(e)
Four-Tranche Option Award Approach for Officers
On December 13, 2006, the Compensation Committee of Verigy Ltd. adopted a form of four-tranche option award agreement for use with respect to annual option awards granted to executive officers of the company. The committee adopted the four-tranche option approach in recognition of the volatility of the industry in which the company competes. 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 company’s insider trading window would generally be open and at times when the market has current information about the company’s 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.
Pursuant to the four-tranche option approach, the total number of options that the company intends to award to an executive is established at the time the award is approved. For purposes of establishing the exercise price of the options, the option is divided into four tranches of 25% each. The exercise price of the four tranches is determined as follows (1):
· The first tranche (25%) is priced at the fair market value (closing price) of the company’s ordinary shares on the day the award is approved by the Compensation Committee;
· The second tranche (25%) is priced at the fair market value (closing price) of the company’s ordinary shares on the third business day(2) following the public announcement of the company’s financial results for the quarter ending January 31, 2007;
· The third tranche (25%) is priced at the fair market value (closing price) of the company’s ordinary shares on the third business day(2) following the public announcement of the company’s financial results for the quarter ending April 30, 2007; and
· The fourth tranche (25%) is priced at the fair market value (closing price) of the company’s ordinary shares on the third business day(2) following the public announcement of the company’s financial results for the quarter ending July 31, 2007.
(1) The dates indicated are the dates that will be used with respect to the four-tranche option awards approved on December 13, 2006. Similar awards issued in future periods would use commensurate future dates for the pricing of the second, third and fourth tranches.
(2) Eleventh (11th) business day for France-based officers.
The second, third and fourth tranches price
automatically, without further action on the part of the individual or the
Compensation Committee. The award agreement
provides for accelerated pricing (but not accelerated vesting) in the event of
a change of control or termination of employment. In the event that a change of control is
announced, the price of any previously un-priced tranche is fixed as of the last
trading day preceding the day of announcement of the change of control
transaction. In the event of a
termination of employment for any reason, the price of any previously un-priced
tranche is fixed as of the last trading day preceding date of termination. Vesting of the overall award is quarterly over a
period of approximately four years from the date of award. The first tranche vests over a period of 16
quarters from the date of the award; the second tranche vests over a period of
15 quarters from the time the second tranche is priced; the third tranche vests
over a period of 14 quarters from the time the third tranche is priced; and the
fourth tranche vests over a period of 13 quarters from the time the fourth
tranche is priced. The four tranche option
agreement otherwise is generally consistent with the terms of the company’s
standard form of option agreement. Fiscal
2007 Executive Compensation On December 13, 2006, Verigy’s Compensation Committee approved executive compensation arrangements for fiscal 2007 for the chief executive officer and other executive officers of the company as part of their annual review process. The Compensation Committee approved base salary, effective as of January 1, 2007, target bonus percentages and annual equity awards for certain officers, including the CEO, CFO and the company’s named executive officers(1), as follows: Name/Title of Executive Base Target Bonus (as Aggregate Restricted Keith Barnes
President and Chief Executive Officer $ 500,000 (2)
% 42,500 20,600 Robert Nikl
Chief Financial Officer $ 325,000 (2)
% 20,000 9,700 Gayn Erickson
Vice President , Memory and Test $ 250,000
% 45,000 21,800 Kristen Robinson
Vice President, Human Resources $ 230,000 (2)
% 30,000 14,600 Pascal Ronde Vice
President Sales, Service and Support $ 310,000 (2)
% 30,000 14,600 (1) Pursuant to Instruction 4 to
Item 5.02 of Form 8-K, our named executive officers for purposes of this report
include those persons for whom disclosure was required in the most recent
filing with the Securities and Exchange Commission that required disclosure
under Item 402(c) of Regulation S-K, which was our registration statement on
Form S-1, declared effective by the Securities and Exchange Commission on June
12, 2006 (file no. 333-132291). (2) Represents no change in base
salary from 2006. (3) Verigy’s incentive compensation bonus program
is designed to provide short-term incentive compensation based upon the
achievement of business-specific goals.
The program is administered in six-month performance periods that
coincide with each half of Verigy’s fiscal year and provides for cash bonuses
to be paid semi-annually when performance targets are achieved. The
target bonus for each participant is equal to a stated percentage of the
participant’s base salary. The Compensation Committee has not yet
determined the specific performance targets for the fiscal year 2007 incentive
compensation. (4) The share numbers indicated
are aggregate award levels for the executives.
These awards were issued using the four-tranche option approach
described above. The exercise price of
the first tranche is $18.04 per share, the closing price of the company’s
ordinary shares on December 13, 2006, the date of the award. The prices of the second, third and fourth
tranches will be established automatically as described above under “Four-Tranche
Option Award Approach for Officers”. (5) The restricted shares vest
and are paid out quarterly over a four-year period from the grant date. The company has adopted an arrangement
whereby the company deducts from the number of shares deliverable at each vesting
date a number of shares with a fair market value equal to the employee’s tax
withholding obligation arising in connection with the vesting. The after-tax net shares are issued to the
individual at each vesting event. Severance & Change of Control Arrangements On December 13, 2006, the company’s Compensation
Committee approved severance and change in control
arrangements for the executive officers of the company, including the company’s
CEO, CFO and named executive officers.
The key terms of the arrangements, and the named executive officers
covered, are as follows: Name of
Executive Cash Severance Cash Severance Equity Equity Keith Barnes 1x base + pro rata bonus for year of termination +
1x target bonus 2x base + pro rata bonus for year of termination +
2x target bonus Full Acceleration Full Acceleration Bob Nikl, Kristen Robinson 1x base + pro rata bonus for year of termination +
1x target bonus 2x base + pro rata bonus for year of termination +
2x target bonus 1 years’ Acceleration Full Acceleration Pascal Ronde, Gayn Erickson 1x base + pro rata bonus for year of termination +
1x target bonus 2x base + pro rata bonus for year of termination +
2x target bonus 1 years’ Acceleration Full Acceleration Severance benefits apply where an executive’s employment is terminated without cause and where the executive terminates his/her employment for “good reason.” Good reason includes: a material reduction in compensation or benefits; a significant diminution in the executives position with the company or a successor; a request to relocate place of employment beyond a radius of 25 miles from current place of employment. With respect to Messrs. Barnes and Nikl and Ms. Robinson, for purposes of determining whether the executive has an equivalent position with a successor company following a change of control, a position with the successor would only be considered equivalent if the executive holds a similar position with a company whose securities are publicly traded. Where the successor’s securities are not publicly traded, the severance agreement provides a 90 day period for the executive and the successor to negotiate alternative terms of employment prior to the executive exercising his/her right to terminate their employment for good reason and receive the severance benefit. The form of Severance Agreement for officers in the U.S. is attached hereto as Exhibit 99.1, and the agreement is incorporated by reference in this description. Versions for non-US executives will be filed when available. Item 8.01. Other Events. Annual Review of Director Compensation On December 13, 2006, Verigy’s Compensation
Committee reviewed and considered non-employee director compensation for
2007. The Compensation Committee
determined not to make any changes to the company’s non-employee director
compensation policy. The primary
provisions of Verigy’s non-employee director compensation are: Cash
Compensation · Annual cash compensation of $55,000, payable
at the beginning of the fiscal year to each non-employee director; and · The
chair of the Audit Committee and Compensation Committee are paid additional
annual cash compensation of $10,000 and the chair of the Nominating and Governance
Committee is paid additional annual cash compensation of $5,000. Other than the additional fees to committee
chairs, directors are not paid additional amounts for committee service. Equity Compensation Initial
Equity Grants. Each individual who becomes a non-employee
director receives a one-time grant of (i) a non-statutory stock option to
purchase that number of whole ordinary shares equal to an accounting value of
$110,000 and (ii) restricted shares with an accounting value of
$110,000, under the automatic equity grant provisions of our 2006 Equity
Incentive Plan, which we refer to as the 2006 Plan. The initial one-time grants are granted on
the date when the outside director first joins the Board of Directors. For purposes of determining the accounting
value of the initial stock option grant and the initial grant of restricted
shares, the accounting value is the value calculated using the same methodology
as the company applied for purposes of determining the accounting charge
associated with similar equity awards for the fiscal period immediately
preceding the grant date of the option or restricted shares, as the case may
be. Yearly
Equity Grants. Under the terms of the automatic option grant
provisions of the 2006 Plan, on the date of each Annual General Meeting, each
individual who is at that time serving as a non-employee director receives (i) a
non-statutory stock option to purchase that number of whole ordinary shares
equal to an accounting value of $55,000, which vests and becomes exercisable on
the first anniversary of the date of grant
and (ii) restricted shares with
an accounting value of $55,000, which vests on the first anniversary of the
date of grant and settles on the third anniversary of the date of grant, unless
deferred to a later date. Item
9.01
Financial Statements and Exhibits. (d) Exhibits The
following exhibits are furnished herewith: Exhibit Description 99.1 Form of Severance Agreement for U.S. Officers Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned hereunto duly authorized. By: /s/ Kenneth M. Siegel
Compensation
a % of Base
Compensation) (3)
Four-Tranche
Stock Options
Awarded (4)
Shares
Awarded (5)
Benefit absent
change of control
Benefit with
change of control
Acceleration
w/o change of
control
Acceleration
w/ change of
control
Number
SIGNATURES
