | — | — | ||||||
Total | $ | 1,581,552 | $ | 1,726,000 | ||||
* | The 2019 and 2018 audit fees are composed of fees for professional services related to the audit of our annual financial statements, and review of interim financial statements. |
** | Other audit-related fees in 2019 relate to the acquisition of TogetherHealth. For more information on business acquisitions, see Note 2 of our Annual Report on Form 10-K for the period ending December 31, 2019. |
*** | The 2019 and 2018 Tax Fees are composed of fees for tax compliance. |
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REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee reviews the Company's financial reporting process on behalf of the Board. Management has the primary responsibility for establishing and maintaining adequate internal financial controls, preparing the Company's financial statements, and the public reporting process. Management has delivered its opinion on the effectiveness of the Company's internal controls over financial reporting. Grant Thornton, our independent registered certified public accounting firm for 2019, was responsible for expressing opinions on the conformity of the Company’s audited financial statements with generally accepted accounting principles and opining on the effectiveness of those controls in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the "PCAOB") and issuing its reports thereon.
In this context, the Audit Committee has reviewed and discussed with management and Grant Thornton, the audited financial statements for the year ended December 31, 2019. The Audit Committee has discussed with Grant Thornton the matters that are required to be discussed by PCAOB Auditing Standard No. 1301 and Rule 2-07 of SEC Regulation S-X. Grant Thornton has provided to the Audit Committee the written disclosures and the letter required by applicable requirements of the PCAOB regarding Grant Thornton’s communications with the Audit Committee concerning independence, and the Audit Committee has discussed with Grant Thornton that firm’s independence. Based on the considerations and the discussions referred to above, the Audit Committee recommended to our Board that the audited financial statements for the year ended December 31, 2019 be included in our Annual Report on Form 10-K for the year ended December 31, 2019.
THE AUDIT COMMITTEE
Paul G. Gabos, Chair
Anthony J. Barkett
Peggy B. Scott
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NOTICE OF STOCKHOLDER PROPOSALS AND OTHER MATTERS
Stockholders who wish to include a stockholder proposal in our proxy statement and proxy card relating to the 2021 Annual Meeting of Stockholders must deliver a written copy of their proposal to our principal executive offices no later than December 11, 2020. Proposals must comply with the Rule 14a-8 under the Securities Exchange Act of 1934, as amended ("Rule 14a-8") relating to stockholder proposals in order to be included in our proxy materials. If the date of next year’s Annual Meeting is moved more than 30 days before or after May 12, 2021 (which is the anniversary of this year’s Annual Meeting), we must receive notice of the stockholder proposal within a reasonable time before we begin to print and mail our proxy materials. All stockholder proposals should be sent to our principal executive offices at 3450 Buschwood Park Dr., Suite 200, Tampa, FL 33618, Attention: Erik M. Helding, Chief Financial Officer, Secretary and Treasurer.
In addition, stockholder proposals and director nominations intended to be presented at our 2021 Annual Meeting of Stockholders, other than proposals submitted in accordance with Rule 14a-8, must be received at our principal executive offices no earlier than November 13, 2020 or later than January 12, 2021, in order to be considered timely under our Amended and Restated Bylaws. Any proposal or nomination must comply with additional requirements contained in our Amended and Restated Bylaws in order to be proper. If the date of next year’s Annual Meeting is moved more than 30 days before or 60 days after May 12, 2021 (which is the anniversary of this year’s Annual Meeting), we must receive notice of the stockholder proposal or director nomination by the later of 120 days before the meeting date and 10 days after public announcement of the meeting date.
Proxies may be voted in our discretion at the Annual Meeting on any business properly brought before the meeting or at any adjournments or postponements thereof if we did not receive notice of any such business prior to mailing this proxy statement and proxy card. For the 2021 Annual Meeting of Stockholders, proxies we solicit may be voted in our discretion on any business properly brought before the meeting or at any adjournments or postponements thereof if we do not receive notice of such business in conformity with our Amended and Restated Bylaws.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDERS MEETING TO BE HELD ON MAY 12, 2020
The Proxy Statement, Notice of Annual Meeting, Proxy Card and the Company’s 2019 Annual Report to Stockholders, which includes a copy of our Annual Report on Form 10-K, are available at the 2020 Annual Meeting tab of the Investors section of our website at www.benefytt.com.
For directions to attend the Annual Meeting and vote in person, please contact Susan Cowan at (813) 397-1187.
We currently intend to hold the Annual Meeting in person. However, we are actively monitoring the coronavirus (COVID-19) situation, as we are sensitive to the public health and travel concerns our stockholders may have and the protocols that federal, state, and local governments and health officials may impose or recommend. In the event we determine it is not possible or advisable to hold the Annual Meeting in person, we will publicly announce alternative arrangements for the meeting as promptly as practicable before the meeting, which may include holding the meeting solely by means of remote communication (i.e., a virtual-only annual meeting). Please monitor our website at www.benefytt.com for updated information. If you are planning to attend our meeting, please check the website prior to the meeting date.
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DELIVERY OF PROXY MATERIALS TO HOUSEHOLDS
Some banks, brokers, and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. This means that only one copy of our proxy statement and annual report to stockholders may have been sent to multiple stockholders in your household. The Company will promptly deliver a separate copy of any of these documents to you if you contact us at the following address: 3450 Buschwood Park Dr., Suite 200, Tampa, FL 33618, or telephone number: (813) 397-1187. If you want to receive separate copies of the proxy statement or annual report to stockholders in the future, or if you are receiving multiple copies and would like to receive only one copy per household, you should contact your bank, broker, or other nominee record holder, or you may contact the Company at the above address or telephone number.
Holders of common stock are requested to complete, sign, and date the accompanying proxy card and promptly return it to our Alliance Advisors LLC, PO Box 2400, Pittsburgh, PA 15230-9762 in the enclosed addressed, postage-paid envelope.
By Order of the Board of Directors
Gavin D. Southwell
President and Chief Executive Officer
Dated: April 17, 2020
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