Appointment of President and Chief Executive Officer
On November 2, 2018, the Company’s Board of Directors (the “Board”) appointed Brian Krzanich, 58, as President, Chief Executive Officer and director, effective immediately after the filing of the Company’s Form 10-Q for its first quarter ended September 30, 2018 (the “Transition Date”). Mr. Krzanich succeeds Brian MacDonald, who will resign as President, Chief Executive Officer and director effective as of the Transition Date.
In connection with his resignation from the Board, Mr. MacDonald also informed the Board that he has withdrawn his name from nomination for re-election at the Company’s 2018 Annual Meeting of Stockholders (the “Annual Meeting”). The Company’s definitive proxy statement on Schedule 14A (the “Proxy Statement”) dated October 2, 2018, which has been furnished to holders of the Company’s common stock in connection with the solicitation of proxies on behalf of the Board for use at the Annual Meeting, provides that if a nominee becomes unable or declines to serve, the accompanying proxy may be voted for a substitute nominee designated by the Board. The Board has designated Mr. Krzanich as substitute nominee and, accordingly, any shares voted for the election of Mr. MacDonald will instead be voted for the election of Mr. Krzanich. Mr. Krzanich has consented to being named as a nominee for director at the Annual Meeting and to serve if elected.
Krzanich Biography.
Mr. Krzanich served as Chief Executive Officer of Intel Corporation from 2013 to June 2018. As Chief Executive Officer, he led Intel’s corporate strategy and operations, including development of Intel’s business model and identification of emerging technologies. Mr. Krzanich joined Intel in 1982, became a corporate Vice President in 2006, and served until 2010 as Vice President and General Manager of Assembly and Test. He was Senior Vice President and General Manager of Manufacturing and Supply Chain from 2010 to 2012. He became Executive Vice President and Chief Operating Officer in 2012, responsible for global manufacturing, supply chain, human resources, and information technology. Mr. Krzanich previously served on the board of directors of Deere & Company from 2016 to April 2018.
Compensation.
On November 2, 2018, the Company and Mr. Krzanich entered into an employment agreement (the “Employment Agreement”) pursuant to which Mr. Krzanich will serve as President and Chief Executive Officer of the Company for an initial three-year term beginning on the Transition Date. Mr. Krzanich will receive a base salary of $1,000,000, and he will be eligible for an annual bonus based on performance objectives pre-established by the Compensation Committee for each fiscal year, with a target bonus of 150% of base salary. Mr. Krzanich will also participate in all compensation and benefit plans and arrangements that are generally available to other Company executives in accordance with their terms as in effect from time to time.
As soon as practicable following the Transition Date, Mr. Krzanich will receive the following sign-on equity awards: (i) performance stock units (“PSUs”) having an aggregate grant date fair value of $8,750,000; (ii) time-vesting stock options having an aggregate grant date fair value of $1,875,000; and (iii) performance-vesting stock options having an aggregate grant date fair value of $1,875,000. The PSUs will vest based on the achievement of the same performance metrics, and will be subject to the same terms and conditions, that apply to the PSUs granted to the Company’s other senior executives for the Company’s fiscal 2019 – fiscal 2021 performance period. The time-vesting stock options will have a strike price equal to the closing price of the Company’s stock on the date of grant and will vest in three equal annual installments on the first three anniversaries of the Transition Date, subject to his continued employment with the Company. The performance-vesting stock options will have a strike price equal to the closing price of the Company’s stock on the date of grant and will vest on the third anniversary of the Transition Date, subject to his continued employment with the Company, if and only if the average closing price of the Company’s common stock over any 20 consecutive trading days ending on or prior to such anniversary equals or exceeds 110% of the closing price of the Company’s common stock on the date of grant.
On or before the last day of the next open trading window for insiders of the Company, Mr. Krzanich has agreed to purchase shares of the Company’s common stock having an aggregate purchase-date fair market value of up to $3,000,000 (the “Purchased Shares”). Upon the purchase of the Purchased Shares, subject to Mr. Krzanich’s continued employment in good standing with the Company as of the date of the grant, Mr. Krzanich will receive a number of performance-based stock options pursuant to the Plan with a grant date fair value equal to the aggregate purchase price of the Purchased Shares (the “Co-Invest PBSOs”). The Co-Invest PBSOs will have a strike price equal to the closing price of the Company’s common stock on the date of grant and will be eligible to vest in two separate tranches: (i) 50% of the Co-Invest PBSOs (as measured by grant date fair value) on the third anniversary of the Transition Date, subject to his continued employment with the Company, if and only if the average closing price of the Company’s common stock over any 20 consecutive trading days ending prior to such anniversary equals or exceeds 115% of the closing price of the Company’s common stock on the date of grant; and (ii) 50% of the Co-Invest PBSOs (as measured by grant date fair value) on the fourth anniversary of the Transition Date, subject to his continued employment with the Company, if and only if the average closing price of the Company’s common stock over any 20 consecutive trading days ending prior to such anniversary equals or exceeds 120% of the closing price of the Company’s common stock on the date of grant.
Mr. Krzanich will be eligible to participate in the Company’s equity incentive compensation program in all future years of employment, in the discretion of the Board, and his target annual equity grant for fiscal year 2020 will, subject to his continued employment in good standing with the Company through the date of the grant, have an aggregate grant date fair value of approximately $12,500,000.
If Mr. Krzanich’s employment is terminated without “cause” or if Mr. Krzanich resigns with “good reason” (each as defined in the Employment Agreement), and other than due to death or disability, he will be entitled to receive the severance benefits that would be paid or provided to him pursuant to the Company’s Corporate Officer Severance Plan (the “Severance Plan”), as in effect from time to time, as if he were designated a participant in the Severance Plan, subject to the terms and conditions thereof; provided, that the cash severance benefit payable to him will equal 200% of his annual base salary then in effect, and the severance period thereunder will be the 24-month period following his termination. In addition, to the extent that the Severance Plan would result in the prorated vesting of the Co-Invest PBSOs, any proration will reflect only the period served from the Transition Date through the effective date of his employment termination. A copy of the Severance Plan is filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated September 7, 2017, as filed with the Securities and Exchange Commission (the “SEC”) on September 7, 2017, and is incorporated herein by reference.
Mr. Krzanich has agreed, while employed and for a period of 24 months thereafter, not to compete with the Company, not to solicit the Company’s customers, subscribers or suppliers as of the date of his termination of employment, and not to solicit or hire the Company’s employees or former employees within six months after the date they cease to be an employee of the Company. Mr. Krzanich has also agreed to be bound by customary covenants relating to confidentiality, non-disparagement, intellectual property and return of property.
The above description of the Employment Agreement is qualified in its entirety by the full text of the Employment Agreement, a copy of which will subsequently be filed with the SEC.
In connection with his appointment, Mr. Krzanich will be entitled to participate in the Company’s Third Amended and Restated Change in Control Severance Plan for Corporate Officers (the “CIC Plan”), and, in the event of a “change in control” of the Company and a subsequent “qualifying termination” (as such terms are defined in the CIC Plan), he will not be entitled to any post-termination payments or benefits under the Employment Agreement, and the CIC Plan will govern his rights to severance payments and benefits in connection with such termination. A copy of the CIC Plan is filed as Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on August 8, 2017, and is incorporated herein by reference. Mr. Krzanich will also enter into the Company’s standard form of indemnification agreement for directors and officers, a copy of which is filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated June 4, 2018, as filed with the SEC on June 7, 2018, and is incorporated herein by reference.
Forms of Grant Agreement
The above description of the grant of PSUs is subject to and qualified in its entirety by the Company’s current form of Performance Stock Unit Award Agreement, a copy of which is filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, dated September 6, 2018, as filed with the SEC on September 6, 2018, and is incorporated herein by reference. The above description of the grant of time-vesting stock options is subject to and qualified in its entirety by the Company’s current form of Stock Option Grant Agreement for Corporate Officers, a copy of which is filed as Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on February 3, 2016, and is incorporated herein by reference (provided that the vesting terms of the time-vesting stock options shall be as described above). The above description of the grants of performance-vesting stock options and the Co-Invest PBSOs is subject to and qualified in its entirety by the respective full text of the Performance Based Stock Option Grant Agreements, copies of which will subsequently be filed with the SEC.
MacDonald Transition and Release.
On November 5, 2018, the Company and Mr. MacDonald entered into a Transition and Release Agreement (the “Transition Agreement”) pursuant to which the Company and Mr. MacDonald have agreed that his employment with the Company is scheduled to terminate effective as of June 30, 2019, and that Mr. MacDonald will assist in the smooth transition of his functions as directed by the Board. During the remaining term of his employment with the Company, Mr. MacDonald will continue to receive the cash compensation and benefits that he currently receives in accordance with his employment agreement with the Company dated December 11, 2015 (the “MacDonald Employment Agreement”), and his equity awards will remain outstanding and continue to vest in accordance with their terms. Upon his separation from service with the Company (other than a termination by the Company with Cause (as defined in the MacDonald Employment Agreement) or a voluntary resignation by Mr. MacDonald, he will receive the severance payments and benefits described in the MacDonald Employment Agreement, subject to his continued compliance with his non-competition, non-solicitation and confidentiality undertakings in the MacDonald Employment Agreement. The foregoing description of the Transition Agreement is qualified in its entirety by the full text of the Transition Agreement, a copy of which will subsequently be filed with the SEC. A copy of the MacDonald Employment Agreement is filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated December 10, 2015, as filed with the SEC on December 11, 2015, and is incorporated herein by reference.