During fiscal year 2021, following the consummation of the Apax Transaction, certain of our executives received awards of Profits Interests of our parent at the time, TCO Group Holdings, L.P. (“TCO Group Holdings”), pursuant to the 2020 Equity Incentive Plan, which are intended to be treated as “profits interests” for U.S. federal income tax purposes.
The 2020 Equity Incentive Plan is administered by the board (the “Administrator”) of TCO Group Holdings. The Administrator has the authority to administer and interpret the 2020 Equity Incentive Plan, to determine individuals eligible for any grant of the Profits Interests, to determine, alter, amend, modify or waive the terms and conditions of any award of Profits Interests and to prescribe the purchase price or Hurdle Amount (as defined in the 2020 Equity Incentive Plan) applicable to any award of Profits Interests.
Following our fiscal year end, on August 30, 2023, Mr. Blair received a grant of 1,100,000 Profits Interests. Fifty percent of such Profits Interests are subject to time-based vesting, vesting annually in substantially equal installments over four years on the first four anniversaries of the vesting commencement date. The remaining 50% of such Profits Interests are subject to performance-based vesting, and will vest as to (i) 33% if, upon the consummation of a Change of Control (as defined below), Ignite Aggregator LP, the vehicle through which Apax Partners holds its investment in TCO Group Holdings (the “Apax Investor”), achieves a multiple on invested capital (as calculated pursuant to the Second Amended and Restated Limited Partnership Agreement of TCO Group Holdings) (“MOIC”) equal to at least two times; and (ii) 100% if, upon the consummation of a Change of Control, the Apax Investor achieves a MOIC equal to at least two and one-half times, in each case, subject to continued employment through the date of such Change of Control. None of the performance-based Profits Interests will vest if the Apax Investor achieves a MOIC less than two times as of a Change of Control.
The time-based Profits Interests are subject to (A) pro-rata vesting upon a termination without “cause,” due to death or disability or for “good reason” (each as defined in Mr. Blair’s employment agreement) that occurs prior to the one-year anniversary of the vesting commencement date, and (B) 100% acceleration upon a Change of Control, subject to continued service through such date. The performance-based Profits Interests will remain eligible to vest following a termination without “cause,” due to death or disability or for “good reason” (in each case pursuant to the terms of the employment agreement) that occurs within the 120-day period preceding the execution of a definitive agreement that ultimately results in a Change of Control.
Change of Control is defined as (a) the sale of all or substantially all of the assets (including shares of common stock of the Company) of TCO Group Holdings and its subsidiaries on a consolidated basis to unaffiliated parties, (b) a merger, reorganization, consolidation or other similar corporate transaction of TCO Group Holdings as a result of which, unaffiliated parties beneficially own a majority of the outstanding voting securities, and rights to the majority of the residual economic interests in the common equity, of a successor entity, or (c) the acquisition of a majority of the outstanding voting securities, and rights to the majority of the residual economic interests in the common equity, of TCO Group Holdings by unaffiliated parties.
Potential Payments upon Termination or Change in Control
We are party to employment agreements with all of our Named Executive Officers, which provide for at-will employment, subject to the severance entitlements described below, and set forth each Named Executive Officer’s initial annual base salary and target annual bonus opportunity (with the rate of each for fiscal year 2023 set forth above), among other terms and conditions.
The employment agreements provide that, upon termination of a Named Executive Officer’s employment by us for any reason other than for “cause,” or by the Named Executive Officer for “good reason,” each as defined therein and summarized below, subject to the Named Executive Officer’s execution, delivery and non-revocation of a general release of all claims in favor of the Company, the Named Executive Officer is entitled to severance.
For Mr. Blair, severance consists of (i) a pro-rata portion of his annual bonus, based on actual performance, (ii) 24 months of base salary continuation, (iii) two times the amount of his target annual bonus for the year in which termination occurs, paid in substantially equal installments over the 24-month period following termination, and (iv) continued payment of premiums required to be paid for his continued participation in the Company’s health care benefit plan for a period of 18 months following termination unless Mr. Blair becomes employed by another company and eligible for coverage under such company’s health care plans.