Use these links to rapidly review the document
TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrantý | ||
Filed by a Party other than the Registranto | ||
Check the appropriate box: | ||
o | Preliminary Proxy Statement | |
o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
ý | Definitive Proxy Statement | |
o | Definitive Additional Materials | |
o | Soliciting Material under §240.14a-12 |
KAR AUCTION SERVICES, INC. | ||||
(Name of Registrant as Specified In Its Charter) | ||||
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) | ||||
Payment of Filing Fee (Check the appropriate box): | ||||
ý | No fee required. | |||
o | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | |||
(1) | Title of each class of securities to which transaction applies: | |||
(2) | Aggregate number of securities to which transaction applies: | |||
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | |||
(4) | Proposed maximum aggregate value of transaction: | |||
(5) | Total fee paid: | |||
o | Fee paid previously with preliminary materials. | |||
o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | |||
(1) | Amount Previously Paid: | |||
(2) | Form, Schedule or Registration Statement No.: | |||
(3) | Filing Party: | |||
(4) | Date Filed: |
April 24, 201923, 2021
Dear Fellow Stockholder:
Thank you for your continued investment in and support of KAR Auction Services, Inc. d/b/a KAR Global ("KAR"KAR Global" or the "Company"). You are cordially invited to attend KAR's 2019KAR Global's 2021 annual meeting of stockholders, which will be hosted virtually. A virtual meeting provides expanded access, improved communication and cost savings for our stockholders and the Company. You will be able to attend the 20192021 annual meeting online, vote your shares electronically and submit your questions during the meeting by visiting www.virtualshareholdermeeting.com/KAR2019.KAR2021.
As a KAR Global stockholder, your vote is important. The matters to be acted upon are described in the notice of annual meeting of stockholders and the proxy statement. Even if you are planning to attend the virtual meeting, you are strongly encouraged to vote your shares in advance through one of the methods described in the proxy statement.
I am pleasedThe COVID-19 pandemic significantly challenged many economies and industries around the globe in 2020. Despite the unexpected headwinds, KAR Global quickly pivoted our operations and rapidly accelerated our digital transformation in order to report that KAR had a very successful 2018.keep both our Company and our customers moving forward. We grew revenue, adjusted EBITDA and gross profit andare proud to have sold approximately 6.03.1 million vehicles. As an established market leader with an experienced management team,vehicles and generated strong cash flow from operations of $384.4 million while extending our leadership position in digital used vehicle marketplaces. Notably, we believe we are well-positioned for continued growth with solid operating performance and disciplined capital investments.
We have a comprehensive capital allocation plan for increasing stockholder value. We are focused on return of capital to our stockholders and accretive investments in the business, includinglaunched Simulcast+ (ADESA's industry-first, fully-automated, auctioneerless platform powering used vehicle sales from any location); completed the acquisition of auctionsBacklotCars, a leading, fast-growing dealer-to-dealer marketplace in the U.S.; and complementary capabilities in North America and internationally, expandingtransitioned our data analytic capabilities, and enhancing our technology platform. We are proud that through share buybacks and dividends, in 2018 we returned approximately $338 millionused vehicle marketplaces to stockholders and invested approximately $243 million in our business through capital expenditures and strategic acquisitions.100% digital.
Thank you again for your continued support of KAR Global, our Board of Directors, our employees and our future.
Sincerely,
James P. Hallett
Chairman of the Board andChief Executive Officer
James P. Hallett | Peter Kelly | |
Executive Chairman and Chairman of the Board | Chief Executive Officer |
This proxy statement is dated April 24, 201923, 2021 and is first being distributed to stockholders on or about April 24, 2019.23, 2021.
| | |
| | |
| | |
13085 Hamilton Crossing Boulevard11299 North Illinois Street
Carmel, Indiana 46032
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS | ||
Date and Time: | 9:00 a.m., Eastern Daylight Time, on June 4, | |
Place: | Online atwww.virtualshareholdermeeting.com/ | |
Admission: | To attend the | |
Items of Business: | The holders of shares of Series A Convertible Preferred Stock (the "Series A Preferred Stock"), voting as a separate class, are being asked to vote on: | |
Proposal No. 1: To elect the director nominee designated by Ignition Parent LP ("Apax Investor") to the Board of Directors. | ||
The holders of shares of common stock and shares of Series A Preferred Stock, voting together as a single class, are being asked to consider and vote on the following items: | ||
Proposal No. 2: To elect each of the | ||
Proposal No. | ||
Proposal No. | ||
Proposal No. 5: To ratify the appointment of KPMG LLP as our independent registered public accounting firm for | ||
To transact any other business as may properly come before the meeting or any adjournments or postponements thereof. | ||
Record Date: | You are entitled to vote at the | |
Voting by Proxy: | Whether or not you plan to virtually attend the | |
On Behalf of the Board of Directors, | ||
April Carmel, Indiana | EVP, Chief Legal Officer and Secretary |
| | |
| | |
| | |
Notice of Internet Availability of Proxy Materials for the Annual Meeting
The proxy statement for the 20192021 annual meeting and the annual report to stockholders for the fiscal year ended December 31, 2018,2020, each of which is being provided to stockholders prior to or concurrently with this notice, are also available to you electronically via the Internet. We encourage you to review all of the important information contained in the proxy materials before voting. To view the proxy statement and annual report to stockholders on the Internet, visit our website,www.karauctionservices.comwww.karglobal.com, and click on "Investors" and then the "Financials" tab under "Investor Relations"tab. The information on our homepage.website is not part of this proxy statement and is not deemed incorporated by reference into this proxy statement or any other public filing made with the SEC.
TABLE OF CONTENTS |
PROXY STATEMENT SUMMARY | 1 | |
| 1 | |
| 1 | |
| 2 | |
| 3 | |
| 4 | |
| 5 | |
PROPOSALS NO. 1 & 2: ELECTION OF | 6 | |
| 6 | |
| 6 | |
| 6 | |
| 7 | |
| 7 | |
BOARD | 13 | |
| 13 | |
| 13 | |
| 14 | |
| 14 | |
| 14 | |
Board and Committee Evaluation Process | 16 | |
| ||
| ||
| ||
| 18 | |
DIRECTOR COMPENSATION | 19 | |
| 19 | |
| 20 | |
| 20 | |
| 20 | |
| 21 | |
BENEFICIAL OWNERSHIP OF | 22 | |
| ||
PROPOSAL NO. 3: ADVISORY VOTE TO APPROVE EXECUTIVE | 24 | |
| 24 |
COMPENSATION DISCUSSION AND ANALYSIS | 25 | |
| 25 | |
| ||
| ||
| ||
| 30 | |
|
Elements Used to Achieve Compensation Philosophy and Objectives | 32 | |
| ||
Results of Say On Pay Vote at 2020 Annual Meeting | 44 | |
COMPENSATION COMMITTEE REPORT | ||
ANALYSIS OF RISK IN THE COMPANY'S COMPENSATION STRUCTURE | ||
SUMMARY COMPENSATION TABLE FOR | ||
GRANTS OF PLAN-BASED AWARDS FOR | ||
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END | ||
OPTION EXERCISES AND STOCK VESTED DURING FISCAL YEAR | ||
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL | ||
| ||
| ||
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL TABLE | ||
| ||
CEO PAY RATIO | ||
PROPOSAL NO. 4: APPROVAL OF AN AMENDMENT AND RESTATEMENT OF THE KAR AUCTION SERVICES, INC. 2009 OMNIBUS STOCK AND INCENTIVE PLAN | 61 | |
Proposal | 61 | |
PROPOSAL NO. 5: RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING | ||
| ||
| ||
| ||
| ||
| ||
REQUIREMENTS, INCLUDING DEADLINES, FOR SUBMISSION OF PROXY PROPOSALS | ||
| ||
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING |
Forward-Looking Statements:This proxy statement contains information that may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, and which are subject to certain risks, trends and uncertainties. In particular, statements made that are not historical facts may be forward-looking statements. Words such as "should," "may," "will," "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," and similar expressions identify forward-looking statements. Such statements are based on management's current expectations, are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results projected, expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include those uncertainties regarding the impact of the COVID-19 pandemic on our business and the economy generally, and those other matters disclosed in the Company's SEC filings. The Company does not undertake any obligation to update any forward-looking statements.
| | |
| | |
| | |
PROXY STATEMENT SUMMARY |
This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement before voting. For more complete information regarding the 2020 performance of KAR Auction Services, Inc.'s (the "Company," "KAR""KAR," "KAR Auction Services" or "KAR Auction Services"Global") 2018 performance,, please review the Company's Annual Report on Form 10-K for the year ended December 31, 2018.2020.
ANNUAL MEETING OF STOCKHOLDERS | ||
Date and Time: | 9:00 a.m., Eastern Daylight Time, on June 4, | |
Location: | Online atwww.virtualshareholdermeeting.com/ | |
Record Date: | Stockholders of record as of the close of business on the record date, April | |
NYSE Symbol: | KAR | |
Registrar and Transfer Agent: | American Stock Transfer & Trust Company, LLC | |
ITEMS TO BE VOTED ON AT ANNUAL MEETING OF STOCKHOLDERS |
Proposal | Proposal | Our Board's Recommendation | Page | Proposal | Our Board's Recommendation | Page | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
1. | Election of each of the nine director nominees. | FOR each director nominee | 6 | Election of the director nominee designated by the Apax Investor. | FOR the director nominee | 6 | ||||||
2. | Approval, on an advisory basis, of executive compensation. | FOR | 24 | Election of each of the other eight director nominees. | FOR each director nominee | 6 | ||||||
| | |||||||||||
3. | Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for 2019. | FOR | 57 | Approval, on an advisory basis, of executive compensation. | FOR | 24 | ||||||
| | |||||||||||
4. | Approval of an amendment and restatement of the KAR Auction Services, Inc. 2009 Omnibus Stock and Incentive Plan, as amended. | FOR | 61 | |||||||||
| | |||||||||||
5. | Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for 2021. | FOR | 68 | |||||||||
| |
| | |
| | |
| | 1 |
BOARD NOMINEES (PAGES 7–12) |
Name | Age | Director Since | Independent | Primary Occupation | Committee Membership** | Age | Director Since | Independent | Primary Occupation | Committee Membership*** | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Donna R. Ecton | 72 | 2013 | Yes | Chairman and Chief Executive Officer of EEI Inc. | CC (Chair), AC | |||||||||||||||
| | | | | | | | | ||||||||||||
Roy Mackenzie | 49 | 2020 | Yes | Partner of Apax Partners, LP | CC | |||||||||||||||
Carmel Galvin | 52 | 2020 | Yes | Chief People Officer at Stripe, Inc. | CC (Chair), NCGC | |||||||||||||||
James P. Hallett | 66 | 2007 | No | Chairman of the Board and Chief Executive Officer of KAR Auction Services, Inc. | — | 68 | 2007 | No | Executive Chairman and Chairman of the Board of KAR Auction Services, Inc. | — | ||||||||||
Mark E. Hill | 63 | 2014 | Yes | Managing Partner of Collina Ventures, LLC and Chairman and Chief Executive Officer of Lumavate LLC | NCGC (Chair), RC | 65 | 2014 | Yes | Managing Partner of Collina Ventures, LLC and Chairman and Chief Executive Officer of Lumavate LLC | NCGC (Chair), RC | ||||||||||
J. Mark Howell | 54 | 2014 | Yes | President and Chief Executive Officer of Conexus Indiana | RC (Chair), AC | 56 | 2014 | Yes | President and Chief Executive Officer of Conexus Indiana | RC (Chair), AC | ||||||||||
Stefan Jacoby | 61 | — | Yes | Automotive Industry Consultant | — | 63 | 2019 | Yes | Automotive Industry Consultant | CC, NCGC | ||||||||||
Lynn Jolliffe | 67 | 2014 | Yes | Human Capital and Talent Management Consultant | CC, NCGC | |||||||||||||||
Michael T. Kestner | 65 | 2013 | Yes | Building Products and Automotive Industry Consultant | AC (Chair), RC | |||||||||||||||
John P. Larson* | 56 | 2014 | Yes | Chief Executive Officer of Bestop, Inc. | CC, RC | |||||||||||||||
Stephen E. Smith | 70 | 2013 | Yes | Automotive Industry Consultant | AC, NCGC | |||||||||||||||
Peter Kelly | 52 | 2021 | No | Chief Executive Officer of KAR Auction Services, Inc. | — | |||||||||||||||
Michael T. Kestner* | 67 | 2013 | Yes | Building Products and Automotive Industry Consultant | AC (Chair), RC | |||||||||||||||
Mary Ellen Smith** | 61 | 2019 | Yes | Corporate Vice President of Worldwide Business Operations of Microsoft Corporation | CC, RC |
| | |
| | |
| | 2 |
For the year ended December 31, 2018, the Company again delivered solid growth in volume of total vehicles sold, revenues, adjusted EBITDA and gross profit. Specific highlights for fiscal 2018 included:
For the year ended December 31, 2020, the Company accelerated its digital transformation to sustain operations in the face of significant and unexpected headwinds from the global COVID-19 pandemic. Specific highlights for fiscal 2020 included: | ||||||
| ||||||
| | | ||||
| | Transitioned operating model to a fully digital marketplace • 100% of vehicles sold via digital channels since April 2020 • Launched industry-leading Simulcast+ platform • Significantly reduced cost structure to align with digital model • Registered thousands of new buyers and sellers to our digital platforms | | |||
| | | ||||
| | | ||||
| | | | | | |
| | ||||||
| | | |||||
| Enhanced digital offerings with the acquisition of BacklotCars a | | | ||||
| | | |||||
| | | |||||
| | | | | | |
| | | ||||
| | | ||||
| | Generated strong cash flow from operations of $384.4 million | | |||
| | | ||||
| | | | | | |
| |||||||
| | | |||||
| strong cash position of $752.1 million | | | ||||
| | | |||||
| | |
|
| | |
| | |
| | 3 |
CORPORATE GOVERNANCE HIGHLIGHTS (PAGES 13–18) |
We are committed to high standards of ethical and business conduct and strong corporate governance practices. This commitment is highlighted by the practices described below as well as the information contained on our website,www.karauctionservices.comwww.karglobal.com, which can be accessed by clicking on "Governance" under"Investors" and then the "Investor Relations""Governance" tab.
Annual Elections: Our directors are elected annually for one-year terms. | ||
Majority Voting: We maintain a majority voting standard for uncontested director elections with a policy for directors to tender their resignation | ||
Director and Committee Independence: | ||
Executive Sessions: Our independent directors meet in executive session at each regularly scheduled Board meeting. | ||
Lead Independent Director: We have a lead independent director who presides over the executive sessions of the independent directors and serves as the principal liaison between the independent directors and the Company's CEO and Chairman of the Board. | ||
Gender Diversity: More than twenty percent of our | ||
Annual Board and Committee Evaluations: The Board and its committees each | ||
Robust Equity Ownership Requirements for Non-Employee Directors: The stock ownership guideline for our non-employee directors is five times their annual cash retainer. | ||
Robust Equity Retention Requirements for Non-Employee Directors: All shares of our common stock granted to non-employee directors must be held for three years after vesting while serving as a director. | ||
Robust Equity Ownership Requirements for Executive Officers: We have stock ownership guidelines that are applicable to our executive officers. The stock ownership guideline for our CEO is five times his annual base salary, the stock ownership guideline for CEO direct reports and | ||
Anti-Hedging and Pledging Policies: Our directors and executive officers are prohibited from hedging or pledging Company stock. | ||
Annual management and CEO evaluation and succession planning review: Our Board conducts an annual evaluation and review of our CEO and each executive officer's performance, development and succession plan. | ||
Board Risk Oversight: The Risk Committee assists the Board in its oversight of: (i) the principal business, financial, technology, operational and regulatory risks and other material risks and exposures of the Company; and (ii) the actions, activities and initiatives of the Company to mitigate such risks and exposures. The Risk Committee provides oversight with respect to risk practices implemented by management, except for the oversight of risks that have been specifically delegated to another committee of the Board (in which case the Risk Committee may maintain oversight over such risks through the receipt of reports from such committees). |
| | |
| | |
| | 4 |
EXECUTIVE COMPENSATION (PAGES 25– |
We maintain a compensation program structured to achieve a close connection between executive pay and Company performance. We believe that this strong pay-for-performance orientation has served us well in recent years. For more information regarding our named executive officer compensation, see "Compensation Discussion and Analysis" and the compensation tables that follow such section.
Executive Compensation Best Practices
WHAT WE DO
WHAT WE DON'T DO
| | |
| | |
| | 5 |
DIRECTORS ELECTED ANNUALLY |
OurThe Apax Investor has designated, and our Board has nominated, Roy Mackenzie, to stand for election to the Board at the 2021 annual meeting. In addition, our Board has nominated the nineeight individuals named below to stand for election to the Board at the 20192021 annual meeting. The Company's directors are elected each year by theour stockholders at the annual meeting.meeting (with one member of the Board being elected solely by the holders of Series A Preferred Stock). We do not have a staggered or classified board. Each director's term will last until the 20202022 annual meeting of stockholders and until such director's successor is duly elected and qualified, or such director's earlier death, resignation or removal. EachThe director nominee designated by the Apax Investor must receive the affirmative vote of a majority of the votes cast by the holders of Series A Preferred Stock (voting as a separate class), and the eight other director nominees must receive the affirmative vote of a majority of the votes cast by the holders of common stock and Series A Preferred Stock, voting together as a single class, in the election of directors at the 20192021 annual meeting to be elected (i.e., the number of shares voted "FOR" a director nominee must exceed the number of votes cast "AGAINST" such nominee).
DIRECTOR INDEPENDENCE |
The Board is responsible for determining the independence of our directors. Under the NYSE listing standards, a director qualifies as independent if the Board affirmatively determines that the director has no material relationship with us.the Company. While the focus of the inquiry is independence from management, the Board is required to broadly consider all relevant facts and circumstances in making an independence determination. In making independence determinations, the Board complies with NYSE listing standards and considers all relevant facts and circumstances. Based upon its evaluation, our Board has affirmatively determined that the following current directors and director nominees meet the standards of "independence" established by the NYSE: Todd F. Bourell, Donna R. Ecton,David DiDomenico, Carmel Galvin, Mark E. Hill, J. Mark Howell, Stefan Jacoby, Lynn Jolliffe,Roy Mackenzie, Michael T. Kestner, John P. LarsonMary Ellen Smith and Stephen E. Smith. James P. Hallett, our CEOExecutive Chairman and Chairman of the Board, isand Peter J. Kelly, our CEO, are not an independent director.directors.
BOARD NOMINATIONS AND DIRECTOR NOMINATION PROCESS |
The Board is responsible for nominating members for election to the Board and for filling vacancies on the Board that may occur between the annual meetings of stockholders. The Nominating and Corporate Governance Committee is responsible for identifying, screening and recommending candidates to the Board for Board membership. When formulating its Board membership recommendations, the Nominating and Corporate Governance Committee may also consider advice and recommendations from others, including third-party search firms, current Board members, management, stockholders and other persons, as it deems appropriate. The Nominating and Corporate Governance Committee has previously retained a third-party search firm to assist with identifying, screening and evaluating potential candidates.
The Nominating and Corporate Governance Committee uses a variety of methods to identify and evaluate potential candidates. Consideration of candidates typically involves a series of internal discussions, review of candidate information, and interviews with selected candidates. The Nominating and Corporate Governance Committee will consider the candidate against the criteria it has adopted, as further discussed below, in the context of the Board's then-current composition and the needs of the Board and its committees, and will ultimately recommend qualified candidates for election to the Board. Though the Nominating and Corporate Governance Committee does not have a formal policy regarding consideration of director candidates recommended by stockholders, the Nominating and Corporate Governance Committee generally evaluates such candidates in the same manner by which it evaluates director candidates recommended by other sources. With respect to the director to be elected by the holders of shares of Series A Preferred Stock, such nominee is required to have been designated by the Apax Investor pursuant to the Apax Investment Agreement.
| | |
| | |
| | 6 |
As detailed in both the Nominating and Corporate Governance Committee Charter and the Corporate Governance Guidelines, Boarddirector candidates are selected based upon various criteria, including experience, skills, expertise, diversity, personal and professional integrity, character, business judgment, time availability in light of other commitments, dedication, conflicts of interest and such other relevant factors that the Nominating and Corporate Governance Committee considers appropriate in the context of the needs of the Board.
|
|
|
|
|
|
|
|
|
All Director candidates are considered in light of the needs of the Board with due consideration given to the foregoing criteria. Board members are expected to prepare for, attend and participate in all Board and applicable committee meetings and the Company's annual meetings of stockholders.
In addition, a stockholder may nominate candidates for election as a director, provided that the nominating stockholder follows the procedures set forth in Article II, Section 5 of the Company's Second Amended and Restated By-Laws for nominations by stockholders of persons to serve as directors, including the requirements of timely notice and certain information to be included in such notice. Deadlines for stockholder nominations for next year's annual meeting are included in the "Requirements, Including Deadlines, for Submission of Proxy Proposals" section on page 61.73.
AnPursuant to our employment agreement entered into on February 27, 2012 between the Company andagreements with James P. Hallett, the Company's CEOour Executive Chairman and Chairman of the Board, provides that Mr.and Peter J. Kelly, our Chief Executive Officer, the Company will nominate each of Messrs. Hallett shall be entitledand Kelly to serve as a member of the Board for so long as theduring his respective period of employment agreement is in effect.under such agreement.
BOARD QUALIFICATIONS AND DIVERSITY |
The Nominating and Corporate Governance Committee and the Board believe that diversity along multiple dimensions, including opinions, skills, perspectives, personal and professional experiences, and other differentiating characteristics, is an important element of its nomination recommendations. The Nominating and Corporate Governance Committee has not identified any specific minimum qualifications which must be met for a person to be considered as a candidate for director. However, Board candidates are selected based upon various criteria including experience, skills, expertise, diversity, personal and professional integrity, character, business judgment, time availability in light of other commitments, dedication, conflicts of interest and such other relevant factors that the Nominating and Corporate Governance Committee considers appropriate in the context of the needs of the Board. Although the Board does not have a formal diversity policy, the Nominating and Corporate Governance Committee and Board review these factors, including diversity of gender, race, ethnicity, age, cultural background and professional experience, in considering candidates for Board membership.
INFORMATION REGARDING THE NOMINEES FOR ELECTION TO THE BOARD |
The following information is furnished with respect to each nominee for election as a director. All of the nominees with the exception of Stefan Jacoby, are currently directors anddirectors. The nominees were elected by the stockholders at last year's annual meeting.meeting, except for Mr. JacobyMackenzie. Mr. Mackenzie was initially identified and recommendedoriginally appointed to our Board on June 10, 2020 for a term expiring at the 2021 annual meeting pursuant to the Nominatingterms of the Apax Investment Agreement. For so long as the Apax Investor meets certain beneficial ownership conditions as detailed in the Apax Investment Agreement, the Apax Investor has the right to designate one director to the Board. The Apax Investor has designated Roy Mackenzie for election in 2021 for a term expiring at the 2022 annual meeting. Consistent with the Apax Investment Agreement, our Board now nominates, and Corporate Governance Committee asrecommends, Mr. Mackenzie for election in 2021 for a potential nominee by a third-party search firm. Mr. Jacoby was subsequently recommendedterm expiring at the 2022 annual meeting. The appointment of the Apax Investor designee will be voted on by the Nominating and Corporate Governance Committeeholders of Series A Preferred Stock at each annual meeting until the Apax Investor ceases to meet certain beneficial ownership conditions as detailed in the Board for election as a director and the Board has nominated Mr. Jacoby to stand for election as a director at the 2019 annual meeting. Apax Investment Agreement.
Each of the nominees has consented to being named in this proxy statement and to serve as a director if elected. If Roy Mackenzie shall not be available for election as a director at the 2021 annual meeting, it is intended that shares represented by the accompanying proxy will be voted for the election of a substitute nominee designated by the Apax Investor. If any of the other eight nominees is unavailable to stand for election as a director, your proxiesproxy holders will have the authority and discretion to vote for another nominee proposed by the Board or the Board may reduce the number of directors to be elected at the 20192021 annual meeting. The ages of the nominees are as of the date of the 20192021 annual meeting, June 4, 2019.2021.
| | |
| | |
| | 7 |
Nominees for Election as Directors to Be Elected by Holders of Series A Preferred Stock |
Roy Mackenzie | |||||||
Independent Director since June 2020 Age: 49 Current Board Committees: Compensation Committee | |||||||
Career Highlights | |||||||
Partner at Apax Partners, LP ("Apax"), a private equity advisory firm, since January 2003, and also serves on the Investment Committees for the Apax Buyout Funds and Apax Global Alpha. | |||||||
• Director of Trade Me Ltd, Vyaire Medical, Inc., and Duck Creek Technologies, Inc., each in connection with investments by funds advised by Apax. | |||||||
Previously served as a director of several companies in connection with investments by funds advised by Apax, including Sophos Group plc, King Digital Entertainment plc, Exact Software NV, Epicor Software, Inc., and NXP Semiconductors NV. | |||||||
Other Public and Registered Investment Company Directorships in Last Five Years: Director of Duck Creek Technologies, Inc. since April 2016. Partner at Apax since 2003. Director of Sophos Group PLC from May 2015 to March 2020. | |||||||
Skills and Qualifications | |||||||
Extensive experience working closely with management teams to build successful technology companies. | |||||||
Substantial experience in evaluating companies' strategies, operations and financial performance, which provides important perspectives and insights. | |||||||
Deep technology expertise. | |||||||
Current and prior public board service brings valuable skills and perspectives to our Board. | |||||||
Mr. Mackenzie is a director who was designated by the Apax Investor under the terms of the Apax Investment Agreement. Only the holders of Series A Preferred Stock may vote on the election of Mr. Mackenzie as a director at the 2021 annual meeting. |
Donna R. Ecton
The Board of Directors recommends a vote FOR the election of the foregoing nominee to the Board of Directors. | ||
Proxies solicited by the Board of Directors will be voted "FOR" the election of the director nominee named in this proxy statement and on the proxy card unless stockholders specify a contrary vote. |
| | |
| | |
| | 8 |
Nominees for Election as Directors to Be Elected by Holders of Common Stock and Series A Preferred Stock, Voting Together as a Single Class |
Carmel Galvin | ||
Independent Director since Age: Current Board Committees: Compensation Committee (Chair) and |
James P. Hallett
Director since April 2007 Age: Executive Chairman and Chairman of the Board |
Career Highlights | ||
•
| ||
•
| ||
•
| ||
•
| ||
•
| ||
•
| ||
•
| ||
| ||
• Graduate of | ||
Skills and Qualifications | ||
✓ More than | ||
✓
| ||
✓ Significant | ||
✓
| ||
|
Career Highlights | ||
• Executive Chairman of the Company since April 2021 and Chairman of the Company since December | ||
• Chief Executive Officer and President of ADESA from April 2007 to September 2009, a wholly owned subsidiary of the Company. | ||
• President of Columbus Fair Auto Auction, a large independent automobile auction located in Columbus, Ohio, from May 2005 to April 2007. | ||
• After selling his auctions to ADESA in 1996, Mr. Hallett held various senior executive leadership positions with ADESA between 1996 and 2005, including President and Chief Executive Officer of ADESA. | ||
• Founded and owned two automobile auctions in Canada from 1990 to 1996. | ||
| ||
• Managed and then owned a number of new car franchise dealerships for 15 years. | ||
• Winner of multiple industry awards, including NAAA Pioneer of the Year in 2008 and the Ed Bobit Industry Icon award in 2018. | ||
• Recognized as the EY Entrepreneur of the Year 2014 National Services Award Winner and one of Northwood University's 2015 Outstanding Business Leaders. | ||
• Graduate of Algonquin College. | ||
Skills and Qualifications | ||
✓ Committed and deeply engaged leader with over 20 years of experience in key leadership roles throughout the Company and over 40 years of experience in the industry. | ||
✓ As the former Chief Executive Officer and now Executive Chairman, Mr. Hallett has a thorough and in-depth understanding of the Company's business and industry, including its employees, business units, customers and investors, which provides an additional perspective to our Board. | ||
✓ Utilizes strong communication skills to guide Board discussions and keep our Board apprised of significant developments in our business and industry; including our risk management practices, strategic planning and development. |
| | |
| | |
| | |
Mark E. Hill
Independent Director since June 2014 Age: Current Board Committees: Nominating and Corporate Governance Committee (Chair) and Risk Committee |
J. Mark Howell
Independent Director since December 2014 Age: Current Board Committees: Risk Committee (Chair) and Audit Committee |
Career Highlights | ||
• Managing Partner of Collina Ventures, LLC, a private investment company that invests in software and technology companies, since 2006; and Chairman and Chief Executive Officer of Lumavate LLC, a company that provides a platform for building cloud-based mobile applications, since November 2017. | ||
• Co-founder and Chairman of Bluelock, LLC, a privately held infrastructure-as-a-service company, from 2006 to March 2018. | ||
• Co-Founder, President and Chief Executive Officer of Baker Hill Corporation, a banking industry software and services business, from 1985 to 2006. Baker Hill Corporation was acquired by Experian PLC, a global information solutions company, in 2005. | ||
• Graduate of the University of Notre Dame (BBA) and Indiana University (MBA). | ||
Other Public Company Directorships in Last Five Years: | ||
Skills and Qualifications | ||
✓ Significant executive leadership and management experience leading and owning a software and technology-based business provides our Board with expertise in technology, innovation, and strategic investments. | ||
✓ Extensive experience as an investor and mentor to numerous early stage software and technology companies provides entrepreneurial perspective to the Board. | ||
✓ Key leadership experience in numerous central Indiana business and community service organizations, including TechPoint, the Central Indiana Community Foundation, the Orr Fellowship and the local Teach For America board. | ||
✓ Public company board experience, including serving as a lead independent director. |
Career Highlights | ||
• President and Chief Executive Officer of Conexus Indiana, Indiana's advanced manufacturing and logistics initiative sponsored by Central Indiana Corporate Partnership, Inc., since January 2018. | ||
• Chief Operating Officer of Angie's List, Inc., a | ||
• President, Ingram Micro North America Mobility of Ingram Micro Inc., a technology distribution company, from 2012 to 2013. | ||
• President, BrightPoint Americas of BrightPoint, Inc., a distributor of mobile devices for phone companies, including Chief Operating Officer, Executive Vice President and Chief Financial Officer, from 1994 to 2012. BrightPoint, Inc. was sold to Ingram Micro Inc. in 2012. | ||
• Vice President and Corporate Controller of ADESA from August 1992 to July 1994, now a wholly owned subsidiary of the Company. | ||
• Audit Staff and Senior Staff at Ernst & Young LLP. | ||
• Graduate of the University of Notre Dame (BBA in Accounting). | ||
Skills and Qualifications | ||
✓ Extensive senior leadership experience at internet-based and technology-driven companies provides valuable insight as an increasing amount of the Company's consigned vehicles are sold | ||
✓ Significant executive leadership experience in the public company sector. | ||
✓ Provides unique, in-depth knowledge of ADESA and its industry as a former employee of ADESA. | ||
✓ Substantial financial experience. | ||
✓ Certified Public Accountant with experience in public accounting and public companies. |
| | |
| | |
| | |
Stefan Jacoby
Lynn Jolliffe
Independent Director Age: Current Board Committees: Compensation Committee and Nominating and Corporate Governance Committee |
Peter Kelly | ||
Director since April 2021 Age: 52 Chief Executive Officer |
Career Highlights | ||
• Consultant in the automotive industry since January 2018. | ||
• Executive Vice President of General Motors Company, a multinational company that designs, manufactures and markets vehicles worldwide, and President of GM International Operations, from August 2013 to January 2018. | ||
• Chief Executive Officer and President of Volvo Car Corporation, a multinational vehicle manufacturer and marketer, from August 2010 to October 2012. | ||
• Served in several capacities at Volkswagen AG, a multinational automotive manufacturing company, between 2004 and 2010, most recently serving as Chief Executive Officer and President of Volkswagen Group of America from 2007 to 2010 and as Executive Vice President of Group Marketing and Sales at Volkswagen AG from 2004 to 2007. | ||
• Chief Executive Officer and President of Mitsubishi Motors Europe, the European headquarters of automotive manufacturer Mitsubishi Motors, from 2001 to 2004. | ||
• Served in a variety of finance and leadership roles at Volkswagen AG from 1985 to 2001. | ||
• Graduate of the University of Cologne, Germany. | ||
Skills and Qualifications | ||
✓ More than 30 years of broad international experience in the automotive industry, including senior management positions with global automakers in Germany, Japan, the Netherlands, Sweden, Singapore and the United States. | ||
✓ Deep insights and understanding of the macro trends and technologies rapidly transforming the automotive industry, including mobility as a service and autonomous vehicles. | ||
✓ Extensive knowledge of customer experience and retail structures. Expansive experience in finance, sales and marketing has given him a deep understanding of the impact of both areas on profitability and successful market growth. | ||
✓ Strong leadership skills in managing and motivating people for establishing momentum for growth and change, building high performance teams in transformative periods and recruiting and retaining senior management. |
Career Highlights | ||
• Chief Executive Officer of | ||
•
| ||
| ||
| ||
•
| ||
•
| ||
•
| ||
• Graduate of the University College Dublin (Engineering) and Stanford University | ||
Skills and Qualifications | ||
✓
| ||
✓ As former President and now Chief Executive Officer, Mr. Kelly has a thorough and in-depth understanding of the Company's business and industry, including its employees, business units, customers and digital opportunities, which provides an additional perspective to the Board. Mr. Kelly's entrepreneurial mindset provides further unique perspective. | ||
✓ Deep | ||
✓
| ||
|
| | |
| | |
| | |
Michael T. Kestner
Independent Director since December 2013 Lead Independent Director since July 2019 Age: Current Board Committees: Audit Committee (Chair) and Risk Committee |
John P. Larson
Independent Director since Age: Current Board Committees: Compensation Committee and Risk Committee |
Career Highlights | ||
• Consultant in the building products and automotive industry since December 2015. | ||
• Chief Financial Officer of Building Materials Holding Corporation, a building products company, from August 2013 to December 2015. | ||
• Partner in FocusCFO, LLC, a consulting firm providing part time CFO services, from April 2012 to August 2013. | ||
• Executive Vice President, Chief Financial Officer and a director of Hilite International, Inc., an automotive supplier of powertrain parts, from October 1998 to July 2011. | ||
• Chief Financial Officer of Sinter Metals, Inc., a supplier of powder metal | ||
• Served in various capacities at Banc One Capital Partners, Wolfensohn Ventures LP and as a senior audit manager at KPMG LLP. | ||
• Graduated from Southeast Missouri State University. | ||
Skills and Qualifications | ||
✓ Over 20 years as a CFO provides valuable experience and perspective as Chair of the Audit Committee. | ||
✓ Brings experience as the former CFO of a large, United States based company which includes experience with complex capital structures and mergers and acquisitions. | ||
✓ Extensive experience in financial analysis and financial statement preparation. | ||
✓ Management experience in the automotive industry both domestically and internationally provides him with additional insight into financial and business matters that are important to the Company. | ||
✓ Certified Public Accountant with experience in public accounting and public companies. |
Career Highlights | ||
•
| ||
•
| ||
• Served in | ||
•
| ||
| ||
Skills and Qualifications | ||
✓
| ||
✓ Deep expertise in digital business transformation, change management in transforming business processes from physical to digital supply chain and operations delivering highly impactful business model and | ||
✓ Extensive | ||
✓ Extensive knowledge and broad business skills supporting customer experience |
|
|
| ||
|
|
| ||
|
|
|
Stephen E. Smith
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
|
| ||||
Significant | ||||
| ||||
|
✓ | The Board of Directors recommends a vote | |
Proxies solicited by the Board of Directors will be voted "FOR" the election of each of the |
| | |
| | |
| | 12 |
BOARD CORPORATE GOVERNANCE |
ROLE OF THE BOARD |
The Board oversees the Company's Executive Chairman, CEO and other members of senior management in the competent and ethical operation of the Company and assures that the long-term interests of the stockholders are being served. The Board serves as the ultimate decision-making body of the Company, except for those matters reserved to or shared with the stockholders. The Company's Corporate Governance Guidelines are available on our website,www.karauctionservices.comwww.karglobal.com, by clicking on "Governance" under"Investors" and then the "Investor Relations""Governance" tab. The information on our website is not part of this proxy statement and is not deemed incorporated by reference into this proxy statement or any other public filing made with the Securities and Exchange Commission (the "SEC").
BOARD LEADERSHIP |
Neither the Company's Second Amended and Restated By-Laws nor theThe Company's Corporate Governance Guidelines requireprovide that the Board shall be free to choose its Chairman in any way it deems best for the Company separateat any given point in time. If the roles of Chairman ofis not an independent director, the Board and CEO, and the Board does not haveindependent directors are to annually appoint a policy on whether the same person should serve as both the CEO and Chairman of the Board, or if the roles must remain separate.Lead Independent Director. The Board believes that it should have the flexibility to make these determinations from time to time in the way that it believes best to provide appropriate leadership for the Company under then-existing circumstances.
At present, the Board has chosen to combine the positions of CEOJames P. Hallett currently serves as Executive Chairman and Chairman of the Board, and to appoint awith Michael T. Kestner serving as the Lead Independent Director. Our Board believes that having the same personMr. Hallett serve inas the roles of Chairman of the Board and CEO is appropriate for the Company at this time, as it fosters clear accountability, effective decision making and alignment on corporate strategy. Given Mr. Hallett's unparalleled knowledge of the industry and the Company, the Board believes Mr. Hallett is in the best position to focus the independent directors' attention on critical business matters and to speak for and leadprovide leadership to both the Company and the Board. In addition, the Board believes that the appointment of a Lead Independent Director helps ensure that the Company benefits from effective oversight by its independent directors. Our Lead Independent Director presides over the executive sessions of the independent directors and serves as the principal liaison between the independent directors and the Company's CEO and Chairman of the Board. Our Lead Independent Director, Mr. Larson,Kestner, has served on the Board since 20142013 and has strong communication and leadership skills, as well as extensive knowledge about the Company's strategic objectives, the industry in which we operate, and the areas of strategic importance to the Company.
In connection with the appointment of a Lead Independent Director thesince July 2019. Mr. Kestner is a highly-engaged Lead Independent Director empowered with robust authority and responsibilities, as discussed below.
The Board has adopted a Lead Independent Director Charter, which sets forth a clear mandate with significant authority and responsibilities for the Lead Independent Director, including:
Board Meetings and Executive Sessions | • Has the authority to call meetings of the independent | |
• Presides at all meetings of the Board at which the Chairman of the Board is not present, including executive sessions of the independent | ||
| | |
Meeting Agendas, Schedules and Materials | • Reviews, in consultation with the Chairman and CEO: • agendas for Board meetings; | |
• meeting schedules to assure there is sufficient time for discussion of all agenda items; and | ||
• information sent to the Board, including the quality, quantity, appropriateness and timeliness of such information. | ||
| | |
Board/Director Communications | • Serves as principal liaison on Board-wide issues among the independent directors and the Chairman and CEO and facilitates communication generally among directors. | |
| | |
| ||
| ||
| ||
• If requested by stockholders, ensures that he or she is available, when appropriate, for consultation and direct communication. | ||
| | |
Chairman and CEO Performance Evaluation | • Together with the Compensation Committee, conducts an annual evaluation of the Chairman and CEO, including an annual evaluation of his or her interactions with the independent directors. | |
| | |
Outside Advisors and Consultants | • Recommends to the independent directors the retention of advisors and consultants who report directly to the Board, and, upon approval by the independent directors, retains such advisors and consultants. |
| | |
| | |
| | 13 |
EXECUTIVE SESSIONS |
The independent directors of the Company meet in executive session at every regularly scheduled Board meeting. The Company's Corporate Governance Guidelines state that the Chairman of the Board (if an independent director) or the Lead Independent Director (if the Chairman of the Board is not an independent director) shall preside at such executive sessions, or in such director's absence, another independent director designated by the Chairman of the Board or the Lead Independent Director, as applicable. Currently, Mr. Kestner, our Lead Independent Director, presides at the executive sessions of our independent directors.
BOARD |
The Board held teneleven meetings during 2018.2020. All of the incumbent directors attended at least 75% of the meetings of the Board and Board committees on which they served during 2018.2020. As stated in our Corporate Governance Guidelines, each director is expected to attend all annual meetings of stockholders. All of our directors attended last year's annual meeting of stockholders.
BOARD COMMITTEES |
In 2018,2020, the Board maintained four standing committees: the Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee and the Risk Committee. Each of our committees operates pursuant to a written charter. Copies of the committee charters are available on our website,www.karauctionservices.comwww.karglobal.com,, by clicking on "Investors" and then the "Governance" tab under "Investor Relations" on our homepage.tab. The information on our website is not part of this proxy statement and is not deemed incorporated by reference into this proxy statement or any other public filing made with the SEC. The following table sets forth the current membership of each committee:
Name | | Audit Committee | | Compensation Committee | | Nominating and Corporate Governance Committee | | Risk Committee | ||||||||||||||||||
| | | | | | | | | | |||||||||||||||||
| | | | | | | | | | | | | | | ||||||||||||
| | | | | (Chair) | | | | | | | |||||||||||||||
James P. Hallett(2) | | | | | | | | | | | | | | |||||||||||||
Mark E. Hill | | | | | | | | | (Chair) | | | | | |||||||||||||
J. Mark Howell | | | | | | | | | | | | | (Chair) | |||||||||||||
| | | | | | | | | | | | | ||||||||||||||
| | | | | | | | | | | | | ||||||||||||||
Michael T. Kestner(3) | | | (Chair) | |||||||||||||||||||||||
| | | | | | | ||||||||||||||||||||
Roy Mackenzie | | | | | | | | | | | | | | | | | ||||||||||
Mary Ellen Smith | | | | | | | | | | | | | | |||||||||||||
Stephen E. Smith(1) | | | | | | | | | | | | | |
* Mr. Bourell is
A description of each Board committee is set forth below.
Audit Committee
Meetings Held in 2018:2020: Nine5
Primary Responsibilities: Our Audit Committee assists the Board in its oversight of the integrity of our financial statements, our independent registered public accounting firm's qualifications and independence and the performance of our independent registered public accounting firm. The Audit Committee (i) reviews the audit plans and findings of our independent registered public accounting firm and our internal audit team and tracks management's corrective action plans where necessary; (ii) reviews our financial statements, including any
| | |
| | |
| | 14 |
significant financial items and changes in accounting policies or practices, with our senior management and independent registered public accounting firm; (iii) reviews our financial risk and control procedures, compliance programs (including our Code of Business Conduct and Ethics) and significant tax, legal and regulatory matters; (iv) reviews and approves related person transactions; and (v) has the sole discretion to appoint annually our independent registered public accounting firm, evaluate its independence and performance and set clear hiring policies for employees or former employees of the independent registered public accounting firm.
Independence: Each member of the Audit Committee is "financially literate" under the rules of the NYSE, and each of Messrs. Howell and Kestner and Ms. Ecton has been designated as an "audit committee financial expert" as that term is defined by the SEC. In addition, the Board has determined that each member of the Audit Committee meets the standards of "independence" established by the NYSE and is "independent" under the independence standards for audit committee members adopted by the SEC.
|
|
|
|
|
|
|
|
|
Compensation Committee
Meetings Held in 2018:2020: Eight7
Primary Responsibilities: The Compensation Committee reviews and recommends policies relating to the compensation and benefits of our executive officers and employees. The Compensation Committee reviews and approves corporate goals and objectives relevant to the compensation of our CEO and other executive officers, evaluates the performance of these officers in light of those goals and objectives, and approves the compensation of these officers based on such evaluations. The Compensation Committee also administers the issuance of equity and other awards under our equity plans.
Independence: All of the members of the Compensation Committee are independent under the NYSE rules (including the enhanced independence requirements for compensation committee members).
Nominating and Corporate Governance Committee
Meetings Held in 2018:2020: Four5
Primary Responsibilities: The Nominating and Corporate Governance Committee is responsible for making recommendations to the Board regarding candidates for directorships and the size and composition of the Board. The Nominating and Corporate Governance Committee also reviews non-employee director compensation on an annual basis and makes recommendations to the Board. In addition, the Nominating and Corporate Governance Committee is responsible for overseeing our Corporate Governance Guidelines and reporting and making recommendations to the Board concerning governance matters.
The Nominating and Corporate Governance Committee also assists the Board in the general oversight of the Company's environmental, social and governance (ESG) strategy, including diversity and inclusion matters. As required by the Company's Corporate Governance Guidelines, the Nominating and Corporate Governance Committee oversees an annual evaluation process of the Board and each committee of the Board. The evaluation process includes a self-evaluation by the Board, as discussed in more detail under "Board and each committee. Once the evaluation process is complete, the results are discussed by the full Board and each committee, as applicable, and changes in practices or procedures are considered and implemented as appropriate. The Nominating and Corporate Governance Committee also utilizes the results of this self-evaluation process in assessing and determining the characteristics and critical skills required of prospective candidates for election to the Board and making recommendations to the Board with respect to assignments of Board members to various committees. The Lead Independent Director also conducts a personal interview with each Board member to gather in-depth perspectives and candid insight about Board, committee and individual director performance and suggestions for improvement. In addition, each Board member completes an evaluation of each other Board member.
The Nominating and Corporate Governance Committee periodically reviews the format of the evaluation process to ensure that actionable feedback is solicited on the operation of the Board and director performance.Evaluation Process" below.
Independence: All of the members of the Nominating and Corporate Governance Committee are independent under the NYSE rules.
Risk Committee
Meetings Held in 2018:2020: Four4
Primary Responsibilities: The Risk Committee assists the Board in its oversight of (i) the principal business, financial, technology, operational and regulatory risks, and other material risks and exposures of the Company and (ii) the actions, activities and initiatives of the Company to mitigate such risks and exposures. The Risk Committee also provides oversight for matters specifically relating to cyber security and other risks related to information technology systems and procedures. The Risk Committee receives quarterly reports from the Company's Chief Information Security Officer on information security matters, including, among other things, the Company's cyber risks and threats, the status of projects to strengthen the Company's information security systems, assessments of the Company's security program and the emerging threat landscape. The Risk Committee also oversees the Company's enterprise risk management ("ERM") program and has direct oversight over certain risks within the ERM framework.
Independence: All of the members of the Risk Committee are independent under the NYSE rules.
| | |
| | |
| | 15 |
BOARD |
Our managementThe Nominating and Corporate Governance Committee oversees the annual evaluation process of the Board and each of its committees. The evaluation process includes a self-evaluation by the Board, a self-evaluation by each committee of the Board, and a peer evaluation by each director of each other Board member. The Lead Independent Director also conducts a personal interview with each Board member to gather in-depth perspectives and candid insight about Board, committee and individual director effectiveness and suggestions for improvement. Once the evaluation process is complete, the Nominating and Corporate Governance Committee reports to the full Board the results, including any recommendations, which are discussed by the full Board and each committee, as applicable, and changes in practices or procedures are considered and implemented as appropriate.
The Nominating and Corporate Governance Committee periodically reviews the format of the evaluation process to ensure that actionable feedback is solicited on the operation and effectiveness of the Board, the Board committees and each Board member. The Nominating and Corporate Governance Committee also utilizes the results of this self-evaluation process in assessing and determining the characteristics and critical skills required of prospective candidates for election to the Board and making recommendations to the Board with respect to assignments of Board members to various committees.
BOARD'S RISK OVERSIGHT |
Management is responsible for the managementassessing and assessment ofmanaging risk at the Company, including communication ofcommunicating the most material risks to the Board and its committees. The Board has primary responsibility for risk oversight, with a focus on the most significant risks facing the Company. Oversight of the Company's risks is carried out by the Board as a whole and by each of its various committees.
The Board's leadership structure, through its committees, supports its role in risk oversight. In general, the committees oversee the following risks:
The Board maintains oversight over such risks through the receipt of reports from the Chairman of the Risk Committee and from the other committeescommittee chairs at each regularly scheduled Board meeting.
As part of the risk management process, an annual risk assessment is conducted by management to identify and prioritize the most significant enterprise risks to the Company. This risk assessment is reviewed with the Risk Committee and helps guide the focus and selection of risks that are brought to the Risk Committee for review or covered by the full Board or its other committees. The reviews by the Risk Committee and other committee reviewscommittees occur principally through the receipt of reports from management and third parties on these applicable
| | |
| | |
| | 16 |
areas of risk, and discussions with management and third parties regarding risk assessment and risk management.
At its regularly scheduled meetings, the Board generally receives a number of reports which include information relating to risks faced by the Company. The Company's Chief Financial Officer provides a report on the Company's results of operations, its liquidity position, including an analysis of prospective sources and uses of funds, and the implications to the Company's debt covenants and credit rating, if any. The president of each primary business unit provides information relating to strategic, operational and competitive risks. Finally, the Company's Chief Legal Officer provides a privileged report which provides information regarding the status of the Company's material litigation and related matters, if any, including environmental updates and the Company's continuing compliance with applicable laws and regulations. Further, the president of each primary business unit provides information relating to strategic, operational and competitive risks. At each regularly scheduled Board meeting, the Board also receives reports from the ChairmanChair of the Risk Committee as well as other committee chairs, which may include a discussion of risks initially overseen by the committees for discussion and input from the Board. As noted above, in addition to these regular reports, the Risk Committee receives reports on specific areas of risk, such as regulatory, cyclical or other risks, and reports to the Board on these matters.
The Board's leadership structure, through its committees, also supports its roleCOVID-19 Risk Oversight
Since the onset of the COVID-19 pandemic in risk oversight. In general,March 2020, the committees oversee the following risks:
| | |
| | |
| | |
CORPORATE GOVERNANCE DOCUMENTS |
The Board has adopted the following corporate governance documents:
Document | Purpose/Application | |
---|---|---|
Code of Business Conduct and Ethics | Applies to all of the Company's employees, officers and directors, including those officers responsible for financial reporting. | |
Code of Ethics for Principal Executive and Senior Financial Officers | Applies to the Company's principal executive officer, principal financial | |
Corporate Governance Guidelines | Contains general principles regarding the functions of the Board and its committees. | |
Committee Charters | Apply to the following Board committees, as applicable: Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee and Risk Committee. | |
Lead Independent Director Charter | Sets forth a clear mandate and significant authority and responsibilities for the Lead Independent Director. |
We expect that any amendment to or waiver of the codes of ethics that apply to executive officers or directors will be disclosed on the Company's website. The foregoing documents are available on our website,www.karauctionservices.comwww.karglobal.com, by clicking on "Investors" and then the "Governance" tab under "Investor Relations" on our homepage and in print to any stockholder who requests them. Requests should be made to KAR Auction Services, Inc., Investor Relations, 13085 Hamilton Crossing Boulevard,11299 North Illinois Street, Carmel, Indiana 46032. The information on our website is not part of this proxy statement and is not deemed incorporated by reference into this proxy statement or any other public filing made with the SEC.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION |
During fiscal year 2018,2020, each of Messrs. BourellJacoby, Mackenzie and LarsonSmith and Mmes. EctonGalvin and JolliffeSmith served as members of the Compensation Committee. None of our executive officers serve, or in fiscal year 2018 has2020 served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our Board or our Compensation Committee. None of the individuals serving as members of the Compensation Committee during fiscal year 20182020 are now or were previously an officer or employee of the Company or its subsidiaries.
STOCKHOLDER COMMUNICATIONS WITH THE BOARD |
Any stockholder or other interested parties desiring to communicate with the Board, the Chairman of the Board, a committee of the Board or any of the independent directors individually or as a group regarding the Company may directly contact such directors by delivering such correspondence to the Company's Chief Legal Officer at KAR Auction Services, Inc., 13085 Hamilton Crossing Boulevard,11299 North Illinois Street, Carmel, Indiana 46032. Our Chief Legal Officer reviews all such correspondence and forwards to the applicable director(s) copies of all such applicable correspondence.
The Audit Committee has established procedures for employees, stockholders and others to submit confidential and anonymous reports regarding accounting, internal accounting controls, auditing or any other relevant matters.
| | |
| | |
|
|
|
The independent directors of the Company meet in executive session at every regularly scheduled Board meeting. The Company's Corporate Governance Guidelines state that the Chairman of the Board (if an independent director) or the Lead Independent Director (if the Chairman of the Board is not an independent director) shall preside at such executive sessions, or in such director's absence, another independent director designated by the Chairman of the Board or the Lead Independent Director, as applicable. Currently, Mr. Larson, our Lead Independent Director, presides at the executive sessions of our independent directors.
|
|
|
|
|
|
| | 18 |
DIRECTOR COMPENSATION |
We use a combination of cash and stock basedstock-based incentive compensation to attract and retain independent, qualified candidates to serve on the Board. The Board makes all director compensation determinations after considering the recommendations of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee reviews director compensation annually, assisted periodically by an independent compensation consultant (most recently by ClearBridge Compensation Group LLC ("ClearBridge") in October 2018). Based in part on the independent compensation consultant's most recent review of our director compensation program and those of the 17 companies in our proxy comparator group (also used in executive compensation benchmarking), the Nominating and Corporate Governance Committee recommended, and the Board approved, the following changes to our director compensation program to better align it with market practices: (i) annual stock retainer increased to $130,000, effective June 2019 (and will vest after one year as opposed to one-fourth vesting quarterly); (ii) Audit Committee chair fee increased to $25,000, effective February 2019; and (iii) Audit Committee membership fee of $7,500 implemented, effective February 2019. There previously had been no increases in compensation paid to our directors since 2016.
In setting director compensation, we consider various factors including market comparison studies and trends, (such as the most recent review in October 2018), the responsibilities of directors generally, including committee chairs, and the significant amount of time that directors expend in fulfilling their duties. In establishing the non-employee director compensation recommendations, the Nominating and Corporate Governance Committee utilized a balance of cash and equity, with the majority of the compensation delivered through equity grants. Directors who also serve as employees of the Company do not receive payment for service as directors.
Based in part on ClearBridge's October 2018 review of our director compensation program and those of the Company's then-current proxy comparator group (which was also used in executive compensation benchmarking), in October 2018 the Nominating and Corporate Governance Committee recommended, and the Board approved, certain changes to our director compensation program effective in 2019. Based on its most recent review, the Nominating and Corporate Governance Committee recommended, and the Board agreed, that no changes should be made to director compensation for 2021. There have been no increases in compensation paid to our directors since those approved in October 2018. If stockholders approve amending and restating our Omnibus Plan (Proposal No. 4), non-employee directors will not be eligible to receive aggregate compensation, including equity awards and cash fees, exceeding $750,000 in total value in any calendar year.
During 2020, in connection with the COVID-19 pandemic, each of our non-employee directors voluntarily elected to forgo one-fourth of his or her annual cash retainer and applicable chair, membership and lead independent director fees, which was each to be paid at the end of the second quarter 2020. Mr. Mackenzie agreed not to receive compensation for his service as a director.
CASH AND STOCK RETAINERS |
Non-employee directors who served for the entirety of 2018 received:2020 were entitled to receive:
Components of Director Compensation Program For | Annual Amount | Form of | ||
---|---|---|---|---|
| | | | |
Annual Cash | $85,000 | Cash | ||
Annual Stock | $ | Restricted Stock | ||
Lead Independent Director Fee | $30,000 | Cash | ||
Audit | $25,000 | Cash | ||
Compensation Committee Chair Fee | $20,000 | Cash | ||
Nominating and Corporate Governance and Risk Committee Chair Fee | $10,000 | Cash | ||
Audit Committee Membership Fee | $7,500 | Cash | ||
Annual cash and stock retainers and any applicable fees described above are prorated for non-employee directors who begin such service on a date other than the date of the Company's annual meeting of stockholders. Directors do not receive fees for attending Board or committee meetings. All of our directors are reimbursed for reasonable expenses incurred in connection with attending Board meetings, committee meetings and Boarddirector education events.
| | |
| | |
| | 19 |
Our Board adopted the KAR Auction Services, Inc. Directors Deferred Compensation Plan (the "Director Deferred Compensation Plan") in December 2009. Pursuant to the terms of the Director Deferred Compensation Plan, each non-employee director may elect to defer the receipt of his or her cash director fees into a pre-tax interest-bearing deferred compensation account, which account accrues interest as described in the Director Deferred Compensation Plan. Amounts under the Director Deferred Compensation Plan may also be invested in the same investment choices as are available under our 401(k) plan. Non-employee directors also may choose to receive all or a portion of their annual stock retainer in the form of a deferred share account.account that tracks shares of our common stock. The Director Deferred Compensation Plan provides that the amount of cash in a director's deferred cash account, plus the number of shares of our common stock equal to the number of shares in the director's deferred share account, will be delivered to a director in installments over a specified period or within 60 days following the date of the director's departure from the Board, with cash being paid in lieu of any fractional shares.
DIRECTOR STOCK OWNERSHIP AND HOLDING GUIDELINES |
The Company's non-employee directors are subject to the Company's director stock ownership and holding guidelines. The stock holding guideline requires each non-employee director to hold any shares of the Company's common stock granted by the Company for at least three years post-vesting while serving as a director, subject to certain exceptions approved by the Nominating and Corporate Governance Committee.
The Company's stock ownership guideline requires each non-employee director to own a minimum of five times his or her annual cash retainer amount in shares of Company stock. All non-employee directors are in compliance with this stock ownership guideline.guideline, except for Messrs. DiDomenico, Jacoby and Howell and Mmes. Galvin and Smith due to the timing of joining the Board, the decrease in our stock price following the IAA Spin-Off (defined below) and the impact of the COVID-19 pandemic on our business.
These guidelines did not apply to Mr. Mackenzie, who agreed to waive all non-employee director compensation in 2020.
DIRECTOR COMPENSATION PAID IN |
The following table provides information regarding the fiscal 20182020 compensation paid to our non-employee directors:
Name | Fees Earned or Paid in Cash(1) | Stock Awards(2) | Total | Fees Earned or Paid in Cash(1) | Stock Awards(2) | Total | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Todd F. Bourell | $85,000 | $115,025 | $200,025 | |||||||||
Donna R. Ecton | $105,000 | $115,025 | $220,025 | |||||||||
David DiDomenico | $92,500 | $130,002 | $222,502 | |||||||||
Carmel Galvin | $81,090 | $130,002 | $211,092 | |||||||||
Mark E. Hill | $95,000 | $115,025 | $210,025 | $95,000 | $130,002 | $225,002 | ||||||
J. Mark Howell | $95,000 | $115,025 | $210,025 | $102,500 | $130,002 | $232,502 | ||||||
Lynn Jolliffe | $85,000 | $115,025 | $200,025 | |||||||||
Stefan Jacoby | $85,000 | $130,002 | $215,002 | |||||||||
Michael T. Kestner | $105,000 | $115,025 | $220,025 | $140,000 | $130,002 | $270,002 | ||||||
John P. Larson | $115,000 | $115,025 | $230,025 | |||||||||
Roy Mackenzie(3) | — | — | — | |||||||||
Mary Ellen Smith | $85,000 | $130,002 | $215,002 | |||||||||
Stephen E. Smith | $85,000 | $115,025 | $200,025 | $109,185 | $130,002 | $239,187 | ||||||
| | |
| | |
| | 20 |
of our non-employee directors voluntarily elected to forgo one-fourth of his or her annual cash retainer and applicable chair, membership and lead independent director fees, which was each to be paid at the end of the second quarter 2020. Fees earned or paid in cash actually received in 2020 by each non-employee director are as follows: Mr. DiDomenico—$69,375; Ms. Galvin—$59,840; Mr. Hill—$71,250; Mr. Howell—$76,875; Mr. Jacoby—$63,750; Mr. Kestner—$105,000; Mr. Mackenzie—$0; Ms. Smith—$63,750; and Mr. Smith—$81,060.
Mr. Hallett was not entitled to receive any fees or other compensation for serving as a member of our Board in 20182020 because he was employed by the Company.
|
|
|
|
|
|
|
|
|
OUTSTANDING DIRECTOR RESTRICTED STOCK AWARDS |
The following table sets forth information regarding the number of unvested or deferred shares of our common stock held by each non-employee director as of December 31, 2018:2020:
Name | Unvested Shares and Dividend Equivalents(1) | Deferred Phantom Shares and Dividend Equivalents(2) | Unvested Shares and Dividend Equivalents(1) | Deferred Phantom Shares and Dividend Equivalents(2) | ||||
---|---|---|---|---|---|---|---|---|
Todd F. Bourell | 1,082 | 9,837 | ||||||
Donna R. Ecton | 1,082 | 15,369 | ||||||
David DiDomenico | 8,228 | 3,948 | ||||||
Carmel Galvin | 8,228 | 2,030 | ||||||
Mark E. Hill | 1,082 | 13,446 | 8,228 | 46,413 | ||||
J. Mark Howell | 1,082 | 11,249 | 8,228 | 15,356 | ||||
Lynn Jolliffe | 1,070 | 6,498 | ||||||
Stefan Jacoby | 8,228 | 2,312 | ||||||
Michael T. Kestner | 1,082 | 12,603 | 8,228 | 32,011 | ||||
John P. Larson | 1,082 | 9,736 | ||||||
Roy Mackenzie | — | — | ||||||
Mary Ellen Smith | 8,228 | — | ||||||
Stephen E. Smith | 1,070 | 8,421 | 8,228 | 11,220 | ||||
| | |
| | |
| | 21 |
BENEFICIAL OWNERSHIP OF |
The following table sets forth certain information with respect to the beneficial ownership of our common stock and Series A Preferred Stock as of April 11, 20199, 2021 of: (1) each person or entity who owns of record or beneficially owns more than 5% or more of any class of the Company's voting securities of which 133,271,194 shares of common stock were outstanding as of April 11, 2019;securities; (2) each of our directors, director nominees and named executive officers; and (3) all of our directors, director nominees and executive officers as a group. Beneficial ownership is determined in accordance with the rules of the SEC. To our knowledge, each stockholder will have sole voting and investment power with respect to the shares indicated as beneficially owned, unless otherwise indicated in a footnote to the following table. The percentage calculations below are based on 133,271,194124,761,100 shares of our common stock and 581,608 shares of Series A Preferred Stock outstanding as of April 11, 2019,9, 2021, rather than the percentages set forth in any stockholder's Schedule 13D or Schedule 13G filing. Unless otherwise indicated in a footnote, the business address of each person is our corporate address, c/o KAR Auction Services, Inc., 13085 Hamilton Crossing Boulevard,11299 North Illinois Street, Carmel, Indiana 46032.
| Shares Beneficially Owned | |||
---|---|---|---|---|
Name of Beneficial Owner | Number of Shares(1) | Percent of Class(2) | ||
5% BENEFICIAL OWNERS | ||||
The Vanguard Group(3) | 13,295,682 | 9.98% | ||
T. Rowe Price Associates, Inc.(4) | 8,391,117 | 6.30% | ||
BlackRock, Inc.(5) | 7,337,570 | 5.51% | ||
NAMED EXECUTIVE OFFICERS, DIRECTORS AND DIRECTOR NOMINEES | ||||
Todd F. Bourell | 11,074 | * | ||
Donna R. Ecton | 16,684 | * | ||
Donald S. Gottwald | 38,604 | * | ||
James P. Hallett(6) | 517,837 | * | ||
John C. Hammer | 1,830 | |||
Mark E. Hill(7) | 45,234 | * | ||
J. Mark Howell | 12,506 | * | ||
Stefan Jacoby | — | — | ||
Lynn Jolliffe | 14,280 | * | ||
Michael T. Kestner | 19,802 | * | ||
John P. Larson | 10,971 | * | ||
Eric M. Loughmiller(6) | 274,046 | * | ||
Rebecca C. Polak(6) | 92,364 | * | ||
Stephen E. Smith | 16,230 | * | ||
Executive officers, directors and director nominees as a group (20 persons)(8) | 1,472,050 | 1.10% |
| Common Stock Beneficially Owned | Series A Preferred Stock Beneficially Owned | ||||||
---|---|---|---|---|---|---|---|---|
Name of Beneficial Owner | Number of Shares(1) | Percent of Class(2) | Number of Shares | Percent of Class | ||||
5% BENEFICIAL OWNERS | ||||||||
Ignition Acquisition Holdings LP(3) | —(4) | —(4) | 528,736 | 90.91% | ||||
Periphas Kanga Holdings, LP(5) | —(4) | —(4) | 52,872 | 9.09% | ||||
Wellington Management Group LLP(6) | 17,479,860 | 14.01% | | | ||||
BlackRock, Inc.(7) | 14,284,706 | 11.45% | ||||||
The Vanguard Group(8) | 12,060,409 | 9.67% | | | ||||
The Hartford Mutual Funds, Inc.(9) | 11,032,633 | 8.84% | ||||||
NAMED EXECUTIVE OFFICERS, DIRECTORS AND DIRECTOR NOMINEES | ||||||||
David DiDomenico | 22,176 | * | | | ||||
Thomas J. Fisher | 13,307 | * | ||||||
Carmel Galvin | 10,258 | * | | | ||||
James P. Hallett(10) | 675,760 | * | ||||||
John C. Hammer | 24,555 | * | | | ||||
Mark E. Hill(11) | 103,641 | * | ||||||
J. Mark Howell | 23,584 | * | | | ||||
Stefan Jacoby | 11,957 | * | ||||||
Peter J. Kelly | 214,113 | * | | | ||||
Michael T. Kestner | 46,161 | * | ||||||
Eric M. Loughmiller(10) | 358,117 | * | | | ||||
Roy Mackenzie(3) | — | — | 528,736 | 90.91% | ||||
Mary Ellen Smith | 18,484 | * | | | ||||
Stephen E. Smith | 27,137 | * | ||||||
Executive officers, directors and director nominees as a group (18 persons)(12) | 1,733,656 | 1.39% |
* Less than one percent
|
|
|
|
|
|
|
|
|
Section 16(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), requires KAR Auction Services' directors and executive officers and persons who own more than 10% of the issued and outstandingsuch date, were convertible into 28,169,000 shares of the Company's common stock to file reports of initial ownership of common stock, and other equity securities and subsequent changes in that ownership with the SEC and the NYSE. Based solely on a review of such reports and written representations from the directors and executive officers, the Company believes that all such filing requirements were met during 2018, except that (1) due to a clerical error, Mr. Hallett filed one Form 4 late to report two tax withholding transactions that occurred on December 5, 2018, and (2) due to a technical issue with filing codes causedbeneficially owned by a third-party clerical error, Ms. Ecton filed one Form 4 late to report one stock acquisition transaction resulting from the reinvestment of dividends that occurred on October 3, 2018.Ignition Acquisition Holdings LP (which
| | |
| | |
| | 22 |
excluded any accrued dividends that had not yet been declared by the Issuer as of such filing). In this filing, it was disclosed that Ignition Acquisition Holdings GP, LLC, as the general partner of Ignition Acquisition Holdings LP, Ignition Parent LP, as the sole member of Ignition Acquisition Holdings GP, LLC, Ignition GP LLC, as the general partner of Ignition Parent LP, Ignition Topco Ltd, as the sole member of Ignition GP LLC, Apax X GP Co. Limited, as investment manager of the relevant investment vehicles in the fund known as Apax X which is the sole shareholder of Ignition Topco Ltd, and Apax Guernsey (Holdco) PCC Limited Apax X Cell, as the sole parent of Apax X GP Co. Limited, may be deemed to be the beneficial owners having shared voting and investment power with respect to the securities. Based solely on information disclosed in a Registration Statement on Form S-3 filed with the SEC on February 18, 2021, Apax X GP Co. Limited is controlled by its board of directors that is comprised of the following persons: Simon Cresswell, Andrew Guille, Martin Halusa, Paul Meader and David Staples. The address of Ignition Acquisition Holdings LP, Ignition Acquisition Holdings GP, LLC, Ignition Parent LP and Ignition GP LLC is c/o Apax Partners, L.P., 601 Lexington Avenue, New York, NY 10022. The address of Ignition Topco Ltd is P.O. Box 656, East Wing, Trafalgar Court, Les Banques, St. Peter Port, Guernsey GY1 3PP, Place of Organization: Guernsey. The address of Apax X GP Co. Limited is Third Floor, Royal Bank Place, 1 Glategny Esplanade, St. Peter Port, Guernsey, GY1 2HJ. Mr. Mackenzie is a partner at Apax and is also our director. Mr. Mackenzie disclaims beneficial ownership of the shares of common stock beneficially owned by Ignition Acquisition Holdings LP.
| | |
| | |
| | 23 |
PROPOSAL |
In accordance with Section 14A of the Exchange Act and related SEC rules, the Company seeks a non-binding advisory vote from its stockholders to approve the compensation of its named executive officers as described in the "Compensation Discussion and Analysis" section beginning on page 25 and the compensation tables that follow such section. The Company seeks this non-binding advisory vote from its stockholders annually, pursuant to the results of the stockholders' vote at the Company's 2017 annual meeting of stockholders selecting such frequency.
At the 2020 annual meeting, approximately 97% of the votes cast were in favor of the advisory vote to approve executive compensation.
Our executive compensation program includes certain "best practices" in governance and executive compensation, including the following:
In deciding how to vote on this proposal, the Board encourages you to read the "Compensation Discussion and Analysis" section and the compensation tables that follow. Because this vote is advisory, it will not be binding upon the Board; however, the Board and the Compensation Committee value our stockholders' opinions, and the Compensation Committee will take into account the outcome of the advisory vote when considering future executive compensation decisions.
The affirmative vote of the holders of a majority of the shares present and entitled to vote at the 2021 annual meeting is required to approve this proposal.
✓ | The Board of Directors recommends that you vote | |
Proxies solicited by the Board of Directors will be voted "FOR" the advisory vote to approve executive compensation unless stockholders specify a contrary vote. |
| | |
| | |
| | 24 |
COMPENSATION DISCUSSION AND ANALYSIS |
OVERVIEW |
The following discussion and analysis of our compensation program for named executive officers should be read in conjunction with the tables and text elsewhere in this proxy statement that describe the compensation awarded and paid to the named executive officers.
Named Executive Officers
Our named executive officers for the last completed fiscal year were (i) our chief executive officer; (ii) our chief financial officer; and (iii) each of the three other most highly compensated executive officers who were serving as executive officers at the end of the last completed fiscal year. Our named executive officers are:
| Name | |||
---|---|---|---|---|
| | | | |
James P. ("Jim") Hallett | Chief Executive Officer and Chairman of the Board | |||
Eric M. ("Eric") Loughmiller | Executive Vice President and Chief Financial Officer | |||
| Peter J. ("Peter") Kelly | President | ||
John C. ("John") Hammer | Chief Commercial Officer for KAR and President of ADESA | |||
| Executive Vice President and Chief |
This Compensation Discussion and Analysis is organized into six sections:
Executive Summary (pages | |||
Compensation Philosophy and Objectives (page | |||
The Role of the Compensation Committee and the Executive Officers in Determining Executive Compensation (pages | |||
Elements Used to Achieve Compensation Philosophy and Objectives (pages | |||
Compensation Policies and Other Information (pages | |||
Results of Say on Pay Votes at |
20182020 Executive Compensation Highlights
These compensation highlights are discussed in more detail below.
| | |
| | |
| | 25 |
IAA Spin-Off
In 2019, we completed the spin-off of our former salvage auction business, IAA, Inc. ("IAA"), to our stockholders, resulting in KAR and IAA being two independent, publicly-traded companies (the "IAA Spin-Off"). In connection with the IAA Spin-Off, KAR stockholders received one share of IAA stock for every one share of KAR stock held as of June 18, 2019. All equity awards outstanding as of the IAA Spin-Off were adjusted to preserve the economic value of the awards in accordance with the Employee Matters Agreement, dated June 27, 2019, between KAR and IAA. The adjusted KAR awards and adjusted IAA awards are generally subject to the same terms and conditions, and will continue to vest on the same schedule, except as noted below. For purposes of award vesting, continued employment with KAR is treated as continued employment for both KAR and IAA awards. The following summarizes the adjustments to each type of award:
| | |
| | |
| | 26 |
EXECUTIVE SUMMARY |
For the year ended December 31, 2018, the Company again delivered solid growth in volume of total vehicles sold, revenues, adjusted EBITDA and gross profit. Specific highlights for fiscal 2018 included:
For the year ended December 31, 2020, the Company accelerated its digital transformation to sustain operations in the face of significant and unexpected headwinds from the global COVID-19 pandemic. Specific highlights for fiscal 2020 included: | ||||||
| ||||||
| | | ||||
| | Transitioned operating model to a fully digital marketplace • 100% of vehicles sold via digital channels since April 2020 • Launched industry-leading Simulcast+ platform • Significantly reduced cost structure to align with digital model • Registered thousands of new buyers and sellers to our digital platforms | | |||
| | | ||||
| | | ||||
| | | | | | |
| | ||||||
| | | |||||
| Enhanced digital offerings with the acquisition of BacklotCars a | | | ||||
| | | |||||
| | | |||||
| | | | | | |
| | | ||||
| | | ||||
| | Generated strong cash flow from operations of $384.4 million | | |||
| | | ||||
| | | | | | |
| |||||||
| | | |||||
| strong cash position of $752.1 million | | | ||||
| | | |||||
| | |
|
| | |
| | |
| | |
COVID-19 Impact on 2020 Compensation
In March 2020, the Company's business operations were adversely impacted by the COVID-19 pandemic. In response to the pandemic, the Company temporarily suspended many of its operations, temporarily furloughed the majority of its workforce in April 2020 and instituted wage reductions for all senior employees. Additionally, to protect the safety and welfare of its workforce, the Company also strongly encouraged all employees capable of performing their responsibilities off-site to begin working remotely.
The severe and immediate impact of the COVID-19 pandemic on businesses and consumers changed the expectations for wholesale and retail activity for 2020. In response, the Company revised its operating plans and adjusted its priorities to focus on reducing balance sheet risk, navigating the uncertainty ahead and ensuring the ability to sustain operations for an extended period of disruption. The Company simultaneously shifted resources and mobilized staff to dramatically accelerate its transformation from a primarily physical auction process to a fully-digital marketplace business for the wholesale used car industry. The pandemic required the named executive officers to take swift and significant actions to both preserve the Company and accelerate opportunities for future growth.
During this extraordinary year, the Compensation Committee was actively involved in ensuring that the Company's compensation program remained aligned with our pay-for-performance philosophy and our stockholders' interests. The Compensation Committee focused on ensuring that the compensation program is a fair reflection of corporate and individual performance, while motivating and retaining high-performing executives, mitigating compensation-related risks, and recognizing the continued uncertainty caused by the COVID-19 pandemic.
2020 Base Salaries
As part of a series of measures to better enable the Company to weather the extraordinary challenges presented by the COVID-19 pandemic, each of the Company's named executive officers voluntarily reduced or eliminated their base salaries during the second quarter of 2020.
2020 Annual Incentive Program
A combination of the Company's 2020 Adjusted EBITDA performance (80%) and each named executive officer's individual performance against his 2020 MBOs (20%) were utilized as performance metrics for 2020.
As described in detail below, the Compensation Committee, after careful review and in consultation with ClearBridge, adjusted the threshold 2020 Adjusted EBITDA performance level and the 2020 MBOs to align to the Company's performance and priorities in light of the COVID-19 pandemic. The Compensation Committee determined that any potential 2020 annual incentive award payout would be capped at target, thereby eliminating the superior opportunity. Payouts based on achievement of performance objectives under our Annual Incentive Program were at 76.4% of the target award amount for the named executive officers.
2020 Long-Term Incentive Program
PRSU awards made up 75% of the value of the aggregate long-term incentives granted to the named executive officers in 2020, with the remaining 25% being in the form of RSUs. Although the three-year performance goals were established prior to the impact of the COVID-19 pandemic, the Compensation Committee did not make adjustments to the 2020 PRSU performance goals.
| | |
| | |
| | 28 |
Our Executive Compensation Practices are Aligned with Stockholders' Interests
We maintain a compensation program structured to achieve a close connection between executive pay and Company performance. We believe that this strong pay for performance orientation has served us well in recent years.
WHAT WE DO
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fiscal Year | 2013 YE | 2014 | 2015 | 2016 | 2017 | 2018 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CEO Pay ($000) | | | | $4,808 | | $4,824 | | $5,078 | | $5,812 | | $6,138 | | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Indexed TSR | 100 | 121 | 133 | 158 | 193 | 187 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
WHAT WE DON'T DO
| | |
| | |
| | |
COMPENSATION PHILOSOPHY AND OBJECTIVES |
We design and administer our executive pay programs to help ensure the compensation of our named executive officers is (i) closely aligned with our performance on both a short-term and long-term basis; (ii) linked to specific, measurable results intended to create value for stockholders; and (iii) competitive in attracting and retaining key executive talent into the vehicle remarketing and auto finance industry.talent. Each of the compensation programs that we have developed and implemented is intended to satisfy one or more of the following specific objectives:
While the Company does not target any specific percentile positioning versus the market, the market median is used as a reference point but is not the sole determinant when making compensation decisions. Compensation decisions are made considering a number of factors including experience, tenure, sustained performance, specific requirements of roles relative to the market and individual and Company performance.
THE ROLE OF THE COMPENSATION COMMITTEE AND THE EXECUTIVE OFFICERS IN DETERMINING EXECUTIVE COMPENSATION |
Composition of the Compensation Committee. The Compensation Committee of our Board is comprised of Mmes. Ecton (Chairman) and Jolliffe and Messrs. Bourell and Larson.
Role of the Compensation Committee. The Compensation Committee has primary responsibility for all compensation decisions relating to our named executive officers. The Compensation Committee reviews the aggregate level of our executive compensation, as well as the mix of elements used to compensate our named executive officers on an annual basis.
Compensation Committee's Use of Market and Survey Data. Although KAR Auction Servicesthe Company is comprised of a unique mix of businesses and lacks directly comparable public companies, the Compensation Committee understands that most companies consider pay levels at comparably-sized, peer companies when setting named executive officer compensation levels. With assistance from its independent compensation consultant, ClearBridge, the Compensation Committee has developed a meaningful comparator group for the Company.
In order to confirm competitiveness of compensation, the Compensation Committee uses a combination of (i)proxy compensation data of a "proxy comparator group" and survey data (cuts from(from the Aon Hewitt and Mercer general industry and service industry surveys); and (ii) proxy compensation data of a "proxy comparator group" in setting and adjusting compensation levels. The Compensation Committee, with assistance from ClearBridge, annually reviews the composition of our proxy comparator group. As part of such reviews, the Compensation Committee considers specific criteria and recommendations regarding companies to add or remove from the group. In light of the lack of directly comparable companies for KAR Auction Services'the Company's business, as noted above, companies in the proxy comparator group utilized in 2020 were selected based on (i) a focus on service-oriented industries;companies in related industries and business areas as the Company; (ii) similarly-sized revenue and market capitalization levels; (iii) comparable growth, profitability and/or market valuation profiles; and (iv) companies with which KAR Auction Servicesthe Company competes for executive talent. Where possible, the Compensation Committee included companies that are in related or similar industries to the Company.
| | |
| | |
| | |
possible, the Compensation Committee included companies that are in related or similar industries to the Company. OurThe proxy comparator group for 2018 has not changedused from the comparator group we used in 2017.
Based on the recommendation of ClearBridge, the Compensation Committee used a proxy comparator group consistingJuly 2019 until April 2020 consisted of the following 17 companies in making 2018 compensation decisions:16 companies:
Allison Transmission Holdings, Inc. Copart, Inc. CDK Global, Inc. Equifax Inc. GATX Corporation LKQ Corporation | ||||
| ||||
| MSC Industrial Direct Co. Inc. | |||
| Old Dominion Freight Line Inc. Pitney Bowes Inc. Ritchie Bros. Auctioneers Incorporated Sotheby's (merged into BidFair USA Inc. in June 2019) | Stericycle, Inc. Total System Services, Inc. (merged into Global Payments Inc. in September 2019) Werner Enterprises, Inc. Westinghouse Air Brake Technologies Corporation | ||
| Worldpay, Inc. Information Services, Inc. | |||
|
The Compensation Committee viewed the proxy comparator group and market data as an important guide, but not as the sole determinant in making its decisions regarding 20182020 compensation levels. The Compensation Committee also considered skills, experience, tenure, sustained performance, specific requirements of roles relative to market and individual and Company performance.
In April 2020, based on the recommendation of ClearBridge, the Compensation Committee removed Worldpay, Inc., Total System Services, Inc. and Sotheby's from the 2020 proxy comparator group, which were each acquired in 2019 and therefore will no longer have publicly-disclosed compensation information.
In December 2020, the Compensation Committee reviewed the proxy comparator group in light of the Company's digital transformation and, based on the recommendation of ClearBridge, approved a revised proxy comparator group consisting of the following 15 companies to be used in making 2021 compensation decisions:
2021 Proxy Comparator Group | ||||
---|---|---|---|---|
Allison Transmission Holdings, Inc. CarMax, Inc. Copart, Inc CDK Global, Inc. CoStar Group, Inc. | Equifax Inc. Etsy, Inc. Fair Isaac Corporation Gentex Corporation Grubhub Inc. | Lithia Motors, Inc. LKQ Corporation Ritchie Bros. Auctioneers Incorporated Rush Enterprises, Inc. TripAdvisor, Inc. |
Companies in the revised 2021 proxy comparator group were generally selected based on the same criteria as the 2020 proxy comparator group, but with an additional focus on technology companies that offer online marketplaces and digital intermediary services in light of the Company's digital transformation and go-forward strategy.
Role of the Independent Compensation Consultant. The Compensation Committee used ClearBridge as its independent compensation consultant in 2018.2020. ClearBridge provided (i) advice to the Compensation Committee advice and guidance with respect to (i) the assessment of the Company's executive compensation programs and practices; (ii) advice regarding the evaluation of long-term incentive compensation practices; (iii) advice and guidance regarding the design of new long-term equity awards; (iv) advice regarding related compensation matters; (v) advice to the Compensation Committee with respect to annual and long-term incentive compensation practices and annual and long term incentive plan design; (iii) the selection of a proxy comparator group; and (vi) guidance on(iv) the competitiveness of the executive officers' elements of compensation. ClearBridge regularly attends Compensation Committee meetings and attends executive sessions as requested by the ChairmanChair of the Compensation Committee. The Compensation Committee has reviewed the independence of ClearBridge in light of SEC rules and NYSE listing standards regarding compensation consultants and has concluded that the work of ClearBridge for the Compensation Committee does not raise any conflict of interest. All work performed by ClearBridge is and was subject to review and approval of the Compensation Committee.
Role of the Executive Officers. Mr. HallettOur Chief Executive Officer regularly participates in meetings of the Compensation Committee at which compensation actions involving our named executive officers are discussed. Mr. Hallettdiscussed (recusing himself and not participating in portions of meetings where his compensation is discussed). Our Chief Executive Officer assists the Compensation Committee by making recommendations regarding compensation actions for the executive officers other than himself. Mr. Hallett recuses himself and does not participate in any portion of any meeting of the Compensation Committee at which his compensation is discussed.
| | |
| | |
| | |
ELEMENTS USED TO ACHIEVE COMPENSATION PHILOSOPHY AND OBJECTIVES |
Elements of 20182020 Executive Compensation Program Design
The following table lists the elements of compensation for our 20182020 executive compensation program. The program uses a mix of fixed and variable compensation elements and provides alignment with both short- and long-term business goals through annual and long-term incentives. Our incentives are designed to drive overall corporate performance and business unit strategies that correlate to stockholder value and align with our strategic vision. In order to confirm competitiveness of compensation, the Compensation Committee reviews survey data and proxy compensation data of our proxy comparator group.
| Element | Key Characteristics | Why We Pay This Element | How We Determine Amount | Decisions | |||||||||||
| | | | | | | | | | | | | ||||
Fixed | Base salary | Fixed compensation component payable in cash. Reviewed annually and adjusted when appropriate. | In connection with the COVID-19 pandemic, each named executive officer voluntarily elected to reduce or forgo their respective base salaries effective April 5, 2020 through June 27, 2020. See pages | |||||||||||||
| | | | | | | | | | | | | ||||
| | Annual cash incentive awards | Variable compensation component payable in cash based on performance against annually established targets. No payouts if a threshold level of performance is not achieved; payouts are capped at a maximum level of performance. | Motivate and reward the successful achievement of pre-determined | Award opportunities are based on individual performance, experience, job scope and review of competitive pay practices. Target annual incentive amount is set as a percentage of base salary. | Actual award payouts were based on a combination of the achievement of In connection with the COVID-19 pandemic, the Compensation Committee adjusted the threshold 2020 Adjusted EBITDA performance level and KAR's Adjusted EBITDA performance and each | ||||||||||
| | | | | | | | | | | | | ||||
Variable | | Performance-based restricted stock units (PRSUs) | PRSUs vest at the end of a three-year performance period. No PRSUs earned if a threshold level of performance is not achieved; PRSUs are capped at a maximum level of performance. | Motivate and reward executives for performance on key long-term measures. Align the interests of executives with long-term stockholder value and serve to retain executive talent. | Award opportunities are based on individual's ability to impact future results, job scope, individual performance and review of competitive pay practices.
| The Compensation Committee granted PRSUs to all of the named executive officers in | ||||||||||
KAR 2020 PRSU awards | are earned based on three-year Cumulative Operating Adjusted Net Income Per Share performance through December 31, 2022. | |||||||||||||||
| | | | | | | | | | | | | ||||
| | Restricted stock units (RSUs) | RSUs vest ratably on each of the first three anniversaries of the grant date subject to the named executive officer's continued employment with the Company. | Align the interests of executives with long-term stockholder value and serve to retain executive talent. | Awards based on individual's ability to impact future results, job scope, individual performance and review of competitive pay practices. RSU awards made up 25% of the value of the aggregate long-term incentives granted to the named executive officers in | The Compensation Committee granted RSUs to all of the named executive officers in | ||||||||||
| | |
| | |
| | |
Compensation Structure and Goal Setting
Our executive compensation program is designed to deliver compensation in accordance with corporate and business unitour performance, with a large percentage of the compensation at risk through long-term equity awards and annual cash incentive awards. These awards are linked to actual performance, consistent with our belief that a significant amount of executive compensation should be in the form of equity and that a greater percentage of compensation should be tied to performance for executives who bear higher levels of responsibility for our performance. The mix of target direct compensation awarded in 20182020 for our CEO and the average of our other named executive officers is shown in the charts below. Approximately 84% of our CEO's total compensation, and approximately 72%74% of the average total compensation of our other named executive officers, is at-risk, consisting of PRSUs, restricted stock units ("RSUs") and other performance-based annual cash incentives.
CEO Compensation | Other Named Executive Officer Average | |
Base Salary
General. Annual salary levels for our named executive officers are based upon various factors, including the amount and relative percentage of total compensation that is derived from base salary, when setting the compensation of our executive officers, Companyindividual performance, individual performance,skills, experience, job scope and tenure. In view of the wide variety of factors considered by the Compensation Committee in connection with determining the base salary of each of our named executive officers, the Compensation Committee has not attempted to rank or otherwise assign relative weights to the factors that it considers. A description of how these factors were applied in 20182020 is described below.
Base Salaries for 2018.2020. In late 20172019 and the first quarter of 2018 (and for Mr. Loughmiller, again in the third quarter of 2018),2020, the Compensation Committee reviewed the base salaries of each of our named executive officers for 2018.2020. After considering multiple factors as noted above, the Compensation Committee approved aan increase in base salary adjustment for Messrs. HallettFisher and Loughmiller and Ms. Polak.Hammer. The Compensation Committee did not approve a base salary adjustment for Mr. GottwaldMessrs. Hallett, Kelly and Loughmiller because the Compensation Committee determined that histheir base salary wassalaries were already set at a competitive level. The following base salaries were approved for 2020:
Name | | Base Salary | | % Change | | Effective Date |
---|---|---|---|---|---|---|
Jim Hallett | | $975,000 | | 0% | | N/A |
Eric Loughmiller | | $550,000 | | 0% | | N/A |
Peter Kelly | | $600,000 | | 0% | | N/A |
John Hammer | | $546,000 | | 4% | | January 1, 2020 |
Tom Fisher | | $438,000 | | 3% | | January 1, 2020 |
| | $450,000 | | 3% | | March 8, 2020 |
The base salary increase effective January 1, 2020 for Messrs. Fisher and Hammer were based on both a merit review and market adjustment. Mr. Hammer became an employeeFisher's salary was further increased effective March 8, 2020 based on his new role as EVP, Chief Digital Officer of the Company effective February 19, 2018, and his base salary was set as part of his initial compensation package.Company.
| | |
| | |
| | |
The followingIn connection with the COVID-19 pandemic, the Company's executive officers voluntarily elected to reduce or forgo their respective base salaries were in effect for 2018:
Name | Base Salary | Increase % | Effective Date | |||
---|---|---|---|---|---|---|
Jim Hallett | $975,000 | 8% | January 1, 2018 | |||
Eric Loughmiller | $525,000 | 5% | January 1, 2018 | |||
$550,000 | 5% | July 29, 2018 | ||||
John Hammer | $500,000 | N/A | February 19, 2018 | |||
Don Gottwald | $583,495 | 0% | N/A | |||
Becca Polak | $515,000 | 8% | January 1, 2018 |
Theeffective April 5, 2020 through June 27, 2020, with Messrs. Hallett, Loughmiller and Kelly each electing to forgo 100% of his base salary increases effective January 1, 2018 for Mr. Hallett and Ms. Polak were based on both a merit reviewMessrs. Fisher and a market adjustment and for Mr. Loughmiller was based on a merit review. Mr. Loughmiller'sHammer each electing to reduce his base salary was further increased effective July 29, 2018 based on a variety of factors, including market positioning, individual performance and the criticality of his role.by 50% during this period.
Base Salaries for 2019.2021. In late 2018,2020 and the first quarter of 2021, the Compensation Committee reviewed the base salaries of each of our named executive officers for 2018.2021. After considering multiple factors as noted above, the Compensation Committee approved the following base salaries for 2019:2021:
| ||||
| ||||
| ||||
| ||||
|
Name | | Base Salary | | % Change | | Effective Date |
---|---|---|---|---|---|---|
Jim Hallett | | $975,000 | | 0% | | N/A |
| | $725,000 | | (26%) | | April 1, 2021 |
Eric Loughmiller | | $550,000 | | 0% | | N/A |
Peter Kelly | | $600,000 | | 0% | | N/A |
| | $750,000 | | 25% | | April 1, 2021 |
John Hammer | | $550,000 | | 1% | | January 1, 2021 |
Tom Fisher | | $450,000 | | 0% | | N/A |
The Compensation Committee did not initially approve a 20192020 base salary adjustment for Messrs. Hallett, Loughmiller, Kelly or Loughmiller or Ms. PolakFisher because the Compensation Committee determined that their base salaries were already set at competitive levels. The base salary increase for Mr. Hammer was a modest salary increase to reflect an internal pay equity adjustment. The Compensation Committee approved the base salary increaseadjustments for Mr. Hammer as a market adjustmentMessrs. Hallett and to support engagement during a transformative period at ADESA and the base salary adjustment for Mr. GottwaldKelly effective April 1, 2021, to reflect histheir new role. Inroles as Executive Chairman and Chief Executive Officer, respectively. As discussed above, in order to confirm competitiveness of compensation, the Compensation Committee reviews survey data and proxy compensation data of our proxy comparator group.
Annual Cash Incentive Program
General. Named executive officers with greater job responsibilities have a significant proportion of their annual cash compensation tied to Company performance through their annual incentive opportunity.
The KAR Auction Services, Inc. Annual Incentive Program. Under the KAR Auction Services, Inc. Annual Incentive Program (the "Annual Incentive Program"), which is part of the KAR Auction Services, Inc. 2009 Omnibus Stock and Incentive Plan, as amended (the "Omnibus Plan"), the grant of cash-based awards to eligible participants is contingent upon the achievement of certain pre-established corporate performance goals as determined by the Compensation Committee. The Annual Incentive Program is designed so that a significant proportion of our named executive officers' annual cash compensation is variable and directly tied to key performance goals.
2020 ANNUAL INCENTIVE PROGRAM
As described below, a combination of the Company's Adjusted EBITDA performance and each named executive officer's individual performance against his 2020 Management By Objectives ("MBOs") were utilized as performance metrics for 2020.
Use of 20182020 Adjusted EBITDA
In 2018,2020, the Compensation Committee used "2018"2020 Adjusted EBITDA" for KAR Auction Services and/or ADESA, depending uponof the named executive officer,Company as the relevant financial performance metric for determining awards under the Annual Incentive Program. For the named executive officers, 80% of the award's total payout was weighted on achievement of 2020 Adjusted EBITDA.
"Adjusted EBITDA"EBITDA" is equal to EBITDA (earnings before interest expense, income taxes, depreciation and amortization) adjusted to exclude, among other things:
| | |
| | |
| | |
chargesUse of MBOs
In 2020, the Compensation Committee utilized MBOs in the Annual Incentive Program, which were initially aligned with Company initiatives in the following three areas: (1) new product and revenue reductions resulting from purchase accounting;
MBO attainment was measured based on the following achievement levels: (i) exceeds objective ("superior"—150%); (ii) meets objective ("target"—100%); (iii) reasonable effort made towards objective but results less than expected ("threshold"—50%); and business improvement efforts;
Annual Incentive Opportunity
In 2020, each of leases, software licenses or other contracts in connection withour named executive officers was eligible to earn a cash-based incentive award under the operational restructuring and business improvement efforts;
Using these measures, theAnnual Incentive Program. The Compensation Committee establishes, on an annual basis, specific targets that determine the size of payouts under the Annual Incentive Program. In 2018,2020, the annual incentive opportunity based on achievement of 20182020 Adjusted EBITDA and MBOs for each named executive officer was as follows:
| | Bonus Opportunity | Bonus Goal Weighting % 2018 Adjusted EBITDA | | Bonus Opportunity | Bonus Goal Weighting % | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Base Salary | Threshold % of Base Salary | Target % of Base Salary | Superior % of Base Salary | KAR Auction Services | ADESA | Base Salary | Threshold % of Base Salary | Target % of Base Salary | Superior % of Base Salary | 2020 Adjusted EBITDA | MBOs | ||||||||||||
Jim Hallett | $975,000 | 62.5 | 125 | 187.5 | 100 | | $975,000 | 62.5 | 125 | 187.5 | 80 | 20 | ||||||||||||
Eric Loughmiller | $535,417 | 42.5 | 85 | 127.5 | 100 | $550,000 | 50 | 100 | 150 | 80 | 20 | |||||||||||||
John Hammer(2) | $500,000 | 50 | 100 | 150 | 50 | 50 | ||||||||||||||||||
Don Gottwald | $583,495 | 50 | 100 | 150 | 100 | |||||||||||||||||||
Becca Polak | $515,000 | 37.5 | 75 | 112.5 | 100 | | ||||||||||||||||||
Peter Kelly | $600,000 | 50 | 100 | 150 | 80 | 20 | ||||||||||||||||||
John Hammer | $546,000 | 50 | 100 | 150 | 80 | 20 | ||||||||||||||||||
Tom Fisher(1) | $450,000 | 48 | 96 | 144 | 80 | 20 |
The chart below reflects Adjusted EBITDA performance metrics and achieved results for 2018. The payout percentages are based on the achievement of the performance metrics set forth below, with payment amounts prorated for performance between the established levels.
|
|
|
|
|
|
|
|
|
Use of Management by Objectives
In 2018, the Compensation Committee could also, in its discretion, apply the Management by Objectives ("MBO") modifier to increase or reduce theFisher's target annual incentive awards by up to plus or minus 10% based on the Compensation Committee's review of each named executive officer's achievement of two or more pre-established objectives, which are tailored to each executive depending on departmental, strategic or operational initiatives and objectives with respect to such executive's role.
Based on each named executive officer's level of achievement of his or her objectives, the Compensation Committee applied the MBO modifier to increase the annual incentive award of each of the named executive officers, as shown below. For 2019, the Compensation Committee has decided to rely on Company performance exclusively and has not included an MBO modifier in the 2019 Annual Incentive Program.
Performance Targets for the Annual Incentive Program
The Compensation Committee reviews the Company's business plan approved by the Board and determines the level of performance required to receive threshold, target and superior annual incentive payouts. The Compensation Committee established the performance objectives in amounts which it believed would increase stockholder value and be achievable given a sustained performance on the part of the named executive officers and which would require increasingly greater results to achieve the target and superior objectives. The CompensationConsistent with the terms of the Omnibus Plan, the Committee may decrease the potential payouts at eachadjust performance target if,goals to reflect unforeseen, unusual or extraordinary events or circumstances. As described in the discretion ofdetail below, the Compensation Committee, after careful review and in consultation with ClearBridge, adjusted the circumstances warrant such an adjustment. In 2018,threshold 2020 Adjusted EBITDA performance level and the Compensation Committee did not increase or decrease the performance targets of any 2018 annual incentive program award. As described elsewhere in this proxy statement, the Compensation Committee applied the MBO modifierMBOs to align to the 2018 annual incentive program payout, based onCompany's performance and priorities in light of the Compensation Committee's reviewCOVID-19 pandemic and capped each of the named executive officers' achievement of certain pre-established departmental, strategic or operational initiatives and objectives, which resulted in varying increases inofficer's potential annual incentive award payouts for each2020 at target.
| | |
| | |
| | 35 |
2020 Adjusted EBITDA
In February 2020, the Compensation Committee established the following 2020 Adjusted EBITDA performance targets, which were rigorously set to require year-over-year growth prior to the time the Compensation Committee could have known or anticipated the impacts of the COVID-19 pandemic:
| 2020 Adjusted EBITDA Goals | Performance Leverage (% of Target Goal) | Payout Leverage (% of Target Payout) | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Threshold | Target | Superior | Threshold | Target | Superior | Threshold | Target | Superior | |||||||||
KAR | $510.0* | $535.1 | $588.5 | 95.1% | 100% | 110% | 50% | 100% | 150% | |||||||||
($ in millions) |
In March 2020, the Company's business operations were adversely impacted by the COVID-19 pandemic. In response to the pandemic, the Company temporarily suspended many of its operations, temporarily furloughed the majority of its workforce in April 2020 and instituted wage reductions for all senior employees. Additionally, to protect the safety and welfare of its workforce, the Company also strongly encouraged all employees capable of performing their responsibilities off-site to begin working remotely.
The severe and immediate impact of the COVID-19 pandemic on businesses and consumers changed the expectations for wholesale and retail activity for 2020. In response, the Company revised its operating plans and adjusted its priorities to focus on reducing balance sheet risk, navigating the uncertainty ahead and ensuring the ability to sustain operations for an extended period of disruption. The Company simultaneously shifted resources and mobilized staff to dramatically accelerate its transformation from a primarily physical auction process to a fully-digital marketplace business for the wholesale used car industry. The pandemic required the named executive officer basedofficers to take swift and significant actions to both preserve the Company and accelerate opportunities for future growth.
The Company's performance in the months leading up to the pandemic were slightly ahead of target. By the end of April 2020, however, the Company's year-to-date performance dropped to less than 35% of target. Though the industry and the Company experienced a partial recovery during the summer months of 2020, industry volumes never returned to pre-COVID levels and remained well below normal through the fourth quarter. The Company navigated this challenging environment by instituting meaningful, permanent reductions to its cost structure and focusing its resources, labor, technology and investments on supporting a fully digital business model.
In recognition of the challenges created by the COVID-19 pandemic and their respective performance.
2018 Performance Targets.impact on operations, and to align with the Company's adjusted financial and operating performance, the Compensation Committee, after consultation with ClearBridge, determined to retain the Adjusted EBITDA metric but reduce the threshold performance level from 95.1% of target to 50% of target. The Compensation Committee determined that any potential payout would be capped at target, thereby eliminating the superior opportunity. The following chart which follows provides the 2018updated 2020 Adjusted EBITDA performance targets established by the Compensation Committee:
| 2020 Adjusted EBITDA Goals | Performance Leverage (% of Target Goal) | Payout Leverage (% of Target Payout) | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Threshold | Target | Superior | Threshold | Target | Superior | Threshold | Target | Superior | |||||||||
KAR | $267.5 | $535.1 | n/a | 50% | 100% | n/a | 50% | 100% | n/a | |||||||||
($ in millions) |
The Compensation Committee for 2018 as well asbelieves the modified threshold level remained challenging and aligns the annual incentive opportunity to relative performance. Considering the extremely difficult operating environment, achievement of 50% of the target performance goal set pre-pandemic required substantial improvement and innovation in operations through the last nine months of 2020.
The following chart provides the actual level of 2020 Adjusted EBITDA performance achieved (dollars in millions):achieved:*
| Threshold | Target | Superior | Achieved Results(1) | Percentage of Target Award Earned (Adjusted EBITDA) | |||||
---|---|---|---|---|---|---|---|---|---|---|
KAR Auction Services | $841.75 | $910.00 | $955.50 | $900.22 | 92.83% | |||||
ADESA | $454.00 | $478.53 | $526.39 | $448.76 | 0.00% |
| | |
| | |
| | 36 |
MBOs
In February 2020, the Compensation Committee established the following MBOs for the named executive officers, which was prior to the time the Compensation Committee could have known or anticipated the impacts of the COVID-19 pandemic ("Pre-COVID MBOs"):
As described above, the COVID-19 pandemic required our named executive officers to take swift and significant actions to both preserve the Company and accelerate opportunities for future growth.
During the second quarter of 2020, the Company revised its operating plans and adjusted its priorities to focus on protecting employees, reducing balance sheet risk, navigating the uncertainty ahead and ensuring the ability to sustain operations for an extended period of disruption. The Company simultaneously shifted resources and mobilized staff to dramatically accelerate its transformation from a primarily physical auction process to a fully-digital marketplace business for the wholesale used car industry. In recognition of the revised business objectives following the onset of the COVID-19 pandemic, the Compensation Committee measured each named executive officer's performance against the following revised business priorities for the second quarter of 2020 ("Preserve the Business MBOs"):
In recognition of the evolving needs and expectations of customers and to motivate and incentivize our named executive officers to capitalize on the opportunities that emerged and accelerated due to the pandemic, the Compensation Committee measured each named executive officer's performance against the following modified business priorities for the third and fourth quarters of 2020 ("Digital Transformation MBOs"):
The Compensation Committee considered each named executive officer's performance against the pre-COVID MBOs in the first quarter of 2020, Preserve the Business MBOs in the second quarter of 2020, and Digital Transformation MBOs during the third and fourth quarters of 2020. The Compensation Committee, with the assistance ClearBridge, developed these modified performance objectives as a framework to measure operational and strategic achievements in light of the COVID-19 pandemic and the Company's accelerated digital transformation, and generally placed a 20% emphasis on Pre-COVID MBO performance, 40% emphasis on Preserve the Business MBO performance, and 40% emphasis on Digital Transformation MBO performance.
| | |
| | |
| | 37 |
In determining the MBO achievements for our named executive officers, the Compensation Committee acknowledged the highlights described below.
MBO Performance Highlights | ||
Jim Hallett Chief Executive Officer and Chairman of the Board | • Advocated for and led the accelerated transformation from a physical auction business to a fully digital marketplace, including actively communicating the value proposition to customers and investors. • Demonstrated exceptional leadership in taking swift and decisive actions to preserve the business during the initial and later stages of the COVID-19 pandemic, including convening daily decisioning meetings related to financial stability, allocating capital for digital and operational transformation, and mobilizing enhanced safety and security measures to protect employees, customers and assets. • Championed employee and customer safety in a number of ways, including establishing a work-from-home policy, maintaining a strong commitment to digital, and leading the management team in reimagining the Company's business processes in order to adhere to health and safety guidelines. • Led increased communication and engagement efforts with employees, directors, customers and other stakeholders through meetings and communications on business performance, employee health and safety, risk mitigation efforts, and strategic planning. | |
Eric Loughmiller Executive Vice President and Chief Financial Officer | • Worked quickly and decisively to conserve cash and improve liquidity to ensure the Company could operate through the pandemic. • Orchestrated several key transactions, including a $550 million private placement, the acquisition of BacklotCars and a series of amendments to the Company's revolving credit facility and securitization facility. • Led optimization and cost reduction efforts throughout the organization, including in the accounting, finance, risk, treasury, tax, internal audit, cybersecurity, and facilities/real estate departments. • Developed and implemented a comprehensive approach to provide additional transparency to stockholders regarding Company performance, including expanded quarterly disclosures, additional investor communications and meetings, and simplified segment reporting, metrics and disclosures. | |
Peter Kelly President | • Led the Company's strategic and operational efforts to transform the business to a fully-digital marketplace, including accelerating the pace of introducing new products, features, and functions to support digital transactions. • Launched initiatives to enhance communications and engagement with customers and employees, including frequent employee town halls and customer meetings. • Introduced and directed various dealer consignment initiatives, including the creation of an all-new customer experience center of operational excellence, combining the TradeRev and ADESA salesforces, acquiring and integrating BacklotCars and streamlining vehicle inspections. • Demonstrated exceptional leadership in identifying and addressing challenges faced by the business by the COVID-19 pandemic, including implementation of various cost-saving initiatives such as eliminating travel and significantly reducing conferences and sponsorships. | |
John Hammer Chief Commercial Officer for KAR and President of ADESA | • Maintained operations across all auction facilities, with a focus on adhering to CDC guidelines and company-mandated policies, procedures and frameworks to keep employees and customers safe. Developed and implemented a COVID-19 playbook to standardize operations across the organization. • Ensured that commercial customers were regularly updated regarding each auction's operational status, including planning, developing and leading customer town hall meetings and listening session meetings with commercial and dealer customers to understand their needs and challenges and discuss the Company's digital transformation. • Led efforts to design and implement a consolidated commercial sales team structure and strategy, and developed and launched a new sales training program for the KAR Global dealer sales team. • Aligned operating costs with auction volumes and mobilized staff to dramatically accelerate the Company's transformation from a primarily physical auction process to a fully-digital marketplace business. | |
Tom Fisher Executive Vice President and Chief Digital Officer | • Led efforts to develop and maintain technology platforms to enable customers to transact digitally, including the accelerated delivery of Simulcast+, the industry's first fully automated auction platform. • Created and deployed the all-new customer experience center focused on initiatives designed to deliver a consistent experience across the Company's marketplace brands and support customers in a digital environment. • Delivered strong support of product innovation priorities and continued strategic transformation of the Company's technology, including implementation of single sign-on technology to connect dealers across KAR's marketplace platforms and create an integrated digital marketplace. • Enacted the Company's business continuity plan, including optimization of work from home offerings, bandwidth and IT capacity to enable remote working, and delivery of significant network connectivity enhancements to all auction locations. |
| | |
| | |
| | 38 |
As noted above, at least a target level of 2020 Adjusted EBITDA performance must be achieved for the MBO component to be earned at a level above target. Further, the Compensation Committee determined that any potential payout would be capped at target as part of the COVID-19-related adjustments, thereby eliminating the superior opportunity on the MBO component. Therefore, despite each named executive officer's extraordinary accomplishments in 2020, the named executive officers were not eligible to earn an MBO-related payout above target. Based on the Compensation Committee's evaluation of each named executive officer's performance and accomplishments relative to the objectives described above, the Compensation Committee determined that the portion of the annual incentive award attributable to achievement of MBOs was achieved at target for each named executive officer.
20182020 Annual Incentive Program Payouts. The actual annual incentive award earned by each named executive officer for 2020 was determined by the Company's achievement of the Adjusted EBITDA performance goal and the named executive officer's achievement of the MBO performance objectives, as determined by the Compensation Committee.
Under the Annual Incentive Program, threshold performance objectives must be met in order for any payout to occur. Payouts can typically range from 50% of target awards for performance at threshold, up to a maximum of 150% of target awards (165% with the MBO modifier) for superior performance, or no payout if performance is below threshold. threshold, except that in 2020, the Compensation Committee determined that no payout can be made above target as part of the COVID-19-related adjustments described above.
The table below shows the annual incentive opportunities and payouts for our named executive officers for 2018.2020. Because KAR Auction Services achieved at least the threshold level of Adjusted EBITDA performance in 2018,2020, each of our named executive officers was eligible to receive an award under the Annual Incentive Program in 2018,2020, which amounts are set forth in the "Summary Compensation Table for 2018"2020" on page 42.47. Based on the Company's performance during 2018,2020, the accompanying payout percentages for the different performance goals set forth above and each named executive officer's resulting achievement level with respect to his or her MBO initiatives and objectives
|
|
|
|
|
|
|
|
|
(MBOs described above),above, our named executive officers earned the percentages and corresponding payout amounts of their target annual incentive awards as set forth below based on the following formula:
Target Annual Incentive Award × Percentage of Target Award Earned × MBO Modifier = 2018 Payoutbelow:
| Target | | Actual | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Target Annual Incentive Award | Percentage of Target Award Earned (Adjusted EBITDA) | MBO Modifier | 2018 Payout | | Target Annual Incentive Award | | % of Adjusted EBITDA Target Award Earned (80% Weighting) | | % of MBO Target Award Earned (20% Weighting) | | % of Total Target Award Earned | | 2020 Payout (Actual Annual Incentive Award) | ||||
Jim Hallett | $1,218,750 | 92.83% | 107.75% | $1,219,046 | | $1,218,750 | | 70.4% | | 100% | | 76.4% | | $930,529 | ||||
Eric Loughmiller | $458,854(1) | 92.83% | 108.20% | $460,882 | | $550,000 | | 70.4% | | 100% | | 76.4% | | $419,931 | ||||
Peter Kelly | | $600,000 | | 70.4% | | 100% | | 76.4% | | $458,106 | ||||||||
John Hammer | $416,667(2) | 46.42%(3) | 108.75% | $210,318 | | $546,000 | | 70.4% | | 100% | | 76.4% | | $416,877 | ||||
Don Gottwald | $583,495 | 92.83% | 108.80% | $589,324 | ||||||||||||||
Becca Polak | $386,250 | 92.83% | 105.00% | $376,484 | ||||||||||||||
Tom Fisher(1) | | $431,250 | | 70.4% | | 100% | | 76.4% | | $329,264 |
2021 ANNUAL INCENTIVE PROGRAM
In February 2021, the prorated, blended adjustments to his base salary and target annual incentiveCompensation Committee approved the performance objectives for our 2021 Annual Incentive Program. For 2021, the bonus opportunity as discussed above.
| | |
| | |
| | 39 |
Long-Term Incentive Opportunities
TheTo further align our named executive officers' interests with those of our stockholders, the Company provides long-term incentive compensation opportunities under the Omnibus Plan, as described below.
Omnibus Plan. The Company currently grants long-term incentive awards under the Omnibus Plan. Our Board adopted the Omnibus Plan on December 10, 2009, and it has since been amended and restated, as approved by our stockholders. Under the Omnibus Plan, participants are eligible to receive stock options, restricted stock, RSUs (with or without performance conditions), stock appreciation rights, other stock-based awards and/or cash-based awards, each as determined by the Compensation Committee. In recent years, named executive officers have received long-term incentive awards in the form of PRSUs and RSUs, each as described below.RSUs. Although we have granted stock options in the past, stock options arewere not currently part of the Company's long-term incentive program.program for 2015-2020, the Company has included performance- and time-based stock options as part of its 2021 compensation program, as described on pages 41-42.
2018 Long-Term Incentive Awards.2020 LONG-TERM INCENTIVE AWARDS
On March 2, 2018,February 21, 2020, the Compensation Committee granted PRSUs and RSUs under its long-term incentive program to the Company's named executive officers, as described in the table below. Awards were based on the individual's ability to impact future results, job scope, individual performance, and a review of competitive pay practices.
The aggregate target award value for each named executive officer was allocated such that 75% of the value was in the form of PRSUs and 25% of the value was in the form of RSUs.
Name | Target PRSUs (Cumulative Operating Adjusted Net Income Per Share Goal) | Value of Target Shares at Grant | RSUs | Value of RSUs at Grant | ||||
---|---|---|---|---|---|---|---|---|
Jim Hallett | 54,057 | $2,925,024 | 18,019 | $975,008 | ||||
Eric Loughmiller | 12,735 | $689,091 | 4,245 | $229,697 | ||||
John Hammer(1) | 15,594 | $843,791 | 5,199 | $281,318 | ||||
Don Gottwald | 14,154 | $765,873 | 4,718 | $255,291 | ||||
Becca Polak | 12,492 | $675,942 | 4,164 | $225,314 |
Name | Target PRSUs (Cumulative Operating Adjusted Net Income Per Share Goal) | Value of Target Shares at Grant | RSUs | Value of RSUs at Grant | ||||
---|---|---|---|---|---|---|---|---|
Jim Hallett | 131,461 | $2,925,007 | 43,821 | $975,017 | ||||
Eric Loughmiller | 46,349 | $1,031,265 | 15,450 | $343,763 | ||||
Peter Kelly | 45,506 | $1,012,509 | 15,169 | $337,510 | ||||
John Hammer | 27,641 | $615,012 | 9,214 | $205,012 | ||||
Tom Fisher | 14,326 | $318,754 | 4,776 | $106,266 |
20182020 Performance-Based RSU Awards
The PRSUs will vest if and to the extent that the sum of the Company's "Cumulative Operating Adjusted Net Income Per Share" exceeds certain levels over the three-year measurement period beginning on January 1, 20182020 and ending on December 31, 2020.2022.
"Cumulative Operating Adjusted Net Income Per Share"Share" for a fiscal year is calculated by dividing Operating Adjusted Net Income by the weighted average diluted common shares outstanding per year. "Operating
|
|
|
|
|
|
|
|
|
Adjusted Net Income" for a fiscal year is equal to the Company's net income as reported in the Form 10-K filed by the Company with respect to such fiscal year, adjusted to (i) exclude gains/losses from certain non-recurring and unbudgeted capital transactions, including debt prepayment, debt refinancing, share repurchases and related financing costs not contemplated in the long term incentive targets; (ii) exclude amortization expense associated with acquired intangible assets recorded during purchase accounting of acquisitions; (iii) exclude acquisition contingent consideration; (iv) exclude the impact of significant acts of God or other events outside of the Company's control that may affect the overall economic environment; (v) exclude significant asset impairments; (vi) exclude the impact of adoption of new accounting standards; and (vii) exclude the impact of tax rate changes caused by changes in tax legislation.
The amount of the target PRSUs actually earned and paid in shares of common stock in a lump sum following the performance period will be: 0% for below threshold performance, 50% for threshold performance, 100% for target performance and up to 200% for achieving the maximum performance level or higher. Linear interpolation will be used to calculate the percentage of PRSUs earned and paid if performance falls between the levels described above.
| | |
| | |
| | 40 |
20182020 Time-Based RSU Awards
TheOne-third of the RSUs will vest and convert into shares of common stock of the Company on each of the first three anniversaries of the grant date, subject to the named executive officer's continued employment with the Company through each such anniversary.
PRIOR YEARS' LONG-TERM INCENTIVE AWARDS
Prior Years' Awards.2019 Performance-Based and Time-Based RSU Awards
As previously disclosed, on February 22, 2019 (and for Mr. Hammer, again on March 1, 2019), the Compensation Committee granted PRSUs and RSUs to the Company's named executive officers, some of which remained outstanding at fiscal year-end 2020.
The amounts of PRSUs and RSUs are disclosed in the "Outstanding Equity Awards" table below. Other than certain adjustments made to the PRSUs granted in 2019 due to the IAA Spin Off (described below), these awards have terms substantially similar to those granted in 2020. For the year ended December 31, 2020, one-third of the RSUs had vested, as disclosed in the "Option Exercises and Stock Vested" table below.
At the time of grant, the PRSUs were to vest if and to the extent that the sum of the Company's "Cumulative Operating Adjusted Net Income Per Share" exceeded certain levels over the three-year measurement period beginning on January 1, 2019 and ending on December 31, 2021. In connection with the IAA Spin-Off, the PRSUs granted in 2019 were subject to adjusted performance criteria and an adjusted performance period from January 1, 2019 to December 31, 2019. Following the completion of the adjusted performance period, based on the actual performance achieved, 71.1% of the target 2019 PRSUs were converted into time-based RSUs, and such RSUs will vest on the third anniversary of the grant of the 2019 PRSUs, subject to continued employment as required under the original 2019 PRSU award agreement.
2018 Performance-Based and Time-Based RSU Awards
As previously disclosed, on March 2, 2018, the Compensation Committee granted PRSUs and RSUs to the Company's named executive officers, some of which remained outstanding at fiscal year-end 2020. The amounts of PRSUs and RSUs are disclosed in the "Outstanding Equity Awards" table below. Other than certain adjustments made to the PRSUs granted in 2018 due to the IAA Spin-Off (described below), these awards have terms substantially similar to those granted in 2019. For the year ended December 31, 2020, two-thirds of the RSUs had vested, as disclosed in the "Option Exercises and Stock Vested" table below.
In connection with the IAA Spin-Off, the PRSUs granted in 2018 were converted into time-based RSUs with the number so converting based on target level performance. The RSUs will vest on the third anniversary of the grant of the 2018 PRSUs, subject to continued employment as required under the original 2018 PRSU award agreement.
2017 Performance-Based and Time-Based RSU Awards
As previously disclosed, on February 24, 2017,2020, the Compensation Committee granted PRSUs and RSUs to certain of the Company's named executive officers, some of which remained outstanding at fiscal year-end 2018. The amounts of PRSUs and RSUs are disclosed in the "Outstanding Equity Awards" table below. Other than the condition that the Company achieve $100 million in adjusted net income in its 2017 fiscal year (as reported by the Company and which condition was satisfied), these awards have terms substantially similar to those granted in 2018. For2017 that were converted to time-based RSUs based on target level performance in connection with the year ended December 31, 2018,IAA Spin-Off and the final one-third of the RSUs hadeach vested, as disclosed in the "Option Exercises and Stock Vested" table below.
2016 Performance-Based and Time-Based RSU Awards2021 LONG-TERM INCENTIVE PROGRAM
As previously disclosed, onIn February 22, 2016,2021, the Compensation Committee granted PRSUs and RSUsapproved changes to certainthe components of our long-term incentive program, which is intended to apply for the Company's2021-2024 compensation periods. In prior years (2015-2020), named executive officers some of which remained outstanding at fiscal year-end 2018. Other than with respect to the double-trigger vesting upon a change in control of the Company described above, thesehave been granted long-term incentive awards have terms substantially similar to those granted in 2017.
For the year ended December 31, 2018,on an additional one-third of the RSUs had vested, as disclosedannual basis in the "Option Exercises and Stock Vested" table below.
The number of PRSUs that vested on February 19, 2019 was determined based on the sum of the Company's Cumulative Operating Adjusted Net Income Per Share exceeding certain levels over the three-year period beginning on January 1, 2016 and ending on December 31, 2018. The amountsform of PRSUs and RSUs, are disclosedallocated such that 75% of the value was in the "Outstanding Equity Awards" table below.form of PRSUs and 25% of the value was in the form of RSUs. In connection with the Company's digital transformation and go-forward strategy, the Compensation Committee approved changes to the structure of our long-term incentive program.
| | |
| | |
| | |
The numberAccordingly, for 2021, our named executive officers' long-term incentive awards consists of two components: 50% PRSUs and 50% stock options, with 80% of the stock options being performance-based, and 20% of the stock options being time-based:
| ||
| ||
| ||
| ||
| ||
| ||
| ||
|
The Company achieved Cumulative Operating Adjusted Net Income Per Share of $6.95 versus a target of $6.72 for the three-year performance period ended December 31, 2018. As such, on February 19, 2019, based on the Cumulative Operating Adjusted Net Income Per Share achieved, 117.1% of the 2016 PRSUs vested above the target level but below the maximum level and resulted in the following number of PRSUs vesting:
Name | Number of PRSUs Vesting (including dividend equivalents) | 2016 PRSU Payout(1) | ||
---|---|---|---|---|
Jim Hallett | 83,528 | $4,497,983 | ||
Eric Loughmiller | 36,004 | $1,938,815 | ||
John Hammer | N/A | N/A | ||
Don Gottwald | 20,396 | $1,098,325 | ||
Becca Polak | 12,673 | $682,441 |
2015 Performance-Based RSU Awards
As previously disclosed, on February 6, 2018, the 2015 PRSUs vested above the target performance level but below the maximum performance level based on the sum of the Company's Cumulative Adjusted Net Income Per Share exceedingShare" exceeds certain levels over the three-yearthree year measurement period beginning on January 1, 20152021 and ending on December 31, 2017.
2023.
The Compensation Committee has adopted this approach for the long-term incentive awards underprogram for our named executive officers going forward in order to (i) increase the Omnibus Plan.proportion of the grants tied to pre-established stock price or financial performance goals (i.e., 90% of the target long-term incentive grants, as described above); (ii) further align our named executive officers with the interests of our stockholders; and (iii) further incentivize our named executive officers to drive long-term stockholder value creation, which is required for our named executive officers to realize significant value from these grants.
Our Board adoptedTo the extent the stockholders approve amending and restating our Omnibus Plan on December 10, 2009, and it has since been amended and restated, as approved by(Proposal No. 4), in June 2021, the stockholders. Under the Omnibus Plan, participantsCompensation Committee currently intends to grant named executive officers who are eligible to receivenot retirement-eligible additional performance-based stock options restrictedand time-based stock RSUs (with or without performance conditions),options, intended to cover grants that would otherwise be made in 2022, 2023 and 2024, and, for retirement-eligible named executive officers, additional performance-based stock appreciation rights, other stock-based awards and/or cash-based awards,options and time-based stock options intended to cover grants that would otherwise be made in 2022. As a result of the proposed stock option grant in 2021, in each as determined byof 2022, 2023 and 2024, the Compensation Committee.Committee intends to only grant PRSUs to our named executive officers with a target value equal to 50% of the grant value that our named executive officers would typically receive in a single compensation period.
Retirement, Health and Welfare Benefits
We offer a variety of health and welfare and retirement programs to all eligible employees, including our named executive officers. As with all Company employees, our named executive officers are eligible to receive 401(k) employer matching contributions equal to 100% of the first 4% of compensation contributed by the named executive officer. The health and welfare programs are intended to protect employees against catastrophic loss and encourage a healthy lifestyle. Our health and welfare programs include medical, dental, vision, pharmacy, life, disability and accidental death and disability insurance. We also provide travel insurance to all employees who travel for business purposes.
|
|
|
|
|
|
|
|
|
We also provide certain enhanced retirement vesting of equity-incentive awards as described in "Potential Payments Upon Termination ofor Change in Control—Potential Payments Upon Termination ofor Change ofin Control Table".
Perquisites
The Company provides the named executive officers a limited number of perquisites that the Compensation Committee believes are reasonable and consistent with the objective of attracting and retaining highly qualified executive officers.executives. The perquisites which are currently available to certain of our named executive officers include an automobile allowance or use of a Company-owned automobile, an allowance for executive physicals, Company-paid group term life insurance premiums and relocation benefits under the Company's mobility program. Please see footnote 47 to the "Summary Compensation Table for 2018"2020" on page 4247 for more information regarding perquisites.
| | |
| | |
| | 42 |
COMPENSATION POLICIES AND OTHER INFORMATION |
Employment and Severance Agreements
The Compensation Committee recognizes that, from time to time, it is appropriate to enter into agreements with our executive officers to ensure that we continue to retain their services and to promote stability and continuity within the Company. All of our current named executive officers have an employment agreement with the Company or one of its subsidiaries.Company. A description of these agreements can be found in the section titled "Potential Payments Upon Termination or Change in Control—Employment Agreements with Named Executive Officers."
Tax and Accounting Considerations
Employment Agreements. Section 280G of the Internal Revenue Code of 1986, as amended (the "Code") and related provisions impose substantial excise taxes under Section 4999 of the Code on so-called "excess parachute payments" payable to certain named executive officers upon a change in control and results in the loss of the compensation deduction for such payments by the Company.
Mr. Hallett's prior employment agreement, which became effective as of February 27, 2012 providesand has been superseded by his new employment agreement entered into on March 1, 2021 and effective as of April 1, 2021, provided for a potential "gross-up payment" in the event that such excise taxes result from any excess parachute payments. Mr. Hallett's new employment agreement provides that in the event thateliminated his right to receive any payment or benefit under such agreement in connection with Mr. Hallett's employment or termination of employment is or becomes subject to an excise tax under Section 4999 of the Code, then the Company will make a cash payment to Mr. Hallett, which, after the imposition of all income, employment, excise and other taxes thereon, as well as any penalty and interest assessments associated therewith, will be sufficient to place Mr. Hallett in the same after-tax position as he would have been in had such excise tax not been applied. However, in the event that a reduction of the total payments to Mr. Hallett would avoid the application of the excise tax, then the total payments will be reduced to the extent necessary to avoid the excise tax, but in no event by more than 10% of the original amount of the totalgross-up payments.
None of the employment agreements entered into with Messrs. Loughmiller, Kelly, Hammer or Gottwald, or Ms. PolakFisher, contain excise tax gross-up provisions.
Tax Deductibility of Awards Under the Omnibus Plan. Section 162(m) of the Code ("Section 162(m)") generally disallows a federal tax deduction by the Company for compensation paid to Covered Employees (as defined in Section 162(m)) in excess of $1,000,000. Historically, compensation that qualified as "performance-based compensation" under Section 162(m) could be excluded from this limit. This exception has been repealed, effective for taxable years beginning after December 31, 2017, such that compensation paid to the Covered Employees in excess of $1,000,000 will not be deductible by the Company unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017.
The Compensation Committee historically structured certain awards under the Omnibus Plan so that they could comply with the "performance-based compensation" exception for purposes of Section 162(m) and be
|
|
|
|
|
|
|
|
|
deductible by the Company for federal income tax purposes. However, because of the continued development of the application and interpretation of Section 162(m) and the regulations issued thereunder, we cannot guarantee that compensation intended to satisfy the requirements for deductibility under Section 162(m), as in effect prior to 2018, would or will in fact be deductible.
Though tax deductibility is one of many factors considered by the Compensation Committee when determining executive compensation, the Compensation Committee believes that the tax deduction limitation should not be permitted to compromise our ability to design and maintain executive compensation arrangements that will attract and retain the executive talent to compete successfully. For example,Therefore, in seeking to tie executive pay to company performance in a meaningful way, the Compensation Committee may make decisions in designing and approving pay programs that are not driven by tax consequences to the Company.
Accounting for Stock-Based Compensation. We account for stock-based compensation in accordance with the requirements of ASC 718.
Clawback Policy for Financial Restatements. The Company's clawback policy provides for the recovery of incentive compensation in the event the Company is required to prepare an accounting restatement due to any current or former executive officer's intentional misconduct. In such an event, the executive officer would be required to repay to the Company the excess amount of incentive compensation received under the inaccurate financial statement. The Company intends to revise this policy as needed to comply with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act when such requirements become effective.
| | |
| | |
| | 43 |
Insider Trading PolicyTable of Contents
Anti-Hedging and Anti-Pledging Policies
Our insider trading policy expressly prohibits:prohibits our directors, officers and other employees from, among other things:
We also prohibit officers, directors and employees from:
Our executives and directors are permitted to enter into trading plans that are intended to comply with the requirements of Rule 10b5-1 of the Exchange Act so that they can prudently diversify their asset portfolios and exercise their stock options before their scheduled expiration dates.
Anti-Hedging Policy
In addition to the Company's existing anti-pledging of Company stockinsider trading policy, the Company adoptedhas a formal anti-hedging of Company stockpolicy. This policy which prohibits our officers and directors from engaging in certain forms ofentering into hedging or monetization transactions with respect to the Company'sinvolving Company stock, such as prepaid variable forward contracts, equity swaps, collars and exchange funds.
Stock Ownership Guidelines and Stock Holding Requirement
The Compensation Committee adopted the following stock ownership guidelines which are applicable to our named executive officers:
Title | Stock Ownership Guideline | |
---|---|---|
CEO | 5 times annual base salary | |
CEO Direct Reports and Business Unit Leaders | 3 times annual base salary |
|
|
|
|
|
|
|
|
|
The named executiveExecutive officers must hold 60% of the vested shares, net of taxes, of Company stock received under awards granted on or after January 1, 2015 until the applicable ownership guideline is met. All named executive officers own shares in excess of the stock ownership guidelines, except for Mr.Messrs. Fisher and Hammer who each became an employee of the Company on February 19,in 2017 and 2018, respectively, and is each subject to the aforementioned holding requirement.
RESULTS OF SAY ON PAY VOTES AT |
At the Company's 20182020 annual meeting of stockholders, the Company held a non-binding stockholder vote on executive compensation (commonly referred to as "Say on Pay"). At the meeting, excluding broker non-votes, over 94%approximately 97% of the votes on the matter were cast to approve the Company's executive compensation programs, less than 5%approximately 3% of the votes were cast against, and less than 1%0.5% abstained from voting.
The Compensation Committee considered the results of the vote, including the appropriateness of the compensation philosophy and objectives, the role of the Compensation Committee and executive officers in setting compensation, the elements used to achieve the compensation philosophy and objectives and the levels of compensation provided to the named executive officers. Following its review, the Compensation Committee decided to retain the Company's general approach to executive compensation in 2019, in part due to the significant majority of stockholders that voted to approve the Company's executive compensation programs at the 2018 annual meeting of stockholders.
In addition, at the Company's 2017 annual meeting of stockholders, the Company held a non-binding stockholder vote on whether to hold a Say on Pay vote every one, two or three years. At that meeting, a majority of our stockholders voted in favor of holding a Say on Pay vote every year, and accordingly, the Company adopted an annual Say on Pay vote frequency. As described in more detail in Proposal No. 23 above, the Company is again holding an a Say on Pay vote to approve executive compensation at the 20192021 annual meeting of stockholders.
| | |
| | |
| | 44 |
COMPENSATION COMMITTEE REPORT |
The Compensation Committee has reviewed the Compensation Discussion and Analysis for executive compensation for 20182020 and discussed that analysis with management. Based on its review and discussions with management, the Compensation Committee recommended to our Board that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into the Company's 20182020 Annual Report on Form 10-K. This report is submitted by Donna R. Ecton, Todd F. Bourell, Lynn Jolliffe and John P. Larson.
Compensation CommitteeCOMPENSATION COMMITTEE
Donna R. Ecton(Chairman)Todd F. BourellLynn JolliffeJohn P. Larson
Carmel Galvin, Chair | Stefan Jacoby | Roy Mackenzie | Mary Ellen Smith | Stephen E. Smith |
| | |
| | |
| | |
ANALYSIS OF RISK IN THE COMPANY'S COMPENSATION STRUCTURE |
The Compensation Committee considers the potential risks in our business when designing and administering the Company's pay program, and the Compensation Committee believes its balanced approach to performance measurement and pay delivery works to avoid misaligned incentives for individuals to undertake excessive or inappropriate risk. Further, program administration is subject to considerable internal controls, and when determining the principal outcomes—performance assessments and pay decisions—the Compensation Committee relies on principles of sound governance and good business judgment. As part of its responsibilities to annually review all incentive compensation and equity-based plans, and evaluate whether the compensation arrangements of the Company's employees incentivize unnecessary and excessive risk-taking, the Compensation Committee evaluated the risk profile of all of the Company's compensation policies and practices for 2018.2020.
In its evaluation, the Compensation Committee reviewed the Company's employee compensation structures and noted numerous design elements that manage and mitigate risk without diminishing the incentive nature of the compensation. There is a balanced mix between cash and equity and between annual and longer-term incentives. In addition, annual incentive awards and long-term incentive awards granted to executives are generally tied to corporate performance goals, including Adjusted EBITDA and Cumulative Operating Adjusted Net Income Per Share. These metrics encourage performance that supports the business as a whole. The executive annual incentive awards include a maximum payout opportunity equal to 165%150% of target. Our executives are also expected to meet share ownership guidelines in order to align the executives' interests with those of our stockholders. Also, the Company's clawback policy permits the Company to recover incentive compensation paid to an executive officer if the compensation resulted from any financial result or metric impacted by the executive officer's intentional misconduct. This policy helps to discourage inappropriate risks, as executives will be held accountable for misconduct which is harmful to the Company's financial and reputational health.
The Compensation Committee also reviewed the Company's compensation programs for certain design features that may have the potential to encourage excessive risk-taking, including:including over-weighting towards annual incentives, highly leveraged payout curves, unreasonable thresholds and steep payout cliffs at certain performance levels that may encourage short-term business decisions to meet payout thresholds. The Compensation Committee concluded that the Company's compensation programs (i) do not include such elements; or (ii) have implemented features, steps and controls that are designed to limit risks of our compensation arrangements. In light of these analyses, the Compensation Committee concluded that the Company has a balanced pay and performance program that does not encourage excessive risk-taking that is reasonably likely to have a material adverse effect on the Company.
| | |
| | |
| | |
SUMMARY COMPENSATION TABLE FOR |
The table below contains information concerning the compensation of (i) our chiefnamed executive officer; (ii) our chief financial officer; and (iii) each of the three other most highly compensated executive officers who were serving as our executive officersofficers.
Name and Principal Position(1) | Year(2) | Salary(3) | Bonus(4) | Stock Awards(5) | Non-Equity Incentive Plan Compensation(6) | All Other Compensation(7) | Total | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jim Hallett | 2020 | $975,000 | | $3,900,024 | $930,529 | $41,910 | $5,847,463 | ||||||||
| | | | | | | | | | | | | | | |
Chief Executive Officer | 2019 | $975,000 | | $3,900,050 | $609,375 | $45,003 | $5,529,428 | ||||||||
| | | | | | | | | | | | | | | |
and Chairman of the Board | 2018 | $975,000 | | $3,900,032 | $1,219,046 | $44,148 | $6,138,226 | ||||||||
| | | | | | | | | | | | | | | |
Eric Loughmiller | 2020 | $550,000 | $1,375,028 | $419,931 | $32,964 | $2,377,923 | |||||||||
| | | | | | | | | | | | | | | |
Executive Vice President | 2019 | $550,000 | $1,375,046 | $275,000 | $20,335 | $2,220,381 | |||||||||
| | | | | | | | | | | | | | | |
and Chief Financial Officer | 2018 | $535,577 | $918,788 | $460,882 | $27,045 | $1,942,292 | |||||||||
| | | | | | | | | | | | | | | |
Peter Kelly | 2020 | $600,000 | | $1,350,019 | $458,106 | $19,592 | $2,427,717 | ||||||||
| | | | | | | | | | | | | | | |
President | 2019 | $576,923 | | $1,200,031 | $300,000 | $108,732 | $2,185,686 | ||||||||
| | | | | | | | | | | | | | | |
John Hammer | 2020 | $546,000 | $820,024 | $416,877 | $31,308 | $1,814,209 | |||||||||
| | | | | | | | | | | | | | | |
Chief Commercial Officer for | 2019 | $520,769 | $1,287,644 | $345,190 | $30,585 | $2,184,188 | |||||||||
| | | | | | | | | | | | | | | |
KAR and President of ADESA | 2018 | $432,692 | $400,000 | $1,125,109 | $210,318 | $294,981 | $2,463,100 | ||||||||
| | | | | | | | | | | | | | | |
Tom Fisher | 2020 | $447,692 | | $425,020 | $329,264 | $30,605 | $1,232,581 | ||||||||
| | | | | | | | | | | | | | | |
Executive Vice President | | | | | | | | ||||||||
and Chief Digital Officer | | | | | | | | ||||||||
Name and Principal Position | Year | Salary | Bonus(1) | Stock Awards(2) | Non-Equity Incentive Plan Compensation(3) | All Other Compensation(4) | Total | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jim Hallett | 2018 | $975,000 | | $3,900,032 | $1,219,046 | $44,148 | $6,138,226 | ||||||||
| | | | | | | | | | | | | | | |
Chief Executive Officer | 2017 | $900,000 | | $3,514,776 | $1,355,361 | $41,739 | $5,811,876 | ||||||||
| | | | | | | | | | | | | | | |
and Chairman of the Board | 2016 | $900,000 | | $3,040,091 | $1,094,772 | $43,220 | $5,078,083 | ||||||||
Eric Loughmiller | 2018 | $535,577 | $918,788 | $460,882 | $27,045 | $1,942,292 | |||||||||
| | | | | | | | | | | | | | | |
Executive Vice President | 2017 | $500,000 | $854,324 | $456,798 | $25,862 | $1,836,984 | |||||||||
| | | | | | | | | | | | | | | |
and Chief Financial Officer | 2016 | $450,000 | $1,310,398 | $410,540 | $46,780 | $2,217,718 | |||||||||
John Hammer | 2018 | $432,692 | $400,000 | $1,125,109 | $210,318 | $294,981 | $2,463,100 | ||||||||
| | | | | | | | | | | | | | | |
President of ADESA | |||||||||||||||
Don Gottwald | 2018 | $583,495 | $1,021,164 | $589,324 | $32,680 | $2,226,663 | |||||||||
| | | | | | | | | | | | | | | |
Chief Strategy Officer and | 2017 | $583,495 | $996,133 | $702,974 | $30,870 | $2,313,472 | |||||||||
| | | | | | | | | | | | | | | |
President of Digital, Data | 2016 | $566,500 | $742,354 | $689,098 | $32,454 | $2,030,406 | |||||||||
and Mobility Solutions(5) | |||||||||||||||
Becca Polak | 2018 | $515,000 | | $901,256 | $376,484 | $30,350 | $1,823,090 | ||||||||
| | | | | | | | | | | | | | | |
Chief Legal Officer and | 2017 | $475,000 | | $811,595 | $436,338 | $30,150 | $1,753,083 | ||||||||
| | | | | | | | | | | | | | | |
Secretary for KAR and | 2016 | $440,000 | | $461,284 | $401,416 | $33,990 | $1,336,690 | ||||||||
| | | | | | | | | | | | | | | |
President of TradeRev |
For Mr. Hammer, $500,000 of the aggregate value of his equity awards (with the same 75%/25% allocation between PRSUs/RSUs) was attributable to a special sign-on award.
| | |
| | |
| | |
GRANTS OF PLAN-BASED AWARDS FOR |
The following table summarizes the awards granted to, and the payouts whichthat were achievable for, each of our named executive officers could or may have received upon the achievement of certain performance objectivesin 2020 under the Annual Incentive Program and the grants of PRSUs and RSUs made under the Omnibus Plan in 2018.Plan.
| | Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | | | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | | | | |||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name (a) | Grant Date (b) | Threshold ($)(c)(1) | Target ($)(d)(1) | Maximum ($)(e)(1) | Threshold (#)(f)(2) | Target (#)(g)(2) | Maximum (#)(h)(2) | Number of Securities Underlying Restricted Stock Units (#)(3)(i) | Grant Date Fair Value of Stock Awards ($)(4)(j) | | Grant Date (b) | Threshold ($)(c)(1) | Target ($)(d)(1) | Maximum ($)(e)(1) | Threshold (#)(f)(2) | Target (#)(g)(2) | Maximum (#)(h)(2) | Number of Securities Underlying Restricted Stock Units (#)(i)(3) | Grant Date Fair Value of Stock Awards ($)(j)(4) | | |||||||||||||||||||||||||||||||||
Jim Hallett | | — | | 609,375 | 1,218,750 | 1,828,125 | | | | | | | | | | | — | | 609,375 | 1,218,750 | 1,828,125 | | | | | | | | | | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | 2/21/2020 | | | | | | 65,731 | | 131,461 | | 262,922 | | | | 2,925,007 | |||||||||||
| | 3/2/2018 | | | | | | 27,029 | | 54,057 | | 108,114 | | | | 2,925,024 | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | 2/21/2020 | | | | | | | | | | | | 43,821 | | 975,017 | |||||||||||
| | 3/2/2018 | | | | | | | | | | | | 18,019 | | 975,008 | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||
Eric Loughmiller | — | 229,427 | 458,854(5) | 688,281 | — | 275,000 | 550,000 | 825,000 | |||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
3/2/2018 | 6,368 | 12,735 | 25,470 | 689,091 | 2/21/2020 | 23,175 | 46,349 | 92,698 | 1,031,265 | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||
3/2/2018 | 4,245 | 229,697 | 2/21/2020 | 15,450 | 343,763 | ||||||||||||||||||||||||||||||||||||||||||||||||
John Hammer | | — | | 208,333 | 416,667(6) | 625,000 | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||
Peter Kelly | — | | 300,000 | 600,000 | 900,000 | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 3/2/2018 | | | | | | 7,797 | | 15,594 | | 31,188 | | | | 843,791(7 | ) | 2/21/2020 | | | | | | 22,753 | | 45,506 | | 91,012 | | | | 1,012,509 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 3/2/2018 | | | | | | | | | | | | 5,199 | | 281,318(7 | ) | 2/21/2020 | | | | | | | | | | | | 15,169 | | 337,510 | |||||||||||||||||||||
Don Gottwald | — | 291,748 | 583,495 | 875,243 | |||||||||||||||||||||||||||||||||||||||||||||||||
John Hammer | — | 273,000 | 546,000 | 819,000 | |||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||
3/2/2018 | 7,077 | 14,154 | 28,308 | 765,873 | 2/21/2020 | 13,821 | 27,641 | 55,282 | 615,012 | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
3/2/2018 | 4,718 | 255,291 | 2/21/2020 | 9,214 | 205,012 | ||||||||||||||||||||||||||||||||||||||||||||||||
Becca Polak | | — | | 193,125 | 386,250 | 579,375 | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||
Tom Fisher | — | | 215,625 | 431,250 | 646,875 | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 3/2/2018 | | | | | | 6,246 | | 12,492 | | 24,984 | | | | 675,942 | 2/21/2020 | | | | | | 7,163 | | 14,326 | | 28,652 | | | | 318,754 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 3/2/2018 | | | | | | | | | | | | 4,164 | | 225,314 | 2/21/2020 | | | | | | | | | | | | 4,776 | | 106,266 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||
Additional information concerning our cash and equity incentive awards and plans may be found in the sections titled "Compensation Discussion and Analysis—Elements Used to Achieve Compensation Philosophy and Objectives—Annual Cash Incentive Program" and "Long-Term Incentive Opportunities," respectively.
| | |
| | |
| | |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END |
| Option Awards | Stock Awards | | | Option Awards | Stock Awards | ||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name (a) | Number of Securities Underlying Unexercised Options Exercisable (#) (b) | Option Exercise Price ($) (e) | Option Expiration Date (f) | Number of Shares or Units of Stock That Have Not Vested (#)(g) | Market Value of Shares or Units of Stock That Have Not Vested ($)(h) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (i) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (j) | Grant Year | Security | Number of Securities Underlying Unexercised Options Exercisable (#)(b) | Option Exercise Price ($)(e) | Option Expiration Date (f) | Number of Shares or Units of Stock That Have Not Vested (#)(g) | Market Value of Shares or Units of Stock That Have Not Vested ($)(h) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(i) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(j) | ||||||||||||||||||||||||||||||||
Jim Hallett | | 194,404 | | 30.89 | | 02/27/2024 | | | | | | | | | 2014 | KAR | | 194,404 | | 11.74 | | 02/27/2024 | | | | | | | | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| 2018 | KAR | | | | | | | | 5,766(1) | | 124,693(1) | | | | | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| 2018 | IAA | | | | | | | | 5,766(1) | | 374,675(1) | | | | | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| 2018 | KAR | | | | | | | | 54,310(2) | | 1,043,049(2) | | | | | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| 2018 | IAA | | | | | | | | 54,310(2) | | 3,529,064(2) | | | | | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| 2019 | KAR | | | | | | | | 13,353(3) | | 267,077(3) | | | | | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| 2019 | IAA | | | | | | | | 13,353(3) | | 867,678(3) | | | | | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | 2019 | KAR | | | | | | | | 45,490(4) | | 855,282(4) | | | | | ||||||||||
| | | | | | | | 7,065(1 | ) | | 363,923(1 | ) | | 83,528(2 | ) | | 3,985,956(2 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | | | | | | | | | | 2019 | IAA | | | | | | | | 72,312(4) | | 4,698,834(4) | | | | | ||||||||||
| | | | | | | | 12,634(3 | ) | | 634,142(3 | ) | | 125,104(4 | ) | | 5,969,963(4 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | | | | | | | | | | 2020 | KAR | | | | | | | | 42,366(5) | | 796,757(5) | | 67,045(6) | | 1,247,709(6) | ||||||||||
| | | | | | | | 17,298(5 | ) | | 844,089(5 | ) | | 55,478(6 | ) | | 2,647,410(6 | ) | | | | | | | | | | | | | | | | | | | | | | | | | ||||||
Eric Loughmiller | 97,204 | 30.89 | 02/27/2024 | 2014 | KAR | 97,204 | 11.74 | 02/27/2024 | ||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||
3,144(1 | ) | 161,950(1 | ) | 36,004(2 | ) | 1,718,111(2 | ) | 2018 | KAR | 1,367(1) | 29,688(1) | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||
3,199(3 | ) | 160,568(3 | ) | 30,407(4 | ) | 1,451,022(4 | ) | 2018 | IAA | 1,367(1) | 88,828(1) | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||
4,245(5 | ) | 207,142(5 | ) | 13,069(6 | ) | 623,653(6 | ) | 2018 | KAR | 12,793(2) | 245,696(2) | |||||||||||||||||||||||||||||||||||||
John Hammer | | | | | | | | 5,199(5 | ) | | 253,695(5 | ) | | 16,004(6 | ) | | 763,711(6 | ) | ||||||||||||||||||||||||||||||
Don Gottwald | 1,781(1 | ) | 91,740(1 | ) | 20,396(2 | ) | 973,297(2 | ) | ||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||
3,730(3 | ) | 187,221(3 | ) | 35,456(4 | ) | 1,691,960(4 | ) | 2018 | IAA | 12,793(2) | 831,289(2) | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||
4,718(5 | ) | 230,224(5 | ) | 14,526(6 | ) | 693,181(6 | ) | 2019 | KAR | 4,707(3) | 94,147(3) | |||||||||||||||||||||||||||||||||||||
Becca Polak | | 34,996 | | 30.89 | | 2/27/2024 | | | | | | | | | ||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
2019 | IAA | 4,707(3) | 305,861(3) | |||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
2019 | KAR | 16,038(4) | 301,539(4) | |||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
2019 | IAA | 25,495(4) | 1,656,665(4) | |||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
2020 | KAR | 15,136(5) | 284,617(5) | 23,638(6) | 439,903(6) | |||||||||||||||||||||||||||||||||||||||||||
Peter Kelly | 2011 | IAA | | 30,000 | | 8.05 | | 11/04/2021 | | | | | | | | | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | 1,107(1 | ) | | 57,022(1 | ) | | 12,673(2 | ) | | 604,756(2 | ) | 2018 | KAR | | | | | | | | 890(1) | | 19,247(1) | | | | | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | 3,039(3 | ) | | 152,537(3 | ) | | 28,886(4 | ) | | 1,378,440(4 | ) | 2018 | IAA | | | | | | | | 890(1) | | 57,832(1) | | | | | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | 4,164(5 | ) | | 203,190(5 | ) | | 12,820(6 | ) | | 611,770(6 | ) | 2018 | KAR | | | | | | | | 8,324(2) | | 159,809(2) | | | | | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| 2018 | IAA | | | | | | | | 8,324(2) | | 540,894(2) | | | | | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| 2019 | KAR | | | | | | | | 4,250(3) | | 84,864(3) | | | | | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| 2019 | IAA | | | | | | | | 4,250(3) | | 276,165(3) | | | | | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| 2019 | KAR | | | | | | | | 13,997(4) | | 263,170(4) | | | | | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| 2019 | IAA | | | | | | | | 22,250(4) | | 1,445,805(4) | | | | | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| 2020 | KAR | | | | | | | | 15,169(5) | | 285,177(5) | | 23,208(6) | | 431,902(6) | ||||||||||||||||||||||||||||||||
John Hammer | 2018 | KAR | 1,733(1) | 37,477(1) | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
2018 | IAA | 1,733(1) | 112,610(1) | |||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
2018 | KAR | 16,205(2) | 311,113(2) | |||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
2018 | IAA | 16,205(2) | 1,053,001(2) | |||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
2019 | KAR | 4,553(3) | 90,528(3) | |||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
2019 | IAA | 4,553(3) | 295,854(3) | |||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
2019 | KAR | 14,991(4) | 281,843(4) | |||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
2019 | IAA | 23,831(4) | 1,548,538(4) | |||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
2020 | KAR | 9,214(5) | 173,224(5) | 14,097(6) | 262,345(6) | |||||||||||||||||||||||||||||||||||||||||||
Tom Fisher | 2018 | KAR | | | | | | | | 655(1) | | 14,165(1) | | | | | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| 2018 | IAA | | | | | | | | 655(1) | | 42,562(1) | | | | | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| 2018 | KAR | | | | | | | | 6,122(2) | | 117,533(2) | | | | | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| 2018 | IAA | | | | | | | | 6,122(2) | | 397,808(2) | | | | | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| 2019 | KAR | | | | | | | | 1,505(3) | | 29,029(3) | | | | | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| 2019 | IAA | | | | | | | | 1,505(3) | | 97,795(3) | | | | | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| 2019 | KAR | | | | | | | | 4,958(4) | | 93,218(4) | | | | | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| 2019 | IAA | | | | | | | | 7,881(4) | | 512,108(4) | | | | | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| 2020 | KAR | | | | | | | | 4,776(5) | | 89,788(5) | | 7,307(6) | | 135,983(6) | ||||||||||||||||||||||||||||||||
| | |
| | |
| | 49 |
multiplying the number of unvested IAA RSUs by the market price of IAA common stock at the close of the last trading day in 2020, which was $64.98 per share. The total amount in column (h) includes accrued and unpaid cash dividend equivalents on the KAR awards in the following amounts:
| ||||||||||
| ||||||||||
| ||||||||||
|
| |||||||||
| ||||||||||
|
| |||||||||
|
|
|
|
|
|
|
|
|
KAR common stock at the close of the last trading day in 2018,2020, which was $47.72$18.61 per share, and by multiplying the number of unvested IAA RSUs by the market price of IAA common stock at the close of the last trading day in 2020, which was $64.98 per share. The total amount in column (h) includes accrued and unpaid cash dividend equivalents on the KAR awards in the following amounts: Mr. Hallett – $18,578; Mr. Loughmiller – $6,550; Mr. Kelly – $5,771; Mr. Hammer – $5,797; and Mr. Fisher – $1,021.
| ||||||||||
| ||||||||||
| ||||||||||
|
| |||||||||
| ||||||||||
|
| |||||||||
| ||||||||||
| ||||||||||
| ||||||||||
|
| |||||||||
| ||||||||||
|
| |||||||||
Because this table shows outstanding equity awards held by our named executive officers as of December 31, 2020, all information is presented on an adjusted basis to reflect the IAA Spin-Off. Please refer to the discussion in "Compensation Discussion and Analysis—IAA Spin-Off" above for details on the adjustments.
| | |
| | |
| | |
OPTION EXERCISES AND STOCK VESTED DURING FISCAL YEAR |
| Option Awards | Stock Awards | | Option Awards | Stock Awards | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name (a) | Number of Shares Acquired on Exercise (#) (b) | Value Realized on Exercise ($) (c) | Number of Shares Acquired on Vesting (#) (d) | Value Realized on Vesting ($) (e) | Security | Number of Shares Acquired on Exercise (#) (b) | Value Realized on Exercise ($) (c) | Number of Shares Acquired on Vesting (#) (d) | Value Realized on Vesting ($) (e) | ||||||||||||||||||||
Jim Hallett | | 150,000 | | 7,296,799 | | 104,257 (1) | | 5,370,077 (2) | | KAR | | — | | — | | 81,452(1) | | 1,821,268(2) | |||||||||||
| | IAA | | 194,404 | | 5,518,832 | | 79,997(1) | | 3,848,709 | |||||||||||||||||||
Eric Loughmiller | — | — | 46,729 (1) | 2,405,207 (2) | KAR | — | — | 20,464(1) | 458,826(2) | ||||||||||||||||||||
IAA | 97,204 | 3,049,173 | 20,150(1) | 970,203 | |||||||||||||||||||||||||
Peter Kelly | | KAR | | 170,000 | | 2,304,350 | | 14,013(1) | | 315,131(2) | |||||||||||||||||||
| | IAA | | 140,000 | | 6,312,368 | | 14,013(1) | | 675,275 | |||||||||||||||||||
John Hammer | | — | | — | | — | | — | KAR | — | — | 4,009(1) | 87,816(2) | ||||||||||||||||
Don Gottwald | 60,000 | 2,860,369 | 26,738 (1) | 1,377,503 (2) | |||||||||||||||||||||||||
Becca Polak | | 176,720 | | 8,231,664 | | 16,063 (1) | | 828,199 (2) | |||||||||||||||||||||
IAA | — | — | 4,009(1) | 176,118 | |||||||||||||||||||||||||
Tom Fisher | | KAR | | — | | — | | 7,667(1) | | 111,841(2) | |||||||||||||||||||
| | IAA | | — | | — | | 7,667(1) | | 282,053 | |||||||||||||||||||
| | |
| | |
| | |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL |
The following is a discussion of the treatment of equity-based awards held by our named executive officers and annual cash incentive awards due to our named executive officers upon certain types of employment terminations or the occurrence of a change in control of the Company. For a discussion of our named executive officers' severance payments and the treatment of their annual cash incentive awards that may become due upon certain types of employment terminations pursuant to their employment agreements, see "Employment Agreements with Named Executive Officers" below.
EQUITY-BASED AWARDS—OMNIBUS PLAN |
To the extent a named executive officer's employment agreement does not provide otherwise, the Omnibus Plan (and the related award agreements thereunder) provide for the following treatment of stock options and other equity awards issued pursuant to the Omnibus Plan upon the termination of employment scenarios or a change in control, as set forth below. Since December 10, 2009, all grants of stock options and other equity awards have been and will be made pursuant to the terms of the Omnibus Plan.
| | | | | | | | | | | | | | | | | | | | | ||||||||||||
| Termination or Change in Control Scenario | | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | ||||||||||||
Award Type | | Voluntary Termination or Termination for Cause | | Death, Disability or Retirement | | Termination | or | for Good Reason | | Effect of Change in Control or | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | ||||||||||||
| Unless otherwise specified in an award agreement, all unvested equity-based awards under the Omnibus Plan will be forfeited upon a termination of employment for any reason (except in the case of disability or death, as described in the Omnibus Plan). | | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | ||||||||||||
Options | All vested options remain exercisable for one year (or until earlier expiration date). In the event of death or disability, all unvested options vest in full, with performance awards remaining subject to achievement of goals. | Unless otherwise specified in an award agreement, vested options remain exercisable for 90 days (or until earlier expiration date). | Single trigger vesting with committee discretion to cash out or substitute with successor | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | ||||||||||||
| 2018 PRSUs 2019 PRSUs 2020 PRSUs | | Automatic forfeiture. | | Without Cause or for Good Reason: Prorated portion of the PRSUs vest based on the Company's actual performance during the performance period and the number of full months he was employed during such performance period. Death or Disability: Full vesting of the PRSUs based on the Company's actual performance during the performance period. Retirement: 2018/2019: Prorated portion of the PRSUs vest based on the Company's actual performance during the performance period and the number of full months worked through the retirement date (including the "early retirement date" which is the date of his voluntary termination of employment after attaining a combination of years of age and service with the Company and its affiliates of at least 70, with a minimum age of 60) plus a credit of an additional 12 months. 2020: If attaining age 65 and at least 5 years of service with the Company and its affiliates ("normal retirement"), full vesting of the PRSUs based on the Company's actual performance during the performance period. If attaining age 55 with at least 10 years of service with the Company and its affiliates ("early retirement"), prorated portion of the PRSUs based on the Company's actual performance during the performance period and the number of full months worked through the retirement date plus a credit of an additional 12 months. | | Double trigger vesting at target performance level for PRSUs that are assumed or replaced; single trigger vesting at the target performance level for PRSUs that are not assumed or replaced. | | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | ||||||||||||
2018 RSUs 2019 RSUs 2020 RSUs | Voluntary Termination (with or without Good Reason) or Termination by the Company (for Cause or without Cause): 2018/2019: Forfeiture of any unvested RSUs. 2020: If terminated by the Company or its affiliates without Cause or if he terminates for Good Reason, any unvested RSUs will continue to vest in full as scheduled. Otherwise, forfeiture of any unvested RSUs upon voluntary termination. Death or Disability: Full, immediate vesting of any unvested RSUs. Retirement: 2018/2019: Immediate vesting of any unvested RSUs scheduled to vest in the 12 months following the retirement date (including the "early retirement date") and a prorated portion of such RSUs based on the number of full months he was employed since the most recent anniversary of the grant date (after giving 12 months post-retirement vesting credit). 2020: If "normal retirement," any unvested RSUs will continue to vest in full as scheduled. If "early retirement," a prorated portion of any unvested RSUs scheduled to vest in the 12 months following the retirement date will continue to vest as originally scheduled, along with a prorated portion of such RSUs based on the number of full months he was employed since the most recent anniversary of the grant date (after giving 12 months vesting credit following the date of retirement). | Double trigger vesting for any RSUs that are assumed or replaced; single trigger vesting for any RSUs that are not assumed or replaced. | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
|
|
| ||||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Unless specified otherwise in a named executive officer's employment agreement, the termination of a named executive officer's employment with the Company or any subsidiary shall be deemed to be for "cause" under the Omnibus Plan upon any of the following events: (i) the refusal or neglect of the named executive officer to perform substantially his/herhis employment-related duties; (ii) the named executive officer's personal dishonesty, incompetence, willful misconduct, or breach of fiduciary duty; (iii) the named executive officer's indictment for, conviction of, or entering a plea of guilty ornolo contendere to a crime constituting a felony or his/herhis willful violation of any applicable law (other than certain exceptions set forth in the Omnibus Plan); (iv) the named executive officer's failure to reasonably cooperate, following a request to do so by the Company, in any internal or governmental investigation of the Company or any subsidiary; or (v) the named executive officer's material breach of any written covenant or agreement not to disclose any information pertaining to the Company or a subsidiary or not to compete or interfere with the Company or a subsidiary.
The Omnibus Plan does not provide a default "good reason" definition in the event such term is not specified in a named executive officer's employment agreement.
|
|
|
|
|
|
|
|
|
ANNUAL CASH INCENTIVE AWARDS—OMNIBUS PLAN |
| | | | | | | | | | | | | | | | | | | | | ||||
Termination or Change in Control Scenario | | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | ||||
Voluntary Termination | | Termination by the Company for Cause | | Death, Disability or Retirement | | Termination without Cause or for Good Reason | | Effect of Change in Control or Exit Event | | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | ||||
Death, Disability, Voluntary Termination (with or without Good Reason) or Termination by the Company (for Cause or without Cause): Annual cash incentive awards are treated as described in the executive's employment agreement with the Company, to the extent applicable. See "Employment Agreements with Named Executive Officers" below for more information. Retirement: Unless otherwise specified in an employment agreement, an executive receives a prorated amount of the incentive award based on actual performance for the performance period. | Unless otherwise determined by the administrator of the Omnibus Plan or as evidenced in an award agreement, pro rata payment based on actual performance, in the administrator's discretion. | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL TABLE |
The amounts in the table below are based on employment agreements that were in effect for each named executive officer on December 31, 2020, and assume that the termination and/or change in control, as applicable, was effective as of December 31, 2018,2020, the last business day of the prior fiscal year, and that the respective named executive officers exercised all options and/or received cash in exchange for vested PRSUs and RSUs at such time. Following the end of the prior fiscal year we entered into a new employment agreement with Mr. Hallett and an amendment to Mr. Kelly's employment agreement, which are further described in the section titled "Employment Agreements with Named Executive Officers" below. The table is merely an illustrative example of the impact of a hypothetical termination of employment or change in control. The amounts that would actually be paid upon a termination of employment can only be determined at the time of such termination, based on the facts and circumstances then prevailing.
Named Executive Officer and Triggering Event | Named Executive Officer and Triggering Event | Cash Severance | Non- Equity Incentive Pay(1) | Stock Options (2) | PRSUs (3) | RSUs (4) | Excise Tax Gross- Up(5) | Life Insurance (6) | Total | Named Executive Officer and Triggering Event | Cash Severance | Non- Equity Incentive Pay(1) | Stock Options (2) | PRSUs (3) | RSUs (4) | Excise Tax Gross- Up(5) | Life Insurance (6) | Total | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jim Hallett | Jim Hallett | Jim Hallett | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
• | Death | —(9) | $1,219,046 | — | $9,618,430 | $1,842,154 | — | $800,000 | $13,479,630 | Death | —(9) | $930,529 | — | $12,621,697 | $2,422,553 | — | $800,000 | $16,774,779 | ||||||||||||||||||||
• | Disability(7) | —(9) | $1,219,046 | — | $9,618,430 | $1,842,154 | — | — | $12,679,630 | Disability(7) | —(9) | $930,529 | — | $12,621,697 | $2,422,553 | — | — | $15,974,779 | ||||||||||||||||||||
• | Retirement(8) | — | $1,219,046 | — | $8,735,946 | $1,455,220 | — | — | $11,410,212 | Retirement(8) | — | $930,529 | — | $12,621,697 | $2,422,553 | — | — | $15,974,779 | ||||||||||||||||||||
• | Voluntary / for Cause | — | — | — | — | — | — | — | — | Voluntary / for Cause | — | — | — | — | — | — | — | — | ||||||||||||||||||||
• | Termination w/o Cause or for Good Reason | $4,387,500(10) | $1,219,046 | — | $6,858,469 | — | — | — | $12,465,015 | Termination w/o Cause or for Good Reason | $4,387,500(10) | $930,529 | — | $9,106,663 | $796,757 | — | — | $15,221,449 | ||||||||||||||||||||
• | CIC (single trigger) | — | $1,219,046 | — | $3,403,926 | $363,923 | — | — | $4,986,895 | CIC (single trigger) | — | $930,529 | — | — | — | — | — | $930,529 | ||||||||||||||||||||
• | Termination after CIC (double trigger) | $4,387,500(10) | $1,219,046 | — | $9,036,359 | $1,842,154 | — | — | $16,485,059 | Termination after CIC (double trigger) | $4,387,500(11) | $930,529 | — | $12,621,697 | $2,430,880 | — | — | $20,370,606 | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Eric Loughmiller | Eric Loughmiller | Eric Loughmiller | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
• | Death | $16,727(9) | $460,882 | — | $3,067,341 | $529,660 | — | $800,000 | $4,874,610 | Death | $26,078(9) | $419,931 | — | $3,727,840 | $800,205 | — | $800,000 | $5,774,054 | ||||||||||||||||||||
• | Disability(7) | $16,727(9) | $460,882 | — | $3,067,341 | $529,660 | — | — | $4,074,610 | Disability(7) | $26,078(9) | $419,931 | — | $3,727,840 | $800,205 | — | — | $4,974,054 | ||||||||||||||||||||
• | Retirement(8) | — | — | — | — | — | — | — | — | Retirement(8) | — | — | — | $3,621,751 | $639,685 | — | — | $4,261,436 | ||||||||||||||||||||
• | Voluntary / for Cause | — | — | — | — | — | — | — | — | Voluntary / for Cause | — | — | — | — | — | — | — | — | ||||||||||||||||||||
• | Termination w/o Cause or for Good Reason | $1,116,727(10) | $460,882 | — | $2,409,699 | — | — | — | $3,987,308 | Termination w/o Cause or for Good Reason | $1,676,078(10) | $419,931 | — | $2,675,723 | $284,617 | — | — | $5,056,349 | ||||||||||||||||||||
• | CIC (single trigger) | — | $460,882 | — | $1,467,218 | $161,950 | — | — | $2,090,050 | CIC (single trigger) | — | $419,931 | — | — | — | — | — | $419,931 | ||||||||||||||||||||
• | Termination after CIC (double trigger) | $1,116,727(10) | $460,882 | — | $2,816,447 | $529,660 | — | — | $4,923,716 | Termination after CIC (double trigger) | $2,226,078(11) | $419,931 | — | $3,727,840 | $803,141 | — | — | $7,176,990 | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Peter Kelly | Peter Kelly | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
• | Death | $42,028(9) | $458,106 | — | $3,273,498 | $649,531 | — | $800,000 | $5,223,163 | |||||||||||||||||||||||||||||
• | Disability(7) | $42,028(9) | $458,106 | — | $3,273,498 | $649,531 | — | — | $4,423,163 | |||||||||||||||||||||||||||||
• | Retirement(8) | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
• | Voluntary / for Cause | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
• | Termination w/o Cause or for Good Reason | $1,842,028(10) | $458,106 | — | $2,127,954 | $285,177 | — | — | $4,713,272 | |||||||||||||||||||||||||||||
• | CIC (single trigger) | — | $458,106 | — | — | — | — | — | $458,106 | |||||||||||||||||||||||||||||
• | Termination after CIC (double trigger) | $2,442,028(11) | $458,106 | — | $3,273,498 | $723,285 | — | — | $6,896,917 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
John Hammer | John Hammer | John Hammer | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
• | Death | $26,971(9) | $210,318 | — | $763,719 | $253,695 | — | $800,000 | $2,054,703 | Death | $42,125(9) | $416,877 | — | $3,722,102 | $707,126 | — | $800,000 | $5,688,230 | ||||||||||||||||||||
• | Disability(7) | $26,971(9) | $210,318 | — | $763,719 | $253,695 | — | — | $1,254,703 | Disability(7) | $42,125(9) | $416,877 | — | $3,722,102 | $707,126 | — | — | $4,888,230 | ||||||||||||||||||||
• | Retirement(8) | — | — | — | — | — | — | — | — | Retirement(8) | — | — | — | — | — | — | — | — | ||||||||||||||||||||
• | Voluntary / for Cause | — | — | — | — | — | — | — | — | Voluntary / for Cause | — | — | — | — | — | — | — | — | ||||||||||||||||||||
• | Termination w/o Cause or for Good Reason | $1,026,971(10) | $210,318 | — | $254,573 | — | — | — | $1,491,862 | Termination w/o Cause or for Good Reason | $1,680,125(10) | $416,877 | — | $2,759,264 | $173,224 | — | — | $5,029,490 | ||||||||||||||||||||
• | CIC (single trigger) | — | $210,318 | — | — | — | — | — | $210,318 | CIC (single trigger) | — | $416,877 | — | — | — | — | — | $416,877 | ||||||||||||||||||||
• | Termination after CIC (double trigger) | $1,026,971(10) | $210,318 | — | $763,719 | $253,695 | — | — | $2,254,703 | Termination after CIC (double trigger) | $2,226,125(11) | $416,877 | — | $3,722,102 | $709,693 | — | — | $7,074,797 | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Don Gottwald | ||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
• | Death | $23,844(9) | $589,324 | — | $2,512,506 | $509,185 | — | $800,000 | $4,434,859 | |||||||||||||||||||||||||||||
• | Disability(7) | $23,844(9) | $589,324 | — | $2,512,506 | $509,185 | — | — | $3,634,859 | |||||||||||||||||||||||||||||
• | Retirement(8) | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
• | Voluntary / for Cause | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
• | Termination w/o Cause or for Good Reason | $1,190,834(10) | $589,324 | — | $1,768,379 | — | — | — | $3,548,537 | |||||||||||||||||||||||||||||
• | CIC (single trigger) | — | $589,324 | — | $831,188 | $91,740 | — | — | $1,512,252 | |||||||||||||||||||||||||||||
• | Termination after CIC (double trigger) | $1,190,834(10) | $589,324 | — | $2,370,373 | $509,185 | — | — | $4,659,716 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Becca Polak | ||||||||||||||||||||||||||||||||||||||
Tom Fisher | Tom Fisher | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
• | Death | $26,805(9) | $376,484 | — | $1,905,821 | $412,749 | — | $800,000 | $3,521,859 | Death | $24,102(9) | $329,264 | — | $1,392,589 | $273,454 | — | $800,000 | $2,819,409 | ||||||||||||||||||||
• | Disability(7) | $26,805(9) | $376,484 | — | $1,905,821 | $412,749 | — | — | $2,721,859 | Disability(7) | $24,102(9) | $329,264 | — | $1,392,589 | $273,454 | — | — | $2,019,409 | ||||||||||||||||||||
• | Retirement(8) | — | — | — | — | — | — | — | — | Retirement(8) | — | — | — | — | — | — | — | — | ||||||||||||||||||||
• | Voluntary / for Cause | — | — | — | — | — | — | — | — | Voluntary / for Cause | — | — | — | — | — | — | — | — | ||||||||||||||||||||
• | Termination w/o Cause or for Good Reason | $928,055(10) | $376,484 | — | $1,268,209 | — | — | — | $2,572,748 | Termination w/o Cause or for Good Reason | $1,345,977(10) | $329,264 | — | $1,009,547 | $89,788 | — | — | $2,774,576 | ||||||||||||||||||||
• | CIC (single trigger) | — | $376,484 | — | $516,466 | $57,022 | — | — | $949,972 | CIC (single trigger) | — | $329,264 | — | — | — | — | — | $329,264 | ||||||||||||||||||||
• | Termination after CIC (double trigger) | $928,055(10) | $376,484 | — | $1,817,505 | $412,749 | — | — | $3,534,793 | Termination after CIC (double trigger) | $1,786,602(11) | $329,264 | — | $1,392,589 | $273,339 | — | — | $3,781,794 | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
Footnotes to Potential Payments Upon Termination or Change in Control Table
If a Change in Control occurs prior to the termination of such named executive officer's employment, assuming a Change in Control date of December 31, 2018, he/she2020, he would be entitled to receive immediate vesting of the 2018 and payout of2019 PRSUs that converted into RSUs and the target number of 20162020 PRSUs as of his termination date, without proration, with respect to any such awards that are not assumed or replaced in the Change in Control, each as of the Change in Control date. If awards are assumed or replaced in the Change in Control, and such named executive officer's employment is terminated following the Change in Control as a result of a termination without Cause or a resignation for Good Reason, assuming a Change in Control date of December 31, 2020, he would be entitled to receive immediate vesting of the 2018 and 2019 PRSUs that converted into RSUs and the target number of 2020 PRSUs, without proration.proration, as of his termination date. With respect to a Change in Control, the amounts disclosed in the "CIC (single trigger)" rows in the table assume that the awards are assumed or replaced in the Change in Control.
If a Change in Control occurs prior to the termination of such named executive officer's employment, assuming a Change in Control date of December 31, 2020, he would be entitled to receive immediate vesting of any RSU awards that are not assumed or replaced in the Change in Control, each as of the Change in Control date. If such named executive officer's employment is terminated following a Change in Control as a result of a termination without Cause or a resignation for Good Reason, assuming a Change in Control date of December 31, 2018, he/she2020, he would be entitled to receive immediate vesting of the target number of 2017 PRSUs and 2018 PRSUs as of his/her termination date, without proration, with respect to any 2017 PRSUs or 2018 PRSUsRSU awards that are assumed or replaced in the Change in Control, (or, in the case of a termination without Cause effective as of the Change in Control, immediate vesting of the target number of any 2017 PRSUs or 2018 PRSUs that are not assumed or replaced in the Change in Control). If a 2017 PRSU or 2018 PRSU is not assumed or replaced in the Change in Control, assuming a Change in Control date of December 31, 2018, such officer would be entitled to receive immediate vesting of the target number of 2017 PRSUs and 2018 PRSUs as of the Change in Control date, without proration. With respect to a Change in Control, the amounts disclosed in the "CIC (single trigger)" rows in the table assume that the 2017 PRSUs and 2018 PRSUs are assumed or replaced in the Change in Control.
If a Change in Control occurs prior to the termination of such officer's employment, assuming a Change in Control date of December 31, 2018, he/she would be entitled to receive immediate vesting of the unvested portion of his/her 2016 RSU award and any 2017 and 2018 RSU awards that are not assumed or replaced in the Change in Control, each, as of the Change in Control date. If such officer's employment is terminated following a Change in Control as a result of a termination without Cause or a resignation for Good Reason, assuming a Change in Control date of December 31, 2018, he/she would be entitled to receive immediate vesting of any 2017 and 2018 RSU awards that is assumed or replaced in the Change in Control, as of his/her termination date. With respect to a Change in Control, the amounts disclosed in the "CIC (single trigger)" rows in the table assume that the 2017 and 2018 RSUs are assumed or replaced in the Change in Control.his
| | |
| | |
| | |
termination date. With respect to a Change in Control, the amounts disclosed in the "CIC (single trigger)" rows in the table assume that the RSUs are assumed or replaced in the Change in Control.
As of December 31, 2018, Mr.2020, Messrs. Hallett and Loughmiller would each have been entitled to receive accelerated or continued vesting of all or a portion of the 2016, 2017 and 2018 RSUs and PRSUs because heeach had met the requirements for a Retirement, Normal Retirement or Early Retirement as of December 31, 20182020 under the applicable award agreements (heunder the Omnibus Plan (each was either 65 years of age, 65 years of age with at least five years of service, 55 years of age with at least 10 years of service or had reached the age of 60 and had a combination of years of age and service with the Company and its affiliates of at least 70).
Messrs. Kelly, Hammer and Fisher had not satisfied the Retirement, Normal Retirement or Early Retirement requirements under the applicable award agreements under the Omnibus Plan as of December 31, 2020 (i.e., none were either 65 years of age or had met the other applicable age and service requirements), and thus, they would not have been entitled to accelerated or continued vesting of their equity for a "retirement" as of such date.
Messrs. Loughmiller, Kelly, Hammer and Gottwald and Ms. PolakFisher had not satisfied the Retirement requirements under the Omnibus Plan and the applicable award agreements as of December 31, 20182020 (i.e., none had reached the age of 60 and met the applicable age and service requirements)65), and thus, they would not have been entitled to a prorated payout of their annual bonuses or accelerated vesting of their equity for a Retirement as of such date.
| | |
| | |
| | |
EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS |
Each of our named executive officers has an employment agreement with the Company. A summary of each of the agreements is provided below.
CEOJim Hallett
On March 1, 2021, in connection with Mr. Hallett stepping down as Chief Executive Officer on April 1, 2021, the Company and Mr. Hallett entered into a new employment agreement to reflect Mr. Hallett's new role as Executive Chairman, which superseded his prior employment agreement. The new employment agreement which became effective as of February 27, 2012,April 1, 2021 and provides for the following severance and change of control payments:
Termination Due to Mr. Hallett's Death or Disability. If Mr. Hallett'sHallett terminates his employment is terminated as a result of hisdue to death or disability, wethe Company will be obligated to pay to Mr. Hallett or in the case of(or his death, Mr. Hallett's estate or beneficiaries,legal representatives) an amount equal to the sum of (i) any earned but unpaid base salary; (ii) accrued but unpaid base salaryvacation earned through the date of termination; (iii) unreimbursed business expenses; and accrued but unused vacation days; (ii)(iv) any earned and vested benefits and payments pursuantemployee benefits. The aggregate of the foregoing is referred to the terms of any benefit plan (collectively, the amounts described in (i) and (ii) above are,as the "Accrued Obligations"); and (iii) subject toObligations." In addition, Mr. Hallett or his estate executing a general releaseestate/beneficiaries would be entitled to receive (i) COBRA premium payments for 18 months or until Mr. Hallett becomes eligible for coverage under another employer's health plan, if Mr. Hallett is participating in the Company's health plans on the date of any claims that he may have againstsuch termination of employment (the "Continued Benefits"); (ii) the prorated portion of his annual bonus for the calendar year in which such termination of employment occurred, calculated based on Mr. Hallett's actual performance and based on the number of days Mr. Hallett was employed by the Company during such calendar year (the "Release""Pro Rata Bonus"),; and (iii) a payment equal to the amount of any annual bonus forwhich has been earned in a prior completed calendar year thatbut which has not yet been calculated or paid to Mr. Hallett (the "Earned but Unpaid Bonus").
In addition, if Mr. Hallett is participating in the health plans of the Company at the time of his termination, we will pay him, or in the case of his death, his estate or beneficiaries, his or their premiums attributable to maintaining insurance coverage under COBRA for the shorter of (i) 18 months; or (ii) until Mr. Hallett becomes eligible for comparable coverage under the health plans of another employer (the "Continued Benefits"). Subject to receipt and effectiveness of the Release, we also will pay Mr. Hallett, or his estate or beneficiaries, a prorated bonus based upon the portion of the year during which Mr. Hallett was employed by us (the "Prorated Bonus").
For purposes of Mr. Hallett'shis employment agreement, "disability" means a "Total Disability" (or equivalent) as defined in the Company's long term disability plan in effect at the time of the disability.
Voluntary Termination by the Companyor Termination for Cause. Following a majority vote of the Board (excludingIf Mr. Hallett voluntarily terminates his employment or any other employee ofif the Company), we may terminate Mr. Hallett'sCompany terminates his employment at any time for "Cause." In such event, our onlyCause, the Company's sole obligation will be to Mr. Hallett would bepay him the payment, in a lump sum, of Mr. Hallett's Accrued Obligations.
"Cause" is defined in the For purposes of his employment agreement, to mean"Cause" means the (i) Mr. Hallett's willful, continued and uncured failure to perform substantially his duties under the employment agreement (other than any such failure resulting from incapacity due to medically documented illness or injury) for a period of 14 days following written notice by the Company to Mr. Hallett of such failure; (ii) Mr. Hallett engaging in illegal conduct or gross misconduct that is demonstrably likely to lead to material injury to the Company;Company, monetarily or otherwise; (iii) Mr. Hallett's indictment or conviction of, or plea ofnolo contendere to, a crime constituting a felony or any other crime involving moral turpitude; or (iv) Mr. Hallett's failure to comply with the provisionsmaterial breach of the employmentCompany's code of business conduct and ethics; or (v) Mr. Hallett's violation of the restrictive covenants under the agreement relatingor any other covenants owed to confidential information, intellectual property, non-competition and non-solicitation which is not cured within the 14 day period following written notice toCompany by Mr. Hallett of such failure.Hallett.
Termination Without Cause or Resignation for Good Reason. In the event Mr. Hallett is terminated by the Company Without Cause. Mr. Hallett's employment may be terminated without Cause at any time upon 30 days' prior written notice. Inor Mr. Hallett resigns for Good Reason, Mr. Hallett would be entitled to receive, subject to the eventexecution and non-revocation of a termination without Cause, the Company will pay Mr. Hallett the following "Severance Benefits":release of claims, (i) two timesa lump sum cash payment equal to the sum of Mr. Hallett's (a)two and a half times his annual base salary and (b)plus target annual bonus for the year in which such termination occurs which, for this purpose, shall not equal less than 100% of Mr. Hallett's base salary;employment occurs; (ii) a Prorated Bonus in a lump sum; andthe Continued Benefits; (iii) the Continued Benefits. In addition toPro Rata Bonus; and (iv) the Severance Benefits described above, we will also pay Mr. Hallett the Accrued Obligations and any Earned but Unpaid Bonus.
Termination by Mr. Hallett for Good Reason. Mr. Hallett may terminate For purposes of his employment foragreement, "Good Reason" within 90 days following the occurrence of an event constituting "Good Reason," if such event remains uncured for a period of 30 days following notice of the event by Mr. Hallett to the Company. Upon such termination, the Company will pay Mr. Hallett the sum of the Severance Benefits, the Accrued Obligations andmeans (i) any Earned but Unpaid Bonus.
|
|
|
|
|
|
|
|
|
"Good Reason" is defined in the employment agreement to mean the occurrence of any of the following:
| | |
| | |
| | 57 |
Company's obligations under the employment agreement without change.
Termination by Mr. Hallett without Good Reason. Mr. Hallett may terminate his employment For purposes of the foregoing, "Change of Control" has the same meaning as the term "Change in Control" under the employment agreement at any time without Good Reason upon 30 days' prior written notice. In such event, we will pay Mr. Hallett a lump sum amount equal to the Accrued Obligations.Omnibus Plan.
Termination by Mr. Hallett upon Retirement. Mr. Hallett may voluntarily terminate his employment under the employment agreement due to retirement by announcing his retirement at least 12 months prior to such termination. In the eventElimination of such a termination, we will pay Mr. Hallett a lump sum amount equal to the Accrued Obligations and a Prorated Bonus.
Excise Tax Gross-Up. As described above in "Compensation Policies and Other Information—Tax and Accounting Considerations—Employment Agreements," Mr. Hallett's employment agreement provides thateliminates his right to receive any gross-up payments in the event that any payment or benefit in connection with his employment is or becomes subject to an excise tax under Section 4999 of the Code, the Company will make a cash payment to Mr. Hallett, which after the imposition of all income, employment, excise and other taxes thereon as well as any penalty and interest assessments associated therewith, will be sufficient to place Mr. Hallett in the same after-tax position as he would have been in had such excise tax not applied. However, in the event that a reduction of the total payments due to Mr. Hallett would avoid the application of the excise tax, then the total payments will be reduced to the extent necessary to avoid the excise tax, but in no event by more than 10% of the original amount of the total payments due.Code.
Requirements With Respect to Non-Competition and Non-Solicitation. Upon a termination of employment for any reason, Mr. Hallett is subject to the following twoone year post-termination restrictive covenants (except in the case of retirement):covenants: (i) non-competition restrictions; and (ii) non-solicitation of Company employees and customers.
Other Named Executive Officers
TheOn March 9, 2020, the Company has entered into substantially similar employment agreements with Messrs. Loughmiller, Kelly, Hammer and Gottwald and Ms. Polak,Fisher, providing for their at-will employment and the following severance and change of control payments.payments described below, which superseded their prior employment agreements. Mr. Kelly's employment agreement was amended effective April 1, 2021 in connection his appointment as Chief Executive Officer, with the modification to Mr. Kelly's severance payment noted below.
Termination Due to Death or Disability. If Messrs. Loughmiller, Kelly, Hammer or Gottwald or Ms. PolakFisher terminates his/herhis employment due to death or disability, the Company will be obligated to pay to the executive (or his/herhis legal representatives) an amount equal to the sum of (i) any earned but unpaid base salary; (ii) accrued but unpaid vacation earned through the date of termination; (iii) unreimbursed business expenses; and (iv) any vested employee benefits. The aggregate of the foregoing is referred to as the "Accrued Obligations." In addition, the executive or his/herhis estate/beneficiaries would be entitled to receive (i) COBRA premium payments for 1218 months or until the executive becomes eligible for coverage under another employer's health
|
|
|
|
|
|
|
|
|
plan, if the executive is participating in the Company's health plans on the date of such termination of employment (the "Continued Benefits"); (ii) the prorated portion of his/herhis annual bonus for the calendar year in which such termination of employment occurred, calculated based on the executive's actual performance and based on the number of days the executive was employed by the Company during such calendar year;year (the "Pro Rata Bonus"); and (iii) a payment equal to the amount of any annual bonus which has been earned in a prior year but which has not yet been paid to the executive (the "Earned but Unpaid Bonus").
For purposes of their employment agreements, "disability" means a "Total Disability" (or equivalent) as defined in the Company's long term disability plan in effect at the time of the disability.
Voluntary Termination or Termination for Cause. If Messrs. Loughmiller, Kelly, Hammer or Gottwald or Ms. PolakFisher voluntarily terminates his/herhis employment or if the Company terminates his/herhis employment for Cause, the Company's sole obligation will be to pay him/herhim the Accrued Obligations. For purposes of their employment agreements, "Cause" means the (i) executive's willful, continued and uncured failure to perform substantially their duties under the agreement (other than any such failure resulting from incapacity due to medically documented illness or injury) for a period of 14 days following written notice by the Company to the executive of such failure; (ii) executive engaging in illegal conduct or gross misconduct that is demonstrably likely to lead to material injury to the Company, monetarily or otherwise; (iii) executive's indictment or conviction of, or plea ofnolo contendere to, a crime constituting a felony or any other crime involving moral turpitude; (iv) executive's material breach of the Company's code of business conduct and ethics; or (iv)(v) executive's violation of the restrictive covenants under the agreement or any other covenants owed to the Company by executive.
Termination Without Cause or Resignation for Good Reason. In the event Messrs. Loughmiller, Kelly, Hammer or Gottwald or Ms. PolakFisher is terminated by the Company without Cause or such executive resigns for Good Reason, the executive would be entitled to receive, subject to the execution and non-revocation of a release of claims, (i) a lump sum cash payment equal to the sum of his/herone and a half times (except for Mr. Kelly, two times effective April 1, 2021) his annual base salary plus target annual bonus for the year in which such termination of employment occurs; (ii) the Continued Benefits; (iii) the Pro Rata Bonus; and (iii)(iv) the Earned but Unpaid Bonus. For purposes of their employment agreements, "Good Reason" means (i) any material reduction of the executive's authority, duties and responsibilities; (ii) any material failure by the Company to comply with any of the terms and conditions of the agreement; (iii) any failure to timely pay or provide the executive's base salary,
| | |
| | |
| | 58 |
or any reduction in the executive's base salary, excluding any base salary reduction made in connection with across the board salary reductions; (iv) the requirement by the Company that the executive relocate his/herhis principal business location to a location more than 50 miles from the executive's principal base of operation as of the effective date of the agreement; or (v) a Change of Control occurs and, if applicable, the Company fails to cause its successor (whether by purchase, merger, consolidation or otherwise) to assume or reaffirm the Company's obligations under the agreement without change. For purposes of the foregoing, "Change of Control" has the same meaning as the term "Change in Control" under the Omnibus Plan.
Change In Control Termination. In the event Messrs. Loughmiller, Kelly, Hammer or Fisher is terminated by the Company without Cause or such executive resigns for Good Reason, as described above, and such termination occurs within two years of a Change of Control (as defined under the Omnibus Plan), the executive would be entitled to receive, subject to the execution and non-revocation of a release of claims, (i) a lump sum cash payment equal to the sum of two times his annual base salary plus target annual bonus for the year in which such termination of employment occurs; (ii) the Continued Benefits; (iii) the Pro Rata Bonus; and (iv) the Earned but Unpaid Bonus.
Requirements With Respect to Non-Competition and Non-Solicitation. Upon a termination of employment for any reason, Messrs. Loughmiller, Kelly, Hammer and Gottwald and Ms. PolakFisher are subject to the following one year post-termination restrictive covenants: (i) non-competition restrictions; and (ii) non-solicitation of Company employees and customers.
| | |
| | |
| | |
CEO PAY RATIO |
Summary:Summary
For the 20182020 fiscal year, the ratio of the annual total compensation of Mr. Hallett, our Chief Executive Officer ("CEO Compensation"), to the median of the annual total compensation of all of our employees and those of our consolidated subsidiaries other than Mr. Hallett ("Median Annual Compensation") was 173145 to 1.
This ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K using the data and assumptions described below. The assumptions used in the calculation of our estimated pay ratio are specific to our company and our employee population; therefore, our pay ratio may not be comparable to the pay ratios of other companies, including the companies in our proxy comparator group.
In this summary, we refer to the employee who received the Median Annual Compensation as the "Median Employee." For purposes of this summary, Median Annual Compensation was $35,420,$40,373, and was calculated by totaling for our Median Employee all applicable elements of compensation for the 20182020 fiscal year in accordance with Item 402(c)(2)(x) of Regulation S-K. For purposes of this summary, CEO Compensation was $6,138,226.$5,847,463. CEO Compensation for purposes of this disclosure represents the total compensation reported for Mr. Hallett in the "Summary Compensation Table for 2018"2020" for the 20182020 fiscal year.
Methodology:Methodology As permitted
In 2020, we reduced our overall employee headcount by SEC rules, the Median Employee identifiedapproximately one-third, which caused a significant change in 2017 was utilized asour employee population from that employed for our 2019 pay ratio calculation. Given this impact, we have re-identified the Median Employee for 2018 as the Company did not experience changes in employee population or compensation arrangements that we reasonably believe would result in a significant change to this pay ratio disclosure. In 2017, to2020.
To identify the Median Employee, we first determined our employee population as of December 31, 20172020 (the "Determination Date"). We had 17,48110,097 employees (other than Mr. Hallett), representing all full-time, part-time, seasonal and temporary employees of us and our consolidated subsidiaries as of the Determination Date. This number did not include any independent contractors or "leased" workers, as permitted by the applicable SEC rules. Of our 17,48110,097 total employees (other than Mr. Hallett), approximately 231 (or about 1%) were employed in the United Kingdom and approximately 9 (or less than 1%) were employed in Mexico. We chose to exclude these 240 employees based308 (approximately 3% of our total employee population) are located outside of the U.S. in identifying our Median Employee, asand Canada. As permitted under thede minimis exemption to Item 402(u) of Regulation S-K.S-K, we chose to exclude those 308 employees in the following countries in identifying our Median Employee: Belgium (111); France (6); Germany (44); Italy (19); Mexico (14); the Netherlands (13); the United Kingdom (87); and Uruguay (14). We used our number of total employees (17,481,(10,097, other than Mr. Hallett) in making ourde minimis calculation.
We then measured compensation for the period beginning on January 1, 20172020 and ending on December 31, 20172020 for 17,2419,789 employees (after the permitted exclusions noted above). This compensation measurement was first calculated by totaling base salary (for salaried employees) and wages (for hourly employees) for each employee, gross wages reported on Form W-2 (or its equivalent for non-U.S. employees), which included cash compensation, including regular pay (wages and salary), all variants of overtime (if eligible), and all variants of bonus payments actually paid (if any). In determining the Median Employee, weconverting international currencies into U.S. dollars. We annualized the total compensation for the portion of our permanent employee workforce (full-time and part-time) which worked for less than the full fiscal year due to commencing employment after the beginning of the fiscal year.
We identified five possible Median Employees (five employees with the same compensation), who were all located in the U.S. We then calculated gross wages reported on Form W-2 for all five employees, which included cash compensation, including regular pay (wages and salary), all variants of overtime (if eligible), and all variants of bonus payments actually paid (if any). We annualized the pay of employees who were placed on furlough for a portion of 2020. We then re-ranked that group of five employees to identify the Median Employee.
| | |
| | |
| | |
Overview
We are seeking stockholder approval to amend and restate our Omnibus Plan to, among other things, increase the number of shares of the Company's common stock (the "Shares") reserved for issuance under the Omnibus Plan by an additional 6,460,000 shares and extend the term of the Omnibus Plan to June 4, 2031. The Board approved the amendment and restatement of our Omnibus Plan ("Revised Omnibus Plan") on April 16, 2021, subject to stockholder approval. The affirmative vote of a majority of the shares present and entitled to vote at the 2021 annual meeting is required to approve the Revised Omnibus Plan.
We believe appropriate equity incentives are important (i) to attract and retain the highest caliber individuals, (ii) to link incentive reward to Company performance, (iii) to encourage employee ownership in the Company, and (iv) to align the interests of participants to those of our stockholders, including incentivizing the creation of long-term stockholder value. Stockholder approval of the Revised Omnibus Plan will enable us to continue to provide such incentives to our key personnel. If the Revised Omnibus Plan is not approved, the Omnibus Plan will remain in effect in accordance with its present terms, but we may not be able to provide persons eligible for awards with compensation packages that are necessary to attract, retain and motivate these individuals. The authorization of additional shares is critical to our ability to attract and retain key personnel and continue to provide them with strong incentives to contribute to the Company's future success.
Our Revised Omnibus Plan includes several provisions that are designed to protect stockholder interests and promote effective corporate governance, including:
No re-pricing of stock options or SARs without prior stockholder approval; | ||
No "liberal share recycling" of stock options or SARs; | ||
No discounted stock options or SARs (minimum 100% fair market value exercise price); | ||
Maximum term for stock options and SARs is 10 years; | ||
One-year minimum vesting for equity awards; | ||
No dividends can be paid on unvested awards; | ||
No "liberal" change in control definition or automatic "single-trigger" change in control vesting; | ||
No "evergreen" share increases or automatic "reload" awards; | ||
Non-employee director compensation limits; and | ||
Clawback policy applicable to awards under the Revised Omnibus Plan. |
Share Usage and Key Equity Grant Data
While equity incentive awards are an important part of our pay-for-performance compensation program, our Board and Compensation Committee are mindful of their responsibility to our stockholders to exercise judgment in granting equity-based awards. We review a number of relevant metrics to assess the cumulative impact of our equity compensation programs, including burn rate and overhang.
| | |
| | |
| | 61 |
The annual share usage under the Omnibus Plan for the last three fiscal years and the overhang for 2020 was as follows:
| 2018 | 2019 | 2020 | | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Burn Rate(1) | | 0.42 | % | | 0.45 | % | | 0.61 | % | ||
Overhang(2) | — | — | 4.37 | % |
The following table includes information regarding outstanding equity awards and Shares available for future awards under the Omnibus Plan as of March 31, 2021:
Number of shares available for future grants: | 796,275 | |
Number of granted but unvested full-value awards:(1) | 1,761,164 | |
Number of granted but unexercised stock options: | 2,672,255 | |
Weighted average exercise price of outstanding stock options: | $13.27 | |
Weighted average remaining term of outstanding stock options | 8.6 years | |
Equity Compensation Plan Information
The following table sets forth the aggregate information of our equity compensation plans, including the Omnibus Plan, in effect as of December 31, 2020:
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights(1) | Weighted average exercise price of outstanding options, warrants and rights(2) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column)(3) | ||||||
---|---|---|---|---|---|---|---|---|---|
Equity compensation plans approved by security holder(s) | | 1,974,378 | $10.66 | | 5,538,059 | ||||
Equity compensation plans not approved by security holders | — | — | — | ||||||
| | | | | | | | | |
Total | | 1,974,378 | $10.66 | | 5,538,059 | ||||
Proposed Amendments to the Omnibus Plan
The proposed amendments include ensuring that a sufficient reserve of Shares remains available for issuance under the Revised Omnibus Plan in order to allow the Company to continue to use equity incentives to attract and retain the services of key employees and directors. As further described in the "Compensation Discussion and Analysis" section beginning on page 25, the Company relies on equity incentives for employees and directors in order to maintain a competitive equity compensation program and further align the interests of our employees and directors with those of our stockholders. The Revised Omnibus Plan increases the number of shares that remain available for issuance from 796,275 Shares as of March 31, 2021, to 7,256,275 Shares.
| | |
| | |
| | 62 |
The proposed amendments also include extending the termination date of the Omnibus Plan from June 10, 2024 to the tenth anniversary of the date the Revised Omnibus Plan is approved by stockholders, June 4, 2031. This extension will permit the Compensation Committee to continue to utilize equity-based compensation as part of our competitive compensation program.
Further, the proposed amendments (i) prohibit payment of dividends or dividend equivalents on an award until it vests and (ii) provide that awards that settle in Shares shall be granted subject to a minimum 12-month time-vesting period (other than awards representing a maximum of 5% of the Shares reserved for issuance under the Revised Omnibus Plan, as adjusted).
Finally, the proposed amendments address changes in federal tax laws. Section 162(m) allowed performance-based compensation that met certain requirements to be tax deductible, regardless of amount. This exception has been repealed, effective for taxable years beginning after December 31, 2017, such that compensation paid to the Covered Employees as defined in Section 162(m) in excess of $1,000,000 will not be deductible by the Company unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017. To further address changes in federal tax laws, the Revised Omnibus Plan no longer includes per-participant limitations on awards. However, the proposed amendments include a non-employee director compensation limit. Non-employee directors may not be granted awards exceeding $750,000 in total value in any calendar year, when aggregated with such non-employee director's cash fees with respect to such calendar year.
Summary of Revised Omnibus Plan
Below is a summary of certain material terms and provisions of the Revised Omnibus Plan. This summary is not intended to be a complete description of the Revised Omnibus Plan and is qualified in its entirety by reference to the complete text of our Revised Omnibus Plan, which is included as Annex I to this proxy statement.
Purpose. The purpose of the Revised Omnibus Plan is to provide an additional incentive to participants whose contributions are essential to the growth and success of our business, in order to strengthen the commitment of such persons to the Company, motivate such persons to faithfully and diligently perform their responsibilities and attract and retain competent and dedicated persons whose efforts will result in our long-term growth and profitability.
Administration. The Revised Omnibus Plan will be administered and interpreted by the Board or a committee appointed by the Board (the "Committee"), who will have the power and authority, without limitation, to establish such rules and regulations as it deems necessary for the proper administration of the Revised Omnibus Plan, including the ability to construe and interpret the terms and provisions of the Revised Omnibus Plan and any award issued thereunder and to otherwise supervise the administration of the Revised Omnibus Plan and to exercise all powers and authorities necessary and advisable in the administration of the Revised Omnibus Plan.
Eligibility. The employees, directors and independent contractors and consultants of the Company and its affiliates who are chosen by the Committee are eligible to receive awards under the Revised Omnibus Plan. As of March 31, 2021, there were approximately 9,742 employees, 9 non-employee directors and 1,017 independent contractors and consultants of the Company and its affiliates. While independent contractors and consultants of the Company are eligible to participate in the Revised Omnibus Plan (subject to certain SEC limitations), the Company's current practice is to not grant equity awards to independent contractors and consultants.
Shares Available for Awards. Subject to adjustment as provided in the Revised Omnibus Plan, the aggregate number of Shares reserved and available for issuance pursuant to awards granted under the Revised Omnibus Plan is 7,256,275, which will consist of 6,460,000 Shares not previously authorized for issuance plus 796,275 Shares remaining available for issuance but not subject to outstanding awards as of March 31, 2021. Any Shares subject to an award under the Revised Omnibus Plan that are forfeited, canceled, settled or otherwise terminated without a distribution of Shares to a participant will be available for issuance under the Revised Omnibus Plan. If (i) Shares otherwise issuable or issued in respect of, or as part of, any award other than stock options and SARs (as defined below) are withheld to cover taxes, such Shares shall
| | |
| | |
| | 63 |
not be treated as having been issued under the Revised Omnibus Plan and shall again be available for issuance under the Revised Omnibus Plan, (ii) Shares otherwise issuable or issued in respect of, or as part of, any award of stock options or SARs are withheld to cover taxes or the exercise price of such award, such Shares shall be treated as having been issued under the Revised Omnibus Plan and shall not be available for issuance under the Revised Omnibus Plan. In addition, Shares tendered to exercise outstanding stock options or other awards or to cover applicable taxes on awards of stock options and SARs shall not be available for issuance under the Revised Omnibus Plan, but Shares tendered to cover applicable taxes on awards other than stock options and SARs shall be available for issuance under the Revised Omnibus Plan.
Individual Award Limits. Non-employee directors may not be granted awards exceeding $750,000 in total value in any calendar year, when aggregated with such non-employee director's cash fees with respect to such calendar year.
Minimum Vesting. Awards granted under the Revised Omnibus Plan that settle in Shares (other than awards representing a maximum of five percent (5%) of the Shares reserved for issuance under the Revised Omnibus Plan, as adjusted) shall be granted subject to a minimum time-vesting period of at least twelve (12) months.
Award Types. Benefits granted under the Revised Omnibus Plan may be granted in any one or a combination of stock options, share appreciation rights ("SARs"), restricted shares, other share-based award, or other cash-based awards. Stock options, restricted shares and other share-based awards or cash awards may, as determined by the Committee in its discretion, constitute performance-based awards, which are described in greater detail below.
Performance-Based Awards. As determined by the Committee in its sole discretion, the granting or vesting of any performance-based awards will be based on achievement of performance objectives that are based on one or more of the business criteria described below, with respect to one or more business units or KAR and its subsidiaries as a whole: (i) earnings, including one or more of operating income, amortization, adjusted EBITDA, economic earnings, or extraordinary or special items or book value per share; (ii) pre-tax income or after-tax income; (iii) earnings per share; (iv) operating profit; (v) revenue, revenue growth or rate of revenue growth; (vi) return on assets, return on investment, return on capital or return on equity; (vii) returns on sales or
| | |
| | |
| | 64 |
revenues; (viii) operating expenses; (ix) stock price appreciation (including total stockholder return, on an absolute basis or relative to a peer group or other index selected by the Committee); (x) cash flow, free cash flow, cash flow return on investment, net cash provided by operations or cash flow in excess of cost of capital; (xi) implementation or completion of critical projects or processes; (xii) cumulative earnings per share growth; (xiii) operating margin or profit margin; (xiv) cost targets, reductions and savings, productivity and efficiencies; (xv) strategic business criteria; (xvi) personal professional objectives, including any of the foregoing performance goals, the implementation of policies and plans, the negotiation of transactions, the development of long term business goals, formation of joint ventures, research or development collaborations, and the completion of other corporate transactions; and (xvii) any combination of, or a specified increase in, any of the foregoing. Such business criteria may be adjusted to account for unusual or infrequently occurring items or changes in accounting.
Change in Control. Unless the Board or Committee determines otherwise, if there is a change in control, any unvested and outstanding awards may be assumed or replaced by the Company or its successor with a substantially similar equity or cash incentive award and the same vesting terms as the unvested award. Except as would otherwise result in adverse tax consequences under Section 409A of the Internal Revenue Code, if: (i) any unvested and outstanding awards held by a participant are assumed or replaced in a change in control and the participant's employment with the Company or its successor is terminated without cause or by the participant for good reason (if applicable) prior to the second anniversary of the change in control, or (ii) any unvested and outstanding awards are not assumed or replaced by the Company or its successor upon the change in control, then any unvested or unexercisable portion of any award carrying a right to exercise will become fully vested and exercisable and the restrictions, deferral limitations, payment conditions and forfeiture conditions applicable to an award granted under the Revised Omnibus Plan will lapse and the awards will be deemed fully vested and any performance conditions imposed with respect to such awards will be deemed to be fully achieved at the target level of performance.
Changes in Capitalization. If the Committee determines that a share dividend, special dividend (including cash dividends), recapitalization, share split, reverse split, reorganization, merger, consolidation, spin-off, repurchase, share exchange, or other similar corporate transaction affects the shares such that an adjustment is appropriate in order to prevent the dilution of the rights of participants, the Committee may make such equitable changes as it deems appropriate.
Transferability. Awards granted under the Revised Omnibus Plan are generally not transferable, and all rights with respect to an award granted to a participant will generally be available during a participant's lifetime only to the participant (or the participant's guardian or legal representative).
Clawback and Recoupment. Awards issued under the Revised Omnibus Plan are subject to the Company's clawback policy, which provides for the recovery of incentive compensation in the event the Company is required to prepare an accounting restatement due to any current or former executive officer's intentional misconduct. In such an event, the executive officer would be required to repay to the Company the excess amount of incentive compensation received under the inaccurate financial statement.
Term, Amendment and Termination. The Revised Omnibus Plan will terminate as to future awards on June 4, 2031. Our Board or the Committee may amend, alter or terminate the Revised Omnibus Plan at any time, but no amendment, alteration, or termination shall be made that would impair the rights of a participant under any award theretofore granted without such participant's consent. Approval of our stockholders will be obtained for any amendment that would require such approval in order to satisfy the requirements of any rules of the stock exchange on which the common stock is traded or other applicable law. Subject to the terms and conditions of the Revised Omnibus Plan, the Board or the Committee may modify, extend or renew outstanding awards under the Revised Omnibus Plan, or accept the surrender of outstanding awards (to the extent not already exercised) and grant new awards in substitution of them (to the extent not already exercised). No alteration, modification or termination of an award will, without the prior written consent of the participant, adversely alter or impair any rights or obligations under any award already granted under the Revised Omnibus Plan.
| | |
| | |
| | 65 |
Summary of U.S. Federal Income Tax Consequences
The following is a brief summary of the U.S. federal income tax treatment that generally apply to Revised Omnibus Plan awards. The description is based on current federal tax laws, rules and regulations, which are subject to change, and does not purport to be a complete description of the federal income tax aspects of the Revised Omnibus Plan. This summary is not intended to be exhaustive and, among other things, does not describe state, local or foreign income and other tax consequences. This summary is not intended as tax advice to participants, who should consult their own tax advisors.
Nonqualified Stock Options. The grant of a nonqualified stock option will not result in taxable income to the participant. The participant will generally realize ordinary income at the time of exercise in an amount equal to the excess, if any, of the then fair market value of the stock acquired over the exercise price for those shares, and we will generally be entitled to a corresponding deduction. Gains or losses realized by the participant upon disposition of such shares will generally be treated as capital gains or losses, with the basis in such stock equal to the fair market value of the shares at the time of exercise.
SARs. The grant of a SAR will not result in taxable income to the participant at the time of the grant. The participant will generally realize ordinary income at the time of exercise in an amount equal to the amount of cash or the fair market value of the shares paid upon exercise, and we will generally be entitled to a corresponding deduction. Gains or losses realized by the participant upon disposition of any shares received will generally be treated as capital gains or losses, with the basis in such stock equal to the fair market value of the shares at the time of exercise.
Restricted Stock. A grant of restricted stock will not result in taxable income to the participant at the time of grant, and we will not be entitled to a corresponding deduction, assuming that the shares are subject to transferability restrictions and that certain restrictions on the shares constitute a "substantial risk of forfeiture" for federal income tax purposes. Upon vesting, the holder will generally realize ordinary income in an amount equal to the then fair market value of the vested shares, and we should be entitled to a corresponding deduction. Gains or losses realized by the participant upon subsequent disposition of such shares will generally be treated as capital gains or losses, with the basis in such shares equal to the fair market value of the shares at the time of vesting. Dividends paid to the holder of restricted stock during the restricted period also should/will be compensation income to the participant, and we will generally be entitled to a corresponding deduction when the dividends no longer are subject to a substantial risk of forfeiture or become transferable. A participant may elect pursuant to Section 83(b) of the Code to have income recognized at the date a restricted stock award is granted and to have the applicable capital gain holding period commence as of that date. In such a case, we will be entitled to a corresponding deduction on the date of grant.
Other Share-Based Awards—Restricted Stock Units and Performance Units. A grant of restricted stock units or performance units will generally not result in taxable income to the participant at the time of grant, and we will generally not be entitled to a corresponding deduction. Upon vesting and issuance of the underlying shares, the holder will generally realize ordinary income in an amount equal to the then fair market value of the issued shares, and we should be entitled to a corresponding deduction. Gains or losses realized by the participant upon disposition of such shares will be treated as capital gains or losses, with the basis in such shares equal to the fair market value of the shares at the time of vesting and issuance. Dividend equivalents paid to the holder of restricted stock units during the restricted period also will generally be compensation income to the participant, and we should be entitled to a corresponding deduction when the dividend equivalents are paid. No election pursuant to Section 83(b) of the Code may be made with respect to restricted stock units and performance units.
Other Share-Based Awards. With respect to grants of other share-based awards (other than restricted stock units or performance units), upon payment of cash or the vesting or issuance of the underlying shares, the participant will generally realize ordinary income in an amount equal to the cash received or the then fair market value of the issued shares, and we will generally be entitled to a corresponding deduction. Gains or losses realized by the participant upon subsequent disposition of such shares will be treated as capital gains or losses, with the basis in such shares equal to the fair market value of the shares at the time of vesting and issuance.
| | |
| | |
| | 66 |
Other Cash-Based Awards. A participant will generally have taxable compensation equal to the amount of the cash award on the date the award is vested and paid to the participant. The Company will generally be able to deduct, at the same time as it is recognized by the participant, the amount of taxable compensation to the participant for U.S. federal income tax purposes.
Section 162(m) of the Internal Revenue Code. Section 162(m) denies a deduction to any publicly held corporation for compensation paid to certain "covered employees" in a taxable year to the extent that compensation to such covered employee exceeds $1,000,000. It is possible that compensation attributable to awards under the Revised Omnibus Plan, whether alone or combined with other types of compensation received by a covered employee from us, may cause this limitation to be exceeded in any particular year.
Section 409A of the Internal Revenue Code. Certain types of awards under the Revised Omnibus Plan may constitute, or provide for, a deferral of compensation subject to Section 409A of the Internal Revenue Code. Unless certain requirements set forth in Section 409A of the Internal Revenue Code are satisfied, holders of such awards may be taxed earlier than would otherwise be the case (e.g., at the time of vesting instead of the time of payment) and may be subject to an additional 20% penalty tax (and, potentially, certain interest penalties and additional state taxes). To the extent applicable, the Revised Omnibus Plan and awards granted under the Revised Omnibus Plan are intended to be structured and interpreted in a manner intended to either comply with or be exempt from Section 409A of the Internal Revenue Code and the Department of Treasury regulations and other interpretive guidance that may be issued under Section 409A of the Internal Revenue Code. To the extent determined necessary or appropriate by the plan administrator, the Revised Omnibus Plan and applicable award agreements may be amended to further comply with Section 409A of the Internal Revenue Code or to exempt the applicable awards from Section 409A of the Internal Revenue Code.
New Plan Benefits
If our stockholders approve this Proposal, the Shares reserved for issuance under the Revised Omnibus Plan would become available for issuance in respect of equity awards to eligible plan participants. Because benefits under the Revised Omnibus Plan will depend on the Board's or Committee's actions and the fair market value of our common stock at various future dates, it is not possible to determine the benefits that will be received by directors, executive officers and other employees if the Revised Omnibus Plan is approved by the stockholders. No grants or awards have been made by the Board or the Committee to date subject to stockholder approval.
Pursuant to our director compensation program and Policy on Granting Equity Awards, our eligible non-employee directors will each receive, on the day of the 2021 annual meeting, an annual restricted stock grant valued at $130,000. We expect to grant $780,000 in restricted stock to our non-employee directors as a group. The number of shares of our common stock received will be based on the value of the shares on the date of the restricted stock grant. For information regarding potential stock option grants to executive officers pending future Committee action and stockholder approval of this Proposal, see "Compensation Discussion and Analysis—Long-Term Incentive Opportunities—2021 Long-Term Incentive Program" on pages 41-42.
Except as noted above, any further awards under the Revised Omnibus Plan will be determined by the Board or the Committee in its discretion and are therefore not determinable at this time.
The Board of Directors recommends that you vote FOR the approval of the amended and restated Omnibus Plan. | ||
Proxies solicited by the Board of Directors will be voted "FOR" the approval of the amended and restated Omnibus Plan. |
| | |
| | |
| | 67 |
The Audit Committee has appointed KPMG LLP ("KPMG") to serve as the Company's independent registered public accounting firm for its fiscal year ending December 31, 2019.2021. The Audit Committee and the Board seek to have the stockholders ratify the Audit Committee's appointment of KPMG, which has served as the Company's independent registered public accounting firm since 2007.
The Audit Committee periodically considers whether there should be a rotation of the Company's independent registered public accounting firm, and in 2020 the Audit Committee conducted a comprehensive request for proposal process with KPMG and a few other large nationally recognized accounting firms with respect to the 2021 audit engagement. After considering all factors, the Audit Committee ultimately determined that it was in the best interest of the Company and its stockholders to retain KPMG as the Company's independent registered public accounting firm for 2021.
Although the Company is not required to seek stockholder approval of this appointment, the Board believes it to beis sound corporate governance to do so. If the appointment of KPMG is not ratified by the stockholders, the Audit Committee will consider the vote of the Company's stockholders and may appoint another independent registered public accounting firm or may decide to maintain its appointment of KPMG. Ratification of the appointment of our independent registered public accounting firm requires the affirmative vote of thea majority of the shares present in person or represented by proxyand entitled to vote at the 20192021 annual meeting.
Representatives of KPMG will be present at the 20192021 annual meeting and will have the opportunity to make a statement, if they desire to do so, and to respond to appropriate questions.
✓ | The Board of Directors recommends that you vote | |
Proxies solicited by the Board of Directors will be voted "FOR" the ratification of the appointment of KPMG as our independent registered public accounting firm for |
| | |
| | |
| | |
REPORT OF THE AUDIT COMMITTEE |
The Audit Committee is currently comprised of four independent directors, each of whom satisfies the independence requirements of Section 10A of the Exchange Act and Rule 10A-3 under the Exchange Act.thereunder. The Audit Committee oversees our financial reporting process on behalf of the Board and serves as the primary communication link between the Board as the representative of our stockholders, KPMG as our independent auditor, and our internal auditors. Our management has the primary responsibility for our financial statements and the reporting process, including the systems of internal controls and for assessing the effectiveness of internal controls over financial reporting. The Audit Committee, at least quarterly, meets with the Company's Chief Financial Officer, the Company's Vice Presidenthead of Internal Audit and representatives of KPMG and conducts separate executive sessions to discuss the audited consolidated financial statements, the evaluations of the Company's internal controls and the overall quality of the Company's financial reporting and compliance programs.
In fulfilling its responsibilities during the fiscal year, the Audit Committee reviewed and discussed with management the consolidated financial statements and related financial statement disclosures included in our Quarterly Reports on Form 10-Q and the audited consolidated financial statements and related financial statement disclosures included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.2020. Also, the Audit Committee reviewed with the independent auditors their judgments as to both the quality and the acceptability of our accounting policies. The Audit Committee's review with the independent auditors included a discussion of otherthe matters required under Auditing Standards promulgatedto be discussed by the applicable requirements of the Public Company Accounting Oversight Board ("PCAOB"), including PCAOB Auditing Standard No. 1301,Communications with and the SEC. KPMG has provided the Audit Committees. The Audit Committee received the written disclosures and the letter from the independent auditorsall communications required by theunder PCAOB Rule Nos. 3524standards, including those concerning independence, and 3526 regarding communications with the Audit Committee concerning independence and has discussed those disclosures with the independent auditors.KPMG. The Audit Committee has also reviewed non-audit services performed by KPMG and considered whether KPMG's provision of non-audit services was compatible with maintaining its independence from the Company.
The Audit Committee discussed with our internal auditors and independent auditors the overall scope and plans for their respective audits and reviewed our plans for compliance with management certification requirements pursuant to Section 404 of the Sarbanes-Oxley Act of 2002. The Audit Committee met with the internal auditors and independent auditors, with and without management present, to discuss the results of the auditors' examinations, their evaluations of our internal controls, including a review of the disclosure control process, and the overall quality of our financial reporting. Management represented to the Audit Committee that the Company's consolidated audited financial statements as of and for the fiscal year ended December 31, 20182020 were prepared in accordance with accounting principles generally accepted accounting principles,in the United States, and the Audit Committee has reviewed and discussed the audited consolidated financial statements with management and the independent auditors. The Audit Committee, or the ChairmanChair of the Audit Committee, also pre-approved all audit and non-audit services provided by the independent auditors during and relating to fiscal year 2018.2020. In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board that the audited consolidated financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.2020.
The Audit Committee evaluates the performance of the independent auditors each year and determines whether to re-engage the current independent auditors or consider other audit firms. To assist in the evaluation of KPMG's performance for the 2018 audit,In 2020 the Audit Committee, consistent with good governance practices, conducted a comprehensive evaluation, whichrequest for proposal process with KPMG and a few other large nationally recognized accounting firms with respect to the 2021 audit engagement. In drafting the request for proposal, the Company, in consultation with the Audit Committee, incorporated a number of specific topics for each participating firm to address. These topics included obtaining input from certain members of management, assessing KPMG'sbut were not limited to independence, technical expertise, industry knowledge, adequacy of audit approach and scope appropriatenessand estimated fees. As part of fees,the request for proposal process, representatives of the accounting firms submitted written proposals, presented verbal proposals and service and communicationmet with members of management and the Audit Committee. The results of this evaluation were discussed with the KPMG engagement partner and the managing partner of KPMG's local office. The Audit Committee reviews with our Chief Financial Officer and our Vice President of Internal Audit, the overall audit scope and plans, the results of internal and external audit examinations, evaluations by management and the independent auditors of our internal controls over financial reporting, the quality of our financial reporting and the abilityChair of the independent auditors to remain independent.Audit Committee. Based on these evaluations and responses and after considering all factors, the Audit Committee approved the engagement of KPMG as our independent auditors for fiscal year 2019.2021.
| | |
| | |
| | |
Although the Audit Committee has the sole authority to appoint the independent auditors, the Audit Committee has continued its long-standing practice of recommending that the Board ask our stockholders to ratify the appointment of the independent auditors at our annual meeting of stockholders. This report is submitted by Michael T. Kestner, Donna R. Ecton, J. Mark Howell and Stephen E. Smith.
The Audit Committee
AUDIT COMMITTEE
Michael T. Kestner, Chair | David DiDomenico | J. Mark Howell | Stephen E. Smith |
Michael T. Kestner(Chairman)Donna R. EctonJ. Mark HowellStephen E. Smith
FEES PAID TO KPMG LLP |
The following table sets forth the aggregate fees charged to KAR Auction Servicesthe Company by KPMG for audit services rendered in connection with the audit of our consolidated financial statements and reports for 20182020 and 20172019 and for other services rendered during 20182020 and 20172019 to KAR Auction Servicesthe Company and its subsidiaries, as well as all out-of-pocket costs incurred in connection with these services:
Fee Category | 2018 | 2017 | 2020 | 2019 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Audit Fees(1) | $ | 2,496,449 | $ | 2,880,000 | ||||||||||
Audit-Related Fees(2) | 3,098,162 | 416,116 | ||||||||||||
Tax Fees(3) | | 98,526 | | 148,239 | ||||||||||
All Other Fees(4) | 1,905 | 1,780 | ||||||||||||
Audit Fees(1) | $ | 2,432,339 | $ | 3,040,632 | ||||||||||
Audit-Related Fees(2) | 328,700 | 379,930 | ||||||||||||
Tax Fees(3) | | — | | 14,000 | ||||||||||
All Other Fees(4) | 1,905 | 1,780 | ||||||||||||
| | | | | | | | | | | | | | |
Total Fees | $ | 5,695,042 | $ | 3,446,135 | $ | 2,762,944 | $ | 3,436,342 | ||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
KAR Auction Services'The Company's independent registered public accounting firm fee pre-approval policy provides for an annual process through which the Audit Committee evaluates the nature and scope of the audit prior to the commencement of the audit. The Audit Committee also evaluates audit-related, tax and other services that are proposed, along with the anticipated cost of such services. The Audit Committee reviews schedules of specific services to be provided. If other services are provided outside of this annual process, under the policy they may be (i) pre-approved by the Audit Committee at a regularly scheduled meeting; or (ii) pre-approved by the ChairmanChair of the Audit Committee, acting between meetings and reporting back to the Audit Committee at the next scheduled meeting. All audit fees, audit-related fees, tax fees and all other fees described above were approved by the Audit Committee or the ChairmanChair of the Audit Committee before such services were rendered.
| | |
| | |
| | |
REVIEW AND APPROVAL OF TRANSACTIONS WITH RELATED PERSONS |
Pursuant to our written related partyperson transactions policy, the Company reviews relationships and transactions in which the Company, or one of its business units, and our directors and executive officers or their immediate family members are participants to determine whether such persons have a direct or indirect material interest.
In the course of the review and approval of a related partyperson transaction, the Board or the Audit Committee may consider the following factors:
Transactions in which the amount involved exceeds $120,000 in which the Company, or one of its business units, was a participant and a related person had a direct or indirect material interest are required to be disclosed in this proxy statement. ThereExcept as set forth below, there were not any suchno related partyperson transactions identified since January 1, 2020.
Issuance of Series A Preferred Stock
On June 10, 2020, we issued 500,000 shares of Series A Preferred Stock to Ignition Acquisition Holdings LP, a Delaware limited partnership and affiliate fund of Apax, for 2018.an aggregate purchase price of $500 million, or $1,000 per share, in a private offering pursuant to the Investment Agreement, dated as of May 26, 2020, by and between the Company and the Apax Investor, an affiliate of Ignition Acquisition Holdings LP (the "Apax Investment Agreement"). On June 10, 2020 and June 29, 2020, we issued an aggregate of 50,000 shares of Series A Preferred Stock to Periphas Kanga Holdings, LP ("Periphas"), a Delaware limited partnership and affiliate of Periphas Capital GP, LLC ("Periphas Capital"), for an aggregate purchase price of $50 million, or $1,000 per share, in private offerings pursuant to the Investment Agreement, dated as of May 26, 2020, by and between the Company and Periphas Capital (the "Periphas Investment Agreement" and, together with the Apax Investment Agreement, the "Investment Agreements").
The Series A Preferred Stock ranks senior to our common stock, with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. The holders of the Series A Preferred Stock are entitled to a cumulative dividend at the rate of 7% per annum, payable quarterly in arrears. Dividends are payable in kind through the issuance of additional shares of Series A Preferred Stock for the first eight dividend payments, and thereafter, in cash or in kind, or in any combination of both, at our option. The holders of the Series A Preferred Stock are also entitled to participate in dividends declared or paid on our common stock on an as-converted basis.
The Series A Preferred Stock will be convertible at the option of the holders thereof at any time after June 10, 2021 into shares of common stock at a conversion price of $17.75 per share of Series A Preferred Stock and a conversion rate of 56.3380 shares of common stock per share of Series A Preferred Stock, subject to certain anti-dilution adjustments. At any time after June 10, 2023, if the closing price of the common stock exceeds $31.0625 per share, as may be adjusted pursuant to the Certificate of Designations, for at least 20 trading days in any period of 30 consecutive trading days, at our election, all or any portion of the Series A Preferred Stock will be convertible into the relevant number of shares of common stock.
| | |
| | |
| | |
The holders of the Series A Preferred Stock are entitled to vote with the holders of our common stock as a single class on all matters submitted to a vote of the holders of our common stock.
At any time after June 10, 2026, we may redeem some or all of the Series A Preferred Stock for a per share amount in cash equal to: (i) the sum of (x) the liquidation preference thereof, plus (y) all accrued and unpaid dividends, multiplied by (ii) (A) 105% if the redemption occurs at any time after June 10, 2026 and prior to June 10, 2027 (B) 100% if the redemption occurs on or after June 10, 2027.
Upon the occurrence of a change of control, and subject to certain limitations set forth in the Certificate of Designations, each holder of the Series A Preferred Stock will either (i) receive such number of shares of common stock into which such holder is entitled to convert all or a portion of such holder's shares of Series A Preferred Stock at the then current conversion price, (ii) receive, in respect of all or a portion of such holder's shares of Series A Preferred Stock, the greater of (x) the amount per share of Series A Preferred Stock that such holder would have received had such holder, immediately prior to such change of control, converted such share of Series A Preferred Stock into common stock and (y) a purchase price per share of Series A Preferred Stock, payable in cash, equal to the product of (A) 105% multiplied by (B) the sum of the liquidation preference and accrued dividends with respect to such share of Series A Preferred Stock, or (iii) unless the consideration in such change of control event is payable entirely in cash, retain all or a portion of such holder's shares of Series A Preferred Stock.
For so long as the Apax Investor or its affiliates beneficially own at least 25% of the shares of Series A Preferred Stock originally purchased pursuant to the Apax Investment Agreement on an as-converted basis, the Apax Investor will continue to have the right to appoint one individual to the Board. Additionally, so long as the Apax Investor or its affiliates beneficially own at least 50% of the shares of Series A Preferred Stock originally purchased pursuant to the Apax Investment Agreement on an as-converted basis, the Apax Investor will have the right to appoint one non-voting observer to the Board. Likewise, so long as Periphas beneficially owns a certain percentage of the shares of Series A Preferred Stock purchased in the Periphas issuance on an as-converted basis, Periphas will have the right to appoint one non-voting observer to the Board.
The Apax Investor and certain of its affiliates are subject to certain standstill restrictions, until the later of June 10, 2023 and the date on which the Apax Investor no longer beneficially owns 25% of the shares of Series A Preferred Stock originally purchased pursuant to the Apax Investment Agreement on an as-converted basis. Periphas is also subject to certain standstill restrictions, until the later of June 10, 2023 and the date on which Periphas no longer owns 50% of the shares of Series A Preferred Stock purchased in the Periphas issuance on an as-converted basis. Subject to certain customary exceptions, Ignition Acquisition Holdings LP and Periphas are restricted from transferring the Series A Preferred Stock until June 30, 2021.
The Apax Investor, its affiliates and Periphas have certain customary registration rights with respect to shares of the Series A Preferred Stock and the shares of the common stock held by it issued upon any future conversion of the Series A Preferred Stock. Pursuant to these rights, on February 18, 2021, the Company filed a registration statement on Form S-3 with the SEC to register for resale an aggregate of (i) 634,305 shares of Series A Preferred Stock, consisting of the 571,606 shares of Series A Preferred Stock held by Ignition Acquisition Holdings LP and Periphas as of February 12, 2021 (including shares issued as dividends payable in kind), and 62,699 shares of Series A Preferred Stock to be issued as dividends paid in-kind on such shares through June 30, 2022; and (ii) 35,735,493 shares of common stock, which represents the total number of shares of common stock issuable upon conversion of all such shares of Series A Preferred Stock. Under the registration statement, Ignition Acquisition Holdings LP and Periphas may offer and sell shares of Series A Preferred Stock or shares of common stock in public or private transactions, or both. These sales may occur at fixed prices, at market prices prevailing at the time of sale, at prices related to prevailing market prices, or at negotiated prices.
At the close of business on April 9, 2021, the record date, Ignition Acquisition Holdings LP and Periphas held 528,736 and 52,872 shares of our Series A Preferred Stock, respectively, which shares represented approximately 19.27% and 2.33% of our common stock on an as-converted basis.
| | |
| | |
| | 72 |
REQUIREMENTS, INCLUDING DEADLINES, FOR SUBMISSION OF PROXY PROPOSALS |
NOMINATION OF DIRECTORS AND OTHER BUSINESS OF STOCKHOLDERS |
In order to submit stockholder proposals for inclusion in our proxy statement related to the 20202022 annual meeting of stockholders pursuant to SEC Rule 14a-8, materials must be received by the Secretary at the Company's principal executive office inat KAR Auction Services, Inc., Secretary, 11299 North Illinois Street, Carmel, Indiana 46032 no later than December 26, 2019.24, 2021.
The proposals must comply with all of the requirements of SEC Rule 14a-8. Proposals should be addressed to: Rebecca C. Polak,Charles S. Coleman, EVP, Chief Legal Officer and Secretary, KAR Auction Services, Inc., 13085 Hamilton Crossing Boulevard,11299 North Illinois Street, Carmel, Indiana 46032. As the SEC's shareholder proposal rules make clear, simply submitting a proposal does not guarantee its inclusion.inclusion in our proxy statement.
The Company's By-Laws also establish an advance notice procedure with regard to director nominations and stockholder proposals that are not submitted for inclusion in the proxy statement pursuant to SEC Rule 14a-8, but that a stockholder instead wishes to present directly at an annual meeting. To be properly brought before the 20202022 annual meeting, a notice of the nomination or the matter the stockholder wishes to present at the meeting must be delivered to the Secretary at the Company's principal office in Carmel, Indiana (see address above), not less than 90 or more than 120 days prior to the first anniversary of the date of this year's annual meeting. As a result, any notice given by or on behalf of a stockholder pursuant to these provisions of the Company's By-Laws (and not pursuant to SEC Rule 14a-8) must be received no earlier than February 5, 2020,4, 2022, and no later than March 6, 2020.2022. All director nominations and stockholder proposals must comply with the requirements of the Company's By-Laws, a copy of which may be obtained at no cost from the Secretary of the Company by writing to KAR Auction Services, Inc., Secretary, 13085 Hamilton Crossing Boulevard,11299 North Illinois Street, Carmel, Indiana 46032.
Other than the proposals described in this proxy statement, KAR Auction Servicesthe Company does not expect any matters to be presented for a vote at the 20192021 annual meeting. However, if you grant a proxy, the persons named as proxy holders on the proxy card will have the discretion to vote your shares on any additional matters properly presented for a vote at the 20192021 annual meeting. If for any unforeseen reason, any one or more of the Board's nominees is not available to stand for election as director, the persons named as proxy holders will vote your proxy for such other candidate or candidates as may be nominated as a substitute by the Board.
The chairman of the meeting may refuse to allow the transaction of any business not presented beforehand, or to acknowledge the nomination of any person not made in compliance with the foregoing procedures.
| | |
| | |
| | |
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING |
Q: | Why am I receiving these materials? | |
A: | We are providing these proxy materials to you in connection with the solicitation, by | |
Q: | What proposals will be voted on, what is the Board's voting recommendation, and what are the standards for determining whether a proposal has been approved? |
A: | ||||||||||||
•
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
The on the | ||||||||||||
•
| ||||||||||||
• Proposal No. 3: To approve, on an advisory basis, executive compensation. | ||||||||||||
•
| ||||||||||||
| •
| |||||||||||
KPMG LLP as our independent registered public accounting firm for |
| | |
| | |
| | |
Proposal | Voting Choices and Board Recommendation | Voting Standard | Effect of Abstention | Effect of Broker Non-Vote | ||||||
1. | Election of Director Nominee Designated by the Apax Investor | • Vote "FOR" the nominee • Vote "AGAINST" the nominee • Abstain from voting for the nominee The Board recommends a vote FOR the director nominee. | More votes "FOR" than "AGAINST" | No effect | No effect | |||||
2. | Election of Directors | • Vote "FOR" all nominees • Vote "FOR" specific nominees • Vote "AGAINST" all nominees • Vote "AGAINST" specific nominees • Abstain from voting for all nominees • Abstain from voting for specific nominees The Board recommends a vote FOR | More votes "FOR" than "AGAINST" | No effect | No effect | |||||
3. | Advisory Vote to Approve Executive Compensation | • Vote "FOR" the advisory proposal • Vote "AGAINST" the advisory proposal • Abstain from voting on the advisory proposal The Board recommends a vote FOR | Majority of the shares present and entitled to vote | Vote against | No effect | |||||
4. | Approval of an Amendment and Restatement of the Omnibus Plan | • Vote "FOR" the amendment and restatement • Vote "AGAINST" the amendment and restatement • Abstain from voting on the amendment and restatement The Board recommends a vote FOR | Majority of the shares present and entitled to vote | Vote against | No effect | |||||
5. | Ratification of Independent Registered Accounting Firm | • Vote "FOR" the ratification • Vote "AGAINST" the ratification • Abstain from voting on the ratification The Board recommends a vote FOR | Majority of the shares present and entitled to vote | Vote against | Not applicable |
Q: | Who is entitled to vote? | |
A: | ||
These shares include shares that are: | ||
• held directly in your name as the stockholder of record; and | ||
• held for you as the beneficial owner through a broker, bank or other nominee, including shares purchased under the KAR Auction Services, Inc. Amended and Restated Employee Stock Purchase Plan (the |
| | |
| | |
| | 75 |
Each record holder of Series A Preferred Stock will have a number of votes equal to the largest number of whole shares of common stock into which such shares are convertible on the record date on each matter that is properly brought before the 2021 annual meeting and on which holders of Series A Preferred Stock are entitled to vote together with common stock as a single class. In addition, each holder of record of Series A Preferred Stock will have one vote for each share of Series A Preferred Stock on each matter that is properly brought before the 2021 annual meeting and on which holders of Series A Preferred Stock are entitled to vote separately, as a class. |
On the record date, | ||
Q | Are there any requirements on how the holders of the Series A Preferred Stock must vote? | |
A: | Under the Investment Agreement, at the 2021 annual meeting, Ignition Acquisition Holdings LP and Periphas are required to vote their shares of Series A Preferred Stock in favor of the eight director nominees who are also being voted on by holders of common stock, in favor of the Say on Pay proposal, in favor of the amendment and restatement of the Omnibus Plan and for ratification of the appointment of KPMG LLP as our independent registered public accounting firm for 2021, as described in these proxy materials. Ignition Acquisition Holdings LP and Periphas are entitled to vote at their discretion on the other proposals described in this proxy statement. | |
Q: | What is the difference between holding shares as a stockholder of record and as a beneficial owner? | |
A: | Stockholder of Record.If your shares are registered directly in your name with the Company's transfer agent, American Stock Transfer & Trust Company, LLC, you are considered a "stockholder of record" with respect to those shares. As the stockholder of record, you have the right to grant your voting proxy directly to the Company or to vote in person online during the | |
Beneficial Owner. If your shares are held in a brokerage account or by a bank or other nominee, you hold your shares in "street name" and are considered a "beneficial owner" with respect to those shares. These proxy materials are being forwarded to you by your broker or nominee who is considered the stockholder of record with respect to those shares. As the beneficial owner, you have the right to direct your broker on how to vote your shares and are also invited to attend the | ||
Q: | How can I vote my shares and participate at the | |
A: | Stockholders may participate in the | |
If you | ||
Even if you plan to attend the |
| | |
| | |
| | 76 |
The |
|
|
|
|
|
|
|
|
|
We are holding the | ||
Q: | What if I hold both common stock and Series A Preferred Stock? | |
A: | Some of our stockholders may hold both common stock and Series A Preferred Stock. If you are a holder of both common stock and Series A Preferred Stock, you can expect to receive separate sets of printed proxy materials. | |
You will need to vote, or authorize a proxy to vote, each class of stock separately in accordance with the instructions set forth herein and on the applicable proxy cards or voting instruction forms. Voting, or authorizing a proxy to vote, only your common stock will not also cause your shares of Series A Preferred Stock to be voted, and vice versa. | ||
If you hold both common stock and Series A Preferred Stock, please be sure to vote or authorize a proxy to vote for each class of stock separately so that all your votes can be counted. | ||
Q: | How can I vote my shares without attending the | |
A: | Whether you hold your shares directly as the stockholder of record or beneficially in street name, you may votewithout attending the | |
By Internet.Go towww.proxyvote.com and follow the instructions. You will need the control number included on your proxy card or voting instruction form; | ||
By Telephone.Dial 1-800-690-6903. You will need the control number included on your proxy card or voting instruction form; or | ||
By Mail. Complete, date and sign your proxy card or voting instruction | ||
If you vote on the Internet or by telephone, you do not need to return your proxy card or voting instruction | ||
Q: | If I am an employee holding shares pursuant to the | |
A: | Employees holding stock acquired through the |
| | |
| | |
| | 77 |
Q: | What is the quorum requirement for the | |
A: | A quorum of stockholders is necessary to hold the | |
Q: | What happens if I do not give specific voting instructions? | |
A: | Stockholder of Record.If you are a stockholder of record and you sign and return a proxy card without giving specific voting instructions, then the proxy holders will vote your shares in the manner recommended by the Board on all matters presented in this proxy statement and as the proxy holders may determine in their discretion with respect to any other matters properly presented for a vote at the | |
Beneficial Owner. If you are a beneficial owner of shares and do not provide the organization (e.g., broker, bank or other nominee) that holds your shares in "street name" with specific voting instructions, the organization that holds your shares may generally vote in its discretion on "routine" matters. If the organization that holds your shares does not receive instructions from you on how to vote your shares on "non-routine" matters, such organization cannot vote your shares and will inform the inspector of election that it does not have the authority to vote on these matters with respect to your shares. This is generally referred to as a "broker non-vote." Therefore, we urge you to give voting instructions to your broker, bank or other nominee. Shares represented by such broker non-votes will be counted in determining whether there is a quorum. Because broker non-votes are not considered shares entitled to vote, they will have no effect on the outcome of any proposal other than reducing the number of shares present in person or by proxy and entitled to vote from which a majority is calculated. |
|
|
|
|
|
|
|
|
|
• Routine Matters. The ratification of the appointment of KPMG as our independent registered public accounting firm for | ||
•
| ||
Q: | What does it mean if I receive more than one proxy card or voting instruction | |
A: | It means your shares are registered differently or are in more than one account. Please provide voting instructions for all proxy and voting instruction | |
Q: | Who will count the vote? | |
A: | The votes will be counted by the inspector of elections appointed for the | |
Q: | Can I revoke my proxy or change my vote? | |
A: | Yes. You may revoke your proxy or change your voting instructions at any time prior to the vote at the | |
• providing written notice of revocation to the Secretary of the Company at | ||
• delivering a valid, later-dated proxy or a later-dated vote on the Internet or by telephone; or | ||
• attending the |
| | |
| | |
| | 78 |
Please note that your attendance at the | ||
Q: | Who will bear the cost of soliciting proxies for the | |
A: | The Company pays the cost of soliciting your proxy and reimburses brokers and others for forwarding to you the proxy materials as beneficial owners of our common stock. The Company's directors, officers and employees also may solicit proxies by mail, telephone and personal contact. They will not receive any additional compensation for these activities. | |
Q: | Why did I receive a notice in the mail regarding the Internet availability of the proxy materials instead of a paper copy of the proxy materials? | |
A: | This year, we are again taking advantage of the SEC rules that allow us to furnish our proxy materials over the Internet. As a result, most of our stockholders will be mailed a Notice of Internet Availability of Proxy Materials ("Notice"), rather than a full paper set of the proxy materials. The Notice includes information on how to access the proxy materials via the Internet as well as how to vote via the Internet. We believe this method of delivery will decrease printing and shipping costs, expedite distribution of proxy materials to you, and reduce our impact on the environment. Stockholders who receive the Notice but would like to receive a printed copy of the proxy materials in the mail should follow the instructions in the Notice for requesting such materials. |
|
|
|
|
|
|
|
|
|
Q: | I share an address with another stockholder, and we received only one paper copy of the proxy materials. How may I obtain an additional copy of the proxy materials? | |
A: | We have adopted a procedure called "householding," which the SEC has approved. Under this procedure, we may deliver a single copy of the Notice and, if applicable, this proxy statement and the Company's Annual Report to multiple stockholders who share the same address unless we received contrary instructions from one or more of the stockholders. | |
This procedure reduces our printing and mailing costs and also reduces our impact on the environment. Stockholders who participate in householding will continue to be able to access and receive separate proxy cards. Upon written or oral request, a separate copy of the Notice or this proxy statement and the Company's Annual Report, as requested, will be promptly delivered to any stockholder at a shared address to which we delivered a single copy of any of these documents. If you prefer to receive separate copies of the Notice, the proxy statement or Annual Report, contact Broadridge Financial Solutions, Inc. by calling 1-866-540-7095 or in writing at 51 Mercedes Way, Edgewood, New York 11717, Attention: Householding Department. | ||
If you are a stockholder of record and are receiving more than one copy of the proxy materials at a single address and would like to participate in householding, please notify us by contacting Broadridge Financial Solutions, Inc. using the mailing address and phone number above. Stockholders who hold shares in "street name" may contact their broker, bank or other nominee to request information about householding. | ||
Q: | How can I obtain a copy of | |
A: | Copies of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, | |
Q: | Where can I find the voting results of the | |
A: | KAR |
| | |
| | |
| | 79 |
Q: | How can I attend the | |
A: | The | |
You will be able to attend the | ||
To participate in the | ||
The meeting will begin promptly at 9:00 a.m., Eastern Daylight Time. We encourage you to access the meeting prior to the start time. Online access to the meeting will open at 8:45 a.m., Eastern Daylight Time, and you should allow ample time to log in to the meeting and test your device's audio capabilities prior to the start of the meeting. | ||
The webcast will be available for replay until midnight on June 3, | ||
Q: | What if I have technical difficulties or trouble accessing the meeting? | |
A: | If you encounter any |
| | |
| | |
| | |
KAR AUCTION SERVICES, INC.
AMENDED AND RESTATED
2009 OMNIBUS STOCK AND INCENTIVE PLAN,
AS AMENDED AND RESTATED JUNE 4, 2021
Section 1. Purpose of Plan.
The name of the Plan is the KAR Auction Services, Inc. Amended and Restated 2009 Omnibus Stock and Incentive Plan (the "Plan"). The purpose of the Plan is to provide an additional incentive to selected management employees, directors, independent contractors, and consultants of the Company or its Affiliates (as hereinafter defined) whose contributions are essential to the growth and success of the Company's business, in order to strengthen the commitment of such persons to the Company and its Subsidiaries, motivate such persons to faithfully and diligently perform their responsibilities and attract and retain competent and dedicated persons whose efforts will result in the long-term growth and profitability of the Company. To accomplish such purposes, the Plan provides that the Company may grant Options, Share Appreciation Rights, Restricted Shares, Other Share-Based Awards, Other Cash-Based Awards or any combination of the foregoing.
Section 2. Definitions.
For purposes of the Plan, the following terms shall be defined as set forth below:
(a) "Administrator" means the Board, or, if and to the extent the Board does not administer the Plan, the Committee in accordance with Section 3 hereof.
(b) "Affiliate" means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified. An entity shall be deemed an Affiliate of the Company for purposes of this definition only for such periods as the requisite ownership or control relationship is maintained.
(c) "Award" means any Option, Share Appreciation Right, Restricted Share, Other Share-Based Award or Other Cash-Based Award granted under the Plan.
(d) "Award Agreement" means any written agreement, contract or other instrument or document evidencing an Award, including through electronic medium, which shall contain such terms and conditions with respect to an Award as the Administrator shall determine, consistent with the Plan.
(e) "Bylaws" mean the amended and restated bylaws of the Company, as may be amended and/or restated from time to time.
(f) "Beneficial Owner" (or any variant thereof) has the meaning defined in Rule 13d-3 under the Exchange Act.
(g) "Board" means the Board of Directors of the Company.
(h) "Cause" shall have the meaning assigned to such term in any individual employment or severance agreement or Award Agreement with the Participant or, if no such agreement exists or the agreement does not define "Cause," then "Cause" shall mean (i) the refusal or neglect of the Participant to perform substantially his or her employment-related duties, (ii) the Participant's personal dishonesty, incompetence, willful misconduct or breach of fiduciary duty, (iii) the Participant's indictment for, conviction of or entering a plea of guilty or nolo contendere to a crime constituting a felony or his or her willful violation of any applicable law (other than a traffic violation or other offense or violation outside of the course of employment which in no way adversely affects the Company and its Subsidiaries or their reputation or the ability of the Participant to perform his or her employment-related duties or to represent the Company or any Subsidiary of the Company that employs such Participant), (iv) the Participant's failure to reasonably cooperate, following a request to do so by the Company, in any internal or governmental investigation of the Company or any of its Subsidiaries, (v) any other act or conduct that would constitute cause for the termination of the Participant's employment under applicable law as interpreted by the courts of the jurisdiction in which the Participant is employed from time to time, (vi) a material breach by the Participant of any written policies or rules of the Company or
its Subsidiaries as implemented from time to time, including any sexual harassment policy, or (vii) the Participant's material breach of any written covenant or agreement with the Company or any of its Subsidiaries not to disclose any information pertaining to the Company or such Subsidiary or not to compete or interfere with the Company or such Subsidiary.
(i) "Change in Capitalization" means any (i) merger, consolidation, reclassification, recapitalization, spin-off, spin-out, repurchase or other reorganization or corporate transaction or event, (ii) dividend (whether in the form of cash, Common Stock or other property), stock split or reverse stock split, (iii) combination or exchange of shares, (iv) other change in corporate structure or (v) declaration of a special dividend (including a cash dividend) or other distribution, which, in any such case, the Administrator determines, in its sole discretion, affects the Shares such that an adjustment pursuant to Section 5 hereof is appropriate.
(j) "Change in Control" shall be deemed to have occurred if an event set forth in any one of the following paragraphs occurs following the Effective Date:
(1) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or any Affiliate thereof) representing fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities; or
(2) the following individuals cease for any reason to constitute a majority of the number of directors then serving on the Board: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including, but not limited to, a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or
(3) there is consummated a merger or consolidation of the Company or any Subsidiary thereof with any other corporation, other than a merger or consolidation immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the Board of the entity surviving such merger or consolidation or, if the Company or the entity surviving such merger is then a subsidiary, the ultimate parent thereof; or
(4) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than (A) a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least fifty percent (50%) of the combined voting power of the voting securities of which are owned by shareholders of the Company following the completion of such transaction in substantially the same proportions as their ownership of the Company immediately prior to such sale or (B) a sale or disposition of all or substantially all of the Company's assets immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board of directors of the entity to which such assets are sold or disposed or, if such entity is a subsidiary, the ultimate parent thereof.
For each Award that constitutes deferred compensation under Code Section 409A, to the extent required to avoid accelerated taxation and/or tax penalties under Code Section 409A, a Change in Control shall be deemed to have occurred under the Plan with respect to such Award only if a change in the ownership or effective control of the Company or a change in ownership of a substantial portion of the assets of the Company shall also be deemed to have occurred under Code Section 409A.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the holders of Common Stock immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions.
(k) "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto.
(l) "Committee" means any committee or subcommittee the Board may appoint to administer the Plan. Subject to the discretion of the Board, the Committee shall be composed entirely of individuals who meet the qualifications of a "non-employee director" within the meaning of Rule 16b-3 under the Exchange Act and any other qualifications required by the applicable stock exchange on which the Common Stock is traded. If at any time or to any extent the Board shall not administer the Plan, then the functions of the Administrator specified in the Plan shall be exercised by the Committee. Except as otherwise provided in the Articles of Incorporation or Bylaws, any action of the Committee with respect to the administration of the Plan shall be taken by a majority vote at a meeting at which a quorum is duly constituted or unanimous written consent of the Committee's members.
(m) "Common Stock" means the common stock of the Company having a par value $.01 per share.
(n) "Company" means KAR Auction Services, Inc., a Delaware corporation (or any successor corporation, except as the term "Company" is used in the definition of "Change in Control" above).
(o) "Disability" shall have the meaning assigned to such term in any individual employment or severance agreement or Award Agreement with the Participant or, if no such agreement exists or the agreement does not define "Disability," Disability means, with respect to any Participant, that such Participant (i) as determined by the Administrator in its sole discretion, is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than six (6) months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than six (6) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company or an Affiliate thereof.
(p) "Effective Date" shall have the meaning set forth in Article 17 of the Plan.
(q) "Eligible Recipient" means an employee, director, independent contractor or consultant of the Company or any Affiliate of the Company who has been selected as an eligible participant by the Administrator; provided, however, to the extent required to avoid the imposition of additional taxes under Code Section 409A, an Eligible Recipient means an employee, director, independent contractor or consultant of the Company or any Subsidiary of the Company who has been selected as an eligible participant by the Administrator.
(r) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time.
(s) "Exercise Price" means, with respect to any Award under which the holder may purchase Shares, the price per share at which a holder of such Award granted hereunder may purchase Shares issuable upon exercise of such Award.
(t) "Fair Market Value" as of a particular date shall mean the fair market value of a share of Common Stock as determined by the Administrator in its sole discretion; provided, however, that (i) if the Common Stock is admitted to trading on a national securities exchange, the fair market value of a share of Common Stock on any date shall be the closing sale price reported for such share on such exchange on such date or, if no sale was reported on such date, on the last day preceding such date
on which a sale was reported, or (ii) if the shares of Common Stock are not then listed on the New York Stock Exchange, the average of the highest reported bid and lowest reported asked prices for the shares of Common Stock as reported by the National Association of Securities Dealers, Inc. Automated Quotations System for the last preceding date on which there was a sale of such stock in such market, or (3) if the shares of Common Stock are not then listed on a national securities exchange or traded in an over-the-counter market or the value of such shares is not otherwise determinable, such value as determined by the Committee in good faith and in accordance with Code Section 409A.
(u) "Option" means an option to purchase shares of Common Stock granted pursuant to Section 7 hereof.
(v) "Other Cash-Based Award" means a cash Award granted to a Participant under Section 10 hereof, including cash awarded as a bonus or upon the attainment of Performance Goals or otherwise as permitted under the Plan.
(w) "Other Share-Based Award" means a right or other interest granted to a Participant under the Plan that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Common Stock, including, but not limited to, unrestricted Shares, restricted stock units, dividend equivalents or performance units, each of which may be subject to the attainment of Performance Goals or a period of continued employment or other terms or conditions as permitted under the Plan.
(x) "Participant" means any Eligible Recipient selected by the Administrator, pursuant to the Administrator's authority provided for in Section 3 below, to receive grants of Options, Share Appreciation Rights, Restricted Shares, Other Share-Based Awards, Other Cash-Based Awards or any combination of the foregoing, and, upon his or her death, his or her successors, heirs, executors and administrators, as the case may be.
(y) "Performance Goals" means performance goals based on one or more of the following criteria: (i) earnings, including one or more of operating income, earnings before or after taxes, earnings before or after interest, depreciation, amortization, adjusted EBITDA, economic earnings, or extraordinary or special items or book value per share (which may exclude nonrecurring items); (ii) pre-tax income or after-tax income; (iii) earnings per Share (basic or diluted); (iv) operating profit; (v) revenue, revenue growth or rate of revenue growth; (vi) return on assets (gross or net), return on investment, return on capital, or return on equity; (vii) returns on sales or revenues; (viii) operating expenses; (ix) stock price appreciation (including total stockholder return, on an absolute basis or relative to a peer group or other index selected by the Committee); (x) cash flow, free cash flow, cash flow return on investment (discounted or otherwise), net cash provided by operations, or cash flow in excess of cost of capital; (xi) implementation or completion of critical projects or processes; (xii) cumulative earnings per share growth; (xiii) operating margin or profit margin; (xiv) cost targets, reductions and savings, productivity and efficiencies; (xv) strategic business criteria, consisting of one or more objectively determinable objectives based on meeting specified market penetration, geographic business expansion, customer satisfaction, employee satisfaction, human resources management, supervision of litigation, information technology, and goals relating to acquisitions, divestitures, joint ventures and similar transactions, and budget comparisons; (xvi) personal professional objectives, including any of the foregoing performance goals, the implementation of policies and plans, the negotiation of transactions, the development of long term business goals, formation of joint ventures, research or development collaborations, and the completion of other corporate transactions; (xvii) any other goals or objectives, as determined by the Committee, and (xviii) any combination of, or a specified increase in, any of the foregoing. Where applicable, the Performance Goals may be expressed in terms of attaining a specified level of the particular criteria or the attainment of a percentage increase or decrease in the particular criteria, and may be applied to one or more of the Company or Affiliate thereof, or a division or strategic business unit of the Company, or may be applied to the performance of the Company relative to a market index, a group of other companies or a combination thereof, all as determined by the Committee. The Performance Goals may include a threshold level of performance below which no payment shall be made (or no vesting shall occur), levels of performance at which specified payments shall be made (or specified vesting shall occur), and a maximum level of performance above which no additional payment shall be made (or at which full
vesting shall occur). Performance Goals may be equitably adjusted in recognition of unusual or non-recurring events affecting the Company or any Affiliate thereof or the financial statements of the Company or any Affiliate thereof, in response to changes in applicable laws or regulations, or to account for items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a segment of a business or related to a change in accounting principles or any other reason.
(z) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any Subsidiary thereof, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary thereof, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company.
(aa) "Restricted Shares" means Shares granted pursuant to Section 9 below subject to certain restrictions that lapse at the end of a specified period or periods.
(bb) "Retirement" means a termination of a Participant's employment, other than for Cause, on or after the attainment of age 65.
(cc) "Shares" means shares of Common Stock reserved for issuance under the Plan, as adjusted pursuant to the Plan, and any successor (pursuant to a merger, consolidation or other reorganization) security.
(dd) "Share Appreciation Right" means the right pursuant to an Award granted under Section 8 below to receive an amount equal to the excess, if any, of (i) the aggregate Fair Market Value, as of the date such Award or portion thereof is surrendered, of the Shares covered by such Award or such portion thereof, over (ii) the aggregate Exercise Price of such Award or such portion thereof.
(ee) "Subsidiary" means, with respect to any Person, as of any date of determination, any other Person as to which such first Person owns or otherwise controls, directly or indirectly, more than 50% of the voting shares or other similar interests or a sole general partner interest or managing member or similar interest of such other Person. An entity shall be deemed a Subsidiary of the Company for purposes of this definition only for such periods as the requisite ownership or control relationship is maintained.
Section 3. Administration.
(a) The Plan shall be administered by the Administrator and shall be administered, to the extent applicable, in accordance with Rule 16b-3 under the Exchange Act ("Rule 16b-3"). The Plan is intended to comply, and shall be administered in a manner that is intended to comply, with Code Section 409A and shall be construed and interpreted in accordance with such intent. To the extent that an Award, issuance and/or payment is subject to Code Section 409A, it shall be awarded and/or issued or paid in a manner that will comply with Code Section 409A, including any applicable regulations or guidance issued by the Secretary of the Treasury and the Internal Revenue Service with respect thereto.
(b) Pursuant to the terms of the Plan, the Administrator, subject, in the case of any Committee, to any restrictions on the authority delegated to it by the Board, shall have the power and authority, without limitation:
(1) to select those Eligible Recipients who shall be Participants;
(2) to determine whether and to what extent Options, Share Appreciation Rights, Restricted Shares, Other Share-Based Awards, Other Cash-Based Awards or a combination of any of the foregoing, are to be granted hereunder to Participants;
(3) to determine the number of Shares to be covered by each Award granted hereunder;
(4) to determine the terms and conditions, not inconsistent with the terms of the Plan, of each Award granted hereunder (including, but not limited to, (i) the restrictions applicable to Restricted Shares and the conditions under which restrictions applicable to such Restricted Shares shall lapse, (ii) the Performance Goals and periods applicable to Awards (if any), (iii) the Exercise Price of each Award, (iv) the vesting schedule and terms applicable to each Award, (v) the number of Shares subject to each Award and (vi) subject to the requirements of Code Section 409A (to the extent applicable), any amendments to the terms and conditions of outstanding Awards, including, but not limited to, extending the exercise period of such Awards and accelerating the vesting schedule of such Awards;
(5) to determine the terms and conditions, not inconsistent with the terms of the Plan, which shall govern all written instruments evidencing Options, Share Appreciation Rights, Restricted Shares or Other Share-Based Awards, Other Cash-Based Awards or any combination of the foregoing granted hereunder;
(6) to determine the Fair Market Value;
(7) to determine the duration and purpose of leaves of absence which may be granted to a Participant without constituting termination of the Participant's employment for purposes of Awards granted under the Plan;
(8) to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall from time to time deem advisable; and
(9) to construe and interpret the terms and provisions of the Plan and any Award issued under the Plan (and any Award Agreement relating thereto), and to otherwise supervise the administration of the Plan and to exercise all powers and authorities either specifically granted under the Plan or necessary and advisable in the administration of the Plan.
(c) All decisions made by the Administrator pursuant to the provisions of the Plan shall be final, conclusive and binding on all persons, including the Company and the Participants. No member of the Board or the Committee, nor any officer or employee of the Company or any Subsidiary thereof acting on behalf of the Board or the Committee, shall be personally liable for any action, omission, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company and of any Subsidiary thereof acting on their behalf shall, to the maximum extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, omission, determination or interpretation.
Section 4. Shares Reserved for Issuance Under the Plan.
(a) Subject to Section 5 hereof, the number of shares of Common Stock that are reserved and available for issuance pursuant to Awards granted under the Plan is 7,256,275 shares. No Participant who is a non-employee director of the Company shall be granted Awards during any calendar year that, when aggregated with such non-employee director's cash fees with respect to such calendar year, and subject to adjustment as provided in Section 5 herein, exceed $750,000 in total value (calculating the value of any such Awards based on the grant date fair value of such Awards for the Company's financial reporting purposes).
(b) Shares issued under the Plan may, in whole or in part, be authorized but unissued Shares or Shares that shall have been or may be reacquired by the Company in the open market, in private transactions or otherwise. Any Shares subject to an Award under the Plan that, after the Effective Date, are forfeited, canceled, settled or otherwise terminated without a distribution of Shares to a Participant will thereafter be deemed to be available for Awards. In applying the immediately preceding sentence, if (i) Shares otherwise issuable or issued in respect of, or as part of, any Award other than Options and Share Appreciation Rights are withheld to cover taxes, such Shares shall not be treated as having been issued under the Plan and shall again be available for issuance under the Plan, (ii) Shares otherwise issuable or issued in respect of, or as part of, any Award of Options or Share Appreciation Rights are withheld to cover taxes or the Exercise Price, such Shares shall be treated as having been issued under the Plan and shall not be available for issuance under the Plan,
and (iii) any Share-settled Share Appreciation Rights are exercised, the aggregate number of Shares subject to such Share Appreciation Rights shall be deemed issued under the Plan and shall not be available for issuance under the Plan. In addition, Shares tendered to exercise outstanding Options or other Awards or to cover applicable taxes on Awards of Options and Share Appreciation Rights shall not be available for issuance under the Plan, but Shares tendered to cover applicable taxes on Awards other than Options and Share Appreciation Rights shall be available for issuance under the Plan. Shares repurchased on the open market with the proceeds of an Option exercise shall not again be made available for issuance under the Plan.
(c) Any Awards under the Plan that settle in Shares (other than such Awards representing a maximum of five percent (5%) of the Shares reserved for issuance under the Plan, as adjusted pursuant to Section 5 herein) shall be granted subject to a minimum time-vesting period of at least twelve (12) months, such that no such Awards shall vest prior to the first anniversary of the applicable grant date.
Section 5. Equitable Adjustments.
(a) In the event of any Change in Capitalization (including a Change of Control), an equitable substitution or proportionate adjustment shall be made, in each case, as may be determined by the Administrator, in its sole discretion, in (i) the aggregate number of shares of Common Stock reserved for issuance under the Plan, (ii) the kind and number of securities subject to, and the Exercise Price of any outstanding Options and Share Appreciation Rights granted under the Plan, (iii) the kind, number and purchase price of shares of Common Stock, or the amount of cash or amount or type of other property, subject to outstanding Restricted Shares, restricted stock units, share bonuses, Other Cash-Based Awards and Other Share-Based Awards granted under the Plan or (iv) the Performance Goals and performance periods applicable to any Awards granted under the Plan; provided, however, that any fractional shares resulting from the adjustment shall be eliminated. Such other equitable substitutions or adjustments shall be made as may be determined by the Administrator, in its sole discretion.
(b) Without limiting the generality of the foregoing, in connection with a Change in Capitalization (including a Change of Control), the Administrator may provide, in its sole discretion, but subject in all events to the requirements of Section 409A of the Code, for the cancellation of any outstanding Award in exchange for payment in cash or other property having an aggregate Fair Market Value equal to the Fair Market Value of the shares of Common Stock, cash or other property covered by such Award, reduced by the aggregate Exercise Price thereof, if any; provided, however, that if the Exercise Price of any outstanding Award is equal to or greater than the Fair Market Value of the shares of Common Stock, cash or other property covered by such Award, the Board may cancel such Award without the payment of any consideration to the Participant.
The determinations made by the Administrator or the Board, as applicable, pursuant to this Section 5 shall be final, binding and conclusive.
Section 6. Eligibility.
The Participants under the Plan shall be selected from time to time by the Administrator, in its sole discretion, from among Eligible Recipients.
Section 7. Options.
(a) General. Each Participant who is granted an Option shall enter into an Award Agreement with the Company, containing such terms and conditions as the Administrator shall determine, in its sole discretion, which Award Agreement shall set forth, among other things, the Exercise Price of the Option, the term of the Option and provisions regarding exercisability of the Option granted thereunder. The provisions of each Option need not be the same with respect to each Participant. More than one Option may be granted to the same Participant and be outstanding concurrently hereunder. Options granted under the Plan shall be subject to the terms and conditions set forth in this Section 7 and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable and set forth in the applicable Award Agreement. Each Option granted hereunder is intended to be a non-qualified Option and is not intended to qualify as an "incentive stock option" within the meaning of Code Section 422.
(b) Exercise Price. The Exercise Price of Shares purchasable under an Option shall be determined by the Administrator in its sole discretion at the time of grant, but in no event shall the Exercise Price of an Option be less than one hundred percent (100%) of the Fair Market Value of the Common Stock on the date of grant.
(c) Option Term. The maximum term of each Option shall be fixed by the Administrator, but no Option shall be exercisable more than ten (10) years after the date such Option is granted. Each Option's term is subject to earlier expiration pursuant to the applicable provisions in the Plan and the Award Agreement. Notwithstanding the foregoing, the Administrator shall have the authority to accelerate the exercisability of any outstanding Option at such time and under such circumstances as the Administrator, in its sole discretion, deems appropriate.
(d) Exercisability. Each Option shall be exercisable at such time or times and subject to such terms and conditions, including the attainment of preestablished Performance Goals, as shall be determined by the Administrator in the applicable Award Agreement. The Administrator may also provide that any Option shall be exercisable only in installments, and the Administrator may waive such installment exercise provisions at any time, in whole or in part, based on such factors as the Administrator may determine in its sole discretion. Notwithstanding anything to the contrary contained herein, an Option may not be exercised for a fraction of a share.
(e) Method of Exercise. Options may be exercised in whole or in part by giving written notice of exercise to the Company specifying the number of Shares to be purchased, accompanied by payment in full of the aggregate Exercise Price of the Shares so purchased in cash or its equivalent, as determined by the Administrator. As determined by the Administrator, in its sole discretion, with respect to any Option or category of Options, payment in whole or in part may also be made (i) by means of consideration received under any cashless exercise procedure approved by the Administrator (including the withholding of Shares otherwise issuable upon exercise), (ii) in the form of unrestricted Shares already owned by the Participant which have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Shares as to which such Option shall be exercised, (iii) any other form of consideration approved by the Administrator and permitted by applicable law or (iv) any combination of the foregoing.
(f) Rights as Shareholder. A Participant shall have no rights to dividends or any other rights of a shareholder with respect to the Shares subject to an Option until the Participant has given written notice of the exercise thereof, has paid in full for such Shares and has satisfied the requirements of Section 15 hereof.
(g) Termination of Employment or Service.
(1) Unless the applicable Award Agreement provides otherwise, in the event that the employment or service of a Participant with the Company and all Affiliates thereof shall terminate for any reason other than Cause, Retirement, Disability, or death, (A) Options granted to such Participant, to the extent that they are exercisable at the time of such termination, shall remain exercisable until the date that is ninety (90) days after such termination, on which date they shall expire, and (B) Options granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination. The ninety (90) day period described in this Section 7(g)(1) shall be extended to one (1) year after the date of such termination in the event of the Participant's death during such ninety (90) day period. Notwithstanding the foregoing, no Option shall be exercisable after the expiration of its term.
(2) Unless the applicable Award Agreement provides otherwise, in the event that the employment or service of a Participant with the Company and all Affiliates thereof shall terminate on account of Retirement of the Participant, (A) Options granted to such Participant, to the extent that they were exercisable at the time of such termination, shall remain exercisable until the date that is one (1) year after such termination, on which date they shall expire and (B) Options granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination. Notwithstanding the foregoing, no Option shall be exercisable after the expiration of its term.
(3) In the event of the termination of a Participant's employment or service for Cause, all outstanding Options granted to such Participant shall expire at the commencement of business on the date of such termination.
(4) Notwithstanding anything to the contrary in an Award Agreement, in the event of the termination of a Participant's employment or service on account of Disability or the death of the Participant, all outstanding Options held by the Participant shall immediately vest in full (to the extent not previously vested) and all outstanding Options shall remain exercisable until the date that is one (1) year after such termination, on which date they shall expire; provided, however, that any of the foregoing Options whose vesting is subject to the achievement of a Performance Goal will remain subject to the satisfaction of such Performance Goal requirement and will only vest if, when and to the extent that such Performance Goal is satisfied in accordance with the terms of the Option and will thereafter be exercisable for one year following the date, if any, that such Performance Goal is satisfied in accordance with the terms of the Option. Notwithstanding the foregoing, no Option shall be exercisable after the expiration of its term.
(h) Other Change in Employment Status. An Option shall be affected, both with regard to vesting schedule and termination, by leaves of absence, changes from full-time to part-time employment, partial disability or other changes in the employment status of an Participant, in the discretion of the Administrator.
Section 8. Share Appreciation Rights.
(a) General. Share Appreciation Rights may be granted either alone ("Free Standing Rights") or in conjunction with all or part of any Option granted under the Plan ("Related Rights"). Related Rights may be granted either at or after the time of the grant of such Option. The Administrator shall determine the Eligible Recipients to whom, and the time or times at which, grants of Share Appreciation Rights shall be made, the number of Shares to be awarded, the price per Share, and all other conditions of Share Appreciation Rights. Notwithstanding the foregoing, no Related Right may be granted for more Shares than are subject to the Option to which it relates and any Share Appreciation Right must be granted with an Exercise Price not less than the Fair Market Value of Common Stock on the date of grant. The provisions of Share Appreciation Rights need not be the same with respect to each Participant. Share Appreciation Rights granted under the Plan shall be subject to the following terms and conditions set forth in this Section 8 and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable, as set forth in the applicable Award Agreement.
(b) Exercise Price. The Exercise Price of Shares purchasable under a Share Appreciation Right shall be determined by the Administrator in its sole discretion at the time of grant, but in no event shall the exercise price of a Share Appreciation Rights be less than one hundred percent (100%) of the Fair Market Value of a share of Common Stock on the date of grant.
(c) Awards; Rights as Shareholder. The prospective recipient of a Share Appreciation Right shall not have any rights with respect to such Award, unless and until such recipient has executed an Award Agreement and delivered a fully executed copy thereof to the Company, within a period of sixty (60) days (or such other period as the Administrator may specify) after the award date. Participants who are granted Share Appreciation Rights shall have no rights as shareholders of the Company with respect to the grant or exercise of such rights.
(d) Exercisability.
(1) Share Appreciation Rights that are Free Standing Rights shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Administrator in the applicable Award Agreement.
(2) Share Appreciation Rights that are Related Rights shall be exercisable only at such time or times and to the extent that the Options to which they relate shall be exercisable in accordance with the provisions of Section 7 above and this Section 8 of the Plan.
(e) Payment Upon Exercise.
(1) Upon the exercise of a Free Standing Right, the Participant shall be entitled to receive up to, but not more than, that number of Shares equal in value to the excess of the Fair Market Value
as of the date of exercise over the price per share specified in the Free Standing Right multiplied by the number of Shares in respect of which the Free Standing Right is being exercised, with the Administrator having the right to determine the form of payment.
(2) A Related Right may be exercised by a Participant by surrendering the applicable portion of the related Option. Upon such exercise and surrender, the Participant shall be entitled to receive up to, but not more than, that number of Shares equal in value to the excess of the Fair Market Value as of the date of exercise over the Exercise Price specified in the related Option multiplied by the number of Shares in respect of which the Related Right is being exercised, with the Administrator having the right to determine the form of payment. Options which have been so surrendered, in whole or in part, shall no longer be exercisable to the extent the Related Rights have been so exercised.
(3) Notwithstanding the foregoing, the Administrator may determine to settle the exercise of a Share Appreciation Right in cash (or in any combination of Shares and cash).
(f) Termination of Employment or Service.
(1) In the event of the termination of employment or service with the Company and all Affiliates thereof of a Participant who has been granted one or more Free Standing Rights, such rights shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Administrator in the applicable Award Agreement.
(2) In the event of the termination of employment or service with the Company and all Affiliates thereof of a Participant who has been granted one or more Related Rights, such rights shall be exercisable at such time or times and subject to such terms and conditions as set forth in the related Options.
(3) Notwithstanding anything to the contrary in an Award Agreement and notwithstanding the foregoing, in the event of the termination of a Participant's employment or service on account of Disability or the death of the Participant, all outstanding Free Standing Rights held by the Participant shall immediately vest in full (to the extent not previously vested) and all outstanding Free Standing Rights shall remain exercisable until the date that is one (1) year after such termination, on which date they shall expire; provided, however, that any of the foregoing Free Standing Rights whose vesting is subject to the achievement of a Performance Goal will remain subject to the satisfaction of such Performance Goal requirement and will only vest if, when and to the extent that such Performance Goal is satisfied in accordance with the terms of the Free Standing Right and will thereafter be exercisable for one year following the date, if any, that such Performance Goal is satisfied in accordance with the terms of the Free Standing Right. Notwithstanding the foregoing, no Free Standing Right shall be exercisable after the expiration of its term.
(g) Term.
(1) The term of each Free Standing Right shall be fixed by the Administrator, but no Free Standing Right shall be exercisable more than ten (10) years after the date such right is granted.
(2) The term of each Related Right shall be the term of the Option to which it relates, but no Related Right shall be exercisable more than ten (10) years after the date such right is granted.
Section 9. Restricted Shares.
(a) General. Restricted Shares may be issued either alone or in addition to other Awards granted under the Plan. The Administrator shall determine the Eligible Recipients to whom, and the time or times at which, Restricted Shares shall be made; the number of Shares to be awarded; the price, if any, to be paid by the Participant for the acquisition of Restricted Shares; the Restricted Period (as defined in paragraph (c) of this Section 9), if any, applicable to Restricted Shares; the Performance Goals (if any) applicable to Restricted Shares; and all other conditions of the Restricted Shares. If the restrictions, Performance Goals and/or conditions established by the Administrator are not attained, a Participant shall forfeit his or her Restricted Shares in accordance with the terms of the grant. The provisions of the Restricted Shares need not be the same with respect to each Participant.
(b) Awards and Certificates. The prospective recipient of Restricted Shares shall not have any rights with respect to any such Award, unless and until such recipient has executed an Award Agreement and delivered a fully executed copy thereof to the Company, within a period of sixty (60) days (or such other period as the Administrator may specify) after the award date. Except as otherwise provided below in Section 9(c), (i) each Participant who is granted an award of Restricted Shares may, in the Company's sole discretion, be issued a stock certificate in respect of such Restricted Shares; and (ii) any such certificate so issued shall be registered in the name of the Participant, and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to any such Award.
The Company may require that the stock certificates, if any, evidencing Restricted Shares granted hereunder be held in the custody of the Company until the restrictions thereon shall have lapsed, and that, as a condition of any award of Restricted Shares, the Participant shall have delivered a stock power, endorsed in blank, relating to the Shares covered by such Award. Notwithstanding anything in the Plan to the contrary, any Restricted Shares (whether before or after any vesting conditions have been satisfied) may, in the Company's sole discretion, be issued in uncertificated form pursuant to the customary arrangements for issuing shares in such form.
(c) Restrictions and Conditions. The Restricted Shares granted pursuant to this Section 9 shall be subject to the following restrictions and conditions and any additional restrictions or conditions as determined by the Administrator at the time of grant or, subject to Code Section 409A, thereafter:
(1) The Administrator may, in its sole discretion, provide for the lapse of restrictions in installments and may accelerate or waive such restrictions in whole or in part based on such factors and such circumstances as the Administrator may determine, in its sole discretion, including, but not limited to, the attainment of certain Performance Goals, the Participant's termination of employment or service as a director, independent contractor or consultant to the Company or any Affiliate thereof, or the Participant's death or Disability. Notwithstanding the foregoing, upon a Change in Control, the outstanding Awards shall be subject to Section 12 hereof.
(2) Except as provided in Section 16 or in the Award Agreement, the Participant shall generally have the rights of a shareholder of the Company with respect to Restricted Shares during the Restricted Period, including the right to vote such shares and to receive any dividends declared with respect to such shares, subject to Section 11 hereof. Certificates for Shares of unrestricted Common Stock may, in the Company's sole discretion, be delivered to the Participant only after the Restricted Period has expired without forfeiture in respect of such Restricted Shares, except as the Administrator, in its sole discretion, shall otherwise determine.
(3) The rights of Participants granted Restricted Shares upon termination of employment or service as a director, independent contractor, or consultant to the Company or to any Affiliate thereof terminates for any reason during the Restricted Period shall be set forth in the Award Agreement.
(4) Notwithstanding anything to the contrary in an Award Agreement and notwithstanding the foregoing, in the event of the termination of a Participant's employment or service on account of Disability or the death of the Participant, all outstanding Restricted Shares held by the Participant shall immediately vest in full to the extent not previously vested; provided, however, that any of the foregoing Restricted Shares whose vesting is subject to the achievement of a Performance Goal will remain subject to the satisfaction of such Performance Goal requirement and will only vest if, when and to the extent that such Performance Goal is satisfied in accordance with the terms of the Award.
Section 10. Other Share-Based or Cash-Based Awards.
(a) The Administrator is authorized to grant Awards to Participants in the form of Other Share-Based Awards or Other Cash-Based Awards, as deemed by the Administrator to be consistent with the purposes of the Plan and as evidenced by an Award Agreement. The Administrator shall determine the terms and conditions of such Awards, consistent with the terms of the Plan, at the date of grant or thereafter, including any Performance Goals and performance periods. Common Stock or other securities or property delivered pursuant to an Award in the nature of a purchase right granted under this Section 10 shall be purchased for such consideration, paid for at such times, by such methods, and in such forms, including,
without limitation, Shares, other Awards, notes or other property, as the Administrator shall determine, subject to any required corporate action.
(b) Notwithstanding anything to the contrary in an Award Agreement and notwithstanding the foregoing, in the event of the termination of a Participant's employment or service on account of Disability or the death of the Participant, all outstanding Share-Based Awards held by the Participant shall immediately vest in full to the extent not previously vested; provided, however, that any of the foregoing Share-Based Awards whose vesting is subject to the achievement of a Performance Goal will remain subject to the satisfaction of such Performance Goal requirement and will only vest if, when and to the extent that such Performance Goal is satisfied in accordance with the terms of the Award.
Section 11. Dividends and Dividend Equivalents.
Notwithstanding anything set forth in the Plan to the contrary, any dividend or dividend equivalent awarded hereunder shall be subject to the same restrictions, conditions and risks of forfeiture as the underlying Awards and shall only become payable if (and to the extent) the underlying Awards vest.
Section 12. Vesting In Connection With a Change in Control.
(a) Unless otherwise determined by the Administrator or as evidenced in an Award Agreement and except as provided in Section 12(b) below, in the event of the occurrence of a Change in Control, any unvested and outstanding Awards may be assumed or replaced by the Company or its successor with a substantially similar equity or cash incentive award and the same vesting terms as such unvested Award. Except as would otherwise result in adverse tax consequences under Section 409A of the Code, if (i) any unvested and outstanding Awards held by a Participant are assumed or replaced in such a Change in Control and such Participant's employment with the Company or its successor is terminated without Cause or by the Participant for Good Reason (as defined in the Participant's employment agreement with the Company, to the extent applicable), in each case prior to the second anniversary of the Change in Control or (ii) any unvested and outstanding Awards are not assumed or replaced by the Company or its successor upon such Change in Control, then (1) any unvested or unexercisable portion of any Award carrying a right to exercise shall become fully vested and exercisable; and (2) the restrictions, deferral limitations, payment conditions and forfeiture conditions applicable to an Award granted under the Plan shall lapse and such Awards shall be deemed fully vested and any performance conditions imposed with respect to such Awards shall be deemed to be fully achieved at the target level of performance.
(b) Notwithstanding anything to the contrary contained herein, unless otherwise determined by the Administrator or as evidenced in an Award Agreement or other agreement between the Company and a Participant, with respect to each Other Cash-Based Award granted to a Participant pursuant to the Company's annual incentive plan or program, in the event that a Change in Control occurs during an annual performance period, each Participant shall be entitled to receive on the date of the Change in Control a payment with respect to such annual incentive award calculated based on the actual performance of the applicable Performance Goals through the date of the Change in Control, as determined by the Administrator in its discretion, pro-rated based on the number of days of the annual performance period that have elapsed prior to and including the date of the Change in Control.
Section 13. Amendment and Termination.
The Board or the Committee may amend, alter or terminate the Plan, but no amendment, alteration, or termination shall be made that would impair the rights of a Participant under any Award theretofore granted without such Participant's consent. Approval of the Company's shareholders shall be obtained for any amendment that would require such approval in order to satisfy the requirements of any rules of the stock exchange on which the Common Stock is traded or other applicable law.
Subject to the terms and conditions of the Plan, the Administrator may modify, extend or renew outstanding Awards under the Plan, or accept the surrender of outstanding Awards (to the extent not already exercised) and grant new Awards in substitution of them (to the extent not already exercised). Except as provided in Section 5, the Administrator will not, however, modify any outstanding Option or Share Appreciation Right so as to specify a lower Exercise Price or grant price (and will not cancel an Option or Share Appreciation Right and substitute for it an Option or Share Appreciation Right with a lower Exercise Price or grant price), without the approval of the Company's shareholders. In addition, except as provided in Section 5,
the Administrator may not cancel an outstanding Option or Share Appreciation Right whose Exercise Price or grant price is equal to or greater than the current Fair Market Value of a Share and substitute for it another Award or cash payment without the prior approval of the Company's shareholders. Notwithstanding the foregoing, no alteration, modification or termination of an Award will, without the prior written consent of the Participant, adversely alter or impair any rights or obligations under any Award already granted under the Plan.
Section 14. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive compensation. With respect to any payments not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company.
Section 15. Withholding Taxes.
Each Participant shall, no later than the date as of which the value of an Award first becomes includible in the gross income of such Participant for federal and/or state income tax purposes, pay to the Company, or make arrangements satisfactory to the Administrator regarding payment of, any federal, state, or local taxes of any kind required by law to be withheld with respect to the Award. The obligations of the Company under the Plan shall be conditional on the making of such payments or arrangements, and the Company shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to such Participant. Whenever cash is to be paid pursuant to an Award granted hereunder, the Company shall have the right to deduct therefrom an amount sufficient to satisfy any federal, state and local withholding tax requirements related thereto. Whenever Shares are to be delivered pursuant to an Award, the Company shall have the right to require the Participant to remit to the Company in cash an amount sufficient to satisfy any related federal, state and local taxes to be withheld and applied to the tax obligations. With the approval of the Administrator, a Participant may satisfy the foregoing requirement by electing to have the Company withhold from delivery of Shares or by delivering already owned unrestricted shares of Common Stock, in each case, having a value not exceeding the federal, state and local taxes to be withheld and applied to the tax obligations. Such Shares shall be valued at their Fair Market Value on the date of which the amount of tax to be withheld is determined. Fractional share amounts shall be settled in cash. Such an election may be made with respect to all or any portion of the Shares to be delivered pursuant to an Award. The Company may also use any other method of obtaining the necessary payment or proceeds, as permitted by law, to satisfy its withholding obligation with respect to any Option or other Award.
Section 16. Transfer of Awards.
Until such time as the Awards are fully vested and/or exercisable in accordance with the Plan or an Award Agreement, no purported sale, assignment, mortgage, hypothecation, transfer, charge, pledge, encumbrance, gift, transfer in trust (voting or other) or other disposition of, or creation of a security interest in or lien on, any Award or any agreement or commitment to do any of the foregoing (each, a "Transfer") by any holder thereof in violation of the provisions of the Plan or an Award Agreement will be valid, except with the prior written consent of the Administrator, which consent may be granted or withheld in the sole discretion of the Administrator. Any purported Transfer of an Award or any economic benefit or interest therein in violation of the Plan or an Award Agreement shall be null and void ab initio, and shall not create any obligation or liability of the Company, and any person purportedly acquiring any Award or any economic benefit or interest therein transferred in violation of the Plan or an Award Agreement shall not be entitled to be recognized as a holder of such Shares. Unless otherwise determined by the Administrator in accordance with the provisions of the immediately preceding sentence, an Option may be exercised, during the lifetime of the Participant, only by the Participant or, during any period during which the Participant is under a legal disability, by the Participant's guardian or legal representative.
Section 17. Continued Employment.
The adoption of the Plan shall not confer upon any Eligible Recipient any right to continued employment or service with the Company or any Affiliate thereof, as the case may be, nor shall it interfere in any way with the right of the Company or any Affiliate thereof to terminate the employment or service of any of its Eligible Recipients at any time.
Section 18. Effective Date.
The Effective Date of the Plan, as amended and restated, is June 4, 2021.
Section 19. Term of Plan.
No Award shall be granted pursuant to the Plan on or after the tenth anniversary of the Effective Date, but Awards theretofore granted may remain outstanding beyond that date.
Section 20. Code Section 409A.
The Plan as well as payments and benefits under the Plan are intended to be exempt from, or to the extent subject thereto, to comply with Code Section 409A, and, accordingly, to the maximum extent permitted, the Plan shall be interpreted in accordance therewith. Notwithstanding anything contained herein to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties under Code Section 409A, the Participant shall not be considered to have terminated employment or service with the Company for purposes of the Plan and no payment shall be due to the Participant under the Plan or any Award until the Participant would be considered to have incurred a "separation from service" from the Company and its Affiliates within the meaning of Code Section 409A. Any payments described in the Plan that are due within the "short term deferral period" as defined in Code Section 409A shall not be treated as deferred compensation unless applicable law requires otherwise. Notwithstanding anything to the contrary in the Plan, to the extent that any Awards (or any other amounts payable under any plan, program or arrangement of the Company or any of its Affiliates) are payable upon a separation from service and such payment would result in the imposition of any individual tax and penalty interest charges imposed under Code Section 409A, the settlement and payment of such awards (or other amounts) shall instead be made on the first business day after the date that is six (6) months following such separation from service (or upon the Participant's death, if earlier). Each amount to be paid or benefit to be provided under this Plan shall be construed as a separate identified payment for purposes of Code Section 409A. The Company makes no representation that any or all of the payments or benefits described in this Plan will be exempt from or comply with Code Section 409A and makes no undertaking to preclude Code Section 409A from applying to any such payment. The Participant shall be solely responsible for the payment of any taxes and penalties incurred under Code Section 409A.
Section 21. Erroneously Awarded Compensation.
The Plan and all Awards issued hereunder shall be subject to any compensation recovery policy adopted by the Company to comply with applicable law, including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or to comport with good corporate governances practices, as such policy may be amended from time to time.
Section 22. Governing Law.
The Plan shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law of such state.
*** Exercise Your Right to Vote *** Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on June 4, 2019.Counts! KAR AUCTION SERVICES, INC. XXXX XXXX XXXX XXXX (located on the following page).2021 Annual Meeting Vote by June 3, 2021 11:59 PM ET KAR AUCTION SERVICES, INC. 13085 HAMILTON CROSSING BLVD.11299 NORTH ILLINOIS STREET CARMEL, IN 46032 D51762-P52342 You are receivinginvested in KAR AUCTION SERVICES, INC. and it’s time to vote! You have the right to vote on proposals being presented at the Annual Meeting. This is an important notice regarding the availability of proxy material for the stockholder meeting to be held on June 4, 2021. Get informed before you vote View the Combined Document online OR you can receive a free paper or email copy of the material(s) by requesting prior to May 21, 2021. If you would like to request a copy of the material(s) for this communication becauseand/or future stockholder meetings, you hold sharesmay (1) visit www.ProxyVote.com, (2) call 1-800-579-1639 or (3) send an email to sendmaterial@proxyvote.com. If sending an email, please include your control number (indicated below) in the company named above. This issubject line. Unless requested, you will not otherwise receive a ballot. You cannot use this noticepaper or email copy. Smartphone users Point your camera here and vote without entering a control number Vote Virtually at the Meeting* June 4, 2021 9:00 a.m., EDT Virtually at: www.virtualshareholdermeeting.com/KAR2021 *Please check the meeting materials for any special requirements for meeting attendance. V1 For complete information and to vote, these shares. This communication presents only an overview of the more complete proxy materials that are available to you on the Internet. You may view the proxy materials online at www.proxyvote.com or easily request a paper copy (see reverse side). We encourage you to access and review all of the important information contained in the proxy materials before voting. proxy materials and voting instructions. E77278-P21192 See the reverse side of this notice to obtain Meeting Information Meeting Type: Annual Meeting For holders as of: April 11, 2019 Date: June 4, 2019 Time: 9:00 AM EDT Location: Meeting live via the Internet-please visit www.virtualshareholdermeeting.com/KAR2019. The company will be hosting the meeting live via the Internet this year. To attend the meeting via the Internet please visit www.virtualshareholdermeeting.com/KAR2019 and be sure to have the information that is printed in the box marked by the arrowwww.ProxyVote.com Control #
Before You Vote How to Accessat www.ProxyVote.com THIS IS NOT A VOTABLE BALLOT This is an overview of the Proxy Materials Haveproposals being presented at the information that is printed inupcoming stockholder meeting. Please follow the box marked by the arrow XXXX XXXX XXXX XXXX (locatedinstructions on the by the arrow XXXX XXXX XXXX XXXX (located on the following page) in the subject line. How To Vote Please Choose One of the Followingreverse side to vote these important matters. Board Recommends Voting Methods XXXX XXXX XXXX XXXX (located on the following page) available and follow the instructions. the arrow XXXX XXXX XXXX XXXX (located on the following page) available and follow the instructions. E77279-P21192 Vote By Internet: Before The Meeting: Go to www.proxyvote.com. Have the information that is printed in the box marked by the arrow During The Meeting: Go to www.virtualshareholdermeeting.com/KAR2019. Have the information that is printed in the box marked by Vote By Mail: You can vote by mail by requesting a paper copy of the materials, which will include a proxy card. Proxy Materials Available to VIEW or RECEIVE: NOTICE AND PROXY STATEMENTFORM 10-K How to View Online: following page) and visit: www.proxyvote.com. How to Request and Receive a PAPER or E-MAIL Copy: If you wantItems D51763-P52342 Prefer to receive a paper or e-mail copy of these documents, you must request one. There is NO chargean email instead? While voting on www.ProxyVote.com, be sure to click “Sign up for requesting a copy. Please choose one of the following methods to make your request: 1) BY INTERNET:www.proxyvote.com 2) BY TELEPHONE:1-800-579-1639 3) BY E-MAIL*:sendmaterial@proxyvote.com * If requesting materials by e-mail, please send a blank e-mail with the information that is printed in the box marked Requests, instructions and other inquiries sent to this e-mail address will NOT be forwarded to your investment advisor. Please make the request as instructed above on or before May 21, 2019 to facilitate timely delivery.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES AND "FOR" PROPOSALS 2 AND 3.E-delivery”. 1. Election of Directorsthe director nominee designated by the Apax Investor. Nominee: 1a. Roy Mackenzie For 2. Election of the other director nominees. Nominees: 2.2a. Carmel Galvin For 2b. James P. Hallett For 2c. Mark E. Hill For 2d. J. Mark Howell For 2e. Stefan Jacoby For 2f. Peter Kelly For 2g. Michael T. Kestner For 2h. Mary Ellen Smith For 3. To approve, on an advisory basis, executive compensation. 1a. Donna R. Ecton 1b. James P. Hallett 3.For 4. To approve an amendment and restatement of the KAR Auction Services, Inc. 2009 Omnibus Stock and Incentive Plan, as amended. For 5. To ratify the appointment of KPMG LLP as the Company'sCompany’s independent registered public accounting firm for 2019. 1c. Mark E. Hill NOTE: Such other business as may properly come before the meeting or any adjournment thereof. 1d. J. Mark Howell 1e. Stefan Jacoby 1f. Lynn Jolliffe 1g. Michael T. Kestner 1h. John P. Larson 1i. Stephen E. Smith E77280-P21192 Voting Items2021. For
E77281-P21192Your Vote Counts! KAR AUCTION SERVICES, INC. 2021 Annual Meeting Vote by June 3, 2021 11:59 PM ET KAR AUCTION SERVICES, INC. 11299 NORTH ILLINOIS STREET CARMEL, IN 46032 D51764-P52342 You invested in KAR AUCTION SERVICES, INC. and it’s time to vote! You have the right to vote on proposals being presented at the Annual Meeting. This is an important notice regarding the availability of proxy material for the stockholder meeting to be held on June 4, 2021. Get informed before you vote View the Combined Document online OR you can receive a free paper or email copy of the material(s) by requesting prior to May 21, 2021. If you would like to request a copy of the material(s) for this and/or future stockholder meetings, you may (1) visit www.ProxyVote.com, (2) call 1-800-579-1639 or (3) send an email to sendmaterial@proxyvote.com. If sending an email, please include your control number (indicated below) in the subject line. Unless requested, you will not otherwise receive a paper or email copy. Smartphone users Point your camera here and vote without entering a control number Vote Virtually at the Meeting* June 4, 2021 9:00 a.m., EDT Virtually at: www.virtualshareholdermeeting.com/KAR2021 *Please check the meeting materials for any special requirements for meeting attendance. V1 For complete information and to vote, visit www.ProxyVote.com Control #
Vote at www.ProxyVote.com THIS IS NOT A VOTABLE BALLOT This is an overview of the proposals being presented at the upcoming stockholder meeting. Please follow the instructions on the reverse side to vote these important matters. Board Recommends Voting Items D51765-P52342 Prefer to receive an email instead? While voting on www.ProxyVote.com, be sure to click “Sign up for E-delivery”. 2. Election of the other director nominees. Nominees: 2a. Carmel Galvin For 2b. James P. Hallett For 2c. Mark E. Hill For 2d. J. Mark Howell For 2e. Stefan Jacoby For 2f. Peter Kelly For 2g. Michael T. Kestner For 2h. Mary Ellen Smith For 3. To approve, on an advisory basis, executive compensation. For 4. To approve an amendment and restatement of the KAR Auction Services, Inc. 2009 Omnibus Stock and Incentive Plan, as amended. For 5. To ratify the appointment of KPMG LLP as the Company’s independent registered public accounting firm for 2021. For
VOTE BY INTERNET Before The Meeting - Go to www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up untilinformation. Vote by 11:59 p.m. EDT the day before the cut-off date or meeting date.P.M. ET on June 3, 2021. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. KAR AUCTION SERVICES, INC. 13085 HAMILTON CROSSING BLVD.11299 NORTH ILLINOIS STREET CARMEL, IN 46032 During The Meeting - Go to www.virtualshareholdermeeting.com/KAR2019KAR2021 You may attend the meeting via the Internet and vote during the meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up untilinstructions. Vote by 11:59 p.m. EDT the day before the cut-off date or meeting date.P.M. ET on June 3, 2021. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: E77267-P21192D51752-P52342 KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. KAR AUCTION SERVICES, INC. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES AND "FOR" PROPOSALS 2 AND 3.The Board of Directors recommends you vote FOR the following: 1. Election of Directors Nominees:the director nominee designated by the Apax Investor. Nominee: For Against Abstain ! ! ! 1a. Roy Mackenzie For Against Abstain The Board of Directors recommends you vote FOR the following proposals 3, 4 and 5. ! ! ! ! ! ! 3. To approve, on an advisory basis, executive compensation. 2. Election of the other director nominees. 4. To approve an amendment and restatement of the KAR Auction Services, Inc. 2009 Omnibus Stock and Incentive Plan, as amended. For Against Abstain Nominees: ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! 2a. Carmel Galvin ! ! ! ! 1a. Donna R. Ecton 1b.2b. James P. Hallett For Against Abstain ! ! ! ! ! ! 1c. Mark E. Hill 2. To approve, on an advisory basis, executive compensation. 1d. J. Mark Howell 3.5. To ratify the appointment of KPMG LLP as the Company's independent registered public accounting firm for 2019. 1e.2021. 2c. Mark E. Hill 2d. J. Mark Howell 2e. Stefan Jacoby 1f. Lynn Jolliffe 1g.2f. Peter Kelly 2g. Michael T. Kestner 1h. John P. Larson 1i. Stephen E.2h. Mary Ellen Smith For address changes and/Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or comments,other fiduciary, please check this boxgive full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
ANNUAL MEETING OF STOCKHOLDERS OF KAR AUCTION SERVICES, INC. JUNE 4, 2021 Important Notice Regarding Availability of Proxy Materials for the Annual Meeting: The Notice and writeProxy Statement and Form 10-K are available at www.proxyvote.com Please sign, date and mail Your proxy card in the envelope provided as soon as possible Important Notice Regarding Availability of Proxy Materials for the Annual Meeting: The Combined Document is available at www.proxyvote.com D51753-P52342 PROXY KAR AUCTION SERVICES, INC. ANNUAL MEETING OF STOCKHOLDERS - JUNE 4, 2021 PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Eric M. Loughmiller and Charles S. Coleman, and each of them, as true and lawful agents and proxies with full power of substitution in each, to attend and represent the undersigned on all matters to come before the Annual Meeting of Stockholders and to vote as designated on the back where indicated.reverse side, all the shares of Series A Convertible Preferred Stock of KAR Auction Services, Inc., held of record by the undersigned on April 9, 2021, during or at any adjournment or postponement of the Annual Meeting of Stockholders to be held at 9:00 a.m., EDT, via the Inter net at www.virtualshareholdermeeting.com/KAR2021. I hereby acknowledge receipt of the Notice of Annual Meeting of Stockholders and the accompanying Proxy Statement, the terms of which are incorporated by reference, and revoke any proxy previously given by me with respect to such meeting. This proxy will be voted as directed, or if no direction is indicated, the proxy holders will vote the shares represented by this proxy "FOR" the nominees listed in Proposals 1 and 2, "FOR" Proposals 3, 4 and 5, and in the discretion of the proxy holders on any other matter that may properly come before the meeting. (Continued and to be signed on reverse side)
VOTE BY INTERNET Before The Meeting - Go to www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information. Vote by 11:59 P.M. ET on June 3, 2021. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. KAR AUCTION SERVICES, INC. 11299 NORTH ILLINOIS STREET CARMEL, IN 46032 During The Meeting - Go to www.virtualshareholdermeeting.com/KAR2021 You may attend the meeting via the Internet and vote during the meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions. Vote by 11:59 P.M. ET on June 3, 2021. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: D51754-P52342 KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. KAR AUCTION SERVICES, INC. The Board of Directors recommends you vote FOR the following: 2. Election of the other director nominees. For Against Abstain Nominees: ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! 2a. Carmel Galvin For Against Abstain The Board of Directors recommends you vote FOR the following proposals 3, 4 and 5. ! ! ! ! ! ! 2b. James P. Hallett 3. To approve, on an advisory basis, executive compensation. 4. To approve an amendment and restatement of the KAR Auction Services, Inc. 2009 Omnibus Stock and Incentive Plan, as amended. 2c. Mark E. Hill 2d. J. Mark Howell ! ! ! 2e. Stefan Jacoby 5. To ratify the appointment of KPMG LLP as the Company's independent registered public accounting firm for 2021. 2f. Peter Kelly 2g. Michael T. Kestner 2h. Mary Ellen Smith Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
ANNUAL MEETING OF STOCKHOLDERS OF KAR AUCTION SERVICES, INC. JUNE 4, 20192021 Important Notice Regarding Availability of Proxy Materials for the Annual Meeting: The Notice and Proxy Statement and Form 10-K are available at www.proxyvote.com Please sign, date and mail Your proxy card in the envelope provided as soon as possible E77268-P21192Important Notice Regarding Availability of Proxy Materials for the Annual Meeting: The Combined Document is available at www.proxyvote.com D51755-P52342 PROXY KAR AUCTION SERVICES, INC. ANNUAL MEETING OF STOCKHOLDERS - JUNE 4, 20192021 PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Eric M. Loughmiller and Rebecca C. Polak,Charles S. Coleman, and each of them, as true and lawful agents and proxies with full power of substitution in each, to attend and represent the undersigned on all matters to come before the Annual Meeting of Stockholders and to vote as designated on the reverse side, all the shares of common stock of KAR Auction Services, Inc., held of record by the undersigned on April 11, 2019,9, 2021, during or at any adjournment or postponement of the Annual Meeting of Stockholders to be held at 9:00 a.m., EDT, via the Inter net at www.virtualshareholdermeeting.com/KAR2019.KAR2021. I hereby acknowledge receipt of the Notice of Annual Meeting of Stockholders and the accompanying Proxy Statement, the terms of which are incorporated by reference, and revoke any proxy previously given by me with respect to such meeting. This proxy will be voted as directed, or if no direction is indicated, the proxy holders will vote the shares represented by this proxy "FOR" each of the nominees listed in Proposal 1,2, "FOR" Proposals 23, 4 and 3,5, and in the discretion of the proxy holders on any other matter that may properly come before the meeting. (If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.) (Continued and to be signed on reverse side) Address Changes/Comments: