Under the original terms of the Employment Agreement, Mr. Begor received a minimum target grant value of $7 million for his annual long-term incentive awards (“LTI Awards”) and his 2020 LTI Award was increased to $8.1 million. Under the revised terms of the Letter Agreement, the minimum target grant value of LTI Awards has been replaced with a fixed target grant value of $10.1 million. The components of each LTI Award will consist of (i) performance shares that are eligible to vest based on prescribed performance criteria set at the beginning of each three-year performance period (60% of each LTI Award), (ii) premium-priced stock options (20% of each LTI Award) and (iii) time-based restricted stock units (“RSUs”) (20% of each LTI Award).
Each grant of premium-priced stock options will cliff vest on the later of (i) December 31, 2025 and (ii) the third anniversary of the date of grant. The premium-priced stock options granted in 2021 and 2022 will have a seven-year term and the premium-priced stock options granted in 2023-2025 will have a six-year term. For each LTI Award, the premium-priced options will be split evenly into two equally weighted tranches, based on fair value on the grant date, with exercise prices set at premiums of 110% and 120% to the fair market value of a share of our common stock on the applicable date of grant.
The changes described above result in 80% of Mr. Begor’s annual LTI Award being subject to substantive performance requirements and only 20% being subject to standard time-based vesting. This compares to an equal weighting of 50% each under the original terms of the Employment Agreement. Consistent with a change to the Company’s long-term incentive program implemented in 2019, the Letter Agreement includes premium-priced stock options in place of traditional stock options that were included under the original terms of the Employment Agreement, which tighten the link between long-term incentive compensation and creation of shareholder value. Additionally, each LTI Award will be subject to the Company’s enhanced clawback policy whereby the Board may recover incentive compensation awarded to employees in the event of misconduct or failure of oversight that results in significant financial or reputational harm, irrespective of whether there has been a financial restatement.
In addition, the Letter Agreement:
| | • | | Specifies that Mr. Begor’s annual cash incentive award will be determined exclusively based upon achievement measured against specified Company financial goals, rather than 80% Company financial goals and 20% individual objectives; |
| | • | | Increases Mr. Begor’s target annual cash incentive award opportunity from 100% to 120% of his Base Salary (as defined in the Employment Agreement) for the applicable year; and |
| | • | | Includes certain clarifying changes to the terms of the Employment Agreement. |
The Letter Agreement does not otherwise affect the terms of the Employment Agreement, including Mr. Begor’s salary, which has not changed since his hire in March 2018. The foregoing summary of the terms and conditions of the Letter Agreement is qualified in its entirety by reference to the full text of the Letter Agreement, which is attached hereto as Exhibit 10.1 and incorporated by reference herein.
A copy of the Company’s press release announcing the Letter Agreement and the reasons therefor is attached hereto as Exhibit 99.1 and incorporated by reference herein.
Appointment of Audrey Boone Tillman
On February 3, 2021, the Board elected Audrey Boone Tillman as an independent director, to serve a term expiring at the Company’s 2021 Annual Meeting of Shareholders. With the election of Ms. Tillman, the size of the Board is set at eleven directors, ten of whom are independent.
The Board has determined that Ms. Tillman is independent and meets the applicable independence requirements of the New York Stock Exchange and the Company’s Guidelines for Determining the Independence of Directors. There have been no transactions since the beginning of the Company’s last fiscal year, and there are no currently proposed transactions, in which the Company was or is to be a participant and in which Ms. Tillman or any member of her immediate family had or will have any interest, that are required to be reported under Item 404(a) of Regulation S-K.
The selection of Ms. Tillman was not pursuant to any arrangement or understanding between her and any other person.
Ms. Tillman will be compensated in accordance with the Company’s previously-disclosed compensation program for its non-employee directors as disclosed in the Company’s most recent proxy statement. Ms. Tillman will also enter into the Company’s standard form of indemnification agreement for directors.
A copy of the Company’s press release announcing Ms. Tillman’s election is attached hereto as Exhibit 99.2 and incorporated by reference herein.
