ITEM 11. EXECUTIVE COMPENSATION
SciPlay’s Named Executive Officers
This section provides a description
of the material elements of compensation awarded, or paid, to our Chief Executive Officer, our Interim Chief Financial Officer and our
Former Chief Financial Officer, who make up our “named executive officers.” For 2021, our named executive officers were:
Executive(1) | |
Position |
Joshua J. Wilson | |
Chief Executive Officer |
Daniel O’Quinn (2) | |
Interim Chief Financial Officer |
Michael D. Cody (2) | |
Former Chief Financial Officer |
| (1) | Our other current and former executive
officers, Barry L. Cottle and Michael F. Winterscheidt, did not receive any other compensation
in 2021 attributable to their services on behalf of the Company. |
| (2) | Mr. O’Quinn was appointed
as Interim Chief Financial Officer effective as of Mr. Cody’s resignation as Chief
Financial Officer on August 10, 2021. |
Introduction
The Company’s executive
compensation program is generally administered by the Compensation Committee, but as noted above, beginning in June 2021, the Board
determined that it would be in the best interests of the Company for the Board to review and approve matters that would normally be delegated
to the Compensation Committee. Therefore, as used in this section, the term “Committee” refers to the Compensation Committee
or, beginning in June 2021, the Board. The Committee is responsible for determining the compensation of the Company’s Chief
Executive Officer and our other executive officers, and for overseeing the Company’s executive compensation program. Our executive
compensation program is designed to attract, reward and retain our executive officers.
Summary Compensation Table
The table below shows the
compensation of our named executive officers, to the extent attributable to the applicable individual’s services on behalf of the
Company.
Name and Principal
Position | |
Year | | |
Salary
($) (1) | | |
Bonus
($) (2) | | |
Stock
Awards
($)
(3) | | |
Non-Equity
Incentive Plan
Compensation ($) (4) | | |
All
Other
Compensation
($) (5) | | |
Total
($) | |
Joshua
J. Wilson | |
2021 | | |
| 500,000 | | |
| - | | |
| 1,878,874 | | |
| 368,500 | | |
| 36,228 | | |
| 2,783,602 | |
Chief Executive Officer | |
2020 | | |
| 500,000 | | |
| - | | |
| 624,990 | | |
| 500,000 | | |
| 10,181 | | |
| 1,635,171 | |
| |
2019 | | |
| 500,000 | | |
| - | | |
| 11,213,687 | | |
| 100,000 | | |
| 9,800 | | |
| 11,823,487 | |
Daniel O’Quinn | |
2021 | | |
| 222,154 | | |
| - | | |
| 176,641 | | |
| 58,297 | | |
| 8,595 | | |
| 465,687 | |
Interim Chief Financial Officer | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Michael
D. Cody (6) | |
2021 | | |
| 197,826 | | |
| 21,578 | | |
| 368,165 | | |
| - | | |
| 32,791 | | |
| 620,360 | |
Former Chief Financial Officer | |
2020 | | |
| 317,498 | | |
| 63,962 | | |
| 174,600 | | |
| 158,749 | | |
| 10,180 | | |
| 724,989 | |
| |
2019 | | |
| 317,498 | | |
| 63,962 | | |
| 2,465,623 | | |
| 31,750 | | |
| 25,889 | | |
| 2,904,722 | |
(1) | The amounts in the “Salary” column reflect base salary
amounts paid during the applicable year to the named executive officers. In the case of Mr. Cody,
amount reflects base salary amounts paid through the effective date of his resignation on August 10,
2021. |
(2) | For Mr. Cody, the amount in the “Bonus” column reflects
payment of the balance of his time-based long-term cash incentive awards that vested in in the 2021
fiscal year, totaling $21,578, as described below in “Cody Long-Term Incentive Awards”. |
(3) | The amounts in the “Stock Awards” column reflect the aggregate grant date fair value of
restricted stock units ("RSUs") and performance-conditioned RSUs ("PRSUs") awarded during the applicable year to the named executive
officers, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation-Stock Compensation (“FASB ASC Topic
718”). The fair value of the RSUs and PRSUs granted in 2021 was determined by multiplying the number
of shares subject to the award by the average of the high and low sales prices of our Class A common stock on the trading day
immediately prior to the grant date. For additional information, see Note 7 to our consolidated financial statements included in the
Original Filing. |
(4) | The amounts in the “Non-Equity Incentive Plan Compensation”
column reflect the cash portion of annual performance bonuses awarded under the STIP (as defined below). |
(5) | The amounts indicated in the “All Other Compensation” column
for 2021 include the following: |
| a. | Company contributions to SciPlay’s
401(k) plan of $10,150 for each of Messrs. Wilson and Cody and $8,595 for Mr. O’Quinn. |
| b. | For Mr. Wilson, costs associated
with the reimbursement for moving expenses of $26,078. |
| c. | For Mr. Cody, payout of accrued
paid time off upon termination of employment of $22,641. |
(6) | Effective August 10, 2021, Mr. Cody resigned his employment
with the Company. |
Narrative Disclosure to Summary Compensation Table
The following describes material
features of the compensation disclosed in the Summary Compensation Table.
Annual Performance Bonus - Short-Term Incentive Program (“STIP”)
The Committee approved the
STIP for fiscal year 2021 in order to incentivize our employees to accomplish short-term strategic objectives that the Board believes
will create long-term value for the Company. The participants under the STIP, including Messrs. Wilson, O’Quinn and Cody,
were each eligible to receive (1) an annual cash award and (2) a grant of PRSUs. For both the cash and PRSU components of the
program, payouts were determined based on the financial performance of our business for the 2021 fiscal year compared to predetermined
goals, one-half based on revenue and one-half based on AEBITDA, which is a non-GAAP financial measure, with reconciliation provided in
Appendix A. If performance is below the threshold criteria, both the cash award and PRSUs would be forfeited. If performance was
between the threshold criteria and the target criteria for, then all or a portion of the cash award would be paid based on linear interpolation
and the PRSUs would be forfeited. If performance exceeded the target criteria, then the cash award would be paid in full and all or a
portion of the PRSUs would vest based on linear interpolation, with full vesting occurring if the maximum criteria were achieved.
The target cash awards granted
to Messrs. Wilson, O’Quinn and Cody for fiscal year 2021 were, respectively, 100%, 35% and 50% of annual base salary, or $500,000,
$79,100 and $158,749, and the target value of the PRSUs granted in 2021 to Messrs. Wilson, O’Quinn and Cody that vest based
on fiscal year 2021 performance (the “2021 STIP PRSUs”) were, based on the price of our Class A common stock on January 4,
2021, $500,138, $79,087 and $158,790, respectively. The STIP goals and results for the 2021 fiscal year are shown in the table below.
| |
| | |
| | |
| | |
| | |
| |
| |
2021 STIP Annual
Performance Bonus Achievement* | |
Metric | |
Weighting | | |
Threshold
Performance Level (1) | | |
Target
Performance Level (2) | | |
Maximum
Performance Level (3) | | |
Actual Performance | |
Revenue (4) | |
| 50% | | |
$515.3 | | |
$644.1 | | |
$837.3 | | |
$606.1 | |
AEBITDA
(4) | |
| 50% | | |
$155.9 | | |
$194.9 | | |
$253.4 | | |
$185.9 | |
*
All dollar values in millions.
(1) | Below threshold performance results in forfeiture of the STIP cash
award and PRSUs. |
(2) | Target performance results in full payout of the STIP cash award and
forfeiture of the STIP PRSUs. |
(3) | Maximum performance results in full payout of the STIP cash award and
full vesting of the STIP PRSUs. |
(4) | AEBITDA is a non-GAAP financial measure, with reconciliation provided
in Appendix A. |
Based on actual performance,
a 73.7% payout level was achieved, resulting in a 73.7% payout of the 2021 STIP cash award for Messrs. Wilson and O’Quinn,
or $368,500 and $58,297, respectively, and forfeiture of the 2021 STIP PRSUs. The 2021 STIP cash payouts for Messrs. Wilson and
O’Quinn are included in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. Mr. Cody
forfeited his STIP award, both the cash and PRSU components, as a result of his resignation.
Long-Term Incentive Compensation
Cody Long-Term Incentive Awards
In 2017, Mr. Cody was
granted a cash-based long-term incentive award in lieu of an equity-based award, vesting over a four-year period contingent on Mr. Cody’s
continued employment through the applicable vesting date. The balance of his award vested during the 2021 fiscal year, the value of which
($21,578) is included in the “Bonus” column of the Summary Compensation Table.
Senior Executive Incentive Program (“SEIP”)
Our Board has also approved
the SEIP, a long-term incentive program to incentivize our senior executives to work to organically grow the revenue and AEBITDA of our
business through the 2022 fiscal year. Each of Messrs. Wilson and Cody received a grant of PRSUs under the SEIP, with 60% of the
target amount vesting based on achievement of revenue and AEBITDA metrics with respect to fiscal year 2020 (the “2020 SEIP PRSUs”)
and the remaining 40% vesting based on achievement of revenue and AEBITDA metrics with respect to fiscal year 2022 (the “2022 SEIP
PRSUs”). The 2020 SEIP PRSUs previously vested at 62.4% of target, based on actual performance, resulting in Messrs. Wilson
and Cody vesting in 227,272 and 42,719 PRSUs, respectively. In early 2022, in connection with a modification to the 2022 SEIP PRSUs held
by non-executives, Mr. Wilson and the Board agreed that Mr. Wilson would forfeit his 2022 SEIP PRSUs. Mr. Cody forfeited
his 2022 SEIP PRSUs upon his resignation from the Company. Mr. O’Quinn is not a participant in the SEIP.
Annual Equity Awards
In 2021, each of Messrs. Wilson
and O’Quinn received annual long-term equity awards, which link a significant proportion of their compensation to the long-term
performance of the Company, align their interests with stockholders and encourage long-term service. Under the current equity award opportunity
guidelines, an eligible executive has a target annual equity award opportunity equal to a designated percentage of his base salary (with
the actual award determined on or prior to the grant date, in the discretion of the Committee). Messrs. Wilson and O’Quinn’s
target annual equity award opportunities for 2021 are shown in the table below.
Executive | |
Target
Equity Award Opportunity for
2021 (% of Salary) | |
Mr. Wilson | |
| 125% | |
Mr. O’Quinn | |
| 40% | |
In 2021, the Committee awarded
Messrs. Wilson and O’Quinn one-half of their annual equity awards in the form of RSUs and one-half in the form of PRSUs. The
vesting of the PRSUs is conditioned on the Company’s achievement of trailing 12-month revenue growth of 5% or more compared to
actual revenue for the four fiscal quarters ending June 30, 2021 (the “2021 Revenue Goal”) on or before the end of fiscal
year 2024. Upon satisfaction of the performance condition prior to September 21, 2022, the PRSUs convert to time-vesting RSUs that
vest one-third per year on each of September 20, 2022 and the first two anniversaries of September 20, 2022. If the 2021 Revenue
Goal is achieved after September 21, 2022, any PRSUs for which the time-vesting date has elapsed will immediately vest, and the
remainder will vest on the time-vesting schedule. The 2021 Revenue Goal has not yet been achieved. The time-vesting RSUs are scheduled
to vest in equal annual installments over a period of three years starting September 20, 2022.
Information regarding the
equity awards granted to Messrs. Wilson and O’Quinn in 2021 is set forth below:
Executive |
|
Date of
Grants |
|
Time-Vesting
RSUs |
|
|
Vesting
Schedule
of Time-
Vesting
RSUs (1) |
|
PRSUs |
|
|
Vesting
Schedule of
PRSUs |
|
Mr. Wilson |
|
09/20/2021 |
|
|
15,711 |
|
|
3 years |
|
|
15,711 |
|
|
3 years |
(2) |
Mr. O’Quinn |
|
09/20/2021 |
|
|
2,272 |
|
|
3 years |
|
|
2,272 |
|
|
3 years |
(2) |
| (1) | Awards vest in three annual installments
beginning on September 20, 2022. |
| (2) | Awards vest in three annual installments
beginning on September 20, 2022, subject to the 2021 Revenue Goal being achieved on
or before the end of fiscal year 2024, as described above. |
Other Actions with Respect to Equity Awards
In recognition of the Company’s
performance above plan, and significant contributions made during the COVID-19 pandemic, as well as to provide an additional retention
incentive, the Committee awarded each of Messrs. Wilson and Cody an additional RSU award with a two-year vesting schedule, as set
forth below:
Executive | |
Date of Grants | |
Time-Vesting
RSUs | | |
Vesting
Schedule of Time-Vesting RSUs (1) |
Mr. Wilson | |
03/15/2021 | |
| 45,000 | | |
2 years |
Mr. Cody | |
03/15/2021 | |
| 12,500 | (2) | |
2 years |
| (1) | Awards vest in two annual installments beginning
on March 15, 2022. |
| (2) | Mr. Cody’s award was forfeited
as a result of his resignation from the Company. |
In 2020, Messrs. Wilson
and Cody were granted annual PRSU awards subject to a performance condition of achieving 12-month revenue growth of 5% or more compared
to actual revenue for the four fiscal quarters ended June 30, 2020 (the “2020 Revenue Goal”). In July 2021, the
Committee determined that the 2020 Revenue Goal had been achieved, and therefore the PRSUs converted to time-vesting RSUs, with 25% vesting
per year. Mr. Wilson’s first installment therefore vested on September 21, 2021, while Mr. Cody’s awards were
forfeited in connection with his resignation from the Company. Mr. Wilson’s remaining RSUs are scheduled to vest in annual
installments on the first three anniversaries of September 21, 2021.
Employment Agreements
Mr. Wilson’s employment
agreement with the Company provides that he will be employed for a three-year term from May 7, 2019, subject to automatic extension
for an additional year at the end of the term and each anniversary thereof unless timely notice of non-renewal is given by either the
Company or Mr. Wilson. In addition to his participation in the STIP, the employment agreement provides for an annual base salary
of $500,000, an annual performance bonus (which for 2021 was granted in the form of awards under the STIP) and eligibility for annual
equity awards. Mr. Wilson’s employment agreement also contains covenants restricting him from, among other things, competing
with the Company or its affiliates or soliciting the Company’s or its affiliates’ employees or customers. Mr. O’Quinn
is not subject to an employment agreement with the Company or any of our affiliates, and instead his terms and conditions of employment
with the Company are set forth in an offer letter, which provides that Mr. O’Quinn will receive an annual base salary of at
least $170,000 ($226,000 in 2021) and an annual target bonus of at least 20% of base salary (35% in 2021). In early 2022, in recognition
of his increased responsibilities as Interim Chief Financial Officer, the Company increased Mr. O’Quinn’s annual base
salary, effective as of February 2, 2022, to $250,000, and annual target bonus to 50% of base salary.
Outstanding Equity Awards at Fiscal Year-End
The table below provides
information with respect to the RSUs held by the named executive officers as of December 31, 2021. Prior to the initial public offering (the "IPO"), Mr. Wilson
historically participated in Light & Wonder’s various equity-based plans as compensation for services provided on behalf
of our business, and as a result, outstanding equity awards with respect to Light & Wonder common stock held by him as of December 31,
2021 are included in the table below.
Name | |
Security | |
Grant
Date | |
Number
of Shares
or Units of Stock
That Have Not
Vested (#) |
| | |
Market
Value of Shares or Units of Stock That Have Not Vested ($) (1) | | |
Equity
Incentive Plan
Awards: Number of
Unearned Shares, Units or
Other Rights That Have
Not Vested (#) |
| | |
Equity
Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units or
Other Rights That
Have Not Vested ($) (1) | |
Joshua J. Wilson | |
LNW | |
3/30/2018 | |
2,128 |
(2) | | |
| 142,215 | | |
- |
| | |
| - | |
| |
SCPL | |
5/7/2019 | |
- |
| | |
| - | | |
242,812 |
(3) | | |
| 3,345,949 | |
| |
SCPL | |
9/20/2019 | |
11,700 |
(4) | | |
| 161,226 | | |
- |
| | |
| - | |
| |
SCPL | |
9/20/2019 | |
11,700 |
(5) | | |
| 161,226 | | |
- |
| | |
| - | |
| |
SCPL | |
9/21/2020 | |
15,491 |
(6) | | |
| 213,466 | | |
- |
| | |
| - | |
| |
SCPL | |
9/21/2020 | |
15,491 |
(7) | | |
| 213,466 | | |
- |
| | |
| - | |
| |
SCPL | |
3/15/2021 | |
- |
| | |
| - | | |
29,859 |
(8) | | |
| 411,457 | |
| |
SCPL | |
3/15/2021 | |
45,000 |
(9) | | |
| 620,100 | | |
|
| | |
| | |
| |
SCPL | |
9/20/2021 | |
15,711 |
(10) | | |
| 216,498 | | |
|
| | |
| | |
| |
SCPL | |
9/20/2021 | |
- |
| | |
| - | | |
15,711 |
(11) | | |
| 216,498 | |
Daniel O’Quinn | |
SCPL | |
9/20/2019 | |
1,125 |
(4) | | |
| 15,503 | | |
- |
| | |
| - | |
| |
SCPL | |
9/20/2019 | |
1,125 |
(5) | | |
| 15,503 | | |
- |
| | |
| - | |
| |
SCPL | |
3/20/2020 | |
900 |
(12) | | |
| 12,402 | | |
- |
| | |
| - | |
| |
SCPL | |
5/18/2020 | |
334 |
(13) | | |
| 4,603 | | |
- |
| | |
| - | |
| |
SCPL | |
9/21/2020 | |
3,000 |
(7) | | |
| 41,340 | | |
- |
| | |
| - | |
| |
SCPL | |
3/15/2021 | |
- |
| | |
| - | | |
4,723 |
(8) | | |
| 65,083 | |
| |
SCPL | |
9/20/2021 | |
2,272 |
(10) | | |
| 31,308 | | |
- |
| | |
| - | |
| |
SCPL | |
9/20/2021 | |
- |
| | |
| - | | |
2,272 |
(11) | | |
| 31,308 | |
| (1) | The value shown was calculated by multiplying
the number of RSUs by, in the case of RSUs with respect to our Class A common stock,
the closing price of our Class A common stock on December 31, 2021 ($13.78), and,
in the case of RSUs with respect to Light & Wonder’s common stock, the closing
price of Light & Wonder’s common stock on December 31, 2021 ($66.83). |
| (2) | These RSUs are part of a Light &
Wonder grant that was awarded with a four-year annual vesting schedule. The first, second
and third installment vested on each of March 20, 2019, March 20, 2020 and March 20,
2021. The RSUs shown in the table are scheduled to vest on March 20, 2022. |
| (3) | These PRSUs were granted as part of the SEIP
and were initially scheduled to cliff vest in 2023 contingent on the achievement of certain
levels of revenue and STIP AEBITDA improvement over a five-year period (2018-2022). As described
above in “Senior Executive Incentive Program (SEIP)”, these PRSUs were canceled
in early 2022 for no consideration. |
| (4) | These RSUs are part of a grant that was awarded
as PRSUs with a four-year vesting schedule subject to the achievement of revenue and Adjusted
EBITDA growth of 10% or more compared to revenue and Adjusted EBITDA for the fiscal quarter
ending June 30, 2019 (the “Revenue/AEBITDA Goal”). The Revenue/AEBITDA Goal
was achieved, resulting in the vesting of 25% of the PRSUs and conversion of the remaining
PRSUs to RSUs. The second installment vested on September 20, 2021 in accordance with
the time-vesting schedule. The RSUs shown in the table are scheduled to vest in two annual
installments, beginning on September 20, 2022. |
| (5) | These RSUs are part of a grant that was awarded
with a four-year annual vesting schedule. The first and second installment vested on September 20,
2020 and September 20, 2021. The RSUs shown in the table are scheduled to vest in two
installments, beginning on September 20, 2022. |
| (6) | These RSUs are part of a grant that was awarded
as PRSUs with a four-year vesting schedule subject to the achievement of the 2020 Revenue
Goal. As described above in “Other Actions with Respect to Equity Awards”, the
2020 Revenue Goal was achieved, resulting in the conversion of the PRSUs to RSUs. The first
installment following vested on September 21, 2021 in accordance with the time-vesting
schedule. The RSUs shown in the table are schedule to vest in three installments beginning
on September 21, 2022. |
| (7) | These RSUs are part of a grant that was awarded
with a four-year annual vesting schedule. The first installment vested on September 21,
2021. The RSUs shown in the table are scheduled to vest in three annual installments, beginning
on September 21, 2022. |
| (8) | These PRSUs were granted as part of the STIP
and were scheduled to cliff vest in 2022 contingent on the achievement of certain revenue
and AEBITDA goals with respect to the Company’s 2021 fiscal year, as described above
in “Annual Performance Bonus – Short-Term Incentive Program (STIP)”. In
early 2022, it was determined based on performance achieved that the PRSUs would not vest
and they were subsequently forfeited as described above. |
| (9) | These RSUs are scheduled to vest in two equal
installments beginning on March 15, 2022. |
| (10) | These RSUs are scheduled to vest in three annual installments
beginning on September 20, 2022. |
| (11) | These RSUs are scheduled to vest in three
annual installments, beginning on September 20, 2022, subject to the achievement of
the 2021 Revenue Goal, as described above in “Annual Equity Awards”. |
| (12) | The RSUs are schedule to vest on March 20,
2022. |
| (13) | The RSUs are part of a grant that was awarded
with a three-year annual vesting schedule. The first installment vested on March 20,
2021. The RSUs shown in the table are scheduled to vest in two equal installments beginning
on March 20, 2022. |
Retirement Plans
Messrs. Wilson and O’Quinn,
and during the portion of 2021 he was an employee of the Company, Mr. Cody, were eligible to participate in SciPlay’s 401(k) retirement
plan during 2021 under the same rules that apply to other employees. For the 2021 fiscal year, the Company made a matching contribution
of 100% of the first 1% of contributions and 50% of the next 5% of contributions for a total match of 3.5% on the first 6% of contributions.
Potential Payments Upon Termination or Change in Control
For the named executive officers
in 2021, the information below describes certain compensation that would become payable pursuant to the terms of their employment agreements
and their equity award agreements under the various termination events described below. In each case, the applicable agreements were
the result of arm’s length negotiations and were approved by the Committee and/or the Board.
Mr. Wilson
Mr. Wilson’s employment
agreement provides that if his employment was terminated by the Company without “cause” or by him for “good reason”
(as such terms are defined in his employment agreement), he would be entitled to receive, subject to his execution of a release of claims:
(i) a pro-rated annual performance bonus; (ii) an amount equal to the sum of (1) two times his base salary and (2) the
highest annual cash performance bonus paid to him in respect of the two most recent fiscal years (but not more than his then-current
annual base salary), with the entire amount in this clause (ii) payable over 24 months; (iii) a pro-rated payment of his SEIP
PRSUs, if applicable, based on actual performance; and (iv) payment of COBRA premiums for up to 12 months. If Mr. Wilson’s
employment instead terminated upon the expiration of the term, he would be entitled to receive, subject to his execution of a release
of claims, (a) a pro-rated annual performance bonus, (b) an amount equal to his base salary, payable over 12 months, (c) a
pro-rated payment of his SEIP PRSUs, if applicable, based on actual performance, and (d) payment of COBRA premiums for up to 12
months. Upon a “change in control” of Light & Wonder (as defined in the Scientific Games Corporation 2003 Incentive Compensation
Plan) or of the Company, the applicable equity awards held by Mr. Wilson would fully vest, with PRSUs vesting at the level determined
by the Committee.
In the event of the death
of Mr. Wilson, his beneficiary or estate would have been entitled to receive any benefits that would have been payable under any
life insurance benefit of his for which the Company pays premiums as well as full vesting of his equity awards. In the event of his termination
due to his “total disability” (as such term is defined in his employment agreement), Mr. Wilson would have been entitled
to receive disability payments pursuant to a disability plan sponsored or maintained by the Company as well as full vesting of his equity
awards.
Mr. O’Quinn
Mr. O’Quinn’s
offer letter does not provide for severance payments or benefits upon a termination of his employment. Mr. O’Quinn’s
equity awards would fully vest upon his death, disability (as determined under Light & Wonder’s long-term disability plans)
or a “change in control” of the Company, with PRSUs vesting at the level determined by the Committee.
Director Compensation
The following describes the
compensation paid to each of our directors in 2021, but excluding the compensation of Mr. Wilson, who also served as Chief Executive
Officer of the Company during 2021 and whose compensation is disclosed in “Executive Compensation”.
Non-Employee Director
Compensation. The compensation program for directors other than Messrs. Cottle and Wilson and Ms. James (“Eligible
Directors”) consists of annual retainers and equity awards (the “Eligible Director compensation program”). In 2021,
under the Eligible Director compensation program, Eligible Directors were entitled to receive:
| (1) | an annual retainer for service on the
Board of $36,000; |
| (2) | an annual retainer for the chairs of
the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance
Committee of $25,000, $15,000 and $10,000, respectively; and |
| (3) | an annual grant of RSUs with a grant
date value of $144,000 and a 1-year vesting schedule. |
New Eligible Directors generally
receive an annual grant of RSUs as described above upon joining the Board.
The elements of the Eligible
Director compensation program are evaluated and determined by the Compensation Committee or the Board, as applicable, which takes into
account competitive director compensation data provided by its independent compensation consultant, Compensation Advisory Partners LLC,
or CAP, for companies in related industries as well as a general industry group of comparably sized companies. The Compensation Committee
or the Board, as applicable, uses the comparative data provided by CAP as a general indicator of relevant market conditions, but does
not set specific benchmark targets for total director compensation or for individual elements of the Eligible Director compensation program.
Awards of RSUs are generally
subject to forfeiture if an Eligible Director leaves the Board prior to the scheduled vesting date for any reason, except that the vesting
of such awards would accelerate in full upon an Eligible Director ceasing to serve on the Board due to death or disability.
For all Eligible Directors,
the number of RSUs awarded in 2021 was determined by dividing the grant date value of $144,000 by the average of the high and low sales
prices of our Class A common stock on the trading day immediately prior to the grant date and rounding down to the nearest whole
number. As a result, 8,076 RSUs were awarded to each Eligible Director in 2021.
Eligible Directors with unexcused
absences exceeding 25% of the meetings held by the Board and committees on which they served in the prior year are not eligible to receive
an annual award of RSUs except that Eligible Directors with less than six months of service in the prior year are not subject to such
threshold with respect to the first grant made after becoming a director. All Eligible Directors serving at the time of grant (June 9,
2021) satisfied the attendance requirements applicable for the 2021 annual awards.
In addition, Eligible Directors
who were members of the special committee (the “Special Committee”) created for purposes of evaluating Light & Wonder’s
offer to acquire our public shares not already owned by Light & Wonder, which offer was withdrawn on December 22, 2021,
were eligible to receive a one-time cash retainer of up to $50,000 and a monthly retainer of $10,000 for their services on the Special
Committee.
Mr. Cottle did not
receive any compensation in respect of his services as a director or executive officer of the Company in 2021, having received a
grant of PRSUs in 2019, which were intended to compensate him for his services as Executive Chairman. These PRSUs were vested and
settled in early 2021, based on actual performance for the years 2019-2020.
Director Compensation
for 2021. The table below shows the compensation earned by each of our directors for 2021, other than Messrs. Cottle and Wilson,
whose compensation is reflected in the Summary Compensation Table below.
Name(1) | |
Fees
Earned or Paid in Cash ($) (1) | | |
Stock
Awards ($) (2) | | |
Total
($) | |
Barry L. Cottle (3) | |
| - | | |
| - | | |
| - | |
Gerald D. Cohen | |
| 166,484 | | |
| 143,995 | | |
| 310,479 | |
Michael Marchetti | |
| 71,323 | | |
| 143,995 | | |
| 215,318 | |
Jay Penske (4) | |
| 15,900 | | |
| - | | |
| 15,900 | |
William C. Thompson, Jr. (5) | |
| 141,484 | | |
| 143,995 | | |
| 285,479 | |
| (1) | Does not include Messrs. Earl and Prober
and Mses. James and Henry, who did not serve as directors in 2021. |
| (2) | Reflects annual retainers earned by Eligible
Directors for 2021, including, for Messrs. Cohen, Marchetti and Thompson, fees earned
for service on the Special Committee. In the case of any Eligible Director who changes committee
assignments during the year, the applicable retainers are subject to a pro-rata adjustment
to reflect the amount of time spent on the applicable committee during the year. |
| (3) | Reflects the grant date fair value of RSUs
awarded during 2021 to all Eligible Directors other than Mr. Penske, computed in accordance
with FASB ASC Topic 718. The grant date fair value of the RSUs was
determined by multiplying the number of shares subject to the award by the average of the
high and low sales prices of our Class A common stock on the trading day immediately
prior to the grant date. For additional information, see Note 7 to our consolidated financial
statements included in the Original Filing. |
| (4) | Mr. Cottle did not receive any compensation
in respect of his services as a director or executive of the Company in 2021. |
| (5) | Mr. Penske’s directorship expired
on June 10, 2021, and as a result he did not receive a 2021 equity grant and his cash
retainers were appropriately pro-rated. |
| (6) | Although Mr. Thompson served as Acting
Chair of the Compensation Committee during 2021, he did not receive any the normal chair
retainer in connection with such role. |
The table below shows the
number of stock options and unvested RSUs held by each of our directors as of December 31, 2021, except for Mr. Wilson, whose
stock options and unvested RSUs are reflected in the Outstanding Equity Awards at Fiscal Year-End Table below:
Name(1) | |
Stock Options
(in shares) | | |
RSUs | |
Barry L. Cottle | |
| - | | |
| - | |
Gerald D. Cohen | |
| - | | |
| 8,076 | (1) |
Michael Marchetti | |
| - | | |
| 8,076 | (1) |
Jay Penske | |
| - | | |
| - | |
William C. Thompson, Jr. | |
| - | | |
| 8,076 | (1) |
| (1) | Does not include Messrs. Earl and Prober
and Mses. James and Henry, who did not serve as directors in 2021. |
| (2) | Reflects, for Eligible Directors other than
Mr. Penske, 8,076 RSUs awarded on June 9, 2021, which are scheduled to vest on
June 9, 2022, the first anniversary of the grant date. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Review and Approval of Transactions with Related
Persons
The Company has written policies
and procedures relating to related person transactions. The Audit Committee with assistance from Light & Wonder’s and
the Company’s legal department is responsible for reviewing and approving related person transactions that are subject to SEC disclosure
requirements under Item 404 of Regulation S-K (each a “Related Party Transaction”), including transactions in which the Company
is a participant, the amount exceeds $120,000 and a related person has a direct or indirect material interest. A related person includes
a director, executive officer, nominee for election as a director, person holding more than 5% of our stock and any immediate family
member of any of the foregoing persons, or any entity in which any of the foregoing persons is employed or is a partner or principal
or in a similar position or in which such person has a 5% or greater beneficial ownership interest. The Company’s policy is not
to enter into a Related Party Transaction unless the Audit Committee approves the transaction as specified in the Audit Committee’s
charter. Other transactions with related persons as well as certain material changes in previously approved relationships may also require
legal department or compliance department approval under our policies and procedures.
Mr. O’Quinn, our
Interim Chief Financial Officer, effective as of August 10, 2021, and Secretary, effective as of November 30, 2021, received
the following compensation and benefits in his prior positions at the Company since the beginning of 2020: (a) aggregate base salary
payments of $203,231 and $126,539 in respect of 2020 and 2021, respectively; (b) an annual performance bonus award under the STIP
in respect of 2019, with a payout in cash of $15,264 in early 2020; (c) an annual performance bonus award under the STIP in respect
of 2020, with a payout in cash of $61,200 and shares of the Company’s Class A common stock with a fair market value of $59,161
in early 2021; (d) an annual grant of equity awards in 2020 with a fair market value of $60,520; (e) a grant of equity awards
under the 2021 STIP with a fair market value (based on achievement of maximum performance) of $79,087; and (f) other grants of equity
awards in 2020 and 2021 with aggregate fair market values of $22,203 and $1,173, respectively. Other than such compensation arrangements,
Mr. O’Quinn has no interest in any transactions that would require disclosure pursuant to Item 404(a) of Regulation S-K.
Relationships with Light & Wonder
In connection with the IPO
in 2019, the Company entered into a number of agreements with Light & Wonder in order to provide a continuing framework for
our relationship with Light & Wonder following the IPO, as set forth below:
Intercompany Services Agreement
Pursuant to an Intercompany
Services Agreement with Light & Wonder, Light & Wonder provides certain services to us, and costs associated with these
functions are charged to us and settled in cash. Charges include costs related to corporate level general and administrative expenses,
including but not limited to, finance, corporate development, human resources, legal (which could include liability related to litigation
awards related to our company), information technology and rental fees for shared assets. These expenses are charged on the basis of
direct usage when identifiable, with the remainder charged on the basis of revenues, operating expenses, headcount or other relevant
measures. Expenses paid to Light & Wonder for services provided in 2021 were $5.8 million.
IP License Agreement
We obtained an exclusive
(subject to certain limited exceptions), perpetual, non-royalty-bearing license from a subsidiary of Light & Wonder (“SG
Gaming”) for intellectual property created or acquired by SG Gaming or its affiliates on or before the third anniversary of the
date of the IP License Agreement in any of our currently available or future social games that are developed for mobile platforms, social
media platforms, internet platforms or other interactive platforms and distributed solely via digital delivery, and a non-exclusive,
perpetual, non-royalty-bearing license for intellectual property created or acquired by SG Gaming or its affiliates after such third
anniversary, for use in our currently available games. So long as the IP License Agreement remains in effect, we do not expect to pay
any future royalties or fees for our use of intellectual property owned by SG Gaming or its affiliates in our currently available games.
The purchase price of the license was $255.0 million, which was determined based on the appropriate valuation methodology performed by
a third-party valuation specialist. In accordance with the IP License Agreement, we did not incur any additional royalty expense related
to Light & Wonder IP after the effective date of the IP License Agreement. SG Gaming frequently licenses intellectual property
from third parties, which we use in developing our games pursuant to the IP License Agreement. Royalties allocated for use of third-party
intellectual property are charged to us and are typically based upon net social gaming revenues and the royalty rates defined and stipulated
in the third-party agreements. For 2021, these third-party intellectual property royalties were $2.6 million.
Tax Receivable Agreement
In 2019, we entered into
a Tax Receivable Agreement (“TRA”) with certain affiliates of Light & Wonder. The annual tax benefits under the
TRA are computed by comparing the income taxes due including such tax benefits and the income taxes due without such benefits. The amount
of aggregate payments due under the TRA may vary based on a number of factors, including the amount and timing of the taxable income
generated each year and applicable tax rates, with payments generally due within a specified period of time following the filing of our
tax return for the taxable year with respect to which the payment obligation arises. The TRA will remain in effect until all such tax
benefits have been utilized or expired unless we exercise our right to terminate the TRA. The TRA will also terminate if we breach our
obligations under the TRA or upon certain change of control events specified in the agreement. If the TRA is terminated in accordance
with its terms, our payment obligations would be accelerated based upon certain assumptions, including the assumption that we would have
sufficient future taxable income to utilize such tax benefits. Our estimated liability under the TRA as of December 31, 2021 was
$68.8 million. During the year ended December 31, 2021, payments totaling $3.8 million were made to Light & Wonder and
distributions of $30.0 million from SciPlay Parent LLC were paid pursuant to the TRA.
Director Independence
As the Company is a “controlled
company” within the meaning of the NASDAQ Stock Market rules, the Board is not required to, but may, from time to time, have a
majority of directors who meet the criteria for independence required by NASDAQ. The Board has adopted Director Independence Guidelines
as a basis for determining whether individual directors are independent under the standards of the NASDAQ Stock Market rules. This determination,
which is made annually, helps assure the quality of the Board’s oversight of management and reduces the possibility of damaging
conflicts of interest. Under these standards, a director will not qualify as independent if (i) the director has been employed by
the Company (or any subsidiary) at any time within the past three years, other than service as an interim executive officer for a period
of less than one year, (ii) the director has an immediate family member who has been employed as an executive officer of the Company
(or any subsidiary) at any time within the past three years or (iii) the director or an immediate family member of the director
has accepted any compensation (including any political contribution to a director or family member) from the Company (or any subsidiary)
in excess of $120,000 during any period of 12 consecutive months within the past three years other than (a) for Board or Board committee
service, (b) in the case of the family member, as compensation for employment other than as an executive officer, (c) benefits
under a tax-qualified retirement plan or non-discretionary compensation or (d) compensation for service as an interim executive
officer for a period of less than one year; (e) the director or an immediate family member of the director is a partner, controlling
shareholder or executive officer of an organization (including a charitable organization) that made payments to, or received payments
from, the Company for property or services in the current year or in any of the past three years that exceed the greater of 5% of the
recipient’s consolidated gross revenues or $200,000, other than (a) payments arising solely from investments in the Company’s
securities or (b) payments under non-discretionary charitable contribution matching programs; (f) the director or an immediate
family member of the director is employed as an executive officer of another entity where at any time during the past three years any
of the executive officers of the Company served on the compensation committee of such other entity; or (g) the director or an immediate
family member of the director is a current partner of the Company’s outside auditor, or was a partner or employee of the Company’s
outside auditor who worked on the Company’s audit at any time during any of the past three years.
In applying these
standards, the Board determined that each of Messrs. Cohen, Marchetti, Prober, Thompson and Earl and Ms. Henry qualifies as an
independent director, and none has a business or other relationship that would interfere with the director’s exercise of
independent judgment. Messrs. Cottle, Wilson and Ms. James do not qualify as independent directors. The three standing
committees of the Board – the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance
Committee, are comprised solely of independent directors.
The full text of the Board’s
Director Independence Guidelines, including information on the additional independence requirements applicable to Board committee members,
can be accessed through the Investors - Corporate Governance link on our website at www.sciplay.com.