Equity in Earnings of Unconsolidated Affiliates, Net of Tax
Equity in earnings of unconsolidated affiliates, net of tax primarily represents the effect of in-year acquisitions and divestitures and the market and/or legislative effect on origination and foreclosure volumes.
To the extent we were to pay dividends on our investment shares, credit for such dividends would be provided on unvested shares, but payment of those dividends would be subject to the same vesting requirements as the underlying shares—in DNB,other words, if the underlying shares do not vest, the dividends are forfeited. We have not paid any cash dividends to date and have no current plans to pay any cash dividends for the foreseeable future.
One-Time Restricted Stock Awards
As discussed further below, in connection with the executive leadership transition, on May 16, 2022, our compensation committee approved the grant of supplemental time-based restricted stock awards under the Omnibus Incentive Plan to each of Messrs. Nackashi and Larsen with grant date fair values of $2,500,000 and $875,000 respectively, in each case with an effective date of grant of May 16, 2022 and 1/3 of which would vest on each of the first three anniversaries of the grant date.
Impact of ICE Merger on Outstanding Equity
Pursuant to the Merger Agreement with ICE, at the effective time of Closing of the ICE Merger each outstanding Black Knight restricted stock award, including those held by our named executive officers, will be automatically assumed and converted into a restricted stock award of ICE common stock based on the exchange ratio (as defined in the Merger Agreement), and will be subject to the same terms and conditions previously applicable to such Black Knight restricted stock award, except that each “performance restriction” will be deemed satisfied and a change of control will be deemed to have occurred.
Compensation Changes in Connection with Leadership Changes
In May 2022, the Company underwent an executive leadership transition. Mr. Jabbour transitioned from Chairman and CEO to Executive Chairman. In his role as Executive Chairman, Mr. Jabbour focuses on the strategic direction of Black Knight, capital allocation and works with the executive leadership team to extend the Company’s track record of success. Mr. Nackashi transitioned from President to CEO. In his role as CEO, Mr. Nackashi is accountedresponsible for oversight of the execution of our business strategies, including acting with urgency, treating each client like they are our only client, caring for our employees and delivering on our commitments to stakeholders. Mr. Larsen transitioned from CFO to President and CFO. In his expanded role, Mr. Larsen assumed responsibility for the compliance, enterprise risk management, human resources, legal and marketing functions and works closely with Messrs. Jabbour and Nackashi to achieve Black Knight’s strategic goals. Our board determined that this leadership structure is appropriate for the Company and will allow our Executive Chairman, CEO, and President and CFO to focus on the responsibilities of their respective offices while creating a collaborative relationship that benefits our Company and stakeholders.
In connection with the foregoing leadership transition, the compensation committee approved several changes to executive compensation, as well as related amendments to our named executive officers’ employment agreements, which are discussed in more detail below.
For Messrs. Nackashi and Larsen, the compensation committee approved changes to their minimum base salaries and target annual incentive opportunities, as well as supplemental time-based restricted stock awards under our Omnibus Incentive Plan. The changes to Messrs. Nackashi’s and Larsen’s base salaries and target annual incentive opportunities and the supplement restricted stock awards were approved following discussion with the compensation committee’s independent compensation consultant in consideration of Messrs. Nackashi’s and Larsen’s total compensation levels relative to their respective experience, duties and responsibilities in their new roles, as well as peer and market data.
In consideration of his new role as CEO, Mr. Nackashi’s base salary increased from $600,000 to $750,000, his target long-term incentive opportunity increased from 150% to 200% of his base salary, with a maximum payout of 400%, and he received a supplemental restricted stock grant with a grant date value of $2,500,000. In connection with his expanded role as President and CFO, Mr. Larsen’s base salary increased from $450,000 to $575,000, his target long-term incentive opportunity increased from 100% to 150%, and he received a supplemental time-based restricted stock award with a grant date value of $875,000. One-third (1/3) of Messrs. Nackashi’s and Larsen’s supplemental time-based restricted stock awards vest on each of the first three anniversaries of the grant date, and they are otherwise subject to similar terms and conditions as our annual performance-based restricted stock awards.
Payments in Connection with ICE Merger
In connection with the entry into the Merger Agreement with ICE and consistent with the terms of Mr. Jabbour’s employment agreement, dated as of April 1, 2018 and as amended as of May 16, 2022, the compensation committee determined to award Mr. Jabbour a discretionary bonus of $40,000,000 contingent upon the closing of the ICE Merger (the Discretionary Bonus). The Discretionary Bonus was paid after consideration of Mr. Jabbour’s significant contributions to the Company and the critical role he plays in our organization in shaping and providing continuity with respect to the Company’s strategic vision. For the last several years, Mr. Jabbour has led the execution of our strategic vision, including organically growing our software, data and analytics businesses with urgency through selling our products to new clients, cross-selling additional services to existing clients, and innovating through the development of new solutions and refining our current offerings to provide better insight to our clients, and selectively pursuing strategic acquisitions, while maintaining an equity-method investment. Equityefficient cost structure to create the most value for our shareholders. In 2022, Mr. Jabbour played significant role in earningsthe negotiation of unconsolidated affiliates, netthe ICE Merger, the value of which represents a 27% premium to our stock price on March 3, 2023 and a 27% premium to our stock price on April 4, 2022, the last date before the publication of news reports relating to a potential acquisition of Black Knight (in each case based upon a merger consideration value of $75 per share).
In December 2022, in connection with certain tax-planning actions to mitigate the potential impact of Sections 280G and 4999 of the Internal Revenue Code on Mr. Jabbour and Black Knight, the compensation committee determined that such bonus would be paid to Mr. Jabbour no later than December 28, 2022, rather than upon closing of the ICE Merger, but would be contingent upon successful consummation of the ICE Merger. In furtherance of the early payment of the Discretionary Bonus, the Company and Mr. Jabbour entered into a letter agreement that provides that if Mr. Jabbour is terminated by the Company for cause or Mr. Jabbour resigns his employment without good reason, in each case prior to consummation of the ICE Merger, or if the Merger Agreement is terminated without the consummation of the ICE Merger, he will be required to pay liquidated damages to Black Knight equal to the value of the after-tax proceeds of the Discretionary Bonus that would not have ultimately been paid absent the tax-planning actions described above (plus any tax refund he receives in respect of such payment), which amount will be deposited in an escrow account established by Mr. Jabbour as security for the liquidated damages.
In addition, on December 20, 2022, to further mitigate the potential impact of Sections 280G and 4999 of the Internal Revenue Code on the applicable executive and Black Knight, the compensation committee determined that the outstanding equity awards granted to Mr. Jabbour that would otherwise have vested in the first quarter of 2023 would accelerate and vest, which were vested on December 20, 2022. The compensation committee further determined that each of Messrs. Jabbour, Nackashi, Larsen and Gravelle would receive a 2022 annual cash incentive award equal to 75.0% of his target incentive opportunity, with such payment to be made no later than December 30, 2022. For additional information concerning payments with respect to the 2022 annual cash incentive plan, see the section title “Annual Performance-Based Cash Incentive.”
We Promote Long-term Stock Ownership for our Executives
We have formal stock ownership guidelines for all corporate officers, including our named executive officers and members of our board of directors. The guidelines were established to encourage such individuals to hold a multiple of their base salary (or annual retainer) in our common stock and thereby align a significant portion of their own economic interests with those of our shareholders. Further, the award agreements for our 2022 restricted stock awards provide that our executives who do not hold shares of our stock with a value sufficient to satisfy the applicable stock ownership guidelines must retain 50% of the shares acquired as a result of the lapse of vesting restrictions (excluding shares withheld in satisfaction of tax consistswithholding obligations) until the executive satisfies the applicable stock ownership guideline. The ownership levels are shown in the “Security Ownership of Management and Directors” table below. The guidelines call for the following (in millions):executive or director to reach the ownership multiple within four years. Shares of restricted stock count toward meeting the guidelines. The guidelines, including those applicable to non-employee directors, are as follows:
| | | | | | |
| | Year ended December 31, |
| | 2022 | | 2021 |
Equity in earnings (losses) of unconsolidated affiliates, net of tax | | $ | 1.3 | | $ | (7.3) |
Gain related to DNB investment, net of tax | | | 305.4 | | | — |
Non-cash gain related to DNB's issuance of common stock, net of tax | | | — | | | 9.9 |
Equity in earnings of unconsolidated affiliates, net of tax | | $ | 306.7 | | $ | 2.6 |
| Position | Minimum Aggregate Value |
| Chairman of the Board | 7 × annual base salary |
| Chief Executive Officer | 7 × base salary |
| Other Executive Officers | 2 × base salary |
| Members of the Board | 5 × annual cash retainer |
Refer to Note 4 to the Notes to Consolidated Financial Statements for more information related toOur named executive officers and our investmentboard of directors maintain significant long-term investments in DNB.
Liquidity and Capital Resources
Cash Requirements
Our primary sources of liquidity are our existing cash balances, cash flows from operations and borrowings on our revolving credit facility.Company. As of December 31, 2022, each of our named executive officers and non-employee directors holdings of our stock significantly exceeded these stock ownership guidelines, other than Ms. Shanik who joined out board in December 2019 and Ms. Burke who joined our board in October 2020. Collectively, as reported in the table “Security Ownership of Management and Directors,” our named executive officers and directors beneficially own an aggregate of 2.1 million shares of our common stock as of March 13, 2023, which represents 1.3% of our outstanding common stock with a value of approximately $117.2 million based on the closing price of our common stock of $55.71 on that date. The fact that our executives and directors hold such a large investment in our shares is part of our culture and our compensation philosophy. Management’s sizable investment in our shares aligns their economic interests directly with the interests of our shareholders, and their wealth will rise and fall as our share price rises and falls. This promotes teamwork among our management team and strengthens the team’s focus on achieving long-term results and increasing shareholder return.
Benefit Plans
We provide retirement and other benefits to our U.S. employees under a number of compensation and benefit plans. Our named executive officers generally participate in the same compensation and benefit plans as our other executives and employees. In addition, our named executive officers are eligible to participate in broad-based health and welfare plans. We do not offer pensions or supplemental executive retirement plans for our named executive officers.
401(k) Plan. Our domestic employees, including our named executive officers, have the opportunity to participate in the Black Knight 401(k) Profit Sharing Plan, or 401(k) Plan, our defined contribution savings plan that is intended to be qualified under Section 401(a) of the Internal Revenue Code. Our 401(k) Plan contains a cash or deferred arrangement under Section 401(k) of the Internal Revenue Code. Participating employees can contribute up to 75% of their eligible compensation, but not more than statutory limits, generally $20,500 in 2022.
A participant could receive the value of his or her vested account balance upon termination of employment. A participant is always 100% vested in his or her voluntary contributions. Vesting in matching contributions, if any, occurs proportionally each year over the first three years based on continued employment.
Employee Stock Purchase Plan. We maintained an employee stock purchase plan, or ESPP, through which our executives and employees can purchase shares of our common stock through payroll deductions and through matching employer contributions. Participants in the ESPP could deduct up to 15% of their after-tax base pay. At the end of each calendar quarter, we would make a matching contribution to the account of each participant who has been continuously employed by us or a participating subsidiary for the last four calendar quarters if the participant has held the shares purchased in the quarter to which the matching contribution relates for at least one year. For those employees with 10 or more years of service or who were at the employee “Director” level or above, including our named executive officers, matching contributions were equal to 1/2 of the amount contributed during the quarter that is one year earlier than the quarter in which the matching contribution was made. The matching contributions, together with the employee deferrals, were used to purchase shares of our common stock on the open market.
For information regarding the matching contributions made to our named executive officers in 2022, see “—Summary Compensation Table” under the column “All Other Compensation” and the related footnote.
Health and Welfare Benefits. We sponsor various broad-based health and welfare benefit plans for our employees. We provide all our employees, including our named executive officers, with basic life insurance and the option for additional life insurance. The taxable portion of the premiums on this additional life insurance for our named executive officers is reflected under “—Summary Compensation Table” under the column “All Other Compensation” and related footnote.
Other Benefits. We provide few perquisites to our executives. In general, the perquisites provided are intended to help our executives be more productive and efficient and to protect us and the executive from certain business risks and potential threats. For example, our audit committee has adopted a policy that requires our Chairman of the Board and our Chief Executive Officer to travel on the corporate aircraft whenever possible for safety reasons. The compensation committee regularly reviews the perquisites provided to our executive officers. Further detail regarding executive perquisites in 2022 can be found in the “— Summary Compensation Table” under the column “All Other Compensation” and the related footnote.
Employment and Other Agreements and Post-Termination Compensation and Benefits
We are party to employment agreements with our named executive officers. These agreements provide us and the named executive officers with certain rights and obligations following a termination of employment. We believe these agreements are necessary to protect our legitimate business interests, as well as to protect the named executive officers in the event of certain termination events. For a discussion of the material terms of these agreements, see the narrative following “—Grants of Plan Based Awards” and “—Potential Payments Upon Termination or Change in Control.”
Role of Compensation Committee, Compensation Consultant and Executive Officers
Our compensation committee is responsible for reviewing, approving and monitoring all compensation programs for our named executive officers. Our compensation committee is also responsible for administering our annual cash incentives, our Omnibus Incentive Plan, the Optimal Blue 2020 Incentive Plan and approving individual grants and awards under those plans for our named executive officers.
In connection with our 2022 executive compensation programs, Mercer, as independent compensation consultant to our compensation committee, conducted an annual review of our compensation programs for our named executive officers and other key executives and our board of directors. Mercer was selected, and its fees and terms of engagement were approved, by our compensation committee in 2022. Mercer reports directly to the compensation committee and receives compensation only for services related to executive compensation issues. During 2022, the Company also engaged Mercer’s Health & Benefits business to provide consulting support in conjunction with Mercer’s role as broker of record for selected employee benefits and paid Mercer $292,431 in connection with such services. In April 2022, the compensation committee reviewed the independence of Mercer in accordance with the rules of the New York Stock Exchange regarding the independence of consultants to the compensation committee and affirmed the consultant’s independence and that no conflicts of interest existed.
In February 2022, our then Chief Executive Officer Mr. Jabbour made recommendations with respect to his direct reports. In addition, Colleen Haley, our Senior Vice President and Corporate Secretary, coordinated with our compensation committee members and Mercer in preparing the committee’s meeting agendas and, at the direction of the committee, assisted Mercer in gathering our financial information and information on our executives’ existing compensation arrangements for inclusion in their reports to our compensation committee. Our executive officers do not make recommendations to our compensation committee with respect to their own compensation.
While our compensation committee carefully considers the information provided by, and the recommendations of, its independent compensation consultant and the individuals who participate in the compensation process, our compensation committee retains complete discretion to accept, reject or modify any compensation recommendations.
Establishing Executive Compensation Levels
We operate in a highly competitive industry and compete with our peers and competitors to attract and retain highly skilled executives within that industry. To attract and retain talented executives with the leadership abilities and skills necessary for building long-term value, motivate our executives to perform at a high level and reward outstanding achievement, our executives’ compensation levels are set at levels that our compensation committee believes to be appropriate and competitive based upon the considerations and factors described in this section.
When determining the amount of the various compensation components that each of our named executive officers would receive, our compensation committee considered a number of important qualitative and quantitative factors including:
| · | A strong focus on acquiring and retaining our clients and increasing shareholder value; |
| · | The named executive officer’s experience, knowledge, skills, level of responsibility and potential to influence our Company’s performance; |
| · | Business environment and our business objectives and strategy; |
| · | The named executive officer’s ability to impact the Company’s achievement of the goals for which the compensation program was designed, including achieving the Company’s long-term financial goals and increasing shareholder value; |
| · | Market compensation data provided by the compensation committee’s compensation consultant, with a focus on the 25th, 50th to 75th percentiles; and |
| · | Other corporate governance and regulatory factors related to executive compensation, including discouraging our named executive officers from taking unnecessary risks. |
Our compensation decisions are not formulaic, and the members of our compensation committee did not assign precise weights to the factors listed above. Our compensation committee utilized their individual and collective business judgment to review, assess and approve compensation for our named executive officers.
To assist our compensation committee, Mercer conducts marketplace reviews of the compensation we pay to our executive officers. It gathers marketplace compensation data on total compensation, which consists of annual salary, annual incentives, long-term incentives, executive benefits, executive ownership levels, overhang and dilution from our Omnibus Incentive Plan, compensation levels as a percent of revenue, pay mix and other key statistics. This data is collected and analyzed twice during the year, once in the first quarter and again in the fourth quarter. The marketplace compensation data provides a point of reference for our compensation committee, but our compensation committee ultimately makes subjective compensation decisions based on all the factors described above.
For 2022, Mercer used two marketplace data sources: (1) general industry companies with revenues between $500 million and $3 billion and (2) compensation information for a group of companies, or the peer group. The primary factors used to select the peer group were revenue (with peer group companies’ revenue ranging from approximately 1.13 billion to 3.4 billion, compared to our projected 2022 revenue that at that time was estimated to be approximately $1.56 billion), market capitalization, EBITDA, industry focus, nature and complexity of operations, and competition for business and executive talent.
In addition to the compensation surveys, Mercer gathers compensation practices data from independent sources. That data is helpful to the compensation committee when reviewing our executive compensation practices.
The compensation committee reviewed and determined the Company’s peer group in October 2021 for purposes of 2022 compensation research. Companies may be removed from the peer group for reasons such as mergers and acquisitions, “going private” transactions, a material change in the business focus of a peer, or other reasons that materially change the business or results of a peer. Companies may be added to the peer group for reasons such as revenue growth (organic or due to merger or acquisition), an initial public offering, a change in business focus, or based upon our review of competitor peer groups. For the 2022 peer group, Mercer did not recommend any changes. The 2022 peer group consisted of the following 14 companies:
| Verisk Analytics, Inc. | ANSYS, Inc. |
| Transunion | CoStar Group, Inc. |
| Envestnet, Inc. | Fair Isaac Corporation |
| Paycom Software, Inc. | PTC Inc. |
| Jack Henry & Associates, Inc. | Tyler Technologies, Inc. |
| WEX Inc. | Ceridian HCM Holding, Inc. |
| MSCI Inc. | The Trade Desk, Inc. |
In setting 2022 target compensation levels for our named executive officers, the compensation committee primarily focused on the 50th percentile of the market. In considering our compensation mix, the committee determined to set a high level of variable pay to provide our executives with the opportunity to achieve pay levels at the 75th percentile (or higher) for superior financial performance.
The marketplace compensation information in this discussion is not deemed filed or a part of this compensation discussion and analysis for certification purposes.
Hedging and Pledging Policy
In order to more closely align the interests of our directors and executive officers with those of our shareholders and to protect against inappropriate risk taking, we maintain a hedging and pledging policy, which prohibits our executive officers and directors from taking any of the following actions without obtaining approval from our board of directors: engaging in hedging or monetization transactions with respect to our securities, engaging in short-term or speculative transactions in our securities that could create heightened legal risk and/or the appearance of improper or inappropriate conduct or holding Black Knight securities in margin accounts or pledging them as collateral for loans.
Clawback Policy
We have a policy to clawback and recover incentive-based compensation paid to our executive officers if we are required to prepare an accounting restatement due to material noncompliance with financial reporting requirements. Under the policy, in the event of such a restatement we will clawback any incentive-based compensation paid during the preceding three-year period to the extent it would have been lower had the compensation been based on the restated financial results. No clawbacks were made in 2022. We intend our policy to comply with the NYSE listing rules regarding recoupment of incentive compensation when those rules become effective.
Tax and Accounting Considerations
Our compensation committee considers the impact of tax and accounting treatment when determining executive compensation.
In general, Section 162(m) of the Internal Revenue Code places a limit of $1,000,000 on the amount that can be deducted in any one year for compensation paid to certain executive officers. The Company’s principal executive officer and principal financial officer serving at any time during the taxable year, its three other most highly compensated executive officers employed at the end of the taxable year and any employee who was covered under Section 162(m) for any earlier tax year that began after December 31, 2016 will be covered by Section 162(m). While our compensation committee considers the deductibility of compensation as one factor in determining executive compensation, the compensation committee also looks at other factors in making its decisions, as noted above, and retains the flexibility to award compensation that it determines to be consistent with the goals of our executive compensation program even if the awards are not deductible for tax purposes.
Our compensation committee also considers the accounting impact when structuring and approving awards. We account for share-based payments in accordance with ASC Topic 718, which governs the appropriate accounting treatment of share-based payments under generally accepted accounting principles (GAAP).
2022 Shareholder Vote on Executive Compensation
At our 2022 annual meeting of shareholders, we held a non-binding advisory vote, also called a “say-on-pay” vote, on the compensation of our named executive officers as disclosed in the 2022 proxy statement. A substantial majority of our shareholders approved our “say-on-pay” proposal, with 93% of the votes cast in favor of the proposal. The compensation committee considered these results, as well as the feedback we received from investors prior to and following our 2022 annual meeting. For a description of the feedback we received from investors, see the section above titled “2022 Shareholder Engagement.”
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 management, and the compensation committee recommended to the board that the Compensation Discussion and Analysis be included in this proxy statement.
THE COMPENSATION COMMITTEE
Thomas M. Hagerty (Chair)
David K. Hunt
EXECUTIVE COMPENSATION
The following table contains information concerning the cash and non-cash compensation awarded to or earned by our named executive officers for the years indicated.
Summary Compensation Table
The following table sets forth certain information with respect to compensation awarded to, earned by or paid for the year ended December 31, 2022 to our Chief Executive Officer, our Chief Financial Officer, our three other most highly compensated executive officers who were serving as executive officers on December 31, 2022.
Name and
Principal Position1 | | | Fiscal
Year | | | Salary ($)2 | | | Bonus ($)3 | | | Stock
Awards ($)4 | | | Non-Equity
Incentive Plan
Compensation
($)5 | | | All Other
Compensation
($)6 | | | Total ($) | |
Anthony M. Jabbour
Executive Chairman |
|
| 2022
2021
2020 |
|
|
| 600,000
600,000
600,000 |
|
|
| 40,898,457
-
- |
|
|
| 7,500,015
7,500,060
13,129,954 |
|
|
| 602,145
3,244,286
2,268,000 |
|
|
| 574,634
218,210
63,481 |
|
|
| 50,175,251
11,562,556
16,061,435 |
|
Joseph M. Nackashi
Chief Executive Officer |
|
| 2022
2021
2020 |
|
|
| 694,521
600,000
600,000 |
|
|
| 673,072
-
- |
|
|
| 6,000,097
3,500,028
6,200,674 |
|
|
| 752,681
1,666,607
1,251,000 |
|
|
| 224,949
95,910
51,800 |
|
|
| 8,345,320
5,862,545
8,103,474 |
|
Kirk T. Larsen
President and Chief Financial Officer |
|
| 2022
2021
2020 |
|
|
| 528,767
450,000
450,000 |
|
|
| 387,016
-
- |
|
|
| 3,875,069
3,000,024
4,803,329 |
|
|
| 432,792
833,304
625,000 |
|
|
| 79,484
138,232
33,548 |
|
|
| 5,303,128
4,421,560
5,911,877 |
|
Michael L. Gravelle
Executive Vice President and General Counsel |
|
| 2022
2021
2020 |
|
|
| 148,000
148,000
148,000 |
|
|
| 66,409
-
- |
|
|
| 750,030
675,032
675,014 |
|
|
| 74,265
274,064
206,000 |
|
|
| 11,100
11,214
11,487 |
|
|
| 1,049,804
1,108,310
1,040,501 |
|
Michele M. Meyers
Former Chief Accounting Officer and Treasurer7 |
|
| 2022
2021 |
|
|
| 57,115
267,500 |
|
|
| -
- |
|
|
| -
425,068 |
|
|
| -
249,992 |
|
|
| 8,837
26,329 |
|
|
| 65,952
968,889 |
|
| 1. | Mr. Nackashi served as CEO beginning in May 2022. Our former CEO, Mr. Jabbour, became Executive Chairman in May 2022. |
| | |
| 2. | Amounts are not reduced to reflect the named executive officers’ elections, if any, to defer receipt of salary under our ESPP, or under our 401(k) plan.
|
| | |
| 3. | Amounts include the amounts paid as annual performance-based cash incentives to Messrs. Jabbour, Nackashi, Larsen and Gravelle with respect to adjustments made to the performance results to account for the impact of the pending ICE Merger. With respect to Mr. Jabbour, the amount also includes the Discretionary Bonus paid with respect to the ICE Merger, which was paid in 2022 to mitigate the impact of Sections 280G and 4999 of the Internal Revenue Code following closing of the ICE Merger. The after-tax proceeds of the Discretionary Bonus are held by Mr. Jabbour in an escrow account and will be paid to the Company as liquidated damages (together with any tax refund he receives in respect of such payment) in the event that he is terminated for Cause or voluntarily terminates his employment with the Company prior to closing of the ICE Merger or in the event the Merger Agreement is terminated without consummation of the ICE Merger.
|
| | |
| 4. | Represents the grant date fair value of performance-based restricted stock awards granted on March 10, 2022 based on the probable outcome of the performance conditions for performance-based awards. Also represents the grant date fair value of time-based restricted stock awards granted on May 16, 2022 to Messrs. Nackashi and Larsen. For Messrs. Jabbour, Nackashi, Larsen and Gravelle, 2021 and 2020 amounts include the grant date fair value of performance-based restricted stock awards granted on March 10, 2021 and February 18, 2020, respectively. For Messrs. Jabbour, Nackashi and Larsen, 2020 amounts also reflects the grant date fair value of the Optimal Blue profits interest awards. All amounts are computed in accordance with ASC Topic 718, Compensation—Stock Compensation, excluding forfeiture assumptions. See the Grants of Plan Based Awards table for details regarding the awards. Assumptions used in the calculation of these amounts are included in Footnote 16 to our Audited Consolidated Financial Statements for the fiscal year ended December 31, 2022 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2023. Ms. Meyers did not receive a any restricted stock awards in 2022 due to her departing the Company on March 12, 2022. |
| 5. | Amounts shown for 2022 represent performance-based amounts earned as annual cash incentives. Amounts shown for 2022 reflect a performance multiplier of 50.2% for Messrs. Jabbour, Nackashi, Larsen and Gravelle. Ms. Meyers did not receive a 2022 annual cash incentive due to her departing the Company on March 12, 2022. |
| 6. | Amounts shown for 2022 include matching contributions under our 401(k) Plan and ESPP; life insurance premiums paid by us; personal use of corporate aircraft; employer contributions to a health savings account and accrued vacation payout. The amount of incremental cost for personal aircraft usage is determined by calculating the hourly variable costs (i.e., fuel, catering, aircraft maintenance, landing and parking fees, crew costs and other miscellaneous costs) for the aircraft, and then multiplying the result by the hours flown for personal use during the year. |
| 2022 | | Jabbour ($) | | | Nackashi ($) | | | Larsen ($) | | | Gravelle ($) | | | Meyers($) | |
| 401(k) Matching Contributions | | | 6,863 | | | | 5,265 | | | | 6,173 | | | | - | | | | 195 | |
| ESPP Matching Contributions | | | 45,000 | | | | 45,000 | | | | 27,000 | | | | 11,100 | | | | 4,500 | |
| Life Insurance Premiums | | | 387 | | | | 387 | | | | 207 | | | | - | | | | 21 | |
| Personal Airplane Use | | | 521,584 | | | | 173,497 | | | | 45,504 | | | | - | | | | - | |
| HSA contributions | | | 800 | | | | 800 | | | | 600 | | | | - | | | | 123 | |
| Accrued vacation payout | | | - | | | | - | | | | - | | | | - | | | | 3,998 | |
| Total | | | 574,634 | | | | 224,949 | | | | 79,484 | | | | 11,100 | | | | 8,837 | |
| 7. | Ms. Meyers voluntarily terminated her employment with the Company on March 12, 2022. As a result, she did not receive any stock awards or an annual cash incentive for 2022 and she forfeited all unvested portions of outstanding equity awards, including the unvested portion of her March 10, 2021 performance-based restricted stock award, upon her termination. |
Grants of Plan Based Awards
The following table sets forth information concerning awards granted to the named executive officers during the fiscal year ended December 31, 2022. Michele M. Meyers did not participate in the annual cash incentive plan or receive a 2022 restricted stock award due to her departing the Company on March 12, 2022.
| | | | | | | Estimated Future Payouts Under
Non Equity Incentive Plan Awards1 | | | (g)
Estimated
Future | | | (h) | | | | |
(a)
Name | | (b)
Grant Date | | (c)
Award Type | | (d)
Threshold ($) | | | (e)
Target ($) | | | (f)
Maximum ($) | | | Payments
under
Equity
Incentive
Plan
Awards
Target
(#)2 | | | All
other
stock
awards:
Number
of
Shares
(#) | | | (i)
Grant
Date Fair
Value of
Restricted
Stock
Awards
($)3,4 | |
| Anthony M. Jabbour | | N/A | | Annual Incentive Plan | | | 600,000 | | | | 1,200,000 | | | | 3,600,000 | | | | — | | | | — | | | | — | |
| | 3/10/22 | | Performance-Based Restricted Stock | | | — | | | | — | | | | — | | | | 131,165 | | | | — | | | | 7,500,015 | |
| Joseph M. Nackashi | | N/A | | Annual Incentive Plan | | | 750,000 | | | | 1,500,000 | | | | 3,000,000 | | | | — | | | | — | | | | — | |
| | 3/10/22 | | Performance-Based Restricted Stock | | | — | | | | — | | | | — | | | | 61,211 | | | | — | | | | 3,500,045 | |
| | 5/16/22 | | Time-Based Restricted Stock | | | — | | | | — | | | | — | | | | — | | | | 35,761 | | | | 2,500,052 | |
| Kirk T. Larsen | | N/A | | Annual Incentive Plan | | | 431,250 | | | | 862,500 | | | | 1,725,000 | | | | — | | | | — | | | | — | |
| | 3/10/22 | | Performance-Based Restricted Stock | | | — | | | | — | | | | — | | | | 52,466 | | | | — | | | | 3,000,006 | |
| | 5/16/22 | | Time-Based Restricted Stock | | | — | | | | — | | | | — | | | | — | | | | 12,517 | | | | 875,063 | |
| Michael L. Gravelle | | N/A | | Annual Incentive Plan | | | 74,000 | | | | 148,000 | | | | 296,000 | | | | — | | | | — | | | | — | |
| | 3/10/22 | | Performance-Based Restricted Stock | | | — | | | | — | | | | — | | | | 13,117 | | | | — | | | | 750,030 | |
| 1. | Amounts reflect potential annual incentive payments for fiscal year 2022. The amounts shown in the Threshold column reflect the amount payable if the threshold level of performance is achieved, which is 50% of the target amount shown in the Target column. The amount shown in the Maximum column is 300% of such target amount for Mr. Jabbour and 200% for Messrs. Nackashi, Larsen and Gravelle. Target annual incentive amounts, as a percentage of base salary, for each of our named executive officers are as follows: Mr. Jabbour 200%, Mr. Nackashi 200%, Mr. Larsen 150%, and Mr. Gravelle 100%. |
| 2. | The amounts shown as performance-based restricted stock in column (g) represent the number of shares of performance-based restricted stock granted on March 10, 2022 for each executive under our Omnibus Incentive Plan, which are subject to (1) time-based vesting over three years based on continued employment, and (2) our meeting an Adjusted EBITDA goal in each of 2022, 2023 and 2024 in order for the 1/3 scheduled to vest in 2023, 2024 and 2025, respectively, to vest. |
| 3. | Represents the grant date fair value of time-based restricted stock awards based upon a $69.91 per share grant date fair value for the awards granted on May 16, 2022. |
| 4. | Represents the grant date fair value of time-based restricted stock awards based upon a $57.18 per share grant date fair value for the awards granted on March 10, 2022. |
Outstanding Equity Awards at Year-End
The following table sets forth certain information with respect to outstanding equity awards held by our named executive officers on December 31, 2022. Ms. Meyers forfeited all outstanding equity awards upon her departures from the Company and therefore does not have any outstanding equity awards at year-end.
| Name | | Grant
Date1,2,3 | | | Number of
Shares or
Units of Stock
That Have Not
Vested (#) | | | Market Value
of Shares or
Units of Stock
that Have Not
Vested ($)4 | | | Equity
Incentive
Plan Awards:
Number of
Unearned
Shares That
Have Not
Vested (#) | | | Equity
Incentive
Plan Awards:
Market Value
of Unearned
Shares That
Have Not
Vested
($)4 | |
| Anthony M. Jabbour | | 3/10/2021 | | | | — | | | | — | | | | 32,895 | | | | 2,031,266 | |
| | 3/10/2022 | | | | — | | | | — | | | | 87,443 | | | | 5,399,605 | |
| Joseph M. Nackashi | | 2/18/2020 | | | | — | | | | — | | | | 15,574 | | | | 961,695 | |
| | 3/10/2021 | | | | — | | | | — | | | | 30,702 | | | | 1,895,849 | |
| | 3/10/2022 | | | | — | | | | — | | | | 61,211 | | | | 3,779,779 | |
| | 5/16/2022 | | | | 35,761 | | | | 2,208,242 | | | | — | | | | — | |
| Kirk T. Larsen | | 2/18/2020 | | | | — | | | | — | | | | 13,349 | | | | 824,301 | |
| | 3/10/2021 | | | | — | | | | — | | | | 26,316 | | | | 1,625,013 | |
| | 3/10/2022 | | | | — | | | | — | | | | 52,466 | | | | 3,239,776 | |
| | 5/16/2022 | | | | 12,517 | | | | 772,925 | | | | — | | | | — | |
| Michael L. Gravelle | | 2/18/2020 | | | | — | | | | — | | | | 3,003 | | | | 185,435 | |
| | 3/10/2021 | | | | — | | | | — | | | | 5,921 | | | | 365,622 | |
| | 3/10/2022 | | | | — | | | | — | | | | 13,117 | | | | 809,975 | |
| 1. | With respect to restricted stock awards granted on February 18, 2020, the awards vest over three years, subject to (i) our achievement of Adjusted EBITDA of $583.4 million for the period of January 1, 2020 to December 31, 2020 (Adjusted EBITDA, as adjusted for purposes of the awards, of $588.6 million was achieved for this period); our achievement of Adjusted EBITDA of $609.9 million for the period January 1, 2021 to December 31, 2021 for the second 1/3 of the award to vest (Adjusted EBITDA, as adjusted for purposes of the awards, of $708.5 million was achieved for this period); and our achievement of Adjusted EBITDA of $724.2 for the period January 1, 2022 to December 31, 2022 for final the 1/3 of the award to vest (Adjusted EBITDA, as adjusted for purposes of the awards, of $758.0 million was achieved for this period); and (ii) the continued service of the award holder. |
| 2. | With respect to restricted stock awards granted on March 10, 2021, the awards vest over three years, subject to (i) our achievement of Adjusted EBITDA of $609.9 million for the period January 1, 2021 to December 31, 2021 for the first 1/3 of the award to vest (Adjusted EBITDA, as adjusted for purposes of the awards, of $708.5 million was achieved for this period); our achievement of Adjusted EBITDA of $724.2 million for the period January 1, 2022 to December 31, 2022 for the second 1/3 of the award to vest (Adjusted EBITDA, as adjusted for purposes of the awards, of $758.0 million was achieved for this period); and our achievement of an Adjusted EBITDA goal in 2023 for final the 1/3 of the award scheduled to vest in 2024; and (ii) the continued service of the award holder. |
| 3. | With respect to restricted stock awards granted on March 10, 2022, the awards vest over three years, subject to (i) our achievement of Adjusted EBITDA of $724.2 million for the period January 1, 2022 to December 31, 2022 for the first 1/3 of the award to vest (Adjusted EBITDA, as adjusted for purposes of the awards, of $758.0 million was achieved for this period), and our achievement of an Adjusted EBITDA goal in 2023 and 2024 for the second and third 1/3’s of the award scheduled to vest in 2024 and 2025, respectively; and (ii) the continued service of the award holder. |
| |
| 4. | Market values are based on the December 30, 2022 closing price for our common stock of $61.75 per share. |
Outstanding Optimal Blue Profits Interest Awards at Fiscal Year-End
Due to the strategic importance of the successful execution of our growth strategy for Optimal Blue, the compensation committee determined it was important that the interests of our executives with the most ability to impact our execution of that strategy be tied directly to the growth of Optimal Blue. In November 2020, in order to create a strong link between our executives’ interests and Optimal Blue’s long-term performance and growth, the committee granted equity incentives known as profits interests in Optimal Blue to Messrs. Jabbour, Nackashi and Larsen. No profits interests were granted to our named executive officers in 2021 or 2022.
The profits interest awards are in the form of restricted Class B units of Optimal Blue. Optimal Blue is organized as a limited liability company and is taxed as a partnership under U.S. federal income tax laws. The Class B units are intended to qualify as profits interests for U.S. federal income tax purposes. The profits interests are equity interests in Optimal Blue but have value only following achievement of a specified equity threshold, or hurdle amount. The hurdle amount equals the value of the Optimal Blue on the date the awards are granted. Due to the proximity of the grants of profits interest awards to the closing of our acquisition of Optimal Blue in September 2020, the hurdle amount for the Optimal Blue profits interests granted to Messrs. Jabbour, Nackashi and Larsen is $1.445 billion, which is based on the equity value of Optimal Blue at the time of acquisition. Thus, similar to a stock option, the Optimal Blue profits interest awards only have value to the extent the equity value of Optimal Blue increases above $1.445 billion. The committee also linked the Optimal Blue profits interest awards to our retention goals by providing that the profits interests vest 100% on the third anniversary of grant, subject to continued service. The Optimal Blue profits interests are subject to the terms and conditions of the Optimal Blue 2020 Incentive Plan and the limited liability company operating agreement.
The following table sets forth certain information with respect to outstanding profits interest awards held by our named executive officers at December 31, 2022.
| Name | | Grant Date | | Number of Class B
Units That Have Not
Vested (#)1 | | | Redemption Value
of Units that
Have Not Vested ($)2 | |
| Anthony M. Jabbour | | 11/24/2020 | | | 1,330 | | | | 14,681,764 | |
| Joseph M. Nackashi | | 11/24/2020 | | | 638 | | | | 7,042,831 | |
| Kirk T. Larsen | | 11/24/2020 | | | 426 | | | | 4,702,580 | |
| 1. | Optimal Blue profits interests vest 100% on the third anniversary of the date of grant. |
| 2. | Based on a redemption value as of December 31, 2022 of $11,038.92 per unit, as determined using the fair value method of accounting under GAAP. |
Stock Vested
The following table sets forth information concerning each vesting of restricted stock (on an aggregated basis) during the fiscal year ended December 31, 2022 for each of the named executive officers:
| | | Stock Vested Restricted
Stock Awards | |
| Name | | | Number of
Shares
Acquired on
Vesting (#) | | | | Value
Realized on
Vesting ($) | |
| Anthony M. Jabbour | | | 223,988 | | | | 13,205,243 | |
| Joseph M. Nackashi | | | 53,199 | | | | 3,169,985 | |
| Kirk T. Larsen | | | 42,418 | | | | 2,515,312 | |
| Michael L. Gravelle | | | 9,211 | | | | 544,812 | |
| Michele M. Meyers | | | 5,221 | | | | 309,438 | |
As discussed above, on December 20, 2022, to further mitigate the potential impact of Section 280G of the Internal Revenue Code on the applicable executive and Black Knight, the compensation committee determined to accelerate the settlement and vesting of the outstanding equity awards granted to Mr. Jabbour that would otherwise vest in the first quarter of 2023, which were vested on December 20, 2022.
Employment Agreements
In 2022, we were party to employment agreements with each of our named executive officers. The material terms of these agreements are summarized below. Additional information regarding post termination benefits provided under our continuing executive officer’s employment agreements can be found under “—Potential Payments Upon Termination or Change of Control” below. As described above, in connection with the leadership transition, our compensation committee, approved several changes executive compensation, as well as related amendments to our named executive officers’ employment agreements, including the following:
| · | For Messrs. Nackashi and Larsen, changes to their minimum base salaries and target annual incentive opportunities, in each case to be consistent with changes to their base salaries and target annual incentive opportunity following discussion with the committee’s independent compensation consultant in consideration of Messrs. Nackashi’s and Larsen’s total compensation levels relative to their respective experience, duties and responsibilities in their new roles, as well as peer and market data. |
| · | For Messrs. Nackashi and Larsen, to increase the lump sum the executive would receive in the event of a termination by the Company without “Cause” or by the executive for “Good Reason”, from 200% to 250% of the executive’s base salary and target annual incentive opportunity in effect for the year in which the date of termination occurs. |
| · | For Messrs. Jabbour, Nackashi, Larsen and Gravelle, amendments to the definition of “Good Reason” to include a material diminution in the executive’s duties or responsibilities upon or within 24 months following a Change in Control of the Company or receipt of notice that the term of the executive’s employment agreement will not be renewed such that the agreement would expire prior to the two-year anniversary of the closing of the ICE Merger, in each case upon or within 24 months after a Change in Control of the Company. |
| · | For Messrs. Jabbour, Nackashi, Larsen and Gravelle, that all outstanding equity awards granted to our executives by the Company or our affiliates will become immediately vested upon a termination of the executive’s employment by the Company without “Cause” or by the executive for “Good Reason”. |
| · | For Messrs. Jabbour and Larsen, amended certain non-competition provisions. |
For each of our named executive officers their employment agreement provides that, if any payments or benefits to be paid to the executive pursuant to the terms of the employment agreement or otherwise would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, then the executive may elect for such payments to be reduced to one dollar less than the amount that would constitute a “parachute payment” under Section 280G of the Internal Revenue Code; and that if the executive does not elect to have such payments so reduced, he or she is responsible for payment of any excise tax resulting from such payments and shall not be entitled to a gross up payment under his employment agreement.
Anthony M. Jabbour
We entered into an employment agreement with Mr. Jabbour, effective as of April 1, 2018, to serve as our Chief Executive Officer, with a provision for automatic annual extensions unless either party provides timely notice that the term should not be extended. In light of Mr. Jabbour role as Executive Chairman, we amended Mr. Jabbour’s employment agreement, effective as of May 16, 2022, to reflect his new title and compensation. Mr. Jabbour’s employment agreement provides that he will receive a minimum annual base salary of $600,000 and is eligible for an annual incentive bonus opportunity, with amounts payable depending on performance relative to targeted results. Mr. Jabbour’s target bonus is set at 200% of his base salary, with a maximum of up to 600% of his target bonus.
Mr. Jabbour’s employment agreement provides that, in the event the Company is sold during the employment term and/or outperforms its financial projections in any calendar year, he is eligible to receive a discretionary bonus in an amount determined by the compensation committee. Mr. Jabbour is entitled to the benefits we provide to our other employees generally.
Joseph M. Nackashi
In light of Mr. Nackashi’s new role of Chief Executive Officer, we entered into an amendment to Mr. Nackashi’s employment agreement to reflect his new title and compensation, effective March 16, 2022. As amended, the employment agreement provides a provision for automatic annual extensions unless either party provides timely notice that the term should not be extended. Under the terms of the agreement, Mr. Nackashi’s minimum annual base salary is $750,000, and Mr. Nackashi is eligible for an annual incentive bonus opportunity, with amounts payable depending on performance relative to targeted results. Mr. Nackashi’s target bonus was increased to 200% (from 100%) of his base salary, with a maximum of up to 400% (increased from 200%) of his base salary. Mr. Nackashi is entitled to the benefits we provide to our other employees generally.
Kirk T. Larsen
In light of Mr. Larsen’s new role of President and Chief Financial Officer, we entered into an amendment to Mr. Larsen’s employment agreement effective March 16, 2022. As amended, the employment agreement provides that Mr. Larsen will serve as our Chief Financial Officer for a three-year term, with a provision for automatic annual extensions unless either party provides timely notice that the term should not be extended. Under the terms of the agreement, Mr. Larsen’s minimum annual base salary was increased $575,000 (from $435,000) and Mr. Larsen is eligible for an annual incentive bonus opportunity, with amounts payable depending on performance relative to targeted results. Mr. Larsen’s target bonus was increased to 150% (from 100%) of his base salary, with a maximum of up to 300% of his base salary. Mr. Larsen is entitled to the benefits we provide to our other employees generally.
Michael L. Gravelle
We entered into an amended and restated employment agreement with Mr. Gravelle, effective March 1, 2015, as amended on April 30, 2016, November 1, 2019, and May 16, 2022 to serve as our Executive Vice President and General Counsel. The agreement provides for a three-year term with automatic annual extensions unless either party provides timely notice that the term should not be extended. Under the terms of the agreement, Mr. Gravelle is eligible for an annual incentive bonus opportunity, with amounts payable depending on performance relative to targeted results. Mr. Gravelle’s target bonus is set at 100% of his base salary, with a maximum of up to 200% of his base salary. Mr. Gravelle is entitled to the benefits we provide to our other employees generally.
Michele M. Meyers
From March 1, 2021 until March 12, 2022, we were party to a severance agreement with Ms. Meyers. Under the terms of the agreement, Ms. Meyers’ minimum annual base salary was $260,000 and Ms. Meyers was eligible for a target annual incentive opportunity equal to 50% of her base salary, with the amount to be paid under the annual incentive opportunity to be determined in the discretion of the compensation committee or the Chief Executive Officer.
Potential Payments Upon Termination or Change of Control
In this section, we discuss the nature and estimated value of payments and benefits we would provide to our named executive officers in the event of termination of employment or a change of control. The amounts described in this section reflect amounts that would have been payable under (i) our plans, and (ii) where applicable with respect to Messrs. Jabbour, Nackashi, Larsen and Gravelle, their employment agreements, if their employment had terminated on December 31, 2022. We do not provide any information in this section regarding amounts payable to Ms. Meyers because she voluntarily terminated her employment with the Company on March 12, 2022 and did not receive any cash payments or accelerated vesting with respect to her outstanding equity awards in connection with her termination.
The types of termination situations include a voluntary termination by the executive, with or without good reason, a termination by us either for cause or not for cause and termination in the event of disability or death. We also describe the estimated payments and benefits that would be provided upon a change in control without a termination of employment. The actual payments and benefits that would be provided upon a termination of employment would be based on the named executive officers’ compensation and benefit levels at the time of the termination of employment and the value of accelerated vesting of share-based awards would be dependent on the value of the underlying stock.
For any termination of employment, our named executive officers would be entitled to benefits that are available generally to our domestic salaried employees, such as distributions under our 401(k) savings plan, certain disability benefits and accrued vacation. We have not described or provided an estimate of the value of any payments or benefits under plans or arrangements that do not discriminate in scope, terms or operation in favor of a named executive officer and that are generally available to all salaried employees.
Potential Payments Under Employment or Severance Agreements
As discussed above, we have entered into employment agreements with Messrs. Jabbour, Nackashi, Larsen and Gravelle. The agreements contain provisions for the payment of severance benefits following certain termination events. On May 16, 2022, the compensation committee approved amendments to Messrs. Jabbour’s, Nackashi’s, Larsen’s and Gravelle’s employment agreements in order to reflect the changes to their respective roles, to modify the terms of the “Good Reason” definition, to clarify the treatment of outstanding equity incentive awards, including Class B Units of Optimal Blue Holdco, LLC, in the event of a termination by the Company without “Cause” or by the executive for “Good Reason.” In the cases of Mr. Nackashi and Mr. Larsen, the amended employment agreements also adjusted from 200% to 250% the lump sum payment each of them would receive in the event of a termination by the Company without “Cause” or by the executive for “Good Reason”. Below is a summary of the payments and benefits that Messrs. Jabbour, Nackashi, Larsen and Gravelle would receive in connection with various employment or service termination scenarios on December 30, 2022, the last trading day of our fiscal year end. Ms. Meyers severance agreement terminated in connection with her voluntary termination of employment on March 12, 2022. She did not receive any payments under her severance agreement in connection with her voluntary termination of employment.
| Termination Payment | Without
Cause
or by the
Executive
for Good
Reason | Death or
Disability | For Cause
or Without
Good
Reason |
| Accrued obligations (earned unpaid base salary, annual bonus payments relating to the prior year, and any unpaid expense reimbursements) | ✓ | ✓ | ✓ |
| Prorated Annual Bonus based on the actual incentive the named executive officer would have earned for the year of termination1 | ✓ | ✓ | X |
| Lump Sum Payment equal to a percentage, of the sum of the executive’s (a) annual base salary and (b) the target bonus opportunity in the year in which the termination of employment occurs2 | ✓ | X | X |
| Right to convert any life insurance provided by us into an individual policy, plus a lump sum cash payment equal to thirty-six months of premiums | ✓ | X | X |
| COBRA coverage (so long as the executive pays the premiums) for a period of three years or, if earlier, until eligible for comparable benefits from another employer, plus a lump sum cash payment equal to the sum of thirty-six monthly COBRA premium payments3 | ✓ | X | X |
| Vesting of all stock option, restricted stock and other equity-based incentive awards, including the Optimal Blue Class B units | ✓ | ✓ | X |
| 1. | The prorated annual bonus is based on the following: |
| · | In the event of a termination without Cause or by the executive for Good Reason, the actual incentive the named executive officer would have earned for the year of termination and the fraction of the year the executive was employed by us. |
| | |
| · | In the event of a termination for death or disability, the target annual bonus opportunity in the year in which the termination occurs or the prior year if no target annual bonus opportunity has yet been determined and (b) for Mr. Jabbour, the fraction of the year the executive was employed, and for Messrs. Nackashi, Larsen and Gravelle, based on the amount of their respective accrued annual bonuses as contained on the internal books of the Company for the month in which the termination occurs. |
| 2. | The percentage for the lump sum payment for each executive is as follows: Mr. Jabbour (250%), Mr. Nackashi (250%), Mr. Larsen (250%) and Mr. Gravelle (200%). |
| 3. | Mr. Nackashi’s agreement does not include this provision with respect to a termination without Cause or by Mr. Nackashi for Good Reason. |
Definition: Cause. The table below shows the reasons that the Company may terminate each named executive officer’s employment for “Cause.”
| Definition of “Cause” includes: | Jabbour | Nackashi | Larsen | Gravelle |
| Persistent failure to perform duties consistent with a commercially reasonable standard of care | ✓ | ✓ | ✓ | ✓ |
| Willful neglect of duties | ✓ | ✓ | ✓ | ✓ |
| Conviction of, or pleading nolo contendere to, criminal or other illegal activities involving dishonesty or moral turpitude | ✓ | ✓ | ✓ | ✓ |
| Material breach of the employment agreement | ✓ | ✓ | ✓ | ✓ |
| Impeding or failing to materially cooperate with an investigation authorized by our board of directors | ✓ | ✓ | ✓ | ✓ |
| Material breach of the Company’s business policies, accounting practices or standards of ethics | ✓ | ✓ | ✓ | ✓ |
| Material breach of any applicable non-competition, non-solicitation, trade secrets, confidentiality or similar restrictive covenant | ✓ | ✓ | ✓ | ✓ |
Definition: Good Reason. The following table shows for each of the named executive officers the reasons that each executive may terminate his employment for “Good Reason.”
| Definition of “Good Reason” includes: | Jabbour | Nackashi | Larsen | Gravelle |
| Material diminution in executive’s duties or responsibilities | ✓ | ✓ | ✓ | ✓ |
| Receipt of notice of non-renewal of employment agreement prior to the two-year anniversary of the closing of the ICE Merger | ✓ | ✓ | ✓ | ✓ |
| Material change in the geographic location of the executive’s principal working location | ✓ | ✓ | ✓ | ✓ |
| Material diminution of the executive’s title, base salary or annual bonus opportunity | ✓ | ✓ | ✓ | ✓ |
| Material breach of any of our obligations under the employment agreement | ✓ | ✓ | ✓ | ✓ |
Potential Payments under Omnibus Incentive Plan
In addition to the post termination rights and obligations set forth in the employment and award agreements, our Omnibus Incentive Plan provides for the potential acceleration of vesting and/or payment of equity awards in connection with a change in control.
Under our Omnibus Incentive Plan, except as otherwise provided in a participant’s award agreement, upon the occurrence of a change in control any and all outstanding options and stock appreciation rights will become immediately exercisable, any restriction imposed on restricted stock, restricted stock units and other awards will lapse, and any and all performance shares, performance units and other awards with performance conditions will be deemed earned at the target level, or, if no target level is specified, the maximum level.
Our performance-based restricted stock award agreements (and for Messrs. Nackashi and Larsen, their May 2022 time-based restricted stock award agreements) provide that the awards will vest in connection with a change in control only if the executive’s employment with the Company is terminated in the six months preceding, or at any time following the change in control that is prior the vesting of the award.
For purposes of our Omnibus Incentive Plan, the term “change in control” is defined as the occurrence of any of the following events:
| · | An acquisition by an individual, entity or group of 50% or more of our voting power (except for acquisitions by us or any of our employee benefit plans), |
| · | During any period of two consecutive years, a change in the majority of our board, unless the change is approved by 2/3 of the directors then in office, |
| · | A reorganization, merger, share exchange, consolidation or sale or other disposition of all or substantially all of our assets; excluding, however, a transaction pursuant to which we retain specified levels of stock ownership and board seats, or |
| · | Our shareholders approve a plan or proposal for our liquidation or dissolution. |
In 2022, the compensation committee approved changes to the employment agreements of each of Messrs. Jabbour, Nackashi, Larsen and Gravelle to provide that all outstanding equity awards granted by the Company or our affiliates will become immediately vested upon a termination of the executive’s employment by the Company without “Cause” or by the executive for “Good Reason”.
Potential Payments Under Optimal Blue 2020 Incentive Plan
In addition, Messrs. Jabbour, Nackashi and Larsen may be entitled to receive potential acceleration of vesting in connection with a sale of Optimal Blue under the Optimal Blue 2020 Incentive Plan. According to their profits interest award agreements, 100% of the Class B units granted to Messrs. Jabbour, Nackashi and Larsen will become vested upon the consummation of a sale of Optimal Blue.
A sale of Optimal Blue for purposes of the Optimal Blue 2020 Incentive Plan generally means the consummation of a transaction or in a series of related transactions with any other person on an arm’s-length basis other than an affiliate of Cannae or THL, pursuant to which such party or parties:
| · | acquire (whether by merger, Unit purchase, recapitalization, reorganization, redemption, issuance of Units or otherwise) more than 50% of the voting units of Optimal Blue, or |
| · | acquire assets constituting all or substantially all of the assets of Optimal Blue and its subsidiaries on a consolidated basis. |
Changing the form of organization or the organizational structure of Optimal Blue or its subsidiaries, contributing securities to entities controlled by Optimal Blue and a public offering of Optimal Blue do not constitute a sale of Optimal Blue. Black Knight’s acquisition on February 15, 2022 of the minority interests in Optimal Blue previously held by Cannae and THL did not constitute a sale of Optimal Blue.
In addition, in the event of a change in control of Black Knight, profits interest holders, including Messrs. Jabbour, Nackashi and Larsen, have the right to require Optimal Blue to redeem all, but not less than all, of their Class B units (whether vested or unvested). The redemption price for the Class B units held by any profits interest holder who elects to require redemption of their units would be the fair market value of the units as determined based upon an appraisal process conducted by a nationally recognized valuation or investment banking firm.
In connection with the amendments to Messrs. Jabbour, Nackashi and Larsen’s employment agreements described above, in the event of termination by the Company for a reason other than Cause, death or disability or in the event of a termination by the executive for Good Reason, the Class B units outstanding as of the date of termination would become immediately vested and/or payable.
Potential Payments Upon Change of Control
Except with respect to Mr. Jabbour’s Discretionary Bonus, none of our named executive officers’ agreements provide for a payment or a benefit upon a change of control without termination.
Estimated Cash Payments Upon Termination of Employment
The following table includes the cash severance amounts that would have been payable to each named executive officer in the event of a termination of employment by us not for Cause or a termination by the executive for Good Reason. Our estimate of the cash severance amounts that would be provided to each individual assumes that their employment terminated on December 30, 2022, the last trading day of our fiscal year ended December 31, 2022. The severance amounts do not include a prorated 2022 annual incentive since the named executive officers would have been paid based on their service through the end of the year and therefore would have received the annual incentive whether or not the termination occurred, and excludes Mr. Jabbour’s Discretionary Bonus, which was paid on December 20, 2022, subject to the terms and conditions described above.
| Reason for Termination Payment: | | Jabbour | | | Nackashi | | | Larsen | | | Gravelle | |
| Termination by Company Without Cause | | | 4,605,168 | | | | 5,625,000 | | | | 3,667,614 | | | | 592,000 | |
| Termination by Employee for Good Reason | | | 4,605,168 | | | | 5,625,000 | | | | 3,667,614 | | | | 592,000 | |
| Death | | | — | | | | — | | | | — | | | | — | |
| Disability | | | — | | | | — | | | | — | | | | — | |
Estimated Equity Payments upon Termination of Employment or Change in Control
The table below includes the estimated values of the Black Knight restricted stock awards and, in the case of Messrs. Jabbour, Nackashi and Larsen, the Optimal Blue Class B units held by our named executive officers that would vest upon a change of control, upon the termination of their employment due to death or disability, or upon a termination without Cause by the Company or by the executive for Good Reason, in each case assuming such event occurred on December 31, 2022. The amounts below were determined based upon the number of unvested restricted shares held by each executive as of December 30, 2022 (as set forth in the Outstanding Equity Awards at Fiscal Year End table above), multiplied by $61.75 per share, which was the closing price of our common stock on December 30, 2022 (the last trading day of our fiscal year ended December 31, 2022). For Messrs. Jabbour, Larsen and Nackashi, the amounts reflected for a termination without Cause or by the executive for Good Reason also include the value of the Optimal Blue Class B units held by each executive as of December 31, 2022 (as set forth in the Outstanding Optimal Blue Profits Interest Awards at Fiscal Year-End table above), multiplied by a redemption value of $11,038.92 per unit, as determined using the fair value method of accounting under GAAP. As discussed above, on December 20, 2022, to further mitigate the potential impact of Section 280G of the Internal Revenue Code, the compensation committee determined to accelerate the settlement and vesting of the outstanding equity awards granted to Mr. Jabbour that would otherwise have vested in the first quarter of 2023, and therefore such awards are not included in the values below.
| Estimated Value of Restricted Stock Awards that Would Vest | | Jabbour | | | Nackashi | | | Larsen | | | Gravelle | |
| Termination Without Cause or by Executive for Good Reason | | | 22,112,635 | | | | 15,888,395 | | | | 11,164,594 | | | | 1,361,032 | |
| Death | | | 22,112,635 | | | | 15,888,395 | | | | 11,164,594 | | | | 1,361,032 | |
| Disability | | | 22,112,635 | | | | 15,888,395 | | | | 11,164,594 | | | | 1,361,032 | |
| Change in Control | | | — | | | | — | | | | — | | | | — | |
Compensation Committee Interlocks and Insider Participation
The compensation committee is currently composed of Thomas M. Hagerty (Chair) and David K. Hunt. During 2022, no member of the compensation committee was a former or current officer or employee of Black Knight or any of its subsidiaries. In addition, during 2022, none of our executive officers served (i) as a member of the compensation committee or board of directors of another entity, one of whose executive officers served on our compensation committee, or (ii) as a member of the compensation committee of another entity, one of whose executive officers served on our board.
Discussion of Our Compensation Policies and Practices as They Relate to Risk Management
We reviewed our compensation policies and practices for all employees including our named executive officers and determined that our compensation programs are not reasonably likely to have a material adverse effect on our Company. In conducting the analysis, we reviewed the structure of our executive, non-executive, sales commission and performance-based restricted stock award incentive programs and the internal controls and risk mitigation processes that are in place for each program. We also reviewed data compiled across our Software Solutions, Data and Analytics and corporate operations relative to Adjusted revenues, Adjusted EBITDA, compensation expense and incentive program expenses (including as a percentage of both Adjusted revenues and compensation expense).
We believe that several design features of our compensation programs mitigate risk. We set base salaries at levels that provide our employees with assured cash compensation that is appropriate to their job duties and level of responsibility and that, when taken together with incentive awards, motivate them to perform at a high level without encouraging inappropriate risk taking to achieve a reasonable level of secure compensation.
With respect to our executives’ incentive opportunities, we believe that our use of measurable corporate financial performance goals, multiple performance levels and minimum, target and maximum achievable payouts, together with the compensation committee’s discretion to reduce awards, serve to mitigate excessive risk taking. The risk of overstatement of financial figures to which incentives are tied is mitigated by our compensation committee’s review and approval of the awards and internal and external review of our financial results. We also believe that our use of restricted stock awards and multi-year vesting schedules in our long-term incentive awards, as well as our executive stock ownership guidelines that strongly promote long-term stock ownership, encourage our executives to deliver incremental value to our shareholders and align their interests with our sustainable long-term performance, thereby mitigating risk.
2022 CEO Pay Ratio
As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, we are providing the following information about the relationship of the annual total compensation of our CEO and the annual total compensation of our employees for 2022, which we refer to as our CEO pay ratio. Our CEO pay ratio information is a reasonable good faith estimate calculated in a manner consistent with Item 402(u) of Regulation S-K.
The ratio of the annual total compensation of our CEO, calculated as described above, to the median of the annual total compensation of all employees for 2022 was 85 to 1. This ratio was based on the following:
| · | The annual total compensation of our CEO, determined as described below was $8,400,799; and |
| · | The median of the annual total compensation of all employees (other than our CEO), determined in accordance with SEC rules, was $98,734. |
Annual Total Compensation of Chief Executive Officer. We are providing the following information about the relationship of the median annual total compensation of our employees and the total compensation of Mr. Joseph Nackashi, our Chief Executive Officer as of May 16, 2022, pursuant to the SEC’s pay ratio disclosure rules set forth in Item 402(u) of Regulation S-K. Because we had cashtwo CEOs during 2022, SEC rules allow us the option of calculating the compensation provided to each CEO during 2022 for the time each served as CEO and cash equivalentscombine those amounts, or for the CEO serving in that position on the date we selected to identify the median employee and annualize that CEO’s compensation. Accordingly, and because Mr. Nackashi is our current CEO, we determined it was appropriate to annualize the compensation Mr. Nackashi received during his role as Chief Executive Officer. The pay ratio is calculated in a manner consistent with the SEC’s pay ratio disclosure rules.
Methodology for Determining Our Median Employee. For purposes of $12.2 million, outstanding debt principal of $2,671.2 million and available capacity of $455.0 millionthe above CEO pay ratio disclosure, we are required to identify a median employee based on our revolving credit facility.worldwide workforce, without regard to their location, compensation arrangements, or employment status (full-time versus part-time). The median employee is determined by identifying the employee whose compensation is at the median of the compensation of our employee population (other than our CEO). Accordingly, to identify the median of the compensation of our employee population, the methodology and the material assumptions and estimates that we used were as follows:
Employee Population. We determined that, as of November 30, 2020, the date we selected to identify the median employee, our total global employee population consisted of approximately 5,700 individuals.
Compensation Measure Used to Identify the Median Employee. Given the geographical distribution of our employee population, we use a variety of pay elements to structure the compensation arrangements of our employees. Consequently, for purposes of measuring the compensation of our employees to identify the median employee, rather than using annual total compensation, we selected base salary/wages and overtime pay, plus actual annual cash incentive compensation (annual bonus) and allowances paid through November 30, 2020 as the compensation measure.
| · | We annualized the compensation of employees to cover the full calendar year, and also annualized any new hires in 2020 as if they were hired at the beginning of the fiscal year, as permitted by SEC rules, in identifying the median employee. |
| · | We did not make any cost-of-living adjustments in identifying the median employee. |
| · | Using this methodology, we estimated that the median employee was an employee with base salary/wages and overtime pay plus actual annual bonuses and allowances paid for the year ended December 31, 2022 of $98,734. |
Annual Total Compensation of Median Employee. In order to determine the annual total compensation of the median employee, we identified and calculated the elements of that employee’s compensation for 2022 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation in the amount of $98,734.
Director Compensation
As an executive of the Company, Mr. Jabbour receives no additional compensation for services as a director. In 2022, all non-executive directors received an annual retainer of $75,000, payable quarterly. The chair and each member of the Audit Committee received an additional annual retainer (payable in quarterly installments) of $40,000 and $30,000, respectively, for their service on the Audit Committee. The chairs and each member of the Compensation, Corporate Governance and Nominating, and Risk Committees received an additional annual retainer (payable in quarterly installments) of $21,000 and $16,000, respectively, for their service on such committees. In addition, Mr. Hagerty received an annual retainer of $30,000 (payable in quarterly installments) for his service as our independent Lead Director.
Each non-executive director also received an equity-based award with a grant date fair value of $225,000, which the Compensation Committee determined to increase from $150,000. In 2022, we offered our non-employee directors the opportunity to elect to receive their annual director equity award in the form of restricted shares or restricted stock units (RSUs). In the case of the RSUs, the award will not settle until the director’s separation of service from the board. All restricted shares and RSUs granted to our directors in 2022 were granted under our Omnibus Incentive Plan, vest in their entirety on the first anniversary of the grant date and are not subject to any performance restriction.
We also reimburse each of our directors for all reasonable out of pocket expenses incurred in connection with attendance at board and committee meetings, as well as with any director education programs, they attend relating to their service on our board of directors. Each non-employee director is eligible to participate in our deferred compensation plan to the extent he or she elects to defer any board or committee fees. Mr. Rao deferred the fees he earned in 2022 for his service on the board and the committees on which he serves.
2022 Director Compensation
The following table sets forth information concerning the compensation of our directors for the fiscal year ended December 31, 2022:
| Name | | Fees Earned or
Paid in Cash ($)1 | | | Stock
Awards ($)2 | | | All Other
Compensation
($) | | | Total ($) | |
| Catherine L. Burke | | | 91,000 | | | | 225,003 | | | | — | | | | 316,003 | |
| Thomas M. Hagerty | | | 142,000 | | | | 225,003 | | | | — | | | | 367,003 | |
| David K. Hunt | | | 128,000 | | | | 225,003 | | | | — | | | | 353,003 | |
| Joseph M. Otting | | | 115,000 | | | | 225,003 | | | | — | | | | 340,003 | |
| Ganesh B. Rao | | | 91,000 | | | | 225,003 | | | | — | | | | 316,003 | |
| John D. Rood | | | 126,000 | | | | 225,003 | | | | — | | | | 351,003 | |
| Nancy L. Shanik | | | 105,000 | | | | 225,003 | | | | — | | | | 330,003 | |
| 1. | Amounts include the cash portion of annual board and committee retainers earned for services as a director in 2022. Amounts shown are not reduced to reflect directors’ elections, if any, to defer receipt of retainers into our deferred compensation plan. |
| | |
| 2. | Amounts shown for all directors represent the grant date fair value of restricted stock awards granted in 2022, computed in accordance with FASB ASC Topic 718. For Ms. Burke, Mr. Hagerty, Mr. Otting and Ms. Shanik, these awards consisted of 3,383 restricted stock units granted in June 2022. For Mr. Hunt, Mr. Rao and Mr. Rood, these awards consisted of 3,383 restricted shares of common stock. All of the restricted stock unit and restricted stock awards granted to our directors in 2022 vest on the first anniversary of the grant date subject to continued service on our board. Assumptions used in the calculation of these amounts are included in Note 16 to our audited financial statements for the fiscal year ended December 31, 2022 included in our Annual Report on Form 10-K filed with the SEC on February 28, 2023. The grant date fair values of the awards granted in 2022 are based on a per share grant date fair value of $66.51, which is equal to the closing price of our common stock on June 10, 2022. As of December 31, 2022, awards outstanding for each director were as follows: Ms. Burke 3,383 restricted stock units; Mr. Hagerty 3,383 restricted stock units; Mr. Hunt 3,383 restricted shares; Mr. Otting 3,383 restricted stock units; Mr. Rao 3,383 restricted shares; Mr. Rood 3,383 restricted shares; and Ms. Shanik 3,383 restricted stock units. |
Pursuant to the Merger Agreement, upon closing of the ICE Merger, each outstanding restricted stock award held by a non-employee director will vest in full and be cancelled and converted into the right to receive the merger consideration, and each restricted stock unit award held by a non-employee director will vest in full and be deemed settled for a number of shares of Black Knight common stock equal to the number of shares underlying the restricted stock unit award, which will be cancelled and converted into the right to receive the merger consideration.
Non-GAAP Financial Measures
This Form 10-K/A contains non-GAAP financial measures, including Adjusted revenues, Adjusted EBITDA, Adjusted net earnings and Adjusted EPS. These are important financial measures for us but are not financial measures as defined by generally accepted accounting principles ("GAAP"). The presentation of this financial information is not intended to be considered in isolation of or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
We use these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. We believe these measures provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making, including determining a portion of executive compensation. We also present these non-GAAP financial measures because we believe investors, analysts and rating agencies consider them useful in measuring our ability to meet our debt service obligations. By disclosing these non-GAAP financial measures, we believe we offer investors a greater understanding of, and an enhanced level of transparency into, the means by which our management operates the company.
These non-GAAP financial measures are not measures presented in accordance with GAAP, and our use of these terms may vary from that of others in our industry. These non-GAAP financial measures should not be considered as an alternative to revenues, operating income, operating margin, net earnings, net earnings per share, net earnings margin or any other measures derived in accordance with GAAP as measures of operating performance or liquidity. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the attached schedules.
Adjusted revenues - We define Adjusted revenues as Revenues adjusted to include the revenues that we did not record during the respective period due to the deferred revenue purchase accounting adjustment recorded in accordance with GAAP. We also exclude the effect of in-year acquisitions and divestitures and the market and/or legislative effect on origination and foreclosure volumes.
Adjusted EBITDA - We define Adjusted EBITDA as Net earnings attributable to Black Knight, with adjustments to reflect the addition or elimination of certain statement of earnings items including, but not limited to:
| · | Depreciation and amortization; |
| · | Equity in (earnings) losses of unconsolidated affiliates, net of tax; |
| · | (Gains) losses related to investments in unconsolidated affiliate, net of tax; |
| · | Net earnings (losses) attributable to redeemable noncontrolling interests; |
| · | equity-based compensation, including certain related payroll taxes; |
| · | acquisition-related costs, including costs pursuant to purchase agreements; |
| · | costs related to the ICE Transaction; and |
| · | costs associated with expense reduction initiatives. |
These adjustments are reflected in Corporate and Other.
Adjusted net earnings - We define Adjusted net earnings as Net earnings attributable to Black Knight with adjustments to reflect the addition or elimination of certain statement of earnings items including, but not limited to:
| · | equity in (earnings) losses of unconsolidated affiliates, net of tax; |
| · | (gains) losses related to investments in unconsolidated affiliate, net of tax; |
| · | (gain) related to the TitlePoint Transaction; |
| · | the net incremental depreciation and amortization adjustments associated with the application of purchase accounting; |
| · | equity-based compensation, including certain related payroll taxes; |
| · | costs associated with debt and/or equity offerings; |
| · | acquisition-related costs, including costs pursuant to purchase agreements; |
| · | costs related to the ICE Transaction; |
| · | costs associated with expense reduction initiatives; |
| · | costs and settlement (gains) losses associated with significant legal matters; |
| · | adjustment for income tax expense primarily related to the tax effect of the non-GAAP adjustments and a discrete income tax benefit related to the establishment of a deferred tax asset as a result of our reorganization of certain wholly-owned subsidiaries; and |
| · | adjustment for redeemable noncontrolling interests primarily related to the effect of the non-GAAP adjustments. |
Adjusted EPS - Adjusted EPS is calculated by dividing Adjusted net earnings by the diluted weighted average shares of common stock outstanding.
BLACK KNIGHT, INC.
Reconciliation of GAAP to Non-GAAP Financial Measures
(In millions)
(Unaudited)
Reconciliation of Net Earnings to Adjusted EBITDA
| | | Year ended December 31, | |
| | | 2022 | | | 2021 | |
| Net earnings attributable to Black Knight | | $ | 452.5 | | | $ | 207.9 | |
| Depreciation and amortization | | | 369.6 | | | | 365.0 | |
| Interest expense, net | | | 100.6 | | | | 83.6 | |
| Income tax expense | | | 22.4 | | | | 35.7 | |
| Other expense, net | | | 11.9 | | | | 6.4 | |
| Equity in (earnings) losses of unconsolidated affiliates, net of tax | | | (1.3 | ) | | | 7.3 | |
| Gain related to investment in unconsolidated affiliate, net of tax | | | (305.4 | ) | | | (9.9 | ) |
| Net losses attributable to redeemable noncontrolling interests | | | (2.5 | ) | | | (28.0 | ) |
| EBITDA | | | 647.8 | | | | 668.0 | |
| Equity-based compensation | | | 55.7 | | | | 42.9 | |
| Acquisition-related costs | | | 7.3 | | | | 8.0 | |
| ICE Transaction-related costs | | | 22.3 | | | | — | |
| Expense reduction initiatives | | | 2.2 | | | | 5.3 | |
| Adjusted EBITDA | | $ | 735.3 | | | $ | 724.2 | |
BLACK KNIGHT, INC.
Reconciliation of GAAP to Non-GAAP Financial Measures (Continued)
(In millions, except per share data)
(Unaudited)
Reconciliation of Net Earnings to Adjusted Net Earnings
| | | Year ended December 31, | |
| | | 2022 | | | 2021 | |
| Net earnings attributable to Black Knight | | $ | 452.5 | | | $ | 207.9 | |
| Equity in (earnings) losses of unconsolidated affiliates, net of tax | | | (1.3 | ) | | | 7.3 | |
| Gain related to investment in unconsolidated affiliate, net of tax | | | (305.4 | ) | | | (9.9 | ) |
| Depreciation and amortization purchase accounting adjustment | | | 207.5 | | | | 219.0 | |
| Equity-based compensation | | | 55.7 | | | | 42.9 | |
| Debt and/or equity offering expenses | | | — | | | | 2.3 | |
| Acquisition-related costs | | | 7.3 | | | | 8.0 | |
| ICE Transaction-related costs | | | 22.3 | | | | — | |
| Expense reduction initiatives | | | 2.0 | | | | 5.3 | |
| Legal matters | | | 12.4 | | | | 4.2 | |
| Income tax expense adjustment | | | (82.3 | ) | | | (67.4 | ) |
| Redeemable noncontrolling interests adjustment | | | (5.8 | ) | | | (48.1 | ) |
| Adjusted net earnings | | $ | 364.9 | | | $ | 371.5 | |
| | | | | | | | | |
| Adjusted EPS | | $ | 2.35 | | | $ | 2.38 | |
| Weighted average shares outstanding, diluted | | | 155.6 | | | | 155.8 | |
| Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The following table sets forth information regarding beneficial ownership of our common stock by each shareholder who is known by the Company to beneficially own 5% or more of such class. Percentages in the table reflect the percent of common shares held by each shareholder.
| Name | | Shares
Beneficially Owned1 | | | Percent of
Total Class2 | |
The Vanguard Group
100 Vanguard Blvd., Malvern, PA 19355 | | | 14,119,015 | | | | 9.0 | % |
T. Rowe Price Associates, Inc.
100 E. Pratt Street, Baltimore, MD 21202 | | | 13,813,507 | | | | 8.8 | % |
Massachusetts Financial Services Co. 111 Huntington Avenue, 24th Floor, Boston, MA 02199 | | | 12,322,028 | | | | 7.9 | % |
BlackRock, Inc.
55 East 52nd Street, New York, NY 10055 | | | 11,534,993 | | | | 7.4 | % |
| 1. | Amounts are based on information publicly filed with the SEC. |
| 2. | Applicable percentages based on 156,799,838 shares of our common stock outstanding as of March 13, 2023. |
Security Ownership of Management and Directors
The following table sets forth information regarding beneficial ownership of our common stock by:
| · | Each of our directors and nominees for director; |
| · | Each of the named executive officers as defined in Item 402(a)(3) of Regulation S-K promulgated by the SEC; and |
| · | All of our executive officers and directors as a group. |
Percentages in the following table reflect the percent of our common shares outstanding as of March 13, 2023. The mailing address of each director and executive officer shown in the table below is c/o Black Knight, Inc., 601 Riverside Avenue, Jacksonville, Florida 32204.
| Name | | Number of Shares | | | Percent of Shares1 | |
| Catherine L. Burke | | | 6,760 | | | | * | |
| Michael L. Gravelle | | | 112,260 | | | | * | |
| Thomas M. Hagerty2 | | | 53,560 | | | | * | |
| David K. Hunt | | | 65,045 | | | | * | |
| Anthony M. Jabbour3 | | | 785,414 | | | | * | |
| Kirk T. Larsen4 | | | 538,451 | | | | * | |
| Joseph M. Nackashi | | | 418,960 | | | | * | |
| Joseph M. Otting5 | | | 16,734 | | | | * | |
| Ganesh B. Rao | | | 16,862 | | | | * | |
| John D. Rood | | | 81,487 | | | | * | |
| Nancy L. Shanik | | | 8,024 | | | | * | |
| Michele M. Meyers6 | | | 18,980 | | | | * | |
| All directors and officers (11 persons)7 | | | 2,103,557 | | | | 1.3 | % |
* Represents less than 1% of our common stock.
| 1. | Applicable percentages based on 156,799,838 shares of our common stock outstanding as of March 13, 2023. |
| |
| 2. | Includes 14,476 shares of our common stock held by trust. |
| |
| 3. | Includes 41,300 shares of our common stock held by Anthony M. Jabbour 2021 Grantor Retained Annuity Trust and 413,410 shares of our common stock held by the Anthony M. Jabbour 2022 Grantor Retained Annuity Trust. |
| |
| 4. | Includes 154,895 shares of our common stock held by the Kirk Larsen Revocable Trust. |
| |
| 5. | Includes 5,605 shares of our common stock held by the Otting Family Trust. |
| |
| 6. | Reflects Ms. Meyers, ownership as of March 12, 2022, the date she departed the Company. |
| |
| 7. | Excludes Ms. Meyers, who departed the Company on March 12, 2022. |
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information as of December 31, 2022 about our common stock which may be issued under our equity compensation plans:
| Plan Category | | Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights (a) | | | Weighted Average
Exercise Price of Outstanding
Options,
Warrants and
Rights (b) | | | Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))(c)1 | |
| Equity compensation plans approved by security holders | | | — | | | | — | | | | 6,126,892 | |
| Equity compensation plans not approved by security holders | | | — | | | | — | | | | — | |
| Total | | | — | | | | — | | | | 6,126,892 | |
| 1. | In addition to being available for future issuance upon exercise of options and stock appreciation rights, under the Omnibus Incentive Plan, shares of our common stock may be issued in connection with awards of restricted stock, restricted stock units, performance shares, performance units or other equity-based awards. |
| Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Director Independence
Our nominating and corporate governance committee evaluates our relationships with each director and nominee and makes a recommendation to our board of directors as to whether to make an affirmative determination that such director or nominee is independent. Under our corporate governance guidelines, an “independent” director is one who meets the qualification requirements for being independent under applicable laws and the corporate governance listing standards of NYSE.
Our board of directors determined that Catherine L. Burke, Thomas M. Hagerty, David K. Hunt, Joseph M. Otting, Ganesh B. Rao, John D. Rood and Nancy L. Shanik are independent. The board of directors also determined that Messrs. Hagerty and Hunt are independent for purposes of service on our compensation committee.
In determining independence, the board of directors considered all relationships that might bear on our directors’ independence from Black Knight. The board of directors determined that Anthony M. Jabbour is not independent because he is the Executive Chairman of Black Knight.
In considering the independence of our directors, the board of directors considered the following factors:
| · | Mr. Hagerty and Mr. Rao are each Managing Directors of Thomas H. Lee Partners, L.P. (THL). On February 15, 2022, we purchased THL’s 20% interest in Optimal Blue Holdco, LLC (Optimal Blue) for aggregate consideration of (y) $289 million in cash and (z) 14,550,544 shares of common stock of DNB owned by Black Knight. For further discussion of our purchase of the minority interests in Optimal Blue, see “Certain Relationships and Related Transactions” below. |
| · | Prior to our purchase of the minority interests in Optimal Blue, we owned approximately 13% of the outstanding common stock of DNB. THL owned approximately 11% of DNB’s common stock, and Messrs. Hagerty and Rao each serve on the board of directors of DNB. We, THL and certain other investors in DNB are party to a letter agreement regarding voting pursuant to which the parties agreed to vote their shares in DNB as a group on all matters relating to the election of directors to the DNB board, including the election of Messrs. Hagerty and Rao, for a period of three years following DNB’s initial public offering. |
Following consideration of these matters, the board of directors determined that these relationships were not of a nature that would impair Mr. Hagerty’s or Mr. Rao’s independence.
Certain Relationships and Related Transactions
Investment in Dun & Bradstreet Holdings, Inc. and Related Agreements
As of December 31, 2022, we owned 18.5 million shares of DNB common stock forheld an ownership interest in DNB of approximately 4% in DNB and our Executive Chairman Anthony M. Jabbour also serves as CEO and a director of DNB’s outstanding common stock.DNB. In addition, two of our other directors, Mr. Hagerty and Mr. Rao, also serve on the board of directors of DNB. We received quarterly cash dividends totaling $1.8 million from DNB in the year ended December 31, 2022. As of December 31,30, 2022, DNB’s closing share price was $12.26 and the fair value of our investment in DNB was $226.5 million before tax. Assuming a statutory tax rate of 25.5%, the estimated after-tax value of our investment in DNB was $211.0 million. Refer to Note 4 to the Notes to Consolidated Financial Statements for additional information.
Our primary cash requirements include operating expenses, debt service payments (principal and interest), capital expenditures (including software development, equipment and property related expenditures) and tax-related payments and may include business acquisitions and share repurchases.
We believe that our cash flows from operations and available cash and cash equivalents are sufficient to meet our liquidity needs, including the repayment of our outstanding debt, for at least the next 12 months. We anticipate that to the extent that we require additional liquidity, it will be funded through borrowings on our revolving credit facility, the incurrence of other indebtedness, the sale of DNB common stock, equity issuance or a combination thereof. The loss of the largest lender on our revolving credit facility would reduce our borrowing capacity by $90.0 million. Additionally, our liquidity and our ability to meet our obligations and fund our capital requirements are also dependent on our future financial performance, which is subject to general economic, financial and other factors that are beyond our control. Accordingly, we cannot be assured that our business will generate sufficient cash flows from operations or that future borrowings will be available from additional indebtedness or otherwise to meet our liquidity needs. Although we have no specific current plans to do so, if we decide to pursue one or more significant acquisitions, we may incur additional debt or sell additional equity to finance such acquisitions.
