This excerpt taken from the VRGY 8-K filed Dec 7, 2009.
Discussion of 2010 Cash and Equity Compensation
Base Compensation In February 2009, the Compensation Committee implemented a temporary reduction in the base compensation of the executive officers equal to 10%. The Compensation Committee has determined to restore base compensation in full for the named executive officers, beginning February 1, 2010. The base compensation approved for fiscal 2010 for the executive officers is unchanged from the base compensation amounts approved for fiscal 2009 as well as fiscal 2008. The base compensation approved for 2010 reflects the full amount of base compensation, without the temporary salary reduction; however, the salary reduction will remain in effect until February 1, 2010, when the full amount of base compensation will be restored.
Target Bonus On December 1, 2009, the Compensation Committee approved Verigys 2010 pay for results incentive compensation bonus program (the 2010 Bonus Program) and approved target bonuses as a percentage of base compensation for the named executive officers as set forth in the table above. The 2010 Bonus Program is designed to provide short-term incentive compensation based upon the achievement of operating profit goals, short-term financial goals based on the companys financial plan and relative shareholder return. The program is administered in six-month performance periods that coincide with each half of Verigys fiscal year and provides for cash bonuses to be paid semi-annually. The Compensation Committee determines bonus metrics and goals at the beginning of each six-month performance period, and they are not adjusted during the period. A more detailed description of the 2010 Bonus Program is filed with this report as an exhibit and is incorporated herein by reference. While the Compensation Committee retains the right to make discretionary adjustments to the final payouts, it did not make any adjustments in fiscal year 2009.
Equity Compensation In the past, as part of its annual performance review, the Compensation Committee has awarded executive officers a mix of restricted share units and options to purchase our ordinary shares, each representing approximately half of the total targeted grant value. On the date of grant, the entire number of restricted share units were granted, subject to quarterly vesting over a four year period. Also on the date of grant, an award agreement for the entire number of stock options was issued (subject to quarterly vesting over a four year period), but the exercise price of only 25% of the total award was fixed. The exercise price of the remaining 75% stock options is automatically set in three increments of 25% each at the closing price of our ordinary shares on the third business day following the quarterly earnings announcement for each of the next three fiscal quarters. We refer to this as our four tranche option approach. The Compensation Committee adopted the four-tranche option approach in 2006 in recognition of the volatility of our industry. The purpose of the four-tranche option approach is to provide cost-averaging of the exercise prices of an award over a period of several future quarters rather than establish a single exercise price applicable to the entire award. By linking the automatic pricing mechanism to future announcements of financial results, the exercise prices of the second, third and fourth tranches are established at times when the companys insider trading window would generally be open and at times when the market has current information about the companys recent financial results and outlook. This mechanism, in effect, automates a quarterly grant approach by allowing a single award to be priced as if it had been awarded in four separate actions.
On December 1, 2009, the Compensation Committee approved a mix of restricted share units and options as part of the fiscal 2010 officer compensation. The restricted share units vest and are paid out quarterly over a four-year period from the grant date. As of the end of fiscal year 2009, there were approximately 2,500,000 shares available for grant under our 2006 Equity Incentive Plan (the 2006 EIP). We currently intend to seek shareholder approval at our 2010 annual general meeting to amend the 2006 EIP to increase the number of shares authorized under the plan. In order to conserve shares under the 2006 EIP until shareholders either approve or do not approve the proposed amendment to the 2006 EIP, the Compensation Committee determined to make a portion (25%) of the annual option awards contingent on the shareholders approving the addition of shares to the 2006 EIP at the 2010 annual general meeting of shareholders. Accordingly, the Compensation Committee granted each executive officer a non-contingent award representing 75% of their annual stock option award (the Non-Contingent Award) and a contingent award representing 25% of their annual stock option award (the Contingent Award). The following is a summary of the material terms of the Non-Contingent Awards and Contingent Awards, and is qualified by reference to the forms of agreement filed with this report:
Non-Contingent Awards Similar to our four-tranche option approach used in the past:
In the case of Mr. Rondé, the first tranche of his Non-Contingent Award will be priced at the earliest date allowable subsequent to November 19, 2009. Each of the remaining two tranches will be priced at the earliest date allowable subsequent to the release of the companys financial results for the quarters ending January 31, 2010, and April 30, 2010, in accordance with applicable French regulations regarding tax qualification for option grants. Generally, the pricing of each tranche of Mr. Rondés Non-Contingent Award will occur on the 11th business day following the public announcement of the companys financial results, or on the 11th business day following a material announcement that occurs within that 11 day period. The option price for Mr. Rondés awards will be the greater of (A) the fair market value (closing price) of the companys ordinary shares on the pricing date, or (B) 80% of the average of the fair market values (closing prices) for the twenty trading days preceding the pricing date.
Contingent Awards If shareholders approve an amendment to the 2006 EIP to increase the number of authorized shares during 2010, the exercise price of the Contingent Award will be automatically set as the closing price of the companys ordinary shares on the third business day following Verigys announcement of its financial results for the quarter ending July 31, 2010 (or, if later, on the date of shareholder approval). In the case of Mr. Rondé, the Contingent Award will be priced on the 11th business day following the public announcement of Verigys financial results for the quarter ending July 31, 2010 (or, if later, on the date of shareholder approval), or on the 11th business day following a material announcement that occurs within that 11 day period. The Continent Awards will vest in 13 equal quarterly installments, with the first installment vesting on December 13, 2010. If the shareholders vote on but do not approve an increase in the number of shares available for issuance under the 2006 EIP during 2010, then the Contingent Awards will become null and void on the date of the shareholder meeting at which the shareholders did not approve the amendment. In the event of a change in control of the company before a shareholder vote on a proposal to increase the shares reserved for issuance under the 2006 EIP, the exercise price of the awards would be automatically established as set forth the form of Contingent Share Option Agreement, the contingency will be deemed satisfied and the Contingent Options will no longer be contingent.