Item 10.
Directors, Executive Officers and Corporate Governance.
Directors of the Company
The following table sets forth information about our directors. The respective age of each individual in the table below is as of the date of this Amendment.
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Director
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Age
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Director Since
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Mark S. Ain
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74
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2001
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Roger W. Blethen
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66
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1980
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Roger J. Maggs
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71
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1994
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David G. Tacelli
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58
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2005
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Jorge L. Titinger
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56
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2012
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Bruce R. Wright
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69
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2008
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The following sets forth biographical information with respect to our directors:
Mark S. Ain has been a director of the Company since 2001 and has served as Lead Independent Director since June 2010. Since founding Kronos Incorporated, a
workforce management company in 1977, Mr. Ain has held the position of Chairman and, until 2005, Chief Executive Officer. Mr. Ain serves as a director of Kronos Incorporated, KVH Industries, Inc., and various private companies. He is also
active on several professional and charitable boards. We believe that Mr. Ains previous experience as a chief executive officer, his service on numerous boards of directors, and his entrepreneurial and technical backgrounds allow him to
be a key contributor to the Board.
Roger W. Blethen has been a director since 1980 and has served as Chairman of the Board since December 2008.
Mr. Blethen also served as Chairman of the Board from December 2001 until our merger with Credence in August 2008. He was Chief Executive Officer of the Company from September 1996 until November 2005. Mr. Blethen was President of the
Company from 1994 to 1996 and a Senior Vice President of the Company from 1985 until 1994. Mr. Blethen was a founder of the Company and served in a number of senior management positions with the Company since its formation in 1976.
Mr. Blethen serves as a director for MEMSIC, Inc., a private company that designs, manufactures, and sells MEMS sensors, components, and systems. Mr. Blethen also served as a director of MEMSIC, Inc. while it was a publicly traded company
from 2005 until MEMSIC, Inc. consummated its merger with, among others, MZ Investment Holdings Limited, in September of 2013. As our founder and former Chief Executive Officer, we believe that Mr. Blethens detailed knowledge of the
Company and the automatic test industry provides a critical contribution to the Board.
Roger J. Maggs has been a director of the Company since 1994.
Mr. Maggs was a founder at Celtic House Venture Partners, a private equity investment firm, until he retired in September 2013. He has held senior positions with that firm since 1994. Mr. Maggs was a Vice President of Alcan Aluminum
Limited from 1986 until 1994. Mr. Maggs currently sits on the board of directors and serves as Chairman of Sandvine, Inc., a company traded on the Toronto Stock Exchange, a position he has held since prior to its initial public offering on the
London Stock Exchange. Mr. Maggs also sits on the board of Spectra7 Microsystems, a company traded on the Toronto Stock Exchange, and since April of 2016 has been a director of Excalibur Steel UK, a private company. We believe that
Mr. Maggs expertise as the founder and active partner in a venture capital firm, and his years of service as a director for over thirty private and public companies, allows him to be a key contributor to the Board.
David G. Tacelli was elected a director of the Company in November 2005 and has been Chief Executive Officer of the Company since November 2005. He has also
served as President of the Company since May 2002 and served as Chief Operating Officer from May 2002 to November 2005. Prior to that, he was Executive Vice President from December 1999 to May 2002. Prior to that, Mr. Tacelli served in various
management positions with the Company, including: Chief Financial Officer and Treasurer (each from December 1998 to October 2000), Vice President, Operations (from 1996 to 1998), Director of Manufacturing of the Mixed Signal Division (from 1994 to
1996), Director of Customer Service (from 1992 to 1994), Controller and Business Manager for Operations (from 1990 to 1992) and Controller for Sales and Support (from 1988 to 1990). Prior to joining the Company, Mr. Tacelli was employed by
Texas Instruments for seven years in various management positions. As our Chief Executive Officer, we believe that Mr. Tacellis detailed knowledge of the Company provides a critical contribution to the Board.
1
Jorge L. Titinger was elected a director of the Company in August 2012. Mr. Titinger currently serves as a
director of CalAmp Corp, a position he has held since June 2015, and as a director of Hercules Capital, Inc., a position he has held since October 2017.
From 2012 to 2016, he was President and Chief Executive Officer of Silicon Graphics International Corp. (SGI), a position he has held until SGI was
acquired by Hewlett Packard Enterprise. Mr. Titinger also served as President and Chief Executive Officer of Verigy Ltd. from January 2011 until October 2011, as President and Chief Operating Officer of Verigy Ltd. from July 2010 to January
2011, and as Chief Operating Officer of Verigy Ltd. from June 2008 to July 2010. Verigy Ltd. was acquired by Advantest Corporation in July 2011 and Mr. Titinger continued to serve in a transitional role following the acquisition until October
2011 as President and Chief Executive Officer of Verigy Ltd., then a subsidiary of Advantest Corporation. Prior to his service at Verigy Ltd., Mr. Titinger held executive positions at FormFactor, Inc. from November 2007 to June 2008 and
KLA-Tencor
Corporation from December 2002 to November 2007. Mr. Titinger holds B.S. and M.S. degrees in Electrical Engineering and an M.S. degree in Engineering Management from Stanford University. We believe
that Mr. Titingers board and executive level experience in the automatic test equipment and semiconductor capital equipment industries allow him to be a key contributor to the Board.
Bruce R. Wright has served as a director of the Company since August 2008 when he was elected in connection with the merger with Credence. Since June 1999,
Mr. Wright has been Senior Vice President, Finance, Chief Financial Officer and Secretary of Ultratech, Inc., a photolithography and laser thermal processing equipment company until Ultratech was acquired by Veeco Instruments, Inc. in May 2017.
From May 1997 to May 1999, Mr. Wright served as Executive Vice President, Finance and Chief Financial Officer of Spectrian Corporation, a radio frequency (RF) amplifier company. From November 1994 through May 1997, Mr. Wright was Senior
Vice President of Finance and Administration, and Chief Financial Officer of Tencor Instruments until its acquisition by KLA Instruments Corporation in 1997, which formed
KLA-Tencor
Corporation, and from
December 1991 through October 1994, Mr. Wright was Vice President and Chief Financial Officer of Tencor Instruments. We believe that Mr. Wrights experience as chief financial officer of numerous technology companies allows him to be
a key contributor to the Board.
Executive Officers of the Company
Our executive officers as of the date of this Amendment are as follows:
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Executive Officer
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Age
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Position
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David G. Tacelli
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58
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President and Chief Executive Officer
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Mark J. Gallenberger
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53
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Senior Vice President, Chief Operating Officer, Chief Financial Officer and Treasurer
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Pascal Rondé
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55
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Senior Vice President, Global Customer Team
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Executive officers are appointed by and serve at the discretion of the Board.
David G. Tacelli was appointed Chief Executive Officer of the Company effective November 1, 2005. He has also served as President of the Company since
May 2002 and previously served as Chief Operating Officer from May 2002 to November 2005. Prior to that, he was Executive Vice President from December 1999 to May 2002. Prior to that, Mr. Tacelli served in various management positions with the
Company, including: Chief Financial Officer and Treasurer (each from December 1998 to October 2000), Vice President, Operations (from 1996 to 1998), Director of Manufacturing of the Mixed Signal Division (from 1994 to 1996), Director of Customer
Service (from 1992 to 1994), Controller and Business Manager for Operations (from 1990 to 1992) and Controller for Sales and Support (from 1988 to 1990). Prior to joining the Company, Mr. Tacelli was employed by Texas Instruments for seven
years in various management positions.
Mark J. Gallenberger was appointed Senior Vice President, Chief Operating Officer, Chief Financial Officer and
Treasurer of the Company effective March 1, 2014. Mr. Gallenberger previously served as the Companys Vice President, Chief Financial Officer and Treasurer from October 2000 to February 28, 2014. Prior to joining the Company,
Mr. Gallenberger was a Vice President with Cap Gemini, Ernst & Youngs consulting practice. During his six years with Ernst & Young, Mr. Gallenberger established the Deals & Acquisitions Group, where he was
involved in numerous domestic and international strategic acquisitions, joint ventures, alliances and equity investments. Prior to joining Cap Gemini, Mr. Gallenberger served in several technical and management positions within Digital
Equipment Corporations semiconductor products group.
Pascal Rondé was appointed Senior Vice President, Global Customer Team effective
March 1, 2014. Mr. Rondé previously served as the Companys Vice President, Global Field Operations from January 2012 to February 28, 2014. Prior to joining the Company, Mr. Rondé was Vice President of Sales,
Service and Support for the Automated Test Group of the Hewlett-Packard Company (HP) spinoff, Agilent Technologies. Renamed Verigy upon going public, it was acquired by Advantest in July 2011. Mr. Rondé joined HP in 1991 as a sales
engineer for semiconductor test and served in progressively more responsible sales management positions, including European business manager for semiconductor test and in 1999, he was promoted to General Manager for the High Volume Manufacturing
Test Customer Team in Europe. Prior to joining HP, Mr. Rondé was employed by Saintel, a French distributor of ATE and
ATE-related
companies.
2
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive officers and holders of more than 10% of a registered class of our equity securities
to file with the SEC initial reports of ownership of our equity securities on a Form 3 and reports of changes in such ownership on a Form 4 or Form 5. Based solely on our review of copies of such filings by our directors, executive officers, and 10%
shareholders, or written representations from certain of those persons, we believe that all filings required to be made by those persons during fiscal 2017 were timely made.
Corporate Governance
Board Composition and
Board Meetings
The Board currently consists of six directors. During fiscal 2017, the Board held a total of eight meetings and took action by
unanimous written consent in lieu of a meeting one time. Each director attended at least 75% of the aggregate of the total number of meetings of the Board and the total number of meetings of all committees on which he served held during fiscal 2017.
Board Committees
The Board has a standing Audit
Committee, Compensation Committee, and Corporate Governance and Nominating Committee, each of which is discussed in more detail below. Each director that served on the standing committees during fiscal 2017 is, and was considered, an independent
director as defined under applicable rules of The NASDAQ Stock Market (NASDAQ).
Compensation Committee
The Board has a standing Compensation Committee which met five times during fiscal 2017. The Compensation Committee determines the compensation of all our
executive officers and recommends the compensation policies for other officers and employees. The Compensation Committee is also responsible for considering the impact of our compensation programs on our risk profile, and reviewing and administering
our incentive compensation plans, equity incentive programs and other benefit plans. It periodically reviews and makes recommendations to the Board with respect to director compensation. In determining the compensation of executive officers other
than the Chief Executive Officer, our Chief Executive Officer attends and proposes the agenda for these meetings, provides recommendations to the Compensation Committee regarding all significant elements of compensation paid to the other executive
officers, participates in the Compensation Committees discussions regarding the compensation of the other executive officers and provides his evaluation of the performance of the other executive officers.
Messrs. Ain and Titinger constituted all of the members of the Compensation Committee in fiscal 2017. Mr. Ain serves as the Chairman of the Compensation
Committee. Each director that served on the Compensation Committee during fiscal 2017 is, and was considered, an independent director as defined under applicable rules of NASDAQ, including the independence requirements contemplated by Rule
10C-1
under the Exchange Act. The Compensation Committee acts under the terms of a written charter. We have posted a copy of the Compensation Committee charter on our website, which is located at
www.xcerra.com
. Information contained on our website is not incorporated by reference into this proxy statement. For more information regarding the Compensation Committee, please refer to Compensation of Executive Officers
beginning on page 5.
Audit Committee
The Board has
a standing Audit Committee which met five times during fiscal 2017. The Audit Committee assists the Board in the oversight of the integrity of our financial statements and compliance with legal and regulatory requirements, the independent registered
public accounting firms qualifications and independence and the performance of our registered public accounting firm. Messrs. Titinger, Maggs, and Wright constituted all of the members of the Audit Committee during fiscal 2017. Each director
who served as a member of the Audit Committee during fiscal 2017 is, and was, an independent director as defined under applicable rules of NASDAQ, including the independence requirements contemplated by Rule
10A-3
under the Exchange Act. Mr. Wright serves as the Chairman of the Audit Committee and is an audit committee financial expert as defined by the SECs rules.
The Audit Committee acts under the terms of a written charter which is posted on our website at
www.xcerra.com
. Information contained on our website is
not incorporated by reference into this proxy statement.
3
Corporate Governance and Nominating Committee
The Board has a standing Corporate Governance and Nominating Committee which met four times during fiscal 2017. The Corporate Governance and Nominating
Committee is responsible for overseeing corporate governance principles applicable to us, recommending to the Board the persons to be nominated for election as directors and determining the membership of Board committees. The members of the
Corporate Governance and Nominating Committee were Messrs. Ain, Maggs, Titinger, and Wright during fiscal 2017, all members are, and were, independent directors as defined by applicable NASDAQ rules. A copy of the Corporate Governance and Nominating
Committee Charter is posted on our website at www.xcerra.com.
Code of Ethics
We have adopted a code of ethics that applies to all directors and employees, including our principal executive officer, principal financial officer and
principal accounting officer, or persons performing similar functions. The text of the code of ethics (known as the Business Conduct and Ethics Policy) is posted on the corporate governance section of our website at
www.xcerra.com
. We intend to post on our website all disclosures that are required by law or NASDAQ listing standards concerning any amendments to, or waivers from, any provision of the code. Information contained on our website is not
incorporated by reference into this Amendment.
4
Item 11. Executive Compensation
Compensation Discussion and Analysis (CD&A)
Compensation of Named Executive Officers
The
following Compensation Discussion and Analysis provides information on the compensation arrangements for our named executive officers, who, for fiscal 2017, were each of our executive officers set forth above: Messers. Tacelli, Gallenberger and
Rondé.
Industry Background and Compensation Philosophy
The semiconductor capital equipment industry in which we operate is highly cyclical, with the industry swings having a direct and significant impact on our
performance and, accordingly, the compensation paid to our named executive officers. In response to the challenge created by this cyclicality, the Compensation Committee follows a compensation program that is intended to achieve a balance between
incentive-based and fixed compensation, while also satisfying the objectives of (i) attracting, retaining, and motivating the best possible executive talent, (ii) promoting the achievement of key operational and financial performance
measures, and (iii) aligning the executives incentives with the creation of shareholder value.
This compensation program is generally intended
to deliver an average total compensation amount at the median of our industry peer group throughout a semiconductor capital equipment industry cycle (discussed below in the section titled Benchmarking), and was comprised of a base
salary, a variable cash incentive component that only pays if we generate Adjusted Earnings (as defined below under Annual Cash Incentive Bonus Plan) and incentivizes executives for superior financial and operational performance, and an
equity component with four-year vest periods, including both time-based and performance-based RSUs, that link long-term executive interests with the long-term interests of our shareholders. During the industry growth cycles, total compensation will
likely be higher than the peer group median, and during the industry slow periods, total compensation will be lower than the peer group median.
Objectives of Our Executive Compensation Program
The
primary objectives of our executive compensation program are to:
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attract, retain and motivate the best possible executive talent;
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align executive compensation with our corporate business objectives and operational goals;
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promote the achievement of key operational and financial performance measures by linking cash incentives to the achievement of measurable corporate goals established by the Compensation Committee;
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align executives incentives with the long-term creation of shareholder value through the granting of equity awards with four-year vesting conditions; and
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achieve a balance, appropriate for the circumstances in each particular year, between incentive-based compensation (which will significantly fluctuate in the highly cyclical semiconductor industry), and fixed
compensation that supports our long-term employee retention efforts.
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The following table lists the elements of our executive compensation
program and which of the objectives of our executive compensation program that element is primarily intended to promote:
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Element
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Attract,
Retain and
Motivate The
Best Possible
Executive Talent
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Align
Executive
Compensation With
Our Corporate
Business
Objectives
and
Operational
Goals
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Promote The
Achievement of
Key Operational
and Financial
Performance
Measures
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Align
Executives
Incentives
With The
Creation of
Shareholder
Value
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Base Salary
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X
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Annual Cash Incentive Bonuses
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X
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X
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X
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X
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Time-Based Restricted Stock Unit Awards
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X
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X
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Performance-Based Restricted Stock Unit Awards
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X
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X
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X
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X
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Insurance, Retirement And Other Employee Benefits
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X
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Severance and
Change-Of-Control
Benefits
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X
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X
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5
Discussion and Analysis of Decisions and Policies
The Compensation Committee of the Board oversees our executive compensation program. In this role, the Compensation Committee approves all compensation
decisions relating to our named executive officers. For a discussion of the processes and procedures followed by the Compensation Committee see Corporate GovernanceBoard CommitteesCompensation Committee above.
We do not have a formal or informal policy or target for allocating compensation between long-term and short-term compensation, between cash and
non-cash
compensation or among the different forms of
non-cash
compensation. The Compensation Committee, after considering the factors described below, including information
from the Compensation Committees independent compensation consultant, structures our compensation packages for executive officers to achieve an appropriate level and mix of short and long term incentives, including cash and
non-cash
incentives.
Under the terms of its charter, the Compensation Committee has the authority to engage the
services of outside advisors and experts to assist the Compensation Committee. The Compensation Committee engaged Radford Consulting, Inc. (Radford) to assist in determining base salary and incentive compensation for our executive
officers for fiscal 2017, and to assist in the review and development of a peer group to be used for compensation decisions and provide an independent review of our executive compensation programs, including an analysis of the competitive market.
Benchmarking
The Compensation Committee evaluates
our executive compensation program with the goal of setting compensation at levels the Compensation Committee believes are competitive with those of other companies in our industry that compete with us for executive talent. In making compensation
decisions, the Compensation Committee compares our executive compensation against that paid by a peer group of publicly traded companies in the semiconductor and semiconductor equipment industry developed by the Compensation Committee and Radford.
This peer group, which is periodically reviewed and updated by the Compensation Committee, consists of companies the Compensation Committee believes are generally comparable to us in market capitalization and annual revenues, and against which the
Compensation Committee believes we compete for executive talent. For fiscal 2017, the Compensation Committee determined to include the following companies in the peer group (the Peer Group) which were the same for the fiscal 2016 peer
group:
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Axcelis Technologies, Inc.
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FormFactor, Inc.
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Rudolph Technologies, Inc.
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Brooks Automation, Inc.
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Kulicke and Soffa Industries, Inc.
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Ultra Clean Holdings, Inc.
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Cabot Microelectronics Corp.
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Mattson Technology
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Ultratech, Inc.
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Cascade Microtech, Inc.
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Nanometrics Incorporated
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Veeco Instruments Inc.
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Cohu, Inc.
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Photronics Inc.
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Components of our Executive Compensation Program
Base Salary
In connection with its
review of our executive compensation practices for fiscal 2017, which took place during the months of July and August of 2016, the Compensation Committee considered adjustments to the base salaries of our named executive officers for fiscal 2017,
and considered the roles and responsibilities of our executive officers, the economic environment of the semiconductor market as a whole, the seniority of the individual, the level of the individuals responsibility, the ability to replace the
individual, a report and recommendations on executive compensation produced by Radford for fiscal 2017, and the base salary of the individual in prior years, and conducted a review of publicly available information. Based on these factors the
Compensation Committee determined that no changes were needed to the base salaries of the named executive officers for fiscal 2017.
6
The Compensation Committee also reviewed base salaries for our named executive officers for fiscal 2018 during
the months of July and August of 2017. After taking into consideration the factors described above, including the data produced by Radford for fiscal 2017, the Compensation Committee increased the base salaries for fiscal 2018 for Messrs. Tacelli
and Gallenberger to $624,000 and $426,400, respectively, and for Mr. Rondé to 282,150 Euro, which converts to $308,418 based upon the average U.S. Dollar to Euro exchange rate from August 1, 2016 to July 31, 2017.
The annual base salaries of those serving as our named executive officers in fiscal 2016, fiscal 2017 and fiscal 2018 in U.S. dollars are set out in the table
below:
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Name and Title
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Fiscal
2018
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Fiscal
2017
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Fiscal
2016
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David G. Tacelli
President and Chief Executive Officer
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$
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624,000
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$
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600,000
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$
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600,000
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Mark J. Gallenberger
Senior Vice President, Chief Operating Officer, Chief Financial Officer
and Treasurer
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$
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426,400
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$
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410,000
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$
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410,000
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Pascal Rondé (1)
Senior Vice President, Global Customer Team
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$
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308,418
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$
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295,137
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$
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295,137
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(1)
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Amounts paid to Mr. Rondé are paid in Euros, based on an annual salary in fiscal 2016 and 2017 of 270,000 Euros, and for fiscal 2018 of 282,150 Euros. For the purpose of this disclosure we converted the
fiscal 2016, 2017, and 2018 Euro amounts to U.S. Dollars at an exchange rate of 1.0931 U.S. Dollars per Euro, which is the August 1, 2016 to July 31, 2017 average.
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Annual Cash Incentive Bonus Plan
The variable cash incentive component of our executive compensation program is intended to provide compensation for the achievement of performance metrics that
the Board has determined are important to us and our shareholders. For fiscal 2017, the Compensation Committee approved an Executive Profit Sharing Plan for certain officers of the Company, including our named executive officers (the 2017
Bonus Plan), which is intended to provide compensation for the achievement of performance metrics tied to the operational profitability of the Company as measured by our
pro-forma
earnings before
interest and taxes, excluding accruals for profit sharing plans, the amortization of purchased intangible assets, and certain
one-time
charges, such as acquisition costs, restructuring costs, and purchase
accounting charges (referred to as Adjusted Earnings) during the fiscal year. The Compensation Committee believes that Adjusted Earnings is the appropriate metric to incentivize our executive officers, because it is an objective and
clear measure of our operational achievement.
The 2017 Bonus Plan provides for the payment of bonuses to our officers, including our executive officers,
by distributing 6.25% (the Bonus Plan Percentage) of Adjusted Earnings to the 2017 Bonus Plan participants, pro rata, based upon the participants base salary. The Bonus Plan Percentage is a number that the Compensation Committee
reasonably determined would result in the payment of the average targeted amount throughout a semiconductor
capital equipment
industry cycle. In each individual year, payout under the cash incentive plan could be lower than the target if the
semiconductor cycle is near the trough, higher if the cycle is near the peak, and at the target if the cycle is at the
mid-point.
Each executive participating in the 2017 Bonus Plan had a target bonus under
the 2017 Bonus Plan of 50% of such executives annual base salary. The Bonus Plan Percentage and target bonuses for each of our named executive officers for fiscal year 2017 remained unchanged from their respective levels in fiscal 2016.
Under the 2017 Bonus Plan, no bonus would be payable to any executive officers if our Adjusted Earnings were equal to or less than $0. Additionally, bonus
amounts under the 2017 Bonus Plan were capped at a specific multiple of target for each of the executive officers, as set forth in the table below.
The
formula for determining the aggregate amount of bonuses to be paid to each executive under the 2017 Bonus Plan is: (i) our Adjusted Earnings during the fiscal year, which was $35,229,498, (ii) multiplied by the Bonus Plan Percentage,
(iii) multiplied by a fraction, the numerator of which is the executives annual base salary and the denominator of which is the sum of the annual base salaries of all of the 2017 Bonus Plan participants. The targeted bonus amount and
maximum bonus payment for each of our named executive officers is set forth below:
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Executive Officer
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Target Cash
Incentive Bonus
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Multiplier Cap
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Maximum Cash
Incentive
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David G. Tacelli
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$
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300,000
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4.0x
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$
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1,200,000
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Mark J. Gallenberger
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$
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205,000
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3.2x
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$
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656,000
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Pascal Rondé (1)
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$
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147,569
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2.5x
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$
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368,921
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(1)
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Amounts paid to Mr. Rondé are paid in Euros, based on an annual salary of 270,000 Euros. For the purpose of this disclosure we converted his annual salary to U.S. Dollars at an exchange rate of 1.0931 U.S.
Dollars per Euro, which is the August 1, 2016 to July 31, 2017 average, and multiplied the result by 50%, which is Mr. Rondés target cash incentive bonus.
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7
The Bonus Plan Percentage and target cash incentive bonuses were set by the Compensation Committee. The
Compensation Committee determined that these targets were aligned with the interests of the shareholders, and were reasonably likely, but by no means certain, to be achieved during growth cycles in the semiconductor capital equipment industry, and
significantly challenging to achieve during the cyclical industry downturns. As a result of the Adjusted Earnings earned by the Company during fiscal 2017, cash bonuses in the following amounts were paid to Messrs. Tacelli, Gallenberger, and
Rondé, respectively: $535,658, $366,033, and $263,487.
Fiscal 2018 Cash Incentives
For fiscal 2018, the Compensation Committee approved two profit sharing plans for certain officers of the Company, including an Executive Profit Sharing Plan
that operates similarly to the 2017 Bonus Plan (the 2018 Corporate Bonus Plan), and an Executive Operating Segment Profit Sharing Plan (the 2018 OS Bonus Plan), which is a new incentive plan tied to the Companys
operating segments. Both plans are intended to provide compensation for the achievement of performance metrics tied to the operational profitability of (i) the Company, and/or (ii) the individual operating segments, in each case, as
measured by our
pro-forma
earnings before interest and taxes, excluding accruals for profit sharing plans, the amortization of purchased intangible assets, and certain
one-time
charges, such as acquisition costs, restructuring costs, and purchase accounting charges (referred to as Adjusted Earnings and OS Adjusted Earnings) during the fiscal year. The
Compensation Committee believes that Adjusted Earnings and OS Adjusted Earnings are the appropriate metrics to incentivize our executive officers, because they are objective and clear measures of our operational achievement.
The 2018 Corporate Bonus Plan is substantially similar in operation to our 2017 Bonus Plan, except that it distributes 4.75% (the Corporate Bonus Plan
Percentage) of Adjusted Earnings to the 2018 Corporate Bonus Plan participants. Messrs. Tacelli and Gallenberger each have a target bonus under the 2018 Corporate Bonus Plan of 50% of their respective annual base salaries.
Mr. Rondé has a target bonus under the 2018 Corporate Bonus Plan of 25% of his annual base salary. Such target bonuses were set by the Compensation Committee. Given his responsibilities, Mr. Rondes annual target bonus is
divided equally between the 2018 Corporate Bonus Plan and the 2018 OS Bonus Plan, described below. The targeted bonus amount and maximum bonus payment for the 2018 Corporate Bonus Plan for each of our named executive officers is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Officer
|
|
Target Cash
Incentive Bonus
|
|
|
Multiplier Cap
|
|
|
Maximum Cash
Incentive
|
|
David G. Tacelli
|
|
$
|
312,000
|
|
|
|
4.0x
|
|
|
$
|
1,248,000
|
|
Mark J. Gallenberger
|
|
$
|
213,200
|
|
|
|
3.2x
|
|
|
$
|
682,240
|
|
Pascal Rondé (1)
|
|
$
|
77,105
|
|
|
|
2.5x
|
|
|
$
|
192,761
|
|
(1)
|
Amounts paid to Mr. Rondé are paid in Euros, based on an annual salary of 282,150 Euros. For the purpose of this disclosure we converted his annual salary to U.S. Dollars at an exchange rate of 1.0931 U.S.
Dollars per Euro, which is the August 1, 2016 to July 31, 2017 average, and multiplied the result by 25%, which is Mr. Rondés target cash incentive bonus under the 2018 Corporate Bonus Plan.
|
The 2018 OS Bonus Plan provides for the payment of bonuses to our eligible officers, including Mr. Rondé, by distributing a percentage (the
OS Bonus Plan Percentage) of each operating segment OS Adjusted Earnings to the respective officer responsible for activities tied to such operating segment. The OS Bonus Plan Percentage varies by participant and is a number that the
Compensation Committee reasonably determined would result in the payment of the average targeted amount throughout a semiconductor
capital equipment
industry cycle. Mr. Rondé is responsible for activities tied to the Semiconductor
Test, Semiconductor Handling, and Contactors operating segments, which comprises the Companys Semiconductor Test Solutions reportable segment. Mr. Rondes OS Bonus Plan Percentage is equal to 1.25%, which the Compensation Committee
reasonably determined would result in a payout of his target of 25% of his annual base salary on average throughout a semiconductor
capital equipment industry
cycle. As under the other 2017 Bonus Plan and 2018 Corporate Bonus Plan, in each
individual year, payout under the 2018 OS Bonus Plan could be lower than the target if the industry cycle is near the trough, higher if the industry cycle is near the peak, and at the target if the
industry
cycle is at the
mid-point.
8
The formula for determining the aggregate amount of bonuses to be paid to the executive officer under the 2018 OS
Bonus Plan is: (i) our weighted average OS Adjusted Earnings for the Semiconductor Test Solutions reportable segment during the fiscal year, (ii) multiplied by the OS Bonus Plan Percentage. Under the 2018 OS Bonus Plan, no bonus would be
payable to any participant if our OS Adjusted Earnings were equal to or less than $0. Additionally, bonus amounts under the 2018 OS Bonus Plan are capped at a specific multiplier for participant. Mr. Rondé is the only executive officer
participant in the 2018 OS Bonus Plan, and his targeted bonus amount, multiplier cap, and maximum bonus payment under the 2018 OS Bonus Plan is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Officer
|
|
Target 2018 OS
Bonus Plan
|
|
|
Multiplier Cap
|
|
|
Maximum Cash
Incentive
|
|
Pascal Rondé (1)
|
|
$
|
77,105
|
|
|
|
2.5x
|
|
|
$
|
192,761
|
|
(1)
|
Amounts paid to Mr. Rondé are paid in Euros, based on an annual salary of 282,150 Euros. For the purpose of this disclosure we converted his annual salary to U.S. Dollars at an exchange rate of 1.0931 U.S.
Dollars per Euro, which is the August 1, 2016 to July 31, 2017 average, and multiplied the result by 25%, which is Mr. Rondés target cash incentive bonus under the 2018 OS Bonus Plan.
|
Equity Compensation
Our equity
award program is the primary vehicle for offering long-term incentives to our executives. We believe that equity grants provide our executives with a strong link to our long-term performance, create an ownership culture and help to align the
interests of our executives and our shareholders. In addition, the vesting feature of our equity grants should further our goal of executive retention because this feature provides an incentive to our executives to remain in our employ during the
vesting period. In determining the size of equity grants to our executives, our Compensation Committee considers comparative share ownership of executives in the Peer Group, our company-level performance, the applicable executives performance,
the executives overall contribution to the Company, the amount of equity previously awarded to and currently held by the executive, the vesting of such awards, the recommendation of management and the recommendation of the Compensation
Committees independent compensation consultant from prior years, as well as the total value (based on the fair market value of the award as of the determination date) of our RSU grants against market data collected regarding the equity grant
practice for the companies in the Peer Group. These factors are not assigned specific weights, however, and ultimately the Compensation Committee reaches a subjective determination based on its business judgment. In making equity awards to the named
executive officers other than the Chief Executive Officer, the Compensation Committee receives a recommendation from the Chief Executive Officer.
We
typically make an initial equity award of RSUs to new executive officers and an annual equity award of RSUs to continuing executive officers as part of our overall compensation program. Initial grants are typically made at the first regularly
scheduled meeting of the Compensation Committee following the month in which a new executive officer is hired. Annual grants are typically made at the first regularly scheduled meeting of the Compensation Committee following the end of our prior
fiscal year.
We believe that RSUs possess certain advantages as compared to stock options. For example, RSUs provide a more predictable value to
employees than do stock options, and therefore are efficient tools in retaining and motivating employees, while also serving as an incentive to increase the value of our common stock. In addition, RSUs allow us to more efficiently use the share
reserves under our equity plans because each RSU has a higher value than a stock option as a result of not having an exercise price and therefore fewer shares of common stock are needed to provide a retention and incentive value similar to stock
options.
The Compensation Committee reviews all components of the executives compensation when determining annual equity awards to confirm that an
executives total compensation conforms to our overall philosophy and objectives. The Compensation Committee intends that the annual aggregate value of these awards will be set at or near the median for companies in the Peer Group, while
considering all the factors set forth above. The fiscal 2017 equity awards were positioned at the 50
th
percentile of annual aggregate value of equity awards for the Peer Group. In determining the
amount and vesting of the RSU grants for executive officers for fiscal 2017, the Compensation Committee considered the seniority of the individual, the level of the individuals responsibility and the ability to replace the individual. On
August 25, 2016, the Compensation Committee granted RSUs to Messrs. Tacelli, Gallenberger, and Rondé in the amounts set forth below.
9
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Officer
|
|
Time Based RSU
Grant
|
|
|
Performance Based
RSU Grant
|
|
|
Total Granted
|
|
David G. Tacelli
|
|
|
120,000
|
|
|
|
120,000
|
|
|
|
240,000
|
|
Mark J. Gallenberger
|
|
|
75,000
|
|
|
|
75,000
|
|
|
|
150,000
|
|
Pascal Rondé
|
|
|
34,000
|
|
|
|
34,000
|
|
|
|
68,000
|
|
The time-based RSUs vest annually in equal installments over four years. The performance-based RSUs become eligible to vest
based on the performance of our stock relative to the Peer Group during the fiscal year. The portion of the performance-based RSUs that meet the performance criteria will then be subject to time based vesting conditions, with 1/4 of such RSUs vested
immediately, and the remaining 3/4 to vest annually in equal installments over the next three years. In the event the shares of the Company cease to be listed on a national stock exchange, the measurement period shall be the beginning of the fiscal
year to the last date of listing.
The Company and the companies included in the Peer Group will be ranked based on the average change in the stock price
during the measurement period. The percentage of the performance based grant that satisfies the performance criteria will be calculated based on the Companys stock performance ranking, as set forth below:
|
|
|
|
|
Company Ranking
|
|
Portion of Performance Based
RSUs Eligible to Vest
|
|
1st Quartile
|
|
|
3/3
|
|
2
nd
Quartile
|
|
|
2/3
|
|
3
rd
Quartile
|
|
|
1/3
|
|
4
th
Quartile
|
|
|
0/3
|
|
Merger Treatment
In
April 2017, in conjunction with the approval and execution of the Agreement and Plan of Merger (as it may be amended from time to time, the Merger Agreement and the transactions contemplated thereby, the Merger) originally
entered into by and between Unic Capital Management Co., Ltd., a Chinese company, China Integrated Circuit Industry Investment Fund Co., Ltd., a Chinese company, and the Company, as joined by Unic Acquisition Corporation, a Massachusetts
corporation, the Companys Board of Directors determined that each unvested time-based RSU would be converted to the right to receive an amount in cash equal to the per share consideration in the Merger and would continue to be subject to the
vesting terms and conditions applicable prior to the closing of the Merger. In addition, the Board of Directors determined that the performance criteria for all performance-based RSUs would be deemed achieved at 100% as of the end of the applicable
measurement period, due to the impact the public announcement of the Merger Agreement would have on the measurement criteria. Accordingly, at July 31, 2017, all of the performance-based RSUs for Messrs. Tacelli, Gallenberger, and Rondé
converted into time-based RSUs, with 25% vesting immediately, and the remainder to vest annually in equal installments over the next three years.
Fiscal 2018 Grants
In determining the amount and vesting
of the RSU grants for executive officers for fiscal 2018, the Compensation Committee considered the seniority of the individual, the level of the individuals responsibility and the ability to replace the individual. On August 29, 2017,
the Compensation Committee granted 240,000, 150,000, and 68,000 RSUs to each, respectively, to Messrs. Tacelli, Gallenberger, and Rondé. All such RSUs are to vest annually in equal installments over four years.
Benefits and Other Compensation
We maintain broad-based benefits that are provided to all employees, including health and dental insurance, life and disability insurance, a 401(k) plan and an
employee stock purchase plan. Executives, including our named executive officers, are eligible to participate in all of our employee benefit plans, in each case on the same basis as other employees. Under the 401(k) plan, we contribute an amount
equal to half of each participating employees contribution, up to a maximum of six percent of such employees base salary.
10
Employment and Severance Arrangements
Employment Agreements
We have
executive employment agreements with each of Messrs. Tacelli and Gallenberger setting forth their initial base salaries, as of the date of their respective executive employment agreements, bonus eligibility, participation rights in any equity or
other long-term compensation programs established from time to time by the Company and other employment benefits. Each of Messrs. Tacellis and Gallenbergers employment is on an at will basis and their employment can be
terminated by us or by the named executive officer at any time, for any reason and with or without notice, subject to the severance provisions in the named executive officers employment agreement and the terms of their
change-of-control
agreements. These agreements generally entitle Messrs. Tacelli and Gallenberger to receive cash severance and continuation of health benefits, among other
things, in the event their employment is terminated under specified conditions. Mr. Gallenbergers agreement replaced and superseded his prior retention agreement. Mr. Tacelli did not have a prior employment agreement.
Mr. Rondé is employed by our subsidiary in France, and pursuant to the Collective Bargaining Agreement of Metallurgie (ingenieurs et
cadres), which is also applicable to all employees of our French subsidiary, if Mr. Rondé retires he may be entitled to receive a social payment from the Company. In Mr. Rondés case, such social payment could be
an amount up to two months of his then current salary. Mr. Rondé is also party to an employment agreement with our French subsidiary. Under the terms of Mr. Rondés employment agreement, he is entitled to receive cash
severance and continuation of health benefits, among other things, in the event his employment is terminated under specified conditions. In addition, unless waived by us, upon his termination, Mr. Rondé will be subject to a
non-competition
agreement which will restrict him from working for certain of our competitors for a period of one year following his termination. During this
non-competition
period, Mr. Rondé will be entitled to receive a monthly payment equal to either 50% or 60% (as determined under French law) of his average monthly salary over the twelve months preceding the month in which he is terminated.
Potential Payments under Severance Arrangements
Executive Employment Agreements
Under the
terms of the executive employment agreements with each of Messrs. Tacelli and Gallenberger, each executive is entitled to receive the following compensation in the event his employment is terminated by us without cause, or if the executive
terminates his employment with us for good reason, subject to the executive executing and not revoking a Company provided severance and release agreement:
|
|
|
during the
12-month
period commencing on the termination date, we will continue to pay the executive, in accordance with our regularly established payroll procedures and
practices, the executives then-current base salary;
|
|
|
|
on the later of the termination date or the date that is 15 days following the end of the fiscal quarter in which the termination date occurs, we will pay the executive a lump sum payment in an amount equal to a pro
rata portion of the executives target incentive bonus (based on the target bonus percentage in effect as of the termination date);
|
|
|
|
on the later of the termination date or the date that is 15 days following the end of the fiscal quarter in which the termination date occurs, we will pay the executive a lump sum payment in an amount equal to the
executives target incentive bonus (based on the target bonus percentage in effect as of the termination date);
|
|
|
|
solely for purposes of satisfying time-based vesting conditions for any then outstanding equity awards, as of the termination date, the executive will be deemed to have been employed by us until the date that is 12
months following the termination date, such that the vesting of all such equity awards scheduled to vest during such
12-month
period will accelerate and become exercisable or realizable as of the termination
date; and
|
|
|
|
provided the executive is eligible for and elects to continue receiving group medical insurance pursuant to the federal COBRA laws, and provided the executive continues to pay the share of the premium that
the executive paid as of the termination date, for a period of 12 months following the executives termination date, we will pay the remainder of the insurance premium for the executives coverage.
|
In the event the executive becomes entitled to severance or benefits under the executives
change-of-control
agreement with the Company, described below, the executive will no longer be entitled to the severance benefits under the terms of the executives executive employment agreement.
11
Under the terms of the employment agreement with Mr. Rondé, Mr. Rondé is entitled to
receive the following compensation in the event his employment is terminated by us, except in the case of his gross or willful misconduct, subject to Mr. Rondé executing and not revoking a Company provided settlement agreement:
|
|
|
a termination indemnity equal to one year of Mr. Rondés gross base salary, inclusive of any amount of dismissal or retirement indemnity that Mr. Rondé may otherwise be entitled to under any
applicable collective bargaining agreement;
|
|
|
|
a pro rata portion of Mr. Rondés target annual incentive bonus (based on the target bonus percentage in effect as of the termination date); and
|
|
|
|
an amount equal to Mr. Rondés target annual incentive bonus (based on the target bonus percentage in effect as of the termination date).
|
To the extent that we are required to make the severance payments described above to Mr. Rondé, we will not be required to make the social payment
under the Collective Bargaining Agreement described above.
Change-of-Control
Agreements
Messrs. Tacelli and Gallenberger are also, individually, party to
change-in-control
agreements with the Company, originally entered into in 1998 and 2000, respectively. Each agreement has a three-year term that extends for one year
upon the anniversary date of the agreement unless a notice not to extend is given by us. Under these
change-of-control
agreements, if a
change-of-control
of the Company occurs during the term of an agreement, then the agreement becomes operative for a fixed three-year period. The agreements provide generally that the executives terms
and conditions of employment (including position, location, compensation and benefits) will not be adversely changed during the three-year period after a
change-of-control
of the Company. If we terminate the executives employment (other than for cause, death or disability) or if the executive terminates for good
reason during such three-year period or for any reason during the
30-day
period following the first anniversary of the
change-of-control
(or upon certain terminations prior to a
change-of-control
or in
connection with or in anticipation of a
change-of-control),
the executive is entitled to receive severance compensation.
The
change-of-control
agreements define a
Change-of-control
as the acquisition by a person or group of 20% or more of our outstanding stock; a change of a majority of the Board without approval of the Board; consummation of a
reorganization, merger, consolidation or asset sale, except where our shareholders receive 50% or more of the stock of the resulting company, at least a majority of the board of the resulting company was on the Board of the Company prior to the
transaction and after which no shareholder owns 20% or more of the stock of the resulting company which did not own such stock immediately prior to the transaction; or the approval of a liquidation or dissolution of the Company.
If severance compensation is payable under an executives
change-of-control
agreement, the executive would receive a lump sum cash payment paid within 30 days of termination equal to the sum of (a) our accrued obligations
through the date of termination for base pay and prorated bonus based upon the higher of (i) the annual variable incentive compensation paid for the most recently completed fiscal year after the
change-of-control
or (ii) the average of the annual variable incentive compensation paid for the two of the last three full fiscal years prior to the
change-of-control
in which such amounts were the highest (the Highest Annual Bonus) and (b) an amount equal to two times the sum of the executives then base salary and the Highest
Annual Bonus. Additionally, the executive would also receive continued health benefits for two years and outplacement services not to exceed $30,000.
In
the
change-of-control
agreements, we have also agreed to reimburse the executive for any excise tax under Section 4999 of the Code due on any compensation (whether
under the
change-of-control
agreements or otherwise), including any additional federal, state and local income tax consequences, as a result thereof, provided that such
reimbursement shall be made only if the present value of such payments exceeds 110% of such payments reduced to the extent that would not give rise to any excise tax.
Equity Incentive Plans
Our 2010 Stock Incentive Plan
(the 2010 Stock Plan) and the award agreements thereunder provide that all unvested RSUs will become vested in full if the participant is terminated without cause (as defined in the award agreement) or for good reason (as defined in the
award agreement) within one year after a change in control event. In summary, a change in control event is defined in the 2010 Stock Plan as: the acquisition by a person or group of 20% or more of our outstanding stock; a change of a
majority of the Board without approval of the Board; consummation of a reorganization, merger, consolidation or asset sale, except where our shareholders receive 60% or more of the stock of the resulting company, at least a majority of the board of
the resulting company was on the Board of the Company prior to the transaction and after which no shareholder owns 20% or more of the stock of the resulting company which did not own such stock immediately prior to the transaction; or the approval
of a liquidation or dissolution of the Company.
12
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
Estimated Payments Upon a Qualifying Termination in Connection with a Change of Control
The following table describes the potential payments, benefits and value of acceleration of vesting applicable to RSUs that each of Messrs. Tacelli,
Gallenberger, and Rondé would be entitled to receive upon a qualifying termination of employment in connection with a change of control assuming the termination occurred on July 31, 2017, the last day of fiscal 2017. Actual amounts
payable to each executive listed below upon his termination can only be determined definitively at the time of each executives actual termination. In addition, our Compensation Committee may, in its discretion, revise, amend or add to the
benefits if it deems advisable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Cash
Payment
($)(1)
|
|
|
Value of
Accelerated
Vesting on
Equity Awards
($)(2)
|
|
|
IRC 280G
Gross-Up
Amount
($)(3)
|
|
|
Continuation of
Healthcare
Benefits ($)(4)
|
|
|
Outplacement
Benefits
|
|
|
Total ($)
|
|
David G. Tacelli
|
|
|
2,806,974
|
|
|
|
4,369,500
|
|
|
|
|
|
|
|
54,432
|
|
|
|
30,000
|
|
|
|
7,260,906
|
|
Mark J. Gallenberger
|
|
|
1,918,099
|
|
|
|
2,755,213
|
|
|
|
|
|
|
|
54,432
|
|
|
|
30,000
|
|
|
|
4,757,743
|
|
Pascal Rondé(5)
|
|
|
706,193
|
|
|
|
1,245,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,951,500
|
|
(1)
|
This amount, which in the case of Messrs. Tacelli and Gallenberger represents the sum of (i) the Highest Annual Bonus and (ii) two times the sum of the named executive officers current base salary and
his Highest Annual Bonus; in the case of Mr. Rondé this amount represents the named executive officers current base salary plus two times his target bonus for fiscal 2017.
|
(2)
|
This amount reflects a valuation of the full acceleration of the named executive officers outstanding unvested RSUs calculated based on the closing price of our common stock on The NASDAQ Global Market on
July 31, 2017. The actual amount received by the named executive officer upon the sale of shares received under RSUs will depend on the market value at the time of such sale.
|
(3)
|
The
change-of-control
agreements with Messrs. Tacelli and Gallenberger provide for our reimbursement of the excise and tax liability due on
the separation pay under Sections 280G and 4999 of the Code, which amount is grossed up to cover income taxes due on such reimbursement. No gross up amounts would have been payable if a qualifying termination occurred on July 31, 2017. The
employment agreement with Mr. Rondé does not provide for a gross up to cover any taxes payable by employees, including any such taxes under Sections 280G and 4999 of the Code.
|
(4)
|
This value is based on the type of insurance coverage we carried for Messrs. Tacelli and Gallenberger as of July 31, 2017 and is valued at the premiums then in effect.
|
(5)
|
Amounts paid to Mr. Rondé are paid in Euros, based on an annual salary of 270,000 Euro. For the purpose of this disclosure we converted the fiscal 2017 Euro amount to U.S. Dollars at an exchange rate of
1.0931 U.S. Dollars per Euro, which is the August 1, 2016 to July 31, 2017 average.
|
Estimated Benefits Upon a Qualifying
Termination Not in Connection with a Change of Control
The following table describes the potential payments, benefits and value of acceleration of
vesting applicable to RSUs that each of Messrs. Tacelli, Gallenberger, and Rondé would be entitled to receive upon a qualifying termination of employment not in connection with a change of control, assuming the termination occurred on
July 31, 2017, the last day of fiscal 2017. Actual amounts payable to each executive listed below upon his termination can only be determined definitively at the time of each executives actual termination. In addition, our Compensation
Committee may, in its discretion, revise, amend or add to the benefits if it deems advisable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Cash
Payment
($)(1)
|
|
|
Value of
Accelerated
Vesting on
Equity Awards
($)(2)
|
|
|
Continuation of
Healthcare
Benefits ($)(3)
|
|
|
Total ($)
|
|
David G. Tacelli
|
|
$
|
1,435,658
|
|
|
$
|
1,747,800
|
|
|
$
|
54,432
|
|
|
$
|
3,237,890
|
|
Mark J. Gallenberger
|
|
$
|
981,033
|
|
|
$
|
1,116,650
|
|
|
$
|
54,432
|
|
|
$
|
2,152,115
|
|
Pascal Rondé(4)
|
|
$
|
706,193
|
|
|
$
|
504,920
|
|
|
|
|
|
|
$
|
1,211,113
|
|
(1)
|
This amount, which in the case of Messrs. Tacelli, Gallenberger, and Rondé represents the named executive officers current base salary plus the executives earned fiscal 2017 cash incentive bonus plus
the executives target fiscal 2017 cash incentive bonus.
|
13
(2)
|
This amount represents a valuation of the acceleration of the named executive officers outstanding unvested RSUs that would otherwise vest in the subsequent 12 months, calculated based on the closing price of our
common stock on The NASDAQ Global Market on July 31, 2017.
|
(3)
|
This value is based on the type of insurance coverage we carried for Messrs. Tacelli and Gallenberger as of July 31, 2017 and is valued at the premiums then in effect.
|
(4)
|
Amounts paid to Mr. Rondé are paid in Euros, based on an annual salary of 270,000 Euros. For the purpose of this disclosure we converted the fiscal 2017 Euro amount to U.S. Dollars at an exchange rate of
1.0931 U.S. Dollars per Euro, which is the August 1, 2016 to July 31, 2017 average.
|
Tax and Accounting Considerations
Deductibility of Executive Compensation
Section 162(m) of the Code generally disallows a tax deduction for compensation in excess of $1 million paid in a taxable year to our Chief Executive
Officer and our three other most highly compensated officers (other than our Chief Executive Officer and Chief Financial Officer). Certain compensation, including qualified performance-based compensation, will not be subject to the deduction limit
if certain requirements are met. Compensation paid under our annual cash incentive program and from RSUs with time-based vesting does not satisfy the requirements to be qualified performance-based compensation under Section 162(m) of the Code
and, as a result, we may be limited in our ability to deduct this compensation. The Compensation Committee reviews the effect of Section 162(m) periodically, and reserves the right to approve compensation that is subject to the deduction
limitations when it determines that doing so is in our the best interests and the best interests of our shareholders.
Accounting
for Stock-Based Compensation
We have expensed equity grants in accordance with the requirements of the Financial Accounting Standards Board
Accounting Standards Codification 718,
Share-Based Payment
(ASC 718), beginning in 2006. ASC 718 requires companies to record the fair value of equity compensation as a compensation expense in their income statements. Our 2010
Stock Plan, which was initially approved by our shareholders in December 2010, provides us with flexibility to grant multiple forms of equity-based compensation, which provide us with some opportunity to control compensation expense, as deemed
appropriate by the Compensation Committee.
Our Compensation Policies and Practices as They Relate to Our Risk Management
Our Compensation Committee does not believe that any risks arising from our employee compensation policies and practices are reasonably likely to have a
material adverse effect on the Company. Our Compensation Committee believes that any such risks are mitigated by, among other things:
|
|
|
The multiple elements of our compensation packages, including base salary, annual bonus programs and equity awards that vest over multiple years and are intended to motivate employees to take a long-term view of our
business.
|
|
|
|
The structure of our annual cash bonus program, which, in fiscal 2017, was based on the achievement of Adjusted Earnings, encourages decision-making that is in our best long-term interests and the best long-term
interests of our shareholders as a whole.
|
Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis set forth above with our management. Based on such review and
discussion, the Compensation Committee has recommended to the Board (and the Board has approved) the inclusion of the Compensation Discussion and Analysis in this Amendment.
|
COMPENSATION COMMITTEE
|
Mark S. Ain (Chair)
Jorge L. Titinger
|
14
SUMMARY COMPENSATION TABLE
The following table sets forth certain information with respect to compensation of our executive officers during fiscal 2017 (such persons are sometimes
collectively referred to herein as the named executive officers).
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Name and Principal Position
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|
Fiscal
Year
|
|
|
Salary
($)
|
|
|
Stock
Awards(1)
($)
|
|
|
Non-Equity
Incentive Plan
Compensation(2)
($)
|
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All Other
Compensation(3)
($)
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Total ($)
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David G. Tacelli
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2017
|
|
|
$
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600,000
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|
$
|
1,471,200
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$
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535,658
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$
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24,958
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$
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2,631,816
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President and Chief Executive
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2016
|
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|
$
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600,000
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|
$
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955,200
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$
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45,554
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$
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9,958
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$
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1,610,712
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Officer
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2015
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$
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600,000
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$
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1,649,600
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$
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485,887
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$
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18,458
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$
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2,753,945
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Mark J. Gallenberger
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2017
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$
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410,000
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$
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919,500
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$
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366,032
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$
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18,604
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$
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1,714,136
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Senior Vice President, Chief
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2016
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$
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410,000
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$
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597,000
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$
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39,038
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$
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18,604
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$
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1,064,642
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Operating Officer, Chief Financial Officer and Treasurer
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2015
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$
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410,000
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$
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1,031,000
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$
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332,023
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$
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18,742
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$
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1,791,765
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Pascal Rondé(4)
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2017
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$
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295,137
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$
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416,840
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$
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263,487
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$
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10,800
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$
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986,264
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Senior Vice President, Global
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2016
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$
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361,639
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$
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268,650
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$
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10,266
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$
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14,466
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$
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655,021
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Customer Team
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2015
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$
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322,547
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$
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463,950
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$
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257,053
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$
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12,902
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$
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1,056,452
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(1)
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Represents the aggregate grant date fair value of the stock awards granted during the fiscal year calculated in accordance with ASC 718. These amounts do not represent actual amounts paid to or realized by the named
executive officer with respect to these stock awards. The value of the 2017 performance-based RSUs at grant based on maximum outcome of the applicable performance-based conditions is $735,600, $459,750, and $208,420 for Messrs. Tacelli,
Gallenberger, and Rondé, respectively. For performance-based RSUs, reflects the value at grant based on the probable outcome of the applicable performance-based conditions. For more information regarding the methods and assumptions used in
determining compensation expense in accordance with ASC 718, refer to the Note 2 of our consolidated financial statements included herein.
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(2)
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Non-equity
incentive plan compensation represents amounts payable under our annual cash incentive bonus plan, which is discussed further on page 6 of this Amendment.
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(3)
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Consists of our 401(k) matching funds and the value of excess group life policies for Messrs. Tacelli and Gallenberger. Mr. Rondés amounts reflect the value of Mr. Rondés car
allowance.
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(4)
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Amounts paid to Mr. Rondé are paid in Euros, based on an annual salary for each of fiscal years 2015, 2016, and 2017 of 270,000 Euros. For the purpose of this disclosure we converted each years salary
amounts to U.S. dollars based on the average exchange rate for each applicable fiscal year. For fiscal 2017, at an exchange rate of 1.0931 U.S. dollars per Euro, which is the August 1, 2016 to July 31, 2017 average was used.
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GRANTS OF PLAN-BASED AWARDS DURING FISCAL 2017
The following table sets forth information concerning each award made to a named executive officer during fiscal 2017 under any plan, contract, authorization
or arrangement pursuant to which cash, securities, similar instruments or any other property may be received.
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Name
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Grant
Date
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Estimated Future
Payouts Under
Non-Equity
Incentive Plan Awards
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Estimated Future Payouts Under
Equity Incentive Plan Awards (1)
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All Other Stock
Awards:
Number of
Shares of Stock
or Units (2)
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Grant Date
Fair Value
of Stock
Awards
($)(3)
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Threshold
($)
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Target
($)
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Maximum
($)
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Threshold
(#)
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Target
(#)
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Maximum
(#)
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David G. Tacelli
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08/25/2016
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$
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0
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$
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300,000
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$
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1,200,000
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40,000
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120,000
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120,000
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120,000
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$
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1,471,200
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Mark J. Gallenberger
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08/25/2016
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$
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0
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$
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205,000
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$
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656,000
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25,000
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75,000
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75,000
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75,000
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$
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919,500
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Pascal Rondé (4)
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08/25/2016
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$
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0
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$
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147,569
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$
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368,923
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11,334
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34,000
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34,000
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34,000
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$
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416,840
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(1)
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Represents RSU grants with performance based vesting, as described above under Equity Compensation above. The threshold number of shares represents the minimum number of shares that may become eligible to
vest based on the Companys relative stock price performance, and the target and maximum number of shares represents the total number of RSUs granted pursuant to the award.
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(2)
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Represents RSU grants with time-based vesting.
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15
(3)
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Represents the grant date fair value computed in accordance with ASC 718. For performance-based RSUs, the amount shown is based on the probable outcome of the applicable performance conditions as of the date of grant.
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(4)
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Amounts paid to Mr. Rondé are paid in Euros. His target maximum annual cash incentive is based on an annual salary of 270,000 Euros. For the purpose of this disclosure, we converted the fiscal 2017 Euro
amount to U.S. dollars at an exchange rate of 1.0931 U.S. dollars per Euro, which is the August 1, 2016 to July 31, 2017 average.
|
OUTSTANDING EQUITY AWARDS AT FISCAL 2017
YEAR-END
The following table sets forth information concerning RSUs that have not vested for each of the named executive officers as of July 31, 2017.
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Name
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Number of Shares
or Units of Stock
that Have Not
Vested(#)
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Market Value
of Shares or Units
of Stock That
Have Not
Vested($)(1)
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David G. Tacelli
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40,000
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(2)
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$
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388,400
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80,000
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(3)
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$
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776,800
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120,000
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(4)
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$
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1,165,200
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210,000
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(5)
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$
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2,039,100
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Mark J. Gallenberger
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27,500
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(2)
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$
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267,025
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50,000
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(3)
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$
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485,500
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75,000
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(4)
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$
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728,250
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131,250
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(6)
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$
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1,274,438
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Pascal Rondé
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10,000
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(2)
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$
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97,100
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22,500
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(3)
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$
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218,475
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33,750
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(4)
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$
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327,713
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59,500
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(7)
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$
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577,745
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2,500
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(8)
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$
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24,275
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(1)
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Based on $9.71 per share, the closing price of our common stock on The NASDAQ Global Market on July 31, 2017.
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(2)
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Final installment vests at the close of business on November 21, 2017, subject to continued service through such date.
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(3)
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Vests in two equal installments on August 26, 2017 and 2018, subject to continued service through such date.
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(4)
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Vests in three equal installments on August 27, 2017, 2018 and 2019, subject to continued service through each such date.
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(5)
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120,000 of Mr. Tacellis shares shall vest in four equal installments on August 25, 2017, 2018, 2019 and 2020, subject to continued service through each such date. The remaining 90,000 unvested shares
were converted from performance-based RSUs to time-based RSUs on July 31, 2017, and shall vest annually in three equal installments on July 31, 2018, 2019, and 2020.
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(6)
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75,000 of Mr. Gallenbergers shares shall vest in four equal installments on August 25, 2017, 2018, 2019 and 2020, subject to continued service through each such date. The remaining 56,250 unvested shares
were converted from performance-based RSUs to time-based RSUs on July 31, 2017, and shall vest annually in three equal installments on July 31, 2018, 2019, and 2020.
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(7)
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34,000 of Mr. Rondés shares shall vest in four equal installments on August 25, 2017, 2018, 2019 and 2020, subject to continued service through each such date. The remaining 25,500 unvested shares
were converted from performance-based RSUs to time-based RSUs on July 31, 2017, and shall vest annually in three equal installments on July 31, 2018, 2019, and 2020.
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(8)
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Final installments vests February 26, 2018, subject to continued service through such date.
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16
OPTION EXERCISES AND STOCK VESTED DURING FISCAL 2017
The following table sets forth information concerning the vesting of stock awards during fiscal 2017 for each of the named executive officers.
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Name
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Number of
Shares Acquired on
Vesting (#)
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Value Realized on
Vesting ($)(1)
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David G. Tacelli
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190,000
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$
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1,294,900
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Mark J. Gallenberger
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123,750
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$
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841,288
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Pascal Rondé
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53,500
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$
|
371,160
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(1)
|
Value realized upon vesting is based on the closing price of our common stock on The NASDAQ Global Market on the applicable vesting date.
|
17
Director Compensation
Directors who are not our employees receive cash and equity compensation and reimbursement of their travel expenses for attending meetings. The cash
compensation is a combination of a retainer and meeting fees. Directors who are not our employees receive a retainer of $30,000 per year, payable on a quarterly basis, a fee of $3,000 for each Board meeting attended, and a fee of $1,500 for each
Audit Committee meeting attended, $1,250 for each Compensation Committee meeting attended and $1,000 for each Corporate Governance and Nominating Committee meeting attended. The Chairman of the Board receives an additional $20,000 annual retainer
payment, payable on a quarterly basis. The Audit Committee Chairman, the Compensation Committee Chairman and the Corporate Governance and Nominating Committee Chairman receive $3,000, $2,500 and $2,000, respectively, for their attendance at each
such committee meeting. In addition to the cash compensation, each
non-employee
director receives a grant of 12,000 RSUs on or around the date of each Annual Meeting of the Shareholders, for annual board
membership, all of which vest fully on the first anniversary of the grant date, subject to the directors continued service on that date. Employee directors receive no separate, additional compensation for their services as directors.
The Compensation Committee reviews and makes recommendations periodically to the full Board regarding director compensation. The Compensation Committee
evaluates the Boards annual retainer, meeting fees and equity compensation, and compares these to certain peer company data.
The following table
provides compensation information for fiscal 2017 for each director other than David G. Tacelli, whose compensation is disclosed in the Summary Compensation Table on page 15:
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|
|
Name
|
|
Fees Earned or
Paid in Cash
($)
|
|
|
Stock Awards
($)(1)(2)(3)
|
|
|
All Other
Compensation
($)
|
|
|
Total ($)
|
|
Roger W. Blethen
|
|
$
|
92,500
|
|
|
$
|
79,680
|
|
|
$
|
0
|
|
|
$
|
172,180
|
|
Mark S. Ain
|
|
$
|
74,500
|
|
|
$
|
79,680
|
|
|
$
|
0
|
|
|
$
|
154,180
|
|
Jorge Titinger
|
|
$
|
71,500
|
|
|
$
|
79,680
|
|
|
$
|
0
|
|
|
$
|
151,180
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Roger J. Maggs
|
|
$
|
65,500
|
|
|
$
|
79,680
|
|
|
$
|
0
|
|
|
$
|
145,180
|
|
Bruce R. Wright
|
|
$
|
73,500
|
|
|
$
|
79,680
|
|
|
$
|
0
|
|
|
$
|
153,180
|
|
(1)
|
In November 2016, each
non-employee
director received a grant of 12,000 RSUs, which will vest on November 19, 2017.
|
(2)
|
Represents the aggregate grant date fair value of the stock awards granted during fiscal 2017 calculated in accordance with ASC 718, excluding the impact of estimated forfeitures related to service-based vesting
conditions. These amounts do not represent actual amounts paid to or realized by the director with respect to these stock awards. For more information regarding the methods and assumptions used in determining compensation expense in accordance with
ASC 718, refer to Note 2 to our consolidated financial statements included herein.
|
(3)
|
As of July 31, 2017,
non-employee
directors had the following stock awards outstanding:
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|
|
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Name
|
|
Aggregate # of Shares
Subject to
Outstanding Stock
Awards
|
|
Mark S. Ain
|
|
|
12,000
|
|
Roger W. Blethen
|
|
|
12,000
|
|
Roger J. Maggs
|
|
|
12,000
|
|
Jorge Titinger
|
|
|
12,000
|
|
Bruce Wright
|
|
|
12,000
|
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18