PROPOSAL 1 ELECTION OF DIRECTORS
At the Annual Meeting, shareholders will elect three Class A Directors for a term expiring at the Annual Meeting in 2013.Compensation Committee. The Board’s nominees for election are Keith M. Kolerus, Robert A. Lauer, and Robert G. McCreary, III. Messrs. Kolerus, Lauer, and McCreary currently serve as DirectorsCompensation Committee held eleven meetings during fiscal year 2012. The purpose of the Company.
The proxyholders named in the accompanying proxy card, or their substitutes, will vote the Proxy at the Annual Meeting, or any adjournments of the Annual Meeting, for the election of the three Director nominees named above, unless,Compensation Committee is to enhance shareholder value by marking the appropriate space on the proxy card, the shareholder withholds authority for the proxyholder to vote. Each of the nominees has indicated willingness to serve as a Director, if elected. The accompanying proxy card will not be voted for more than three Director nominees or for anyone other than the Company’s three Director nominees.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE ELECTION OF ALL NOMINEES NAMED ABOVE. PROXY CARDS RECEIVED BY THE COMPANY WILL BE VOTED “FOR” THE ELECTION OF ALL NOMINEES NAMED ABOVE UNLESS THE SHAREHOLDER SPECIFIES OTHERWISE IN THE PROXY CARD.
For each of the current Director nominees and each of the other Directors who serve on the Board, the following biography sets forth each Director’s name, age, principal occupation, employment and directorships in other publicly-held companies for the past five years, the year during which service as a Director for the Company began and when their service as a Director will end, and, if applicable, arrangements under which a Director was appointedensuring that pay available to the Board. If applicable, information regarding any involvement in certain legal or administrative proceedings is also provided.
Additional information about the experiences, qualifications, attributes, or skills of each Director in support of his continued service on the Board, is set forth below. The Nominating and Corporate Governance Committee conducted an in depth skills assessment in December of 2008. The Committee will update the study periodically.
DIRECTOR NOMINEES
Class A Director Nominees (Term to Expire in 2013)
| | | | | Keith M. Kolerus | | Age: 64 | | Director Since: 1998 |
Retired Vice President, American Division, National Semiconductor, a producer of semiconductors and a leader in analog power management technology, from 1996 to February 1998. He served as Chairman of the Board of Directors, National Semiconductor Japan Ltd., from 1995 to 1998, and Chairman of the Board of Directors of ACI Electronics, LLC, from 2004 to 2008.
Mr. Kolerus has extensive experience in engineering, global operations, private and public companies, software and hardware technology companies, government contracting, capital markets, financial management, and the technology industry.
| | | | | Robert A. Lauer | | Age: 66 | | Director Since: 2001 |
Retired from Accenture, a consulting firm (formerly known as Andersen Consulting), in August 2000. Mr. Lauer held numerous operational positions covering regional, national, and global responsibilities during his 31-year career, most recently serving as Managing Partner Global Human Performance Services and Managing Partner Change Management Global Communications and High Tech Industries. Previously, Director of SumTotal Systems, Inc. (formerly Docent, Inc.).
Mr. Lauer’s career in the information technology industry provided him with extensive experience and qualifications in global business operations, corporate and organizational restructurings, management of professional services personnel, and the development and implementation of large-scale business application software solutions in numerous industry verticals.
| | | | | Robert G. McCreary, III | | Age: 58 | | Director Since: 2001 |
Founder and currently a principal of CapitalWorks, LLC, a private equity group, since 1999. Mr. McCreary has served in numerous managing partner positions in investment banking firms and as a partner in a large regional corporate law firm.
Mr. McCreary has extensive experience and qualifications in law, corporate governance, financial strategy, capital markets, investment strategy and mergers and acquisitions, and governance of portfolio companies.
CONTINUING DIRECTORS
Continuing Class B Directors (Term Expires in 2011)
| | | | | Thomas A. Commes | | Age: 68 | | Director Since: 1999 |
Retired President and Chief Operating Officer of The Sherwin-Williams Company, a manufacturer and distributor of paints and painting supplies, from June 1986 to March 1999, where he also served as a Director from 1980 until his retirement. Director of Applied Industrial Technologies, Inc., Pella Corporation, and The Cleveland Clinic Foundation, and previously Director of U-Store-It Trust.
As a former President, Chief Operating Officer, and Chief Financial Officer of a Fortune 300 company, Mr. Commes’ qualifications and experience include acquisitions, global business operations and administration, financial management and strategy, capital markets, and sales management and marketing. In addition, Mr. Commes has experience in executive compensation, having served as the Chair of the compensation committee of a NYSE-listed company.
| | | | | R. Andrew Cueva | | Age: 39 | | Director Since: 2008 |
Managing Director of MAK Capital Fund, L.P., a value-oriented hedge fund, since 2005. Portfolio manager and analyst at Green Cay Asset Management from 2002 to 2004.
As Managing Director of MAK Capital, the Company’s largest shareholder, Mr. Cueva is uniquely qualified to represent the interests of the Company’s shareholders. Additionally, Mr. Cueva’s qualifications and experience include capital markets, investment strategy, and financial management.
| | | | | Howard V. Knicely | | Age: 74 | | Director Since: 2002 |
Retired Executive Vice President, Human Resource & Communications of TRW Inc., a provider of advanced technology products and services in the aerospace and automotive industries (prior to its acquisition by
Northrop Grumman), from 1995 through 2002. Executive Vice President, Human Resources, Communications and Information Systems at TRW Inc. from 1989 to 1995. Mr. Knicely also served as a Director of TRW Inc. from 2001 through 2002.
As a former Director and head of Human Resources and Communications at a Fortune 150 Company, Mr. Knicely has extensive qualifications and experience in compensation, talent management, organizational restructuring, global business operations, corporate governance, and communications.
Continuing Class C Directors (Term Expires in 2012)
| | | | | James H. Dennedy | | Age: 44 | | Director Since: 2009 |
Principal and Chief Investment Officer with Arcadia Capital Advisors, LLC, an investment management company making active investments in public companies, since April 2008. President and Chief Executive Officer, and other executive officers enables us to attract and retain high-quality leadership and is consistent with our executive pay philosophy. As part of Engyro Corporation, an enterprise software company offering solutions in systems management, from January 2005its responsibility, the Compensation Committee oversees our pay plans and policies; annually reviews and determines all pay, including base salary, annual cash incentive, long-term equity incentive, and retirement and perquisite plans; administers our incentive programs, including establishing performance goals, determining the extent to August 2007. Principalwhich performance goals are achieved, and determining awards; administers our equity pay plans, including making grants to our executive officers; and regularly evaluates the effectiveness of Mitchell-Wright, LLC, a consulting firm, from April 2002the overall executive pay program and evaluates our incentive plans to December 2004. Directordetermine if the plans’ measures or goals encourage inappropriate risk-taking by our employees. A more complete description of NaviSite, Inc., and previously Director of Entrust, Inc. and I-many, Inc.
As a former President of a division of a publicly-held software company and as a Chief Executive Officer of a private software company, Mr. Dennedy has experiencethe Compensation Committee’s functions is found in the technology industry. In addition, Mr. Dennedy has extensive experienceCompensation Committee Charter.
Our Law and Human Resources Departments support the Compensation Committee in investment strategy, capital structure, financial strategy, mergersits work and, acquisitions, and significant public company board experience. In June 2009, in connection with a Settlement Agreement with Ramius LLC, a shareholder of the Company, the Board appointed Mr. Dennedy to fill a vacancy created by the resignation of Mr. Steve Tepedino, who was initially appointed by Ramius LLC. Mr. Dennedy was recommended as a Director candidate by Ramius LLC and was re-elected by shareholders at the 2009 Annual Meeting.
| | | | | Martin F. Ellis | | Age: 45 | | Director Since: 2008 |
President and Chief Executive Officer of the Company since October 2008. Executive Vice President and Chief Financial Officer of the Company from June 2005 to October 2008. Executive Vice President Corporate Development and Investor Relations of the Company from June 2003 to June 2005.
Mr. Ellis’ experiences at the Company have provided him with significant qualifications in performance measurement, restructuring, strategy, capital markets, capital structure and financial strategy, mergers, acquisitions and divestitures, and investor relations.
| | | | | John Mutch | | Age: 53 | | Director Since: 2009 |
Chief Executive Officer of BeyondTrust, a security software company, since October 2008. Founder and a Managing Partner of MV Advisors, LLC, a strategic block investment firm that provides focused investment and strategic guidance to small and mid-cap technology companies, since 2006. In March 2003, Mr. Mutch was appointed to the Board of Directors of Peregrine Systems Inc., a global enterprise software provider, to assist Peregrine’s development of a plan of reorganization, which ultimately led to Peregrine’s emergence from bankruptcy. From August 2003 to December 2005, Mr. Mutch served as President and Chief Executive Officer of Peregrine, during which time he restructured and stabilized its business operations and led Peregrine through its acquisition by Hewlett-Packard. Director of Adaptec, Inc., and previously Director of Edgar Online, Inc., Aspyra, Inc., and Overland Storage, Inc.
Mr. Mutch has been an operating executive and investor in the technology industry for over 25 years and has a long, sustained track record of creating shareholder value through both activities. As a Chief Executive Officer of an IT company, Mr. Mutch has extensive experience in the technology industry, restructuring, financial management and strategy, capital markets, sales management, and marketing.
In March 2009, Mr. Mutch was appointed to the Company’s Board at the recommendation of Ramius LLC, a shareholder of the Company, in connection with a Settlement Agreement with Ramius.
CORPORATE GOVERNANCE AND RELATED MATTERS
Corporate Governance Guidelines
The Board has adopted Corporate Governance Guidelines (the “Guidelines”) that provide a sound framework to assist the Board in fulfilling its responsibilities to shareholders. Under the Guidelines, the Board exercises its role in overseeing the Company by electing qualified and competent officers, and by monitoring the performance of the Company. The Guidelines state that the Board and its Committees exercise oversight of chief executive officer and executive pay, Director compensation, succession planning, Director nomination, corporate governance, financial accounting and reporting, internal controls, strategic and operational issues, and compliance with laws and regulations. The Guidelines also state Board policy regarding eligibility for the Board, including Director independence and qualifications for Board candidates, events that require resignation from the Board, service on other public company boards, and stock ownership guidelines. The Nominating and Corporate Governance Committee annually reviews the Guidelines and makes recommendations for changes to the Board. The Guidelines are available on our website at www.agilysys.com.
Independence
The NASDAQ listing standards provide that at least a majority of the members of the Board must be independent, meaning free of any material relationship with the Company, other than his or her relationship as a Director. The Guidelines state that the Board should consist of a substantial majority of independent Directors. A Director is not independent if he fails to satisfy the standards for Director independence under NASDAQ listing standards, the rules of the SEC, and any other applicable laws, rules, and regulations. During the Board’s annual review of Director independence, the Board considers transactions, relationships, and arrangements, if any, between each Director or a Director’s immediate family member and the Company or its management.
In May 2010, the Board performed its annual Director independence review, andsome cases, as a result of such review determined thatdelegation of authority by the following Directors have been determinedCompensation Committee, fulfill various functions in administering our pay programs. In addition, the Compensation Committee has the authority to be independent:
| | | Thomas A. Commes
| | R. Andrew Cueva | James H. Dennedy
| | Howard V. Knicely | Keith M. Kolerus
| | Robert A. Lauer | Robert G. McCreary, III
| | John Mutch |
Mr. Ellis is not consideredengage the services of outside consultants and advisers to be independent becauseassist it. In fiscal year 2012, the Compensation Committee relied on information provided by Towers Watson, its compensation consultant, regarding competitive market assessments of his position as our President and Chief Executive Officer.
Code of Ethics
We have adopted a Code of Business Conduct that applies to all Directors,compensation for the Company’s executive officers and employees ofnon-employee Directors.
While the Company. Previously, we had adopted a separate Code of Ethics for Senior Financial Officers applicable toCompensation Committee directly retained Towers Watson, in carrying out its assignments, Towers Watson also interacted with our executive officers when necessary and appropriate, including our Chief Executive Officer, Chief Financial Officer, and our General Counsel, who provided data and insight on our compensation programs and business strategies. These executive officers attend Compensation Committee meetings when executive compensation, Company performance, and individual performance are discussed and evaluated by Compensation Committee members, and they provide their thoughts and recommendations on executive pay issues during these meetings and provide updates on financial performance, industry status, and other factors that may impact executive compensation. Decisions regarding the Chief Executive Officer’s compensation were based solely on the Compensation Committee’s deliberations, while compensation decisions regarding other executive officers took into consideration recommendations from the Chief Executive Officer. Only Compensation Committee members make decisions on executive officer compensation and approve all outcomes. Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee (“Nominating Committee”) held five meetings during fiscal year 2012. The Nominating Committee assists the Board in finding and nominating qualified people for election to the Board; reviewing shareholder-recommended nominees; assessing and evaluating the Board’s effectiveness; and establishing, implementing, and 5
overseeing our governance programs and policies. The Nominating Committee is responsible for reviewing the qualifications of, and recommending to the Board, individuals to be nominated for membership on the Board. The Board adopted Guidelines for Qualifications and Nomination of Director Candidates (“Nominating Guidelines”), and the Nominating Committee considers nominees using the criteria set forth in the Nominating Guidelines. At a minimum, a Director nominee must: Be of proven integrity with a record of substantial achievement; Have demonstrated ability and sound business judgment based on broad experience; Be able and willing to devote the required amount of time to the Company’s affairs, including attendance at Board and Committee meetings; Be analytical and constructive in the objective appraisal of management’s plans and programs; Be committed to maximizing shareholder value and building a sound Company, long-term; Be able to develop a professional working relationship with other Board members and contribute to the Board’s working relationship with senior financial officersmanagement of the Company; Be able to exercise independent and objective judgment and be free of any conflicts of interest with the Company; and Be able to maintain the highest level of confidentiality. The Nominating Committee considers the foregoing factors, among others, in identifying nominees; however, there is no policy requiring the Nominating Committee to consider the impact of any one factor by itself. The Nominating Committee also will consider the Board’s current and anticipated needs in terms of number, diversity, specific qualities, expertise, skills, experience, and background. In addition, the Corporate Governance Guidelines state that the Board should have a balanced membership, with diverse representation of relevant areas of experience, expertise, and backgrounds. The Nominating Committee seeks nominees that collectively will build a capable, responsive, and effective Board, prepared to address strategic, oversight, and governance challenges. The Nominating Committee believes that the backgrounds and qualifications of the Directors as a group should provide a significant mix of experience, knowledge, and abilities that will enable the Board to fulfill its responsibilities. The Nominating Committee will consider shareholder-recommended nominees for membership on the Board. For a shareholder to properly nominate a candidate for election as a Director at a meeting of the shareholders, the shareholder must be a shareholder of record at the time the notice of the nomination is given and at the time of the meeting, be entitled to vote at the meeting in the election of Directors, and have given timely written notice of the nomination to the Secretary. To be timely, notice must be received by the Secretary, in the case of an annual meeting, not less than 90 days nor more than 120 days prior to the anniversary of the previous year’s annual meeting; provided, however, that if the date of the annual meeting is advanced more than 30 days prior to or delayed by more than 30 days after the anniversary of the preceding year’s annual meeting, notice must be delivered not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th calendar day following the day on which public disclosure of the date of such annual meeting is first made. In the case of a special meeting, timely notice must be received by the Secretary not later than the close of business on the 10th day after the date of such meeting is first publicly disclosed. A shareholder’s notice must set forth, as to each candidate: Name, age, business address, and residence address of the candidate; Principal occupation or employment of the candidate; Class and number of shares that are owned of record or beneficially by the candidate; Information about the candidate required to be disclosed in a proxy statement complying with the rules and regulations of the SEC; Written consent of the candidate to serve as a Director if elected and a representation that the candidate does not and will not have any undisclosed voting arrangements with respect to his actions as a Director, will comply with the Company’s Regulations and all other publicly disclosed corporate governance, conflict of interest, confidentiality, and share ownership and trading policies and Company guidelines; Name and address of the shareholder making such nomination and of the beneficial owner, if any, on whose behalf the nomination is made; 6
Class and number of shares that are owned of record or beneficially by the shareholder and by any such beneficial owner as of the date of the notice; Representation that the shareholder or any such beneficial owner is a holder of record or beneficially of the shares entitled to vote at the meeting and intends to remain so through the date of the meeting; Description of any agreement, arrangement, or understanding between or among the shareholder and any such beneficial owner and any other persons (including their names) with respect to such nomination; Description of any agreement, arrangement, or understanding in effect as of the date of the shareholder’s notice pursuant to which the shareholder, any such beneficial owner, or any other person directly or indirectly has other economic interests in the shares of the Company; Representation that the shareholder intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; and Representation whether the shareholder intends to deliver a proxy statement and/or form of proxy to holders of outstanding common shares and/or otherwise to solicit proxies in support of the nomination. The Nominating Committee may request additional information from such nominee to assist in its evaluation. The Nominating Committee will evaluate any shareholder-recommended nominees in the same way it evaluates nominees recommended by other sources, as described above. Special Committee. The Special Committee was formed during fiscal year 2011 and continued to serve during fiscal year 2012 to consider potential strategic alternatives for the Company. The Special Committee was comprised solely of independent Directors, and its objectives were to support the Board in a number of matters directly related to the execution of Agilysys’ strategic plan; evaluate a range of alternatives that maximize shareholder value; and review and provide recommendations to the Board on these matters for full Board consideration. The Special Committee held five meetings during fiscal year 2012 and was disbanded in May 2011. Board Leadership The Board determined that having an independent Director serve as Chairman of the Board is in the best interest of shareholders at this time. This structure has been particularly important as the Board considered strategic alternatives and direction and implemented changes in the executive management team. The structure ensures a greater role for our independent Directors in the oversight of the Company and any person performing a similar function. In January 2010, the Board approved our combiningactive participation in setting agendas and establishing priorities and procedures for the Code of Ethics for Senior Financial Officers with the Code of Business Conduct. The amended Code of Business Conduct includes all of the ethics standards previously established in the Code of Ethics for Senior Financial Officers to provide a unified, more comprehensive approach to conveying ethics expectations. The Code of Business Conduct is reviewed annually by the Audit Committee, and recommendations for change are submittedBoard. Pursuant to the Board for approval. The CodeBoard’s Corporate Governance Guidelines, it is our policy that the positions of Business Conduct is available on our website at www.agilysys.com. The Company has in place a hotline available for use by all employees, as described in the Code of Business Conduct. Any employee can anonymously report potential violations of the Code of Business Conduct through the hotline, which is managed by an independent third party. Reported violations are promptly investigated and reported to the Audit Committee. Reported violations are addressed by the Company and, if related to accounting, internal accounting controls, or auditing matters, the Audit Committee.
Meetings of Board and Attendance at Annual Meeting
The Board held eight meetings during the last fiscal year, of which three were special meetings. During fiscal year 2010, no Director attended less than 75% of the aggregate of (i) the total number Board meetings held during the period he served as a Director and (ii) the total number of meetings held by CommitteesChairman of the Board on which he served, during the periods that he served. Independent Directors meet regularly in executive session at each Board meeting, and executive sessions are chairedChief Executive Officer be held by Mr. Kolerus, Chairman ofdifferent individuals, except as otherwise determined by the Board.
ItRisk Oversight
Management is responsible for the Board’s policy that allday-to-day management of its members attendrisks facing the Annual Meeting absent exceptional cause. All of the Directors were in attendance at the 2009 Annual Meeting. Shareholder Communication with Directors
Shareholders and others who wish to communicate withCompany, while the Board, as a whole and through its Committees, is actively involved in the oversight of such risks. The Board’s role in risk oversight includes regular reports at Board and Audit Committee meetings from members of senior management on areas of material risk to the Company, including strategic, financial, operational, and legal and regulatory compliance risks. Management regularly identifies and updates, among other items, the population of possible risks for the Company, assigns risk ratings, prioritizes the risks, assesses likelihood of risk occurrence, develops risk mitigation plans for prioritized risks, and assigns roles and responsibilities to implement mitigation plans. Risks are ranked by evaluating each risk’s likelihood of occurrence and magnitude. Our Compensation Committee of the Board, in consultation with management, evaluates our incentive plans to determine if the plans’ measures or with any individual Director, may do sogoals encourage inappropriate risk-taking by sending a written communicationour employees. As part of its evaluation, our Compensation Committee determined that the performance measures and goals were tied to our business, financial, and strategic objectives. As such, Director(s) in carethe incentive plans are believed not to encourage risk-taking outside of the range of risks contemplated by the Company’s business plan.
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Compensation Committee Interlocks and Insider Participation None of the members of the Compensation Committee during fiscal year 2012 or as of the date of this Proxy Statement is or has been an officer or employee of the Company, and none of our executive officers served on the compensation committee (or other committee serving an equivalent function) or board of any company that employed any member of our Compensation Committee or our Directors. DIRECTOR COMPENSATION Following the sale of the Company’s Technology Solutions Group (“TSG”) business unit in August of 2011, the Compensation Committee re-evaluated the Directors’ compensation structure in light of the smaller Company size and reviewed competitive market assessment data provided by Towers Watson in it analysis. As a result, the Compensation Committee recommended, and the Board approved, a reduced compensation structure for non-employee Directors. The following information and discussion summarize the compensation changes and our non-employee Directors’ fiscal year 2012 compensation: The annual cash retainer for each Director was reduced from $30,000 to $25,000; The additional cash retainer for the Chairman of the Board was reduced from $50,000 to $35,000; The additional cash retainer for each Chairman of the Nominating and Compensation Committees was reduced from $10,000 to $7,500; The additional cash retainer for the Chairman of the Audit Committee was reduced from $15,000 to $10,000; The additional cash retainer for each member of the Audit, Nominating and Compensation Committees, including each Chairman, was reduced from $15,000 to $10,000; and The fiscal year 2012 award of restricted shares to each Director was valued at our headquarters address. Our General Counsel will forward$70,000 on the communicationgrant date, compared to $80,000 for the prior fiscal year’s award. Each member of the Special Committee received a cash retainer of $15,000, and the Chairman of the Special Committee received an additional cash retainer of $10,000. Each member also received a $5,000 cash bonus upon closing of the TSG sale, in recognition of their efforts. Additionally, Keith Kolerus, Chairman of the Board, received a $50,000 cash payment upon closing of the TSG sale, in recognition of his efforts and the successful closing of the sale. The fiscal year 2012 equity award for each Director consisted of 9,434 restricted shares, based on a $7.42 grant date price, and was granted under the 2011 Stock Incentive Plan. The restricted shares vested on March 31, 2012 and provided for pro-rata vesting upon retirement prior to March 31, 2012. The grant was made in August 2011, after the closing of the TSG sale, to the specified Director(s). Committeesthen current, non-employee Directors; however, Mr. Cueva declined the award given the significant ownership in the Company by his firm, MAK Capital. Our Directors are subject to share ownership guidelines that require ownership of either (i) three times the Director’s respective annual cash retainer within two years of service and six times the Director’s respective annual cash retainer within four years of service; or (ii) 15,000 shares within the first two years following the Director’s election to the Board and 45,000 shares within four years of election. We pay no additional fees for Board or Committee meeting attendance. Mr. Dennedy ceased receiving compensation for his service as a Director upon his appointment as an executive officer, and all compensation received by Mr. Dennedy thereafter was for his service as an executive officer, except for payments made for his service on the Special Committee prior to its disbandment. All compensation received by Mr. M. Ellis was for his service as an executive officer.
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Director Compensation for Fiscal Year 2012 | | | | | | | | | | | | | Director | | Fees Earned or Paid in Cash ($)(1) | | | Stock Awards ($)(2) | | | Total ($) | | Thomas A. Commes | | | 25,000 | | | | — | | | | 25,000 | | R. Andrew Cueva | | | 58,750 | | | | — | | | | 58,750 | | Howard K. Knicely | | | 23,333 | | | | — | | | | 23,333 | | Keith M. Kolerus | | | 140,000 | | | | 70,000 | | | | 210,000 | | Robert A. Lauer | | | 67,917 | | | | 70,000 | | | | 137,917 | | Robert G. McCreary, III | | | 46,667 | | | | 70,000 | | | | 116,667 | | John Mutch | | | 50,000 | | | | 70,000 | | | | 120,000 | |
(1) | Fees are paid quarterly. Fees reflect partial service during the fiscal year for Messrs. Commes and Knicely (prior to their retirement), reflect payments made during fiscal year 2012 to Special Committee members for their services prior to the Special Committee being disbanded, and reflect changes in Committee membership and fee structure in August 2011. Refer to discussion above for Director compensation structure. Mr. Dennedy’s fees paid for services prior to becoming an executive officer are disclosed in the Summary Compensation Table. |
(2) | | | | | | Amounts in this column represent the grant date fair value of the restricted shares computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. As of March 31, 2012, the aggregate number of unexercised stock options held by each non-employee Director | | Audit
| | Compensation
| | Nominating and
Corporate
Governance
| Thomas A. was as follows: Mr. Commes, (1)
| | Chairman | | | | X | R. Andrew Cueva (2)
| | X | | | | X | James H. Dennedy (2)
| | X | | | | | Howard V.30,000; Mr. Knicely,
| | | | Chairman | | X | Keith M. 30,000; Mr. Kolerus,
| | | | X | | | Robert A. 22,500; Mr. Lauer,
| | X | | X | | | Robert G. 30,000; and Mr. McCreary, III
| | X | | | | Chairman | John Mutch (2)
| | | | X | | 30,000. |
(1) | Audit Committee Financial Expert
|
(2) | On April 27, 2009, Mr. R. Andrew Cueva was appointed to serve on the Audit and the Nominating and Corporate Governance Committees, and Mr. Mutch was appointed to serve on the Compensation Committee. On June 22, 2009, Mr. Dennedy was appointed to serve on the Audit Committee.
|
Audit Committee. The Audit Committee held five meetings during the last fiscal year, of which one was a special meeting. The Audit Committee, established in accordance with Section 3(a)(58)(A) of the Exchange Act, reviews with our independent registered public accounting firm the proposed scope of our annual audits and audit results, reviews the adequacy of internal financial controls, reviews internal audit functions, is directly responsible for the appointment, determination of compensation, retention, and general oversight of the independent registered public accounting firm, and reviews any concerns identified by either the internal or external auditors. The Board has determined that all Audit Committee members are financially literate under the current NASDAQ listing standards. The Board has also determined that Thomas A. Commes qualifies as an “audit committee financial expert” under the rules adopted by the SEC under the Sarbanes-Oxley Act of 2002. The Board has adopted an Audit Committee Charter which is reviewed annually by the Audit Committee and is available on our website at www.agilysys.com.PROPOSAL 1
Compensation Committee. The Compensation Committee held fiveeleven meetings during the last fiscal year.year 2012. The purpose and mission of the Compensation Committee is to enhance shareholder value by ensuring thethat pay available to the Board, Chief Executive Officer, and other executive officers enables us to attract and retain high-quality leadership and is consistent with our executive pay policy.philosophy. As part of its responsibility, in this regard, the Compensation Committee oversees our pay plans and policies,policies; annually reviews and determines all pay, including base salary, annual cash incentive, long-term stockequity incentive, and retirement and perquisite plans and programs,plans; administers our incentive programs, including establishing performance goals, determining the extent to which performance goals are achieved, and determining awards,awards; administers our equity pay plans, including making grants to our executive officers,officers; and regularly evaluates the effectiveness of the overall executive pay program. The Board has adopted a Compensation Committee Charter which is reviewed annuallyprogram and evaluates our incentive plans to determine if the plans’ measures or goals encourage inappropriate risk-taking by the Compensation Committee and is available on our website at www.agilysys.com.employees. A more complete description of the Compensation Committee’s functions is found in the Compensation Committee Charter. Our Law and Human Resources Departments support the Compensation Committee in its work and, in some cases, as a result of delegation of authority by the Compensation Committee, fulfill various functions in administering our pay programs. In addition, the Compensation Committee has the authority to engage the services of outside advisers, experts,consultants and othersadvisers to assist the Compensation Committee.it. In fiscal year 2010,2012, the Compensation Committee relied on the servicesinformation provided by Towers Watson, its compensation consultant, regarding competitive market assessments of Pearl Meyer & Partners, LLC (“PM&P”), an executive pay consulting firm, to provide input to facilitate the Compensation Committee’s decision-making process regarding the executive pay programscompensation for the Company’s executive officers. Specifically, PM&P: Provided input on executive pay levels among a peer group of companiesofficers and from published and private salary surveys;non-employee Directors.
Provided long-term incentive plan alternatives; and
Assisted in the preparation of the Compensation Discussion and Analysis included in this Proxy Statement.
While the Compensation Committee directly retained PM&P,Towers Watson, in carrying out its assignments, PM&PTowers Watson also interacted with our executive officers when necessary and appropriate. Specifically, PM&P interacted withappropriate, including our Chief Executive Officer, Chief Financial Officer, and our General Counsel, Secretary and Senior Vice President – Human Resources, who provided data and insight on our compensation programs and business strategies. These executive officers attend Compensation Committee meetings when executive compensation, Company performance, and individual performance are discussed and evaluated by Compensation Committee members, and they provide their thoughts and recommendations on executive pay issues during these meetings and also provide updates on financial performance, divestitures, mergers and acquisitions, industry status, and other factors that may impact executive compensation. Decisions regarding the Chief Executive Officer’s compensation were based solely on the Compensation Committee’s deliberations, while compensation decisions regarding other executive officers took into consideration recommendations from the Chief Executive Officer. Only Compensation Committee members make decisions on executive officer compensation and approve all outcomes. Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee (“Nominating Committee”) held sixfive meetings during the last fiscal year of which two were special meetings.2012. The Nominating Committee assists the Board in finding and nominating qualified people for election to the Board,Board; reviewing shareholder-recommended nominees; assessing and evaluating the Board’s effectiveness,effectiveness; and establishing, implementing, and 5
overseeing our governance programs and policies. The Board has adopted a Nominating Committee Charter which is reviewed annually by the Nominating Committee and is available on our website at www.agilysys.com. The Nominating Committee is responsible for reviewing the qualifications of, and recommending to the Board, individuals to be nominated for membership on the Board. The Board has adopted Guidelines for Qualifications and Nomination of Director Candidates (“Nominating Guidelines”), and the Nominating Committee considers nominees using the criteria set forth in the Nominating Guidelines. At a minimum, a candidate must meet the following criteria: Director nominee must: Be of proven integrity with a record of substantial achievement; HasHave demonstrated ability and sound business judgment based on broad experience;
Be able and willing to devote the required amount of time to the Company’s affairs, including attendance at Board and committeeCommittee meetings; Be analytical and constructive in the objective appraisal of management’s plans and programs; Be committed to maximizing shareholder value and building a sound Company, long-term; Be able to develop a professional working relationship with other Board members and contribute to the Board’s working relationship with senior management of the Company; Be able to exercise independent and objective judgment and be free of any conflicts of interest with the Company; and Be able to maintain the highest level of confidentiality. The Nominating Committee considers the foregoing factors, among others, in identifying candidates;nominees; however, there is no policy requiring the Nominating Committee to consider the impact of any one factor by itself. The Nominating Committee also will consider the Board’s current and anticipated needs in terms of number, diversity, specific qualities, expertise, skills, experience, and background. In addition, the Corporate Governance Guidelines state that the Board should have a balanced membership, with diverse representation of relevant areas of experience, expertise, and backgrounds. The Nominating Committee seeks nominees that collectively will build a capable, responsive, and effective Board, prepared to address strategic, oversight, and governance challenges. The Nominating Committee believes that the backgrounds and qualifications of the Directors as a group should provide a significant mix of experience, knowledge, and abilities that will enable the Board to fulfill its responsibilities. The Nominating Committee will consider shareholder recommendations forshareholder-recommended nominees for membership on the Board. Shareholders may makeFor a nominee recommendation by sendingshareholder to properly nominate a candidate for election as a Director at a meeting of the shareholders, the shareholder must be a shareholder of record at the time the notice of the nomination is given and at the time of the meeting, be entitled to vote at the meeting in the election of Directors, and have given timely written notice of the nomination to the ChairmanSecretary. To be timely, notice must be received by the Secretary, in the case of an annual meeting, not less than 90 days nor more than 120 days prior to the anniversary of the Nominating Committee,previous year’s annual meeting; provided, however, that if the date of the annual meeting is advanced more than 30 days prior to our General Counsel’s attention at our headquarters. The recommendationor delayed by more than 30 days after the anniversary of the preceding year’s annual meeting, notice must include (i)be delivered not later than the nameclose of business on the later of the 90th day prior to such annual meeting or the 10th calendar day following the day on which public disclosure of the date of such annual meeting is first made. In the case of a special meeting, timely notice must be received by the Secretary not later than the close of business on the 10th day after the date of such meeting is first publicly disclosed. A shareholder’s notice must set forth, as to each candidate: Name, age, business address, and residence address of the candidate; Principal occupation or employment of the candidate; Class and number of shares that are owned of record or beneficially by the candidate; Information about the candidate required to be disclosed in a proxy statement complying with the rules and regulations of the SEC; Written consent of the candidate to serve as a Director if elected and a representation that the candidate does not and will not have any undisclosed voting arrangements with respect to his actions as a Director, will comply with the Company’s Regulations and all other publicly disclosed corporate governance, conflict of interest, confidentiality, and share ownership and trading policies and Company guidelines; Name and address of the candidate, (ii) a biographyshareholder making such nomination and of the candidate, including hisbeneficial owner, if any, on whose behalf the nomination is made; 6
Class and number of shares that are owned of record or her employment for the last ten years, educational background and, if applicable, any financial or accounting education, background, and experience, (iii) an explanation of why the candidate is qualified to serve as a director of the Board, (iv) a description of all agreements betweenbeneficially by the shareholder and by any such beneficial owner as of the candidatedate of the notice; Representation that the shareholder or any such beneficial owner is a holder of record or beneficially of the shares entitled to vote at the meeting and intends to remain so through the date of the meeting; Description of any agreement, arrangement, or understanding between or among the shareholder and any such beneficial owner and any other persons regarding(including their names) with respect to such nomination; Description of any agreement, arrangement, or understanding in effect as of the recommendation for nomination, and (v)date of the candidate’s signed consentshareholder’s notice pursuant to serve as a director if nominated and elected and to be namedwhich the shareholder, any such beneficial owner, or any other person directly or indirectly has other economic interests in the Proxy Statement if recommendedshares of the Company; Representation that the shareholder intends to appear in person or by proxy at the Board.meeting to nominate the person or persons specified in the notice; and Representation whether the shareholder intends to deliver a proxy statement and/or form of proxy to holders of outstanding common shares and/or otherwise to solicit proxies in support of the nomination. The Nominating Committee may request additional information from such candidatenominee to assist in its evaluation. The Nominating Committee will evaluate any shareholder-recommended nominees in the same way it evaluates candidatesnominees recommended by other sources, as described above. Chief Executive OfficerSpecial Committee. The Special Committee was formed during fiscal year 2011 and Chairman Positionscontinued to serve during fiscal year 2012 to consider potential strategic alternatives for the Company. The Special Committee was comprised solely of independent Directors, and its objectives were to support the Board in a number of matters directly related to the execution of Agilysys’ strategic plan; evaluate a range of alternatives that maximize shareholder value; and review and provide recommendations to the Board on these matters for full Board consideration. The Special Committee held five meetings during fiscal year 2012 and was disbanded in May 2011.
Board Leadership The Board has determined that having an independent directorDirector serve as Chairman of the Board is in the best interest of shareholders at this time. This structure has been particularly important as the Board has considered strategic alternatives and direction and implemented changes in the executive management team, particularly the appointment of Mr. Ellis is his new role as Chief Executive Officer in October 2008.team. The structure ensures a greater role for our independent Directors in the oversight of the Company and the active participation in setting agendas and establishing priorities and procedures for the Board. Pursuant to the Board’s Corporate Governance Guidelines, it is our policy that the positions of Chairman of the Board and Chief Executive Officer be held by different individuals, except as otherwise determined by the Board. Risk Oversight Management is responsible for the day-to-day management of risks facing the Company, while the Board, as a whole and through its Committees, is actively involved in the oversight of such risks. The Board’s role in risk oversight includes regular reports at Board and Audit Committee meetings from members of senior management on areas of material risk to the Company. The Company utilizes an Enterprise Risk Management (“ERM”) approach to articulate to the Board any event or group of events that would materially impact the value of the Company. The ERM approach serves to regularly identify and update, among other items, the population of possible risks for the Company, assign risk ratings, prioritize the risks, assess likelihood of risk occurrence, and develop risk mitigation plans for prioritized risks, as well as assign roles and responsibilities to implement mitigation plans. Risks are ranked primarily by evaluating each risk’s likelihood of occurrence and magnitude. The ERM process is ongoing and supplemented by regular reports to the Board from each Committee chair regarding each respective Committee’s considerations and actions regarding particular risk to the Company. In addition to the Board’s role in risk oversight, the Audit Committee regularly reviews areas of material risk to the Company, including strategic, financial, operational, and legal and regulatory compliance risks. Management regularly identifies and updates, among other items, the population of possible risks for the Company, assigns risk ratings, prioritizes the risks, assesses likelihood of risk occurrence, develops risk mitigation plans for prioritized risks, and assigns roles and responsibilities to implement mitigation plans. Risks are ranked by evaluating each risk’s likelihood of occurrence and magnitude. Our Compensation Committee of the Board, in consultation with management, evaluates our incentive plans to determine if the plans’ measures or goals encourage inappropriate risk-taking by our employees. As part of its evaluation, our Compensation Committee determined that the performance measures and goals were tied to our business, financial, and strategic objectives. As such, the incentive plans are believed not to encourage risk-taking outside of the range of risks contemplated by the Company’s business plan.
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Compensation Committee Interlocks and Insider Participation None of the members of the Compensation Committee during fiscal year 20102012 or as of the date of this Proxy Statement is or has been an officer or employee of the Company, and none of our executive officers served on the compensation committee (or other committee serving an equivalent function) or board of any company that employed any member of our Compensation Committee or our Directors. DIRECTOR COMPENSATION Following the sale of the Company’s Technology Solutions Group (“TSG”) business unit in August of 2011, the Compensation Committee re-evaluated the Directors’ compensation structure in light of the smaller Company size and reviewed competitive market assessment data provided by Towers Watson in it analysis. As a result, the Compensation Committee recommended, and the Board approved, a reduced compensation structure for non-employee Directors. The following information and discussion and table, and related notes, summarize information aboutthe compensation changes and our non-employee Directors’ fiscal year 2010 compensation. 2012 compensation: AnThe annual cash retainer of $30,000;for each Director was reduced from $30,000 to $25,000;
The additional cash retainer for the Chairman of the Board was paid an additional retainer of $50,000; Chairs of the Compensation Committee and Nominating and Corporate Governance Committee receive an additional $10,000 cash retainer per year;reduced from $50,000 to $35,000;
The Chairadditional cash retainer for each Chairman of the Nominating and Compensation Committees was reduced from $10,000 to $7,500; The additional cash retainer for the Chairman of the Audit Committee is paid anwas reduced from $15,000 to $10,000; The additional $15,000 cash retainer per year;for each member of the Audit, Nominating and Compensation Committees, including each Chairman, was reduced from $15,000 to $10,000; and Audit Committee, Nominating and Corporate Governance Committee, and Compensation Committee members are paid an additional $15,000 cash retainer per year (including each Chair).
Our Compensation Committee recommended to the Board that theThe fiscal year 2010 annual equity grant be an2012 award of restricted shares to each Director was valued at $70,000 on the grant date, compared to $80,000 for the prior fiscal year’s award.
Each member of the Special Committee received a cash retainer of $15,000, and the Chairman of the Special Committee received an additional cash retainer of $10,000. Each member also received a $5,000 cash bonus upon closing of the TSG sale, in recognition of their efforts. Additionally, Keith Kolerus, Chairman of the Board, received a $50,000 cash payment upon closing of the TSG sale, in recognition of his efforts and the successful closing of the sale. The fiscal year 2012 equity award for each Director consisted of 9,434 restricted shares, based on a $7.42 grant date price, and was granted under the 20062011 Stock Incentive Plan valued at $80,000, with aPlan. The restricted shares vested on March 31, 2010 vesting date,2012 and provided for pro-rata vesting upon retirement prior to March 31, 2010. Each2012. The grant was made in August 2011, after the closing of ourthe TSG sale, to the then current, non-employee Directors, except Messrs. Cueva and Dennedy, received 11,713 restricted shares, recommended by the Compensation Committee and approved by the Board, at a $6.83 grant price, which vested on March 31, 2010. The Board approved the grant based on the results from the formal compensation study conducted by the Compensation Committee’s outside consultant that took place for fiscal year 2009.Directors; however, Mr. Cueva declined thisthe award given the significant ownership in the Company by his firm, MAK Capital. After Mr. Dennedy’s appointment to the Board, he received a grant of 17,279 restricted shares, recommended by the Compensation Committee and approved by the Board at its July 2009 meeting, at a grant price of $4.63 and which vested on March 31, 2010. In June 2010, the Board approved a fiscal year 2011 equity grant of 12,903 restricted shares with a grant date value of $80,000, or $6.20 per share, vesting on March 31, 2011, with pro-rata vesting upon retirement prior to March 31, 2011. Mr. Cueva declined this award also. We pay no additional fees for Board or Committee meeting attendance. All compensation received by Mr. Ellis for his service as an executive officer is fully reflected in the compensation tables below, and he receives no other payment for his service as a Director. Our non-employee Directors are eligible to participate in the Company’s nonqualified deferred compensation plan, the Benefits Equalization Plan (the “BEP”), which allows a Director to elect to defer all or a part of his pay. No Directors participate in the BEP.
Our Directors are subject to share ownership guidelines. The guidelines that require ownership of either (i) twothree times the Director’s respective annual cash retainer within two years of service and foursix times the DirectorsDirector’s respective annual cash retainer within four years of serviceservice; or (ii) 5,000 Common Shares15,000 shares within the first two years following the Director’s election to the Board and 15,000 Common Shares45,000 shares within four years of election. We pay no additional fees for Board or Committee meeting attendance. Mr. Dennedy ceased receiving compensation for his service as a Director upon his appointment as an executive officer, and all compensation received by Mr. Dennedy thereafter was for his service as an executive officer, except for payments made for his service on the Special Committee prior to its disbandment. All of our Directors meet these guidelines.compensation received by Mr. M. Ellis was for his service as an executive officer. 8
Director Compensation for Fiscal Year 20102012 | Director | | Fees Earned or Paid in Cash ($)(1) | | Stock Awards ($)(2) | | All Other Compensation ($)(3) | | Total ($) | | Fees Earned or Paid in Cash ($)(1) | | | Stock Awards ($)(2) | | | Total ($) | | Thomas A. Commes | | 75,000 | | 80,000 | | 351 | | 155,351 | | | 25,000 | | | | — | | | | 25,000 | | R. Andrew Cueva | | 57,833 | | — | | — | | 57,833 | | | 58,750 | | | | — | | | | 58,750 | | James H. Dennedy | | 34,750 | | 80,000 | | — | | 114,750 | | Howard K. Knicely | | 70,000 | | 80,000 | | 351 | | 150,351 | | | 23,333 | | | | — | | | | 23,333 | | Keith M. Kolerus | | 96,083 | | 80,000 | | 351 | | 176,434 | | | 140,000 | | | | 70,000 | | | | 210,000 | | Robert A. Lauer | | 60,000 | | 80,000 | | 351 | | 140,351 | | | 67,917 | | | | 70,000 | | | | 137,917 | | Robert G. McCreary, III | | 70,000 | | 80,000 | | 351 | | 150,351 | | | 46,667 | | | | 70,000 | | | | 116,667 | | John Mutch | | 43,917 | | 80,000 | | 351 | | 124,268 | | | 50,000 | | | | 70,000 | | | | 120,000 | | Steve Tepedino | | — | | — | | — | | — | |
(1) | Fees are paid quarterly. Fees reflect partial service during the fiscal year for Messrs. Commes and Knicely (prior to their retirement), reflect payments made during fiscal year 2012 to Special Committee members for their services prior to the Special Committee being disbanded, and reflect changes in Committee membership and fee structure in August 2011. Refer to discussion above for retainer and committeeDirector compensation structure. Mr. Dennedy’s fees payablepaid for services prior to Directors. Mr. Cueva was appointed to serve onbecoming an executive officer are disclosed in the Audit and the Nominating and Corporate Governance Committees in April 2009. Mr. Dennedy was appointed to the Board and to serve on the Audit Committee in June 2009, replacing Mr. Kolerus on the Audit Committee. Mr. Mutch was appointed to serve on theSummary Compensation Committee in April 2009. Mr. Tepedino resigned from the Board in May 2009 and received no fees for fiscal year 2010. | Table. |
(2) | Refer to discussion above regarding fiscal year 2010 restricted shares grant. Amounts in this column represent the grant date fair value of the restricted shares computed in accordance with Financial Accounting Standards Board (FASB)(“FASB”) Accounting Standards Codification (ASC)(“ASC”) Topic 718 (formerly, FASB Statement 123R).
| |
| 718. As of March 31, 2010,2012, the aggregate number of unexercised stock options held by each current non-employee Director was as follows: Mr. Commes, 45,000;30,000; Mr. Knicely, 30,000; Mr. Kolerus, 22,500; Mr. Lauer, 37,500;30,000; and Mr. McCreary, 37,500. | 30,000. |
(3) | PROPOSAL 1 ELECTION OF DIRECTORS |
At the Annual Meeting, shareholders will elect three Class B Directors for a term expiring at the 2014 Annual Meeting. The Board’s nominees for election are James H. Dennedy, Jerry C. Jones and John Mutch. Mr. Jones is a first-time nominee to the Board. If all nominees are elected at the Annual Meeting, the Board will increase its size to seven members. Each nominee has indicated his willingness to serve as a Director, if elected. A biography for each Director nominee and our continuing Directors follows and, if applicable, arrangements under which a Director was appointed to the Board or information regarding any involvement in certain legal or administrative proceedings is provided. Additional information about the experiences, qualifications, attributes, or skills of each Director in support of his service on the Board is also provided. THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE ELECTION OF MESSRS. DENNEDY, JONES AND MUTCH. PROXY CARDS RECEIVED BY THE COMPANY WILL BE VOTED “FOR” THE ELECTION OF MESSRS. DENNEDY, JONES AND MUTCH UNLESS THE SHAREHOLDER SPECIFIES OTHERWISE ON THE PROXY CARD. 9
DIRECTOR NOMINEES (Class B – Term to Expire in 2014) | | | | | Cash dividends on restricted shares are subject to the same forfeiture provisions as the underlying shares. In AugustJames H. Dennedy
| | Age 46 | | Director since 2009 the Company discontinued payments of dividends on Common Shares. Amounts in this column represent a dividend declared on July 16, 2009. |
President and Chief Executive Officer of the Company since October 2011. Interim President and Chief Executive Officer since May 2011. Principal and Chief Investment Officer with Arcadia Capital Advisors, LLC, an investment management company making active investments in public companies, from April 2008 to May 2011. President and Chief Executive Officer of Engyro Corporation, an enterprise software company offering solutions in systems management, from January 2005 to August 2007. Previously a director of Entrust, Inc., I-many, Inc., and NaviSite, Inc. As a former President of a division of a publicly-held software company and as a Chief Executive Officer of a private software company, Mr. Dennedy has experience in the technology industry. In addition, Mr. Dennedy has extensive experience in investment strategy, capital structure, financial strategy, mergers and acquisitions, and significant public company leadership and board experience. | | | | | John Mutch | | Age 55 | | Director since 2009 |
Chief Executive Officer of BeyondTrust, a security software company, since October 2008. Founder and a Managing Partner of MV Advisors, LLC, a strategic block investment firm that provides focused investment and strategic guidance to small and mid-cap technology companies, from 2006 to 2008. Director of Steel Excel Inc., and previously Director of Edgar Online, Inc. and Aspyra, Inc. Mr. Mutch has been an operating executive and investor in the technology industry for over 25 years and has a long, sustained track record of creating shareholder value through both activities. As a Chief Executive Officer of an IT company, Mr. Mutch has extensive experience in the technology industry, restructuring, financial management and strategy, capital markets, sales management, and marketing. Chief Legal Officer and Senior Vice President of Acxiom Corporation, a marketing technology and services company, since 1999. Prior to joining Acxiom, Mr. Jones was a partner with the Rose Law Firm in Little Rock, Arkansas, where he specialized in problem solving and business litigation for 19 years, representing a broad range of business interests. Previously he was a director of Entrust, Inc. He is a 1980 graduate of the University of Arkansas School of Law and holds a bachelor’s degree in public administration from the University of Arkansas. As the Chief Legal Officer of a technology company, Mr. Jones has extensive experience with legal, privacy, and security matters. He has also led the strategy and execution of mergers and alliances and international expansion efforts. The Board has determined that Mr. Jones would qualify as an independent Director if elected at the Annual Meeting. CONTINUING DIRECTORS (Class A – Term to Expire in 2013) | | | | | R. Andrew Cueva | | Age 41 | | Director since 2008 |
Managing Director of MAK Capital Fund, L.P., a value-oriented hedge fund, since 2005. Portfolio manager and analyst at Green Cay Asset Management from 2002 to 2004. As Managing Director of MAK Capital, the Company’s largest shareholder, Mr. Cueva is uniquely qualified to represent the interests of the Company’s shareholders. Additionally, Mr. Cueva’s qualifications and experience include capital markets, investment strategy, and financial management. 10
| | | | | Keith M. Kolerus | | Age 66 | | Director since 1998 |
Chairman of the Board of the Company since October 2008. Retired Vice President, American Division, National Semiconductor, a producer of semiconductors and a leader in analog power management technology, from 1996 to February 1998. Mr. Kolerus served as Chairman of the Board of Directors, National Semiconductor Japan Ltd., from 1995 to 1998, and Chairman of the Board of Directors of ACI Electronics, LLC, from 2004 to 2008. Mr. Kolerus has extensive experience in engineering, global operations, private and public companies, software and hardware technology companies, government contracting, capital markets, financial management, and the technology industry. Mr. Kolerus’ prior experiences as a board chairman uniquely qualify him to lead the Board as its Chairman. | | | | | Robert A. Lauer | | Age 68 | | Director since 2001 |
Retired from Accenture, a consulting firm (formerly known as Andersen Consulting), in August 2000. Mr. Lauer held numerous operational positions covering regional, national, and global responsibilities during his 31-year career, most recently serving as Managing Partner Global Human Performance Services and Managing Partner Change Management Global Communications and High Tech Industries. Mr. Lauer’s career in the information technology industry provided him with extensive experience and qualifications in global business operations, corporate and organizational restructurings, management of professional services personnel, and the development, implementation and deployment of large-scale business application software solutions in numerous industry verticals. | | | | | Robert G. McCreary III | | Age 60 | | Director since 2001 |
Founder and currently a principal of CapitalWorks, LLC, a private equity group, since 1999. Mr. McCreary has served in numerous managing partner positions in investment banking firms and as a partner in a large regional corporate law firm. Mr. McCreary has extensive experience and qualifications in law, corporate governance, financial strategy, capital markets, investment strategy and mergers and acquisitions, and governance of portfolio companies. 11
EXECUTIVE OFFICERS The following are biographies for each of our current, non-Director executive officers. The biography for Mr. Dennedy, our President and Chief Executive Officer, and a Director, is provided above. | | | | | | | | | Name | | Age | | | Current Position | | Previous Positions | Robert R. Ellis | | | 38 | | | Senior Vice President and Chief Financial Officer since October 2011 and Treasurer since January 2012. | | Vice President of Accounting and Financial Operations and Principal Accounting Officer at Radiant Systems, Inc. from 2007 to October 2011. Corporate Controller and Director at Radiant from 2003 to 2007. | Kyle C. Badger | | | 44 | | | Senior Vice President, General Counsel and Secretary since October 2011. | | Executive Vice President, General Counsel and Secretary at Richardson Electronics, Ltd. from 2007 to October 2011. Senior Counsel at Ice Miller LLP from 2006 to 2007. Partner at McDermott, Will & Emery LLP from 2003 to 2006. | Paul A. Civils | | | 61 | | | Senior Vice President and General Manager since November 2008. | | Vice President and General Manager, Retail Solutions from October 2003 to November 2008. | Larry Steinberg | | | 44 | | | Senior Vice President and Chief Technology Officer since June 2012. | | Principal Development Manager, Microsoft Corporation from August 2009 to present, and Principal Architect from June 2007 to July 2009; Founder and Chief Technology Officer of Engyro Corporation from March 1995 to May 2007. | Janine K. Seebeck | | | 36 | | | Vice President and Controller since November 2011. | | Vice President of Finance, Asia Pacific, at Premiere Global Services, Inc. from 2008 to April 2011. Vice President, Corporate Controller at Premiere from 2002 to 2008. |
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BENEFICIAL OWNERSHIP OF COMMON SHARES The following table shows the number of Common Sharescommon shares beneficially owned as of June 11, 201014, 2012 by (i) each current Director;Director and Director nominee; (ii) oureach individual who served as Chief Executive Officer andduring fiscal year 2012; (iii) each individual who served as Chief Financial Officer; (iii)Officer during fiscal year 2012; (iv) the other three most highly compensated executive officers who were serving as executive officers at the end of fiscal year 20102012 whose total compensation exceeded $100,000$100,000; (v) two additional individuals who would have been among the three most highly compensated executive officers but for the fact that they were not serving as executive officers at the end of fiscal year 20102012 (together with the individuals covered by (ii), (iii), and (iv) above, the “Named Executive Officers”); (iv)(vi) all Directors and our executive officers as a group; and (v)(vii) each person who is known by us to beneficially own more than 5% of our Common Shares.common shares. | | | | | | Name | | Number of Common Shares Beneficially Owned (1) | | | Percent of Class | | | | Directors (Excluding Named Executive Officers) (2) | | | | | | | | | Thomas A. Commes | | 107,830 | (3) | | .5 | | | | R. Andrew Cueva | | 2,787,143 | (4) | | 12.1 | | | | James H. Dennedy | | 30,182 | (5) | | .1 | | | | Howard V. Knicely | | 73,830 | (6) | | .3 | | | | Keith M. Kolerus | | 108,337 | (7) | | .5 | | | | Robert A. Lauer | | 85,330 | (8) | | .4 | | | | Robert G. McCreary, III | | 92,114 | (9) | | .4 | | | | John Mutch | | 24,616 | (10) | | .1 | | | | Named Executive Officers (2) | | | | | | | | | Martin F. Ellis | | 476,171 | (11) | | 2.0 | | | | Kenneth J. Kossin, Jr. | | 89,358 | (12) | | .4 | | | | Anthony Mellina | | 64,708 | (13) | | .3 | | | | Tina Stehle | | 60,909 | (14) | | .3 | | | | Kathleen A. Weigand | | 59,789 | (15) | | .3 | | | | All Directors and Executive Officers as a group (16 persons) | | 4,213,251 | (16) | | 17.7 | | | | Other Persons | | | | | | | | | MAK Capital One, LLC et al. | | 4,559,429 | (17) | | 19.8 | 590 Madison Avenue, 9th Floor | | | | | | New York, New York 1022 | | | | | | | | | Dimensional Fund Advisors LP | | 2,104,055 | (18) | | 9.1 | 6300 Bee Cave Road | | | | | | Palisades West, Building One | | | | | | Austin, Texas 78746 | | | | | | | | | Barclays Global Investors, NA | | 1,740,748 | (19) | | 7.7 | 400 Howard Street | | | | | | San Francisco, California 94105 | | | | | | | | | The Vanguard Group, Inc. | | 1,185,743 | (20) | | 5.1 | 100 Vanguard Blvd. | | | | | | Malvern, Pennsylvania 19355 | | | | | | | | | BlackRock, Inc. | | 1,506,485 | (21) | | 5.6 | 40 East 52nd Street | | | | | | New York, New York 10022 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | Name | | Common Shares | | Shares Subject to Exercisable Options | | Restricted Shares (1) | | Total Shares Beneficially Owned (1) | | Percent of Class (2) | Directors | | | | | | | | | | | | | | | | | | | | | | | | | | R. Andrew Cueva (3) | | | | 5,284,648 | | | | | — | | | | | — | | | | | 5,284,648 | | | | | 24.0 | | Jerry C. Jones | | | | — | | | | | — | | | | | — | | | | | — | | | | | * | | Keith M. Kolerus | | | | 100,171 | | | | | 22,500 | | | | | 9,383 | | | | | 132,054 | | | | | * | | Robert A. Lauer | | | | 57,264 | | | | | 30,000 | | | | | 9,383 | | | | | 96,647 | | | | | * | | Robert G. McCreary, III (4) | | | | 64,048 | | | | | 30,000 | | | | | 9,383 | | | | | 103,431 | | | | | * | | John Mutch | | | | 34,050 | | | | | — | | | | | 9,383 | | | | | 43,433 | | | | | * | | Named Executive Officers | | | | | | | | | | | | | | | | | | | | | | | | | | Henry R. Bond | | | | — | | | | | — | | | | | — | | | | | — | | | | | * | | Paul A. Civils | | | | 5,735 | | | | | 133,641 | | | | | 18,773 | | | | | 158,149 | | | | | * | | James H. Dennedy | | | | 112,985 | | | | | — | | | | | 50,938 | | | | | 163,923 | | | | | * | | Martin F. Ellis | | | | 74,218 | | | | | — | | | | | — | | | | | 74,218 | | | | | * | | Robert R. Ellis | | | | 30,473 | | | | | 5,350 | | | | | 22,218 | | | | | 58,041 | | | | | * | | Anthony Mellina | | | | 71,927 | | | | | — | | | | | — | | | | | 71,927 | | | | | * | | Tina Stehle | | | | 11,361 | | | | | 130,348 | | | | | — | | | | | 141,709 | | | | | * | | Curtis C. Stout | | | | 6,631 | | | | | 116,284 | | | | | 4,493 | | | | | 127,408 | | | | | * | | Kathleen A. Weigand | | | | 26,525 | | | | | — | | | | | — | | | | | 26,525 | | | | | * | | All Directors and Executive Officers | | | | 5,897,859 | | | | | 473,571 | | | | | 223,185 | | | | | 6,594,615 | | | | | | | Other Beneficial Owners | | | | | | | | | | | | | | | | | | | | | | | | | | MAK Capital One, LLC et al 590 Madison Avenue, 9th Floor New York, New York 10022 | | | | 7,056,934 | (5) | | | | | | | | | | | | | | | | | | | 32.0 | | Dimensional Fund Advisors LP 6300 Bee Cave Road Palisades West, Building One Austin, Texas 78746 | | | | 1,908,969 | (6) | | | | | | | | | | | | | | | | | | | 8.7 | | The Vanguard Group, Inc. 100 Vanguard Boulevard Malvern, Pennsylvania 19355 | | | | 1,293,105 | (7) | | | | | | | | | | | | | | | | | | | 5.9 | | Black Rock, Inc. 40 East 52nd Street New York, New York 10022 | | | | 1,344,402 | (8) | | | | | | | | | | | | | | | | | | | 6.1 | |
(1) | Except where otherwise indicated, beneficialBeneficial ownership of the Common Shares held by the persons listed in the table aboveshares comprises both sole voting and dispositive power, or voting and dispositive power that is shared with a spouse.
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(2) | The address of each Director and Named Executive Officer is 28925 Fountain Parkway, Solon, Ohio 44139.
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(3) | Includes (i) 45,000 Common Sharesspouse, except for restricted shares for which Mr. Commes had the right to acquire within 60 days of June 11, 2010 through the exercise of stock options granted under the 1999 and 2000 Stock Option Plans for outside Directors and 2000 Stock Incentive Plan and (ii) 12,903 restricted Common Shares which he was granted under the 2006 Stock Incentive Plan, as to which heindividual has sole voting power but no dispositive power until such Common Sharesshares vest.
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(2) | * indicates beneficial ownership of less than 1% on June 14, 2012. |
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(4)(3) | Comprised entirely of Common Sharesshares beneficially owned by MAK Capital Fund L.P. and excludes Common Sharesshares beneficially owned by Paloma International L.P. Mr. Cueva may be deemed to share beneficial ownership in Common Sharesshares that MAK Capital Fund L.P. may be deemed to beneficially own; however, Mr. Cueva disclaims beneficial ownership of the Common Shares,shares, except to the extent of his pecuniary interest in MAK Capital Fund L.P.’s interest in such Common Shares.shares. The inclusion in this table of the Common Sharesshares beneficially owned by MAK Capital Fund L.P. shall not be deemed an admission by Mr. Cueva of beneficial ownership of all of the reported Common Shares. shares. |
(5)(4) | Includes 12,903 restricted Common Shares whichOn December 1, 2010, Mr. Dennedy was granted under the 2006 Stock Incentive Plan, asMcCreary contributed 30,000 shares to which he has sole voting power but no dispositive power until such Common Shares vest.
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(6) | Includes (i) 30,000 Common Shares which Mr. Knicely had the righta grantor retained annuity trust pursuant to acquire within 60 days of June 11, 2010 through the exercise of stock options granted to the Director under the 2000 Stock Option Plan for outside Directors and 2000 Stock Incentive Plan and (ii) 12,903 restricted Common Shares which he was granted under the 2006 Stock Incentive Plan, as to which he has sole voting power but no dispositive power until such Common Shares vest.
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(7) | Includes (i) 22,500 Common Shares which Mr. Kolerus had the right to acquire within 60 days of June 11, 2010 through the exercise of stock options granted to the Director under the 2000 Stock Option Plans for outside Directors and 2000 Stock Incentive Plan and (ii) 12,903 restricted Common Shares which he was granted under the 2006 Stock Incentive Plan, as to which he has sole voting power but no dispositive power until such Common Shares vest.
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(8) | Includes (i) 37,500 Common Shares which Mr. Lauer had the right to acquire within 60 days of June 11, 2010 through the exercise of stock options granted to the Director under the 2000 Stock Option Plan for outside Directors and the 2000 Stock Incentive Plan and (ii) 12,903 restricted Common Shares which he was granted under the 2006 Stock Incentive Plan, as to which he has sole voting power but no dispositive power until such Common Shares vest.
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(9) | Includes (i) 37,500 Common Shares which Mr. McCreary hadretains beneficial ownership of the right to acquire within 60 days of June 11, 2010 through the exercise of stock options granted to the Director under the 2000 Stock Option Plan for outside Directors and 2000 Stock Incentive Plan and (ii) 12,903 restricted Common Shares which he was granted under the 2006 Stock Incentive Plan, as to which he has sole voting power but no dispositive power until such Common Shares vest. shares. |
(10) | Includes 12,903 restricted Common Shares which Mr. Mutch was granted under the 2006 Stock Incentive Plan, as to which he has sole voting power but no dispositive power until such Common Shares vest.
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(11) | Includes (i) 328,000 Common Shares which Mr. Ellis had the right to acquire within 60 days of June 11, 2010 through the exercise of stock options granted to him under the 2000 and 2006 Stock Incentive Plans and (ii) 26,266 restricted Common Shares (including dividend shares) granted under the 2006 Stock Incentive Plan, as to which he has sole voting power but no dispositive power until such Common Shares vest.
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(12) | Includes (i) 78,699 Common Shares which Mr. Kossin had the right to acquire within 60 days of June 11, 2010 through the exercise of stock options granted to him under the 2000 and 2006 Stock Incentive Plans
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| and (ii) 7,141 restricted Common Shares (including dividend shares) granted under the 2006 Stock Incentive Plan, as to which he has sole voting power but no dispositive power until such Common Shares vest.
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(13) | Includes (i) 47,866 Common Shares which Mr. Mellina had the right to acquire within 60 days of June 11, 2010 through the exercise of stock options granted to him under the 2006 Stock Incentive Plan and (ii) 11,284 restricted Common Shares (including dividend shares) granted under the 2006 Stock Incentive Plan, as to which he has sole voting power but no dispositive power until such Common Shares vest.
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(14) | Includes (i) 48,366 Common Shares which Ms. Stehle had the right to acquire within 60 days of June 11, 2010 through the exercise of stock options granted to her under the 2000 and 2006 Stock Incentive Plans and (ii) 8,303 restricted Common Shares (including dividend shares) granted under the 2006 Stock Incentive Plan, as to which she has sole voting power but no dispositive power until such Common Shares vest.
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(15) | Includes (i) 22,866 Common Shares which Ms. Weigand had the right to acquire within 60 days of June 11, 2010 through the exercise of stock options granted to her under the 2006 Stock Incentive Plan and (ii) 32,989 restricted Common Shares (including dividend shares) granted under the 2006 Stock Incentive Plan, as to which Ms. Weigand has sole voting power but no dispositive power until such shares vest.
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(16) | The number of Common Shares shown as beneficially owned by the Directors and Executive Officers as a group includes (i) 833,961 Common Shares which such persons have the right to acquire within 60 days of June 11, 2010 through the exercise of stock options granted to them under the 2000 and 2006 Stock Incentive Plans and the 1999 and 2000 Stock Option Plans for outside Directors, and (ii) 183,573 restricted Common Shares (including dividend shares) granted under the 2006 Stock Incentive Plan, as to which such persons have sole voting power but no dispositive power until such Common Shares vest.
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(17)(5) | As reported on a Schedule 13D/A dated February 1, 2010May 31, 2011. MAK Capital One LLC has shared voting and supplementeddispositive power with acquisitions reported on Form 4 in June 2010.respect to all of the shares. MAK Capital One LLC serves as the investment manager of MAK Capital Fund LP and other funds and accounts. (“MAK Capital One LLC has shared voting and dispositive power with respect to 4,559,429 Common Shares.Fund”). MAK GP LLC is the general partner of MAK Capital Fund LP.Fund. Michael A. Kaufman, managing member and controlling person of MAK GP LLC and MAK Capital One LLC, has shared voting and dispositive power with respect to 4,559,429 Common Shares.all of the shares. MAK Capital Fund LP hasand R. Andrew Cueva have shared voting and dispositive power with respect to 2,787,143 Common Shares.5,284,648 shares. Paloma International L.P. (“Paloma”), through its subsidiary Sunrise Partners Limited Partnership, hasand S. Donald Sussman, controlling person of Paloma, have shared voting and dispositive power with respect to 1,772,286 of Common Shares. Trust Asset Management LLP is the general partner of Paloma International L.P. S. Donald Sussman is the controlling person of Paloma International L.P. and Trust Asset Management LLP and has shared voting and dispositive power with respect to 1,772,286 of Common Shares. R. Andrew Cueva is a Managing Director of MAK Capital One LLC.shares. The principal business address of MAK Capital One LLC, MAK GP LLC and Messrs. Kaufman and Cueva is 590 Madison Avenue, 9th Floor, New York, New York 10022. The principal address of MAK Capital Fund LP is c/o Dundee Leeds Management Services Ltd., 129 Front Street, Hamilton, HM 12, Bermuda. The principal business address of Paloma International L.P. and Sunrise Partners Limited Partnership is Two America Lane, Greenwich, Connecticut 06836-2571. The principal business address for Mr. Sussman and Trust Asset Management is 6100 Red Hook Quarters, Suites C1-C6, St. Thomas, US Virgin Islands 00802-1348. |
On May 31, 2011, MAK Fund, Paloma and Computershare Trust Company, N.A. (the “Trustee”) entered into an Amended and Restated Voting Trust Agreement (the “Revised Voting Trust Agreement”) to clarify the effect on the voting trust created by the Voting Trust Agreement dated as of December 31, 2009, were the reporting persons (named above) to beneficially own one-third or more of the Company’s outstanding voting securities as a result of a decrease in the total number of voting securities outstanding. In such event, regardless of the reporting persons’ economic interest in the Company, its voting power will be effectively limited to no more than 23% or 27% of the voting securities in the event of a shareholder vote on (i) a merger, consolidation, conversion, sale or disposition of stock or assets or other business combination which requires approval of two-thirds of the Company’s voting power (a “Strategic Transaction”) or (ii) a transaction other than a Strategic Transaction which requires approval of two-thirds of the Company’s voting power (an “Other Transaction”), respectively. In connection with a Strategic Transaction or Other Transaction, the reporting persons would continue to possess the total voting power only over a number of voting securities that would equal the total voting power it would possess were it to hold only one-third of the voting securities. The Revised Voting Trust Agreement will become effective if and when the number of shares owned by the reporting persons equals or exceeds one-third of the voting securities then outstanding as a result of a decrease in the total number of voting securities outstanding. Until such time, the Voting Trust Agreement will remain in full force and effect. The Voting Trust Agreement provides that, for transactions requiring at least two-thirds of the voting power to approve, Trustee will vote shares as follows: (i) for a Strategic Transaction, vote shares that exceed 20% of the outstanding shares in favor of, against, or abstaining from voting in the same proportion as all other shares voted by shareholders (including reporting persons’ shares that do not exceed the 20% threshold); and (ii) for Other Transactions, vote shares that exceed 25% of the outstanding shares in favor of, against, or abstaining from voting in the same proportion as all other shares voted by shareholders (including reporting persons’ shares that do not exceed the 25% threshold). The Voting Trust Agreement terminates (i) if the vote necessary to approve all forms of transactions is lowered to the affirmative vote of holders of shares entitling them to exercise at least a majority of the voting power on the proposal to approve such transactions (from two-thirds); (ii) if MAK Fund and Paloma are no longer members of a “group” for purposes of Section 13(d) of the Securities Exchange Act, then the Voting Trust Agreement terminates with 14
respect to any of MAK Fund and Paloma that beneficially owns not more than 20% of the outstanding shares; (iii) on February 18, 2020, or February 18, 2025 if MAK Fund continues to hold 20% of the outstanding shares; or (v) if another person or entity holds greater than 20% of the outstanding shares that are not subject to a similar voting agreement. (18)(6) | As reported on a Schedule 13G/A dated February 10, 2010. |
(19) | As reported on a Schedule 13G dated February 6, 2009, as follows: (i) Barclays Global Investors, NA,2012. Dimensional Fund Advisors LP has sole voting power with respect to 515,767 Common Shares1,875,467 shares and sole dispositive power with respect to 710,357 Common Shares; (ii) Barclays Global Fund Advisors has sole voting power with respect to 754,923 Common Shares and sole dispositive power with respect to 1,015,926 Common Shares; and (iii) Barclays Global Investors, Ltd. has sole dispositive power with respect to 14,465 Common Shares. 1,908,969 shares. |
(20)(7) | As reported on a Schedule 13G13G/A dated February 1, 2010.7, 2012. The Vanguard Group, Inc. has sole voting and shared dispositive power with respect to 20,022 Common Shares34,458 shares and sole dispositive power with respect to 1,165,721 Common Shares. 1,258,647 shares. |
(21)(8) | As reported on a Schedule 13G13G/A dated January 20, 2010. February 13, 2012. BlackRock, Inc. has sole voting and dispositive power with respect to all of the shares. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act requires the Company’s Directors and certain of its executive officers and persons who beneficially own more than 10% of the Common SharesCompany’s common shares to file reports of and changes in ownership on Forms 3, 4 and 5 with the SEC. These persons are also required to furnish the Company with copies of any filed Forms. Based solely on the Company’s review of the copies of FormsSEC filings it has received andor filed, the Company believes that each of its Directors, executive officers, and beneficial owners of more than 10% of the Common Sharesshares satisfied the Section 16(a) filing requirements during fiscal year 2010.2012, with one exception. On March 31, 2011, restricted shares for Messrs. M. Ellis, Bond, Mellina, Civils, Stout, and Dyer and Mmes. Weigand and Stehle vested, and each executive officer opted to settle his or her tax obligation upon vesting with share withholding. The Form 4’s to report such share withholdings were filed on May 4, 2011. 15
COMPENSATION DISCUSSION AND ANALYSIS Compensation Highlights Restructured Management with Reduced Compensation Highlights Our executive compensation structure is designed to align executive pay and shareholders’ interests. Our. The Company’s focus in fiscal year 20102012 on streamlining its businesses and restructuring its management team resulted in reduced compensation strategy reflected a significant focus on performance-basedcosts for key executive positions. During fiscal year 2012, key events effecting compensation immediately and for the new seniorfuture, streamlined Company included:
Sale of the Company’s TSG business unit, resulting in a smaller, refocused Company and the elimination of the TSG general manager executive officer position; and Restructuring of the management team, as a responseincluding new leadership in key executive positions with comparatively lower compensation arrangements to reflect the Company’s failure to achieve its overall financial and shareholder performance goals for fiscal year 2009. Additionally, we took aggressive action to reduce current and future compensation costs in response to the worldwide economic recession, which resulted in lower spending for information technology and negatively impacted our financial performance.smaller, refocused Company. Performance Linked Compensation.Our Compensation Committee comprised of four independent Directors, set fiscal year 20102012 compensation, including financial and business targets for performance-based compensation, for our Named Executive Officers (except for Mr. Dennedy) after the closing of the TSG sale, to assure that compensation and goals reflected the Company as it would be for the majority of the fiscal year. In setting compensation targets and goals for the senior management team, the Committee continued to emphasize pay for performance for the new management team by: Comprising the fiscal year’s total compensation opportunity of 25%, on average, of annual cash incentive based on goals focused on significant improvements over fiscal year 2011 results for revenue, gross profit and preservation of cash; and Emphasizing share ownership and granting equity awards after the closing of the TSG sale, such that the ultimate value of the equity awards is dependent on an increase in the share price established after the closing of the TSG sale. Our Chief Executive Officer’s targeted pay was approximately 65% performance-based, and between 48% and 57% for each of our other active Named Executive Officer’s targeted pay was performance-based, tied directly to annual goals or long-term equity awards, the value of which is tied directly to an increase in share price. As discussed below, targeted annual goals were primarily based on improvements over fiscal year 2011 results for revenue and gross profit, for significant cash preservation, and, for business head executives, significant business unit improvements. Annual incentive payouts ranged from 73% to 112% of target for the Named Executive Officers. Chief Executive Officer Compensation. In May 2011, Mr. Dennedy became our Interim Chief FinancialExecutive Officer, and our next three highest paid executive officers (together, our “Named Executive Officers”)a one-year compensation package was set at that time in May 2009. Atanticipation of successfully closing the time targetsTSG sale and his leading the refocused Company through a successful fiscal year 2012. His compensation package reflected the Compensation Committee’s ongoing commitment to link pay to performance and reduced compensation costs, as evidence by the following for Mr. Dennedy: Base salary was set significantly lower, 26%, than his predecessor’s salary; Annual incentive was set at a significantly higher percentage, 100% percent of salary versus 85%; Combined salary and annual incentive were set ourbelow median levels for comparable positions based on peer data; Equity award value tied to share price improvement after the sale of TSG; Annual incentive payout of 105% of targeted payout was earned based on Company results; and 65% of targeted compensation was variable pay, tied either to performance or significant share price improvement. In October, the Board removed “interim” from Mr. Dennedy’s title; however, the Compensation Committee did not anticipaterevise Mr. Dennedy’s compensation package or annual goals, determining that macroeconomic conditions would deteriorate to the degree realized by 2010 fiscal year-end, which resulted in a 12% decline in our total revenue. The decline in adjusted EBITDA excluding charges (defined as operating income plus depreciationlevel of compensation and amortization, excluding restructuring chargesgoals appropriately matched the Company’s current initiatives and asset impairment charges, and hereinafter referred to as “EBITDA”) of 58% was significantly softened due to significant cost savings initiatives commenced incompensation philosophy for fiscal year 20092012. References within this Compensation Discussion and continued in fiscal year 2010. As a result of economic factors, we did not achieve fiscal year 2010 profitability targets, however, we did significantly improve working capital efficiency. Consequently, annual incentive payoutsAnalysis and within our executive compensation tables below to our Named Executive Officers ranged from 15% to 53% of target, and the performance shares (as described below) earned pursuant to the long-term incentive plan ranged from 50% to 71% of target. Despite the poor economy and its negative impact on our revenues, shareholders realized an increase in the value of their Common Shares at 2010 fiscal year-end, up 160% from fiscal-year end 2009, and as of the Record Date, up 76% from fiscal year-end 2009. Reduction in Compensation Costs and Programs. During late fiscal year 2009 and early fiscal year 2010, significant reductions to compensation arrangements were made in response to 2009 performance and poor macroeconomic conditions, including:
Salary freezes for all employees, including our Named Executive Officers;
46% reduction in annual total target compensation for our Chief Executive Officer comparedrefer to his predecessor;Mr. Dennedy.
31% reduction in annual total target compensation as a result of combining the General Counsel, Secretary, and Senior Vice President – Human Resources roles into one position;16
Elimination of a layer of executive management between our Chief Executive Officer and business segment heads resulting in an annual savings of approximately $2.3 million;
Elimination of change of control agreements for all employees except our Chief Executive Officer;
Closure of our defined benefit plan to new executive officers (leaving our Chief Executive Officer as the only participant in the plan);
Suspension of Company matching contributions to our 401(k) and deferred compensation plans;
Discontinuation of reimbursement for club membership dues for all executive officers, other than our Chief Executive Officer; and
Increasing the change of control trigger in the Company’s 2006 Stock Incentive Plan for future awards from ownership of 20% of the Company to 33-1/3%.
Management Team. All of our Named Executive Officers assumed their current roles in fiscal year 2009. In October 2008, Martin F. Ellis was promoted from Chief Financial Officer to President and Chief Executive Officer, and Kenneth J. Kossin, Jr.Compensation. In October 2011, Mr. R. Ellis was promoted from Controllerappointed to Senior Vice President and Chief Financial Officer. At that time, Tina Stehle,His compensation package also reflected the headCompensation Committee’s ongoing commitment to link pay to performance and reduced compensation costs, as evidence by the following for Mr. R. Ellis:
Base salary was set 8% lower than his predecessor’s salary; Annual incentive was set at a higher percentage, 60% percent of salary versus 50%; 50% of long-term incentive award value is based entirely on share price improvement after the sale of TSG, while the balance is tied to post-TSG sale share price improvement ; Annual incentive payout of 112% of targeted payout was earned based on Company results; and 57% of targeted compensation was variable pay, tied either to performance or significant share price improvement Compensation Focus for Fiscal Year 2013. In response to current executive compensation trends, and after considering the results of our Hospitality Solutions Group (“HSG”), was promoted2011 vote on Named Executive Officer compensation, which confirmed the Company’s philosophy and objectives relative to anour executive officer, as Senior Vice Presidentcompensation program, the Compensation Committee continued efforts to reduce compensation expense and General Manager, and Anthony Mellina, the head of our Technology Solutions Group (“TSG”), was promotedlink executive pay to an executive officer, as Senior Vice President and General Manager. Kathleen A. Weigand was hiredperformance by: Establishing minimal base salary increases; Focusing annual incentive on significant improvements over fiscal year 2012 results; Structuring long-term incentives to reward increases in March 2009 as General Counsel and Senior Vice President – Human Resources, and was appointed Secretary of the Company in April 2010.shareholder value. Compensation Philosophy, Objectives, and Structure Our Compensation Committee adopted its pay philosophy, objectives, and structure for our Named Executive Officers to achieve financial and business goals and create long-term shareholder value. Following input from PM&P, the Compensation Committee’s executive compensation consultant, ourOur Compensation Committee reaffirmed the pay philosophy, objectives, and structure for fiscal year 2010.2012. Compensation Philosophy and Objectives. Our Compensation Committee’s pay philosophy is to pay a base salary and provide target annual cash incentives and long-term stockequity incentives, each at a minimum of the 50th percentile of industry specific market surveys,comparative peer group compensation, and to annually review these compensation components based on industry specific market surveyspeer group comparisons and tie compensation to our business strategy. The Compensation Committee’s objective is to establish an overall compensation package to: Attract, retain, and motivate executives who can significantly contribute to our success;
Reward the achievement of business objectives approved by our Board; Tie a significant portion of compensation to the long-term performance of our common shares; Provide a rational, consistent, and competitive executive compensation program that is well understood by those to whom it applies; and Tie a significant portion of compensationAttract, retain, and motivate executives who can significantly contribute to the long-term performance of our Common Shares.success.
Compensation Objectives and Structure. Our compensation structure is comprised of: | • | | Base Salary — Base salary provides fixed pay at a levellevels aimed to attract and retain executive talent. Variations in salary levels among Named Executive Officers are based on each executive’s roles and responsibilities, experience, functional expertise, relation to peer pay levels, competitive assessments, individual performance, and individual performance.changes in salaries in the overall general market and for all employees of the Company. Salaries are reviewed annually by our Compensation Committee, and changes in salary are based on these factors and input from our Chief Executive Officer, other than for himself. None of the factors are weighted according to any specific formula. New salaries generally are based on the Compensation Committee’s discretion and judgment but may be based on any of the above-mentioned relevant factors. |
| • | | Annual IncentiveIncentives — Annual incentives provide cash variable pay for achievement of Companythe Company’s financial, strategic, and businessoperational goals and individual goals, with target incentives set as a percentage of salary, and designed to reward achievement of annual business objectivesgoals with an annual cash payment. Variations in incentive components and mix among Named Executive Officers are determined by our Compensation Committee and based on each executive’s respective business segmentunit or corporate goals and the emphasis for each executive on |
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| executive’s individual goals and corporate-wide initiatives. Ourinitiatives, as well as market data, length of time in current role or similar role at another company, and recommendations from our Chief Executive Officer, has a greater percentage of salary as target incentive as compared to the other Named Executive Officers due to his greater ability to influence corporate goals and initiatives.than for himself. |
| • | | Long-Term Incentives — Long-term incentives are variable, performance-based equity incentives designed to drive improvements in performance that build wealth and create long-term shareholder value by tying the value of earned incentives to the long-term performance of our Common Shares.common shares. Target incentives are set as a percentage of salary. Variations in awards among Named Executive Officers are determined by our Compensation Committee after a review of various factors, including recommendations from our executive compensation consultant based on market data, relative salary levels, individual ability to influence results, length of time in current role or similar role at another company, and recommendations from our Chief Executive Officer. Our Chief Executive Officer, has a greater percentage of salary as target incentive as compared to the other Named Executive Officers due to his greater ability to influence long-term shareholder return.than for himself. |
Compensation Key Considerations Annual Goal Setting. At the beginning of each fiscal year, writtenAnnual goals are established for our Named Executive Officers. These goalsOfficers are tied to our financial, strategic, and operational goals and include business specific financial targets relating to our goals. Each Named Executive Officer’s annual incentive goals are established by our Compensation Committee, with input from our Chief Executive Officer (other than for himself). At fiscal year-end, the Compensation Committee evaluates the performance of each Named Executive Officer and determines an appropriate award based on established goals, with input from our Chief Executive Officer (other than for himself). on individual goals. Our Compensation Committee establishes our Chief Executive Officer’s annual incentive goals and determines his appropriate award based on established goals. Performance levels used for fiscal year 2010 incentives involve some difficulty at the threshold level, increased difficulty at the 100% target level, and significant difficulty at the maximum level, in each case relative to future expectations at the time the levels were set. Variable Pay at Risk. Our philosophy drives the provision of greater at-risk pay to our Named Executive Officers, and variable pay at risk comprises more than 70%comprised approximately 65% of target annual compensation for our Chief Executive Officer and 50% or more than 50% for all other Named Executive Officers. Our Named Executive Officers have greatersignificant opportunities for long-term, equity-based incentive compensation, higher than for annual cash incentive compensation.compensation in most cases, as our philosophy is to tie a significant portion of compensation to the long-term performance of our common shares. As a result, greatersignificant emphasis is placed on long-term shareholder value creation, than annual financial performance thereby minimizing excessive risk taking by our executives.
Our
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Competitive Market Assessments. During fiscal year 2012, Towers Watson provided the Compensation Committee with two competitive market assessments, one in consultation with management,March and one in August, which updated the March assessment to adjust for expected revenues of the smaller Company after the closing of the TSG sale. The assessments evaluated compensation levels for the Company’s top eight executive positions, including the Named Executive Officers. The assessments compared published survey compensation data for both general industry and the high technology services industry to current compensation levels for the Company’s executives. Competitive compensation levels in these industries were gathered for base salary, annual incentive, total cash compensation, long-term incentive, and total direct compensation. The purpose of the assessments was to compare current market data to our incentive planscurrent compensation, which was based on prior benchmarking performed by the Company, where compensation levels were benchmarked to determineseparate, defined peer group companies for corporate executives and each business unit executive. Towers advised that an assessment using the general and high technology services industries data provides more representative and relevant comparisons given the size of the Company. As further detailed below, the assessments showed that all elements of the Company’s overall compensation fell between the 25th and 50th percentiles within both the general and high technology services industries. Typically, an individual position is considered to be paid at market if it is within 15% (above or below) the plans’ measures or goals encourage inappropriate risk-taking by our employees. Our Compensation Committee determinedcompetitive median and the assessments showed that the performance measuresCompany had individuals above, within, and goals were tied to our business, financial, and strategic objectives. As such, the incentive plans are believed not to encourage risk-taking outside of the range of risks contemplated by the Company’s business plan.below that range. Tally Sheets. Our Compensation Committee analyzes tally sheets at the beginning of the fiscal year to review overall compensation and pay mix for each Named Executive Officer. Tally sheets include a year-over-year comparisonthree-year look-back of salary,total compensation, including annual cash compensation, long-term incentive awards granted and long-term incentives, equity grants,earned, and personal benefits earned.and perquisites. Tally sheets also include a year-over-year comparisoncumulative inventory of equity grants by fiscal year, including the value of Named Executive Officers’outstanding equity holdingsat the Company’s current stock price and Mr. Ellis’ retirement lump-sum benefits to indicate wealth accumulation. Tallythe value received for prior vesting and exercises of equity. The tally sheets bring together, in one place, all elements of Named Executive Officers’ actual compensation and information about wealth accumulation so that our Compensation Committee can analyze both the individual elements and mix of compensation and the aggregate total amount of actualannual and accumulated compensation. Tally sheets are also used by the Compensation Committee to evaluate internal pay equity among the Named Executive Officers and to determine the impact of employment termination or change of control events. In support of the philosophy of rewarding future performance, the Compensation Committee does not consider prior pay outcomes in setting future pay levels. Rather, tally sheets are used by the Compensation Committee to review compensation as compared to expectations, and our Compensation Committee determined that annual compensation set for our Named Executive Officers for fiscal year 20102012 was consistent with expectations and with the established compensation philosophy and the pay mix guidelines driven by that philosophy. Fiscal Year 20102012 Compensation – Alignment with Performance Salary. For each Named Executive Officer,fiscal year 2012, salary is based on the individual’s position, performance, and relation to pay levels in the competing market, as well as changes in salaries in the overall general market. Salaries are reviewed annually by our Compensation Committee, and changes in salary are based on these factors as well as input fromcomprised 35% of total target compensation for our Chief Executive Officer and between 43% and 52% for our other thanNamed Executive Officers (who were granted annual and long-term incentives). The Compensation Committee considered the competitive market assessments provided by Towers Watson in determining fiscal year 2012 salaries for himself. Nonethe Named Executive Officers. For purposes of the factors, however, are weighted accordingassessments, incumbents were matched to any specific formula. Newsurvey benchmarks based upon responsibilities, and market-competitive salaries generally are based onwere determined by regressing each benchmark to each Named Executive Officer’s respective revenue responsibilities, which placed those with corporate responsibilities in one grouping and the Compensation Committee’s discretion and judgment but may be based on input from PM&P,business unit heads in certain situations. Messrs. Ellis’ and Kossin’s salary increases in connection withtheir own respective category relative their respective promotionsunit’s revenue. As noted above, the assessment was reevaluated after the TSG sale in October 2008 were based on survey analysis and recommendations from PM&P. To control costs and in lightconsideration of the challenging economy, our Compensation Committee determined, uponcontinuing, smaller revenue, Company.
The survey data included values at the recommendation25th, 50th (market median), and 75th percentiles. While overall fiscal year 2012 salaries were evaluated as part of the initial assessment early in the fiscal year, except for our Chief Executive Officer, final salary determinations were not made until the TSG sale was approved and, as such, no salary changes were considered for Messrs. M. Ellis and Mellina, as neither executive continued with the Company after the TSG sale. The Committee set Mr. Dennedy’s salary at the time of his appointment to freeze the salaries of our Named Executive Officers for fiscal year 2010 consistent with treatment of all employees. Additionally, the Compensation CommitteeInterim considered recent19
President and Chief Executive Officer, and his salary increases in connection with executive promotions for allwas set significantly lower than the median due to the interim nature of his position, the equal value of, and thus higher emphasis on, his annual and long-term incentives, and the overall fairness of his compensation level. Regarding the remainder of the Named Executive Officers, exceptexcluding Mr. R. Ellis, current salaries ranged between 8% below and 17% above median, which was considered competitive. As such, salary increases were made based on individual responsibilities and performance, and increases averaged 2.5%, ranging from 0% to 5.4%, with Ms. Weigand receiving the highest increase in consideration of a 15% premium applied to the top legal benchmark for her additional human resources responsibilities that are not typical in her position. For Mr. R. Ellis, who joined the Company justin October 2011, the second assessment, which adjusted benchmarks for the reduced size of the Company, was considered as well as his previous salary level and prior experience in setting his salary, which was set within the competitive range of the median for his position. Annual Incentives. For fiscal year 2012, annual goals were set after shareholders approved the TSG sale to reflect the smaller, refocused Company going forward. In prior years, goals were set at the beginning of the fiscal year; however, at the beginning of fiscal year 2010.2011 the eventual size and scope of the Company was uncertain, and thus goals were established when the TSG sale was approved but the outcome of such fiscal year was still substantially uncertain. As such, no awards were granted to Messrs. M. Ellis and Melina. The discussion below, which specifically relates to the table below under “Fiscal Year 2012 Payouts,” provides details regarding fiscal year 2012 annual incentive performance metrics, levels, and payouts for the other Named Executive Officers. Performance Metrics. The Compensation Committee also considered the newness ofset corporate performance metrics, applicable to Messrs. Dennedy, Ellis, Bond, and Kossin in their roles. ForStout and Ms. Weigand, for fiscal year 2012 annual incentives to require target level improvements over fiscal year 2011 results of 7.2% for gross profit and 5.8% for revenue. These levels were set based on the Compensation Committee considered her previous salary level, her prior experienceCompany’s overall operating plan and expected growth and operating improvements in the roletwo continuing business units, Hospitality Solutions Group (“HSG”), for which Ms. Stehle managed development and operations, and Retail Solutions Group (“RSG”), for which Mr. Civils manages all aspects. Target level improvements for HSG, applicable to Ms. Stehle, were set at 3.4% for revenue and 5.7% for gross profit and for RSG, applicable to Mr. Civils, were set at 9.6% for revenue and 10.6% for gross profit. Gross profit was selected as General Counsel, and her additional responsibilities as Senior Vice President – Human Resources, in setting her salary upon joining the Company. The Compensation Committee considers the role, responsibilities, and experiencean annual goal component for all Named Executive Officers in setting compensation. Annual Incentives. In May 2009,given the desire to balance sales and margins, as both are manageable by our Compensation Committee set the performance measures, objectives, and weighting for each Named Executive Officer’s fiscal year 2010 incentive awardOfficers. For the corporate Named Executive Officers, including Messrs. Dennedy, R. Ellis, Bond, and Stout and Ms. Weigand, gross profit goals related to the consolidated Company results, and for the business unit heads, gross profit goals related to their respective business units. The higher percentage for gross profit applicable to the corporate executives was the results of an additional, business specific metric being included as set fortha component (as discussed below) in each business unit head’s mix of metrics for which they each have more direct control. Revenue was also selected as an annual goal component for all Named Executive Officers, as revenue growth has heightened importance in the chart below. Fiscal year 2010 target annual incentives were setsmaller, refocused Company. For Ms. Stehle, revenue as a percentage of salaryher overall goal was less than for each Named Executive Officer. Mr. Ellis had a greater percentage of salary as target incentive as compared to the other Named Executive Officers due to his greaterher direct responsibilities over operations and expense management within HSG, as discussed below. While she does not have direct control over revenue, her responsibilities influence revenue.
The cash component metric was added for fiscal year 2012 to promote cash utilization in accordance with the Company’s operating plan. After the TSG sale, the Company stated that its top priorities included improving operating performance and financial results, profitably growing the business, and returning capital to shareholders. To that end, the Company aimed to use its cash, including the proceeds from the TSG sale, to fund working capital needs, make select investments in the businesses, execute its share repurchase plan, and return excess cash to shareholders as prudently as possible. Achieving these objectives required tighter management of operating expenses and focusing investments on growth opportunities with the highest return. The Compensation Committee determined that setting a goal for the fiscal year-end cash balance would promote these objectives. The level of year-end cash applicable to all Named Executive Officers was determined by budgeting fiscal year working capital needs of each business under the operating plan and projecting the targeted level of remaining cash. The importance of achieving this goal at the corporate level made this component the highest weighted for 20
the corporate executives, while the business unit heads had a lower weighting for corporate cash due to emphasis on other business unit specific goals as discussed below and their reduced ability to influence corporate cash. After the TSG sale, all assets and liabilities, results of operations, and cash flows of TSG were classified as discontinued operations within the Company’s financial performance. Thestatements. As a result, an EBITDA metric for the consolidated Company was determined to be less predictable, incentivizing, and pertinent to the operating plan than the revenue, gross profit, and cash goals selected for the fiscal year 2010 target percentagesmetrics. EBITDA within the discreet RSG business unit, however, is within Mr. Civils control, as general manager of salary were the same percentages as set for fiscal year 2009, except for Ms. Weigand, who did not have a fiscal year 2009 annual incentive award, having joined theRSG. The Company just prior to the beginning of fiscal year 2010. The Compensation Committee selected EBITDA as the main component of annual goals becausebelieves RSG EBITDA is a profitability measure, and a key driver of shareholder value, and the management of EBITDA is manageable by our Named Executive Officers. The balance between the performance measures of EBITDA dollars (“EBITDA $”) and EBITDA as a percentage of revenues (“EBITDA %”) was selected to base goalsfocusing on sales, product mix, margins, and expense management. WhileAs such Mr. Civil’s heaviest weighted component was RSG EBITDA, $ helps drive stock pricetargeted at 105% improvement over fiscal year 2011 RSG EBITDA. Due to Ms. Stehle’s direct responsibilities for operating expenses with HSG, and shareholder value, including EBITDA % as a component resultsonly indirect influence over revenue, the Compensation Committee determined that the most critical goal for Ms. Stehle in a higher payout whenrelation to the overall achievement of the Company’s operating plan was the expense management within HSG, and as such, control of cash operating expenses was Ms. Stehle’s heaviest weighted component. As with the corporate cash component, the targeted EBITDA $ is the resultlevel of selling more of our proprietary solutions, which typically produces relatively higher margins, aligning goals with our overall strategic business objective to sell a higher mix of proprietary solutions as a percent of total revenue and manage costs effectively. Full annual incentive payout is achieved only if this strategy is effected.
Improvement in days’ sales outstanding (“DSO”) and dollar days’ sales outstanding (“DDSO”) were selected as components of annual goals becauseexpense was determined by budgeting fiscal year working capital management also drives improvementsneeds with the greater operating plan.
Performance percentages for payouts (with proportionate payouts between the target and maximum achievement levels) were based on varying levels of achievement of fiscal year 2012 budgeted results, as set forth below. Additional detail about threshold and maximum incentives are disclosed in cash flow and shareholder value and is manageable by our Named Executive Officers. Accounts receivable represents the largest asset on our balance sheet, and the managementGrants of accounts receivable to ensure timely collection and high quality receivables is important to overall working capital management. Plan-Based Awards for Fiscal Year 2012 table. | | | | | | | | | | | | | | | | | Component | | Threshold | | | Maximum | | | Payout (% of target incentive) | | | Required Achievement of Performance Measures (%) | | | Payout (% of target incentive) | | | Required Achievement of Performance Measures (%) | | Revenue | | | 1 | | | | 87.51 | | | | 250 | | | | 118.75 | | Gross Profit | | | 25 | | | | 80.1 | | | | 250 | | | | 115.0 | | Cash/EBITDA | | | 50 | | | | 80.0 | | | | 250 | | | | 150.0 | |
The Compensation Committee included both DSObelieved that the plan involved moderate difficulty at the threshold level, a high degree of difficulty at the 100% target level, given continuing competition and DDSO (using an averagepricing pressure in the market, and significant difficulty at the maximum level, requiring significant improvement over fiscal year 2011 results, in each case relative to future expectations at the time the levels were set, and significant preservation of cash. Threshold levels were based on achievement necessary to successfully execute a minimum level of the improvement of the two as theoperating plan. 21
MBO’s. In addition to objective performance measurement) as equal components to balance quantity and quality of receivables. DSO measures the average number of days we take to collect payment after a sale is made and is calculated as: (net accounts receivable ÷ total sales) x 365. DDSO is the number of days a receivable is outstanding multiplied by the dollar weighted average of that receivable to all receivables. DSO relates to the dollar value of receivables relative to sales, and DDSO relates to the quality of receivables by weighting the dollar value of the receivables by the period of time the receivables remain uncollected. The EBITDA performance measures are weighted heavier than the DSO/DDSO performance measure because the Compensation Committee believes that improvements in EBITDA results in a larger impact on shareholder value than working capital management and because shareholder value is more sensitive to changes in EBITDA than changes in working capital. For Messrs. Ellis and Kossin and Ms. Weigand, the performance measures of EBITDA $ and EBITDA % relate to the consolidated Company (referred to as AGYS in the chart below). The performance measure of the average of DSO and DDSO for these Named Executive Officers also relates to the consolidated Company. For Mr. Mellina and Ms. Stehle, performance measures of EBITDA $, EBITDA %, and DSO/DDSO relate to their respective business segments. Additionally, Mr. Mellina and Ms. Stehle had performance measures of EBITDA $ relating to the consolidated Company.
For each Named Executive Officer,metrics, management by objectivesobjective goals (“MBOs”) are establishedcomprise 25% of the Named Executive Officer’s annual incentive and represent individual performance-based goals, with both quantitative and qualitative measures, relative to individual responsibilities. MBOs emphasize the importance of specific tasks and corporate-wide initiatives that must be
achieved on a timely basis,company-wide initiatives; however, MBOs receive a lesser weighting than EBITDAthe combined performance metric goals due to their indirect and lesser impact on shareholder value. The Compensation Committee has discretion in deciding whether each MBO was achieved and in determining the level of achievement, and thus payout, for the MBO components. Achievement of MBOs results in a payout ranging from the target MBO amount to 150% for maximum achievement, and Named Executive Officers are eligible for proportionate payouts between the target and maximum achievement levels, except there is no payout for MBOs below target achievement level. Consistent with the other elements of compensation, MBOs were established after the TSG sale was approved. Fiscal year 2012 MBO goals and payout allocations for the active Name Executive Officers were as follows:
| | | | | | | | | | | | | Executive | | Strategic Initiatives | | % of MBOs | | | Operational Initiatives | | % of MBOs | | James H. Dennedy | | Product related initiatives, successful Company relocation and transition, and increased analyst coverage | | �� | 60 | | | Identification of expense reduction opportunities and successful execution of transition services (to TSG purchaser) | | | 40 | | Robert R. Ellis | | Successful Company relocation and transition and increased analyst coverage | | | 40 | | | Successful execution of transition services (to TSG purchaser), IT initiatives, close process improvements, and identification of expense reduction opportunities | | | 60 | | Tina Stehle | | Product related initiatives | | | 60 | | | Reorganization efforts and identification of expense reduction opportunities | | | 40 | | Paul A. Civils | | Time and budget goals for delivery under significant vendor contracts | | | 40 | | | Operational improvements and optimization of select business opportunities | | | 60 | | Curtis C. Stout | | Competitive analysis, growth strategy development, and increased analyst coverage | | | 40 | | | Development of analysis tools, forecasting initiatives, and identification of expense reduction opportunities | | | 60 | |
Weight differences between initiatives among the Named Executive Officers corresponded to importance of each initiative in respect of the overall Company operating plan. For Mr. Kossin, the higher weighting for MBOs reflects the critical importance of the implementation of the new Oracle ERP system, which represents 35% of his target incentive, with the balance of his MBOs based on business segment interface each quarter. For Mr. EllisBond and Ms. Weigand, MBOs were focused on the weightings reflect critical objectives relatingCompany’s successful transition and relocation of corporate services and operational improvements similar to leadershipthe other Named Executive Officers, and development criteriadue to their departure in their respective new positions.October, MBO goals were not executed on, and thus neither received payment for MBOs. Annual Incentive Levels. For all Named Executive Officers, fiscal year 2012 target annual incentives were set as a percentage of salary, with the percentage correlating to the overall competitive total target compensation level for each executive. Our Chief Executive Officer’s percentage was set at 100% of his salary, as opposed to approximately 50-60% of salary for other executives, to increase the performance-base nature of his total compensation. Annual incentives comprised 35% of total target compensation for Mr. Dennedy, due to his greater ability to influence corporate goals and initiatives and to directly link a significant portion of his pay, when combined with long-term incentives, to performance. Annual incentive comprised between 22% and 26% for our other Named Executive Officers (who were granted annual and long-term incentives). As with salaries, the Compensation Committee considered the competitive market assessments provided by Towers Watson in evaluating current annual incentive levels and for determining fiscal year 2012 levels. Target levels were based on survey data from companies of comparable revenue and were interpolated for each executive based on calculated competitive salaries, as described above. The survey data included values at the 25th, 50th (market median), and 75th percentiles and, on average, current target annual incentive percentages of salary were aligned with market median, and total target cash 22
compensation (salary and annual incentive) was in the competitive range for the positions evaluated, ranging from 8% below to 19% above market median. As such, increased annual incentive opportunities were a factor of increased salary, as discussed above, as annual incentives as a percentage of salary approximated current levels. For Mr. R. Ellis, MBOs include the on-time, on-budget Oracle ERP system implementation, acquisition integrations, visibilitysecond (August) assessment was considered, and communicationshis annual incentive as a percentage of salary was set higher than market median to key constituents, risk management reviewlink a greater percentage of his compensation to performance, given his ability to influence corporate goals and initiatives, and to set his total target cash compensation in line with market median and his current level of compensation. As with his salary, Mr. Dennedy’s annual incentive level was set at the Board, strategic planning process,time of his appointment to heavily weight performance. Fiscal Year 2012 Payouts. The chart below sets forth the fiscal year 2012 annual incentive opportunity for each participating Named Executive and personal development in his new role. For Ms. Weigand, MBOs arethe components, weightings, and actual annual incentive payouts based on the effectivenessCompensation Committee’s review of the legal and human resources departments, which accounts for 20% of her target incentive, and 5% for business segment interface each quarter. For Mr. Mellina and Ms. Stehle, MBOs are based on their support for the implementation of the new Oracle ERP system, resulting in a lesser overall weighting for MBOs. The Compensation Committee reviewed the achievement of the performance measuresmeasures. At the corporate level, a threshold level of revenue and target levels of gross profit and cash goals were achieved, resulting in corresponding payouts for those components. At the business segment level, Ms. Stehle achieved threshold levels of revenue and gross profit and near target level of cash operating expenses goals, resulting in corresponding payouts for achievement of those goals within HSG. Mr. Civils achieved target levels of revenue and gross profit and a threshold level of EBITDA, resulting in corresponding payouts for achievement of those goals within RSG. Ms. Stehle and M. Civils also earned a payout for the corporate target level achievement of cash goal. The attainment by each Named Executive Officer to determine actual annual incentive payouts, as set forthof their respective MBOs is reflected in the charttable below. These payouts are also set forth in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table.
| | | | | | | | | | | | | | | Performance Metrics | | Annual Incentive | Target Incentive as a % of Salary | | Component | | Weight | | Target | | Actual | | Target | | Payout | | | | | | | | Martin F. Ellis – 75% | | EBITDA $: AGYS | | 30% | | $35.8M | | $10.1 | | $101,250 | | $0 | | | EBITDA %: AGYS | | 30% | | 4.8% | | 1.6% | | $101,250 | | $0 | | | DSO/DDSO: AGYS | | 15% | | - 10 days | | -12 days | | $50,625 | | $60,750 | | | MBO | | 25% | | | | Achieved | | $84,375 | | $90,000 | | | | | | | | | | | | | | | | | | | | | | | | $337,500 | | $150,750 | | | | | | | | Kenneth J. Kossin, Jr. – 50% | | EBITDA $: AGYS | | 20% | | $35.8M | | $10.1 | | $28,500 | | $0 | | | EBITDA %: AGYS | | 30% | | 4.8% | | 1.6% | | $42,750 | | $0 | | | DSO/DDSO: AGYS | | 10% | | - 10 days | | -12 days | | $14,250 | | $17,100 | | | MBO | | 40% | | | | Achieved | | $57,000 | | $57,000 | | | | | | | | | | | | | | | | | | | | | | | | $142,500 | | $74,100 | | | | | | | | Kathleen A. Weigand – 50% | | EBITDA $: AGYS | | 30% | | $35.8M | | $10.1 | | $45,000 | | $0 | | | EBITDA %: AGYS | | 35% | | 4.8% | | 1.6% | | $52,500 | | $0 | | | DSO/DDSO: AGYS | | 10% | | - 10 days | | -12 days | | $15,000 | | $18,000 | | | MBO | | 25% | | | | Achieved | | $37,500 | | $47,500 | | | | | | | | | | | | | | | | | | | | | | | | $150,000 | | $65,500 | | | | | | | | Tina Stehle – 49% | | EBITDA $: HSG | | 30% | | $18.0M | | $13.1 | | $40,500 | | $0 | | | EBITDA %: HSG | | 30% | | 18.8% | | 15.7% | | $40,500 | | $23,794 | | | DSO/DDSO: HSG | | 10% | | - 10 days | | -47 days | | $13,500 | | $33,750 | | | EBITDA $: AGYS | | 20% | | $35.8M | | $10.1 | | $27,000 | | $0 | | | MBO | | 10% | | | | Achieved | | $13,500 | | $13,500 | | | | | | | | | | | | | | | | | | | | | | | | $135,000 | | $71,044 | | | | | | | | Anthony Mellina – 50% | | EBITDA $: TSG | | 30% | | $39.5M | | $17.4 | | $45,000 | | $0 | | | EBITDA %: TSG | | 30% | | 7.4% | | 3.9% | | $45,000 | | $0 | | | DSO/DDSO: TSG | | 10% | | - 10 days | | -5 days | | $15,000 | | $7,500 | | | EBITDA $: AGYS | | 20% | | $35.8M | | $10.1 | | $30,000 | | $0 | | | MBO | | 10% | | | | Achieved | | $15,000 | | $15,000 | | | | | | | | | | | | | | | | | | | | | | | | $150,000 | | $22,500 |
Additional detail about threshold and maximum23
| | | | | | | | | | | | | | | | | | | | | | | | | Performance Metrics | | | Annual Incentive | | Target Incentive as a % of salary | | Component | | | | Weight | | Target | | | Actual | | | Target (1) | | | Payout (1) | | James H. Dennedy – 100% | | Revenue: AGYS | | | | 20% | | | $213.2M | | | | $209.6M | | | | $70,000 | | | | $60,648 | | | | Gross Profit: AGYS | | | | 25% | | | $81.1M | | | | $81.2M | | | | $87,500 | | | | $89,586 | | | | Cash: AGYS | | | | 30% | | | $84.3M | | | | $97.6M | | | | $105,000 | | | | $154,644 | | | | MBO | | | | 25% | | | | | | | | | | | $87,500 | | | | $64,167 | | Total | | | | | | | | | | | | | | | | | $350,000 | | | | $369,045 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Robert R. Ellis – 60% | | Revenue: AGYS | | | | 20% | | | $213.2M | | | | $209.6M | | | | $15,805 | | | | $13,693 | | | | Gross Profit: AGYS | | | | 25% | | | $81.1M | | | | $81.2M | | | | $19,756 | | | | $20,227 | | | | Cash: AGYS | | | | 30% | | | $84.3M | | | | $97.6M | | | | $23,707 | | | | $34,916 | | | | MBO | | | | 25% | | | | | | | | | | | $19,756 | | | | $19,756 | | Total | | | | | | | | | | | | | | | | | $79,023 | | | | $88,591 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Henry R. Bond – 50% | | Revenue: AGYS | | | | 20% | | | $213.2M | | | | $209.6M | | | | $16,700 | | | | $14,540 | | | | Gross Profit: AGYS | | | | 25% | | | $81.1M | | | | $81.2M | | | | $20,875 | | | | $21,477 | | | | Cash: AGYS | | | | 30% | | | $84.3M | | | | $97.6M | | | | $25,050 | | | | $37,074 | | | | MBO | | | | 25% | | | | | | | | | | | $20,875 | | | | — | | Total | | | | | | | | | | | | | | | | | $83,500 | | | | $73,091 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Tina Stehle – 50% | | Revenue: HSG | | | | 15% | | | $95.9M | | | | $87.4M | | | | $21,188 | | | | $6,034 | | | | Gross Profit: HSG | | | | 20% | | | $57.8M | | | | $56.5M | | | | $28,250 | | | | $25,876 | | | | Cash Exp: HSG | | | | 30% | | | ($45.8)M | | | | ($47.2)M | | | | $42,375 | | | | $39,335 | | | | Cash: AGYS | | | | 10% | | | $84.3M | | | | $97.6M | | | | $14,125 | | | | $20,803 | | | | MBO | | | | 25% | | | | | | | | | | | $35,313 | | | | $10,594 | | Total | | | | | | | | | | | | | | | | | $141,250 | | | | $102,642 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Paul A. Civils – 51% | | Revenue: RSG | | | | 20% | | | $119.1M | | | | $122.3M | | | | $26,010 | | | | $31,524 | | | | Gross Profit: RSG | | | | 20% | | | $23.2M | | | | $24.7M | | | | $26,010 | | | | $42,494 | | | | EBITDA: RSG | | | | 25% | | | $7.8M | | | | $6.6M | | | | $32,513 | | | | $19,654 | | | | Cash: AGYS | | | | 10% | | | $84.3M | | | | $97.6M | | | | $13,005 | | | | $19,154 | | | | MBO | | | | 25% | | | | | | | | | | | $32,513 | | | | $16,256 | | Total | | | | | | | | | | | | | | | | | $130,050 | | | | $129,082 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Curtis C. Stout – 50% | | Revenue: AGYS | | | | 20% | | | $213.2M | | | | $209.6M | | | | $22,750 | | | | $19,711 | | | | Gross Profit: AGYS | | | | 25% | | | $81.1M | | | | $81.2M | | | | $28,438 | | | | $29,115 | | | | Cash: AGYS | | | | 30% | | | $84.3M | | | | $97.6M | | | | $34,125 | | | | $50,259 | | | | MBO | | | | 25% | | | | | | | | | | | $28,438 | | | | $23,698 | | Total | | | | | | | | | | | | | | | | | $113,750 | | | | $122,783 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Kathleen A. Weigand – 50% | | Revenue: AGYS | | | | 20% | | | $213.2M | | | | $209.6M | | | | $18,667 | | | | $16,040 | | | | Gross Profit: AGYS | | | | 25% | | | $81.1M | | | | $81.2M | | | | $23,333 | | | | $23,693 | | | | Cash: AGYS | | | | 30% | | | $84.3M | | | | $97.6M | | | | $28,000 | | | | $40,900 | | | | MBO | | | | 25% | | | | | | | | | | | $23,333 | | | | — | | Total | | | | | | | | | | | | | | | | | $93,333 | | | | $80,663 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | Pro-rated from hire date for Mr. R. Ellis and pro-rated from separation date for Mr. Bond and Ms. Weigand. See Grants of Plan-Based Awards table for annualized award amounts. |
(2) | Mr. Mellina received no annual incentive award; however, as part of his severance package, a payment of $32,235 was made in lieu of full participation in the annual incentive plan. This was based on achievement, at the time of his separation, of threshold TSG revenue and near-target TSG gross profit goals representative of goals that would have been in place for Mr. Mellina for the fiscal year 2012. |
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Long-Term Incentives. As with the annual incentives, are disclosed in the Grants of Plan-Based Awards for Fiscal Year 2010 table. For EBITDA $ and EBITDA %, to receive a threshold payout of 50% of the target incentive, achievement of 80% of the performance measures is required, while the maximum payout of 250% of the target incentive is received if 150% of the performance measure is achieved, with proportionate payments between 80% and 150%. For DSO/DDSO, 10 days improvement achieves target payout, while 1 day improvement yields a 10% payout of the target incentive and 25 days improvement yields a 250% payout of the target incentive, with proportionate payments between 1 and 25 days improvement. For MBOs, target payment is made if all MBOs are achieved. The payout for each specific MBO ranges from 0% to 150%, depending on the level of achievement for each specific MBO.
Long-Term Incentive Plan. Our Compensation Committee approved fiscal year 2012 long-term incentive (“LTI”) awards after shareholders approved the 2010 Performance Share Plan (the “2010 LTIP”), pursuantTSG sale, except for our Chief Executive Officer. LTI awards to the Company’s shareholder approved 2006 Stock Incentive Plan, consistingNamed Executive Officers consisted of stock-settled stock appreciation rights (“SSARs”) and performance-based restricted shares, (“both with three-year vesting schedules, pursuant to the Company’s shareholder-approved 2011 Stock Incentive Plan. The Committee considered various LTI award alternatives. While annual incentives targeted specific performance shares”). The 2010 LTIPgoals, the focus on LTI awards was created to drive improvementslink compensation directly to shareholder gains and to improve retention of key management during the Company’s time of transition. SSARs provided the direct link between compensation and shareholder gains in a less dilutive manner than with stock options, and the three-year vesting schedule also enhances retention. Restricted shares also tie compensation to shareholder gains and highly bolster retention over the vesting period.
LTI awards comprised 31% of total target compensation for Mr. Dennedy to directly link a significant portion of his pay, when combined with his annual incentive, to performance that build wealth, create long-term valueand comprised between 23% and 33% for shareholders, and reinforce the urgency of executing against operating plans. Our Compensation Committee believes that the emphasis on performance shares focuses our other Named Executive Officers on improving profitability(who were granted annual and drives shareholder returns over the long-term while grants of SSARs provide an instrument that provides gains to recipients based on actual long-term returns realized by shareholdersincentives). As with salaries and enhances executive retention. Target performance shares comprised 67% of the value of the 2010 LTIP grants, and SSARs comprised 33% of the value of the grants. The heavier weighting on performance shares provides a focus on financial performance, which the Named Executive Officers have a greater ability to influence. The SSARs, similar to options, were selected because appreciation vehicles, such as SSARs and options, have greater motivational potential and reflect actual shareholder returns. In comparison to stock options, SSARs are less dilutive to shareholders. In determining total awards for Named Executive Officers under the 2010 LTIP,annual incentives, the Compensation Committee reviewedconsidered the competitive market dataassessments provided by Towers Watson in evaluating current LTI levels and recommendations from PM&Pfor determining fiscal year 2012 LTI levels. The Compensation Committee also received input and recommendations from our Chief Executive Officer. The market data was based on surveys covering several hundred companies in general industry, and recommendations were based on comparisons to companies of comparable size to us. The data included proposed long-term incentive values set at market-median (50th percentile), as a percentage of salary, with modifications based onOfficer regarding each Named Executive Officer’s relative ability to influence results in a business segment or in the corporate officeoffice. Target levels were based on survey data from companies of comparable revenue and were interpolated for each executive based on calculated competitive salaries, as recommended by our Chief Executive Officer. Our Chief Executive Officer hasdescribed above. The data included LTI values at the 25th, market median, and 75th percentiles, and LTI’s as a percentage of base salary at those values. In the aggregate, current LTI values and as a percentage of salary fell between the 25th percentile and market median, with several values outside of the competitive range for the positions evaluated. However, as total target direct compensation was still within a competitive range, despite the lower LTI comparative positions, only slight increases (and only for those below market median) were made for fiscal year 2012 LTI awards in light of compensation cost control efforts. For Mr. R. Ellis, the second (August) assessment was considered, and his LTI value and as a percentage of salary were set just below market median to link a greater percentage of his compensation to performance, given his ability to influence corporate goals and initiatives, and to set his total target cash compensation in line with market median and his current level of compensation. As with his other compensation, Mr. Dennedy’s LTI level was set at the time of his appointment to interim Chief Executive Officer to heavily link compensation to shareholder gains, and thus Mr. Dennedy had the highest percentage of salary as long-term incentivefor his LTI award as compared to the other Named Executive Officers dueOfficers. Mr. Dennedy’s award consisted solely of restricted stock to accelerate share ownership and align his greater ability to influence long-termcompensation with shareholder return. The data also includedinterests. Based on the competitive market values for long-term incentive values at the 25thassessments, input and 75th percentiles and overall compensation outcomes for the Named Executive Officers, including salary, annual, and long-term incentives. Consistent withrecommendations, the Compensation Committee’s philosophy, 2010 LTIP totalCommittee set the 2012 LTI awards for each Named Executive Officer was set at market median, as follows:
| | | | | | | | | | | | | % of Salary | | Performance Shares | | SSARs | | | Threshold | | Target | | Maximum | | | | | | | | Martin F. Ellis | | 165% | | 0 | | 77,600 | | 135,800 | | 78,000 | | | | | | | Kenneth J. Kossin, Jr. | | 70% | | 0 | | 21,100 | | 36,925 | | 21,100 | | | | | | | Kathleen A. Weigand | | 75% | | 0 | | 23,600 | | 41,300 | | 23,600 | | | | | | | Tina Stehle | | 73% | | 0 | | 21,100 | | 36,925 | | 21,100 | | | | | | | Anthony Mellina | | 75% | | 0 | | 23,600 | | 41,300 | | 23,600 |
| | | | | | | | | | | | | | | | | Name | | Percent of Salary (%) | | | | Total LTIP Value ($) | | | | SSARs Granted (#) | | | | Restricted Shares Granted (#) | | | James H. Dennedy | | 89 | | | | 311,640 | | | | — | | | | 42,000 | | | Robert R. Ellis | | 75 | | | | 205,700 | | | | 16,050 | | | | 15,135 | | | Henry R. Bond | | 73 | | | | 220,000 | | | | 23,656 | | | | 14,825 | | | Tina Stehle | | 65 | | | | 183,625 | | | | 19,745 | | | | 12,374 | | | Paul A. Civils | | 65 | | | | 165,750 | | | | 17,823 | | | | 11,169 | | | Curtis C. Stout | | 44 | | | | 100,000 | | | | 10,753 | | | | 6,739 | | | Kathleen A. Weigand | | 69 | | | | 220,000 | | | | 23,656 | | | | 14,825 | | |
All SSARs and restricted shares (except for Mr. Dennedy’s) vest in one-third increments beginning on March 31, 2010,2012, 2013 and any performance shares earned at the end of fiscal year 2010 vest one-third on the filing of the Form 10-K for the fiscal year ended March 31, 2010 (“Form 10-K”) and on March 31, 2011 and 2012. Unearned performance shares were forfeited by the Named Executive Officers.2014. The SSARs were granted at an exercise price $6.83$7.42 per share, and $8.14 for Mr. R. Ellis (the closing price of the Common Sharescommon shares on the grant date), have a seven-year term, and are settled in Common Sharescommon shares upon exercise. The performance Mr. Dennedy’s restricted shares have a one-year performance period to emphasize the urgency of performance, while the three-year vesting period is intended to bolster retention upon payout. Performance shares are earned based on two components: (i) earnings defined as increases in EBITDA $ for fiscal year 2010, above a pre-set threshold, and (ii) reductions in capital defined as reduction in net accounts receivable less capital expenditures, or improvements in receivables. EBITDA $ earned above threshold levels is multiplied by a factor of 8 to
determine gross value created. Capital investments are subtracted from the change in receivablesvested monthly over the prior yearone-year period of his initial employment agreement entered into upon his appointment to determine net value created. A sharing percentage Interim President and Chief Executive Officer. All
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of net value created is used to create a dollar value performance share pool at fiscal year-end, which is divided by a total target incentive for all the participants sharing in that pool (“Target LTI”) to determine the payout multiple. Target LTI was set as $1.25 million for the consolidated Company, $.32 million for TSG, and $.21 million for HSG. The Target LTI for the consolidated Company includes all business unit participants that share one-third in consolidated Company performance. The payout multiple is applied to the target shares granted to each Named Executive Officer to determine the number of shares earned. If there is no improvement in EBITDA $ and there is improvement in receivables, the payout is based solely on improvements in receivables, and the payout is improvement in receivables, less capital improvements, multiplied by the sharing percentage to create the pool, which is divided by Target LTI to determine the payout multiple. The sharing percentages are based on the number of participants sharing in the consolidated Company pool and the pool allocated to each business segment. Business segment participants share in the consolidated Company pool for one-third of their incentive, while the remaining two-thirds of their incentive is derived from their respective business segment pool. The target sharing percentages, set at 3.5% for the consolidated Company, 1.3% for TSG, and 1.8% for HSG, were established so that target payout is earned for the participants in each pool when budget is achieved, which results in shareholders receiving a higher relative return than the executives. This structure was used to emphasize the focus on achieving substantial improvements in fiscal year 2010 performance.
For EBITDA $ consideration, all of Messrs. Ellis’ and Kossin’sMr. Bond’s and Ms. Weigand’s performanceSSARs and restricted shares are earned based on the consolidated Company’s EBITDA $, while two-thirds of Mr. Mellina’s and Ms. Stehle’s performance shares are earned based on their respective individual business segment EBITDA $were forfeited upon separation. As with the remaining one-third earned based on the consolidated Company’s EBITDA $. Each Named Executive Officer can earn up to a maximum of 175% of the performance shares granted, and no performance shares are earned for performance below target. Forannual incentives, Messrs. M. Ellis and Kossin and Ms. Weigand, as corporate management, the total EBITDA $ contribution to the, number of performance shares earned is based on the Company’s threshold EBITDA of $30 million. For Mr. Mellina (TSG) and Ms. Stehle (HSG), the threshold EBITDA for their respective business segments, applicable for the two-thirds basis of their awards, is $36.5 million and $16 million, respectively, which provides for a significant portion of the business segment heads’ payouts based on respective business segment performance.
For fiscal year 2010, the Company’s EBITDA was $10.1 million andMelina did not meet threshold EBITDA, and TSG and HSG EBITDA were $17.4 million and $13.1 million, respectively, and did not meet threshold EBITDA for TSG and HSG. Improvement in receivables significantly contributed to a $30 million increase in cash in
fiscal year 2010, and therefore fiscal year 2010 performance shares earned were based on value creation from improvements in receivables and cash flow as set forth below. Some of the improvement in receivables, however, was attributed to the fiscal year 2010 decline in revenues as compared to fiscal year 2009, and the Compensation Committee determined that it was appropriate to reduce payouts to reward only for the improved receivables that were not attributable to the decline in revenues, or to “normalize” receivables improvement. The Compensation Committee calculated normalized receivables improvement as: ((fiscal year 2009 DSO – fiscal year 2010 DSO) ÷ 365) x fiscal year 2010 revenue, resulting in a payout multiple and earned performance shares as set forth below.
| | | | | | | | | | | Value Creation Company | | Value Creation Business Segments | | Payout Multiple | | Performance Shares Earned | Martin F. Ellis | | $17.9 million | | N/A | | 50.22% | | 38,971 | Kenneth J. Kossin, Jr. | | $17.9 million | | N/A | | 50.22% | | 10,596 | Kathleen A. Weigand | | $17.9 million | | N/A | | 50.22% | | 11,852 | Tina Stehle | | $17.9 million | | $7.3 million | | 58.39% | | 12,320 | Anthony Mellina | | $17.9 million | | $20.0 million | | 70.94% | | 16,742 |
The following table shows the number of performance shares awarded for each Named Executive Officer. The Named Executive Officers earned less than target since EBITDA performance thresholds were not achieved.
receive 2012 LTIP awards.
Supplemental Compensation and Benefits
Deferred Compensation Plan. Eighty-two of our senior managers, including our Named Executive Officers, are eligible to defer pay into a nonqualified deferred compensation plan, called the Benefit Equalization Plan (the “BEP”). We established the BEP to provide our executives with the ability to contribute amounts for retirement in excess of the contribution amounts allowed under The Retirement Plan of Agilysys, Inc., our tax-qualified Section 401(k) Plan (“401(k) Plan”). BEP participants are eligible to receive Company matches and annual profit sharing contributions that are allocated among participants. To reduce fiscal year 2010 compensation costs, Company matches in the BEP were suspended in September 2009, consistent with the 401(k) Plan. Additionally, no fiscal year 2010 profit sharing contribution was made to the BEP or 401(k) Plan. The BEP is an unfunded plan and Company-owned life insurance is purchased as a source of funds to pay the benefits from the BEP.
The Nonqualified Deferred Compensation table provides additional information on specific deferrals of pay, our matching of these deferrals, and additional contributions, if any, and balances in the BEP for each Named Executive Officer. In addition, the discussion accompanying the table describes the BEP in more detail.
Retirement Benefits. Our Supplemental Executive Retirement Plan (the “SERP”) was established during fiscal year 2000 to provide cash retirement benefits to a select group of executive officers and key management employees, as certain tax laws limit the retirement benefits that highly-paid executives can receive from a “qualified” retirement plan. The SERP provides cash benefits in an annual amount not to exceed 50% of the executive’s final average annual earnings, including both salary and annual incentives. The cash benefit amount is reduced by other Company-funded retirement benefits, such as the match provided in the 401(k) Plan and BEP, profit sharing amounts, and 50% of Social Security retirement benefits. To reduce compensation costs, the SERP was closed to new participants in January 2009, and Mr. Ellis is the only remaining active employee who participates in the SERP. The value of accrued benefits for Mr. Ellis under the SERP is set forth in the Pension Benefits table, and the SERP is discussed in more detail in the footnotes and the accompanying discussion.
In December 2009, the Compensation Committee granted 25,000 restricted shares and 35,000 SSARs to Ms. Weigand pursuant to an agreement upon her hire to provide a retirement benefit in lieu of her participation in the Supplemental Executive Retirement Plan, which had been closed to new participants. The grants were made under the 2006 Stock Incentive Plan. The restricted shares and the SSARs vest over an eight-year period, with 40% of the awards vesting on March 31, 2011 and 10% of the original award vesting each year thereafter. The SSARs have an exercise price of $9.35, the closing price of the Common Shares on the grant date.
Additional Compensation – Executive Benefits. We provide executive benefits to our Named Executive Officers including additional life and long-term disability insurance plans, umbrella liability coverage, contributionsplans. From time to Company benefit plans, and automobile allowances. In addition, Mr. Ellis has Company paid club dues. These executivetime, Named Executive Officers also may participate in supplier sponsored events. Executive benefits are further described in the Summary Compensation Table. We believe these benefits enhance the competitiveness of our overall executive compensation package. We have, however, limited executive benefits offered to reduce compensation costs. We eliminated club dues for all executives except our Chief Executive Officer. Additionally, welfare benefits offered to our Named Executive Officers are the same level of benefits offered to all Company employees, except that we pay for the cost of physicals to promote the health and well-being of our executives. Fiscal Year 2011 Considerations
With input from our executive compensation consultant, the Compensation Committee reaffirmed their compensation philosophy, objectives,Employment Agreements and structure for aligning pay with performance for fiscal year 2011.
Peer Groups. The Compensation Committee spent significant time in fiscal year 2010 establishing a peer group of comparable companies for which the Company can benchmark total compensation and pay mix for its executive officers. Given the limited number of publicly held companies in comparable industries and of comparable size to the Company, the Compensation Committee had difficulty selecting a suitable peer group. The peer group used for purpose of our shareholder return performance chart in our 2010 Annual Report (Computer and Computer Peripheral Equipment and Software) was selected for purposes of financial performance comparisons and includes companies significantly larger than us, whereas the peer groups selected by the Compensation Committee for purpose of benchmarking executive compensation are more similar in size to us. Ultimately, a separate peer group for corporate and for each business segment was selected to tailor the industry groups and enhance accuracy of benchmarking.
Each peer group includes companies within the “information technology” Global Industry Classification Standard (GICS) economic sector. The GICS industry groups vary among the peer groups for corporate and for the three business segments: TSG, HSG, and Retail Solutions Group (“RSG”). Corporate and TSG use both the “software & services” and “technology hardware & equipment” GICS industry groups. HSG uses the
“software & services” industry group, and RSG uses the “technology hardware & equipment” industry group. The peer groups, and revenue and enterprise value ranges used within the industry groups, applicable to corporate and each business segment are set forth below.
| | | | | Corporate Peer Group
| Revenues: $400 million to $1.3 billion
Enterprise Value: $25 million to $1.25 billion
| | | | ADC Telecommunications, Inc.
| | JDS Uniphase Corporation
| | PC Mall, Inc.
| Avid Technology, Inc.
| | L-1Identity Solutions, Inc.
| | Powerwave Technologies, Inc.
| Black Box Corporation
| | Lawson Software, Inc.
| | Progress Software Corporation
| Blue Coat Systems, Inc.
| | Lionbridge Technologies, Inc.
| | Quest Software, Inc.
| CIBER, Inc.
| | MAXIMUS, Inc.
| | Richardson Electronics, Ltd.
| Ciena Corporation
| | Mentor Graphics Corporation
| | Sapient Corporation
| Epicor Software Corporation
| | MTS Systems Corporation
| | SED International Holdings, Inc. | ePlus inc.
| | Ness Technologies, Inc.
| | TESSCO Technologies Incorporated | Fair Isaac Corporation
| | NETGEAR, Inc.
| | TIBCO Software, Inc.
| GTSI Corp.
| | Novell, Inc.
| | | Hughes Communications, Inc.
| | NU Horizons Electronics Corp.
| | |
| | | | | | RSG Peer Group
| Revenues: $75 million to $200 million
Enterprise Value: $35 million to $115 million
| | | | Advanced Analogic Technologies Incorporated | | EF Johnson Technologies, Inc.
| | Newtek Business Services, Inc.
| Axcelis Technologies, Inc.
| | EMCORE Corporation
| | Occam Networks, Inc.
| Callidus Software Inc.
| | Glu Mobile Inc.
| | Overland Storage, Inc.
| Chordiant Software, Inc.
| | Keithley Instruments, Inc.
| | Planar Systems, Inc.
| Communications Systems, Inc.
| | Key Tronic Corporation
| | RAE Systems Inc.
| Datalink Corporation
| | LoJack Corporation
| | SigmaTron International, Inc.
| DDi Corp.
| | Majesco Entertainment Company | | Westell Technologies, Inc.
| EasyLink Services International Corporation | | Network Engines, Inc.
| | Zygo Corporation
|
| | | | | | HSG Peer Group
| Revenues: $50 million to $200 million
Enterprise Value: $50 million to $110 million
| | | | American Software, Inc.
| | Keynote Systems, Inc.
| | Presstek, Inc.
| ATS Corporation
| | LaserCard Corporation
| | Rimage Corporation
| CalAmp Corp.
| | Marchex, Inc.
| | Saba Software, Inc.
| Double-Take Software, Inc.
| | NYFIX, Inc.
| | Spectrum Control, Inc.
| EasyLink Services International Corporation | | OpenTV Corp.
| | Symyx Technologies, Inc.
| eLoyalty Corporation
| | Openwave Systems Inc.
| | The Hackett Group, Inc.
| EMCORE Corporation
| | PLATO Learning, Inc.
| | Unica Corporation
| Guidance Software, Inc.
| | PLX Technology, Inc.
| | Zygo Corporation
| Intelligroup, Inc.
| | Phoenix Technologies Ltd.
| | |
| | | | | TSG Peer Group
| Revenues: $400 million to $1.3 billion
Enterprise Value: $75 million to $250 million
| | | | Audiovox Corporation
| | Gerber Scientific, Inc.
| | Nu Horizons Electronics Corp.
| CDI Corp.
| | GTSI Corp.
| | RealNetworks, Inc.
| COMSYS IT
| | Harris Stratex Networks, Inc.
| | Super Micro Computer, Inc.
| ePlus inc.
| | Navarre Corporation
| | THQ Inc.
|
For fiscal year 2011 compensation, PM&P benchmarked each Named Executive Officer within the applicable peer group and reported the results of its review to management and the Compensation Committee, and this information served as the basis for determining fiscal year 2011 compensation, as discussed below.
Salary. The Compensation Committee increased our Chief Executive Officer’s fiscal year 2011 salary by 4.4%. For all other Named Executive Officers, salary increases ranged from 0% to 2.3%, totaling a 1.1% increase over fiscal year 2010 salaries. All fiscal year 2011 salary increases will be deferred and not take effect until August 2010, as is the case for all employees.
Annual Incentives.The Compensation Committee granted fiscal year 2011 target annual incentives for the Named Executive Officers as follows:
| | | Name
| | Target Annual
Incentive ($)
| Martin F. Ellis
| | 399,500 | Kenneth J. Kossin, Jr.
| | 142,500 | Kathleen A. Weigand
| | 151,760 | Tina Stehle
| | 138,875 | Anthony Mellina
| | 153,500 |
For Messrs. Ellis and Kossin and Ms. Weigand, as corporate management, the achievement of target revenue, gross profit, EBITDA, and individual objectives entitles each named executive officer to receive a target annual incentive cash payout. For Mr. Mellina and Ms. Stehle, as business segment heads, receipt of a target annual incentive cash payout is based on the achievement of target business segment gross profit and EBITDA, corporate EBITDA, and individual objectives. For EBITDA goals, to receive a threshold payout of 50% of the target incentive, achievement of at least 80% of the performance measure is required, and to receive a maximum payout of 250%, achievement of 150% of the performance measure is required. For gross profit goals, to receive a threshold payout of 1% of the target incentive, achievement above 90% of the performance measure is required, and to receive a maximum payout of 250%, achievement of 115% of the performance measure is required. For revenue goals, to receive a threshold payout of 1% of the target incentive, achievement above 87.5% of the performance measure is required, and to receive a maximum payout of 250%, achievement of 118.75% of the performance measure is required. The payout for MBOs ranges from 0% to 150%, depending on the level of achievement for each specific MBO.
We believe that disclosing the specific performance measures, which include EBITDA, revenue, and gross profit targets, and financial targets within MBOs, to be used for determining annual incentive payouts would cause us competitive harm by potentially disrupting our customer relationships and providing competitors with insight into our business strategy, pricing margins, capabilities, and current compensation for executive talent. As was the case in fiscal year 2010, we believe the performance levels used for fiscal year 2011 involve some difficulty at the threshold level, increased difficulty at the 100% target level, and significant difficulty at the maximum level.
Long-Term Equity Incentives.The Compensation Committee determined to grant SSARs as fiscal year 2011 long-term equity incentive awards in the amounts set forth below. SSARs provide an instrument that provides gains to recipients based on actual long-term returns realized by shareholders and enhances executive
retention. In comparison to stock options, SSARs are less dilutive to shareholders. The type and value of the award was based on recommendations from PM&P and our Chief Executive Officer, except for himself, for which the Compensation Committee determined the grant.
| | | Name
| | SSARs (#) | Martin F. Ellis
| | 185,500 | Kenneth J. Kossin, Jr.
| | 45,000 | Kathleen A. Weigand
| | 50,000 | Tina Stehle
| | 44,000 | Anthony Mellina
| | 50,000 |
The SSARs have a seven-year term and an exercise price of $6.20, based on the grant date closing price for the Common Shares. The SSARs will vest ratably over a three-year period, on March 31, 2011, 2012 and 2013.
Change of Control and Severance Agreements The material termination and change of control provisions of various agreements are summarized below for each Named Executive Officer and are covered in more detail in the Termination and Change of Control table and accompanying discussion. If Mr. Ellis is terminated following a change of control, or terminates his employment for good reason, we must pay cash equal to twenty-four times the greater of his highest monthly base salary paid during the twelve months prior to the change in control or his highest monthly base salary paid or payable by us at any time from the ninety-day period preceding a change of control through his termination date. We also must pay Mr. Ellis a sum equal to two times his target annual incentive at the time of termination, and no additional severance payments will be made. In addition, all equity incentives will become immediately vested upon a termination after a change of control, and we will continue to provide group benefits and executive benefits for two years. He would also be entitled to excise tax gross-up payments and to receive two additional years of service credit under the SERP.
Severance is provided under Mr. Ellis’ Non-Competition Agreement. If he is terminated for cause or voluntarily terminates his employment, he is subject to a two-year noncompetition period. If he is terminated without cause, we must pay severance equal to twenty-four months of salary and two times his target annual incentive, and we must provide group benefits and executive benefits for twenty-four months. If he is terminated without cause, we may, in our sole discretion, pay him his regular salary and target annual incentive for all or any partEmployment Agreements. All of the noncompetition period, which payments are separate and in addition toNamed Executive Officers, except for Mr. M. Ellis, entered into an employment agreement with the severance payments and benefits coverageCompany, all with substantially the same terms (except as described above and, so long as we make such payments, he will be bound by the non-competition provisions. The Non-Competition Agreement also contains nondisclosure and non-interference provisions. In the event of a change of control, the provisions of the Change of Control Agreement will supersede those of the Non-Competition Agreement with respect to severance and non-competition terms.
The Compensation Committee believes that the terms ofbelow for Mr. Ellis’ Change of Control Agreement enhance our ability to maintain a shareholder focused approach to change of control situations and provide Mr. Ellis reasonable assurance of transitional employment support. The Compensation Committee believes Mr. Ellis’ change of control and severance benefits are reasonable and consistent with market practice for chief executive officer compensation.
Dennedy). Upon termination by us of Messrs. Kossin and Mellina and Mmes. Stehle and Weigand without cause, we must pay severance equal to one year’s salary and target annual incentive. In addition, we mustincentive, and continue to provide medical and dental coverage programs available to the Company’s employees and auto allowancehealth benefits for the duration of the severance period. If the executive’s position is changed such that his or her responsibilities are substantially lessened or, except for Messrs. Dennedy and R. Ellis, if the executive is required to relocate to a facility more than 50 miles away (each a “Change(a “change in Position”position”), the executive may terminate his or her employment within 30 days of the Changechange in Position,position, and the termination will be deemed to be a termination without cause. cause and the executive is entitled to his or her severance benefits. None of these Named Executive Officers is entitled to excise tax gross-up payments. In consideration of the severance benefits, each employment agreement contains a 12-month non-solicitation provision, an indefinite confidentiality provision, and a 12-month non-compete provision that is automatically triggered if termination is for cause or voluntary and may be enforced by the Company if termination is without cause or for a change in position. Our Compensation Committee believes that the terms of thethese employment agreements enhance our ability to retain our Named Executive Officersexecutives and the need to contain severance costs by providing reasonable severance benefits competitive with market practice. Severance costs are contained by limiting pay to one year, limiting personal benefits, not providing accelerated vesting for awards under the agreements, and narrowly defining a voluntary termination that triggers severance benefits. TheAdditionally, the Company benefits greatly from the non-competition, non-disclosure, and non-solicitation clauses contained in the employment agreements. Except for Mr. Dennedy, the employment agreements offerdo not contain a change of control provision. For Mr. Dennedy, if there is a change of control within two years after April 1, 2012 (the date of his employment agreement), and within the same leveltwo-year period his employment with the Company or its successor is terminated without cause, then he will be paid severance equal to two years of each of his base salary and target annual incentive. This change in control benefit enhances our ability to maintain a shareholder focused approach to change of control situations and provides our Chief Executive Officer reasonable support following both a change of control and termination (commonly called a “double trigger” requirement). The Compensation Committee believes Mr. Dennedy’s payments are reasonable, particularly in light of the double trigger requirement, and consistent with market practice for his position. M. Ellis Agreements. Mr. M. Ellis entered into both a change of control and non-competition agreement (referred to collectively as his severance arrangement). Under his severance arrangement, upon his separation without cause, Mr. M. Ellis became eligible to receive 24 months of his base salary and a sum equal to two times his target annual incentive, continued health benefits for 24 months, and payment equal to 24 months of his auto allowance. Mr. M. Ellis’ severance arrangement provided that, if any payment received by him in connection with a change of control is deemed a “parachute payment” under Section 280G of the Internal Revenue Code resulting in an “excess parachute payment,” he would be entitled to payment equal to the 20% excise tax, if any, 26
payable by him, and the aggregate amount of any federal, state, and local income taxes and excise taxes for which he became liable on account of the receipt of the excise tax gross up payment; however, Mr. M. Ellis’ severance payments did not trigger the excess parachute payment and as such he received no gross up payment. In the absence of a change of control, the same aforementioned severance benefits as are offeredwere to be provided under the non-competition agreement in the event of termination without cause, and the non-competition agreement contains a two-year non-solicitation provision, an indefinite confidentiality provision, and a two-year non-compete provision that is automatically triggered if termination is for cause or voluntary and may be enforced by the Company if termination is without cause. The Compensation Committee established the terms of Mr. Ellis’ change of control agreement to enhance our vice president level managers. ability to maintain a shareholder focused approach to change of control situations and provide our Chief Executive Officer reasonable support following both a change of control and termination. The Compensation Committee believes Mr. Ellis’ severance arrangement is reasonable and consistent with market practice for his position. Accelerated Vesting.None of the employment agreements discussed above provide for accelerated vesting of equity. Under our 2011 Stock Incentive Plan, the only plan for which any of the Named Executive Officers with employment agreements have unvested equity, vesting is accelerated upon the actual occurrence of a change in control agreements. Pursuant to a Retention Agreement, if Ms. Weigand continues her employment with the Company for twelve months after a change of control, or until released by a senior executive, if earlier, she will be paid $200,000. The Retention Agreement was negotiated as part of Ms. Weigand’s compensation package and offered as an inducement for her to join the Company. No other forms of compensation or benefits are provided under the Retention Agreement.
Vesting is accelerated to the date of a change of control for all stock options, SSARs, performance shares, and restricted shares except that Ms. Weigand’s grant of restricted shares and SSARs in December 2009 as a retirement benefit vest one-third of the outstanding award upon a change of control. In 2009, we increased the change of control trigger in the 2006 Stock Incentive Plan for future awards from a 20% ownership level to a 33-1/3% ownership level in light of MAK Capital’s potential control share acquisition to own more than 20% but less than one-third of our outstanding Common Shares.(including performance shares). The Compensation Committee believes that during a change of control situation, a stable business environment is in the shareholders’ best interests, and accelerated vesting provisions provide stability. The accelerated vesting provisions are applicable to all employees who receive equity awards, not just executive management.
Additional Compensation Policies Clawback – Recoupment of Bonuses, Incentives, and Gains and Cancellation of Equity AwardsGains. . In May 2010,Under the Board approved aCompany’s “clawback” policy, that states if the Board (or an appropriate Committee) determines that our financialsfinancial statements are restated due directly or indirectly to fraud, ethical misconduct, intentional misconduct, or a breach of fiduciary duty by one or more executive officers or vice presidents, then the Board (or Committee) will have the sole discretion to cancel any stock-based awards granted and to take such action, as permitted by law, as it deems necessary to recover all or a portion of any bonus or incentive compensation paid and recoup any gains realized in respect of equity-based awards, provided recoveries cannot extend back more than three years. Additionally, under Section 304 of the Sarbanes-Oxley Act, if we are required to restate our financialsfinancial statements due to material noncompliance with any financial reporting requirements as a result of misconduct, our Chief Executive Officer and Chief Financial Officer must reimburse us for any bonus or other incentive-based or equity-based compensation received during the 12 months following the first public issuance of the non-complying document, and any profits realized from the sale of our securities during those 12 months. 27
No Policy for Prior Amounts Realized. The Compensation Committee does not consider prior pay outcomes, including stock compensation gains, in setting future pay levels. The Compensation Committee believes this approach furthers the philosophy of rewarding future financial and shareholder performance.
Annual Grant Timing. The Compensation Committee approved a policy for timing of annual grants of equity-based awards. The Compensation Committee will determine the value of each equity-based award at its regular May meeting, and grants will be made on the first business day that is two business days after release of our earnings. If the Compensation Committee does not meet in May, annual grants will be made by the Compensation Committee during the one-week period beginning two business days after release of our earnings.
Vested Stock Option Forfeiture for Cause. If employment with the Company is terminated for cause, all stock options, SSARs, restricted shares, and performance shares (or portions thereof) that have not been exercised, whether or not vested, are automatically forfeited immediately upon termination.
Stock Ownership Guidelines. To underscore the importance of strong alignment between the interests of management and shareholders, in April 2009, the Board approved revised stock ownership guidelines for Directors and executives.executives, with our Chief Executive Officer having the highest ownership requirement. Director and executive compensation is designed to provide a significant opportunity to tie individual rewards to long-term Company performance. The objective of our stock ownership guidelines is to support this overall philosophy of alignment and to send a positive message to our shareholders, customers, suppliers, employees, and other “stakeholders”employees of our commitment to shareholder value. Each Director and executive officer is expected to acquire and maintain minimum share ownership in Common Sharesof either: i)(i) a multiple of base salary or Director annual retainer listed below, or ii)(ii) the number of shares listed below at a market value equal to the following:below: | | | Multiple of Director Annual Retainer and Executive Base Salary | | Number of Shares | | | | | | | | | | | Title | | 2 Years | | 4 Years | | 2 Years | | 4 Years | | Multiple of Director Annual Retainer and Executive Base Salary | | | Number of Shares | | | Title | | | 2 Years | | | 4 Years | | | 2 Years | | | 4 Years | | | 2x | | 4x | | 5,000 | | 15,000 | | | 3x | | | | 6x | | | | 15,000 | | | | 45,000 | | | Chief Executive Officer | | 2.5x | | 5x | | 125,000 | | 250,000 | | | 2.5x | | | | 5x | | | | 125,000 | | | | 250,000 | | | Senior Vice President | | 0.5x | | 2x | | 15,000 | | 75,000 | | | 0.5x | | | | 2x | | | | 15,000 | | | | 75,000 | | | LTIP Participants | | — | | 0.5x | | 2,500 | | 15,000 | | | — | | | | 0.5x | | | | 2,500 | | | | 15,000 | |
Stock ownership that is included toward attainment of the guidelines includes (i) Common Sharesshares held of record or beneficially owned, either directly or indirectly, including by trust, spouse, or minor children,indirectly; (ii) Common Sharesshares acquired upon exercise of stock options or SSARs,SSARs; (iii) vested restricted or deferred shares,shares; (iv) phantom or deferred share units held in a deferred compensation plan,plan; and (v) Common Sharesshares or deferred shares acquired by dividend reinvestment. Directors and executives are expected to attain the specified target ownership levels within both two and four years from the later of the effective date of this policy or becoming a Director or an executive, and remain at or above that level until retirement. Annually, the Board reviews progress toward achieving these ownership levels. Director and executives who have not attained the specified ownership guidelines will be required to hold 75% of shares acquired upon exercise of stock options and SSARs or vesting of performance or restricted shares until they meet their target ownership level. If ownership guidelines are not met within two and four years, our Compensation Committee has the right to payoutpay an executive’s annual incentives in the form of Common Sharesshares until ownership guidelines are achieved by the executive.achieved. Impact of Tax and Accounting Considerations. In general, the Compensation Committee considers the various tax and accounting implications of the pay mechanisms used to provide pay to our Named Executive Officers, including the accounting cost associated with long-term incentive grants, when determining compensation. Section 162(m) of the Internal Revenue Code generally prohibits any publicly held corporation from taking a federal income tax deduction for pay to the chief executive officer and the three other highest compensated executive officers (other than the chief financial officer) in excess of $1 million in any taxable year. Exceptions are made for certain qualified performance-based pay. It is the Compensation Committee’s objective to maximize the effectiveness of our executive pay plans in this regard. The pay instruments used, including salaries, annual incentives, and stock options,equity, are tax deductible to the extent that they are performance basedperformance-based or less than $1 million for such Named Executive Officer in a given year. COMPENSATION COMMITTEE REPORT The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with the Company’s management. Based on that review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be incorporated into the Company’s 20102012 Annual Report on Form 10-K for the fiscal year ended March 31, 20102012 and this Proxy Statement. The Compensation Committee of the Board of Directors Howard V. Knicely,John Mutch, Chairman
Keith M. Kolerus Robert A. Lauer 28
John MutchRELATIONSHIP WITH COMPENSATION COMMITTEE CONSULTANT
The aboveDuring fiscal year 2012, the Compensation Committee Report does not constitute soliciting material and should not be deemed filed with the Securities and Exchange Commission or subjectretained Towers Watson as compensation consultant for executive compensation matters. All fees paid to Regulation 14A or 14C (other than as providedTowers Watson in Item 407 of Regulation S-K) or to the liabilities of Section 18 of the Exchange Act, and is not to be deemed incorporated by reference into any of the Company’s filings under the Securities Act or the Exchange Act whether made before or after this Proxy Statement, except to the extent that the Company specifically requests that the information in this Compensation Committee Report be treated as soliciting material or specifically incorporates this Compensation Committee Report by reference into a document filed under the Securities Act or the Exchange Act.fiscal year 2012 were for executive compensation consultation.
29
EXECUTIVE COMPENSATION Summary Compensation Table The following table and related notes provide information regarding fiscal year 20102012 compensation for our chief executive officer, chief financial officer,Named Executive Officers, including each Chief Executive Officer and Chief Financial Officer who served during fiscal year 2012, the other three most highly compensated executive officers whose total compensation exceeded $100,000 for fiscal year 2010.2012, and two executives who would be among the three most highly compensated executive officers but for the fact that they were not serving as executive officers at the end of fiscal year 2012. Ms. Stehle was serving as an executive officer at fiscal-year end, but has since separated from the Company. Summary Compensation Table for Fiscal Year 20102012 | Name and Principal Position | | Year | | Salary ($) | | Bonus ($)(2) | | Stock Awards ($)(3)(4) | | Option Awards ($)(3) | | Non- Equity Incentive Plan Compen- sation ($)(5) | | Change in Pension Value and Non- qualified Deferred Compen- sation Earnings ($)(6) | | All Other Compen- sation ($)(7) | | Total ($) | | Year | | | Salary ($)(1) | | | Bonus ($)(2) | | | Stock Awards ($)(3)(4) | | | Option Awards ($)(3) | | | Non- Equity Incentive Plan Compen- sation Earnings ($)(5) | | | Change in Pension Value and Non- qualified Deferred Compen- sation Earnings ($)(6) | | | All Other Compen- sation ($)(7) | | | Total ($) | | James H. Dennedy | | | | FY12 | | | | 309,928 | | | | — | | | | 311,640 | | | | — | | | | 369,045 | | | | — | | | | 10,780 | | | | 1,001,393 | | President and Chief Executive Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Martin F. Ellis | | FY10 | | 450,000 | | — | | 530,008 | | 268,320 | | 150,750 | | 12,683 | | 40,242 | | 1,452,003 | | | FY12 | | | | 154,859 | | | | — | | | | — | | | | — | | | | — | | | | 10,459 | | | | 1,797,455 | | | | 1,962,773 | | President and Chief Executive Officer (1) | | FY09 | | 392,396 | | 218,500 | | — | | 189,000 | | — | | 251,902 | | 321,302 | | 1,373,100 | | | FY08 | | 345,000 | | — | | 1,325,400 | | — | | 97,497 | | 54,620 | | 45,901 | | 1,868,418 | | Former President and Chief Executive Officer | | | | FY11 | | | | 463,333 | | | | — | | | | — | | | | 727,160 | | | | 184,569 | | | | 38,698 | | | | 33,944 | | | | 1,447,704 | | | | | FY10 | | | | 450,000 | | | | — | | | | 530,008 | | | | 268,320 | | | | 150,750 | | | | 12,683 | | | | 40,242 | | | | 1,452,003 | | | | | | | | | | | | | Kenneth J. Kossin, Jr. | | FY10 | | 285,000 | | — | | 144,113 | | 72,584 | | 74,100 | | — | | 15,112 | | 590,909 | | Senior Vice President and Chief Financial Officer | | FY09 | | 249,340 | | 166,500 | | — | | 141,625 | | — | | — | | 16,701 | | 574,166 | | | | | | | | | | | | | | | | | | | | | | | Robert R. Ellis | | | | FY12 | | | | 131,705 | | | | — | | | | 123,199 | | | | 82,497 | | | | 88,591 | | | | — | | | | 3,520 | | | | 429,511 | | Senior Vice President, Chief Financial Officer and Treasurer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Henry R. Bond | | | | FY12 | | | | 167,816 | | | | 75,000 | | | | 110,002 | | | | 110,000 | | | | 73,091 | | | | — | | | | 698,876 | | | | 1,234,785 | | Former Senior Vice President and Chief Financial Officer | | | | FY11 | | | | 137,500 | | | | 75,000 | | | | 219,000 | | | | 216,500 | | | | 29,476 | | | | — | | | | 66,309 | | | | 743,785 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Tina Stehle | | | | FY12 | | | | 282,500 | | | | — | | | | 91,815 | | | | 91,814 | | | | 102,642 | | | | — | | | | 24,174 | | | | 592,945 | | Former Senior Vice President and Chief Operating Officer | | | | FY11 | | | | 276,833 | | | | — | | | | — | | | | 172,480 | | | | 122,627 | | | | — | | | | 27,802 | | | | 599,742 | | | | | FY10 | | | | 275,000 | | | | — | | | | 144,113 | | | | 72,584 | | | | 71,044 | | | | — | | | | 22,817 | | | | 585,558 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Paul A. Civils | | | | FY12 | | | | 255,000 | | | | — | | | | 82,874 | | | | 82,877 | | | | 129,082 | | | | — | | | | 22,656 | | | | 572,489 | | Senior Vice President and General Manager | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Curtis C. Stout | | | | FY12 | | | | 227,500 | | | | 75,000 | | | | 50,003 | | | | 50,001 | | | | 122,783 | | | | — | | | | 14,685 | | | | 539,972 | | Vice President, Corporate Development | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Kathleen A. Weigand | | FY10 | | 300,000 | | — | | 394,938 | | 295,734 | | 65,500 | | — | | 13,610 | | 1,069,782 | | | FY12 | | | | 185,134 | | | | 75,000 | | | | 110,002 | | | | 110,000 | | | | 80,633 | | | | — | | | | 501,659 | | | | 1,062,428 | | General Counsel and Senior Vice President – Human Resources | | | | | | | | | | | | | | | | | | | | Former General Counsel, Secretary and Senior Vice President | | | | FY11 | | | | 302,333 | | | | — | | | | — | | | | 196,000 | | | | 95,511 | | | | — | | | | 27,851 | | | | 621,695 | | | | | FY10 | | | | 300,000 | | | | — | | | | 394,938 | | | | 295,734 | | | | 65,500 | | | | — | | | | 13,610 | | | | 1,069,782 | | | | | | | | | | | | | Tina Stehle | | FY10 | | 275,000 | | — | | 144,113 | | 72,584 | | 71,044 | | — | | 22,817 | | 585,558 | | Senior Vice President and General Manager | | FY09 | | 275,000 | | — | | — | | 110,280 | | 65,771 | | — | | 42,906 | | 493,957 | | | | | | | | | | | | | | | | | | | | | | | Anthony Mellina | | FY10 | | 300,000 | | — | | 161,188 | | 81,184 | | 22,500 | | — | | 17,148 | | 582,020 | | | FY12 | | | | 103,514 | | | | 55,000 | | | | — | | | | — | | | | — | | | | — | | | | 517,566 | | | | 676,080 | | Senior Vice President and General Manager | | | | | | | | | | | | | | | | | | | | Former Senior Vice President and General Manager | | | | FY11 | | | | 304,667 | | | | — | | | | — | | | | 196,000 | | | | 36,380 | | | | — | | | | 26,955 | | | | 564,002 | | | | | FY10 | | | | 300,000 | | | | — | | | | 161,188 | | | | 81,184 | | | | 22,500 | | | | — | | | | 17,148 | | | | 582,020 | |
30
(1) | Mr. Ellis was promoted to Chief Executive Officer from Chief Financial Officer in October 2008. HisFor fiscal year 2009 compensation reflects a portion of his compensation as Chief Financial Officer2012, for Messrs. Dennedy and a portion as Chief Executive Officer. All of hisR. Ellis, salary is from start date through March 31, 2012. For Mr. Dennedy, also includes $16,250 in retainer and fees he received for service on the Board prior to becoming an executive officer. For Messrs. M. Ellis, Bond, and Mellina and Ms. Weigand, salary is from April 1, 2011 through separation date. Mr. Bond’s fiscal year 2008 compensation was for service as Chief Financial Officer.
| 2011 salary is from start date through March 31, 2011. |
(2) | TheFor fiscal year 2012, amounts set forth in this column include discretionary cashrepresent bonus payments made to Messrs. Ellis and Kossin based on their achievementfor the successful closing of individual qualitative performance objectives forthe TSG sale. For fiscal year 2009. For2011 for Mr. Kossin, theBond, amount also includes a cash retention payment of $100,000 which was conditionedrepresents hiring bonus paid upon his remaining employed withjoining the Company through fiscal year 2009 while we pursued strategic alternatives.
| Company. |
(3) | The “Stock Awards” column includesStock Awards include grants of restricted shares and performance shares. The “Option Awards” column includes grants of stock options and SSARs.Option Awards include SSAR grants. Amounts reported in these columnsdisclosed do not represent the economic value received by the Named Executive Officers in connection with the equity grants.Officers. The value, if any, recognized upon the exercise of a SSAR or stock option will depend upon the market price of the Common Sharesshares on the date the SSAR or stock option is exercised. The value, if any, recognized for restricted and performance shares will depend on whether the shares are earned and, for performance shares and restricted shares,upon the market price of the Common Sharesshares upon vesting.
| |
In accordance with recently adopted SEC disclosure rules, the values for restricted shares and performance shares stock options, and SSARs set forth in these columns are equal to the aggregate grant date fair value for each award computed in accordance with FASB ASC Topic 718. The values for restricted and performance shares are based on the closing price on the grant date. The values for SSARs are based on the Black-Scholes option pricing model. A discussion of the assumptions used in determining these valuations is set forth in Note 14 of the Notes to Consolidated Financial Statements of the Company’s 2012 Annual Report. |