DEF 14A of Aviat Networks, Inc.
Filed Sep 25, 2023 · FY20230001377789-23-000029
Director Nominees
Director Nominees Our Board selected a new director nominee, Laxmi Akkaraju, through a recommendation of a current director based upon her industry experience, diverse mix of skills, background (including her work with mobile network operators) and employment experience. This nominee has vast experience leading teams and has consistently demonstrated her integrity, good judgment and intelligence. Based upon these qualifications and the recommendation of the Governance and Nominating Committee, our Board proposes that Laxmi Akkaraju, who has not previously served on the Company’s Board, be elected as a Director alongside existing Directors Mr. Mutch, Mr. Ingram, Ms. Klein, Mr. Smith and Mr. Taten. The Board has determined that Ms. Akkaraju has no relationship that would interfere with the exercise of independent judgement in carrying out the responsibilities of a director and is otherwise independent in accordance with NASDAQ Listing Rules. We expect each nominee standing for election as a director to be able to serve if elected. If any nominee is not able to serve, proxies will be voted in favor of the remainder of those nominated. There are no family relationships between or among any of our executive officers, directors, or director nominees. There are no material legal proceedings in which any director, director nominee, officer, or affiliate of the Company or any owner of record or beneficial owner of more than five percent of any class of voting securities of the Company or any, associate of such director, officer, affiliate of the Company or security holder, is a party adverse to us or has a material interest adverse to us.
Board and Committee Meetings and Attendance
Board and Committee Meetings and Attendance In fiscal year 2023, the Board held five regularly scheduled meetings and seven special meetings. Each of the Board members attended 100% of the Board meetings and at least 75% of the total number of meetings of the committee or committees on which the member served, in each case, with respect to Board and committee meetings that took place while such director was a member of the Board.
Board Member Qualifications
Board Member Qualifications Our Board believes that its members should encompass a range of talents, skills and expertise, which enables the Board to provide sound guidance with respect to the Company’s operations and interests. Each director shall have the ability to apply good business judgement and must be able to exercise his or her duties of loyalty and care. Candidates for the position of director should exhibit proven leadership capabilities, high integrity, exercise high level responsibilities within their chosen careers, and have an ability to quickly grasp complex principles of business, finance, international transactions, and communication technologies. Our Board prefers a variety of professional experiences and backgrounds among its members. The Board has chosen not to impose term limits or mandatory retirement age with regard to service on the Board in the belief that continuity of service and the past contributions of the members of the Board who have developed an in-depth understanding of the Company and its business over time bring a seasoned approach to the Company’s governance. In addition to considering a candidate’s experiences and background, candidates are reviewed in the context of the current composition of the Board and evolving needs of our businesses. In particular, the Board has sought to include members that have experience in establishing, growing and leading communications companies in senior management positions and serving on the board of directors of other companies. In determining that each of the members of the Board is qualified to be a director, the Board has relied on the attributes listed below and, where applicable, on the direct personal knowledge of each of the members’ prior service on the Board.
Directors’ Biographies
Directors’ Biographies The following is a brief description of the business experience and background of each nominee for director, including the capacities in which each has served during at least the past five years: Mr. John Mutch, age 67, currently serves as Chairman of the Board and has served on the Board since January 2015. Mr. Mutch is a veteran of the U.S. Navy. He served on the Board of Directors of Steel Excel Inc., a provider of drilling and production services to the oil and gas industry and a provider of event-based sports services and other health-related services, from 2007 to 2016. From December 2008 to January 2014, he served as Chairman of the board of directors and Chief Executive Officer of Beyondtrust Software, a privately-held security software company. During this time, Mr. Mutch co-authored the book “Preventing Good People from Doing Bad Things: Implementing Least Privilege” which focuses on enterprise security. Mr. Mutch is the founder and has been the 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 December 2005. Prior to founding MV Advisors LLC, in March 2003, Mr. Mutch was appointed by the U.S. Bankruptcy court to the board of directors of Peregrine Systems, Inc., a provider of enterprise asset and service management solutions. He assisted that company in a bankruptcy work-out proceeding and was named President and Chief Executive Officer in July 2003. Previous to running Peregrine Systems, Inc., Mr. Mutch served as President, Chief Executive Officer and a director of HNC Software, an enterprise analytics software provider. Before HNC Software, Mr. Mutch spent seven years at Microsoft Corporation in a variety of executive sales and marketing positions. Mr. Mutch previously served on the boards of directors of Phoenix Technologies Ltd., a leader in core systems software products, services and embedded technologies, Edgar Online, Inc., a provider of financial data, analytics and disclosure management solutions, Aspyra, Inc., a provider of clinical and diagnostic information systems for the healthcare industry, Overland Storage, Inc., a provider of unified data management and data protection solutions, and Brio Software, Inc., a provider of business intelligence software. He has served as a director at Agilysys, Inc., a provider of information technology solutions, since March 2009. From April 2017 to May 2019, Mr. Mutch served as a director at Maxwell Technologies, Inc., a manufacturer of energy storage and power delivery solutions for automotive, heavy transportation, renewable energy, backup power, wireless communications and industrial and consumer electronics applications. From July 2017 to March 2018, he served as a director at YuMe, Inc., a provider of digital video brand advertising solutions, at which time YuMe was acquired by RhythmOne plc, a technology-enabled digital media company, and Mr. Mutch continued serving as a director on the RhythmOne board until January 2019. Mr. Mutch holds a Bachelor of Science in Economics from Cornell University and a Master of Business Administration from the University of Chicago. Mr. Mutch brings to the Board extensive experience as an executive in the technology sector. He also has experience as a director at several public companies in the technology sector. He is or has been a member of the audit committee of various public and private companies and brings valuable financial expertise to the Board. For these reasons, we believe Mr. Mutch is qualified to continue serving on the Board. Ms. Laxmi Akkaraju, age 54, has been the Chief Delivery Officer for Cognite, a global leader in industrial software, since April 2021, having previously served in Senior Vice President roles for Strategy and Customer Services since 2021. She is also a Board Member for the Moller Mobility Group and sits on the Advisory Boards for Digital Norway and BI Norwegian Business School. Prior to Cognite, Ms. Akkaraju was Chief Strategy Officer from 2017 to 2020 for the GSM Association (GSMA), a non-profit industry organization that represents the interests of mobile network operators worldwide. From 2008 to 2017 Ms. Akkaraju was an acting Executive Vice President at EVRY, and prior to that held senior positions Mu Dynamics (now Spirent) and Holte Consulting. Ms Akkaraju holds a Bachelor of Science in Civil Engineering from University of New Mexico and a Master of Science in Civil Engineering from the University of Colorado Boulder. We believe Ms. Akkaraju’s experience and success in the wireless industry qualifies her to serve as a member of the Board. Mr. Bryan Ingram, age 59, has served on the Board since November 2021. Mr. Ingram is a senior corporate executive and advisor whose technology career spans 35 years in executive management roles with industry leaders Broadcom, Avago, Agilent, HP, and Westinghouse. He has a proven record in the global semiconductor industry for delivering highly differentiated product performance, cost improvements, resilient supply chains, and driving growth through the wireless ecosystem. Mr. Ingram presently serves as a director for SGH (formerly Smart Global Holdings), where he was elected in October 2018 and serves on the nominating and governance committee as well as the compensation committee. Mr. Ingram has also been a director for Anokiwave since June 2020. Most recently, from November 2019 to March 2020, Mr. Ingram served as a consultant for Broadcom, and he previously served as senior vice president and general manager of Broadcom’s Wireless Semiconductor Division, from November 2015 to October 2019, where he oversaw the development, production, and marketing of RF components for handsets and other wireless devices. Prior to Broadcom, Mr. Ingram served as the Chief Operating Officer for Avago Technologies from April 2013 to October 2015. From October of 2015 until May 2016, Mr. Ingram served as the Senior Vice President and General Manager of the Wireless Semiconductor Division of Avago Technologies. Mr. Ingram holds a Bachelor of Science in Electrical Engineering from the University of Illinois and a Master of Science in Electrical Engineering from Johns Hopkins University. We believe Mr. Ingram’s experience and success in the semiconductor industry, as well as supply chain expertise, qualify him to serve as a member of the Board.
Directors’ Biographies
Ms. Michele Klein, age 74, was appointed to the Board in May 2021. She is an experienced public company director, venture capital investor and CEO. Ms. Klein chairs our Governance and Nominating committee and serves on the Compensation committee. In 2019 Michele Klein was elected a director of Intevac, a manufacturer of vacuum deposition systems, where she serves on the Compensation and Nominating and Governance Committees. From 2021-2023 Ms. Klein was a director of Rockley Photonics, a chipset developer and module supplier, where she chaired the Nominating and Governance committee and served on Compensation. In 2017 she was elected a director of Photon Control, a provider of optical sensors and systems to the semiconductor industry, where she served on Audit and chaired the M&A Committee until the Company’s acquisition in July 2021. She is also a director of Gridtential Energy, a private energy storage company. From 2005 until 2010 Ms. Klein served as Sr. Director of Applied Ventures LLC, the venture capital arm of Applied Materials, where she recommended and managed investments in energy storage and solar energy and represented Applied Materials on the boards of energy technology companies. Ms. Klein co-founded Boxer Cross, a semiconductor equipment manufacturer, and served as Chief Executive Officer and Director from 1997 until its acquisition by Applied Materials in 2003. She previously co-founded and led High Yield Technology, a semiconductor metrology company, from 1986 until its acquisition by public Pacific Scientific in 1996. Ms. Klein earned a BS degree from the University of Illinois and an MBA from the Stanford Graduate School of Business. We believe Ms. Klein’s investment and capital markets experience, and leadership roles in both public and private manufacturing companies in semiconductor, communications infrastructure, wireless and tech-enabled services, qualifies her to continue to serve as a director of the Company. Mr. Peter A. Smith, age 57, has been our President and CEO since January 2020 and a member of the Board since February 2020. Mr. Smith has more than 25 years of leadership experience in business management and a proven track record of creating value for companies. He most recently served as Senior Vice President, US Windows and Canada for Jeld-Wen from March 2017 to December 2019, where he had full profit and loss responsibility for Jeld-Wen’s $1B+ windows business, implementing lean manufacturing principles and strategic development programs to deliver growth and improved profitability. Prior to Jeld-Wen, from October 2013 to March 2017, he served as President of Polypore International’s Transportation and Industrial segment and oversaw transformative initiatives that helped prepare the former public company for sale to the Asahi Kasei Group. Previously, he served as Chief Executive Officer and a director of Voltaix Inc., until its sale to Air Liquide. Earlier in his career, Mr. Smith held various executive leadership positions at Fortune 100 and Fortune 500 companies, including Cooper Industries, Dover Knowles Electronics and Honeywell Specialty Materials. In these roles, his responsibilities ran the gamut of operations, sales and marketing, business development, and mergers and acquisitions. Mr. Smith also served on the boards of Adaptive 3D from 2020 to 2021 and Soleras Advanced Coatings from 2015 to 2018. He has both a Bachelor of Science degree in Material (Ceramics) Engineering and PhD in Material Science and Engineering from Rutgers University, and holds a Master of Business Administration degree from Arizona State University. We believe Mr. Smith’s executive leadership experience and position as the Company’s CEO qualify him to continue serving on the Board. Mr. Bruce Taten, age 67, was appointed to the Board on March 2022. Mr. Taten served as Senior Vice President, General Counsel and Chief Compliance Officer for Cooper Industries, plc from 2008 until its merger with Eaton Corporation in October 2012. Previously, Mr. Taten was Vice President and General Counsel at Nabors Industries from 2003 until 2008 and earlier practiced law with Simpson Thacher & Bartlett LLP and Sutherland Asbill & Brennan LLP. Before attending law school, he practiced as a C.P.A. with Peat Marwick Mitchell & Co., which is now KPMG, in New York. From 2015 to date, Mr. Taten is a practicing attorney and private investor. He is admitted to practice law in the states of Texas and New York. Mr. Taten earned his FSA Credential from the Sustainability Accounting Standards Board (SASB) in 2020. Mr. Taten holds a B.S. and Masters degree from Georgetown University and a J.D. from Vanderbilt University. Mr. Taten has served on board of directors of Jeld-Wen Holdings, Inc. (NYSE: JELD), since 2014 and currently serves as chair of the compensation committee and on the governance and nominating committee. The Board believes Mr. Taten’s qualifications to sit on our Board include his environmental, social and governance knowledge, and his experience in mergers and acquisitions, compliance, financial, tax and corporate governance expertise working on other companies’ boards of directors and as a general counsel and chief compliance officer.
DIRECTOR COMPENSATION AND BENEFITS
DIRECTOR COMPENSATION AND BENEFITS The Board has delegated responsibility to the Compensation Committee to determine the form and amount of director compensation, which reviewed and assessed from time to time by the Compensation Committee with changes, if any, recommended to the Board for action. Director compensation may take the form of cash, equity, and other benefits ordinarily available to directors. Directors who are not employees of ours received the following fees, as applicable, for their services on our Board during fiscal year 2023: • $50,000 basic annual cash retainer, payable on a quarterly basis, which a director may elect to receive in the form of shares of common stock; • $40,000 annual cash retainer, payable on a quarterly basis, for service as Chairman of the Board; • $20,000 annual cash retainer, payable on a quarterly basis, for service as Chairman of the Audit Committee; • $10,000 annual cash retainer, payable on a quarterly basis, for service as Chairman of the Governance and Nominating Committee; • $15,000 annual cash retainer, payable on a quarterly basis, for service as Chairman of the Compensation Committee; • $10,000 annual cash retainer, payable on a quarterly basis, for service on the Audit Committee other than Chairman of the Audit Committee; • $5,000 annual cash retainer, payable on a quarterly basis, for service on the Governance and Nominating Committee other than Chairman of the Governance and Nominating Committee; • $5,000 annual cash retainer, payable on a quarterly basis, for service on the Compensation Committee other than Chairman of the Compensation Committee; and • Annual grant of restricted stock units (“RSUs”) under our Amended and Restated 2018 Incentive Plan (the “2018 Plan”) valued at $115,000, with 100% vesting at the earlier of (1) the day before the date of the Annual Meeting, or (2) the first anniversary of the 2023 annual stockholders’ meeting, subject to continuing service as a director through such earlier date. We reimburse each non-employee director for reasonable travel expenses incurred and in connection with attendance at Board and committee meetings on our behalf, and for expenses such as supplies and continuing director education costs. Employee directors are not compensated for their service as a director. As adopted by the Company’s Board of Directors in November 2019, members of the Board shall achieve ownership of three times (3x) such director’s annual cash retainer (exclusive of chairperson or committee fees). A director is required to achieve compliance with the foregoing ownership requirement by the later of (a) five years from the date of adoption of the guidelines, or (b) five years from the start of such director’s directorship with the Company. All vested RSUs or Company shares purchased by a director in the open market shall be counted toward a director’s ownership requirement.
Fiscal Year 2023 Compensation of Non-Employee Directors
Fiscal Year 2023 Compensation of Non-Employee Directors Our non-employee directors received the following aggregate amounts of compensation in respect of fiscal year 2023:
Fiscal Year 2023 Compensation of Non-Employee Directors
| | Fees Earned in Cash(1) | Stock Awards(2) | Total | | | ($) | ($) | ($) | | Bryan Ingram | 63,750 | 122,503 | 186,253 | | Michele Klein | 91,250 | 122,503 | 213,753 | | John Mutch | 141,250 | 122,503 | 263,753 | | Somesh Singh | 30,000 | — | 30,000 | | Dr. James C. Stoffel | 75,000 | 122,503 | 197,503 | | Bruce Taten | 85,000 | 122,503 | 207,503 |
Fiscal Year 2023 Compensation of Non-Employee Directors
(1) The amounts shown in this column include fees paid to Messrs. Klein, Mutch and Taten for work on a temporary, special committee in fiscal year 2023. (2) The amounts shown in this column reflect the aggregate grant date fair value of RSUs granted to our non-employee directors computed in accordance with FASB ASC Topic 718, determined without regard to estimated forfeitures. The assumptions made in determining the fair values of our stock awards and option awards are set forth in Notes 1 and 9 to our Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2023, as filed with the SEC on August 30, 2023. Our non-employee directors are also reimbursed for all reasonable travel and expenses occurred as a result of their work as a director. As of June 30, 2023, our non-employee directors held the following numbers of unvested RSUs, all of which were granted under the 2018 Plan:
Fiscal Year 2023 Compensation of Non-Employee Directors
| Name | Unvested Stock Awards | | Bryan Ingram | 4,078 | | Michele Klein | 4,078 | | John Mutch | 4,078 | | Dr. James C. Stoffel | 4,078 | | Bruce Taten | 4,078 |
Compensation Discussion and Analysis
The executive team successfully led the Company to achieve 14.4% revenue growth and record profitability with adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) margin at 13.6%. The executive team’s accomplishments during fiscal year 2023 led to the third consecutive year of meaningful topline growth and operating margin expansion. The executive team also continued to develop and implement an operating model that serves as the basis for continuous improvement and organic and acquisition led growth enablement, as evidenced by the successful integration of the Redline acquisition during fiscal 2023. To understand our approach to executive compensation, you should read the entire Compensation Discussion and Analysis that follows. The following brief summary introduces the major topics covered: • The cornerstone of our executive compensation program is pay for performance. Accordingly, while we pay competitive compensation and other benefits, our Named Executive Officers’ compensation opportunity is weighted toward variable pay. • The objectives of our executive compensation program are to reward superior performance, motivate our executives to achieve our goals and attract and retain a strong management team. We believe that our emphasis on long-term stockholder value creation results in an executive compensation program structure that is beneficial to our Company and our stockholders. • The Compensation Committee is made up of independent, non-employee members of the Board and oversees the executive compensation program for our Named Executive Officers. The Compensation Committee works closely with its independent compensation consultant and management to evaluate the effectiveness of the Company’s executive compensation program throughout the year. The Compensation Committee’s specific responsibilities are set forth in its charter, which can be found on the Company’s website at http://investors.aviatnetworks.com/committee-details/compensation-committee. In reviewing the elements of our executive compensation program - base salary, annual cash incentives, long-term incentives and post-termination compensation - our Compensation Committee reviews market data from similar companies. • Our competitive positioning philosophy is to set compensation fairly, as compared to the compensation of our peer group companies, with allowances for internal factors such as tenure, individual performance and the nature of the relative scope and complexity of the role. • Our annual incentive program is based on specific Company financial performance goals for the fiscal year and includes provisions to “clawback” any excess amounts paid in the event of a later correction or restatement of our financial statements. • We conducted our annual pay review of executive compensation in August of 2022. Our CEO’s base pay was not adjusted with the August modifications that were made to other Named Executive Officers’ base salaries in connection with that annual review. • We believe the compensation program for the Named Executive Officers supported our strategic priorities and aligned compensation earned with the Company’s financial performance in fiscal year 2023. Compensation Governance Best Practices The Compensation Committee believes that a demonstrated commitment to best practices in compensation governance is itself an essential component of our approach to executive compensation. The following practices are some examples of this commitment: • Pay for performance: A substantial portion of our executives’ compensation opportunity is tied to achieving specified corporate objectives. In fiscal year 2023, 100% of the annual cash bonuses granted pursuant to the Annual Incentive Plan (the “AIP”) was performance-based and at-risk, subject to the Company’s achievement of certain financial objectives. Under the 2018 Plan, one-third of the equity awards value granted to the Named Executive Officers during the fiscal year 2023 were performance-based restricted stock units (which, if based on the Company’s stock price are referred to herein as market share units (“MSUs”) and if based on other performance criteria as described herein are referred to as performance share units (“PSUs”)), the vesting of which is subject to achievement of a targeted financial measure. In past years we made the distinction between MSUs and PSUs, however, we decided that going forward it is appropriate to simplify discussion for all awards that vest based on any type of performance measure as PSUs. With respect to the remaining discussions, references to PSUs include references to MSUs, where applicable. All equity grants are subject to the 2018 Plan. • Mix of short-term and long-term compensation: Short-term compensation for our Named Executive Officers is comprised of base salaries and bonuses payable pursuant to the AIP, which pays out only to the extent that the Company achieves its financial targets. Long-term compensation, granted under the 2018 Plan was comprised of PSUs, stock options and time-based RSUs for fiscal year 2023. PSUs are earned, if the performance or market-based criteria, as applicable, are met, at the end of a three-year plan cycle, while stock options and RSUs vest annually 1/3 at the end of each successive anniversary of the date of grant. • Independent compensation consultant: The Compensation Committee directly retains the services of Compensia, an independent compensation consultant, to advise it in determining reasonable and market-based compensation policies and practices. • Prohibition on hedging and pledging: Our Named Executive Officers, together with all other employees, are prohibited from engaging in hedging, pledging or similar transactions with respect to our securities. • No perquisites: Our Named Executive Officers are not provided any perquisites other than our occasional provision of relocation expense reimbursement. • No single trigger change of control acceleration: Change of control arrangements in the employment agreements with applicable Named Executive Officers include “double trigger” vesting provisions providing for acceleration of vesting of outstanding unvested equity awards only in the event that both a change of control occurs, and the Named Executive Officer’s employment terminates thereafter for reasons specified in the employment agreements. The executive officers without employment agreements specifying otherwise are generally subject to the Company’s post-termination compensation policies that the Compensation Committee has historically applied to executive officers including those that are not otherwise subject to individual arrangements (the “Post Termination Guidelines”). While the Post Termination Guidelines are not a formally adopted policy, historically the Compensation Committee has considered it to be appropriate to apply only “double trigger” vesting provisions to executive officers, which means that acceleration of vesting of outstanding unvested equity awards occur only in the event that both a change of control occurs, and the executive officer incurs an involuntary termination. The Post Termination Guidelines are described in more detail below. • No tax gross-ups: We do not provide gross-up payments to cover our Named Executive Officers’ personal income taxes that may pertain to any of the compensation or benefits paid or provided by the Company. • Clawback: We have a clawback policy that entitles us to recover all or a portion of any performance-based compensation, including cash and equity components, if our financial statements are restated as a result of errors, omissions or fraud. • Compensation risk management: The Compensation Committee reviews and analyzes the risk profile of our compensation programs and practices on an annual basis. Compensation Philosophy and Objectives
Compensation Discussion and Analysis
Each year, the Compensation Committee with the compensation consultant reviews the appropriateness of the comparison group used for assessing the compensation of our CEO and other Named Executive Officers. For fiscal year 2023, we removed PCTEL due to their decreased revenue. We added Airspan Networks, CalAmp, Iteris, KVH Industries and Wayside as they met our size and industry criteria for inclusion and their business descriptions fit in our peer group. The fiscal year 2023 peer group consists of 19 companies located throughout the U.S. with Aviat positioned at or near the medial revenue and other financial metrics. Total Compensation Elements Our executive compensation program includes four primary elements: • base salary • annual incentive compensation pursuant to the AIP • long-term compensation (equity incentives) • post-termination compensation Each Named Executive Officer’s performance is measured against factors such as short- and long-term strategic goals and financial measures of our performance, including revenue, total shareholder return (“TSR”), AIP expenses and other non-GAAP items namely non-GAAP gross adjusted earnings before interest, taxes, depreciation and amortization (“Gross Adjusted EBITDA”). Details regarding the applicable financial targets for incentive awards are described below. Base Salary Base salaries are provided as compensation for day-to-day responsibilities and services. Executive salaries are reviewed annually. Our CEO generally makes recommendations to the Compensation Committee in August of each year regarding the base salary of each executive officer, other than himself. The Compensation Committee considers each executive officer’s responsibilities, as well as the Company’s performance and recommended increases in base salary for select Named Executive Officers and other executives. For the beginning of fiscal year 2023, the CEO recommended, and the Compensation Committee approved, base salary increases for our Named Executive Officers (other than the CEO) as part of our annual compensation review. Effective October 1, 2022, Mr. Gray’s base salary was increased from $340,000 to $353,600, Mr. Tucker’s base salary was increased from $324,450 to $337,428, Ms. Boase’s base salary was increased from $231,441 to $266,157 and Mr. Croke’s base salary was increased from $236,900 to $246,376. Mr. Smith did not receive a base salary increase during the 2023 fiscal year. Annual Incentive Plan Our AIP is designed to motivate our executives to focus on the achievement of our short-term financial goals. The CEO reviews his recommendations for each Named Executive Officer with the Compensation Committee, taking into account market data obtained from its independent compensation consultant. Based on recommendations by the CEO, and as specified in any applicable employment agreement, the Compensation Committee recommends to the Board an annual incentive compensation target, expressed as a percentage of base salary, for each executive. The Compensation Committee also recommends to the Board specific Company financial performance measures and targets including the relative weighting and payout thresholds for the AIP. The financial targets are aligned with our Board-approved annual operating plan, and during the year periodic reports are made to the Board about our performance compared with the targets. Under the AIP, a significant portion of the executive’s annual compensation is tied directly to our financial performance. The target amount of annual incentive compensation under our AIP, expressed as a percentage of base salary or, solely with respect to our CEO, a target dollar amount, generally increases with an executive’s level of management responsibility and is paid in the form of cash. For fiscal year 2023, individual AIP target incentives were set at $925,000 for Mr. Smith, 50% of base salary for Messrs. Gray and Tucker, and 40% for Ms. Boase and Mr. Croke in each case prorated for the number of days employed by the Company and salary adjustments during fiscal year 2023. Executives can earn more or less than target if minimum or maximum performance levels are achieved. No incentive can be earned if the Company does not achieve the minimum performance thresholds. For fiscal year 2023, the AIP provided for an all-cash payout. The performance metric was 75% based on Gross Adjusted EBITDA and 25% based on revenue. The following table outlines the minimum, target and maximum performance and payout levels approved by the Compensation Committee for fiscal year 2023. Fiscal Year 2023 Annual Incentive Plan – Minimum, Target and Maximum Thresholds
Compensation Discussion and Analysis
| | Minimum | Target | Maximum | | Fiscal Year 2023 AIP (75%) | Earn 80% | Earn 100% | Earn 200% | | Gross Adjusted EBITDA(1) | $39,400,000 | $49,300,000 | $69,000,000 | | Fiscal Year 2023 AIP (25%) | Earn 90% | Earn 100% | Earn 200% | | Revenue | $302,900,000 | $336,600,000 | $403,900,000 |
Compensation Discussion and Analysis
(1) For a reconciliation of Gross Adjusted EBITDA to its corresponding GAAP measure, refer to our Current Report on Form 8-K, filed with the SEC on August 23, 2023. In fiscal year 2023, the AIP met the Gross Adjusted EBITDA target at 104% and the Revenue target at 115%. During fiscal year 2023, the Company experienced significant events that could have impacted achievement of the targeted Gross Adjusted EBITDA metric and revenue metric including the integration of the Redline acquisition, continuing supply chain shortages and inflationary pressures. No adjustments were made to the performance objectives, the target performance or the actual results for these significant events. During the 2023 fiscal year we achieved above target performance for both the Gross Adjusted EBITDA metric and the Revenue metric. All Named Executive Officers earned a payout as shown in the Summary Compensation Table below. Long Term Incentive Compensation Our equity awards under our 2018 Plan are designed to motivate our executives to focus on the achievement of our long-term financial goals. Equity awards motivate our executives to achieve our long-term goals and to the extent our results affect our stock price, link such results with the performance of our stock over a longer period. Using equity awards helps us to retain executives, encourage share ownership and maintain a direct link between our executive compensation program and stockholder value creation. The Company utilizes stock options as a component of executive compensation because they have value only if the Company’s share price increases and, therefore, motivate our executives to drive sustained, long-term stockholder value creation. Time-vesting RSUs are a component of executive compensation to further align our executives’ interests with those of stockholders. Because these awards typically vest after a specified period following the grant date, they also incentivize our executives to remain in our employ. PSUs are a component of executive compensation to ensure our executives’ incentives are tied directly to key drivers of stockholder value growth. PSUs also play a role in executive retention, as a named executive officer is required to remain employed through the applicable vesting date in order to receive the shares underlying the PSUs as applicable. For fiscal year 2023, the Named Executive Officers were eligible to receive equity incentive awards. As has historically been the Company’s practice, these equity incentive awards were granted in September 2023 following the filing of the Annual Report on Form 10-K using a combination of PSUs, stock options, and RSUs. Performance metrics and payout levels for the three-year performance period applicable to the PSUs granted during fiscal year 2023 were established at the beginning of fiscal year 2023.
Compensation Discussion and Analysis
| Equity Vehicle | Weighting | Purpose / Description | | PSUs | 1/3 | The PSUs are subject to three-year cliff vesting from the issuance date assuming achievement of TSR and revenue growth targets over a three-year performance period starting fiscal year 2023 and continued employment through the vesting date in September 2025. | | Stock Options | 1/3 | Strike price: Determined based on the closing stock price on the date of grant. Vesting: One-third annually for a three-year period from the issuance date assuming continued employment through the vesting date. Expiration: Seven years from date of grant if not exercised. | | RSUs | 1/3 | One-third annually for a three-year period from the issuance date assuming continued employment through the vesting date. |
Compensation Discussion and Analysis
Perquisites Our Named Executive Officers participate in the same group insurance and employee benefit plans as our other full-time U.S. employees. We do not provide special benefits or other perquisites to our executive officers other than occasional relocation expense reimbursement. Generally Available Benefit Programs In fiscal year 2023, our Named Executive Officers were eligible to participate in the health and welfare programs that are generally available to all full-time U.S.-based employees, including medical, dental, vision, life, short-term and long-term disability insurance, employee counseling assistance, flexible spending accounts and accidental death and dismemberment insurance. The Named Executive Officers and all other eligible U.S.-based employees participate in our tax-qualified 401(k) Plan. From July 2, 2022 until December 31, 2022, all eligible employees could receive matching contributions from the Company of 2.5% of eligible compensation contributed. Effective January 1, 2023, the matching contribution from the Company increased to 100% of up to 3% contributions and 50% of the next 2% of contributions. Each employee under the age of 50 could contribute a maximum of $22,500 during each calendar year, and each employee over the age of 50 can contribute a maximum of $30,000. From July 2, 2022 until December 31, 2022, the Named Executive Officers and all other eligible U.S.-based employees could elect, on a quarterly basis, to apply a portion of their cash compensation to purchase shares of our common stock at a 5% discount under our employee stock purchase plan. An employee’s total purchases in any year could not exceed $25,000 in value or 15% of his or her salary, whichever is less. Furthermore, an employee could not purchase more than 48 shares of common stock annually under the employee stock purchase plan. The Company closed the employee stock purchase plan effective December 31, 2022 and the final purchase date for contributions was January 3, 2023. The 401(k) Plan, employee stock purchase plan and the other benefits generally available to all other U.S.-based employees allow us to remain competitive and enhance employee loyalty and productivity. These benefit programs are primarily intended to provide all eligible employees with competitive and quality healthcare, financial contributions for retirement and to enhance hiring and retention. Post-Termination Compensation Employment agreements have been established with certain of our Named Executive Officers. The Named Executive Officers without employment agreements specifying different terms are generally subject to the Company’s Post Termination Guidelines noted above. The Post Termination Guidelines are currently being reviewed and formalized by the Compensation Committee, and the description of the Post Termination Guidelines within this document solely reflect the current historical practices followed by the Compensation Committee with respect to Named Executive Officers that are not otherwise subject to an individual employment agreement providing for differing terms. These terms are subject to change prospectively as the Compensation Committee finalizes these Post Termination Guidelines. The employment agreements and the Company’s Post Termination Guidelines provide for certain payments and benefits to the employee if his or her employment is terminated, but neither arrangement provides for change in control benefits without an accompanying involuntary termination. We have determined that such payments and benefits are an integral part of a competitive compensation package for our Named Executive Officers. Neither the employment agreements nor the Post Termination Guidelines provide any tax-related gross-up payments to our Named Executive Officers in connection with a termination or a “Change in Control” transaction. For a detailed discussion of the amounts and benefits that could become payable to the Named Executive Officers upon a termination and/or a “Change in Control” transaction, please see the section below titled “Potential Payments Upon Termination or Change of Control.” Recovery of Executive Compensation Our executive compensation program permits us to recover or “clawback” all or a portion of any performance-based compensation, including equity awards, if our financial statements are restated as a result of errors, omissions, or fraud. The amount which may be recovered will be the amount by which the affected compensation exceeded the amount that would have been payable had the financial statements been initially filed as restated, or any greater or lesser amount that the Compensation Committee or our Board shall determine. In no case will the amount to be recovered by us be less than the amount required to be repaid or recovered as a matter of law. Recovery of such amounts by us would be in addition to any actions imposed by law, enforcement agencies, regulators, or other authorities. Tax and Accounting Considerations Section 162(m) of the Internal Revenue Code of 1986, as amended, generally imposes a $1 million limit on the amount of compensation paid to “covered employees” (as defined in Section 162(m)) that a public corporation may deduct for federal income tax purposes in any year. Compensation paid to certain of our Named Executive Officers will be subject to the $1 million per year deduction limitation imposed by Section 162(m). While we will continue to monitor our compensation programs in light of the deduction limitation imposed by Section 162(m), our Compensation Committee considers it important to retain the flexibility to design compensation programs that are in the best long-term interests of the Company and our stockholders. As a result, we have not adopted a policy requiring that all compensation be fully deductible. The Compensation Committee has concluded that paying compensation at levels in excess of the limits under Section 162(m) is in the best interests of the Company and our stockholders in certain circumstances. Hedging and Pledging Prohibition Our Named Executive Officers, as well as all other employees, directors and their designees are prohibited from engaging in hedging, pledging or similar transactions with respect to our securities where the transaction is designed or intended to decrease the risks associated with holding our securities. This prohibition includes transactions involving puts, calls, collars or other derivative securities, whether granted pursuant to the 2018 Plan, or held directly or indirectly by the covered individual. Stock Ownership Guidelines To encourage the alignment between the Board, Management and stockholders, the Board adopted stock ownership guidelines for Named Executive Officers in November 2021 which remain in place today. Each Named Executive Officer is expected to acquire and continue to hold company stock during his or her employment with the Company at the following multiples of base salary: five times for the CEO and one time for executive officers. The executive officers have five years to satisfy these guidelines after the date of adoption of these guidelines or the date of being designated an executive officer, whichever is later. Risk Considerations in Our Compensation Program The Compensation Committee, pursuant to its charter, is responsible for reviewing and overseeing the compensation and benefits structure applicable to our employees, generally. We do not believe that our compensation policies and practices for our employees encourage excessive risk-taking or create risks that are reasonably likely to have a material adverse effect on our company. In reaching this conclusion, we considered the following factors: • Our compensation program is designed to provide a mix of both fixed and “at risk” incentive compensation.
Compensation Discussion and Analysis
• Our Compensation Committee and management team have responsibility for managing the administration, determination and approval of total and, in the case of the Named Executive Officers, the Compensation Committee is responsible for individual approval of payouts under the incentive plans. • The incentive elements of our compensation program (annual incentives and multi-year equity awards) are designed to reward both annual performance (under the AIP) and longer-term performance (under the 2018 Plan). We believe this design mitigates any incentive for short-term risk-taking that could be detrimental to our company’s long-term best interests. • The performance periods for our PSUs overlap, and our time-vested RSUs vest one-third annually for a three-year period from the issuance date. This mitigates the motivation to maximize performance in any one period at the expense of others. • Maximum payouts under our AIP are currently capped at no more than 200% for all applicable employees of the target award opportunity set by the Compensation Committee. We believe these limits mitigate excessive risk-taking, since the maximum amount that can be earned is limited. • Finally, our AIP and our 2018 Plan both contain provisions under which awards may be recouped or forfeited if the recipient has not complied with our policies. In addition, our performance-based plans (cash incentive and performance shares) both contain provisions under which awards may be recouped or forfeited if the financial results for a period affecting the calculation of an award are later restated. • The Compensation Committee retains an independent compensation consultant. Compensation Committee Report The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis included in this Proxy Statement. Based on this review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement. Compensation Committee of the Board of Directors Dr. James C. Stoffel, Chairman Bryan Ingram Michele Klein Bruce Taten
Summary Compensation Table
Summary Compensation Table The following table summarizes the total compensation for each of our fiscal years ended June 30, 2023, July 1, 2022, July 2, 2021, of our Named Executive Officers for the applicable years in which they were serving in their respective Named Executive Officer positions.
Summary Compensation Table
| Name, Principal Position | Fiscal Year | Salary(1) | Stock Awards(2) | Option Awards(3) | Non-Equity Incentive Plan Compensation(4) | All Other Compensation(5) | Total | | | | ($) | ($) | ($) | ($) | ($) | ($) | | Peter A. Smith, Director, President and Chief Executive Officer | 2023 | 650,000 | 1,717,443 | 785,338 | 987,438 | 12,612 | 4,152,831 | | | 2022 | 650,000 | 1,640,498 | 766,369 | 1,113,168 | 19,509 | 4,189,544 | | | 2021 | 444,231 | 1,202,160 | 94,715 | 458,325 | 16,761 | 2,216,192 | | David Gray, Senior Vice President and Chief Financial Officer | 2023 | 349,939 | 132,026 | 60,366 | 186,919 | 9,257 | 738,507 | | | 2022 | 235,385 | 200,193 | — | 153,437 | 108,937 | 697,952 | | Bryan Tucker, Senior Vice President Americas Sales and Services | 2023 | 333,934 | 125,991 | 57,615 | 178,370 | 10,981 | 706,891 | | | 2022 | 324,450 | 146,017 | 67,661 | 193,804 | 16,402 | 748,334 | | | 2021 | 315,000 | 140,360 | 70,191 | 229,163 | 19,328 | 774,042 | | Erin Boase, General Counsel, Vice President Legal Affairs | 2023 | 256,811 | 149,349 | 68,291 | 109,943 | 9,825 | 594,219 | | | 2022 | 231,441 | 87,645 | 40,593 | 110,598 | 9,435 | 479,712 | | Gary Croke, Vice President Marketing and Product Line Management | 2023 | 243,825 | 73,623 | 33,654 | 104,191 | 5,420 | 460,713 | | | 2022 | 236,900 | 109,535 | 50,742 | 113,206 | 10,466 | 520,849 |
Summary Compensation Table
(1) Base salary amounts reflect a combination of the salary levels set at different times during the year. With respect to the 2023 year, the amounts reflect increases effective October 1, 2022 in connection with the annual merit review process discussed within the Compensation Discussion and Analysis. (2) The “Stock Awards” column shows the fair value of the equity-based awards as of the grant date for fiscal 2023, 2022, and 2021. The grant date fair value of PSUs and RSUs was determined under FASB ASC Topic 718 and represents the amount we would expense in our financial statements over the entire vesting schedule for the awards. The award value for PSUs included in the table above is based on the grant date fair value assuming target level achievement, which we have determined to be the probable level of achievement of the performance metrics underlying the awards as of the grant date. The assumptions used for determining values are set forth in Notes 1 and 9 to our audited consolidated financial statements in Part II, Item 8 of our Annual Report on Form 10-K for fiscal year 2023. These amounts reflect our accounting for these grants and do not correspond to the actual values that may be recognized by the Named Executive Officers. (3) The “Option Awards” column shows the aggregate grant date fair value of the stock options granted in fiscal 2023 and other applicable years as determined under FASB ASC Topic 718 (using Black-Scholes values). The assumptions used for determining values are set forth in Notes 1 and 9 to our audited consolidated financial statements in Part II, Item 8 of our Annual Report on Form 10-K for fiscal year 2023. (4) The “Non-Equity Incentive Plan Compensation” column shows the cash bonus earned under the fiscal year 2023, 2022 and 2021 annual incentive plan. (5) The following table describes the components of the “All Other Compensation” column.
Summary Compensation Table
| Name | Year | Life Insurance(a) | Company Matching Contributions Under 401(k) Plan(b) | Total All Other Compensation | | | | ($) | ($) | ($) | | Peter A. Smith | 2023 | 3,612 | 9,000 | 12,612 | | David Gray | 2023 | 1,310 | 7,947 | 9,257 | | Bryan Tucker | 2023 | 2,327 | 8,631 | 10,958 | | Erin Boase | 2023 | 402 | 9,423 | 9,825 | | Gary Croke | 2023 | 872 | 4,548 | 5,420 |
Summary Compensation Table
(a) Represents premiums paid for life insurance that represent taxable income for the Named Executive Officer. (b) Represents matching contributions made by us to the 401(k) account of the respective named executive.
Fiscal Year 2023 Grants of Plan-Based Awards
Fiscal Year 2023 Grants of Plan-Based Awards The following table lists our grants and incentives made to the Named Executive Officers during our fiscal year ended June 30, 2023, of plan-based awards, both equity and non-equity based under our AIP and 2018 Plan. There is no assurance that the grant date fair value of stock and option awards will ever be realized.
Fiscal Year 2023 Grants of Plan-Based Awards
| | | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1) | | | Estimated Future Payments Under Equity Incentive Plan Awards(2) | | | All Other Stock Awards: Number or Shares of Stock or Units(3) (#) | All Other Option Awards: Number of Securities Underlying Options(4) (#) | Grant Date, Fair Value of Stock and Option Awards(5) ($) | | Name | Type of Award | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | | | | | Peter A. Smith | Options | 9/1/2022 | — | — | — | — | — | — | — | 55,096 | 785,338 | | | RSU | 9/1/2022 | — | — | — | — | — | — | 24,494 | — | 786,257 | | | PSU | 9/1/2022 | — | — | — | 12,247 | 24,494 | 48,988 | — | — | 931,185 | | | AIP | — | 462,500 | 925,000 | 1,850,000 | — | — | — | — | — | — | | David Gray | Options | 9/1/2022 | — | — | — | — | — | — | — | 4,235 | 60,366 | | | RSU | 9/1/2022 | — | — | — | — | — | — | 1,883 | — | 60,444 | | | PSU | 9/1/2022 | — | — | — | 942 | 1,883 | 3,766 | — | — | 71,582 | | | AIP | — | 87,550 | 175,100 | 350,200 | — | — | — | — | — | — | | Bryan Tucker | Options | 9/1/2022 | — | — | — | — | — | — | — | 4,042 | 57,615 | | | RSU | 9/1/2022 | — | — | — | — | — | — | 1,797 | — | 57,684 | | | PSU | 9/1/2022 | — | — | — | 899 | 1,797 | 3,594 | — | — | 68,308 | | | AIP | — | 83,546 | 167,092 | 334,184 | — | — | — | — | — | — | | Erin Boase | Options | 9/1/2022 | — | — | — | — | — | — | — | 4,791 | 68,291 | | | RSU | 9/1/2022 | — | — | — | — | — | — | 2,130 | — | 68,373 | | | PSU | 9/1/2022 | — | — | — | 1,065 | 2,130 | 4,260 | — | — | 80,976 | | | AIP | — | 51,496 | 102,991 | 205,982 | — | — | — | — | — | — | | Gary Croke | Options | 9/1/2022 | — | — | — | — | — | — | — | 2,361 | 33,654 | | | RSU | 9/1/2022 | — | — | — | — | — | — | 1,050 | — | 33,705 | | | PSU | 9/1/2022 | — | — | — | 525 | 1,050 | 2,100 | — | — | 39,918 | | | AIP | — | 48,802 | 97,603 | 195,206 | — | — | — | — | — | — |
Fiscal Year 2023 Grants of Plan-Based Awards
(1) The amounts shown under Estimated Possible Payouts Under Non-Equity Incentive Plan Awards reflect possible payouts under our fiscal 2023 AIP. Actual amounts earned for the year are reflected above within the Summary Compensation Table. (2) PSUs vest 100% on the third anniversary of the grant date based on the achievement of performance criteria. (3) These amounts represent the number of RSUs granted to the Named Executive Officers during fiscal year 2023, which vest annually over three years from the data of grant, subject to the Named Executive Officer’s continued employment through such vesting date. (4) These amounts represent the number of stock options granted to the Named Executive Officers during fiscal year 2023, which vest annually over three years from the date of grant, subject to the Named Executive Officer’s continued employment through such vesting date. (5) The “Fair Value of Stock and Option Awards” column shows the full grant date fair value of the stock options and other equity-based awards granted in fiscal year 2023. The grant date fair value of the awards were determined under FASB ASC Topic 718 and represents the amount we would expense in our financial statements over the entire vesting schedule for the awards in the event the vesting provisions are achieved. The assumptions used for determining values are set forth in Notes 1 and 9 to our audited consolidated financial statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal 2023. These amounts reflect our accounting for these grants and do not correspond to the actual values that may be recognized by the Named Executive Officers.
Fiscal Year 2023 Outstanding Equity Awards
Fiscal Year 2023 Outstanding Equity Awards The following table provides information regarding outstanding unexercised stock options and unvested stock awards held by each of our Named Executive officers as of June 30, 2023. Each grant of options or unvested stock awards is shown separately for each Named Executive Officer. The vesting schedule for each award of options and unvested stock awards is shown in the footnotes following this table based on the grant date. The material terms of the awards, other than exercise price and vesting schedules described below, are generally described in the 2018 Plan.
Fiscal Year 2023 Outstanding Equity Awards
| | | Option Awards | | | | Stock Awards | | | | | | | | | | | | | Equity Incentive Plan Awards | | | Name | Grant Date | Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Unexercisable | Option Exercise Price | Option Expiration Date | Number of Shares or Units of Stock that have not Vested | Market Value of Shares or Units of Stock that have not Vested(5) | Number of Unearned Shares, Units or Other Rights that have not Vested | Market or Payout Value of Unearned Shares, Units or Other Rights that have not Vested(5)(9) | | | | (#) | (#) | ($) | | (#) | ($) | (#) | ($) | | Peter A. Smith | 9/1/2022 | — | 55,096(1) | 32.10 | 9/1/2029 | 24,494(2) | 817,365 | 24,494(6) | 817,365 | | | 7/3/2021 | 19,808 | 39,614(1) | 31.88 | 7/3/2028 | 16,032(2) | 534,988 | 24,049(7) | 802,515 | | | 1/20/2021 | — | — | — | 1/20/2028 | 42,000(3) | 1,401,540 | — | — | | | 9/1/2020 | 17,592 | 8,794(1) | 11.00 | 9/1/2027 | 8,610(4) | 287,316 | 8,610(8) | 287,316 | | David Gray | 9/1/2022 | — | 4,235(1) | 32.10 | 9/1/2029 | 1,883(2) | 62,836 | 1,883(6) | 62,836 | | | 10/18/2021 | — | — | — | 10/18/2028 | 4,378(2) | 146,094 | — | — | | Bryan Tucker | 9/1/2022 | — | 4,042(1) | 32.10 | 9/1/2029 | 1,797(2) | 59,966 | 1,797(6) | 59,966 | | | 9/1/2021 | 1,523 | 3,044(1) | 35.97 | 9/1/2028 | 1,254(2) | 41,846 | 1,881(7) | 62,769 | | | 9/1/2020 | 13,306 | 6,518(1) | 11.00 | 9/1/2027 | 6,380(4) | 212,901 | 6,380(8) | 212,901 | | Erin Boase | 9/1/2022 | — | 4,791(1) | 32.10 | 9/1/2029 | 2,130(2) | 71,078 | 2,130(6) | 71,078 | | | 9/1/2021 | 914 | 1,826(1) | 35.97 | 9/1/2028 | 752(2) | 25,094 | 1,129(7) | 37,675 | | Gary Croke | 9/1/2022 | — | 2,361(1) | 32.10 | 9/1/2029 | 1,050(2) | 35,039 | 1,050(6) | 35,039 | | | 9/1/2021 | 1,142 | 2,283(1) | 35.97 | 9/1/2028 | 940(2) | 31,368 | 1,411(7) | 47,085 |
Fiscal Year 2023 Outstanding Equity Awards
(1) Stock options that vest annually over three years from date of grant. (2) RSUs that vest annually over three years from date of grant. (3) Market-based conditions applicable to the PSUs granted to Mr. Smith in January 2021 were achieved in fiscal 2021 and will vest on December 31, 2023, subject to the Named Executive Officer’s continued employment through such vesting date. In accordance with SEC rules, because such market-based conditions have been achieved and the PSUs only remain subject to time-based vesting conditions, the number of PSUs earned are reported in the “Number of Shares or Units of Stock that have not Vested” column. (4) RSUs subject to three-year cliff vesting from date of grant. (5) Market value is based on the $33.37 closing price of a share of our common stock as of June 30, 2023. (6) PSUs subject to three-year cliff vesting from date of grant assuming achievement of TSR and revenue growth targets over a three-year performance period starting fiscal 2023 to fiscal 2025. From 50% to 200% of the target PSUs will vest after the Compensation Committee certifies the achievement of the performance measure. Vesting of these PSUs is dependent on continuous employment through the vesting date in September 2025. (7) PSUs subject to three-year cliff vesting from date of grant assuming achievement of TSR and revenue growth targets over a three-year performance period starting fiscal 2022 to fiscal 2024. From 50% to 200% of the target PSUs will vest after the Compensation Committee certifies the achievement of the performance measure. Vesting of these PSUs is dependent on continuous employment through the vesting date in September 2024. (8) PSUs subject to vest based on the Company’s annual average return on invested capital (“ROIC”) from fiscal 2021 to fiscal 2023 and revenue growth for fiscal 2023. From 50% to 200% of the target PSUs will vest after the Compensation Committee certifies the achievement of the performance measure. Vesting of these PSUs is dependent on continuous employment through the vesting date in September 2023. (9) The award value for PSUs included in the table above is based on the grant date fair value assuming target level achievement, which we have determined to be the probable level of achievement of the performance metrics underlying the awards as of the grant date.
Fiscal Year 2023 Option Exercised and Stock Vested Table
Fiscal Year 2023 Option Exercised and Stock Vested Table The following table provides information for each of our Named Executive Officers regarding the number of shares of our common stock acquired upon exercising vested options or release of stock awards during fiscal year 2023.
Fiscal Year 2023 Option Exercised and Stock Vested Table
| | Option Awards | | Stock Awards | | | Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting(1) (#) | Value Received on Vesting ($) | | Peter A. Smith | — | — | 38,017 | 1,136,847 | | David Gray | — | — | 2,190 | 63,006 | | Bryan Tucker | — | — | 16,615 | 517,513 | | Erin Boase | — | — | 377 | 12,102 | | Gary Croke | — | — | 7,083 | 220,818 |
Fiscal Year 2023 Option Exercised and Stock Vested Table
(1) Vested number of shares of RSUs and PSUs.
Potential Payments Upon Termination or Change of Control
Potential Payments Upon Termination or Change of Control Employment agreements and the Company’s Post Termination Guidelines provide for such executive officers to receive certain payments and benefits if their employment with us is terminated. These arrangements are set forth in more detail below and assume an applicable termination event (and Change of Control event, as defined in the corresponding employment agreements) on June 30, 2023 (the last business day of our fiscal year) and refer to our stock price on that date. The Board has determined that such payments and benefits are an integral part of a competitive compensation package for our executive officers. The table below reflects the compensation and benefits due to each of Messrs. Smith, Gray and Tucker in the event of termination of employment by us without Cause (as defined below) or termination by the executive for Good Reason (as defined below) (other than within 12 or 18 months after a Change of Control, as defined below) and, with respect to Messrs. Smith and Tucker, in the event of death or disability. The table further reflects compensation and benefits due to Messrs. Smith, Gray and Tucker in the event of termination of employment by us without Cause or, in the case of Messrs. Smith and Tucker, a termination by the executive for Good Reason within 12 or 18 months after a Change of Control (depending on individual employment agreements). The amounts shown in the table are estimates of the amounts that would be paid upon termination of employment. There are currently no compensation and benefits due to any Named Executive Officer under his employment agreement in the event of a termination of employment by us for Cause (as defined below) or voluntary termination (except in the case of Good Reason). In the event of a death of Messrs. Smith and Tucker, there are no severance benefits payable pursuant to the employment agreements that should be reflected in the table below, but the executive’s estate would receive the pro-rata portion of the executive’s annual bonus for the year in which the death occurred. The actual amounts would be determined only at the time of the termination of employment.
Potential Payments Upon Termination or Change of Control
| Name | Conditions for Payouts | Base Salary Component(1) | Cash Incentive Component(2) | Accelerated Equity Vesting(3) | Insurance Benefit(4) | Out-Placement Services(5) | Total | | | | ($) | ($) | ($) | ($) | ($) | ($) | | Peter A. Smith | Termination without cause or for good reason, or due to disability. | 650,000 | 987,438 | 2,172,893 | 40,079 | 30,000 | 3,880,410 | | | Within 12 months after Change of Control | 1,300,000 | 925,000 | 5,274,122 | 60,118 | 30,000 | 7,589,240 | | David Gray | Termination without cause. | 353,600 | 186,919 | 95,785 | 17,765 | 30,000 | 684,069 | | | Within 18 months after Change of Control | 353,600 | 176,800 | 277,144 | 26,647 | 30,000 | 864,191 | | Bryan Tucker | Termination without cause or for good reason, or due to disability. | 337,428 | 178,370 | 571,609 | 32,119 | 30,000 | 1,149,526 | | | Within 18 months after Change of Control | 337,428 | 168,714 | 801,289 | 48,178 | 30,000 | 1,385,609 |
Potential Payments Upon Termination or Change of Control
(1) The base salary component represents the total gross monthly payments to each Named Executive Officer at the base salary in effect as of the last day of fiscal 2023. (2) The cash incentive component represents the cash bonus due under the fiscal year 2023 AIP. The pro-rata portion of the AIP bonus for the year in which a termination occurs is not applicable in all circumstances; please see narrative description below for more details. (3) Reflects acceleration of outstanding equity awards, including pro-rata vesting of the equity awards granted during fiscal year 2023, 2022 and 2021 and outstanding as of June 30, 2023 (4) The insurance benefit provided is paid directly to the insurer benefit provider and includes amounts for COBRA. (5) The estimated dollar amounts for outplacement services would be paid directly to an outplacement provider selected by us.
CEO Pay Ratio
CEO Pay Ratio Pursuant to Item 402(u) of Regulation S-K, the Company is required to provide the following information with respect to the year ended June 30, 2023: • The median of the annual total compensation of all employees of the Company (other than Mr. Smith’s the Company’s Chief Executive Officer) was $69,571. • The annualized total compensation of Mr. Smith, the Company’s Chief Executive Officer, was $4,140,218. • Based on this information, the ratio of the annual total compensation of the Company’s Chief Executive Officer to the median of the annual total compensation of all employees was 59.51:1. To identify the median paid employee and determine such employee’s annual total compensation in the last fiscal year, the Company assessed its employee population as of June 30, 2023, and determined employee compensation using the 12-month period ending June 30, 2023. On this date, the Company’s employee population consisted of 704 individuals. The Company does not feel that there have been any material changes to the employee population or compensation arrangements to necessitate needing to recalculate this number. The Company determined its median employee by: (i) calculating total target cash compensation as the sum of salary and target variable compensation, including target sales bonus, for each of the Company’s employees; (ii) ranking the total target cash compensation of all employees except for the Chief Executive Officer from lowest to highest; and (iii) picking the employee who was in the middle of the list.
Election of Directors
Election of Directors At the Annual Meeting, directors are being nominated for election to serve until the 2024 Annual Meeting or until their successors are elected and qualified. In the unanticipated event that a nominee is unable or declines to serve as a director at the time of the Annual Meeting, all proxies received by the proxy holders will be voted for any subsequent nominee named by the Board to fill the vacancy created by the earlier nominee’s withdrawal from the election. As of the date of this Proxy Statement, the Board is not aware of any director nominee who is unable or will decline to serve as a director. Each of the nominees has consented to being named in this Proxy Statement and to serve as a director if elected. Ages are as of the date of this Proxy Statement.
Director Nominees
Director Nominees
Director Nominees
| Name | Title | Age | Tenure | | John Mutch | Chairman of the Board | 67 | 8 years, 8 months | | Laxmi Akkaraju | Director | 54 | 0 years | | Bryan Ingram | Director | 59 | 1 year, 10 months | | Michele Klein | Director | 74 | 2 years, 4 months | | Peter A. Smith | Director | 57 | 3 years, 7 months | | Bruce Taten | Director | 67 | 1 year, 6 months |