AGREEMENTS REGARDING EMPLOYMENT, CHANGE OF CONTROL, AND TERMINATION OF EMPLOYMENT
Other than the employment agreement with Mr. Cappelli described below, we do not have employment agreements with any of the other named executive officers.
Employment Agreement with Mr. Cappelli
During fiscal year 2014, the Compensation Committee undertook a series of negotiations with Mr. Cappelli in connection with entering into an amended and restated employment agreement extending the term of his employment agreement from August 31, 2014 to August 31, 2017 (the “Extended Employment Agreement”). The Compensation Committee was assisted in this process by its independent compensation consultant and by the Compensation Committee’s legal advisors. The primary objectives that the Compensation Committee sought to achieve in structuring the extension of Mr. Cappelli’s employment agreement may be summarized as follows:
Retain Mr. Cappelli’s services through the end of fiscal year 2017.
Maintain a total compensation package for Mr. Cappelli that is consistent with the Compensation Committee’s established practice of positioning executive officer compensation, when measured in terms of total cash compensation and the grant-date value of equity awards, at approximately the 75th percentile of the comparators.
Maintain an appropriate balance between short-term and long-term incentives and a substantial alignment of interests between Mr. Cappelli and the stockholders by weighting the total compensation package heavily toward long-term equity awards while providing for an annual target bonus opportunity tied to his rate of base salary that is based upon one or more short-term performance goals to be determined by the Committee annually.
The principal features of Mr. Cappelli’s Extended Employment Agreement include the following key points:
For fiscal year 2015, Mr. Cappelli’s annual base salary will be $1,000,000 and his target bonus will be 150% of his annual base salary. For each subsequent fiscal year within the term of the extended agreement, Mr. Cappelli’s annual base salary and target bonus will be set by the Compensation Committee, but will be set at no less than $1,000,000 and 150% of annual base salary, respectively.
Mr. Cappelli’s total target cash compensation described above is approximately at the 50th percentile of the comparators.
Mr. Cappelli will receive an annual long-term equity incentive award under the extended agreement. For the Company’s 2015 fiscal year, this long-term equity incentive award will: (1) have a grant date fair market value of $7,000,000, (2) consist of restricted stock units and stock options (as determined by the Compensation Committee), (3) vest in three successive annual installments over Mr. Cappelli’s period of continued employment with the Company, (4) in the case of options have a maximum term of six years, and (5) in the case of restricted stock units have a performance vesting condition (as determined by the Compensation Committee).
The total compensation package for Mr. Cappelli, when measured in terms of total cash compensation and the grant-date value of his new equity award is approximately at the 75th percentile of the comparators.
With respect to Mr. Cappelli’s compensation arrangements for services performed under the extended agreement after the Company’s 2015 fiscal year, the Compensation Committee will conduct an annual review of Mr. Cappelli’s annual compensation arrangements utilizing comparators data and the Company’s compensation percentile objectives versus the peer group (currently, 50th percentile for target total cash compensation and 75th percentile for target total direct compensation). Subject to the minimums described above with respect to Mr. Cappelli’s annual base salary and target bonus, this review will be subject to the Compensation Committee’s discretion to adjust Mr. Cappelli’s compensation package based on the compensation objectives set by the Compensation Committee from time to time, Mr. Cappelli’s performance, the Company’s financial performance, total stockholder return and other factors that the Compensation Committee determines to be appropriate.
The Compensation Committee believes, on the basis of the advice and guidance provided by its independent compensation consultant throughout the negotiation process, that the compensation package provided Mr. Cappelli under the extended contract is fair and reasonable when measured in terms of the relevant market data and the overall structure of that package, including the significant retention value the package provides for the next several years and the emphasis on the attainment of important strategic objectives through the performance-vesting requirements of the various equity awards.
Executive Severance Pay Plan
Our executive officers and other senior executives may be entitled to the following severance benefits under our Senior Executive Severance Pay Plan (“Severance Plan”), as amended from time-to-time, in the event their employment with the Company is involuntarily terminated other than for cause:
Separation pay in the form of salary continuation payments ranging from 18 to 24 months;