Item 11. Executive Compensation
Compensation Discussion and Analysis
Overall Program Objectives
We strive to attract, motivate and retain high-quality executives by
providing total compensation that is performance-based and competitive with the
various markets and industries in which we compete for talent. We provide
incentives to advance the interests of stockholders and deliver levels of
compensation that are commensurate with performance. Overall, we design our
executive compensation program to:
support our corporate strategy and business plan by clearly communicating
goals and objectives to executives and by rewarding achievement;
retain and recruit highly qualified and effective executive talent; and
create a strong performance alignment with stockholders' interests.
We seek to achieve these objectives through three key compensation
elements:
a base salary;
a performance-based annual bonus (that constitutes the short-term
incentive element of our program), which may be paid in cash, restricted
stock units, shares of stock or a combination of these; and
grants of long-term, equity-based compensation (that constitute the
long-term incentive element of our program), such as stock options and/or
restricted stock units, which may be subject to time-based and/or
performance-based vesting requirements.
The Compensation Committee believes that this three-part approach is
consistent with programs adopted by similarly situated companies and best serves
the interests of our stockholders. The approach enables us to meet the
requirements of the competitive environment in which we operate, while ensuring
that executive officers are compensated in a manner that advances both the short
and long-term interests of our stockholders. Under this approach, compensation
for our executive officers involves a high proportion of pay that is "at risk"-
namely, the annual bonus and the value of stock options and restricted stock
units. Stock options and/or restricted stock units relate a significant portion
of each executive's long-term remuneration directly to the stock price
appreciation realized by our stockholders.
Our executives participate in our 401(k) Savings Plan, including the profit
sharing component of that plan. We do not sponsor or maintain a retirement plan
or deferred compensation plan for any of our employees.
Compensation Considerations
In making compensation decisions with respect to each element of
compensation, the Compensation Committee considers the competitive market for
executives and compensation levels paid by comparable companies. The
Compensation Committee from time to time reviews the compensation practices at
companies with which it competes for talent, including radio, television, cable,
film, software development, consumer electronics and other publicly held
businesses with a scope and complexity similar to ours. The Compensation
Committee has not established a defined peer group against which it benchmarks
compensation. The businesses chosen for comparison may differ from one executive
to the next depending on the scope and nature of the business for which the
particular executive is responsible.
The Compensation Committee does not attempt to set each compensation
element for each executive within a particular range related to levels provided
by peers. Instead, the Compensation Committee uses market comparison as one
factor in making compensation decisions. Other factors considered when making
individual executive compensation decisions include individual contribution and
performance, reporting structure, internal pay relationship, complexity and
importance of roles and responsibilities, leadership and growth potential.
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Executive Compensation Practices
Our practices with respect to the key compensation elements identified
above, as well as other elements of compensation, are described below, followed
by a discussion of the specific factors considered in determining key
compensation elements for the named executive officers for 2007.
Base Salary for Named Executive Officers
Purpose. The objective of base salary is to reflect job responsibilities,
value to us, and individual performance with respect to market competitiveness.
Considerations. In 2007, base salaries for the five executive officers
named in the Summary Compensation Table were determined in accordance with
employment agreements with those officers. The minimum salaries set forth in the
employment agreements and the amount of any increase over these salaries was
determined by the Compensation Committee based on a variety of factors,
including:
the nature and responsibility of the position and, to the extent
available, salary norms for persons in similar positions at comparable
companies;
the expertise of the individual executive;
the executives' salary history;
the competitiveness of the market for the executives' services; and
the recommendations of our Chief Executive Officer (except as to his own
compensation).
Salaries are generally reviewed annually and are often reviewed in
connection with the extension of an employment agreement. In setting base
salaries, the Compensation Committee considers the importance of linking a high
proportion of each executive officer's compensation to performance in the form
of the annual bonus as well as long-term stock-based compensation, which is tied
to our stock price performance.
While, as noted above, the Compensation Committee does not attempt to set
each compensation element for each executive within a particular range related
to levels provided by peers, the Committee from time to time reviews peer data
of similar executives at comparable companies, depending on the executive, in
the radio, television, cable, film, software development, consumer electronics
and other publicly held businesses with a scope and complexity similar to ours.
Year 2007 Decisions. In 2007 all of the named executive officers were
employed pursuant to agreements described under "Potential Payments upon
Termination or Change-in-Control - Employment Agreements" below.
The base salary of Mr. Karmazin was not changed in 2007.
Effective February 1, 2007, Mr. Greenstein's base salary was increased to
$800,000 from $700,000 to reflect the increasing scope of his responsibilities
as we continue to expand and strengthen our marketing, programming, ad sales,
research and interactive efforts.
Effective February 1, 2007, Mr. Meyer's base salary was increased to
$900,000 from $800,000 to reflect his contributions during 2006 and the
increasing scope of his responsibilities as we strengthen our sales and
operations functions.
Effective February 1, 2007, Mr. Donnelly's base salary was increased to
$450,000 from $400,000 to reflect the increasing scope of his responsibilities,
and his contributions and performance during 2006. Mr. Donnelly's base salary
was further increased to $500,000 on June 1, 2007 upon signing his new
employment agreement and in recognition of additional expanded responsibilities.
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Effective February 1, 2007, Mr. Frear's base salary was increased to
$525,000 from $450,000 to reflect the increasing scope of his responsibilities
in the areas of finance and information technology, his increasing involvement
in our satellite procurement program, and his contributions during 2006.
Annual Bonus for Named Executive Officers
Purpose. Our compensation program provides for an annual bonus that is
discretionary. Although our annual bonus compensation element is discretionary,
the Compensation Committee attempts to award bonuses that incentivize
individuals to achieve goals that are intended to correlate closely with growth
of our business and stockholder value and to compensate individuals upon the
achievement of such goals.
Considerations. Although our annual bonus awards are discretionary, during
the past three years the Compensation Committee generally employed the three
step process described below to assist it in shaping its decision and assist in
evaluating appropriate bonuses for our named executive officers. The
Compensation Committee may not employ the same process, or may adopt a modified
or wholly different process in the future, in making bonus decisions.
The Compensation Committee, working with senior management, set
performance goals each year. Performance against these goals was used as
one of the principal measures to determine overall bonus funding for the
company and our executive officers. In 2007, these goals were not
formalized due to our pending merger with XM Radio.
At the end of the year, the Compensation Committee measured our actual
performance against the established performance goals to determine the
appropriate funding of a bonus pool for all employees. In determining the
extent to which the performance goals were met, the Compensation Committee
exercised its judgment whether to reflect or exclude the impact of changes
in accounting principles, extraordinary, unusual or infrequently occurring
events reported in our public filings, and changes approved from time to
time by the Board outside of the original plan for the year. In 2007, the
Compensation Committee reviewed our actual performance against a variety
of key metrics. In determining the bonus pool, the Compensation Committee
also considered a variety of additional accomplishments and factors that
it believed were relevant.
Following a consideration of the performance goals, additional
accomplishments and other factors the Compensation Committee deemed
relevant, the Compensation Committee determined an aggregate bonus pool
for all employees. The actual bonuses for individual employees, however,
are fully discretionary. For named executive officers (other than
himself), our Chief Executive Officer recommended to the Compensation
Committee individual bonus amounts taking into account overall approved
bonus funding and the contributions of each individual during the year.
These amounts were reviewed and discussed with the Compensation Committee
by our Chief Executive Officer. For the Chief Executive Officer, the
Compensation Committee reviewed his performance for the year and
determined an appropriate bonus amount.
In 2008, the Compensation Committee intends to determine the overall bonus
funding by evaluating the company's performance against its 2008 business plan
as approved by board of directors, including metrics such as total subscribers,
cash, revenues, EBITDA, SAC per gross addition, churn, operating expense growth,
and other factors that it determines are appropriate.
The Compensation Committee has discretion as to whether annual bonuses for
our named executive officers will be paid in cash, restricted stock units or a
combination thereof. In general, our practice is to pay these bonuses 50% in
cash and 50% in restricted stock units. Any restricted stock units that are
awarded are granted under a long-term incentive plan approved by our
stockholders. The Compensation Committee also retains discretion, in appropriate
circumstances, to grant a higher or lower bonus or no bonus at all.
Year 2007 Decisions. In 2007, the Compensation Committee approved bonuses
that were intended to achieve two principal objectives:
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to continue to link compensation with performance, as measured at the
company and individual levels; and
to reward and differentiate employees based on individual performance.
At the end of the year, the Compensation Committee reviewed the company's
performance, additional accomplishments and other factors it deemed relevant,
and approved a bonus pool for employees.
The annual bonus for Mr. Karmazin is discussed below under "Compensation of
our Chief Executive Officer."
Mr. Greenstein was awarded a bonus for his contributions during the year,
including his role in the continued enhancement of our programming and the
marketing efforts which supported our brand awareness and customer satisfaction
levels, and the addition of net new subscribers.
Mr. Meyer was a awarded a bonus for his contributions during the year,
including his role in the company being cash flow positive in the second half of
2007, adding net new subscribers in 2007, containing operating expense growth,
launching SIRIUS Backseat TV, improving our segment share, improving self-pay
churn levels and customer save rates, controlling subscriber acquisition costs
per gross addition, improving automaker penetration and negotiating extensions
of our agreements with various automakers.
Mr. Donnelly was awarded a bonus for his contributions during the year,
including his regular on-going contributions as our general counsel, and his
role in our Copyright Royalty Board proceeding, raising additional funding on
favorable terms, the negotiation, execution and pursuit of approval of our
pending merger with XM Radio and negotiating extensions of our agreements with
various automakers.
Mr. Frear was awarded a bonus for his contributions during the year,
including his regular on-going contributions as our chief financial officer, and
his role in the company being cash flow positive in the second half of 2007,
improvements in our subscriber acquisition costs per gross addition, containing
operating expense growth, our Copyright Royalty Board proceeding, the
negotiation, execution and pursuit of approval of our pending merger with XM
Radio, and raising additional funding on favorable terms.
Based on the foregoing, the Compensation Committee approved the bonus
amounts set forth in the Summary Compensation Table.
Long-term Incentive Compensation for Named Executive Officers
Purpose. The objective of the program is to align compensation for named
executive officers over a multi-year period directly with the interests of our
stockholders by motivating and rewarding actions that create or increase
long-term stockholder value. The level of long-term incentive compensation is
determined based on an evaluation of competitive factors in conjunction with
total compensation provided to named executive officers and the goals of the
compensation program described above.
Mix of Restricted Stock Units and Stock Options. Our long-term incentive
compensation generally takes the form of stock options and restricted stock
units. The two forms of awards reward stockholder value creation in different
ways. Stock options (which have exercise prices equal to the market price on the
date of grant) reward named executive officers only if the stock price
increases. Restricted stock units are affected by all stock price changes, so
the value to named executive officers is affected by both increases and
decreases in stock price.
In the case of normal annual grants, 100% of the total value of a long-term
compensation award typically takes the form of stock options. In other cases,
such as negotiated grants issued upon extension of an employment agreement, a
portion of the total value may be in the form of restricted stock units.
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Stock Options. Our long-term incentive program calls for stock options to
be granted with exercise prices of not less than fair market value of our stock
on the date of grant and to vest proportionally over four years, if the employee
is still employed by us, with exceptions to this vesting schedule made by the
Compensation Committee. We define fair market value as the stock price on the
close of business on the day of grant for existing employees and on the close of
business the day before hiring for new employees.
Year 2007 Decisions. In 2007, the long-term compensation awarded by the
Compensation Committee to named executive officers under the programs described
above is identified in the Grants of Plan-Based Awards for 2007 table and was
awarded to each named executive officer for the reasons detailed in the Base
Salary and Annual Bonus sections of this Compensation Discussion and Analysis.
Periodic Review. The Compensation Committee reviews both the annual bonus
program and long-term incentive program to ensure that their key elements
continue to meet the objectives described above. In determining the annual
grants of restricted stock units and stock options, the Compensation Committee
considered any market data on total compensation packages and, except in the
case of the Chief Executive Officer, the recommendations of the Chief Executive
Officer.
Perquisites and Other Benefits for Named Executive Officers
With limited exceptions, the Compensation Committee supports providing
perquisites and other benefits to named executive officers that are
substantially the same as those offered to our other full time employees and are
provided to executives in similarly situated companies.
Payments to Named Executive Officers Upon Termination or Change in Control
The employment agreements we entered into with our named executive officers
provide for severance payments and, in connection with a severance that occurs
after a change in control, additional payments (including tax "gross-up"
payments to protect certain named executive officers from so-called "golden
parachute" excise taxes that could arise in such circumstances). These
arrangements vary from executive to executive due to individual negotiations
based on executive history and individual circumstances.
We believe that these severance and change-in-control arrangements mitigate
some of the risk that exists for executives working in a nascent industry. These
arrangements are intended to attract and retain qualified executives who could
have other job alternatives that may appear to them, in the absence of these
arrangements, to be less risky.
There is a possibility that we could be acquired in the future.
Accordingly, we believe that severance payments in connection with a change in
control are necessary to enable key executives to evaluate objectively the
benefits to our stockholders of a proposed transaction, notwithstanding its
potential effects on their own job security.
Total Compensation for Named Executive Officers
In making decisions with respect to any element of a named executive
officer's compensation, the Compensation Committee considers the total
compensation that may be awarded to the officer, including salary, annual bonus,
long-term incentives, perquisites and other benefits. In addition, the
Compensation Committee considers the other benefits to which the officer is
entitled by his employment agreement, including compensation payable upon
termination of employment under a variety of circumstances. In making its
decisions regarding compensation for 2007, the Compensation Committee reviewed
the total compensation potentially payable to, and the benefits accruing to,
each named executive officer. The Compensation Committee's goal is to award
compensation that is reasonable when all elements of potential compensation are
considered.
Compensation of our Chief Executive Officer
In November 2004, our board of directors negotiated, and we entered into, a
five-year employment agreement with Mel Karmazin to serve as our Chief Executive
Officer. The material terms of Mr. Karmazin's employment agreement are described
below under "Potential Payments Upon Termination and Change-in-Control -
Employment Agreements - Mel Karmazin."
The terms of Mr. Karmazin's employment were established by negotiations
between Mr. Karmazin and members of our Board, including members of the
Compensation Committee. The Board and the Compensation Committee did not retain
an independent compensation consultant specifically to advise them in the
negotiation of Mr. Karmazin's compensation arrangements or to assess the
reasonableness of the compensation arrangements. In assessing Mr. Karmazin's
compensation, the Compensation Committee and our Board evaluated:
Mr. Karmazin's historical compensation; and
other publicly available compensation information for chief executive
officers that had been prepared earlier by Frederick W. Cook, Inc. at the
request of the Compensation Committee as part of the process of evaluating
potential compensation for our former CEO, Joseph P. Clayton, in the event
that the Compensation Committee decided to extend his employment as our
Chief Executive Officer.
Our Board and the Compensation Committee concluded that, in their business
judgment, Mr. Karmazin's profile, qualifications and
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experience, particularly in radio, were uniquely suited for our needs, and that
the compensation, including the base salary, stock option and restricted stock
components of the compensation, was, taken as a whole, reasonable and
appropriate under the circumstances.
In February 2008, the Compensation Committee awarded an annual bonus to
Mr. Karmazin of $4,000,000 in recognition of his performance and our corporate
performance, including:
the increase in our net additions and end of period subscriptions in 2007;
achieving positive free cash flow in the second half of 2007 and fourth
quarter of 2007, with greater positive free cash flow than in the fourth
quarter of 2006;
the increase in our 2007 revenues by 44.7% while total operating expenses
(excluding depreciation and stock-based compensation) increased by only
7.6%;
the performance of our average monthly churn as compared to the public
guidance for such metric;
his contribution to the Copyright Royalty Board proceeding;
the negotiation, execution and pursuit of approval of our pending merger
with XM Radio;
the launch of SIRIUS Backseat TV;
the securing additional funding on favorable terms;
the continued enhancement of our programming; and
the execution of extensions to our agreements with various automakers, and
the increased penetration rates secured from automakers.
Mr. Karmazin's bonus was paid in cash, not a combination of cash and
restricted stock units. In awarding Mr. Karmazin's bonus in cash, the
Compensation Committee considered his existing compensation arrangements and the
amount of our common stock currently owned by him through open market purchases
as well as stock options and restricted shares of common stock held by him. The
Compensation Committee concluded that Mr. Karmazin's interests were already
highly aligned with stockholders, and that an award of additional restricted
stock was not necessary to advance other corporate interests, such as retention
or alignment.
As is apparent in the Summary Compensation Table on page 13, most of the
difference in total compensation between Mr. Karmazin and our other named
executive officers is attributable to the value reflected in the table for
"Option Awards." As reflected in the Outstanding Equity Awards at Fiscal
Year-End 2007 table on page 14, and described in footnote (1) to that table,
Mr. Karmazin received an award of a stock option covering a substantial number
of shares (as well as shares of restricted stock reflected in the Outstanding
Equity Awards at Fiscal Year-End 2007 table and the Options Exercised and Stock
Vested for 2007 table) in connection with the execution of his employment
agreement in November 2004. Mr. Karmazin did not receive any equity-based awards
in 2006 or 2007. The total compensation in the Summary Compensation Table
reflects the inclusion, as noted in footnote (2) to the table, of the expense
recognized solely for financial statement reporting purposes in 2006 and 2007
for option awards.
Policy with Respect to Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code places a $1 million per person
limitation on the tax deduction we may take for compensation paid to our Chief
Executive Officer and our three other highest paid executive officers other than
our Chief Executive Officer and Chief Financial Officer except that compensation
constituting performance-based compensation, as defined by the Internal Revenue
Code, is not subject to the $1 million limit. The Compensation Committee
reserves the discretion to pay compensation that does not qualify for exemption
under Section 162(m) where the Compensation Committee believes such action to be
in the best interests of our stockholders.
Compensation Committee Report
We have reviewed and discussed the Compensation Discussion and Analysis
with management and as a committee. Based on our review and discussion with
management, we recommended that the board of directors include the Compensation
Discussion and Analysis in this report.
Leon D. Black
Lawrence F. Gilberti, Chairman
Warren N. Lieberfarb
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Summary Compensation Table
The following table provides information concerning total compensation earned
or paid to our Chief Executive Officer, our Chief Financial Officer and our
three other most highly compensated executive officers who served in such
capacities as of December 31, 2007 for services rendered to us during the past
two fiscal years. These five officers are referred to herein as the named
executive officers.
Change in
Pension Value
and Nonqualified
Non-Equity Deferred
Stock Option Incentive Plan Compensation All Other
Name and Principal Salary Bonus(1) Awards(2) Awards(2) Compensation Earnings Compensation(3) Total
Position Year ($) ($) ($) ($) ($) ($) ($) ($)
Mel Karmazin 2007 1,250,000 4,000,000 2,832,000 24,118,312 - - 18,743 32,219,055
Chief Executive Officer 2006 1,250,000 3,000,000 2,832,000 24,118,312 - - 16,937 31,217,249
Scott A. Greenstein 2007 791,667 440,000 1,351,441 2,439,272 - - 17,243 5,039,623
President, Entertainment
and Sports 2006 700,000 400,000 2,817,260 3,153,839 - - 17,145 7,088,244
James E. Meyer 2007 891,667 512,500 978,439 1,132,218 - - 136,003 3,650,827
President, Sales and
Operations 2006 778,396 462,500 2,918,503 1,349,806 - - 118,396 5,627,601
Patrick L. Donnelly 2007 475,000 300,000 429,432 621,623 - - 18,743 1,844,798
Executive Vice President,
General Counsel and
Secretary 2006 397,464 225,000 434,196 305,105 - - 19,162 1,380,927
David J. Frear 2007 518,750 350,000 1,496,884 1,331,396 - - 18,743 3,715,773
Executive Vice President
and Chief Financial
Officer 2006 450,000 262,500 341,244 1,394,133 - - 16,185 2,464,062
|
(1) Bonuses for
Messrs. Greenstein,
Meyer, Donnelly and
Frear were paid 50%
in cash and 50% in
restricted stock
units. The amount
shown in the
"Bonus" column
reflects the
portion of the
annual bonus paid
in cash in the year
for which it is
earned. The portion
of the bonus paid
in restricted stock
units is reflected
in the "Grants of
Plan-Based Awards
for 2007" table in
the year granted,
which will be the
year following that
for which the bonus
was earned.
(2) Amounts represent
expense recognized
for financial
statement reporting
purposes for the
fiscal year in
accordance with
Statement of
Financial
Accounting
Standards No. 123
(revised 2004),
"Share-Based
Payment" ("SFAS
No. 123R"). In the
case of stock
options granted to
Messrs. Greenstein,
Meyer, Donnelly and
Frear, the amounts
also reflect
estimates of
forfeitures
relating to
service-based
vesting conditions
on the grant date.
Please refer to
Note 2 of the
audited
consolidated
financial
statements in our
Annual Report on
Form 10-K for the
year ended
December 31, 2007
regarding
assumptions
underlying
valuation of equity
awards. These
dollar amounts
include amounts
from awards granted
in and prior to
2007.
(3) Represents matching
and profit sharing
contributions by us
under our 401(k)
savings plan. The
profit sharing
contribution was
$11,993 in 2007 and
$12,562 in 2006 for
each executive and
was paid in the
form of shares of
our common stock.
All other
compensation for
Mr. Meyer also
includes amounts
reimbursed for
temporary living
and travel
expenses. In 2007,
Mr. Meyer was paid
$53,000 for rent,
$13,129 for travel,
$3,710 for
utilities, and
$47,421 for
reimbursement of
taxes associated
with these
expenditures in
accordance with his
employment
agreement. In 2006,
Mr. Meyer was paid
$54,000 for rent,
$12,102 for travel,
$2,928 for
utilities, and
$32,206 for
reimbursement of
taxes associated
with these
expenditures in
accordance with his
employment
agreement.
Travel-related
expenses include
airfare, taxi/car
services, and other
incidental
travel-related
costs which are
reimbursed based on
receipts.
Grants of Plan-Based Awards for 2007
The following table provides information with respect to equity grants made
during fiscal year 2007 to the named executive officers.
All Other Option
All Other Stock Awards: Number
Awards: Number of Securities
of Shares of Stock Underlying Exercise or Base Price Grant Date Fair Value
or Units Options of Option Awards of Stock and Option Awards
Name Grant Date (#)(1) (#)(2) ($/Sh)(3) ($)(4)
Mel Karmazin - - - - -
Scott A. Greenstein 2/1/2007 - 435,000 3.70 851,280
2/1/2007 108,109 - - 400,003
James E. Meyer 2/1/2007 - 512,000 3.70 1,001,966
2/1/2007 125,000 - - 462,500
Patrick L. Donnelly 2/1/2007 - 256,000 3.70 500,983
2/1/2007 60,811 - - 225,001
5/17/2007 - 1,450,000 2.72 2,078,897
5/17/2007 275,000 - - 748,000
David J. Frear 2/1/2007 - 307,000 3.70 600,788
2/1/2007 70,946 - - 262,500
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(1) The stock
awards granted
on February 1,
2007 represent
the portion of
the 2006
annual bonus
which was paid
50% in
restricted
stock units.
These
restricted
stock units
vested on
February 20,
2008. The
stock awards
granted to
Mr. Donnelly
on May 17,
2007 in
connection
with the
extension of
his employment
agreement vest
in three equal
annual
installments
from the date
of grant.
(2) The option
awards granted
on February 1,
2007 vest
proportionally
over four
years from the
date of grant
and have a
term of
ten years. The
option award
granted on
May 17, 2007
to
Mr. Donnelly
in connection
with the
extension of
his employment
agreement vest
in three equal
annual
installments
from the date
of grant and
has a term of
ten years.
(3) The exercise
price of each
option is
equal to the
fair market
value, or
closing price,
of our common
stock on the
date of grant.
(4) The aggregate
grant date
fair value of
restricted
stock unit and
stock option
awards were
computed in
accordance
with SFAS
No. 123R. The
assumptions
used in the
valuation are
discussed in
Note 2 to our
audited
consolidated
financial
statements in
our Annual
Report on Form
10-K for the
year ended
December 31,
2007.
Outstanding Equity Awards at Fiscal Year-End 2007
The following table provides information with respect to the status at
December 31, 2007 of all unexercised options and unvested restricted stock and
restricted stock units awarded to each of the named executive officers. The
grants listed in the Grants of Plan-Based Awards for 2007 table also appear in
this table.
Option Awards Stock Awards
Equity
Incentive
Equity Plan Awards:
Incentive Plan Equity Incentive Market or
Awards: Plan Awards: Payout Value
Number of Number of Number of Number of of Unearned
Securities Securities Securities Number of Market Value Unearned Shares, Units
Underlying Underlying Underlying Shares or Units of Shares or Shares, Units or or Other
Unexercised Unexercised Unexercised of Stock That Units of Stock Other Rights Rights That
Options Options Unearned Option Exercise Option Have Not That Have not That Have Not Have Not
(#) (#) Options Price Expiration Vested Vested Vested Vested
Name Exercisable Unexercisable (#) ($) Date (#)(6) ($)(7) (#) ($)
Mel Karmazin(1) 18,000,000 12,000,000 - 4.72 11/17/2014 1,200,000 3,636,000 - -
Scott A. Greenstein(2) 450,000 - - 3.14 12/31/2007 108,109 327,570 - -
1,000,000 - - 3.14 5/5/2014 - - - -
833,333 416,667 - 6.60 8/8/2015 - - - -
- 435,000 - 3.70 2/1/2017 - - - -
James E. Meyer(3) 600,000 - - 3.14 12/31/2007 125,000 378,750 - -
50,000 - - 6.75 12/14/2011 - - - -
66,666 1.04 8/11/2013 - - - -
337,500 1,012,500 - 5.54 2/2/2016 - - - -
- 512,000 - 3.70 2/1/2017 - - - -
Patrick L. Donnelly(4) 400,000 - - 7.50 5/1/2011 60,811 184,257 - -
100,000 - - 7.61 5/1/2011 275,000 833,250 - -
16,666 - - 1.04 8/11/2013 - - - -
30,000 90,000 - 5.71 2/1/2016 - - - -
- 256,000 - 3.70 2/1/2017 - - - -
- 1,450,000 - 2.72 5/17/2017 - - - -
David J. Frear(5) 1,150,000 - - 1.85 8/11/2013 300,000 909,000 - -
466,666 233,334 - 6.61 8/10/2015 70,946 214,996 - -
- 307,000 - 3.70 2/1/2017 - - - -
(1) Outstanding
equity awards
for
Mr. Karmazin
vest in five
equal annual
installments
from the date
of grant on
November 18,
2004.
(2) Outstanding
equity awards
for
Mr. Greenstein
vest as
follows:
450,000
exercisable
options
granted at an
exercise price
of $3.14
vested on
March 15, 2007
as a result of
the
satisfaction
of performance
targets for
the year ended
December 31,
2006;
1,000,000
exercisable
options
granted at an
exercise price
of $3.14
vested
immediately on
the date of
grant on
May 5, 2004;
options
granted at an
exercise price
of $6.60 vest
in three equal
annual
installments
from the date
of grant on
August 8,
2005; options
granted at an
exercise price
of $3.70 vest
in four equal
annual
installments
from the date
of grant on
February 1,
2007; and
108,109
restricted
stock units
vested on
February 20,
2008.
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Table of Contents
(3) Outstanding
equity
awards for
Mr. Meyer
vest as
follows:
options
granted at
an exercise
price of
$3.14 vested
either on
March 15,
2006 or
April 16,
2006 as a
result of
the
satisfaction
of
performance
targets for
the year
ended
December 31,
2005;
options
granted at
an exercise
price of
$6.75 vested
50% on the
date of
grant on
December 14,
2001 and 25%
per year
thereafter;
options
granted at
an exercise
price of
$1.04 vested
in three
equal annual
installments
on July 1,
2004,
July 1, 2005
and July 1,
2006;
options
granted at
an exercise
price of
$5.54 vest
in four
equal annual
installments
from the
date of
grant on
February 2,
2006;
options
granted at
an exercise
price of
$3.70 vest
in four
equal annual
installments
from the
date of
grant on
February 1,
2007; and
125,000
restricted
stock units
vested on
February 20,
2008.
(4) Outstanding
equity
awards for
Mr. Donnelly
vest as
follows:
options
granted at
an exercise
price of
$7.50 vested
41.25% on
the date of
grant on
May 1, 2001,
19.75% on
October 15,
2001, 19.5%
on April 15,
2002 and
19.5% on
October 15,
2002;
options
granted at
an exercise
price of
$7.61 vested
immediately
on the date
of grant on
May 1, 2001;
options
granted at
an exercise
price of
$1.04 vested
in three
equal annual
installments
on July 1,
2004,
July 1, 2005
and July 1,
2006;
options
granted at
an exercise
price of
$5.71 vest
in four
equal annual
installments
from the
date of
grant on
February 1,
2006;
options
granted at
an exercise
price of
$3.70 vest
in four
equal annual
installments
from the
date of
grant on
February 1,
2007;
options
granted at
an exercise
price of
$2.72 vest
in three
equal annual
installments
from the
date of
grant on
May 17,
2007; 60,611
restricted
stock units
vested on
February 20,
2008; and
275,000
restricted
stock units
vest in
three equal
annual
installments
from the
date of
grant on
May 17,
2007.
(5) Outstanding
equity
awards for
Mr. Frear
vest as
follows:
options
granted at
an exercise
price of
$1.85 vested
either in
three equal
annual
installments
on July 1,
2004,
July 1,
2005, and
July 1,
2006, on
March 15,
2004 as a
result of
the
satisfaction
of
performance
targets for
the year
ended
December 31,
2003, or on
March 15,
2005 as a
result of
the
satisfaction
of
performance
targets for
the year
ended
December 31,
2004;
options
granted at
an exercise
price of
$6.61 vest
in three
equal annual
installments
from the
date of
grant on
August 10,
2005;
options
granted at
an exercise
price of
$3.70 vest
in four
equal annual
installments
from the
date of
grant on
February 1,
2007;
300,000
restricted
stock units
vested on
March 15,
2008 as a
result of
the
satisfaction
of
performance
targets for
the year
ended
December 31,
2007; and
70,946
restricted
stock units
vested on
February 20,
2008.
(6) Vesting and
payment of
all
restricted
stock units
reflected
above will
be
accelerated
upon the
death of the
executive
officer or
upon a
triggering
event
following a
change in
control, as
defined
under our
stock
incentive
plans, or
upon the
occurrence
of an event
that
triggers
immediate
vesting of
the
outstanding
awards under
the
executive's
employment
agreement.
(7) Amount is
based on the
closing
price of our
common stock
of $3.03 on
December 31,
2007.
Option Exercises and Stock Vested for 2007
The following table provides information with respect to option exercises and
restricted stock and restricted stock units that vested during 2007.
Option Awards Stock Awards
Number of Shares Acquired Number of Shares Acquired on
on Exercise Value Realized on Exercise Vesting(2) Value Realized on Vesting
Name (#) ($) (#) ($)
Mel Karmazin - - 600,000 2,112,000
Scott A. Greenstein - - 678,296 2,099,413
James E. Meyer 33,334 (1) 65,335 370,053 1,175,490
Patrick L. Donnelly - - 35,026 125,743
David J. Frear - - 39,405 141,464
(1) These options
would have
expired on
December 31,
2007.
(2) Includes the
portion of
the 2005
bonus that
was granted
as restricted
stock units
to all named
executive
officers,
except
Mr. Karmazin.
These
restricted
stock units
were granted
on
February 1,
2006 and
vested on
February 15,
2007.
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Table of Contents
Potential Payments Upon Termination or Change-in-Control
Employment Agreements
We have entered into an employment agreement with each of our named executive
officers, which contain provisions regarding payments upon a termination or
change of control.
Mel Karmazin
In November 2004, we entered into a five-year agreement with Mel Karmazin to
serve as our Chief Executive Officer. We pay Mr. Karmazin a base salary of
$1,250,000 per year, and annual bonuses in an amount determined each year by the
Compensation Committee of our Board.
Pursuant to our agreement with Mr. Karmazin, his stock options and shares of
restricted stock will vest upon his termination of employment for good reason,
upon his death or disability and in the event of a change in control. In the
event Mr. Karmazin's employment is terminated by us without cause, his unvested
stock options and shares of restricted stock will vest and become exercisable,
and he will receive his current base salary for the remainder of the term and
any earned but unpaid annual bonus.
In the event that any payment we make, or benefit we provide, to Mr. Karmazin
would require him to pay an excise tax under Section 280G of the Internal
Revenue Code, we have agreed to pay Mr. Karmazin the amount of such tax and such
additional amount as may be necessary to place him in the exact same financial
position that he would have been in if the excise tax was not imposed.
Scott A. Greenstein
Mr. Greenstein has agreed to serve as our President, Entertainment and
Sports, through July 2009. For the fiscal year ending December 31, 2007,
Mr. Greenstein's salary was $800,000. As of February 1, 2008, we pay
Mr. Greenstein an annual salary of $850,000.
If Mr. Greenstein's employment is terminated without cause or he terminates
his employment for good reason, he is entitled to receive a lump sum payment
equal to (1) his base salary in effect from the termination date through
July 2009 and (2) any annual bonuses, at a level equal to 60% of his base
salary, that would have been customarily paid during the period from the
termination date through July 2009. In the event Mr. Greenstein's employment is
terminated without cause or he terminates his employment for good reason, we are
also obligated to continue his medical, dental and life insurance benefits for
18 months following his termination.
If, following the occurrence of a change in control, Mr. Greenstein is
terminated without cause or he terminates his employment for good reason, we are
obligated to pay Mr. Greenstein the lesser of (1) four times his base salary and
(2) 80% of the multiple of base salary, if any, that our Chief Executive Officer
would be entitled to receive under his or her employment agreement if he or she
was terminated without cause or terminated for good reason following such change
in control. We are also obligated to continue Mr. Greenstein's medical, dental
and life insurance benefits, or pay him an amount sufficient to replace these
benefits, until the third anniversary of his termination date.
In the event that any payment we make, or benefit we provide, to
Mr. Greenstein would require him to pay an excise tax under Section 280G of the
Internal Revenue Code, we have agreed to pay Mr. Greenstein the amount of such
tax and such additional amount as may be necessary to place him in the exact
same financial position that he would have been in if the excise tax was not
imposed.
James E. Meyer
Mr. Meyer has agreed to serve as our President, Sales and Operations, until
April 2010. For the fiscal year ending December 31, 2007,
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Table of Contents
Mr. Meyer's salary was $900,000. As of February 1, 2008, we pay Mr. Meyer an
annual salary of $950,000.
In the event Mr. Meyer's employment is terminated without cause or he
terminates his employment for good reason, we will pay him a lump sum payment
equal to (1) his annual base salary in effect on the termination date plus,
(2) the greater of (x) a bonus equal to 60% of his annual base salary or (y) the
prior year's annual bonus actually paid to him (the "Designated Amount").
Pursuant to his employment agreement, Mr. Meyer may elect to retire in
April 2008, April 2009, or April 2010. In the event he elects to retire, we have
agreed to pay him a lump sum payment equal to the Designated Amount. In the
event Mr. Meyer's employment is terminated without cause or he terminates his
employment for good reason, we are also obligated to continue his medical and
dental insurance benefits for 18 months following his termination and to
continue his life insurance benefits for twelve months following his
termination. If Mr. Meyer's employment is terminated due to a scheduled
retirement, we are obligated to continue his medical, dental and life insurance
benefits for 12 months following his termination.
If, following the consummation of the pending merger with XM Radio, Mr. Meyer
elects to retire (which he may do shortly following the merger or the next April
following the merger), or Mr. Meyer is terminated without cause or he terminates
his employment for good reason during the 12 month period following the merger,
we will pay him a lump sum payment equal to two times the Designated Amount. In
the event Mr. Meyer elects to retire or Mr. Meyer is terminated without cause or
he terminates his employment for good reason during the 12 month period
following the merger, we are also obligated to continue his medical, dental and
life insurance benefits for 24 months following his termination.
Upon the expiration of Mr. Meyer's employment agreement in April 2010 or
following his retirement, if earlier, we have agreed to offer Mr. Meyer a
one-year consulting agreement. We expect to reimburse Mr. Meyer for all of his
reasonable out-of-pocket expenses associated with the performance of his
obligations under this consulting agreement, but do not expect to pay him any
cash compensation. Mr. Meyer's stock options will continue to vest and will be
exercisable during the term of this consulting agreement.
In the event that any payment we make, or benefit we provide, to Mr. Meyer
would require him to pay an excise tax under Section 280G of the Internal
Revenue Code, we have agreed to pay Mr. Meyer the amount of such tax and such
additional amount as may be necessary to place him in the exact same financial
position that he would have been in if the excise tax were not imposed.
Patrick L. Donnelly
Mr. Donnelly has agreed to serve as our Executive Vice President, General
Counsel and Secretary, through April 2010. For the fiscal year ending
December 31, 2007, Mr. Donnelly's salary was $500,000. As of February 1, 2008,
we pay Mr. Donnelly an annual base salary of $525,000.
If Mr. Donnelly's employment is terminated without cause or he terminates his
employment for good reason, we are obligated to pay him a lump sum payment equal
to his annual salary and the annual bonus last paid to him and to continue his
medical and life insurance benefits for one year.
In the event that any payment we make, or benefit we provide, to Mr. Donnelly
would require him to pay an excise tax under Section 280G of the Internal
Revenue Code, we have agreed to pay Mr. Donnelly the amount of such tax and such
additional amount as may be necessary to place him in the exact same financial
position that he would have been in if the excise tax was not imposed.
David J. Frear
Mr. Frear has agreed to serve as our Executive Vice President and Chief
Financial Officer through July 2011. For the fiscal year ending December 31,
2007, Mr. Frear's salary was $525,000. As of February 1, 2008, we pay Mr. Frear
an annual salary of $550,000. Mr. Frear's base salary will increase to $750,000
on August 1, 2008.
If Mr. Frear's employment is terminated without cause or he terminates his
employment for good reason, we are obligated to pay him a lump sum payment equal
to his annual salary and the annual bonus last paid to him and to continue his
medical and life insurance benefits for one year.
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Table of Contents
In the event that any payment we make, or benefit we provide, to Mr. Frear
would require him to pay an excise tax under Section 280G of the Internal
Revenue Code, we have agreed to pay Mr. Frear the amount of such tax and such
additional amount as may be necessary to place him in the exact same financial
position that he would have been in if the excise tax was not imposed.
Potential Payments
If a triggering event and/or termination of employment had occurred as of
December 31, 2007, we estimate that the value of the benefits under the
employment agreements would have been as follows:
Lump Sum Accelerated Continuation of
Severance Equity Insurance
Payment Vesting(1) Benefits(2) Tax Gross-Up Total
Name Conditions for payouts ($) ($) ($) ($) ($)
Mel Karmazin Upon death, disability or
change in control. - 3,636,000 - - 3,636,000
Termination without cause or
for good reason. 4,360,274 3,636,000 - - 7,996,274
Scott A. Greenstein Termination without cause or
for good reason. 2,224,658 - 22,551 - 2,247,209
If following the occurrence of
a change in control,
termination without cause or
for good reason. 1,204,608 327,570 53,923 - 1,586,101
James E. Meyer Termination without cause, for
good reason or for scheduled
retirement. 1,825,000 - 20,794 (3) - 1,845,794
If following the occurrence of
a change in control, (other
than a result of an XM-Sirius
merger) termination without
cause or for good reason. 1,825,000 378,750 20,794 - 2,224,544
If following the 12 month
period after the consummation
of the Sirius-XM merger,
termination without cause, for
good reason or scheduled
retirement. 3,650,000 - 31,937 - 3,681,937
Patrick L. Donnelly Termination without cause or
for good reason. 950,000 - 12,993 - 962,993
If following the occurrence of
a change in control,
termination without cause or
for good reason. 950,000 1,467,007 12,993 - 2,430,000
David J. Frear Termination without cause or
for good reason. 1,050,000 - 12,993 - 1,062,993
If following the occurrence of
a change in control,
termination without cause or
for good reason. 1,050,000 1,123,966 12,993 - 2,186,959
(1) Assumes that
unvested
equity would
vest upon a
change in
control as
stated in
our stock
incentive
plans.
Amounts were
calculated
based on the
closing
price of our
common stock
on
December 31,
2007 of
$3.03. The
accelerated
vesting of
options is
valued at
(a) the
difference
between the
closing
price and
the exercise
price of the
options
times
(b) the
number of
shares of
common stock
underlying
the options.
The
accelerated
vesting of
restricted
stock and
restricted
stock units
is valued at
the closing
price times
the number
of shares of
restricted
stock and
restricted
stock units.
(2) Assumes that
medical and
dental
benefits
would be
continued
under COBRA
for up to
18 months at
current
rates;
thereafter
assumes rate
of two times
current
employer
costs.
Assumes that
life
insurance
would be
continued at
rate of two
times
current
employer
cost.
(3) If Mr. Meyer
terminates
due to a
scheduled
retirement,
then
continuation
of insurance
benefits
cost is
estimated to
be $14,263,
instead of
$20,794.
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Table of Contents
Compensation for Non-Employee Directors
Currently, each member of our Board, who is not employed by us, receives a
cash annual retainer and equity compensation payable in the following manner:
$50,000 in cash; and
$70,000 in the form of options to purchase our common stock which are issued
the business day following each year's annual meeting of stockholders.
Any director who fails to attend at least 75% of the meetings of the Board in
any given year forfeits 25% of his or her compensation that is payable in cash.
During 2007, all of our directors, other than Leon Black, attended over 75% of
the meetings of our Board.
Each director who serves as chair of a committee of the Board receives an
additional annual cash retainer as follows: the audit committee chairman
receives $30,000; the compensation committee chairman receives $20,000 and the
nominating and corporate governance committee chairman receives $10,000. All
options to purchase common stock awarded to our directors vest over a four-year
period, with 25% vesting on each anniversary of the date of grant. No options
will vest in a given year if, in the prior calendar year, the director failed to
attend at least 75% of the meetings of the Board.
We also pay reasonable travel and accommodation expenses of directors in
connection with their participation in meetings of the Board. For more
information on the compensation of our directors, see "Executive Compensation -
Director Compensation Table for 2007."
Director Compensation Table for 2007
The following table provides compensation information for the year ended
December 31, 2007 for each of our non-employee directors.
Change in
Pension Value of
Non-Qualified
Fee Earned Non-Equity Deferred
or Paid Stock Option Incentive Plan Compensation All Other
in Cash Awards(1)(2) Awards(1)(3) Compensation Earnings Compensation(4) Total
Name ($) ($) ($) ($) ($) ($) ($)
Joseph P. Clayton - - - - - 27,032 27,032
Leon D. Black 50,000 16,320 40,991 - - - 107,311
Lawrence F. Gilberti 70,000 16,320 40,991 - - - 127,311
James P. Holden 60,000 16,320 40,991 - - - 117,311
Warren N. Lieberfarb 50,000 16,320 40,991 - - - 107,311
Michael J. McGuiness 50,000 16,320 40,991 - - - 107,311
James F. Mooney 80,000 16,320 40,991 - - - 137,311
(1) Amounts
represent
expense
recognized for
financial
statement
reporting
purposes for
the fiscal
year ended
December 31,
2007 in
accordance
with SFAS
No. 123R,
disregarding
estimates of
forfeitures
related to
service-based
vesting
conditions.
Please refer
to Note 2 of
the audited
consolidated
financial
statements in
our Annual
Report on Form
10-K for the
year ended
December 31,
2007 regarding
assumptions
underlying
valuation of
equity awards.
These dollar
amounts
include
amounts from
awards granted
in or prior to
2007.
(2) Directors were
not awarded
restricted
stock units in
2007. At
December 31,
2007, the
aggregate
number of
unvested
restricted
stock units
outstanding
for each
director is as
follows:
Mr. Clayton 0;
Mr. Black
47,425;
Mr. Gilberti
140,672;
Mr. Holden
140,672;
Mr. Lieberfarb
85,397;
Mr. McGuiness
78,772; and
Mr. Mooney
92,070.
(3) Directors,
other than
Mr. Clayton,
were each
awarded 45,962
options at an
exercise price
of $2.90 in
2007 with
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Table of Contents
a grant date
fair value of
$69,851. At
December 31,
2007, the
aggregate
number of
option awards
outstanding
for each
director is as
follows:
Mr. Clayton
5,000,000;
Mr. Black
99,413;
Mr. Gilberti
129,413;
Mr. Holden
139,413;
Mr. Lieberfarb
99,413;
Mr. McGuiness
99,413; and
Mr. Mooney
99,413.
(4) Represents
payment of
Mr. Clayton's
medical and
dental
benefits.
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