Primo Water Corp. disclosed in a regulatory filing Wednesday that it has paid Matt Sheehan, whom it fired as chief executive and president on Nov. 1, a severance package equal to his fiscal 2019 salary.
Sheehan was terminated in a sudden but not unexpected move amid intense pressure from a major shareholder group to shake up the management team and board of directors. He signed the severance agreement Nov. 21.
Billy Prim, the Winston-Salem company’s founder and executive chairman, resumed his chief executive duties on an interim basis on Nov. 1 while the board conducts a search for Sheehan’s replacement. Sheehan succeeded Prim as chief executive in May 2017.
Sheehan made $455,763 in salary and $1.22 million in total compensation in 2018. He was supposed to receive $1.44 million in severance compensation if he was terminated without cause.
Primo said Sheehan was paid a lump sum of $464,972, a lump-sum bonus of $99,018 that represented an average of the bonus he received in fiscal 2017 and 2018, and $22,787 in COBRA reimbursement expenses for a 12-month period.
Sheehan was also made eligible for a pro-rated annual bonus based on Primo’s fiscal 2019 performance and the immediate vesting of equity compensation awards.
In return, Sheehan agreed to release any claims against Primo, to make no disparaging or negative remarks about the company, and to vote all shares of company stock he owns in favor of all board proposals.
Activist hedge-fund group Legion Partners LP, of Beverly Hills, Calif., submitted letters on Sept. 17 and Oct. 29 to shareholders that were harshly critical of Sheehan, Prim and several board members.
Legion owns 9.1% of Primo, or 3.57 million shares. Legion trails just Capital Research Global Investors of Los Angeles, which held a 10.6% stake, or 4.16 million shares, as of July 31.
Billy Prim held just under 1.9 million shares of Primo, which represented a 4.7% stake as of March 28. Prim also has 762,236 deferred stock units that he could acquire over the next three years.
Since the firing of Sheehan, Primo’s share price has declined from $12.54 to a low of $9.54 on Nov. 20. It closed down 12 cents Friday to $10.20.
The essence of Legion’s appeal has been that “we contend Primo is an incredible business with significant scale, but is being held back by a lack of critical expertise on the board and an inability or unwillingness to objectively evaluate the performance of management and directors.”
Ted White, a Legion co-founder and managing director, said in a statement that “we fully support Mr. Sheehan’s termination, as his performance was completely unacceptable.”
“However, we are deeply concerned about Billy Prim’s appointment as interim CEO and his plans to remain on the board as chairman given that he is as much a part of the problem at Primo as Mr. Sheehan was.”
Susan Cates, lead independent board member of Primo, did not mention Legion’s criticism in her comments about Sheehan’s firing.
“The board of directors is committed to enhancing stockholder value,” Cates said. “When execution fell short of our expectations, we concluded it was time for a leadership change.”
Prim said the company’s focus “will be on continuing to grow our exchange and dispenser businesses, improving our refill business and driving operational execution and organizational development, while positioning Primo Water to achieve long-term profitable growth and improved value for shareholders.”
Since making its first investment in March 2018 at 1.6 million shares, Legion has steadily added to its stake, including serving as the top shareholder for a period in 2018 and 2019.
White continued Legion’s call for replacing board members Richard Brenner, Malcolm McQuilkin and David Warnock.
Legion says the three members are too closely linked to Prim to properly oversee the company from their previous relationship with Prim with Blue Rhino Corp., which was sold to Ferrellgas Partners LP for $343 million in April 2004.