|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Fees Earned
or Paid
in Cash($)
|
|
Stock
Awards ($)(1)
|
|
Total ($)
|
|
Gene Becker
|
|
|
50,000
|
|
|
29,996
|
|
|
79,996
|
|
Marsha Cameron
|
|
|
55,000
|
(2)
|
|
29,996
|
|
|
84,996
|
|
David King
|
|
|
60,000
|
(3)
|
|
29,996
|
|
|
89,996
|
|
Fred Reichelt
|
|
|
50,000
|
|
|
29,996
|
|
|
79,996
|
|
-
(1)
-
On
June 25, 2015, the Compensation Committee granted 2,757 shares of restricted stock to each of the non-employee directors. The restricted stock
will vest on the first anniversary of the grant date. This column reflects the grant date fair value of the restricted stock, calculated in accordance with Financial Accounting Standards Board
("FASB") Accounting Standards Codification ("ASC") Topic 718 ("Topic 718").
-
(2)
-
Includes
$5,000 received for serving as Chair of our Compensation Committee.
-
(3)
-
Includes
$10,000 received for serving as Chair of our Audit Committee.
8
Table of Contents
COMPENSATION DISCUSSION AND ANALYSIS
The following Compensation Discussion and Analysis provides information relevant to understanding the 2015 compensation of our
executive officers identified in the Summary Compensation Table on page 19, whom we refer to as our named executive officers. For 2015, our named executive officers
were:
-
-
Terry Ledbetter, our Chairman of the board of directors, President and Chief Executive Officer;
-
-
David Hale, our Executive Vice President, Chief Operating Officer and Chief Financial Officer;
-
-
John Pearson, our Executive Vice President and National Sales Manager;
-
-
David Cleff, our Executive Vice President of Business Affairs, General Counsel and Secretary; and
-
-
Lonnie "Trace" Ledbetter, III, our Executive Vice President of Service. Trace Ledbetter is Terry Ledbetter's nephew.
Background and Transition to Public Company
On June 25, 2014, we completed the sale of an aggregate of 31,050,000 shares of our common stock in a transaction that we refer
to as the "private placement." Subsequently, we registered the resale of these shares with the Securities and Exchange Commission and our common stock began trading on the Nasdaq Global Select Market
on November 3, 2014. Prior to the private placement, Terry Ledbetter and his brother, Lonnie Ledbetter, each owned approximately 50% of our outstanding common stock, served as our only
directors, and made all compensation determinations. Following the private placement, we constituted a Compensation Committee whose members meet the definition of "independent director" under the
Exchange Act and applicable NASDAQ rules. The Compensation Committee reviewed and determined the compensation of our named executive officers awarded in 2015.
Compensation Program Objectives
The objectives of our executive compensation program are to retain executives who have been integral to our growth, to attract other
talented and dedicated executives and to motivate each of our executives to achieve key financial and other business objectives. We have historically compensated our named executive officers using a
combination of base salary, annual cash bonuses and long-term cash bonuses. As a public company, we began to use equity awards as our long-term incentive component as opposed to cash awards. In March
2016, we awarded shares of performance-based restricted stock to all of our named executive officers.
Our
policy for setting compensation levels has focused on compensating our named executive officers at levels we believe are competitive for executives at companies of similar size and
life-cycle operating in the industry, taking into account company performance. We believe that the compensation levels for our named executive officers are competitive and do not encourage them to
take unnecessary or excessive risks. We expect that as we continue to progress, the executive compensation programs and policies adopted by our independent Compensation Committee will evolve to
reflect our achievements as a public company and to remain competitive.
Our Compensation Process
The Compensation Committee, working with our Compensation Consultants, Pay Governance LLC ("Pay Governance"), and senior
management, develops and implements the Company's executive compensation policies. For each of the named executive officers other than Terry Ledbetter, our CEO, the Compensation Committee receives a
performance assessment and compensation recommendation
9
Table of Contents
from
the CEO and also exercises its independent judgment based on the board of directors' interaction with the named executive officer. Terry Ledbetter abstained from participation in the
determination of his own compensation. In making its determinations regarding the appropriate level of compensation for each named executive officer, the Compensation Committee considers a number of
variables, both qualitative and quantitative, and including the individual performance of each named executive officer.
The Role of the Board, Compensation Committee and Compensation Consultants
The Board and Compensation Committee.
Prior to the private placement, Terry Ledbetter and his brother, Lonnie Ledbetter, made all
compensation
determinations as our only directors. Certain compensation programs or awards approved prior to the private placement continue to vest or remain in place through 2015. Such programs include long-term
cash awards for Messrs. Hale, Cleff and Pearson, non-qualified stock options and severance agreements. Information regarding these awards is set forth below under the headings "Executive
Performance-Based Cash Incentive Plans-Long-Term Incentive Plan2013-2015 Performance," "Equity AwardsStock Options," and "Severance Agreements."
In
connection with the private placement, our board of directors established a Compensation Committee whose members meet the definition of "independent director" under the Exchange Act
and applicable NASDAQ rules. The Compensation Committee reviewed and determined the compensation awarded to the Company's Chief Executive Officer and other named executives in 2015.
Compensation Consultants.
During 2014, in contemplation of completing the private placement and transitioning to becoming a public
company, the
Company engaged Pay Governance as an advisor to assist the Company on executive compensation matters. Following the private placement, the Compensation Committee engaged Pay Governance as an advisor
on executive compensation and governance matters. Pay Governance currently reports directly to the Compensation Committee. The Compensation Committee has reviewed information provided by Pay
Governance addressing the independence of Pay Governance and the representatives serving the Compensation Committee. Based on this information, the Compensation Committee concluded that the work
performed by Pay Governance and its representatives involved in the engagement did not raise any conflict of interest.
The Use and Role of Peer Companies
In 2014, the Company sought to develop peer groups in order to assess the competitiveness of the Company's executive compensation
program. Prior to the private placement,
Pay Governance provided information and advice regarding potential peer companies to Terry Ledbetter. After reviewing the relevant information, and in consultation with Pay Governance, Terry Ledbetter
determined that due to the unique nature of the combination of markets in which the Company operates, there is not a large sample of similarly-sized public companies that it considers direct
competitors and, thus, natural peers for benchmarking performance and/or pay levels. To address this challenge, Terry Ledbetter elected to develop two distinct peer groups for benchmarking purposes: a
"Pay Level Peer Group" and a "Pay Practices Peer Group". Following the private placement, our Compensation Committee reviewed both peer groups and did not make any changes to the composition of either
group. In 2015, the Compensation Committee reviewed both peer groups and added two companies to our Pay Level Peer Group: (1) Heritage Insurance Holdings, Inc.; and (2) James
River Group Holdings, Ltd. These companies were not part of the 2014 peer group as they had not yet completed their initial public offerings, and thus did not have publicly-disclosed
compensation data to use in benchmarking.
Pay Level Peer Group.
The Pay Level Peer Group is used by the Compensation Committee to monitor market compensation levels,
compensation program
design and governance practices among a sample of smaller property and casualty insurers which operate within niche segments of the insurance
10
Table of Contents
industry.
Given a limited number of similarly-sized direct business competitors, the following criteria were considered in selecting the constituents of this
group:
-
-
Property & Casualty Insurance Industry Classification;
-
-
Market capitalization generally targeted between .4x and 4.0x of the Company's average market cap;
-
-
Revenue generally targeted between .4x and 4.0x of the Company's fiscal-year end revenue; and
-
-
Similar asset size.
The
2015 "Pay Level Peer Group" consisted of the following companies:
|
|
|
Baldwin & Lyons, Inc.
|
|
James River Group Holdings, Ltd.
|
Donegal Group, Inc.
|
|
National Interstate Corporation
|
EMC Insurance Group, Inc.
|
|
Amerisafe, Inc.
|
Hallmark Financial Services, Inc.
|
|
Federated National Holding Company
|
Heritage Insurance Holdings, Inc.
|
|
United Insurance Holdings Corporation
|
HCI Group, Inc.
|
|
Universal Insurance Holdings, Inc.
|
Pay Practices Peer Group.
The Pay Practices Peer Group is used by the Compensation Committee to provide a broader perspective on
compensation program
design and governance practices among other leading companies operating within niche segments of the insurance industry. Given their larger size, these companies are not used for monitoring market
compensation levels; however, the Compensation Committee believes they are relevant for understanding incentive plan design practices (e.g. performance metrics) and governance practices.
The
2015 "Pay Practices Peer Group" consisted of the following companies:
|
|
|
Argo Group International Holdings, Ltd.
|
|
OneBeacon Insurance Group, Ltd.
|
Infinity Property and Casualty Corporation
|
|
RLI Corporation
|
Meadowbrook Insurance Group, Inc.
|
|
Safety Insurance Group, Inc.
|
Montpelier Re Holdings, Ltd.
|
|
United Fire Group, Inc.
|
Navigators Group, Inc.
|
|
|
Executive Market Assessment.
Similar to the approach taken in advance of the private placement, Pay Governance conducted a competitive
compensation
assessment of the Company's executive officer positions in 2015. In this study, data from the Pay Level Peer Group were used in combination with relevant published compensation survey sources to
establish competitive market rates for similar positions in the market. The Pay Practices Peer Group was not used for purposes of benchmarking pay levels for the executives. Pay Governance's
assessment considered the following elements of the Company's executive pay program, both individually and in the aggregate: base salary, total annual cash compensation (base
salary + annual short-term incentive), long-term incentives, and total direct compensation (total annual cash compensation + long-term incentives).
Following
this review, the Compensation Committee determined that the Company's pay levels and mix of pay varied by executive in comparison to the market. These findings reinforced the
Compensation Committee's plan to continue to evolve the pay programs to include a broader use of equity compensation over time to better align with public company market practices.
11
Table of Contents
Our 2015 Compensation Program
The principal elements of our executive compensation program are: base salary; short-term cash incentive; a legacy long-term cash
incentive for Messrs. Hale, Cleff and Pearson; stock options; a long-term, performance-based restricted stock award for Terry Ledbetter and Trace Ledbetter; and employee benefits and other
perquisites. Going forward, we expect to use equity awards as our long-term incentive component as opposed to cash awards. We have also entered into severance agreements with our named executive
officers. We believe that the elements of our compensation program are customary in our industry, and we provide them in order to remain competitive in attracting, motivating, and retaining superior
executive talent.
The
following descriptions of certain elements of our compensation program include performance goals or objectives regarding Company performance. In each instance, these goals or
objectives are disclosed in the limited context of our executive compensation program and should not be understood to be a statement of the Company's expectations or estimates of future results or
other guidance.
Base Salary.
The Compensation Committee determined the base salary for each named executive officer for 2015. Factors considered
in determining
individual salaries included overall Company performance, recent and past performance of the individual, level of responsibility, prior experience and breadth of knowledge. Additionally, external pay
practices as well as general industry and economic conditions were considered. After consideration of these factors, the Compensation Committee approved 2015 base salary increases for the named
executive officers ranging from 0% to 9.9% with an average increase of 3.8%.
Performance-Based Cash Incentive Awards.
All of our named executive officers were awarded annual performance-based incentive
award opportunities
under our 2015 Cash Incentive Plan. In addition, Messrs. Hale, Cleff and Pearson were previously awarded long-term cash awards which covered a three-year performance period ended
December 31, 2015.
2015 Annual Performance-Based Cash Incentive Awards.
The Compensation Committee awarded annual performance-based incentive awards to
each of our
named executive officers in March, 2015. These awards seek to focus executives on meeting key annual financial and other business objectives and reward success. In February, 2016, the Compensation
Committee approved the amounts earned under the annual performance-based incentive awards based on 2015 performance.
The
table below sets forth information regarding the potential payout levels under the award for each named executive officer, other than Mr. Pearson.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Metrics($)
|
|
|
|
Target
Annual Cash
Incentive($)
|
|
Corporate
Net Income
(after tax)
|
|
Program
Services
Underwriting
Margin
|
|
Lender
Services
Underwriting
Margin
|
|
Corporate
Net Income
(before tax)
|
|
Terry Ledbetter
|
|
|
1,500,000
|
|
|
1,500,000
|
|
|
|
|
|
|
|
|
|
|
David Hale
|
|
|
330,000
|
|
|
264,000
|
|
|
|
|
|
|
|
|
66,000
|
|
David Cleff
|
|
|
200,000
|
|
|
60,000
|
|
|
90,000
|
|
|
|
|
|
50,000
|
|
Trace Ledbetter
|
|
|
100,000
|
|
|
15,000
|
|
|
|
|
|
60,000
|
|
|
25,000
|
|
12
Table of Contents
The
2015 performance goals for the performance metrics based on corporate net income after taxes and underwriting margins in the Program Services and Lender Services segments are set
forth below, along with the percent of the target bonus payable for achievement of those goals.
|
|
|
|
|
|
|
|
|
Threshold
|
|
Target
|
|
Maximum
|
Corporate Net Income (after tax)
|
|
$35.2 million
|
|
$44.0 million
|
|
$52.8 million
|
Program Services Margins
|
|
$36.8 million
|
|
$46.0 million
|
|
$55.2 million
|
Lender Services Margins
|
|
$22.0 million
|
|
$27.5 million
|
|
$33.0 million
|
Earned Award
|
|
50% of Target
|
|
100% of Target
|
|
200% of Target
|
The
performance metric based on corporate net income before tax provides that if 2015 corporate net income before taxes exceeds $20,000,000, the Compensation Committee will review
whether the executive achieved his established management by objectives ("MBOs") and then will use negative discretion in determining the amount to be paid to each executive. This performance metric
is subject to a maximum of two times the amount reflected in the last column of the table next above. The MBOs vary by individual and reflect key operational, strategic or other objectives that align
with key priorities of the Company. In determining the amount to be paid to the relevant executive officers under the MBO metric, the Compensation Committee, with input from Terry Ledbetter, assessed
performance relative to these MBOs on an unweighted, subjective basis, taking into consideration: (i) the achievement of MBOs, (ii) the quality of executive's performance and
(iii) changes in the relative priority of the MBOs throughout the year in response to changing business conditions.
Mr. Pearson's
entire award is contingent on the performance metric based on corporate net income before tax and provides only for a maximum potential bonus, which was $2,038,835.
Similar to the use of this performance metric for Messrs. Hale, Cleff and Trace Ledbetter, if 2015 corporate net income before taxes exceeds $20,000,000, the Compensation Committee reviews
whether Mr. Pearson met his goals and then uses negative discretion in determining the amount to be paid. The Compensation Committee reviews Mr. Pearson's performance relative to the
following goals: (i) collateral protection insurance sales volume objectives with a premium for sales to banks and finance companies; (ii) the
Lender Services underwriting margin; and (iii) MBOs established at the beginning of the year and approved by the Compensation Committee. In determining the amount to be paid, the Compensation
Committee, with input from Terry Ledbetter, assesses performance relative to these goals, taking into consideration: (x) the achievement of the goals, (y) the quality of performance and
(z) changes in the relative priority of the goals throughout the year in response to changing business conditions.
Actual
2015 performance under the relevant metrics as compared to target were as follows: (i) corporate net income after taxes at 101.5%; (ii) Lender Services underwriting
margin at 68.4%; (iii) Program Services underwriting margin at 116.3%; and (iv) corporate net income before taxes exceeded $20,000,000 and therefore the Compensation Committee exercised
its negative discretion in determining the amount paid to the relevant executives with respect to this metric according to the considerations discussed above. The following table summarizes the
amounts earned by our named executive officers under the 2015 annual performance-based incentive awards.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
Corporate
Net Income
(after tax)
|
|
Program
Services
Margins
|
|
Lender
Services
Margins
|
|
Corporate
Net Income
(before tax)
|
|
Total
|
|
Terry Ledbetter
|
|
$
|
1,600,064
|
|
|
|
|
|
|
|
|
|
|
$
|
1,600,064
|
|
David Hale
|
|
$
|
281,611
|
|
|
|
|
|
|
|
$
|
66,000
|
|
$
|
347,611
|
|
David Cleff
|
|
$
|
64,003
|
|
$
|
163,279
|
|
|
|
|
$
|
50,000
|
|
$
|
277,282
|
|
John Pearson
|
|
|
|
|
|
|
|
|
|
|
$
|
461,942
|
|
$
|
461,942
|
|
Trace Ledbetter
|
|
$
|
16,001
|
|
|
|
|
$
|
0
|
|
$
|
6,250
|
|
$
|
22,251
|
|
13
Table of Contents
Long-Term Incentive Plan2013-2015 Performance.
In 2013, our board of directors, which at that time consisted of Lonnie Ledbetter
and
Terry Ledbetter, established performance-based, long-term cash incentive plans for Messrs. Hale, Cleff and Pearson. The long-term incentive plan sought to retain executive talent, align the
interests of key executives with those of our shareholders and promote multi-year growth objectives. Amounts were earned under the long-term incentive plan based on cumulative corporate underwriting
margin ("CCUM") objectives for the period from January 1, 2013 through December 31, 2015.
Each
award reflected a threshold and a maximum performance objective, together with corresponding payout amounts. No bonuses were to be paid if the CCUM for 2013-15 was less than
$80 million. Each executive was to receive a bonus of $150,000 to $750,000 if the CCUM exceeded $80 million. The maximum bonus payable was $750,000 if the CCUM for 2013 to 2015 equaled
or exceeded $110 million. The Company's CCUM for the three years ended December 31, 2015 was $133.8 million. As such, each of the executives earned $750,000 pursuant to this
long-term incentive plan.
Equity Awards.
The Compensation Committee believes that equity-based compensation is an effective means of ensuring that our
named executive officers
have a continuing stake in our long-term success. In 2015, our Compensation Committee awarded performance-based restricted stock to Terry Ledbetter and Trace Ledbetter. In connection with the
completion of the private placement in 2014, the board of directors, consisting of Lonnie Ledbetter and Terry Ledbetter, made grants of non-qualified stock options to our executive officers.
Performance-Based Restricted Stock.
In March, 2015, the Compensation Committee awarded a maximum of 200,000 shares of performance-based
restricted
stock to Terry Ledbetter and 15,030 shares of performance-based restricted stock to Trace Ledbetter (collectively, the "RSAs"). The Compensation Committee used performance-based RSAs in order to focus
the executives on meeting key financial
and other business objectives and further align the interests of these executives with our shareholders. The long-term awards to Terry Ledbetter and Trace Ledbetter are also intended to encourage
retention in light of their lack of participation in the Company's legacy cash-based, long-term incentive plan described above. In determining the size of Terry Ledbetter's award, the Compensation
Committee considered pay levels of CEOs across the Pay Level Peer Group and established a grant value that was in the upper quartile of the peers. In recognition of this pay position, the Committee
determined that 100% of his long-term incentives for 2015 would be performance contingent. This is considerably more performance-contingent than CEOs in the peer group, which were, on average, 40%
performance-contingent. Messrs. Hale, Cleff and Pearson were not awarded RSAs in 2015 due to their continued participation in our legacy long-term cash incentive plan described above.
For
Terry Ledbetter, the number of shares that will vest depends on the compound annual growth rate of the Company's earnings per share ("EPS") (weighted at 75%) and revenue (weighted at
25%) during the performance period over 2014, relative to threshold, target and maximum performance goals. In calculating EPS growth, an adjusted diluted EPS of $0.73 will be used for 2014 and the
Company's diluted EPS reported in the Company's financial statements shall be used for subsequent periods. The performance periods are the 12-month period ended December 31, 2015, the 24-month
period ending December 31, 2016, and the 36-month period ending December 31, 2017. Following the conclusion of each performance period, 33
1
/
3
% of the shares subject to the
RSA are eligible to vest based on maximum performance. The EPS and revenue performance metrics are independent and the
14
Table of Contents
executive
may earn the shares subject to one of the metrics, but not the other, or both. Set forth below are the performance goals for the metrics.
|
|
|
|
|
|
|
|
|
Threshold
(25% Vesting)
|
|
Target
(50% Vesting)
|
|
Maximum
(100% Vesting)
|
Earnings Per Share Growth Rate
|
|
³
7% but < 14%
|
|
³
14% but < 25%
|
|
³
25%
|
Revenue Growth Rate
|
|
³
3.5% but < 7%
|
|
³
7% but < 14%
|
|
³
14%
|
Regardless
of whether the EPS and revenue growth performance goals are achieved in a particular performance period, if the Compensation Committee determines that the Company's EPS growth
rate for the period is equal to or greater than the median EPS growth rate of the Pay Level Peer Group for the same period, then a minimum of 33,333 shares will vest for such performance period.
The
Company's EPS growth rate for the 12-month period ended December 31, 2015 over 2014 was 38% and the Company's revenue growth rate for the 12-month period ended
December 31, 2015 over 2014 was 29%. As such, Terry Ledbetter earned the maximum number of shares (66,666).
For
Trace Ledbetter, the number of shares to be earned is based on the same performance metrics and weighting as provided for under his 2015 annual performance-based cash incentive award
described above. As Trace Ledbetter earned 11.1% of the maximum under his 2015 annual performance-based cash incentive award, he earned 1,672 of the 15,030 shares under his 2015 RSA award.
In
the event of the executive's death or permanent disability, 50% of the unvested shares shall vest. If the executive is terminated for cause or resigns without good reason, all
unvested shares shall be forfeited. In the event of a change of control, if the Company's successor continues or assumes the award, such award shall continue to vest in accordance with its terms. If
the Company's successor does not continue or assume the award, then 50% of the unvested shares eligible for vesting in the relevant performance period shall vest. Dividends will not be paid on the
RSAs until the shares have vested. At such time, the executive will be entitled to a payment based on the dividends declared during the restricted period and the number of shares earned.
Stock Options.
In connection with the completion of the private placement in 2014, the board of directors, consisting of Lonnie
Ledbetter and Terry
Ledbetter, made grants of non-qualified stock options to our executive officers and certain employees to purchase an aggregate of 2,783,873 shares of our common stock. These grants were made
(i) to recognize the performance of these individuals, including their efforts toward the successful private placement, (ii) to align their interests with those of our shareholders and
(iii) to provide an additional incentive to promote our success and to remain in our service. The following table sets forth certain information regarding these stock option grants to our named
executive officers:
|
|
|
|
|
Name
|
|
Options
Awarded in
2014
|
|
Terry Ledbetter
|
|
|
1,473,333
|
|
David Hale
|
|
|
427,350
|
|
David Cleff
|
|
|
284,900
|
|
John Pearson
|
|
|
28,490
|
|
Trace Ledbetter
|
|
|
284,900
|
|
Each
option has a 10-year term, an exercise price equal to $10.00, the purchase price of our common stock in the private placement, and is subject to pro rata vesting over a three-year
period, subject to full and immediate vesting upon termination of service on account of death or disability. Upon a recipient's termination of service on account of resignation, vested options will
remain exercisable for one year following such resignation (two years in the case of Terry Ledbetter) or, if
15
Table of Contents
earlier,
the expiration of the option. Upon a recipient's termination of service on account of death or disability, vested options will remain exercisable for one year following such death or
disability (four years in the case of Terry Ledbetter) or, if earlier, the expiration of the option. Upon a recipient's termination of service for any other reason, vested options will remain
exercisable for two years (four years in the case of Terry Ledbetter) or, if earlier, the expiration of the option.
No
stock option grants were made to named executive officers in 2015.
Other Benefits and Perquisites
.
Our
named executive officers are eligible to participate in all of our employee benefit plans such as medical, dental, vision, group life, disability, and our
401(k) savings plan (with a contribution equal to up to 6% of compensation subject to certain limitations), in each case on the same basis as our other employees. In addition, a few perquisites are
provided to the named executive officers, in addition to several other employees. As an example, Terry Ledbetter is provided the use of a company-owned automobile including maintenance costs,
insurance coverage, and fuel and each of the other named executive officers are provided an automobile allowance.
Severance Agreements
The Company is party to severance agreements with all of its named executive officers. These severance agreements were entered into
prior to the private placement and were approved by the board of directors, consisting of Lonnie Ledbetter and Terry Ledbetter. The severance agreement with Terry Ledbetter provides that in the event
he is terminated without "cause" or resigns for "good reason," he will be entitled to a lump sum severance benefit equal to three times the sum of his base salary at the time of termination and his
target bonus for the year of termination. However, if any portion of the severance payment would cause Terry Ledbetter to be the recipient of an "excess parachute payment" within the meaning of
Section 280G(b) of the Internal Revenue Code of 1986 (the "Internal Revenue Code"), the amount of his severance benefit shall be reduced so that the maximum amount payable (after reduction)
shall be one dollar less than the amount that would cause him to be the recipient of an excess parachute payment. Under the severance agreement, Terry Ledbetter agrees not to engage in certain
activities (noncompetition, nonsolicitation) for two years following termination of employment.
The
other severance agreements are similar to Terry Ledbetter's except that the employee's severance benefit is equal to one times his base salary at the time of termination. However, a
larger benefit equal to 2.5 times base salary (1.75 times base salary in the case of Mr. Trace Ledbetter) is provided in the case of termination during the two-year period immediately following
either: (i) June 25, 2014, the date of the completion of the private placement; or (ii) any subsequent "change of control" of the Company, which is defined to have the same
meaning as set forth in our 2014 Long-Term Incentive Plan.
Except
in the case of Terry Ledbetter, no severance benefit will be paid under any of these severance agreements if the employee's termination of employment occurs after June 25,
2021.
Insider Trading Policy.
Our Insider Trading Policy prohibits our directors, executive officers and certain key employees from engaging
in certain
transactions involving our common stock, including options trading, short sales, derivative transactions and hedging transactions. In addition, these directors, executive officers and key employees
are prohibited from holding our common stock in a margin account or otherwise pledging our common stock as collateral for a loan.
16
Table of Contents
Policy With Respect to Deductibility of Compensation.
The accounting and tax treatment of particular forms of compensation have not, to
date,
materially affected our compensation decisions. However, our Compensation Committee plans to periodically evaluate the effect of relevant accounting and tax provisions. For instance,
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for certain compensation in excess of $1.0 million paid in any year to any of our
"covered employees" (which generally includes our Chief Executive Officer and any of our three other most highly compensated executive officers other than the Chief Financial Officer). However,
amounts that constitute "performance-based compensation" are not subject to the deduction limitation. In addition, Section 162(m) provides that certain compensation paid during a transition
period ending
with our 2016 annual shareholders meeting will not be subject to the deduction limitations. Although we expect that our Compensation Committee will consider the impact of Section 162(m) in
structuring our compensation plans and programs, the Compensation Committee may approve awards which would not qualify as performance-based compensation under Section 162(m). Such awards may
include discretionary cash bonuses. We expect our Compensation Committee to preserve the flexibility and authority to make decisions that are in the best interest of our Company, even if those
decisions do not result in full deductibility of executive compensation under Section 162(m).
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