UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

 

 

For the fiscal year ended March 31, 2021

or

 

For transition period from to

 

Commission file number 0-5734

AGILYSYS, INC.

(Exact name of registrant as specified in its charter)

 

 

Registrant's telephone number, including area code: (770) 810-7800

Securities registered pursuant to Section 12(b) of the Act:

 

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  ☐      No  ☑

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  ☐      No  ☑

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☑   No  ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).       Yes  ☑   No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  Yes ☑    No ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes  ☐    No  ☑

 

The aggregate market value of Common Shares held by non-affiliates as of September 30, 2020 was $473,711,377.

 

As of May 20, 2021, 23,894,595 shares of the registrant's common stock were outstanding.

 

 

 

 

 

 

 

 

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EXPLANATORY NOTE

 

Agilysys, Inc. (the “Company,” “we,” “us” or “our”) is filing this Amendment No. 1 on Form 10-K/A (this “Amendment”) to amend our Annual Report on Form 10-K for the year ended March 31, 2021, originally filed with the Securities and Exchange Commission (the “SEC”) on May 21, 2021 (the “Original Filing”), to include the information required by Items 10 through 14 of Part III of Form 10-K. This information was previously omitted from the Original Filing in reliance on General Instruction G(3) to Form 10-K, which permits the information in the above referenced items to be incorporated in the Form 10-K by reference from our definitive proxy statement if such statement is filed no later than 120 days after our fiscal year-end. We are filing this Amendment to include Part III information in our Form 10-K because a definitive proxy statement containing such information will not be filed by the Company within 120 days after the end of the fiscal year covered by the Form 10-K. The reference on the cover of the Original Filing to the incorporation by reference to portions of our definitive proxy statement into Part III of the Original Filing is hereby deleted.

In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Part III, Items 10 through 14 of the Original Filing are hereby amended and restated in their entirety, and Part IV, Item 15 of the Original Filing is hereby amended and restated in its entirety, with the only changes being the addition of Exhibits 31.4, 31.5 and 31.6 filed herewith and related footnotes. Except as described above, this Amendment No. 1 does not amend or otherwise update any other information in the Original Filing and does not purport to reflect any information or events subsequent to the filing thereof. Accordingly, this Amendment should be read in conjunction with the Original Filing and with our filings with the SEC subsequent to the Original Filing.

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Part III

 

Item 10.   Directors, Executive Officers and Corporate Governance.

 

DIRECTORS

 

A biography for each of our directors and, if applicable, arrangements under which a director was appointed to the board of directors or information regarding any involvement in certain legal or administrative proceedings is provided. Additional information about the experiences, qualifications, attributes, or skills of each director in support of their service on the board of directors is also provided.

 

 

Mr. Colvin is a director of Viavi Solutions Inc. (Nasdaq: VIAV), a global provider of network test, monitoring and assurance solutions, and a director of Maxeon Solar (NASDAQ: MAXN). He was formerly a director of UTAC holdings, Ltd., a private Singapore technology company, and a director of Applied Micro Circuits Corporation from 2007 to 2011. Mr. Colvin previously served as Chief Financial Officer of Caesars Entertainment Corporation from November 2012 to January 2015 and before that was Executive Vice President and Chief Financial Officer of ON Semiconductor Corp. from April 2003 to October 2012. Prior to joining ON Semiconductor, he held a number of financial leadership positions, including Vice President of Finance and Chief Financial Officer of Atmel Corporation, Chief Financial Officer of European Silicon Structures as well as several financial roles at Motorola Inc.

 

Mr. Colvin earned his B.A. in Economics, with honors, and an M.B.A. from the University of Strathclyde in Scotland. Mr. Colvin’s qualifications and extensive experience include financial management, capital structure, financial strategy, significant public company leadership and board experience, and recent experience in the hospitality industry which the Company serves.

 

 

Dana Jones is the Chief Executive Officer and a director of RealPage, Inc. a provider of software and data analytics for the real estate industry. Prior to RealPage, Ms. Jones was the Chief Executive Officer of Sparta Systems, the market leader in digital enterprise quality management software for the life sciences space, from March 2018 until March 2021 when Sparta was acquired by Honeywell (Nasdaq: HON). She also served as a director of RealPage, Inc. (Nasdaq: RP), from October 2019 to April 2021 when the company was acquired by Thoma Bravo. Prior to joining Sparta in April 2018, Dana served as Chief Executive Officer of Active Network, the leader in activity and event management software, during 2016 and 2017. Before joining Active Network, Ms. Jones was Chief Marketing Officer and Senior Vice President of Products for Sabre Airline Solutions, a global provider of software to the airline industry, from 2012 to 2017. Prior to Sabre, Ms. Jones co-founded Noesis Energy, and served as Executive Vice President of Product, Sales, Marketing, and Operations. Ms. Jones has held Executive and General Management positions for early stage and global publicly traded enterprise software companies over the last 20 years, including the Reynolds Company and Vignette. She started her career as a management consultant with A.T. Kearney.

 

Ms. Jones also serves on the Board of Zapata Computing, a leading enterprise software company for NISQ-based quantum applications.

 

Ms. Jones graduated Summa Cum Laude and holds a BSE in industrial and operations engineering from the University of Michigan. Ms. Jones is an accomplished software executive with decades of experience leading and growing cloud-based global enterprise software businesses.

 

 

Mr. Jones is the Executive Vice President, Chief Ethics and Legal Officer of LiveRamp Holdings, Inc. (NYSE: RAMP), a software-as-a-service (SaaS) company that provides the identity platform for powering exceptional experiences. His responsibilities include oversight of its legal, privacy and security teams and various strategic initiatives, including the strategy and execution of mergers and alliances, as well as serving as a director of most wholly owned subsidiary companies. Prior to joining LiveRamp, which is the successor entity to Acxiom Corp., in September 2018, Mr. Jones was the Chief Ethics and Legal Officer at Acxiom since 1999, where he oversaw all legal and data ethics matters, and was a director of most wholly owned subsidiary companies. Prior to joining Acxiom, Mr. Jones was a partner with the Rose Law Firm in Little Rock, Arkansas, where he specialized in problem solving and business litigation for 19 years, representing a broad range of business interests. Previously he was a Director of Entrust, Inc. (Nasdaq: ENTU).

 

Mr. Jones is a 1980 graduate of the University of Arkansas School of Law and holds a bachelor’s degree in public administration from the University of Arkansas. As the Chief Ethics and Legal Officer of a SaaS company, Mr. Jones has extensive experience with legal, privacy, and security matters. He has also led the strategy and execution of mergers and alliances and international expansion efforts.

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Mr. Kaufman is the Chief Executive Officer of MAK Capital, a financial investment advisory firm based in New York, NY, which he founded in 2002. In addition, Mr. Kaufman has served as a director of Skyline Champion Corporation (NYSE: SKY) since June 2018.  

 

Mr. Kaufman holds a B.A. in Economics from the University of Chicago, where he also received his M.B.A. He also earned a law degree from Yale University. As Chief Executive Officer of MAK Capital, a significant shareholder of the Company, Mr. Kaufman is especially qualified to represent the interests of the Company’s shareholders as a director and chairman of the board. Additionally, Mr. Kaufman’s qualifications and experience include capital markets, investment strategy and financial management.

 

 

Mr. Keating has been a consultant, providing investment advice and other services to private and public companies and private equity firms since 2008. Mr. Keating also serves as a director of MagnaChip Semiconductor Corporation (NYSE: MX), a specialist in OLED panel technology and a designer/manufacturer of analog and mixed signal semiconductor platform solutions (since August 2016). Previously he was a director of Vitamin Shoppe Inc., a retailer of nutritional supplements, from April 2018 until it was taken private in December 2019, and Red Lion Hotels Corporation from July 2010 until June 2017, serving as Chairman of the Board from May 2013 to 2015. During the past five years, Mr. Keating also served on the boards of directors of the following public companies: SPS Commerce, Inc., a provider of cloud-based supply chain management solutions (from March 2018 to May 2019), API technologies Corp. (2011 to 2016), ModSys international Limited (formerly BluePhoenix solutions Limited, 2010 to 2016), and Harte Hanks Inc. a global marketing services firm (2017 until July 2020).

 

Mr. Keating holds a B.A. from Rutgers University as well as both an M.S. in Accounting and an M.B.A. in Finance from The Wharton School of the University of Pennsylvania. Mr. Keating has substantial experience leading public companies in the technology and hospitality industries and is qualified in global operations, financial management and strategy and capital markets.

 

 

Mr. Mutch has served as managing partner of MV Advisors LLC (“MV Advisors”), a strategic block investment firm that provides focused investment and strategic guidance to small and mid-cap technology companies, since founding the firm in December 2005. From December 2008 to January 2014, Mr. Mutch served as President, CEO and Chairman of the Board of Directors of BeyondTrust Software, a privately-held security software company. Mr. Mutch has served as Chairman of the board of directors of Aviat Networks, Inc. (NASDAQ: AVNW), a global provider of microwave networking solutions, since February 2015, and has served on the board of directors since January 2015. Previously, Mr. Mutch served on the board of directors of Maxwell Technologies, Inc. (formerly NASDAQ: MXWL), a manufacturer of energy storage and power deliver solutions for automotive, heavy transportation, renewable energy, backup power, wireless communications and industrial and consumer electronics applications, from April 2017 to May 2019, YuMe, Inc. (NYSE: YUME), a provider of digital video brand advertising solutions, from July 2017 to February 2018, at which time the company was acquired by RhythmOne PLC (LON: RTHM), a technology-enabled digital media company, and Mr. Mutch continued serving as a director on the RhythmOne PLC board of directors until January 2019, and Steel Excel, Inc. (formerly OTCPK:SXCL), 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 May 2016.  

 

Mr. Mutch holds a B.S. in Economics from Cornell University and an M.B.A. from the University of Chicago. As a former chief executive officer and board member of many technology companies, Mr. Mutch has extensive experience in the technology industry, restructuring, financial management and strategy, capital markets, sales management, and marketing.

 

 

Mr. Srinivasan has been President and Chief Executive Officer of the Company since January 3, 2017. He also serves on the board of advisors for Symbotic, a supply chain robotics and solutions company. He previously served as CEO of Ooyala, a Silicon Valley based provider of a suite of technology offerings in the online video space, from January 2016 to November 2016. From March 2015 to November 2015, he was President and CEO of Innotrac Corp., an ecommerce fulfillment provider which merged with eBay Enterprise to form Radial Inc. in 2015. Prior to that, Mr. Srinivasan served as President and CEO of Bally Technologies Inc. (NYSE: BYI) from December 2012 to May 2014, and President and COO from April 2011 to December 2012; he started as Executive Vice President of Bally Systems in March 2005. Mr. Srinivasan was with Manhattan Associates from 1998 to 2005, where his last position was Executive Vice-President of Warehouse Management Systems.

 

Mr. Srinivasan holds a Post-Graduate Diploma in Management (MBA) from the Indian Institute of Management, Bangalore, India, and a degree in Engineering from the Indian Institute of Technology (Banaras Hindu University), Varanasi, India. Mr. Srinivasan has nearly three decades of hands-on enterprise software development, execution and senior technology management leadership and

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strategy expertise and accomplishments, including experience and expertise in driving performance at high growth technology companies and helping them scale their business profitably.

 

EXECUTIVE OFFICERS

 

The following are biographies for each of our current, non-director executive officers. The biography for Mr. Srinivasan, our President and Chief Executive Officer, and a director, is provided above.

 

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CORPORATE GOVERNANCE

 

Corporate Governance Guidelines

 

The Corporate Governance Guidelines (the “Guidelines”) adopted by our board of directors are intended to provide a sound framework to assist the board of directors in fulfilling its responsibilities to shareholders. Under the Guidelines, the board of directors exercises its role in overseeing the Company by electing qualified and competent officers and by monitoring the performance of the Company. The Guidelines state that the board of directors and its committees exercise oversight of executive officer compensation and director compensation, succession planning, director nominations, corporate governance, financial accounting and reporting, internal controls, strategic and operational issues, and compliance with laws and regulations. The Guidelines also state the board of directors’ policy regarding eligibility for the board of directors, including director independence and qualifications for director candidates, events that require resignation from the board of directors, service on other public company boards of directors, and stock ownership guidelines. The Nominating and Corporate Governance Committee annually reviews the Guidelines and makes recommendations for changes to the board of directors. The Guidelines are available on our website at www.agilysys.com, under Investor Relations.

 

Code of Business Conduct

 

The Code of Business Conduct adopted by our board of directors applies to all directors, officers, and employees of the Company, as well as certain third parties, and incorporates additional ethics standards applicable to our Chief Executive Officer, Chief Financial Officer, and other senior financial officers of the Company, and any person performing a similar function. The Code of Business Conduct is reviewed annually by the Audit Committee, and recommendations for change are submitted to the board of directors for approval. The Code of Business Conduct is available on our website at www.agilysys.com, under Investor Relations. The Company has in place a reporting hotline and website available for use by all employees and third parties, as described in the Code of Business Conduct. Any employee or third-party can anonymously report potential violations of the Code of Business Conduct through the hotline or website, both of which are managed by an independent third party. Reported violations are promptly reported to and investigated by the Company. Reported violations are addressed by the Company and, if related to accounting, internal accounting controls, or auditing matters, the Audit Committee. In addition, we intend to post on our website all disclosures that are required by law or NASDAQ listing standards concerning any amendments to, or waivers from, any provision of the Code of Business Conduct.

 

Audit Committee

 

The Audit Committee held eight meetings during fiscal year 2021. The Audit Committee reviews, with our independent registered public accounting firm, the proposed scope of our annual audits and audit results, as well as interim reviews of quarterly reports; reviews the adequacy of internal financial controls; reviews internal audit functions; is directly responsible for the appointment, determination of compensation, retention, and general oversight of our independent registered public accounting firm; reviews related person transactions; oversees the Company’s implementation of its Code of Business Conduct; and reviews any concerns identified by either the internal or external auditors. The board of directors determined that all Audit Committee members (Ms. Jones and Messrs. Colvin and Mutch) are financially literate and independent under NASDAQ listing standards for audit committee members. The board of directors also determined that each of Ms. Jones and Messrs. Colvin and Mutch qualify as an “audit committee financial expert” under SEC rules.

 

Nominating and Corporate Governance Committee

 

The Nominating and Corporate Governance Committee (“Nominating Committee”) held three meetings during fiscal year 2021. The board of directors determined that all Nominating Committee members are independent under NASDAQ listing standards. The Nominating Committee assists the board of directors in finding and nominating qualified people for election to the board; reviewing shareholder-recommended nominees; assessing and evaluating the board of directors’ effectiveness; and establishing, implementing,

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and overseeing our governance programs and policies. The Nominating Committee is responsible for reviewing the qualifications of, and recommending to the board of directors, individuals to be nominated for membership on the board of directors. The Nominating Committee will consider shareholder-recommended nominees for membership on the board of directors. There have been no material changes to the procedures by which shareholders may recommend nominees to the board of directors since those procedures were described in the Company’s proxy statement filed with the SEC on October 23, 2020.

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act requires the Company’s directors and certain of its executive officers and persons who beneficially own more than 10% of the Company’s common shares to file reports of and changes in ownership with the SEC. Based solely on the Company’s review of copies of SEC filings it has received or filed, the Company believes that each of its directors, executive officers, and beneficial owners of more than 10% of the shares satisfied the Section 16(a) filing requirements during fiscal year 2021, other than: Mr. Badger filed a Form 4 on June 4, 2020, which was 1 day late due to the Company’s delay in calculating shares withheld to satisfy withholding taxes; Mr. Jacks filed a Form 4 on November 13, 2020, which was 1 day late due to his delay reporting the details of the transaction to the Company; Mr. Wood filed a Form 3 on November 23, 2020, which should have been filed by June 3, 2020, due to several failures of the Company during that time to obtain filer codes on Mr. Wood’s behalf, partly as a result of changes of processes and inability to work in the office as a result of the COVID-19 pandemic; and Mr. DeMarinis filed a Form 4 on February 17, 2021, which was 1 day late due to his delay in reporting the details of the transaction to the Company.

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Item 11.   Executive Compensation.

 

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

 

None of the members of the Compensation Committee during fiscal year 2021 (Messrs. Jones, Kaufman, Keating, and Mutch) is or has been an officer or employee of the Company or has had any relationship with the Company required to be disclosed as a related person transaction, and none of our executive officers served on the compensation committee (or other committee serving an equivalent function) or board of any company that employed any member of our Compensation Committee or our board of directors during fiscal year 2021.

 

DIRECTOR COMPENSATION

 

During fiscal year 2021, the board of directors approved compensation for non-employee directors consisting of the following:

 

 

As a response to the impact of the COVID-19 pandemic on our business and the hospitality industry, the board reduced the cash retainer amounts set forth above by fifty percent (50%) for the first six months of fiscal year 2021.

 

We also reimburse our directors for reasonable out-of-pocket expenses incurred for attendance at board of directors and committee meetings.

 

The fiscal year 2021 equity award for each director consisted of 4,388 restricted shares, based on the closing price of the Company’s common stock of $17.09 on the date the grant was approved by the board of directors, and was granted under the 2020 Equity Incentive Plan subject to shareholder approval of the Plan at the 2020 Annual Meeting of Shareholders. The restricted shares vested on March 31, 2021, and provided for pro-rata vesting upon retirement prior to March 31, 2021.

 

Our directors are subject to share ownership guidelines that require ownership of common stock with a market value of three times the director’s respective annual cash retainer within two years of service and six times the director’s respective annual cash retainer within four years of service. We pay no additional fees for board of director or committee meeting attendance.

 

Director Compensation for Fiscal Year 2021

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

This Compensation Discussion and Analysis (the “CD&A”) describes our executive compensation philosophy and programs for our Named Executive Officers during fiscal year 2021, being the year beginning April 1, 2020, and continuing through March 31, 2021. Compensation arrangements with our Named Executive Officers are governed by the Compensation Committee of our board of directors.

 

Our Named Executive Officers in fiscal year 2021 consisted of our Chief Executive Officer (CEO), our Chief Financial Officer (CFO), our former CFO, and our three other most highly compensated officers during fiscal year 2021, as listed below:

 

 

Each of the Named Executive Officers other than Mr. Wood were also Named Executive Officers in the prior fiscal year and continued in their positions for fiscal year 2021. Mr. Pritchett resigned as our CFO, and Mr. Wood was promoted to the role of CFO , effective June 1, 2020, during fiscal year 2021.

 

For fiscal year 2021, Mr. Pritchett earned $49,900 in base salary, based on his compensation level set in the prior fiscal year, was not eligible for an annual incentive and received no long-term equity awards. Accordingly, this CD&A omits any discussion of his compensation for fiscal year 2021. See the Summary Compensation Table and the notes thereto on page 18 for further details on Mr. Pritchett’s compensation in fiscal year 2021.

 

Compensation Focus for Fiscal Year 2021

 

The global spread and unprecedented impact of COVID-19 had a significant impact on our business, the hospitality industry and the global economy during fiscal year 2021. In response to the pandemic, we took steps to reduce operating costs and improve efficiency, which included benefit limitations and decreases in salaries that substantially reduced cash compensation for the Named Executive Officers and our other executives and senior employees.

 

The compensation structure for our Named Executive Officers for fiscal year 2021 was similar to the compensation structure for Named Executive Officers in recent prior years. Our CEO’s compensation includes base salary and an annual incentive based on company financial performance that is settled in shares of common stock. The compensation for our other Named Executive Officers includes base salary, annual cash incentives based on company financial performance, and long-term equity incentives.

 

As part of our response to the COVID-19 pandemic, at the beginning of fiscal year 2021, we implemented a six-month reduction in base salary for most senior employees, including a 30% reduction in base salary for executives. Ramesh Srinivasan, our CEO, voluntarily took no base salary for the first 9 months of fiscal year 2021.

 

After considering the results of our recent votes on Named Executive Officer compensation, which confirmed the Company’s general philosophy and objectives relative to our executive compensation program, the Compensation Committee continued to link executive pay to performance and maintained annual incentive opportunities for the Named Executive Officers generally at the same level as fiscal year 2021. Annual incentive performance targets for fiscal year 2021 were well in the process of being determined at the onset of the pandemic, and given the difficulties of predicting the impact of the pandemic on our business at that time, we continued our practice of focusing annual incentive performance targets on improvements over fiscal year 2020 results. As in prior years, the annual incentive for our CEO, while based on the same company financial measures as the annual incentives for the other Named Executive Officers, was settled in shares of common stock to further align the CEO with shareholder interests and to emphasize long term value creation.

 

In fiscal year 2021, the Compensation Committee increased the value of long-term equity incentive awards to all participants, including the Named Executive Officers, compared to recent prior years, to bolster retention at a time when it appeared that the hospitality industry and the Company would be disproportionately impacted by the COVID-19 pandemic. As discussed below under the heading Fiscal Year 2021 Compensation, a significant portion of the long-term incentives awarded to the Named Executive Officers in fiscal year 2021 would vest only upon the attainment of more than a 100% increase in the market price of the Company’s common stock. Our CEO did not receive any long-term equity incentive award in fiscal year 2021 since he received a large award upon the renewal of his employment agreement at the end of fiscal year 2020.

 

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Compensation Philosophy, Objectives, and Structure

 

Our Compensation Committee adopted its pay philosophy, objectives, and structure for Named Executive Officers to achieve financial and business goals and create long-term shareholder value.

 

Compensation Philosophy and Objectives.  For fiscal year 2021, given the potential impact of the pandemic on the hospitality industry and our business, our Compensation Committee’s pay philosophy was to reduce cash compensation and emphasize long-term performance-based compensation in the form of long-term equity incentives. The Compensation Committee’s objective was to establish an overall compensation package to:

 

 

Compensation Structure.  Our compensation structure is comprised of:

 

Base Salary — Base salary provides fixed pay levels aimed to attract and retain executive talent. Variations in salary levels among Named Executive Officers are based on each executive’s roles and responsibilities, experience, functional expertise, relation to peer pay levels, competitive assessments, individual performance, and changes in salaries in the overall general market and for all employees of the Company. Salaries are reviewed annually by our Compensation Committee, and changes in salary are based on these factors and input from our CEO, other than for himself. None of the factors are weighted according to any specific formula. Salaries for new executive officers are generally based on the Compensation Committee’s discretion and judgment but may be based on any of the above-mentioned relevant factors.

 

Annual Incentives — Annual incentives provide cash variable pay for achievement of the Company’s financial goals, with target incentives set as a percentage of salary, and are designed to reward achievement of goals with an annual cash payment. At the end of each fiscal year, the Compensation Committee considers the aggregate compensation of each Named Executive Officer and may adjust the annual incentive payment otherwise earned if the aggregate compensation is deemed deficient or excessive in the opinion and discretion of the Compensation Committee. Annual incentives for our CEO are settled in shares of common stock, instead of cash.

 

Long-Term Incentives — Long-term incentives are variable, equity incentives designed to drive improvements in performance that build wealth and create long-term shareholder value by tying the value of earned incentives to the long-term performance of our common shares. Target long-term incentives are also set as a percentage of salary.

 

Compensation Key Considerations

 

Annual Goal Setting.  Annual goals for our Named Executive Officers may be tied to our financial, strategic, and operational goals and may include business specific financial targets relating to our goals. For fiscal year 2021, the Compensation Committee linked annual incentive goals to financial targets emphasizing both growth and profitability. Annual incentives were based on revenue growth, but payment was conditioned upon the achievement of a minimum adjusted EBITDA and a minimum end of year cash balance.

 

Variable Pay at Risk.  Our compensation philosophy drives the provision of greater at-risk pay to our Named Executive Officers, and variable pay at risk comprised between 50% and 69% of target annual compensation for the Named Executive Officers. Our Named Executive Officers have significant opportunities for long-term, equity-based incentive compensation, as our philosophy is to tie a significant portion of compensation to the long-term performance of our common shares. Thus, significant emphasis is placed on long-term shareholder value creation, thereby we believe minimizing excessive risk taking by our executives.

 

The Compensation Committee, in consultation with management, evaluates our incentive plans to determine if the plans’ measures or goals encourage inappropriate risk-taking by our employees. As part of its evaluation, the Compensation Committee determined that the performance measures and goals were tied to our business, financial, and strategic objectives. As such, the incentive plans are believed not to encourage risk-taking outside of the range of risks contemplated by the Company’s business plan.

 

Compensation Consultants and Competitive Market Assessments.  The Compensation Committee did not engage a compensation consultant and did not rely on any market assessment of compensation in setting compensation for fiscal year 2021.

 

Tally Sheets.  Our Compensation Committee analyzed tally sheets at the beginning of the fiscal year to review overall compensation and pay mix for each Named Executive Officer. Tally sheets included a three-year look-back of total compensation, including annual cash compensation, long-term incentive awards granted and earned, and benefits and perquisites. Tally sheets also included a cumulative inventory of equity grants by fiscal year, including the value of outstanding equity at the Company’s then current stock price and the value received for prior vesting and exercises of equity. The tally sheets brought together, in one place, all elements of Named Executive

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Officers’ actual compensation and information about wealth accumulation so that our Compensation Committee could analyze the individual elements, the mix of compensation and the aggregate total amount of annual and accumulated compensation. Tally sheets were also used by the Committee to evaluate internal pay equity among the Named Executive Officers and to determine the impact of employment termination or change of control events. In support of the philosophy of rewarding performance, tally sheets are used by the Compensation Committee to review compensation as compared to expectations, and our Compensation Committee determined that annual compensation set for our Named Executive Officers for fiscal year 2021 was consistent with expectations and with the established compensation philosophy and pay mix guidelines driven by that philosophy.

 

Fiscal Year 2021 Compensation

 

Base Salary.  For fiscal year 2021, stated base salary for the Named Executive Officers did not change from fiscal year 2020, and in order to conserve cash during the COVID-19 pandemic, the base salary of each of the Named Executive Officers was reduced by 30% for the first six months of the fiscal year. Mr. Srinivasan voluntarily agreed to accept no base salary for the first nine months of the fiscal year.

 

Mr. Wood was appointed CFO in fiscal year 2021, and the Committee set his annual base salary at $240,000, subject to the 30% reduction discussed above, which was the level the Committee believed to be competitive for his position and necessary to retain him in his role. The Committee based their assessments on the recommendation of the CEO and their own experience and judgement.

 

Annual Incentives.

 

Annual Incentive Targets.  The Compensation Committee set fiscal year 2021 annual incentive goals at the beginning of the fiscal year when the impact of the COVID-19 pandemic on our business was difficult to predict. As previously discussed, the Committee linked the annual incentive goals of the Named Executive Officers to revenue, Adjusted EBITDA and cash balance. All the Named Executive Officers were subject to the same annual incentive structure:

 

 

 

Achievement would be scaled between the threshold level and the target level and between the target level and the maximum level. Payouts were capped at 150% of target incentives.  If either the Adjusted EBITDA or cash balance conditions were not achieved, then the annual incentives would not be earned. Due to the uncertain impact of the COVID-19 pandemic at the beginning of the fiscal year, the Committee also allowed for up to 30% achievement, in their discretion, if the threshold level of revenue was not met, provided that the Adjusted EBITDA and cash balance conditions were met.

 

For fiscal year 2021, the Committee continued to believe that revenue growth was most accretive to shareholder value. The Committee imposed the Adjusted EBITDA and cash balance conditions in order to encourage disciplined management of Company expenses and profitable growth.

 

Given the potential impact of the COVID-19 pandemic on the hospitality industry and our business, the Compensation Committee believed that the plan involved performance that was extraordinarily difficult at the target levels and  at the maximum level being achievable only if the COVID-19 pandemic unexpectedly had little to no impact on our business.

 

Annual Incentive Results.  Total revenue decreased $23.6 million, or 14.7%, in fiscal 2021 compared to fiscal 2020. Fiscal year 2021 revenue was $137.2 million, compared to 160.6 million in fiscal year 2020, and well below the $155 million threshold level for annual incentive achievement. Notwithstanding the failure to achieve the threshold revenue target, the Committee believed the Company had significantly exceeded expectations with respect to growing Adjusted EBITDA and cash balance despite the challenges of the COVID-19 pandemic. Adjusted EBITDA grew 105% over fiscal year 2020, and cash balance grew 40% over fiscal year 2020, excluding the proceeds of the offering of Convertible Preferred Stock. Accordingly, the Committee used its discretion to certify 30% achievement of annual incentive targets.

 

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CEO Annual Incentive.  Mr. Srinivasan was eligible for an annual incentive for fiscal year 2021 based on the Company financial performance metrics described above, with any such earned incentive to be settled in shares of common stock. Pursuant to his employment agreement, Mr. Srinivasan’s target annual incentive for fiscal year 2021 was set at 100% of his base salary, or $600,000, with a maximum potential incentive of $900,000 (150% of his base salary), payable upon achievement of 150% of the annual incentive goals, and a threshold potential incentive of $300,000 (50% of his target annual incentive), payable upon achievement of 50% of the annual incentive goals.

 

Based on the fiscal year 2021 results discussed above, Mr. Srinivasan earned 30%, or $180,000, of his annual incentive target. Accordingly, the Compensation Committee awarded Mr. Srinivasan 3,403 shares of common stock, being the number of shares having a value of $180,000 based on the closing price of the Company’s common stock on May 26, 2021, the date that the Committee made its determination.

 

Annual Incentives for the Other Named Executive Officers.  Fiscal year 2021 target annual incentives for the other Named Executive Officers other than Mr. DeMarinis, were set as 50% of the executive’s base salary. Mr. DeMarinis’ annual incentive was set as 60% of his base salary, and he was also eligible for target annual incentives of $150,000 for commissions and other sales-related incentives due to his role as head of our Americas Sales teams.

 

Annual incentives comprised 18% to 31% of total fiscal year 2021 target compensation for these Named Executive Officers.

 

 

Additional detail about target and maximum incentives are disclosed in the Grants of Plan-Based Awards for Fiscal Year 2021 table below.

 

Based on the fiscal year 2021 results discussed above, each of the Named Executive Officers earned 30% of their target annual incentives subject to the annual incentive plan described above. Mr. DeMarinis earned an additional $75,350 of his target $150,000 sales incentives based on the net gross profit of eligible sales.

 

 

Long-Term Incentives.  As with the annual cash incentives, the Compensation Committee approved fiscal year 2021 long-term incentive (“LTI”) awards for the Named Executive Officers other than Mr. Srinivasan at the beginning of the year when the impact of the COVID-19 pandemic and the outcome for the fiscal year were substantially uncertain. LTI awards to these Named Executive Officers consisted of stock-settled appreciation rights (“SSARs”) and restricted shares. Mr. Srinivasan did not receive any long-term equity incentive award in fiscal year 2021 since he received a large award upon the renewal of his employment agreement at the end of fiscal year 2020.

 

In fiscal year 2021, the Compensation Committee increased the value of long-term equity incentive awards to all participants, including the Named Executive Officers, compared to recent prior years, to bolster retention at a time when it appeared that the hospitality industry and the Company would be disproportionately impacted by the COVID-19 pandemic. As a result, there were insufficient shares remaining under the Company’s shareholder-approved 2016 Stock Incentive Plan to complete the proposed grants, and the grants were

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made by the Committee subject to approval by the shareholders of the Company’s 2020 Equity Incentive Plan. The 2020 Equity Incentive Plan was approved by shareholders at the 2020 Annual Meeting of Shareholders on November 19, 2020.

 

With respect to the LTI awards, the Committee considered various alternatives. While annual incentives target specific performance goals, the Committee’s focus with LTI awards has been to link compensation directly to shareholder gains. SSARs provided the direct link between compensation and shareholder gains in a less dilutive manner than traditional stock options. In addition, restricted shares tie compensation to shareholder gains and highly bolster retention over the three-year vesting period.

 

The Committee had awarded Mr. Srinivasan a grant of 600,000 SSARs at the time his employment agreement with the Company was extended in February 2020, near the end of fiscal year 2020, which included 125,000 SSARs that would best upon the closing price of the Company’s common stock attaining $45 per share. In June 2020, during the annual compensation review, the Committee desired to give the other Named Executive Officers a meaningful number of SSARs with the same equity performance target as Mr. Srinivasan in order to focus the entire management team on the goal of increasing shareholder value. The Committee believed the $45 target share price continued to be appropriate especially since the Company’s closing stock price had dropped from a then all-time high of $36.85 on February 13, 2020, near the outset of the COVID-19 pandemic, to average less than $20 per share from February 24, 2020, through June 2, 2020, when the grants were awarded. In order to achieve the target, the closing price must have averaged at least $45 per share over a 10 consecutive trading day period. This target was achieved on February 11, 2021.

 

In setting LTI awards for the Named Executive Officers, the Committee received input and recommendations from our CEO, and at his recommendation set LTI awards for the Named Executive Officers at 125% of their base salaries, with the value of 25% of base salary being allocated to restricted common stock vesting in even amounts over three years, the value of 50% of base salary being allocated to SSARs vesting in even amounts over three years, and the value of 50% of base salary being allocated to SSARs vesting upon the closing price of the Company’s common stock attaining $45 per share for ten consecutive trading days prior to June 30, 2023.

 

Awards of restricted common stock were based on the closing price of our common stock on June 2, 2020, the date the Committee granted the awards subject to shareholder approval, $20.02, awards of time vesting SSARs were based on the Black-Scholes option pricing value of our common stock on June 2, 2020, $7.12, and awards of the performance vesting SSARs were based on the Lattice option pricing model that utilizes a binomial tree to forecast option pricing as of June 2, 2020, $3.07.

 

 

*LTI Value is as of June 2, 2020, the date awarded by the Compensation Committee. Due to rounding down to avoid fractional shares, the actual values of LTI awards received were less than the amounts stated in this table.

 

LTI awards comprised between 38% and 45% of total fiscal year 2021 target compensation for these Named Executive Officers.

 

The restricted shares vest in annual one-third increments on March 31, 2021 and 2022 and the remainder in equal quarterly increments on each of June 30, 2022, September 30, 2022, December 31, 2022, and March 31, 2023. The time-vesting SSARs vest in 20% increments on March 31, 2021, and 2022 and in 15% increments on each of June 30, 2022, September 30, 2022, December 31, 2022, and March 31, 2023. All of the SSARs have seven-year terms, are settled in common shares upon exercise, and were granted at an exercise price of $20.02, the closing price of the common shares on the date awarded by the Committee.

 

Because the awards were subject to shareholder approval of our 2020 Equity Incentive Plan, the value of the awards for purposes of stock compensation expense was determined on November 19, 2020, the date that shareholder approval was obtained. The closing price of our common stock on November 19, 2020, was $39.65, a 98% increase in value over the $20.02 closing price of our common stock on

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June 2, 2020, which had the effect of significantly increasing the recorded stock compensation expense for the LTI awards over the expected compensation expense as of the date the awards were granted on June 2, 2020. See the Summary Compensation Table on page 18 for the values expensed.

 

Additional Compensation – Executive Benefits.  We provide executive benefits to our Named Executive Officers including additional life and long-term disability insurance plans. From time to time, Named Executive Officers also may participate in supplier sponsored events. Executive benefits are further described in the Summary Compensation Table. We believe these benefits enhance the competitiveness of our overall executive compensation package. We have, however, limited executive benefits offered to reduce compensation costs. Additionally, welfare benefits offered to our Named Executive Officers are the same level of benefits offered to all Company employees.

 

Employment Agreements and Change of Control

 

The material termination and change of control provisions of various agreements are summarized below for each Named Executive Officer and are covered in more detail in the Termination and Change of Control table and accompanying discussion.

 

Employment Agreements.  The Company has entered into employment agreements with each of the Named Executive Officers.

 

In accordance with his employment agreement, Mr. Srinivasan will serve as CEO and President for a three-year initial term beginning on January 1, 2020. The term of employment will automatically extend for successive periods of one year unless either the Company or Mr. Srinivasan provides written notice of non-renewal at least 90 days before the end of the then-current employment term.  If the employment agreement is terminated by the Company without cause or by Mr. Srinivasan for good reason, then subject to his execution of a release of claims, Mr. Srinivasan will be entitled to receive severance equal to two years’ then-current base salary and two times the value of his target annual bonus performance shares, which will be paid during regular pay intervals over the course of two years.  In addition, he will also receive (a) a lump sum payment in cash, on the 60th day after the termination date, equal to the total after-tax premiums required to pay for 24 months of COBRA continuation coverage under the Company’s medical, dental and vision insurance plans; (b) a lump sum payment in cash of his pro-rated bonus for the year of termination based on actual performance with no negative discretion by the Board; and (c) twelve (12) months of accelerated vesting of all equity compensation awards that are subject to time or service-based vesting and were unvested and outstanding on the termination date.  However, if notice of non-renewal is given within the last 12 months of the initial three-year employment term severance will only be paid for a 12-month period.  If such termination occurs within three months before or 24 months after a change in control, Mr. Srinivasan will receive two times the sum of his then-current base salary and target annual bonus, two times the COBRA payment and 100% release of any post-closing restrictions related to equity awards that were deemed vested as a result of the change of control.  In addition, upon any termination of employment, Mr. Srinivasan will receive accrued but unpaid base salary and payment for any unused vacation and unreimbursed expenses.

 

The Company entered into employment agreements with each of the other Named Executive Officers on July 27, 2020, other than Mr. Pritchett, whose employment with the Company had terminated prior to this date. Under the employment agreements for these Named Executive Officers, upon termination without cause, we must pay severance equal to 12 months’ salary and reimbursement of the executive’s total premium for 12 months of COBRA continuation coverage under the Company’s health benefit plans. If the executive’s compensation is reduced by more than 10%, other than a general reduction that affects all similarly situated executives, or if at any time prior to a change in control the executive no longer reports to the CEO, the executive may terminate his employment if the Company fails to materially cure such condition within 30 days following notice of such condition by the executive, and the termination will be deemed to be a termination without cause and the executive is entitled to his or her severance benefits. In the event that any of these Named Executive Officers are terminated without cause or by the executive for good reason in the 24 months following a change of control of the Company, the executive is entitled to severance pay equal to 12 months’ salary and a pro rata portion of target annual incentive and reimbursement of the executive’s total premium for 12 months of COBRA continuation coverage under the Company’s health benefit.  None of the Named Executive Officers is entitled to excise tax gross-up payments.

 

In consideration of the severance benefits, Mr. Srinivasan is subject to 24-month post-termination confidentiality and non-disclosure requirements, as well as non-competition and non-solicitation obligations, except that if the term of his employment agreement expires at the end of the initial three-year term, the non-competition provisions will only apply for 12 months following termination. Each other employment agreement contains a 12-month post-termination non-solicitation provision, an indefinite confidentiality provision, and a 12-month post-termination non-compete provision.

 

Our Compensation Committee believes that the terms of these employment agreements enhance our ability to retain our executives and contain severance costs by providing reasonable severance benefits competitive with market practice. Severance costs are contained by limiting pay to one year in the absence of a change of control, limiting personal benefits, not providing accelerated vesting for awards under the agreements, and narrowly defining a voluntary termination that triggers severance benefits. Severance payments in the event of a change of control are subject to a double trigger such that severance benefits are provided only upon a combination of a change of control and a qualified termination. Additionally, the Company benefits greatly from the non-competition, non-disclosure, and non-solicitation clauses contained in the employment agreements.

 

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Accelerated Vesting.  Except as described above for our CEO, none of the employment agreements provide for accelerated vesting of equity. Under our 2020 and 2016 Stock Incentive Plans, vesting is accelerated upon the actual occurrence of a change of control for all SSARs and restricted shares (including performance shares). The Compensation Committee believed that during a change of control situation, a stable business environment is in the shareholders’ best interests, and accelerated vesting provisions provide stability. The accelerated vesting provisions are applicable to all employees who receive equity awards, not just executive management.

 

The equity incentive awards granted to the Named Executive Officers for fiscal year 2021 are subject to a holding period of one year following a change of control. Under this provision, all unvested SSARs and restricted shares granted for fiscal year 2021 accelerate upon the actual occurrence of a change of control but remain subject to restrictions on exercise and transfer until the earlier of one year after the change of control or the executive’s qualified termination. The Committee believed that this further restriction during a change of control situation further promotes a stable business environment and is in the shareholders’ best interests.

 

CEO Pay Ratio Disclosure

 

The following is a reasonable estimate, prepared under applicable SEC rules, of the ratio of the annual total compensation of our CEO to the median of the annual total compensation of our other employees. We determined our median employee in 2020 based on base salary (annualized in the case of full- and part-time employees who joined the company during fiscal year 2020) of each of our employees (excluding the CEO), as of March 31, 2021. The annual total compensation of our median employee (other than the CEO) for 2021 was $33,774. As disclosed in the Summary Compensation Table appearing on page 18, our CEO’s annual total compensation for fiscal year 2021 was $348,447. Based on the foregoing, our estimate of the ratio of the annual total compensation of our CEO to the median of the annual total compensation of all other employees was 10 to 1. Given the different methodologies that various public companies will use to determine an estimate of their pay ratio, the estimated ratio reported above should not be used as a basis for comparison between companies. The pay ratio this year was positively impacted by a significant decline in our CEO’s annual compensation since he voluntarily did not accept a base salary for 9 months of the fiscal year as a response to the COVID-19 pandemic, whereas the median employee’s salary does not reflect any pandemic related adjustments.

 

Additional Compensation Policies

 

Clawback – Recoupment of Bonuses, Incentives, and Gains.  Under the Company’s “clawback” policy, if the board of directors determines that our financial statements are restated due directly or indirectly to fraud, ethical misconduct, intentional misconduct, or a breach of fiduciary duty by one or more executive officers or vice presidents, then the board of directors will have the sole discretion to cancel any stock-based awards granted and to take such action, as permitted by law, as it deems necessary to recover all or a portion of any bonus or incentive compensation paid and recoup any gains realized in respect of equity-based awards, provided recoveries cannot extend back more than three years. Additionally, under Section 304 of the Sarbanes-Oxley Act, if we are required to restate our financial statements due to material noncompliance with any financial reporting requirements as a result of misconduct, our CEO and CFO must reimburse us for any bonus or other incentive-based or equity-based compensation received during the 12 months following the first public issuance of the non-complying document, and any profits realized from the sale of our securities during those 12 months.

 

Stock Ownership Guidelines.  To underscore the importance of strong alignment between the interests of management and shareholders, the board of directors approved stock ownership guidelines for directors and executives, with our CEO and directors having the highest ownership requirements. Director and executive compensation are designed to provide a significant opportunity to tie individual rewards to long-term Company performance. The objective of our stock ownership guidelines is to support this overall philosophy of alignment and to send a positive message to our shareholders, customers, suppliers, and employees of our commitment to shareholder value. Each director and executive officer is expected to maintain minimum share ownership of shares with a value based on a multiple of base salary or director annual retainer listed below:

 

 

Stock ownership that is included toward attainment of the guidelines includes (i) shares owned directly (including through open market purchases, through the Company’s Employee Stock Purchase Plan or acquired and held upon vesting of Company equity awards); (ii) shares owned either jointly with, or separately by, his or her immediate family members residing in the same household; (iii) shares held in trust for the benefit of the individual, or his or her immediate family members; and (iv) in-the-money value of vested but unexercised stock options and stock appreciation rights.

 

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Directors and executives are expected to attain the specified target ownership levels within both two and four years from the later of the effective date of this policy or becoming a director or an executive and remain at or above that level until retirement. Annually, the Compensation Committee of the board of directors reviews progress toward achieving these ownership levels, and at its meeting in May 20201, the Compensation Committee determined that all of the directors and executives met the prescribed ownership levels.

 

Until a director or executive has satisfied the stock ownership guidelines, such director or executive is required to retain fifty percent (50%) of the net shares of common stock received from the Company as compensation after deducting any shares withheld by the Company or sold by the director or executive, if any, for the purpose of satisfying the exercise price and tax liabilities and related fees related to the settlement event. Once an individual achieves his or her stock ownership goal, these retention restrictions no longer will apply unless a disposition would cause the individual's stock ownership to fall below his or her goal.

 

Impact of Tax Considerations.  Section 162(m) of the Internal Revenue Code, through December 31, 2017, limited the tax deduction of public companies for compensation in excess of $1.0 million paid to their CEO and the three most highly compensated executive officers (other than the CFO) at the end of any fiscal year unless the compensation qualified as “performance-based compensation” Under applicable IRS regulations. For tax years after December 31, 2017, the Tax Cuts and Jobs Act of 2017 amended Section 162(m) to expand the $1.0 million deduction limitation described above to a larger group of employees and to eliminate the “performance-based” exception. The employees (referred to as “covered employees”) to whom the deduction limitation applies include the CEO and CFO (in each case, whether or not serving as executive officers as of the end of the fiscal year) and the three other most highly compensated executive officers. In addition, once considered a “covered employee” for a given year, the individual will be treated as a “covered employee” for all subsequent years.

 

The Compensation Committee has considered the effect of Section 162(m) on the Company’s executive compensation program. The Compensation Committee exercises discretion in setting base salaries, structuring incentive and long-term compensation awards and in determining payments in relation to levels of achievement of performance goals. The Compensation Committee believes that the total compensation program for Named Executive Officers should be managed in accordance with the objectives outlined in the Committee’s compensation philosophy and in the best overall interests of the Company’s shareholders. Accordingly, compensation paid by the Company may not be deductible because such compensation exceeds the limitations for deductibility under Section 162(m).

 

COMPENSATION COMMITTEE REPORT

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with the Company’s management. Based on that review and discussion, the Compensation Committee recommended to the board of directors that the Compensation Discussion and Analysis be incorporated in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021, and included in the Company’s Proxy Statement for its 2021 Annual Meeting of Shareholders.

 

The Compensation Committee of the Board of Directors

Melvin Keating, Chairman

Michael A. Kaufman

Jerry Jones

John Mutch

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EXECUTIVE COMPENSATION

 

The following table and related notes provide information regarding fiscal year 2021 compensation for our Named Executive Officers, including our CEO and CFO, and the other three most highly compensated executive officers whose total compensation exceeded $100,000 for fiscal year 2021.

 

Summary Compensation Table for Fiscal Year 2021

 

 

 

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All Other Compensation for Fiscal Year 2021

 

 

 

Grants of Plan-Based Awards

 

The following table and related notes summarize grants of equity and non-equity incentive compensation awards to our Named Executive Officers for fiscal year 2021. All equity awards were made under the Company’s 2020 Equity Incentive Plan.

 

Grants of Plan-Based Awards for Fiscal Year 2021

 

 

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Outstanding Equity Awards

 

The following table and related notes summarize the outstanding equity awards held by the Named Executive Officers as of March 31, 2021.  

Outstanding Equity Awards at 2021 Fiscal Year-End

 

 

(1)As of March 31, 2021, the vesting schedules for the SSARs were as follows:

(2)As of March 31, 2021, the vesting schedules for the stock awards were as follows:

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(3)Calculated based on the closing price of the shares on March 31, 2021, of $47.96 per share.

 

Option Exercises and Stock Vested for Fiscal Year 2021

 

 

 

Termination and Change of Control

 

The following table and discussion summarize certain information related to the total potential payments which would have been made to the Named Executive Officers in the event of termination of their employment with the Company, including in the event of a change of control, effective March 31, 2021, the last business day of fiscal year 2021, assuming that the current employment agreements with each of our Named Executive Officers had been in effect at such time.

 

Mr. Pritchett resigned as Chief Financial Officer of the Company effective June 1, 2020, and resigned as an employee of the Company effective June 30, 2020. On July 2, 2020, the Company and Mr. Pritchett entered into a post-employment restrictive covenants agreement. Under the terms of the agreement, the Company paid Mr. Pritchett a lump sum cash payment of $44,200, and Mr. Pritchett agreed for a period of one year after June 30, 2020, not to hire or retain, or have any other person or firm hire or retain, any of the Company’s employees, and not to contribute his knowledge, directly or indirectly, as an employee, owner, director, officer or other similar capacities to any entity engaged in the same or similar business as the Company. Mr. Pritchett also agreed to maintain the confidentiality of the Company’s confidential information.

 

Employment Agreements.  The Named Executive Officers other than Mr. Pritchett are each a party to an employment agreement with the Company.

 

If Mr. Srinivasan’s employment agreement is terminated by the Company without cause or by Mr. Srinivasan for good reason, then subject to his execution of a release of claims, Mr. Srinivasan will be entitled to receive severance equal to two years’ then-current base salary and two times the value of his target annual bonus performance shares, which will be paid during regular pay intervals over the course of two years.  In addition, he will also receive (a) a lump sum payment in cash, on the 60th day after the termination date, equal to the total after-tax premiums required to pay for 24 months of COBRA continuation coverage under the Company’s medical, dental and vision insurance plans; (b) a lump sum payment in cash of his pro-rated bonus for the year of termination based on actual performance with no negative discretion by the Board; and (c) twelve (12) months of accelerated vesting of all equity compensation awards that are subject to time or service-based vesting and were unvested and outstanding on the termination date.  However, if notice of non-renewal is given within the last 12 months of the initial three-year employment term severance will only be paid for a 12-month period.  If such termination occurs within three months before or 24 months after a change in control, Mr. Srinivasan will receive two times the sum of his then-current base salary and target annual bonus, two times the COBRA payment and 100% release of any post-closing restrictions related to equity awards that were deemed vested as a result of the change of control.  In addition, upon any termination of employment, Mr. Srinivasan will receive accrued but unpaid base salary and payment for any unused vacation and unreimbursed expenses.

 

For Mr. Srinivasan, good reason means (i) a reduction in his base salary or target bonus opportunity, (ii) a material diminution in his authority, duties or responsibilities (including, without limitation, his no longer being the CEO of a publicly-traded company or the requirement that he report to anyone other than the Company’s board of directors or following a change in control he is not made the

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chief executive officer of the ultimate parent of the resulting entity), (iii) his removal as a member of the board of directors (other than by his voluntary resignation), (iv) any other action that constitutes a willful and material breach by the Company of a material provision of his employment agreement, (v) a material reduction in the benefits provided to him that is not part of a broader reduction of benefits applicable to substantially all other officers of the Company, or (vi) a material breach of  the agreement by the Company (including a failure to pay current compensation or benefits when due), and the Company fails to materially cure such condition within 30 days of notice of the breach. For the other Named Executive Officers, good reason is limited to where the Company changes the Named Executive Officer’s position such that his compensation or responsibilities are substantially lessened, and the Company fails to cure such situation within 30 days after notice.

 

If the Company terminates the employment of any of the other Named Executive Officers without cause, we must pay severance equal to 12 month’s salary and reimbursement of the executive’s total premium for 12 months of COBRA continuation coverage under the Company’s health benefit plans. If the executive’s compensation is reduced by more than 10%, other than a general reduction that affects all similarly situated executives, or if at any time prior to a change in control the executive no longer reports to the CEO, the executive may terminate his employment if the Company fails to materially cure such condition within 30 days following notice of such condition by the executive, and the termination will be deemed to be a termination without cause and the executive is entitled to his or her severance benefits. In the event that any of these Named Executive Officers are terminated without cause or by the executive for good reason in the 24 months following a change of control of the Company, the executive is entitled to severance pay equal to 12 months’ salary and a pro rata portion of target annual incentive and reimbursement of the executive’s total premium for 12 months’ of COBRA continuation coverage under the Company’s health benefit.

 

During the term of his employment and for 24 months thereafter, Mr. Srinivasan is subject to the Company’s standard confidentiality and non-disclosure requirements, as well as non-competition and non-solicitation obligations, except that if the term of the employment agreement expires at the end of the initial three-year term, the non-competition provisions will only apply for 12 months following termination. Following a termination of employment of any other Named Executive Officer for any reason, such Named Executive Officer is prohibited for a 12 month period following termination from being employed by, owning, operating, controlling, or being connected with certain businesses that compete with the Company. Each other Named Executive Officer’s agreement also contains an indefinite non-disclosure provision for the protection of the Company’s confidential information and a 12 month non-solicitation of Company employees.

 

Termination and Change of Control

 

 

(1)  A “voluntary termination” includes death, disability, or legal incompetence.

(2)  For Mr. Srinivasan, “cause” is defined as (i) conviction of a crime involving misappropriation of money or other property or conviction of a felony, or a guilty plea or plea of nolo contendere with respect to a felony, (ii) conduct that is Prohibited Activity under the non-competition section of his employment agreement, (iii) conduct that breaches his duty of loyalty to the Company or his willful misconduct, any of which materially injures the Company, (iv) a willful and material breach of his material obligations under any agreement entered into between him and the Company that materially injures the Company, or (v) failure to substantially

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perform his reasonable duties with the Company (other than by reason of his disability) that materially injures the Company. For the other Named Executive Officers, “cause” is defined as (i) breach of employment agreement or any other duty to the Company, (ii) dishonesty, fraud, or failure to abide by the published ethical standards, conflicts of interest, or material breach of Company policy, (iii) conviction of a felony crime or crime involving misappropriation of money or other Company property, or (iv) misconduct, malfeasance, or insubordination. For Mr. Srinivasan, good reason means (i) a reduction in base salary or target bonus opportunity, (ii) a material diminution in authority, duties or responsibilities (including, without limitation, no longer being the CEO of a publicly-traded company or the requirement that he report to anyone other than the Company’s Board of Directors or following a Change in Control he is not made the chief executive officer of the ultimate parent of the resulting entity), (iii) removal as a member of the Board (other than by voluntary resignation), or failure to be appointed to the board of directors of the ultimate parent of any resulting entity following a change in control, (iv) any other action that constitutes a willful and material breach by Agilysys of a material provision of his employment agreement, (v) a material reduction in the benefits provided to him that is not part of a broader reduction of benefits applicable to substantially all other officers of the Company, or (vii) a material breach of his employment agreement by Agilysys, including the failure to pay his current compensation or benefits when due. For the other Named Executive Officers, good reason means (i) a reduction in base salary or target bonus eligibility by more than 10% from its then current level, other than a general reduction in base salary or target bonus eligibility that affects all similarly situated executives in substantially the same proportions, or (ii) at any time prior to a change in control of the Company, the Named Executive Officer no longer reports to the CEO, and the Company fails to cure any such situation within 30 days after notice.

(3)  Health Insurance consists of health care and dental care benefits. The amount reflects reimbursement of COBRA benefits for the applicable period.

(4)  Severance payments in the event of a change of control are subject to a double trigger such that severance benefits are provided only upon a combination of a change of control and a qualified termination. SSARs and restricted shares vest upon a change of control. For SSARs the value of accelerated vesting is calculated using the closing price of $47.96 per share on March 31, 2021, less the exercise price per share for the total number of SSARs accelerated. The value of restricted shares upon vesting reflects that same $47.96 closing price. Values represent potential vesting under a hypothetical change of control situation on March 31, 2021.

(5)  All SSARs vest upon death or disability.

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Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.

 

BENEFICIAL OWNERSHIP OF COMMON SHARES

 

The following table shows the number of common shares beneficially owned as of June 30, 2021, by (i) each current director; (ii) our Named Executive Officers employed with the Company on June 30, 2021; (iii) all directors and executive officers as a group; and (iv) each person who is known by us to beneficially own more than 5% of our common shares. Percent of common shares are calculated based on 26,303,671 shares of common stock, consisting of 24,568,214 shares of common stock outstanding on June 23, 2021, and 1,735,457 shares of common stock into which 1,735,457 shares Series A Convertible Preferred Stock outstanding on June 23, 2021, are now convertible.

 

1

* Less than 1%.

 

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EQUITY COMPENSATION PLAN INFORMATION

 

The following table provides certain information with respect to all of the Company’s equity compensation plans in effect as of March 31, 2021.

 

 

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Item 13.   Certain Relationships and Related Transactions, and Director Independence.

 

RELATED PERSON TRANSACTIONS

 

All related person transactions with the Company require the prior approval or ratification by our Audit Committee. The board of directors adopted Related Person Transaction Procedures to formalize the procedures by which our Audit Committee reviews and approves or ratifies related person transactions. The procedures set forth the scope of transactions covered, the process for reporting such transactions, and the review process. Covered transactions include any transaction, arrangement, or relationship with the Company in which any director, executive officer, or other related person has a direct or indirect material interest, except for business travel and expense payments, share ownership, and executive compensation approved by the board of directors. Transactions are reportable to the Company’s General Counsel, who will oversee the initial review of the reported transaction and notify the Audit Committee of transactions within the scope of the procedures, and the Audit Committee will determine whether to approve or ratify the transaction. Through our Nominating and Corporate Governance Committee, we make a formal yearly inquiry of all of our executive officers and directors for purposes of disclosure of related person transactions, and any such newly revealed related person transactions are conveyed to the Audit Committee. All officers and directors are charged with updating this information with our internal legal counsel.

 

DIRECTOR INDEPENDENCE

 

NASDAQ listing standards provide that at least a majority of the members of the board of directors must be independent, meaning free of any material relationship with the Company, other than his or her relationship as a director. The Guidelines state that the board of directors should consist of a substantial majority of independent directors. A director is not independent if he or she fails to satisfy the standards for director independence under NASDAQ listing standards, the rules of the SEC, and any other applicable laws, rules, and regulations. During the board of directors’ annual review of director independence, the board of directors considers transactions, relationships, and arrangements, if any, between each director or a director’s immediate family members and the Company or its management. In May 2021, the board of directors performed its annual director independence review and, as a result, determined that each of Donald Colvin, Dana Jones, Jerry Jones, Michael A. Kaufman, Melvin Keating, and John Mutch qualify as independent directors. Ramesh Srinivasan is not independent because of his service as President and CEO of the Company.

 

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Item 14.  Principal Accountant Fees and Services.

 

The Audit Committee reviewed the fees of Grant Thornton LLP, our Independent Accountant for fiscal year 2021. Fees for services rendered by Grant Thornton for fiscal years 2021 and 2020 were:

 

 

“Audit Fees” consist of fees billed for professional services provided for the annual audit of our financial statements, annual audit of internal control over financial reporting, review of the interim financial statements included in quarterly reports, and services that are normally provided in connection with statutory and regulatory filings. “Audit- Related Fees” relate to professional services that are reasonably related to the performance of the audit or review of our financial statements. “Tax Fees” include tax compliance and tax consulting services. “All Other Fees” relate to professional services not included in the foregoing categories, including services related to other regulatory reporting requirements.

 

The Audit Committee adopted an Audit and Non-Audit Services Pre-Approval Policy to ensure compliance with SEC and other rules and regulations relating to auditor independence, with the goal of safeguarding the continued independence of our Independent Accountant. The Pre-Approval Policy sets forth the procedures and conditions pursuant to which audit, review, and attest services and non-audit services to be provided to the Company by our Independent Accountant may be pre-approved. The Audit Committee is required to pre-approve the audit and non- audit services performed by our Independent Accountant to assure that the provision of such services does not impair independence. Unless a type of service to be provided has received pre-approval as set forth in the Pre-Approval Policy, it will require separate pre-approval by the Audit Committee before commencement of the engagement. Any proposed service that has received pre-approval but which will exceed pre-approved cost limits will require separate pre-approval by the Audit Committee. All audit, non-audit, and tax services were pre-approved by the Audit Committee during fiscal years 2021 and 2020.

 

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PART IV

Item 15.   Exhibits and Financial Statement Schedules.

 

(a)(1) Financial statements. The following consolidated financial statements are included herein and are incorporated by reference in Part II, Item 8 of this Annual Report:

 

Report of Grant Thornton LLP, Independent Registered Public Accounting Firm*

 

Consolidated Balance Sheets as of March 31, 2021 and 2020*

 

Consolidated Statements of Operations for the years ended March 31, 2021, 2020, and 2019*

 

Consolidated Statements of Comprehensive Loss for the years ended March 31, 2021, 2020, and 2019*

 

Consolidated Statements of Cash Flows for the years ended March 31, 2021, 2020, and 2019*

 

Consolidated Statements of Shareholders' Equity for the years ended March 31, 2021, 2020, and 2019*

 

Notes to Consolidated Financial Statements*

 

(a)(2) Financial statement schedule.  The following financial statement schedule is included herein and is incorporated by reference in Part II, Item 8 of this Annual Report:

 

Schedule II - Valuation and Qualifying Accounts*

 

All other schedules have been omitted since they are not applicable or the required information is included in the consolidated financial statements or notes thereto.

 

(a)(3) Exhibits. Exhibits included herein and those incorporated by reference are listed in the Exhibit Index of this Annual Report.]

 

* Previously filed with the Annual Report on Form 10-K filed with the SEC on May 21, 2021, which is being amended hereby.

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Exhibit Index

 

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Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Agilysys, Inc. has duly caused this Annual Report on Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Alpharetta, State of Georgia, on July 28, 2021.

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on July 28, 2021.

 

 

 

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