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
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PROS HOLDINGS, INC.HOLDINGS, INC.
(Name of Registrant as Specified In Its Charter)
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NOTICE OF 20182019 ANNUAL MEETING OF STOCKHOLDERS
DATE Friday,Tuesday, May 11, 20187, 2019
TIME 8:00 a.m., Central Daylight Time
PLACE 3100 Main Street, 9th Floor, Houston, Texas 77002, +1 (713) 335-5151
AGENDA
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| 1 | Elect threetwo Class IIIII directors named in the Proxy Statement to the board of directors of of PROS Holdings, Inc. (Board of Directors or Board) each to serve a three-year term until our annual meeting of our stockholders to be held in the year 2021 (20212022 (2022 Annual Meeting); |
| 2 | Advisory vote on named executive officer compensation; |
| 3 | Approve proposed amendments to 2017 Equity Incentive Plan; |
| 4 | Ratification of appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2018;2019; and |
45 | Transaction of other business that may properly come before the Annual Meeting. |
RECORD DATE
Only stockholders of record at the close of business on March 16, 201815, 2019 (Record Date) will be entitled to receive notice of, and to vote at, the 20182019 annual meeting of our stockholders (Annual Meeting).
MATERIALS TO REVIEW
We are mailing to our stockholders a Notice of Internet Availability of Proxy Materials (Notice), instead of a paper copy of this proxy statement (Proxy Statement) and our Annual Report to Stockholders for the Year Ended December 31, 2017 (20172018 (2018 Annual Report). The Notice contains instructions on how to access those documents over the Internet. The Notice also contains instructions on how to request a paper copy of our proxy materials, including this Proxy Statement, our 20172018 Annual Report and a form of proxy card or voting instruction card.
PROXY VOTING
Please vote your shares promptly to ensure the presence of a quorum at the meeting. Voting your shares now via the Internet, by telephone, or by signing, dating, and returning the accompanying proxy card or voting instruction form will save the expenses and extra work of additional solicitation. If you wish to vote by mail, we have enclosed an addressed envelope, postage prepaid if mailed in the United States. Submitting your proxy now will not prevent you from voting your shares at the meeting, as your proxy is revocable at your option.
By Order of the Board of Directors,
/s/ Damian Olthoff
Damian Olthoff
General Counsel and Secretary
Houston, Texas
March 30, 201825, 2019
Table of Contents
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| Executive Summary | |
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| Proxy Statement | |
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| Vote Required | 9 |
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| Voting Instructions | 10 |
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| Corporate Governance | |
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| Role of the Board of Directors | 12 |
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| Board Committees | 12 |
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| Independence | 1213 |
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| Risk Oversight | 1213 |
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| Director Nomination | 1314 |
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| Code of Business Conduct and Ethics | 1514 |
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| Communications with Our Board of Directors | 15 |
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Our Board of Directors and Its Committees | 16 |
Directors and Director Nominees | 16
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Audit Committee | |
| Director Compensation | 19 |
Compensation and Leadership Development Committee | 20 |
Nominating and Corporate Governance Committee | 20
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Proposal One - Election of Directors | 20 |
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| Executive Officers | 21 |
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| Compensation Discussion and Analysis | 22 |
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Proposal Two - Non-Binding Advisory Vote on Executive Compensation | 42 |
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Director CompensationProposal Three - Proposed Amendments to our 2017 Equity Incentive Plan | 43 |
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| Security Ownership | 52 |
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| Audit Matters | 54 |
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Proposal ThreeFour - Ratification of Independent Registered Public Accounting Firm Appointment | 56 |
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EXECUTIVE SUMMARY
This summary highlights selected information for PROS Holdings, Inc. (together with its consolidated subsidiaries, PROS, the Company, we, us or our) in this Proxy Statement. You should read this entire Proxy Statement carefully before voting.
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| Proposal | Board Vote Recommendation | Page # |
Elect threetwo Class IIIII directors | FOR each director nominee | 2120 |
| Advisory vote on executive compensation | FOR | 4442 |
| Approve proposed amendments to 2017 Equity Incentive Plan | FOR | 43 |
Ratification of appointment of PricewaterhouseCoopers LLP for fiscal year 20182019 | FOR | 5156 |
Business Highlights
In 2018, PROS reached new milestones in our cloud transformation efforts, while continuing to enable our customers to leverage our AI-powered solutions that optimize selling in the digital economy. The following highlights some of our accomplishments in 2018:
Continued substantial growth:
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| • | Subscription revenue increased 57% year-over-year, Recurring Revenue (Subscription + Maintenance Revenue) grew 23% year-over-year, Annual Recurring Revenue (ARR) (1) grew 18% year-over-year, and total revenue grew 17%year-over-year and surpassed pre-cloud transition total revenue in less than four years; |
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| • | Cash flow provided by operating activities improved over $30.0 million year-over-year, and Free Cash Flow(2) improved $29.0 millionyear-over-year; |
Total shareholder return grew 19% during 2018, and cumulatively grew 59%from the end of 2017 through March 15, 2019.
Continued to innovateto deliver our solutions faster and with higher gross margins, which in turn drove higher accessibility and faster sales cycles for new customers;
Successfully maintained ISO27001, SOC2 and CSA security certifications, underscoring our commitment to customers by achieving the industry’s most rigorous requirements for cloud security and data privacy, governance, and compliance;
Enhanced capital structure and strengthened our balance sheetby completing a follow-on public offering of 4,370,000 primary shares of common stock generating $142 million in net proceeds; and
Further strengthened our executive team to help us continue scaling our business.
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| (1) | Annual Recurring Revenue ("ARR") is used to assess the trajectory of our cloud business. ARR means, as of a specified date, the contracted recurring revenue, including contracts with a future start date, together with annualized overage fees incurred above contracted minimum transactions, and excluding perpetual and term license agreements recognized as license revenue in accordance with GAAP. ARR should be viewed independently of revenue and any other GAAP measure. |
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| (2) | Free cash flow is a non-GAAP financial measure which is defined as net cash provided by (used in) operating activities, less capital expenditures (excluding expenditures for PROS new headquarters), purchases of other (non-acquisition-related) intangible assets and capitalized internal-use software development costs. |
CEO Pay and Company Performance
In 2018, we continued to successfully execute our multi-year cloud transition, delivering subscription revenue growth of over 50% for the second consecutive fiscal year. Our performance (based on our subscription revenue, ARR, recurring revenue, and stock price) was as follows:
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| (1) | Annual Recurring Revenue ("ARR") is used to assess the trajectory of our cloud business. ARR means, as of a specified date, the contracted recurring revenue, including contracts with a future start date, together with annualized overage fees incurred above contracted minimum transactions, and excluding perpetual and term license agreements recognized as license revenue in accordance with GAAP. ARR should be viewed independently of revenue and any other GAAP measure. |
CEO pay was set conservatively, just slightly above expected peer CEO median target compensation levels. This was despite the Company’s strong financial performance and 23% total shareholder return in 2017.
The Compensation & Leadership Development (CLD) Committee is pleased with the Company’s performance and set target pay in line with competitive market practice of similar peer companies to ensure we retain and reward our CEO for continued strong performance going forward.
Growth in shareholder return has outpaced growth in our CEO’s target pay. Our CEO’s 2018 base salary and target cash incentive remained unchanged from 2017 levels, which is the fourth year in a row with no CEO salary or target cash incentive increase. Our CEO’s total target compensation, including base salary, target cash incentive and target value of long-term equity compensation, was set near the median pay level of our peer CEOs that was expected for 2018, which proved true when reviewing peer CEO compensation levels later in 2018.
(1) Target equity compensation (a) for RSUs and MSUs represents total target equity compensation determined by the Compensation and Leadership Development Committee divided by the closing price of the Company's Common Stock reported by the NYSE on the grant date, and differs from the accounting grant date fair value included in the "Grants of Plan Based Awards" table on page 39 of this Proxy Statement; and (b) for PRSUs represents the accounting grant date fair value.
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| • | Our CEO’s pay continues to be >50% directly “performance-based” (including annual cash incentive and performance-based equity) and >90% at risk (including time-based RSUs). |
We set aggressive performance-based goals, with higher target top line growth required to achieve target payout and significantly higher minimum top line growth required to achieve any payout when compared to our peers’ historical averages.
The 2018 annual cash incentive plan resulted in our CEO attaining 138.5% of his annual cash incentive target based strictly on formulaic results vs. predefined targets, with no discretion applied to the outcome.
CEO 2018 Target Compensation
For 2018, our CLD Committee decided to leave Mr. Reiner’s base salary and cash incentive target unchanged from 2017, the third year in a row without an increase in target cash compensation. Consistent with the median of our peer group compensation, the CLD Committee decided to increase Mr. Reiner’s performance-based pay in the form of equity-based compensation due to Mr. Reiner’s impact on the Company’s successful operational and financial progress on our cloud transition. As a result, Mr. Reiner's total target compensation increased 9% in 2018-- less than our total shareholder return of 19% in 2018 and 59% cumulative total shareholder return for 2018 through March 15, 2019.
CEO Year-End Compensation Decisions 2019 v. 2018
For 2019, the CLD Committee decided to leave Mr. Reiner’s base salary and cash incentive target unchanged from 2018, the fourth year in a row without an increase in target cash compensation. Consistent with the median of our peer group, the CLD Committee decided to increase Mr. Reiner’s performance-based pay in the form of equity-based compensation due to Mr. Reiner’s continued impact on the Company’s successful operational and financial progress on our cloud transition and the 19% growth in shareholder return in 2018.
Governance Highlights
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| Board Practices | | Shareholder Matters |
| ü | All director nomineesnon-employee directors independent | | ü | Active shareholder outreach program |
| ü | Independent non-executive chairman | | ü | Engage with shareholders throughout each year, including at earnings conference calls, investor road shows, investor days, as well as at individual shareholder meetings. We also welcome shareholders to attend our annual OutPerform event for customers and prospects. |
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| Independent Audit, Compensation and Leadership Development, and Nominating and Corporate Governance Committees of the Board of Directors (Committees) | |
| ü | Regular executive sessions of non-employee and independent directors. Our non-executive chairman of the Board of Directors presides at executive sessions. | | ü
| Annual “Say-on-Pay” advisory vote |
| | Other Best Practices |
| ü | Annual Board and Committee evaluations | | ü | Anti-hedging, anti-short and anti-pledging policies |
| ü | Regularly attend continuing education events related to board governance best practices, including conferences and webinars provided by NYSE, NACD, Equilar, among others.practices. | | ü | Stock ownership guidelines for named executive officers (NEOs) |
| ü | 25% women | | ü | “Clawback” policy to recover, under applicable law, incentive bonuses awarded to any NEO as a result of that NEO’s fraud or intentional misconduct. |
| ü | 50% under age 60 | |
| ü | Risk oversight by full Board of Directors and Committees | | ü
| Director resignation policy requires director nominees who do not receive at least 50% of the stockholder votes “for” re-election to tender their resignation. |
ü | 33% women and 50% under age 60 | |
Business Highlights
In 2017, PROS reached several key milestones in our cloud transformation efforts, while continuing to enable our customers to leverage our dynamic pricing and machine learning solutions to help them compete in modern commerce. In 2017, we returned to year-over-year revenue growth, and in the fourth quarter of 2017, our subscription revenue exceeded maintenance revenue for the first time and we once again generated positive free cash flow1.
The following highlights some of our accomplishments in 2017:
Drove substantial growth:
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◦ | Annualized recurring revenue (ARR)2 was $160.6 million as of December 31, 2017, up 31% year-over-year;
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◦ | Subscription revenue increased 59% in 2017 over 2016; and
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◦ | Total shareholder return grew 23% during 2017, and cumulatively grew 55% from the end of 2016 through March 16, 2018.
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Extended PROS modern commerce leadership position in the travel industry by introducing shopping, pricing and merchandising solutions through the acquisition of Vayant Travel Technologies, Inc. (Vayant);
Built our infrastructure to enable further growth by releasing numerous new innovations enabling modern commerce, including the introduction of Opportunity Detection, which helps uncover trends in buying behavior and identifies new sales opportunities, the release of Monet™, PROS artificial intelligence analyst that delivers data science-driven insights in PROS solutions, and the launch of PROS next-generation Guidance solution, which provides customers with an unprecedented level of transparency and self-service capabilities in the PROS cloud;
Attained ISO/IEC 27001: 2013 certification, underscoring our commitment to customers by achieving the industry’s most rigorous requirements for cloud security, data privacy, governance, and compliance; and
Strengthened our balance sheet by completing a private offering of convertible senior notes due in 2047 with an aggregate principal amount of $106.3 million at maturity.
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(1) | Free cash flow (FCF) is defined as net cash provided by (used in) operating activities, less additions to property, plant and equipment, purchases of other (non-acquisition-related) intangible assets and capitalized internal-use software development costs. For a reconciliation of this non-GAAP financial measure to our results as reported under the generally accepted accounting principles in the United States (GAAP), see Exhibit 99.1 to our Current Report on Form 8-K furnished to the Securities and Exchange Commission (SEC) on February 6, 2018, which Current Report and the exhibit thereto are hereby incorporated by reference in this Proxy Statement. |
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(2) | ARR is used to assess the trajectory of our cloud business. ARR means, as of a specified date, the contracted recurring revenue, including contracts with a future start date, together with annualized overage fees incurred above contracted minimum transactions, and excluding perpetual and term license agreements recognized as license revenue in accordance with GAAP. ARR should be viewed independently of revenue and any other GAAP measure. |
CEO Pay and Company Performance
In 2015, we embarked on a multi-year cloud transformation, primarily to maximize long-term shareholder value. In 2017, we again demonstrated success in this transition, with year-over-year growth of 31% in ARR and 59% in subscription revenue, a return to year-over-year growth in total revenue, and generated positive free cash flow in the fourth quarter. Subscription revenue represented 36% of our total revenue in 2017, up from 25% in 2016. Shareholders saw a 23% increase in our share price during 2017, and a cumulative 55% increase from end of 2016 through March 16, 2018.
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(1) | ARR is used to assess the trajectory of our cloud business. ARR means, as of a specified date, the contracted recurring revenue, including contracts with a future start date, together with annualized overage fees incurred above contracted minimum transactions, and excluding perpetual and term license agreements recognized as license revenue in accordance with GAAP. ARR should be viewed independently of revenue and any other GAAP measure. |
Chief Executive Officer (CEO) target pay decreased35% from 2016 to 2017 and sits near the median of our current peer group, while our stock price increased 23% in 2017, driven by both operational and cloud transition successes during the year.
The majority of our CEO’s target pay is tied to the Company’s operational and stock price performance through our cash incentive plan and equity grants that vest based off our stock price performance. As such, our CEO’s realized pay1 adjusted downward in 2017 where our actual performance was below-target. For example, due to aggressive target setting, on average from 2015 through 2017, our CEO attained 84% of his target cash incentive. During this same time period, our CEO attained an average of 19% of his target performance-based equity, as the target performance-based equity compensation levels were established prior to our decision to shift to a cloud strategy, and we did not change the target levels following our decision to embark on our multi-year cloud transformation. As a result, our CEO’s realized pay lagged his target pay by 36% over that time period. Nevertheless, throughout our cloud transition we have continued to set aggressive goals for target cash incentive attainment and maintained a high percentage of total compensation at risk.
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(1) | Realized CEO pay excludes exercises of stock options granted to Mr. Reiner prior to his appointment as our CEO in 2010, as referenced on the table in the "Option Exercises and Equity Awards Vested" section below. Realized CEO pay for 2018 represents projected cash payments from performance at 2018 target levels, actual equity vesting events prior to the Record Date, and excludes future PRSU equity vesting events that could result from future stock price improvement.
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Despite positive performance against 2016 operating targets and continued execution on our cloud transition, our CEO’s base salary and target cash incentive were not increased in 2017, and his target equity compensation1 was reduced from $6.5 million in 2016 to $3.9 million in 2017, due to a one-time grant issued in 2016 which was not repeated in 2017.
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(1) | Target equity compensation (a) for restricted stock units (RSUs) and market stock units (MSUs) represents total target equity compensation determined by the Compensation and Leadership Development Committee of $3.9 million for 2017 and $4.2 million for 2016, each divided by the average closing prices of the Company's common stock (Common Stock) reported by the New York Stock Exchange (NYSE) for the 30 days preceding December 31 prior to grant, and differs from the accounting grant date fair value included in the "Grants of Plan Based Awards" table on page 41 of this Proxy Statement); and (b) for performance restricted stock units (PRSUs) represents the $2.4 million accounting grant date fair value.
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Say-on-Pay
Our 2017 advisory vote to approve NEO compensation received the support of approximately 61% of our shareholder vote, following 85% support in the 2016 shareholder vote. Our Compensation and Leadership Development Committee viewed this outcome in 2017 as an indication that further engagement was needed. At the Committee's request, we engaged in extensive shareholder outreach during the summer and fall of 2017, reaching out to shareholders representing approximately 75% of our shares outstanding, to discuss feedback on our executive compensation program. As shareholder feedback was received following the Say-on-Pay vote in 2017, this feedback could not be taken into account for 2017 compensation decisions made prior to the vote. However, as a result of this feedback, the Committee reevaluated our executive compensation program and made several changes to our executive pay program for 2018. For more information see the "2018 Compensation Highlights" section on page 25 of this Proxy Statement. The following table summarizes our shareholders’ feedback and the Committee’s resulting decisions:
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What We Heard | | What We Did |
✔ | Mixed level of concern on CEO pay levels. | | ü | Made clear that overall CEO target compensation decreased by 35% for 2017, primarily due to a one-time PRSU equity grant in 2016.
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| | | | ü | Updated our peer group to ensure an accurate comparison of peer executive compensation practices and pay levels, with CEO 2018 target compensation near the median of the updated peer group.
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| | | ü | Set CEO 2018 target compensation near the median of the updated peer group. |
| | | ü | Continued to set pay based on performance through our bonus plan and MSU grants tied to our operational and stock price performance versus to the Russell 2000 Index (Index).
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| | | ü | Continued to set aggressive goals for cash incentive attainment. For example, in 2017, our primary growth-oriented performance metric was ARR, and this goal required 40% more growth to earn a target award than the approximate 18% median revenue growth rate experienced by our peers during 2016.
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✔ | Strong support for FCF1as a cash incentive performance metric, even if the target is negative, because it reflects the health of our business and the success of our cloud transition.
| | ü | FCF will remain as a measure in the cash incentive plan for 2018, because we believe it captures the health of our business and measures the success of our cloud transition. |
| ü | We replaced gross profit with total revenue as a cash incentive performance metric. Total revenue will be an increasingly valuable indication of top line growth of our cloud business as recurring revenue continues to increase as a percentage of total revenue.
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✔ | Desire for our performance-based goals to be tied to a successful cloud transition. | |
✔ | Some misunderstanding of the performance structure of our CEO’s cash incentive program, primarily related to quarterly goals and payments. | | ü | We have removed the quarterly element of our cash incentive program for 2018 so that all goals are based on an annual measurement period. However, we reiterated that quarterly goals used in our 2016 and 2017 cash incentive programs were set at the beginning of the year and not changed throughout the year. In this way, they were similar to an annual budget based on a roll-up of quarterly planning, and used to measure both the amount of annual performance reinforce accountability for the timing of that performance.
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(1) | FCF is a non-GAAP financial measure which is defined as net cash provided by (used in) operating activities, less additions to property, plant and equipment, purchases of other (non-acquisition-related) intangible assets and capitalized internal-use software development costs. |
CEO Year-End Compensation Decisions 2018 v. 2017
The compensation package for our CEO is designed to motivate him to successfully implement our cloud strategy, execute our corresponding financial plan, and create sustainable long-term value for our shareholders. To determine our CEO’s compensation package for 2018, our Compensation and Leadership Development Committee reviewed both Company performance in 2017 and peer compensation practices and compensation levels. The base salary and cash incentive target of our CEO, Andres. D. Reiner, remained unchanged in 2018, the third year in a row without an increase in target cash compensation. The Committee instead decided to increase Mr. Reiner’s performance-based pay in the form of equity-based compensation to $4.3 million in 2018, from $3.9 million in 2017, based on his successful performance in our cloud transition. Together these decisions resulted in Mr. Reiner’s total target compensation being near the median of peer compensation for 2018.
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| | | Cash Compensation | | Target Equity1 | Total Target Compensation |
| | | Base Salary | | Cash Incentive Target | | Cash Incentive Earned | | RSUs | | MSUs | | PRSUs | |
| 2017 | | $ | 525,000 |
| | $ | 577,500 |
| | $ | 419,843 |
| | $ | 1,930,000 |
| | $ | 1,930,000 |
| | $ | — |
| | $ | 4,962,500 |
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| (Decided Jan. 2017) | | (+0% vs. 2016) | | (+0% vs. 2016) | | (73% of target)(-53% vs. 2016) | | (-7% vs. 2016) | | (-7% vs. 2016) | | (-100% vs. 2016) | | (-35% vs. 2016) |
| 2018 | | $ | 525,000 |
| | $ | 577,500 |
| | Not Yet Earned | | $ | 2,150,012 |
| | $ | 2,150,012 |
| | $ | — |
| | $ | 5,402,524 |
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| (Decided Jan. 2018) | | (+0% vs. 2017) | | (+0% vs. 2017) | | | (+11% vs.2017) | | (+11% vs. 2017) | | (+0% vs. 2017) | | (+9% vs. 2017) (-29% vs. 2016) |
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(1) | Target equity reflects target award value approved by our Compensation and Leadership Development Committee on the date of grant calculated and does not reflect the fair value as reported in the Summary Compensation Table. |
Director Nominees
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| Name | Age | Director Since | Class | Independent | AC | CC | NC | Other Current Public Company Boards |
| Penelope Herscher | 57 | 2018 | II | Yes | | M1 | M1 | Faurecia SA; Lumentum Operations LLC; Rambus, Inc.; Verint; |
| Leslie Rechan | 56 | 2015 | II | Yes | M2 | M2 | M | - |
| William Russell | 66 | 2008 | II | Yes | | M | C | - |
AC Audit Committee CC Compensation & Leadership Development Committee NC Nominating and Corporate Governance Committee
C Chair M Member
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(1) | If reelected, Ms. Herscher will be appointed to the Compensation and Leadership Development and Nominating and Corporate Governance Committees. |
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(2) | If reelected, Mr. Rechan will be appointed to the Audit Committee and will discontinue serving on the Compensation and Leadership Development Committee. |
Our director nominees exhibit a mix of skills, experience, and diversity:
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| Software Industry | | Public Company Governance | | Independent |
| 100% | | 100% | | 100% |
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| Average Tenure | | Average Age | | Gender Diversity |
| 4.3 years | | 59.6 years | | 33% |
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| Name | Age | Director Since | Class | Independent | Other Current Public Company Boards |
| Andres D. Reiner | 48 | 2010 | III | No | Paylocity Holding Corporation |
| Ronald F. Woestemeyer | 73 | 1985 | III | Yes | - |
Continuing Directors
| | | Name | Age | Director Since | Class | Independent | AC | CC | NC | Other Current Public Company Boards | Age | Director Since | Class | Independent | AC | CC | NC | Other Current Public Company Boards |
| Penelope Herscher | | 58 | 2018 | II | Yes | | M | Faurecia SA; Lumentum Holdings, Inc.; Verint Systems, Inc. |
| Greg B. Petersen | 55 | 2007 | I | Yes | M | C | | - | 56 | 2007 | I | Yes | M | C | | - |
| Andres D. Reiner | 47 | 2010 | III | No | | Paylocity Holding Corporation | |
| Leslie Rechan | | 57 | 2015 | II | Yes | M | | M | MicroStrategy Incorporated; Solace Corp. |
| William Russell | | 67 | 2008 | II | Yes | | M | C | Accesso Technology Group PLC |
| Timothy V. Williams | 69 | 2007 | I | Yes | C | | M | ChannelAdvisor Corporation | 69 | 2007 | I | Yes | C | | M | ChannelAdvisor Corporation |
| Mariette M. Woestemeyer | 66 | 1985 | I | No | | - | 67 | 1985 | I | Yes | | - |
| Ronald F. Woestemeyer | 72 | 1985 | III | No | | - | |
AC Audit Committee CC Compensation & Leadership Development Committee NC Nominating and Corporate Governance Committee
C Chair M Member
PROXY STATEMENT
20182019 ANNUAL MEETING OF STOCKHOLDERS
MAY 11, 20187, 2019
General
The enclosed proxy is solicited on behalf of the Board of Directors for use at the Annual Meeting to be held May 11, 20187, 2019 at 8:00 a.m., local time, at 3100 Main Street, 9th Floor, Houston, Texas 77002, or at any adjournment or postponement thereof, for the purposes set forth herein and in the accompanying Notice of 20182019 Annual Meeting of Stockholders. Only stockholders of record at the close of business on the Record Date are entitled to notice of and to vote at the Annual Meeting.
The Notice containing instructions on how to access our proxy solicitation materials and our 2017 Annual Report, including financial statements, was first mailed and those documents were first made available on or about March 30, 2018 to stockholders entitled to vote at the Annual Meeting.
The purposes of the Annual Meeting are:
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| 1 | To elect threetwo Class IIIII directors to the Board of Directors, each to serve for a three-year term until the 20212022 Annual Meeting; |
| 2 | To conduct an advisory vote on executive compensation; |
| 3 | To approve proposed amendments to 2017 Equity Incentive Plan; |
| 4 | To ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2018;2019; and |
45 | To transact such other business as may properly come before the Annual Meeting or any adjournment thereof. |
Record Date and Shares Outstanding
Stockholders
Only stockholders of record at the close of business on the Record Date are entitled to notice of and to vote at the Annual Meeting. As of the Record Date, 32,588,92437,684,301 shares of Common Stock were outstanding. Each stockholder of record as of the Record Date is entitled to one vote for each share of Common Stock held by such stockholder.
Attending the Annual Meeting
The Annual Meeting will be held at 8:00 a.m., local time, on Tuesday, May 7, 2019, at 3100 Main Street, 9th Floor, Houston, Texas 77002. When you arrive, the receptionist will direct you to the meeting room. Please note that the doors to the meeting room will not be open until 7:50 a.m. You do not need to attend the Annual Meeting to vote. Even if you plan to attend the Annual Meeting, please submit your vote in advance as instructed below.
Vote Required
If a quorum is present, a plurality vote of the holders of our Common Stock entitled to vote and present or represented by proxy at the Annual Meeting is required for the election of a director. This “plurality” standard means the nominees who receive the largest number of “for” votes cast are elected as directors. Thus, the number of shares not voted for the election of a nominee (and the number of “withhold” votes cast with respect to that nominee) will not affect the determination of whether that nominee has received the necessary votes for election under Delaware law. However, the number of “withhold” votes with respect to a nominee will affect whether our Director Resignation Policy will apply to that individual. Our Director Resignation Policy provides that any nominee for director who receives a greater number of votes “withheld” from his or her election than votes “for” such election is required to offer his or her resignation following certification of the stockholder vote. The Nominating and Corporate Governance Committee would then consider the offer of resignation and make a recommendation to our independent directors as to the action to be taken with respect to the offer. This policy does not apply in contested elections. For more information about this policy, see “Corporate Governance - Director Resignation Policy.”
The affirmative vote of the holders of a majority of the shares of Common Stock present or represented by proxy and voting at the Annual Meeting is required to approve the ratification of the selection of our independent auditors and the advisory vote on executive compensation. We will not count abstentions as either for or against a director, so abstentions have no effect on the election of a director. A properly executed proxy marked “abstain” with respect to any matter is considered entitled to vote, and thus, will have the effect of a vote against a matter, except for the election of directors.
Our bylaws provide that a majority of the outstanding shares of our stock entitled to vote, whether present in person or represented by proxy, shall constitute a quorum for the transaction of business at the Annual Meeting. Votes for and against, abstentions and “broker non-votes” (shares held by a broker or nominee that does not have the authority, either express or discretionary, to vote on a particular matter) will each be counted as present for purposes of determining the presence of a quorum.
Effect
Voting Instructions
Stockholders have four ways to votes:
Online. You may vote online by visiting www.proxyvote.com, and entering the control number found in your proxy card. You can vote via the Internet up until 11:59 P.M. Eastern Time on May 6, 2019.
Telephone. You may vote by calling the toll-free number provided on your proxy card, and following the instructions found on your proxy card. You can vote via the telephone up until 11:59 P.M. Eastern Time on May 6, 2019.
Mail. If you received a printed copy of Not Casting Your Votethe proxy card, you may vote by filling out the card and returning it in the postage-paid envelope provided. Please promptly mail your proxy card to ensure that it is received prior to the closing of the polls at the Annual Meeting.
The NYSE prohibits banks, brokersIn Person. You may vote in person at the Annual Meeting, and other intermediaries from voting shares held in their clients’ accounts on elections of directors and other “non-routine” matters unlessany previous votes that you submitted, whether by Internet, telephone or mail, will be superseded by the client has provided voting instructions. Therefore, ifvote that you cast at the Annual Meeting.
If you are a beneficial owner, or you hold your shares in street“street name, through a” please check your voting instruction card or contact your bank, broker it is important thator nominee to determine whether you cast your vote if you want it to count for purposes of Proposals One, Two and Three of this Proxy Statement.
Attending the Annual Meeting
The Annual Meeting will be held at 8:00 a.m., local time, on Friday, May 11, 2018, at 3100 Main Street, 9th Floor, Houston, Texas 77002. When you arrive, the receptionist will direct youable to the meeting room. Please note that the doors to the meeting room will not be open until 7:50 a.m. You do not need to attend the Annual Meeting to vote.vote by Internet or telephone. Even if you plan to attendon attending the Annual Meeting please submit yourin person, we encourage you to vote in advance as instructed below.
Revocability of Proxies
Any proxy given pursuantvia the Internet, by phone, or by mail to this solicitation mayensure that your vote will be revoked by the person giving it at any time before it is votedrepresented at the Annual Meeting. Proxies may be revoked by:
Filing with our Corporate Secretary,Changing your Vote
You may revoke your proxy and change your vote at orany time before the taking of the vote at the Annual Meeting:
Online. Using the online voting method described above, in which case only your latest internet proxy submitted prior to the Annual Meeting will be counted.
By Phone. Using the telephone voting method described above, in which case only your latest telephone proxy submitted prior to the Annual Meeting will be counted.
In Person. By attending the Annual Meeting and voting in person. However, attendance at the Annual Meeting will not in and of itself revoke your proxy unless you properly vote at the Annual Meeting or specifically request that your prior proxy be revoked by delivering a written notice of revocation bearing a later date than the proxy;
Duly executing a later-dated proxy relatingprior to the same shares and delivering itAnnual Meeting to our Corporate Secretary at or before the taking of the vote at the Annual Meeting;Meeting.
Mail. By signing and returning a new proxy card dated as of a later date, in which case only your latest proxy card or
Attending the Annual Meeting and voting in person (although attendance atinstruction form received prior to the Annual Meeting will not in and of itself constitute a revocation of a proxy).be counted.
Any written notice of revocation or subsequent proxy should be delivered to PROS Holdings, Inc. at 3100 Main Street, Suite 900, Houston, Texas 77002, Attention: Corporate Secretary, or hand-delivered to our Corporate Secretary before the taking of the vote at the Annual Meeting.
Electronic DeliveryEffect of Stockholder CommunicationsNot Casting Your Vote
Banks, brokers and other intermediaries may not vote shares held in their clients’ accounts on elections of directors and other “non-routine” matters unless the client has provided voting instructions. If you hold your shares in street name, you must cast your vote if you want it to count for purposes of Proposals One, Two, and Three.
Proxy Materials are Available on the Internet
We take advantageuse the internet as the primary means of the SEC rules that allow companies to furnish theirfurnishing proxy materials over the Internet. As a result, weto our stockholders. We are mailing to our stockholders thea Notice instead of a paper copyInternet Availability of this Proxy Statement and our 2017 Annual Report. The NoticeMaterials (Notice) that contains instructions on how to access those documentsour proxy materials over the Internet. The Notice also contains instructions onInternet, as well as how to request a paper copy of our proxy materials, including this Proxy Statement, our 20172018 Annual Report and a form of proxy card or voting instruction card. As a result of theThe Notice not allwas first mailed and those documents were first made available on or about March 25, 2019 to stockholders will receive a paper copy of our proxy materials.
Voting Instructions
To ensure that your vote is recorded promptly, please vote as soon as possible, even if you plan to attend the Annual Meeting in person. Most stockholders have three options for submitting their votes: (1) via the Internet, (2) by telephone or (3) by mail using the paper proxy card. If you have Internet access, we encourage youentitled to vote via the Internet. If you attend the Annual Meeting, you may also submit your vote in person, and any previous votes that you submitted, whether by Internet, telephone or mail, will be superseded by the vote that you cast at the Annual Meeting.
Vote by Internet. You can vote via We encourage stockholders to take advantage of the Internet at www.PROXYVOTE.com. 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. You can use the Internet to transmit your voting instructions up until 11:59 P.M. Eastern Time on May 10, 2018. Internet voting is available 24 hours a day. If you vote via the Internet you do NOT need to vote by telephone or return a proxy card.
Vote by Telephone. You can vote by telephone by calling the toll-free telephone number provided on your proxy card. Have your proxy card in hand when you call and then follow the instructions. You may transmit your voting instructions from any touch-tone telephone up until 11:59 P.M. Eastern Time on May 10, 2018. Telephone voting is available 24 hours a day. If you vote by telephone you do NOT need to vote over the Internet or return a proxy card.
Vote by Mail. If you received a printed copyavailability of the proxy card, you can vote by marking, dating and signing it, and returning it inmaterials on the postage-paid envelope provided to PROS Holdings, Inc., c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. Please promptly mail your proxy card to ensure that it is received prior to the closing of the polls at the Annual Meeting. If you vote by mail you do NOT need to vote over the Internet or vote by telephone.
internet.
If you are a beneficial owner, or you hold your shares in “street name,” please check your voting instruction card or contact your bank, broker or nominee to determine whether you will be able to vote by Internet or telephone.Eliminating Duplicate Mailings
Householding Matters
Some banks, brokers and other nominee record holders may be participatingparticipate in the practice of “householding” proxy statements, which helps reduces the environmental impact of our annual meetings and annual reports. This means thatreduces our printing and mailing costs, by sending only one copy of the Notice and Proxy Statement may have been sent to multiple stockholders in your household.sharing the same address. If you would prefer to receive separate copies of a proxy statement, please contact our Corporate Secretary by calling 713-335-5151 or by writing to us at 3100 Main Street, Suite 900, Houston, Texas 77002. Upon oral or written request, we will promptly provide separate copies of the Notice or this Proxy Statement to each stockholder at that address. In addition, stockholders sharing an address and receiving multiple copies can request delivery of a single copy of proxy statements upon written request to our Corporate Secretary at the address stated above.
CORPORATE GOVERNANCE
Role of the Board of Directors
Our Board of Directors (Board) oversees our CEO and other senior management on a day-to-day basis to assure that the long-term interests of shareholders are being served. Our Board currently consists of eight members, divided into three classes, with each class serving for a staggered three-year term. The term of office of one class of directors expires each year in rotation so that one class is elected at each annual meeting for a full three-year term.
Our Board has adopted formal Corporate Governance Guidelines to ensure that it has the necessary authority and practices in place to review and evaluate our business operations as needed, to make decisions that are independent of our management, and to align the interests of directors and management with the interests of our stockholders. Our key governance documents, including our Corporate Governance Guidelines, are available under the Investor Relations section of our website at ir.pros.com.
Our Board met four times and acted via unanimous written consent three times, the Audit Committee met ten times, the CLD Committee met six times and acted via unanimous written consent three times, and the NCG Committee met three times. Each current director who served as a director in 2018 attended each meeting of our Board and the Committees on which he or she served during 2018. The Board encourages all directors to attend annual meetings of the stockholders. All incumbent directors attended the 2018 meeting of the stockholders.
Board Committees
The Board has standing Audit, Compensation and Leadership Development (CLD) and Nominating and Corporate Governance (NCG) Committees. Each Committee has a written charter, which can be found under the Investor Relations section of our website at ir.pros.com. Our Board has determined that each member of the Audit Committee qualifies as an Audit Committee financial expert within the meaning of the SEC regulations and the rules of the NYSE. Each member of our CLD Committee is a non-employee director, as defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934 (Exchange Act), and an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code (Code).
Audit Committee. The Audit Committee assist the Board in oversight and monitoring of:
our accounting and financial reporting processes and the audits of our financial statements:
our independent auditors, including their qualifications, engagement, performance and independence;
the results of the annual audit and the independent auditor’s review of our annual and quarterly financial statements and reports, including discussions with independent auditors without management present;
press releases regarding our financial results and any other financial information and earnings guidance provided;
matters that have a significant impact on our financial statements;
the scope, adequacy and effectiveness of our internal control over financial reporting;
procedures for complaints for employees to submit concerns anonymously about questionable accounting, internal control or auditing matters; and
all material related party transactions that require disclosure.
Compensation and Leadership Development Committee. The CLD Committee discharges the responsibilities of our Board relating to the compensation and benefits for our executive officers and directors, including:
reviewing and approving the compensation arrangements for our executive officers and directors;
reviewing and approving corporate performance goals and objectives relevant to such compensation;
administering our equity incentive plans;
reviewing our compensation discussion and analysis and CLD Committee report required by the rules of the SEC;
engage with a third party independent advisor to assist in evaluating our executive compensation program.
providing oversight on the overall leadership development program throughout the Company; and
overseeing succession planning for executive officers jointly with the NCG Committee.
Nominating and Corporate Governance Committee. The NCG Committee assist the Board in:
identifying qualified candidates to become directors and considering the nomination of our incumbent directors for reelection;
evaluating stockholder nominations of candidates for election to our Board;
reviewing our general policy relating to selection of director candidates and members of committees of our Board, including an assessment of the performance of our Board; and
reviewing and making recommendations to our Board regarding corporate governance principles and policies.
Independence
The Board of Directors has adopted categorical standards in our Corporate Governance Guidelines to assist in making independence determinations with respect to each director. The Board of Directors has determined that the following directors are independent within the meaning of the NYSE listing standards and federal securities laws: Messrs. Petersen, Rechan, Russell, and Williams and Mss. Keszler and Herscher. As part of such determination of independence, our Board of Directors has affirmatively determined that none of these directors has a relationshiphave no relationships with us that would interfere with the exercise of independent judgment in carrying out his or her responsibilities as a director. The majoritydirector, and as such are "independent" under NYSE listing standards and federal securities laws as of December 31, 2018: Messrs. Petersen, Rechan, Russell, Williams, and Woestemeyer and Mss. Herscher and Woestemeyer. Our Board previously determined that Ellen Keszler was an independent director prior to her retirement from our Board of Directors is independent,in at our 2018 annual meeting. Our Audit, CLD and our Audit Committee, Compensation and Leadership Development Committee and Nominating and Corporate Governance CommitteeNGC Committees are comprised entirely of all independent directors.
Independent Non-Executive Chairman
The Board is led by our independent non-executive chairman, Mr. Russell. The Board’s current preferred governance structure is to have an independent director serve as chairman. We believe the current structure provides strong leadership for our Board, while also positioning our Chief Executive Officer as the leader of the Company. We believe that our current structure helps ensure independent oversight over the Company, while allowing our Chief Executive Officer to focus on management of the Company. As our non-executive chairman, among other responsibilities, Mr. Russell oversees the planning of the annual Board calendar, and, with the Chief Executive Officer, in consultation with the other directors, schedules and sets the agenda for meetings of the Board and leads the discussion at such meetings, serves as a liaison between the CEO and the independent directors, and performs such additional duties and responsibilities as requested by the Board from time to time.
Executive Sessions
Executive sessions of the non-employee membersindependent directors of the Board of Directors are regularly scheduled throughout the year. Non-employee directors meet by themselves at everyduring each regularly scheduled in-person Board of Directors meeting. Independent directors also meet by themselves at least annually at scheduled in-person Board of Directors meetings. Non-employee directors and independent directors may hold other suchThese executive sessions at the request of any non-employee director or independent director. Non-employee and independent directors may notify the non-executive chairman of the Board of Directors if they would like to hold such a session, and the non-executive chairman of the Board of Directors will facilitate the scheduling of such a session. Executive sessions (whether of the non-employee directors or independent directors) are led by our non-executive chairman of the Board. Our non-executive chairman of the Board of Directors.provides feedback to our CEO, as needed, promptly after the executive session.
Risk Oversight
The Board of Directors oversees our risk management process. Management reviews the process, including identification of key risks and steps taken to address them, with the full Board of Directors at least on an annual basis. The Audit Committee, the Compensation and Leadership DevelopmentCLD Committee, and the Nominating and Corporate GovernanceNGC Committee assist the Board of Directors in discharging its oversight duties. The Compensation and Leadership DevelopmentCLD Committee reviews risks related to the subject matters enumerated in its charter, including risks associated with our compensation programs. The Nominating and Corporate GovernanceNGC Committee considers risks related to the subject matters for which it is responsible as identified in its charter, including risks associated with corporate governance. Similarly, the Audit Committee considers risks related to the subject matters enumerated in its charter, including risks relating to internal controls, disclosure, and financial reporting. Accordingly, while each of the three committees contributes to the risk management oversight function by assisting the Board of Directors in the manner outlined above, the Board of Directors itself remains responsible for the oversight of our risk management program.
Corporate Governance Guidelines
We believe in sound corporate governance practices and have adopted formal Corporate Governance Guidelines. Our Board of Directors adopted these Corporate Governance Guidelines in order to ensure that it has the necessary authority and practices in place to review and evaluate our business operations as needed, to make decisions that are independent of our management, and to align the interests of directors and management with the interests of our stockholders. The Corporate Governance Guidelines set forth the practices our Board of Directors follows, including, but not limited to, the Board of Directors and committee composition and selection, director responsibilities, director access to officers and employees and Chief Executive Officer performance evaluation and succession planning. A printed copy of our Corporate Governance Guidelines may be obtained without charge by any stockholder upon sending a written request to us at 3100 Main Street, Suite 900, Houston, Texas 77002, Attn: Corporate Secretary. A copy of our Corporate Governance Guidelines is also available under the Corporate Governance – Investor Relations section of our website at www.PROS.com.
Director Nomination
The Nominating and Corporate GovernanceNCG Committee has the responsibility for establishing the criteria for recommending which directors should stand for reelection to our Board of Directors and the selection of new directors to serve on our Board of Directors.Board. In addition, the Nominating and Corporate GovernanceNCG Committee is responsible for establishing the procedures for our stockholders to nominate candidates to our Board of Directors.Board. Although the Nominating and Corporate GovernanceNCG Committee has not formulated any specific minimum qualifications for director candidates, it has determined that desirable characteristics include, but are not limited to, business experience, mature judgment, personal and professional ethics, and integrity. The Company does not have a formal policy with respect to consideration of diversity in identifying director nominees; however, in the process of selecting a director nominee, the Nominating and Corporate GovernanceNCG Committee assesses backgrounds, diversity and expected contributions of the individuals to the Board of Directors. A printed copy of our Corporate Governance Guidelines may be obtained without charge by any stockholder upon sending a written request to us at 3100 Main Street, Suite 900, Houston, Texas 77002, Attn: Corporate Secretary. Our Corporate Governance Guidelines are also available under the Corporate Governance - Investor Relations section of our website at www.PROS.com.Board.
Our bylaws permit any stockholder of record to nominate directors. Stockholders who wish to submit nominees for election at an annual or special meeting of stockholders should follow the procedure described in the "Stockholder Proposals" section on page 5260 of this Proxy Statement. The Nominating and Corporate GovernanceNCG Committee applies the same standards in considering candidates submitted by stockholders as it does in evaluating candidates submitted by members of the Board of Directors.Board.
The Board of Directors is currently led by a non-executive chairman, who is an independent director. The Board of Directors’ current preferred governance structure is to have an independent director serve as chairman. We believe the current structure provides strong leadership for our Board of Directors, while also positioning our Chief Executive Officer as the leader of the Company. We believe that our current structure helps ensure independent oversight over the Company, while allowing our Chief Executive Officer to focus his energies on management of the Company.
The Board of Directors recognizes that there is no single, generally accepted approach to providing board leadership, and the board leadership structure may vary in the future as circumstances warrant. If the Board of Directors determines it is in the best interests of our stockholders to combine the positions of chairman and Chief Executive Officer, the independent directors will designate a lead independent director.
Our non-executive chairman oversees the planning of the annual Board of Directors’ calendar, and, with the Chief Executive Officer, in consultation with the other directors, schedules and sets the agenda for meetings of the Board of Directors and leads the discussion at such meetings. Our non-executive chairman also presides at executive sessions, serves as a liaison between the Chief Executive Officer and the independent directors, sees that directors receive appropriate and timely information, assists the chairmen of the committees of the Board of Directors in preparing agendas for the respective committee meetings, chairs our annual meetings of stockholders, is available in appropriate circumstances to speak on behalf of the Board of Directors, and performs such other functions and responsibilities as set forth in our Corporate Governance Guidelines or as requested by the Board of Directors from time to time. Our non-executive chairman also encourages direct dialogue between all directors and management and provides leadership to the Board of Directors in its oversight function.
Director Resignation Policy
Our Board of Directors has adopted a director resignation policy. Under this policy in an uncontested election of directors, (an election at which the number of nominees is equal to the number of seats open) any nominee for director who receives a greater number of votes “withheld” from his or her election than votes “for” such election must promptly tender his or her resignation to the Nominating and Corporate Governance Committee (following certification of the stockholders’ vote) for consideration in accordance with the procedures described below.
NCG Committee. The Nominating and Corporate GovernanceNCG Committee will promptly consider such resignation and recommend to the Qualified Independent Directors (as defined below) the action to be taken with respect to such offered resignation, which may include (1) accepting the resignation; (2) maintaining the director but addressing what the Qualified Independent Directors believe to be the underlying cause of the withheld votes; (3) determining that the director will not be renominated in the future for election; or (4) rejecting the resignation. The Nominating and Corporate Governance Committee will consider all relevant factors including, without limitation, (a) the stated reasons why votes were withheld from such director; (b) any alternatives for curing the underlying cause of the withheld votes; (c) the tenure and qualifications of the director; (d) the director’s past and expected future contributions to the Company; (e) our director criteria; (f) our Corporate Governance Guidelines; and (g) the overall composition of the Board, including whether accepting the resignation would cause the Company to fail to meet any applicable SEC or NYSE requirement.
The Qualified Independent DirectorsNCG Committee will recommend to the qualified independent directors the action to be taken with respect to such offered resignation, and the qualified independent directors will act on the Nominating and Corporate GovernanceNCG Committee’s recommendation no later than 90 days following the date of the stockholders’ meeting in which the election occurred. In considering the Nominating and Corporate Governance Committee’s recommendation, the Qualified Independent Directors will consider the factors considered by the Nominating and Corporate Governance Committee and such additional information and factors the Board of Directors believes to be relevant. Following the Qualified Independent Directors’ decision, the Company will promptly disclose in a Current Report on Form 8-K the decision whether to accept the resignation as tendered (providing a full explanation of the process by which the decision was reached or, if applicable, the reasons for rejecting the tendered resignation).
To the extent that a resignation is accepted, the Nominating and Corporate Governance Committee will recommend to the Board of Directors whether to fill such vacancy or vacancies or to reduce the size of the Board of Directors.
Any director who tenders his or her resignation pursuant to this provision will not participate in the Nominating and Corporate Governance Committee’s recommendation or Qualified Independent Directors’ consideration regarding whether to accept the tendered resignation. Prior to voting, the Qualified Independent Directors will afford the director an opportunity to provide any information or statement that he or she deems relevant. If a majority of the members of the Nominating and Corporate GovernanceNCG Committee received a greater number of votes “withheld” from their election than votes “for” their election at the same election, then the remaining Qualified Independent Directors who arequalified independent directors on the Board of Directors who did not receive a greater number of votes “withheld” from their election than votes “for” their election (or who were not standing for election) will consider the matter directly or may appoint a committee of the Board of Directors amongst themselves solely for the purpose of considering the tendered resignations that will make the recommendation to the Board of Directors whether to accept or reject them.
For purposes of this policy, the term “Qualified Independent Directors” means:
All directors who (1) are independent directors (as defined in accordance with the NYSE Corporate Governance Rules) and (2) are not required to offer their resignation in accordance with this policy.
If there are fewer than three independent directors then serving on the Board who are not required to offer their resignations in accordance with this policy, then the Qualified Independent Directors shall mean all of the independent directors and each independent director who is required to offer his or her resignation in accordance with this Policy shall recuse himself or herself from the deliberations and voting only with respect to his or her individual offer to resign.
Stock Ownership Guidelines
As part of our overall corporate governance and compensation practices, ourOur Board of Directors has adopted stock ownership guidelines for our NEOs and directors. These guidelinesdirectors that are designed to align our NEOs’ and directors' interests with our stockholders’ long-term interests by promoting long-term share ownership, which reduces the incentive for excessive short-term risk taking and further increase our NEOs’ and directors' alignment with stockholder interests. These guidelines require our Chief Executive Officer to hold shares of our stock worth foursix times his annual salary, and the other NEOs to hold shares of our stock worth two times their annual salary. The guidelines also state thatsalary, and each non-employee director is required to hold shares of our stock worth five times the director's annual retainer. Our NEOs and directors are expected to achieve their ownership thresholds within five years after joining our Board of Directors and/or being appointed as ana NEO. As of December 31, 2017,2018, each of our NEOs and directors were in compliance with the applicable guidelines.
Prohibition Against Hedging, Short-Sale, Pledging, and Repricing Underwater Stock Options
We have implemented both anti-hedging and anti-pledging policies, as well as a prohibition on participating in short sales of our stock, to ensure that our executives’ stock remains at-risk. Our 2017 Equity Incentive Plan (2017 Plan) also prohibits repricing, repurchase or exchange of underwater stock options without stockholder approval.
Compensation and Leadership Development Committee Interlocks and Insider Participation
No member of our Compensation and Leadership Development Committee and none of our executive officers has any relationships that would constitute an interlocking relationship with executive officers and directors of any other entity.
Code of Business Conduct and Ethics
Our Board of Directors has adopted a Code of Business Conduct and Ethics that applies to all of our directors and employees. A printed copy of our Code of Business Conduct and Ethics may be obtained without charge by any stockholder upon sending a written request to us at 3100 Main Street, Suite 900, Houston, Texas 77002, Attn: Corporate Secretary. Our Code of Business Conduct and Ethics is also available under the Corporate Governance – Investor Relations section of our website at www.PROS.comir.pros.com.
Communication with Our Board of Directors
Stockholders or interested parties who wish to communicate with members of our Board of Directors may send correspondence to them in care of our Corporate Secretary at 3100 Main Street, Suite 900, Houston, TX 77002. Such communication will be forwarded to the intended recipient(s). We currently do not intend to have our Corporate Secretary screen this correspondence, but we may change this policy if directed by our Board of Directors due to the nature or volume of the correspondence. Communications that are intended specifically for the non-executive chairman of the Board of Directors may also be sent to the street address noted above, to the attention of the non-executive chairman of the Board of Directors.
OUR BOARD OF DIRECTORS AND ITS COMMITTEES
The Company’s governance framework provides the Board with flexibility to select the appropriate leadership structure for the Company. In making leadership structure determinations, the Board considers many factors, including the specific needs of the business and what is in the best interests of the Company’s stockholders. The current leadership structure is comprised of a non-executive chairman of the Board, and Committees led by independent directors. The Board believes this structure provides an effective balance between strong Company leadership and appropriate safeguards and oversight by independent directors.
Our Board of Directors currently consists of nine members, divided into three classes, with each class serving for a staggered three-year term. The term of office of one class of directors expires each year in rotation so that one class is elected at each annual meeting for a full three-year term. Our Board of Directors also has three standing Committees: an Audit Committee, a Compensation and Leadership Development Committee, and a Nominating and Corporate Governance Committee. Our Board of Directors has determined that each member of the Audit Committee, Compensation and Leadership Development Committee, and Nominating and Corporate Governance Committee meets the independence requirements of the NYSE listing standards and federal securities laws. Each Committee has a written charter, which can be found under the Corporate Governance – Investor Relations section of our website at www.PROS.com. A printed copy of these charters may be obtained without charge by any stockholder upon sending a written request to PROS Holdings, Inc., 3100 Main Street, Suite 900, Houston, Texas 77002, Attn: Corporate Secretary. The table below provides ages, positions, current membership, term of office, and other relevant information for each of our directors:
| | | Name | Age | Position(s) with the Company | Director Since | Current Term Expires | Current Class of Director | Audit | Compensation and Leadership Development | Nominating and Corporate Governance | Age | Position(s) with the Company | Director Since | Current Term Expires | Current Class of Director | Audit | Compensation and Leadership Development | Nominating and Corporate Governance |
| Penelope Herscher | 57 | Director (Nominee) | 2018 | II | | Member1 | 58 | Director | 2018 | 2021 | II | | Member1 |
| Ellen Keszler | 55 | Director | 2008 | 2018 | II | Member | | Member | |
Ellen Keszler2 | | 56 | Director | - | Member2 | | Member2 |
| Greg B. Petersen | 55 | Director | 2007 | 2020 | I | Member | Chair | | 56 | Director | 2007 | 2020 | I | Member | Chair | |
| Leslie Rechan | 56 | Director (Nominee) | 2015 | 2018 | II | Member2 | Member | 57 | Director | 2015 | 2021 | II | Member3 | Member |
| Andres D. Reiner | 47 | President, CEO and Director | 2010 | 2019 | III | | 48 | President, CEO and Director (Nominee) | 2010 | 2019 | III | |
| William Russell | 66 | Non-Executive Chairman (Nominee) | 2008 | 2018 | II | | Member | Chair | 67 | Non-Executive Chairman | 2008 | 2018 | II | | Member | Chair |
| Timothy V. Williams | 69 | Director | 2007 | 2020 | I | Chair | | Member | 69 | Director | 2007 | 2020 | I | Chair | | Member |
| Mariette M. Woestemeyer | 66 | Director | 1985 | 2020 | I | | 67 | Director | 1985 | 2020 | I | |
| Ronald F. Woestemeyer | 72 | Director | 1985 | 2019 | III | | 73 | Director (Nominee) | 1985 | 2019 | III | |
| Number of meetings in 2017 | 10 | 6 | 4 | |
| Number of meetings in 2018 | | Number of meetings in 2018 | 10 | 6 | 3 |
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| (1) | If reelected, Ms. Herscher will bewas appointed to the Compensation and Leadership Development and Nominating and Corporate Governance Committees.Committees in May 2018. |
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| (2) | If reelected, Ms. Keszler retired from our Board in May 2018. |
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| (3) | Mr. Rechan will bewas appointed to the Audit Committee and will discontinuediscontinued serving on the Compensation and Leadership Development Committee.Committee in May 2018. |
Directors and Director Nominees
Penelope Herscher. We welcomed Ms. Herscher to our Board of Directors in January 2018. Ms. Herscher is a seasoned technology public company board director, executive and entrepreneur, with more than 15 years of experience as a high-tech CEO in Silicon Valley and more than 10 years of experience serving on public company boards of directors. Ms. Herscher currently serves on the boards of Faurecia SA (EPA:EO), Verint (NASD:VRNT), Lumentum Operations LLC (NASD:LITE) and Rambus, Inc. (NASD:RMBS). Ms. Herscher previously served as CEO for FirstRain, a privately held company in the unstructured data analytics space, from December 2004 to November 2015. Prior to leading FirstRain, she was CEO of Simplex Solutions and served in C-level and senior executive positions for a number of software and technology firms, including Cadence Design Systems, Inc. Ms. Herscher has extensive business and leadership experience in software companies, including experience in software sales, marketing, strategy, governance, compensation planning and mergers and acquisitions. |
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| Ms. Herscher is a seasoned technology public company board director, executive and entrepreneur, with more than 15 years of experience as a high-tech CEO in Silicon Valley and more than 10 years of experience serving on public company boards of directors. Ms. Herscher currently serves on the boards of Faurecia SA (EPA:EO), Verint (NASD:VRNT), and Lumentum Holdings, Inc. (NASD:LITE).
Ms. Herscher previously served as CEO for FirstRain, a privately held company in the unstructured data analytics space, from December 2004 to November 2015. Prior to leading FirstRain, she was CEO of Simplex Solutions and served in C-level and senior executive positions for a number of software and technology firms, including Cadence Design Systems, Inc.
Ms. Herscher has extensive business and leadership experience in software companies, including experience in software sales, marketing, strategy, governance, compensation planning and mergers and acquisitions.
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| Penelope Herscher |
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| Mr. Petersen serves as the chairman of the Compensation and Leadership Development Committee of the Board. Mr. Petersen has served as president of Brookview Capital Advisors since 2016. Mr. Petersen also served on the board of directors of Diligent Corporation (2013 to 2016), Piksel, Inc. (2012 to 2017), and Synthesio. Mr. Petersen served as the chairman of the audit committee at Diligent and Piksel, and as an advisory board member at Synthesio. From 2014 to 2015, he served as Executive Vice Chairman at Diligent Corporation. Mr. Petersen previously served as Chief Financial Officer for CBG Holdings, Lombardi Software, Inc. (which was sold to IBM in 2010), and Activant Solutions, Inc. Mr. Petersen previously served in executive roles with Trilogy Software and RailTex. Mr. Petersen began his career with American Airlines, Inc. (NASD:AAL), including serving as managing director of corporate development where he led a project to create Sabre Holdings, Inc. (NASD:SABR) and complete its IPO. Mr. Petersen holds a Bachelor of Arts in Economics from Boston College and a Master of Business Administration from the Fuqua School of Business at Duke University. Mr. Petersen has business and leadership experience in software companies, merger and acquisition experience, and extensive financial planning, accounting, governance, compensation planning and risk management knowledge. |
| Greg B. Petersen |
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Ellen Keszler. Ms. Keszler will not be standing for re-election and will be retiring from our Board of Directors at the Annual Meeting after ten years of service. We are grateful to Ms. Keszler for her service. Ms. Keszler currently serves as president and chief executive officer of Clear Sky Associates, LLC, a management and strategy consulting firm focused on the technology and travel industries, a position she has held since 2007. She also serves on three private technology company boards and a number of technology startup advisory boards. Previously, Ms. Keszler served as president of Travelocity Business from 2003 to 2007, a technology-focused corporate travel management company. From 2000 to 2003, Ms. Keszler served as Senior Vice President—North American Division of Sabre Travel Network, a travel technology and services business. From 1987 to 2000, Ms. Keszler held various finance roles at Sabre Holdings, American Airlines and JCPenney. Ms. Keszler holds a Bachelor of Science in Civil Engineering from Texas A&M University and a Master of Business Administration from the University of Texas at Austin. Ms. Keszler has extensive business and leadership experience, including experience in managing financial reporting, sales, operations, strategy, marketing and advertising. Ms. Keszler also has significant expertise in travel and travel technology industries, which we serve.Greg B. Petersen. Mr. Petersen currently serves as president of Brookview Capital Advisors based in Austin, Texas, a position he has held since 2016. Mr. Petersen previously served as a board member on three other technology companies - Diligent Corporation (from 2013 to 2016), and Piksel, Inc. (from 2012 to 2017). Mr. Petersen served as the Chairman of the Audit Committee at Diligent and Piksel, and an advisory board member at Synthesio. Previously Mr. Petersen served as the Executive Vice Chairman at Diligent Corporation, a high growth SaaS business from 2014 to 2015, and as the Chief Financial Officer of several software and technology companies, including Activant Solutions, Inc., a $400 million provider of business management solutions to retail and wholesale distribution businesses from 2001 to 2007; and Lombardi Software, Inc., a business process management software provider, which was sold to IBM in 2010. After earning an MBA from Duke University in 1989, Mr. Petersen began his career with American Airlines, Inc. where he held increasing responsible executive positions over eight years, the most recent being as managing director of corporate development where he led a project to create Sabre Holdings, Inc. and complete its IPO. Mr. Petersen has also served as an executive in finance and treasury roles with Trilogy Software, a provider of enterprise software and business services, and in planning and development roles with RailTex, a publicly traded short-line and regional rail service provider. Mr. Petersen holds a Bachelor of Arts in Economics from Boston College and a Master of Business Administration from the Fuqua School of Business at Duke University. Mr. Petersen has business and leadership experience in software companies, merger and acquisition experience, and extensive financial planning, accounting, governance, compensation planning and risk management knowledge. |
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| Mr. Rechan serves as President and Chief Executive Officer and a director of Solace Corp., a cloud-based smart data movement solutions company, a position he has held since September 2017.
Prior to Solace, Mr. Rechan served as President and Chief Executive Officer and a director of Halogen Software (TSX:HGN), a cloud-based talent management software provider (2015 to 2017). Mr. Rechan previously served as General Manager, IBM Business Analytics Division (2011 to 2014), and Vice President, Sales, Solutions and Services, IBM Business Analytics Division (2008 to 2011). Mr. Rechan held several leadership positions at IBM Corp. across field sales, systems engineering, services, solutions, development, and general management in North America, Europe and Asia Pacific. Mr. Rechan has also served in executive roles at Cognos Inc., Oracle Corporation, Seibel Systems, Inc., Cadence Design Systems Inc. and Onyx Software Corp. Mr. Rechan received his B.S. in Electrical Engineering and his B.A. in organizational behavior from Brown University and his M.A. in management from Northwestern University.
Mr. Rechan has extensive business and leadership experience in software companies, including experience in software sales and operations management. |
| Leslie Rechan |
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Leslie Rechan. Mr. Rechan serves as President and Chief Executive Officer and a director of Solace Corp., a cloud-based smart data movement solutions company, a position he has held since September 2017. Prior to Solace, Mr. Rechan previously served as President and Chief Executive Officer and a director of Halogen Software, a cloud-based talent management software provider from November 2015 to May 2017. Mr. Rechan previously served as General Manager, IBM Business Analytics Division from November 2011 to April 2014, and Vice President, Sales, Solutions and Services, IBM Business Analytics Division from 2008 through 2011. He served as Chief Operating Officer of Cognos Inc. from 2006 to 2008. Prior to joining Cognos, Mr. Rechan served as Senior Vice President and Global General Manager, CRM Strategy at Oracle Corporation in 2006, when Oracle Corporation acquired Siebel Systems Inc. Mr. Rechan served as Senior Vice President and General Manager of Americas Sales of Seibel Systems, Inc. (formerly Siebel Systems Inc.) and served in the same capacity for Global Manufacturing and Distribution Industries business unit of Seibel Systems, Inc. from 2004 to 2006. Mr. Rechan served as Senior Vice President and General Manager of North American Worldwide Field Operations of Cadence Design Systems Inc. from 2003 to 2004. He served as President and Chief Operating Officer of Onyx Software Corp. from 2001 to 2002. Prior to 2001, Mr. Rechan held several leadership positions at IBM Corp. across field sales, systems engineering, services, solutions, development, and general management in North America, Europe and Asia Pacific. Mr. Rechan has also served as a director of Cognitive Scale, a privately held cognitive cloud company. Mr. Rechan, throughout his career, has demonstrated strong leadership, and operational excellence. Mr. Rechan received his B.S. in Electrical Engineering and his B.A. in organizational behavior from Brown University and his M.A. in management from Northwestern University. Mr. Rechan has extensive business and leadership experience in software companies, including experience in software sales and operations management. |
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| Mr. Reiner serves as our President and Chief Executive Officer, a position he has held since November 2010. Mr. Reiner has also served on the board of directors of Paylocity Holding Corporation (NASD:PCTY) since September 2014, and serves on the compensation and nominating and governance committees for Paylocity. Mr. Reiner holds a Bachelor of Science in Computer Science with a minor in Mathematics from the University of Houston. As a result of his 19+ years of experience with the Company, Mr. Reiner has familiarity with all of the Company’s key day to day operations, in-depth experience in and knowledge of the development of our products, services and the markets in which we compete, and has leadership, management and operating experience. |
| Andres D. Reiner |
| For more information on Mr. Reiner, see “Executive Officers” on page 23 of this Proxy Statement. |
Andres D. Reiner serves as our President and Chief Executive Officer, a position he has held since November 2010. Mr. Reiner has also served on the board of directors of Paylocity Holding Corporation since September 2014, and is currently on the compensation and nominating and governance committees for Paylocity. Mr. Reiner holds a Bachelor of Science in Computer Science with a minor in Mathematics from the University of Houston. As a result of his 18+ years of experience with the Company, Mr. Reiner has familiarity with all of the Company’s key day to day operations and has leadership, management and operating experience. In addition, Mr. Reiner has in-depth experience in and knowledge of the development of our products, services and the markets in which we compete. For more information on Mr. Reiner, see “Executive Officers” on page 22 of this Proxy Statement. |
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| Mr. Russell serves as our non-executive chairman of the Board and as chairman of the Nominating and Corporate Governance Committee of the Board. Mr. Russell also serves on the board of directors at Accesso Technology Group PLC (OTCMKTS:LOQPF). Mr. Russell previously served in a variety of roles in both public and private technology company boards and previously served on the boards of SABA Software, Inc. (from January 2010 to March 2015), webMethods and Cognos. Mr. Russell has held a number of senior-level roles in his more than 20 years at Hewlett-Packard, including Vice President and General Manager of the multi-billion-dollar Enterprise Systems Group. Mr. Russell holds a Bachelor of Science in Computer Science from Edinburgh University and has completed several executive development programs from institutions including Harvard Business School and INSEAD. Mr. Russell is a National Association of Corporate Directors (NACD) Board Leadership Fellow, demonstrating his commitment to the highest standards of boardroom excellence. NACD Fellowship is a comprehensive and continuous program of study that empowers directors with the latest insights, intelligence, and leading boardroom practices. As a result of leading Hewlett-Packard’s substantial software business, Mr. Russell has broad knowledge of large-scale software operations, including sales, marketing, development, finance, strategic planning and leadership. |
| William Russell |
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| Mr. Williams serves as the chairman of the Audit Committee of the Board. Mr. Williams has also served on the board of directors and as chairman of the audit committee of ChannelAdvisor Corporation (NYSE:ECOM) since 2012. Mr. Williams previously served on the board of directors and as chairman of the audit committee of Halogen Software, Inc. (TSE:HGN) (April 2011 to May 2017). Mr. Williams served as Senior Vice President and Chief Financial Officer of Blackbaud, Inc. (NASD:BLKB), a provider of software and services to non-profit organizations, from January 2001 until his retirement in November 2011. Mr. Williams previously served as Executive Vice President and Chief Financial Officer of both Mynd Corporation (now a subsidiary of Computer Sciences Corporation), and Holiday Inn Worldwide, a subsidiary of Bass PLC. Mr. Williams holds a Bachelor of Arts in business from the University of Northern Iowa. Mr. Williams has extensive financial, business, management and public software company expertise. Through his experience as a chief financial officer, including with three other software and services firms, Mr. Williams’ brings to the Board extensive knowledge of accounting, risk management, general management of software companies, and public company reporting requirements and processes. |
| Timothy V. Williams |
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William Russell has served in a variety of roles in both public and private technology company boards and previously served on the boards of SABA Software, Inc. (from January 2010 to March 2015), webMethods and Cognos. Mr. Russell has held a number of senior-level roles in his more than 20 years at Hewlett-Packard, including Vice President and General Manager of the multi-billion-dollar Enterprise Systems Group. Mr. Russell holds a Bachelor of Science in Computer Science from Edinburgh University and has completed several executive development programs from institutions including Harvard Business School and INSEAD. Mr. Russell is a National Association of Corporate Directors (NACD) Board Leadership Fellow, demonstrating his commitment to the highest standards of boardroom excellence. NACD Fellowship is a comprehensive and continuous program of study that empowers directors with the latest insights, intelligence, and leading boardroom practices. As a result of leading Hewlett-Packard’s substantial software business, Mr. Russell has broad knowledge of large-scale software operations, including sales, marketing, development, finance, strategic planning and leadership.Timothy V. Williams most recently served as Senior Vice President and Chief Financial Officer of Blackbaud, Inc., a publicly-traded provider of software and services to non-profit organizations, from January 2001 until his retirement in November 2011. Mr. Williams previously served as Executive Vice President and Chief Financial Officer of both Mynd Corporation (now a subsidiary of Computer Sciences Corporation), a provider of software and services to the insurance industry, and Holiday Inn Worldwide, a subsidiary of Bass PLC. Mr. Williams holds a Bachelor of Arts in business from the University of Northern Iowa. Mr. Williams also has served on the board of directors and as chairman of the audit committee of ChannelAdvisor Corporation since November 2012. Mr. Williams previously served on the board of directors and as chairman of the audit committee of Halogen Software, Inc. from April 2011 to May 2017. In 2014, Mr. Williams joined the board of directors and serves as chairman of the audit committee of PointClickCare, Inc., a privately held software firm. Mr. Williams has extensive financial, business, management and public software company expertise. Through his experience as a chief financial officer, including with three other software and services firms, Mr. Williams’ brings to the Board of Directors extensive knowledge of accounting, risk management, general management of software companies, and public company reporting requirements and processes. |
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| Mrs. Woestemeyer co-founded the Company in 1985 with her husband, Ronald F. Woestemeyer. Mrs. Woestemeyer was previously the Chief Financial Officer of Metro Networks, a broadcasting company, from 1983 to 1985 and held various financial roles with Continental Airlines and its predecessor, Texas International Airlines, prior to 1983. Mrs. Woestemeyer holds a Bachelor of Business Administration and a Master of Business Administration from the University of Houston. As co-founder of the Company, Mrs. Woestemeyer brings continuity and history of current and past management and direct relevant industry experience. Mrs. Woestemeyer also has familiarity with all of the Company’s key operations as a result of serving as our director since 1985. Mrs. Woestemeyer also has experience as our Chief Financial Officer for many years and related operational expertise. |
| Mariette M. Woestemeyer |
Mariette M. Woestemeyer co-founded the Company in 1985 with her husband, Ronald F. Woestemeyer. Mrs. Woestemeyer was the Chief Financial Officer of Metro Networks, a broadcasting company, from 1983 to 1985 and held various financial roles with Continental Airlines and its predecessor, Texas International Airlines, prior to 1983. Mrs. Woestemeyer holds a Bachelor of Business Administration and a Master of Business Administration from the University of Houston. As co-founder of the Company, Mrs. Woestemeyer brings continuity and history of current and past management and direct relevant industry experience. Mrs. Woestemeyer also has familiarity with all of the Company’s key operations as a result of serving as our director since 1985. Mrs. Woestemeyer also has experience as our Chief Financial Officer for many years and related operational expertise.
Ronald F. Woestemeyer co-founded the Company in 1985 with his wife, Mariette Woestemeyer. Mr. Woestemeyer previously served as our Executive Vice President, Strategic Business Planning from 1997 until his retirement in July 2015. From 1985 to 1997, Mr. Woestemeyer served as our Chief Executive Officer. Prior to founding the Company, Mr. Woestemeyer spent 14 years at Texas International Airlines in various management and executive positions with responsibility over sales and marketing. Mr. Woestemeyer holds a Bachelor of Business Administration degree from the University of Houston. Mr. Woestemeyer brings continuity and direct relevant industry experience to the Board of Directors as well as his unique familiarity with the business, structure, culture, history and deep knowledge of our markets. |
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| Mr. Woestemeyer co-founded the Company in 1985 with his wife, Mariette Woestemeyer.
Mr. Woestemeyer previously served as our Executive Vice President, Strategic Business Planning from 1997 until his retirement in July 2015. From 1985 to 1997, Mr. Woestemeyer served as our Chief Executive Officer. Prior to founding the Company, Mr. Woestemeyer spent 14 years at Texas International Airlines in various management and executive positions with responsibility over sales and marketing. Mr. Woestemeyer holds a Bachelor of Business Administration degree from the University of Houston.
Mr. Woestemeyer brings continuity and direct relevant industry experience to the Board as well as his unique familiarity with the business, structure, culture, history and deep knowledge of our markets. |
| Ronald F. Woestemeyer |
The following table provides a summary view of the experience, expertise and other attributes of our directors and director nominees:
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| | | | | | | | | |
| Board Experience, Expertise or Attribute | Penelope Herscher | Ellen Keszler | Greg B. Petersen | Leslie Rechan | Andres D. Reiner | William Russell | Timothy V. Williams | Mariette M. Woestemeyer | Ronald F. Woestemeyer |
| | (Nominee) | | | (Nominee) | | (Nominee) | | | | (Nominee) |
| Accounting | | x | x | | | | x | x | |
| Business Operations | x | x | x | x | x | x | x | x | x |
| Finance | | x | x | x | x | | x | x | |
| International | x | | | x | x | x | | x | x |
| Leadership | x | x | x | x | x | x | x | x | x |
| M&A | x | | x | x | x | x | x | | |
| Public Company/Governance | x | x | x | x | x | x | x | | |
| Risk Management | x | x | x | x | | | x | | |
| Sales & Marketing | x | | | x | x | x | | | x |
| Software Industry | x | x | x | x | x | x | x | x | x |
| Travel Industry | | x | x | x | x | | | x | x |
SaaS | xCloud Software | x | x | x | x | x | x | | |
Meeting Attendance
During 2017, our Board of Directors held five meetings and acted via unanimous written consent five times, the Audit Committee held ten meetings and acted via unanimous written consent one time, the Compensation and Leadership Development Committee held six meetings and acted via unanimous written consent two times, and the Nominating and Corporate Governance Committee held four meetings. The directors attended each meeting of our Board of Directors and the Committees on which he or she served during 2017, with the exception that Ms. Keszler did not attend the Audit Committee meetings on July 25 and October 24 and the Nominating and Corporate Governance Committee meeting on December 11, Mr. Rechan did not attend the Compensation and Leadership Development Committee meeting on January 3, and Mr. Williams did not attend the Audit Committee meeting on February 13. The Board of Directors encourages all directors to attend annual meetings of the stockholders. All incumbent directors attended the 2017 meeting of the stockholders, except Ms. Herscher, who was not appointed to the Board of Directors until January 1, 2018, after such meeting.
Director Continuing Education
Our directors regularly attend continuing education events related to board governance best practices, including conferences and webinars provided by the NYSE, NACD and Equilar, among others. For example, the majoritymany of our independent directors have attended the NACD Global Board Leaders' Summit in the last fourrecent years. In addition, Mr. Russell, our Non-Executive Chairman, has been recognized as an NACD Board Leadership Fellow, the highest credential for corporate directors offered by the NACD.
Audit Committee
Our Board of Directors has determined that each member of the Audit Committee qualifies as an Audit Committee financial expert within the meaning of the SEC regulations and the rules of the NYSE. In arriving at this determination, the Board of Directors has examined each member’s scope of experience and the nature of their employment in the corporate finance sector.
The Audit Committee oversees our accounting and financial reporting processes and the audits of our financial statements. Primary responsibilities of our Audit Committee include:
reviewing and providing oversight over the qualification, independence and performance of our independent auditor and determining whether to retain or terminate its services;
approving the terms of engagement of our independent auditor and pre-approving the engagement of our independent auditor to perform permissible non-audit services;
reviewing and discussing with management and our independent auditor the results of the annual audit and the independent auditor’s review of our annual and quarterly financial statements and reports, including discussions with independent auditors without management present;
reviewing and discussing with management all press releases regarding our financial results and any other financial information and earnings guidance provided to securities analysts and rating agencies, including any non-GAAP financial measures;reviewing with management and our independent auditor matters that haveDIRECTOR COMPENSATION
The Board has approved a significant impact on our financial statements;
conferring with management and our independent auditors regarding the scope, adequacy and effectivenesscompensation structure for non-employee directors consisting of our internal control over financial reporting;
establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal control or auditing mattersan equity award, annual cash retainer, and for the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters; and
reviewing and approving all related party transactions.
Compensation and Leadership Development Committee
Eachcertain positions, a supplemental cash retainer(s). All cash retainers are paid on a quarterly basis. In 2018, each non-employee member of our Compensation and Leadership Development Committee is aBoard received 5,594 RSUs which vested in full on January 10, 2019, except for 1,875 shares awarded to Ms. Keszler which vested on her retirement from the Board on May 11, 2018 at our 2018 annual meeting. Each non-employee director, as defined in Rule 16b-3 promulgated under the Securites Exchange Act of 1934 (Exchange Act), and an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code (Code).
The Compensation and Leadership Development Committee discharges the responsibilitiesmember of our Board received an annual cash retainer of Directors relating to the compensation and benefits for our executive officers and directors. Primary responsibilities of our Compensation and Leadership Development Committee include:
determining and reviewing all forms of compensation for our executive officers and directors, including, among other things, annual salaries, bonuses, equity awards, severance arrangements, change$35,000 in control protections and other compensatory arrangements;
reviewing and approving corporate performance goals and objectives relevant to such compensation;
administering our equity incentive plans and granting awards of options and other share-based awards to our executive officers, directors and employees;
reviewing our compensation discussion and analysis and Compensation and Leadership Development Committee report required by the rules of the SEC;
evaluating and recommending to our Board of Directors the compensation plans and programs advisable for us, and evaluating and recommending the modification or termination of existing plans and programs;
engage with a third party independent advisor to review market practices around executive compensation and assist us in evaluating our executive compensation program.
providing oversight on the overall leadership development program throughout the Company; and
overseeing succession planning for executive officers jointly with the Nominating and Corporate Governance Committee.
Nominating and Corporate Governance Committee
Primary responsibilities of our Nominating and Corporate Governance Committee include:
identifying, evaluating and recommending to our Board of Directors candidates to serve as members2018. The non-executive chairman of our Board received a supplemental retainer of Directors and considering the nomination$50,000 in 2018. In addition, each non-employee director serving as a chair or member of our incumbent directors for reelection;
evaluating stockholder nominations of candidates for election to our Board of Directors;
reviewing our general policy relating to selection of director candidates and members of committeesa standing committee of our Board of Directors, including an assessment ofreceived the performance offollowing supplemental cash retainer(s):
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| | | | | | | | | | | | |
| Committee Role | | Audit Committee | | Compensation and Leadership Development Committee | | Nominating and Corporate Governance Committee |
| Member | | $ | 15,000 |
| | $ | 15,000 |
| | $ | 7,500 |
|
| Chair | | $ | 30,000 |
| | $ | 20,000 |
| | $ | 10,000 |
|
We also reimburse our directors for reasonable out-of-pocket expenses incurred in connection with (i) their attendance at our Board, committee meetings, and other Company meetings, and (ii) director continuing education programs, including participation in the National Association of Directors; andCorporate Directors (NACD), of which the Company is a member.
reviewing and making recommendations
2018 Director Compensation Table
The following table sets forth the compensation paid to our non-employee directors for service on our Board during 2018. Compensation for Andres D. Reiner our President and Chief Executive Officer is set forth in the "Summary Compensation" table on page 38 of Directors regarding corporate governance principles and policies.this Proxy Statement. Mr. Reiner does not receive any compensation for his services as a director.
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| | | | | | | | | | | | |
| Name | | Fees Earned or Paid in Cash ($) | | Restricted Stock Units ($) (1) | | Total ($) |
Ellen Keszler(2) | | $ | 20,844 |
| | $ | 50,663 |
| | $ | 71,507 |
|
| Penelope Herscher | | $ | 57,500 |
| | $ | 151,150 |
| | $ | 208,650 |
|
| Greg B. Petersen | | $ | 70,000 |
| | $ | 151,150 |
| | $ | 221,150 |
|
| Leslie Rechan | | $ | 57,500 |
| | $ | 151,150 |
| | $ | 208,650 |
|
| William Russell | | $ | 110,000 |
| | $ | 151,150 |
| | $ | 261,150 |
|
| Timothy V. Williams | | $ | 72,500 |
| | $ | 151,150 |
| | $ | 223,650 |
|
| Mariette M. Woestemeyer | | $ | 35,000 |
| | $ | 151,150 |
| | $ | 186,150 |
|
| Ronald F. Woestemeyer | | $ | 35,000 |
| | $ | 151,150 |
| | $ | 186,150 |
|
| |
| (1) | Represents the aggregate grant date fair value of equity awards granted for services in 2018 calculated in accordance with GAAP. For additional information about valuation assumptions for equity awards, refer to Note 13 of our financial statements in our Annual Report on Form 10-K for the year ended December 31, 2018. The January 8, 2018 grant of RSUs awarded to all non-employee directors vested in full on January 10, 2019 and had a grant date fair value of $27.02. |
| |
| (2) | Ms. Keszler retired from our Board on May 11, 2018, the date of our 2018 annual meeting. |
The following table presents the aggregate number of outstanding RSUs and stock option awards held by our non-employee directors as of December 31, 2018:
|
| | | |
| Name | | Restricted Stock Units (#) (1) |
| Penelope Herscher | | — |
|
| Greg B. Petersen | | 5,594 |
|
| Leslie Rechan | | 5,594 |
|
| William Russell | | 5,594 |
|
| Timothy V. Williams | | 5,594 |
|
| Mariette M. Woestemeyer | | 5,594 |
|
| Ronald F. Woestemeyer | | 5,594 |
|
| |
| (1) | Represents RSUs granted on January 8, 2018, which fully vested on January 10, 2019, under the 2018 director compensation policy, for all non-employee directors. Each RSU represents the contingent right to receive one share of Common Stock. |
PROPOSAL ONE
ELECTION OF DIRECTORS
What am I voting on?
Stockholders are being asked to elect threetwo Class IIIII director nominees to the Board of Directors for a three-year term.
Voting Recommendation:
The Board of Directors recommends voting “FOR” the election of each of the threetwo Class IIIII director nominees.
Three (3)Two (2) directors are to be elected at the Annual Meeting. Our Board, of Directors, upon the recommendation of the Nominating and Corporate Governance Committee, has nominated Penelope Herscher, Leslie RechanAndres D. Reiner and William RussellRonald F. Woestemeyer as Class IIIII directors, each to hold office until the 20212022 Annual Meeting and until their successor has been duly elected and qualified or until the earlier of their death, resignation or removal.
The Board of Directors is also composed of two Class III directors, whose terms expire upon the election and qualification of directors at the annual meeting of our stockholders to be held in 2019, and three Class I directors, whose terms expire upon the election and qualification of directors at the annual meeting of our stockholders to be held in 2020.2020, and three Class II directors, whose terms expire upon the election and qualification of directors at the annual meeting of our stockholders to be held in 2021.
The Board of Directors knows of no reason why any of the nominees would be unable or unwilling to serve, but if any nominee should for any reason be unable or unwilling to serve, the proxies will be voted for the election of such other person for the office of director as the Board of Directors may recommend in the place of such nominee. Unless otherwise instructed, the proxy holders will vote the proxies received by them for the nominees named below.
Vote Required
Directors are elected by a plurality vote of the votes cast by holders of our Common Stock entitled to vote at the Annual Meeting. Abstentions and broker non-votes will not have any effect on this proposal. Accordingly, the threetwo nominees who receive the highest number of properly executed “FOR” votes from the holders of Common Stock will be elected as directors.
In accordance with Delaware law, abstentions will be counted for purposes of determining both whether a quorum is present at the Annual Meeting and the total number of shares represented and voting on this proposal. While broker non-votes will be counted for purposes of determining the presence or absence of a quorum, broker non-votes will not be counted for purposes of determining the number of shares represented and voting with respect to the particular proposal on which the broker has expressly not voted and, accordingly, will not affect the approval of this proposal.
The number of “withhold” votes with respect to a nominee will affect whether our Director Resignation Policy will apply to that individual. In accordance with our Director Resignation Policy, any nominee for director who receives a greater number of votes “withheld” from his or her election than votes “for” such election is required to offer his or her resignation following certification of the stockholder vote. Our Nominating and Corporate Governance Committee of our Board of Directors would then consider whether to accept the resignation and make a recommendation to our independent directors as to the action to be taken with respect to the offer. For more information about this policy, see “Corporate Governance - Director Resignation Policy.”
The NYSE broker discretionary rules prohibit banks, brokers and other intermediaries from voting shares held in their clients’ accounts on elections of directors unless the client has provided voting instructions. Therefore, if you hold your shares in street name, it is important that you cast your vote if you want it to count in the election of directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING “FOR” THE ELECTION OF EACH OF THE THREE CLASS II DIRECTOR NOMINEES.
EXECUTIVE OFFICERS
The following table sets forth the executive officers and key employees of the Company, their ages, and the positions currently held by each such person with the Company immediately prior to the Annual Meeting:
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| | | | |
| Name | | Age | | Position |
Named Executive Officers: |
| Andres D. Reiner | | 4748 | | Chief Executive Officer, President and Director |
| Stefan B. Schulz | | 5152 | | Executive Vice President and Chief Financial Officer |
| Thomas F. Dziersk | | 5556 | | Executive Vice President, Worldwide Sales |
Other Significant Employees: |
John Billings | | 49 | | Senior Vice President, Travel |
| Celia Fleischaker | | 4849 | | Chief Marketing Officer |
| Mike Jahoda | | 3839 | | Senior Vice President, Professional Services |
Chris Jones | | 53 | | Senior Vice President, North America Sales |
| Damian Olthoff | | 4344 | | General Counsel and Secretary |
| Rob Reiner | | 5657 | | Chief Technology Officer |
| Jill Sawatsky | | 49 | | Vice President, Customer Success |
| Wagner Williams | | 3940 | | Chief People Officer |
| Benson Yuen | | 5758 | | President, Travel |
| Craig Zawada | | 4748 | | Chief Innovation Officer |
Andres D. Reiner has served as a director and as our President and Chief Executive Officer since November 2010. Mr. Reiner joined the Company in 1999, and prior to his appointment as President and Chief Executive Officer, held a series of positions with successively increasing responsibility, including Senior Vice President of Product Development and Executive Vice President of Product and Marketing. Prior to becoming our President and Chief Executive Officer, he was responsible for global marketing and alliances, product management, science research, and development of our next generation software products. Mr. Reiner was also instrumental in our European growth and the expansion of the Company’s sales and marketing efforts worldwide. Prior to joining us, Mr. Reiner held various technical and management positions in technology companies including Platinum Technology, ADAC Healthcare Information Systems, and Kinesix. |
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| Mr. Reiner serves as a director and as our President and Chief Executive Officer. Mr. Reiner joined the Company in 1999, prior to his appointment as President and Chief Executive Officer in November 2010, held a series of positions with successively increasing responsibility, including Senior Vice President of Product Development and Executive Vice President of Product and Marketing. Prior to becoming our President and Chief Executive Officer, he was responsible for global marketing and alliances, product management, science research, and development of our next generation software products. Mr. Reiner was also instrumental in our European growth, the expansion of the Company’s sales and marketing efforts worldwide, and our transition to a cloud business. Prior to joining PROS, Mr. Reiner held technical and management positions in technology companies including Platinum Technology, ADAC Healthcare Information Systems, and Kinesix. Mr. Reiner holds a Bachelor of Science in Computer Science with a minor in Mathematics from the University of Houston. Stefan B. Schulz joined the Company in March 2015 and serves as our Executive Vice President and Chief Financial Officer. Prior to joining the Company, Mr. Schulz served as Chief Financial Officer for Digital River, Inc., a global provider of cloud-based commerce, payments and marketing services, from July 2011 to February 2015. Prior to joining Digital River, Mr. Schulz spent six years with Lawson Software, an enterprise resource planning software company, where he served as Senior Vice President, Chief Financial Officer and Chief Accounting Officer. Before joining Lawson Software, Mr. Schulz spent 12 years with BMC Software in various finance and accounting roles, including Vice President and Corporate Controller. Prior to BMC Software, Mr. Schulz was with Arthur Andersen LLP in Houston, ultimately serving as an Audit Manager in the firm's Enterprise Group. Mr. Schulz holds a B.B.A. in Accounting from Lamar University.
Thomas F. Dziersk joined the Company in October 2017 and serves as our Executive Vice President, Worldwide Sales. Prior to joining the Company, Mr. Dziersk served as President for NICE Americas, a provider of enterprise software solutions that empower organizations to make smarter decisions based on advanced analytics, from April 2014 to January 2017. Prior to joining NICE, Mr. Dziersk spent eight years with JDA Software Group, Inc. a supply chain software provider, where he served three years as Executive Vice President, Worldwide Sales and five years as Marketing and Senior Vice President Americas. Mr. Dziersk holds a B.A. in Economics from the University of Michigan.
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| Andres D. Reiner |
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| Mr. Schulz serves as our Executive Vice President and Chief Financial Officer. Mr. Schulz joined PROS and assumed his current position in March 2015. Prior to joining PROS, Mr. Schulz served as Chief Financial Officer for Digital River, Inc., a global provider of cloud-based commerce, payments and marketing services, from July 2011 to February 2015. Mr. Schulz also previously served in various roles, including as Senior Vice President, Chief Financial Officer and Chief Accounting Officer, with Lawson Software, an enterprise resource planning software company, from October 2005 to July 2011; in various finance and accounting roles at BMC Software, from 1993 to 2005, including as Vice President and Corporate Controller; and as an Audit Manager in the Enterprise Group with Arthur Andersen LLP. Mr. Schulz was instrumental our transition to a cloud business. Mr. Schulz holds a B.B.A. in Accounting from Lamar University. |
| Stefan B. Schulz |
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| Mr. Dziersk serves as our Executive Vice President, Worldwide Sales. Mr. Dziersk joined PROS and assumed his current position in October 2017. Prior to joining PROS, Mr. Dziersk served as President for NICE Americas, a provider of enterprise software solutions that empower organizations to make smarter decisions based on advanced analytics, from April 2014 to January 2017. Prior to joining NICE, Mr. Dziersk spent eight years with JDA Software Group, Inc. a supply chain software provider, where he served three years as Executive Vice President, Worldwide Sales and five years as Marketing and Senior Vice President Americas. Mr. Dziersk holds a B.A. in Economics from the University of Michigan. |
| Thomas F. Dziersk |
COMPENSATION DISCUSSION AND ANALYSIS
In this section, we describe the executive compensation program for our NEOs. We also explain how theour Compensation and Leadership Development (CLD) Committee determined the pay of our NEOs and its rationale for specific decisions in 2017.2018. Our NEOs for 2017 are as follows:2018 were:
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| Name | Title |
| Andres D. Reiner | Chief Executive Officer, President and Director |
| Stefan B. Schulz | Executive Vice President and Chief Financial Officer |
| Thomas F. Dziersk | Executive Vice President, Worldwide Sales |
2017 Compensation2018 Business Highlights
In 2017,2018, we continued to successfully execute on our multi-year cloud transition, growing subscription revenue 57% and total revenue 17%, and driving 59% total shareholder return cumulatively in 2018 and 2019 through March 15, 2019. Despite this strong performance, we set our CEO’s target pay only near peer median pay levels while using a highly performance-based compensation program with rigorous goals.
Continued to successfully execute on the multi-year strategy we set when announcing our cloud transition in 2015. To date, the Company successfully deliveredhas met or exceeded our communicated cloud transition goals, including achieving numerous financial milestones faster than almost every other on-premise software company that has similarly transitioned to a recurring cloud business:
Delivered strong growth and rapid transformation of our business to the cloud. Our results reflected further success in executing on our cloud transition, and financial goals. In May 2015, we announced our multi-year transition to a cloud-first, SaaS-based operating model to create long-term shareholder value. In 2017, our business results demonstrated even further success in our cloud transition, with year-over-year growth of 31%57% in subscription revenue, 18% in ARR, and 59%23% in subscription revenue, a return to year-over-year growth in total revenue and positive free cash flow in the fourth quarter. Recurring revenue now represents 36% of our total revenue, up from 25% in 2016. In connection with this growth, shareholders accordingly saw a 23% increase in our share price during 2017 and a cumulative 55% increase from end of 2016 through March 16, 2018.Revenue, while also improving Recurring Revenue Gross Margin.
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• | CEO target pay decreased 35% in 2017 and is near the median of our peer group. Despite the Company’s successful cloud transition, for 2017 our CEO’s base salary and target cash incentive remained unchanged from 2016 to 2017, and his target equity compensation2 decreased to $3.9 million in 2017 from $6.5 million in 2016, primarily due to the one-time PRSU equity grant in 2016 which vested contingent on substantial stock price growth. This resulted in a 35% reduction of our CEO’s total target compensation in 2017 compared to 2016. Our CEO’s total target pay for 2017 sits near the median of our 2018 peer group.
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| (1) | ARR is used to assess the trajectory of our cloud business. ARR means, as of a specified date, the contracted recurring revenue, including contracts with a future start date, together with annualized overage fees incurred above contracted minimum transactions, and excluding perpetual and term license agreements recognized as license revenue in accordance with GAAP. ARR should be viewed independently of revenue and any other GAAP measure. |
In connection with our cloud transformation our stock price continued to increase in 2018. Shareholders benefited from a 19% increase in our share price in 2018 and a cumulative 59% increase from the end of 2017 through March 15, 2019.
2018 Compensation Highlights
In order to promote retention and properly incentivize our NEOs, the CLD Committee focused on a best practices, competitive compensation program as follows:
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(2)• | CEO target pay was set conservatively, increasing 9% for 2018, and remains near peer median pay levels. This was despite the Company’s strong financial performance and 23% total shareholder return in 2017 levels. Despite the Company's successful cloud transition and >20% shareholder return in 2017, for 2018 our CEO’s base salary and target cash incentive remained unchanged from 2017, and his target equity compensation1 increased to $4.3 million in 2018 from $3.9 million in 2017 to increase target total compensation to the expected 2018 peer median and recognize our >20% shareholder return in 2017. Our CEO’s total target pay, including base salary and target cash incentive and the target value of long-term equity compensation, was set near the expected median of our 2018 peer group, and this expected median was later confirmed to be an accurate forecast. |
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| (1) | Target equity compensation (a) for RSUs and MSUs represents total target equity compensation determined by the Compensation and Leadership DevelopmentCLD Committee divided by the average closing pricesprice of the Company's Common Stock reported by the NYSE foron the 30 days preceding December 31 prior to grant date, and differs from the accounting grant date fair value included in the "Grants of Plan Based Awards" table on page 4139 of this Proxy Statement);Statement; and (b) for 2016 Stock Price PRSUs represents the accounting grant date fair value. |
Realized pay aligns with performance and is less than reported in the Summary Compensation Table. Despite the operational success of our cloud transition, our shift to a SaaS-based financial model has continued to significantly impact our CEO’s realized pay. Realized pay has been lower than target because we do not reset performance goals, and the initial market reaction to the cloud transition was negative, causing under-target and even 0% payouts from previous years’ market stock unit (MSU) performance-based equity awards. As a result, our CEO’s total realized pay has averaged 64% of total target compensation for the three years from 2015 through 2017 (81% in 2017). This significantly trails our peer group CEOs, whose median realized pay has averaged 97% of median target pay during the same period. Further, because we set aggressive goals and performance versus the goals funded the actual awards, our CEO’s actual annual cash bonus in 2017 was lower than 2016 actual annual cash bonus by more than 50%, despite our operating success and stock price increase. Thus equity compensation amounts disclosed in the Summary Compensation Table of this Proxy Statement are higher than the amounts actually earned by our CEO, because realized pay and performance are aligned by the program design.
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(1)• | Realized CEO pay excludes exercisesContinued emphasis on pay-for-performance. In 2018, our CLD Committee again sought to motivate our NEOs through predominantly “performance-based” cash and equity awards. The majority of stock options grantedour CEO’s 2018 target total compensation was directly performance-based, including annual cash incentives tied to Mr. Reiner prior to his appointment as our CEO in 2010, as referencedpre-established performance targets and MSU equity awards which vary based on the Option Exercises and "Equity Awards Vested" table below on page 43relative performance of this Proxy Statement. Realized CEO pay for 2018 represents projected cash payments from performance at 2018 target levels, actual equity vesting events priorour stock compared to the Record Date, and excludes future PRSUIndex over a three-year performance measurement period. Including RSU equity vesting events that could result from future stockawards, which increase in value based on share price improvement.appreciation, >90% of our CEO’s 2018 total target compensation is considered at risk.
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Continued emphasis on pay-for-performance. In 2017, our Compensation and Leadership Development Committee again sought to motivate our NEOs through predominantly “performance-based” cash and equity awards. The majority of our CEO’s 2017 total target compensation was directly performance-based, including annual cash incentives tied to pre-established performance targets and MSU equity awards which vary based on the relative performance of our stock compared to the Index over a three-year performance measurement period. Including RSU equity awards, which increase in value based on share price appreciation, 89% of our CEO’s 2017 total target compensation is considered at risk. Further, more than 50% of the equity compensation fair value reported in the Summary Compensation Table was due to performance contingent MSU awards and less than 50% was the result of time-vested RSU awards. Performance goals that determine part of the cash incentive compensation are set aggressively with above median performance expectations compared to our peer group. For example, in 2017, our primary growth-oriented performance metric was ARR, and this goal required 40% more growth to earn a target award, which was higher than the approximately 18% median revenue growth experienced by our peers during 2016. Based on these aggressive growth goals, the 2017 annual cash incentive plan resulted in our CEO attaining only 73% of his annual cash incentive target and earned a bonus in 2017 that was 53% lower than the bonus earnout in 2016, despite operational success against the multi-year cloud transformation that we believe helped to improve our stock price in 2017 and so far in 2018.
2018 Compensation Highlights
Our Compensation and Leadership Development Committee chose to make the changes set forth below to our NEOs’ compensation for 2018 after reviewing each leader’s tenure and salary history with us, the Company’s and each leader’s 2017 performance, the compensation practices from our updated peer group, each leader’s compensation relative to our updated peer group, and the feedback provided by our shareholders following our 2017 Say-on-Pay vote. Note that the shareholder feedback received following the Say-on-Pay vote in 2017 could not fully be taken into account for 2017 decisions that were already made prior to the vote.
Andres Reiner, President and Chief Executive Officer
Mr. Reiner joined the Company in 1999 and has served as our President and Chief Executive Officer since 2010. Mr. Reiner has successfully steered the Company through an accelerated transition to the cloud over the last several years. For 2018, the Compensation and Leadership Development Committee decided to leave Mr. Reiner’s base salary and cash incentive target unchanged from 2017, the third year in a row without an increase in target cash compensation. The Committee instead decided to increase Mr. Reiner’s performance-based pay in the form of equity based compensation from $3.9 million in 2017 to $4.3 million in 2018 due to Mr. Reiner’s impact on the Company’s successful operational and financial progress on our cloud transition. Together these decisions resulted in Mr. Reiner’s total target compensation approximating the median of peer compensation for 2018, although the target incentive and 50% of the equity award will be forfeited if performance at the end of the performance period does not meet the minimum required performance levels.
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| | | Cash Compensation | | Target Equity1 | Total Target Compensation |
| | | Base Salary | | Cash Incentive Target | | Cash Incentive Earned | | RSUs | | MSUs | | PRSUs | |
| 2017 | | $ | 525,000 |
| | $ | 577,500 |
| | $ | 419,843 |
| | $ | 1,930,000 |
| | $ | 1,930,000 |
| | $ | — |
| | $ | 4,962,500 |
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| (Decided Jan. 2017) | | (+0% vs. 2016) | (+0% vs. 2016) | | (73% of target)(-53% vs. 2016) | | (-7% vs. 2016) | | (-7% vs. 2016) | | (-100% vs. 2016) | (-35% vs. 2016) |
| 2018 | | $ | 525,000 |
| | $ | 577,500 |
| | Not Yet Earned | | $ | 2,150,012 |
| | $ | 2,150,012 |
| | $ | — |
| | $ | 5,402,524 |
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| (Decided Jan. 2018) | | (+0% vs. 2017) | | (+0% vs. 2017) | (+11% vs.2017) | (+11% vs. 2017) | | (+0% vs. 2017) | (+9% vs. 2017) (-29% vs. 2016) |
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(1) | Target equity reflects target award value approved by the Compensation and Leadership Development Committee on the date of grant calculated and does not reflect the fair value as reported in the 2017 Summary Compensation Table below in this Proxy Statement. |
Stefan Schulz, Executive Vice President and Chief Financial Officer
Mr. Schulz joined the Company in March 2015 as Executive Vice President and Chief Financial Officer. Mr. Schulz's leadership has been integral to the Company’s cloud transition and corresponding shift to a SaaS-based financial model. For 2018, the Compensation and Leadership Development Committee decided to increase Mr. Schulz’s base salary and cash incentive target by 4.1% from 2017 to $380,000 and $304,000 at target, respectively. The Committee also decided to increase Mr. Schulz’s equity-based compensation to $1.8 million in 2018 from $1.5 million in 2017 due to Mr. Schulz’s impact on the Company’s successful operational and financial progress on our cloud transition.
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| | | Cash Compensation | | Target Equity1 | Total Target Compensation |
| | | Base Salary | | Incentive Target | | Incentive Earned | | RSUs | | MSUs | | PRSUs | |
| 2017 | | $ | 365,000 |
| | $ | 292,000 |
| | $ | 212,284 |
| | $ | 900,000 |
| | $ | 600,000 |
| | $ | — |
| | $ | 2,157,000 |
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| (Decided Jan. 2017) | | (+0% vs. 2016) | (+0% vs. 2016) | | (73% of target)(-53% vs. 2016) | | (-48% vs. 2016) | | (-48% vs. 2016) | | (-100% vs. 2016) | (-49% vs. 2016) |
| 2018 | | $ | 380,000 |
| | $ | 304,000 |
| | Not Yet Earned | | $ | 1,080,000 |
| | $ | 720,000 |
| | $ | — |
| | $ | 2,484,000 |
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| (Decided Jan. 2018) | | (+4% vs. 2017) | | (+4% vs. 2017) | (+20% vs. 2017) | (+20% vs. 2017) | | (+0% vs. 2017) | (+15% vs. 2017) (-42% vs. 2016) |
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| (1) | Target equity compensation for RSUs and MSUs represents total target equity compensation determined by the Compensation and Leadership DevelopmentCLD Committee divided by the average closing pricesprice of the Company's Common Stock reported by the NYSE foron the 30 days preceding December 31 prior to grant date, and differs from the accounting grant date fair value included in the "Grants of Plan Based Awards" table on page 4139 of this Proxy Statement).Statement. |
Thomas F. Dziersk, Executive Vice President, Worldwide SalesWe set aggressive, performance-based and formulaic 2018 goals based on predefined targets with no discretion. Performance goals that determine annual cash incentive attainment were set aggressively in 2018 with above median performance expectations compared to our peer group. For example, in 2018, our primary growth-oriented performance metric was ARR, and the ARR goal required 19% growth over 2017 to earn a target level award. This was higher than the approximately 17% average top line growth required to achieve target level incentive compensation by our peer CEOs for 2017. Additionally, the threshold for any incentive payment to be earned in 2018 required at least 14% growth over 2017, much higher than the peer average minimum threshold 5% growth required for our peer CEOs to earn any incentive in 2017. The 2018 annual results compared to the cash incentive plan goals resulted in our CEO earning 138.5% of his annual cash incentive target based on formulaic results vs. the original rigorous goals, with no discretion applied.
Mr. Dziersk joined
Say-on-Pay Vote. Each year, our CLD Committee takes into account the Companyresult of the say-on-pay vote cast by our stockholders. At our 2018 Annual Meeting of Stockholders, our stockholders had the opportunity to provide an advisory vote on the compensation paid to our NEOs, or a “say-on-pay” vote. More than 85% of the total votes cast were voted in Octoberfavor of our say-on-pay proposal. As a result, the CLD Committee believes that the results of our say-on-pay vote affirmed stockholder support of our updated approach to executive compensation, following 61% support in the 2017 stockholder vote. While say-on-pay is a key indicator of stockholder sentiment, we also keep an open dialogue with our institutional investors and stockholders throughout the year. We reach out to discuss business topics, seek feedback on our performance and address other matters of importance to our stockholders, such as Executive Vice President, Worldwide Sales. Mr. Dziersk is responsible forexecutive compensation. During 2018, we have actively engaged with a significant majority of our shares outstanding. As a result of this ongoing outreach, the Company’s sales results across all geographiesCommittee further reevaluated our executive compensation program and business lines, as well as all sales enablement operations. For 2018, the Compensation and Leadership Development Committee made noseveral changes to Mr. Dziersk's target cash compensation but provided a small equity grant to Mr. Dziersk in order to get him onour pay program for 2019. The following table summarizes our shareholders’ feedback and the same annual equity cycle as our other NEOs going forward.Committee’s resulting decisions:
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| | | Cash Compensation | | Target Equity1 | Total Target Compensation |
| | | Base Salary | | Cash Inducement | | Cash Incentive Target | | Cash Incentive Earned | | RSUs | | MSUs | |
| 2017 | | $ | 375,000 |
| | $ | 100,000 |
| | $ | 86,301 |
| | $ | 76,377 |
| | $ | 1,440,000 |
| | $ | 960,000 |
| | $ | 3,037,678 |
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| (Decided Oct. 2017) | | | | | | | (89% of target) | | | | |
| 2018 | | $ | 375,000 |
| | $ | — |
| | $ | 375,000 |
| | Not Yet Earned | | $ | 240,000 |
| | $ | 160,000 |
| | $ | 1,150,000 |
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| (Decided Jan. 2018) | | (+0% vs. 2017) | | | | | | | |
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(1)What We Heard | | What We Did |
| ü | Mixed level of concern on CEO pay levels. | | ü | TargetUpdated our peer group to ensure an accurate comparison of peer executive compensation practices and pay levels, with CEO 2018 target compensation near the median of the updated peer group.
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| | | ü | Set CEO 2019 target compensation near the expected median of our updated peer group. |
| | | ü | Continued to set pay based on performance through our bonus plan and equity grants tied to our operational performance. |
| | | ü | Continued to set aggressive goals for cash incentive attainment at the beginning of each year tied to our strategic plan. For example, in 2018, our primary growth-oriented performance metric was ARR, and this goal required 12% more growth to earn a target award than the approximate 17% median top line growth required for target level pay by our peers during 2017. |
| | | ü | Increased required CEO stock ownershipto 6 times annual salary. |
| ü | Strong support for linking performance-based equity to internal operating measures. | | ü | Revised the structure of our 2019 performance-based equity grants from performance relative to the Russell 2000 Index, to performance relative to preset internal operating measures which reflect the success of our cloud transition, and aligns with shareholder interests. |
ü
| Desire for our performance-based goals to be tied to a successful cloud transition.
| | ü | Updated our annual cash incentive performance measuresfrom ARR1, total revenue, and Free Cash Flow2 in 2018 to total revenue and Recurring Revenue Gross Margin in 2019 to ensure focus on the primary measures of top line growth and overall health of our cloud business. |
| | | ü | Changed our performance-based equity compensation represents total target equity compensation determined by the Compensation and Leadership Development Committee divided by the average closing pricesto incentivize growth in Recurring Revenue, our primary measure of the Company's Common Stock reported by the NYSEgrowth for the 15 days preceding October 9, 2017, and differs from the accounting grant date fair value included in the "Grants of Plan Based Awards" table on page 41 of this Proxy Statement).our cloud business. |
Key Pay Practices
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| What We Do | | What We Do Not Do |
✔ü | Emphasize pay-for-performance where compensation is contingent upon the performance of our business, our stock price and individual performance | | ✔ü | No hedging or pledging of Company stock, including short sales |
✔ü | Utilize performance-based pay through MSUsequity and cash incentive awards that require achievement of pre-established goals with no discretion | | ✔ü | No excessive perquisites |
✔ü | Maintain “double trigger” change in control agreements | | ✔ü | No pensions |
✔ü | Maintain a clawback policy | | ✔ | No short sales of our stock |
✔ | Compensation and Leadership Development Committee oversees risks associated with compensation policies and practices | | ✔ü | No discount from fair market value in setting exercise price of stock options and stock appreciation rights |
✔ü | CompensationCLD Committee oversees risks associated with compensation policies and Leadership Development Committee retains an independent compensation consultantpractices | | ✔ü | No repricing underwater stock options or stock appreciation rights without stockholder approval
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✔ü | Expect our CEO to hold Company stock equal to four times his base salaryCLD Committee retains an independent compensation consultant | | ✔ü | No equity vesting inwithin less than one year after grant, except for up to 5% of the authorized shares |
✔ü | Expect our CEO to hold stock equal to six times his base salary | | | |
| ü | Expect each other NEO to hold stock equal to two times their base salary | | ✔ | No “liberal” change in control definition for equity compensation |
Our Compensation Philosophy
Our executive compensation program is designed to reward achievement of specific corporate goals, and align our executives’ interests with those of our stockholders by rewarding performance that meets or exceeds established goals. Our executive compensation program is designed togoals, reward superior performance and to achieve the following overall objectives:
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| Objective | | Rationale |
| Competitive pay | | Enable the Company to attract and retain high-caliber talent by setting compensation competitive with that being offered to individuals holding comparable positions at other public companies with which we compete for business and talent. The Company does not target a specific percentile and reviews market data to check that compensation is generally in a market range and reflects the individual’s experience, performance, and contribution. |
| Pay for performance | | Provide a compensation package that is weighted heavily towards performance-based pay to motivate high performance among our NEOs, with compensation levels reflecting the achievement of short- and long-term performance objectives |
Incentivize and rewardAlign the achievementinterests of our financial objectivesexecutives with those of our stockholders | | Directly link rewards to the achievement of measurable financial objectives that build long-term stockholder value |
2019 Compensation Highlights
Our CLD Committee chose to make the changes set forth below to our NEOs’ compensation for 2019 after reviewing each leader’s tenure and salary history with us, the Company’s and each leader’s 2018 performance, the compensation practices from our updated peer group, each leader’s compensation relative to our updated peer group, and the feedback from shareholder engagement throughout 2018.
Andres Reiner, President and Chief Executive Officer
Mr. Reiner joined the Company in 1999 and has served as our President and Chief Executive Officer since 2010. Mr. Reiner again successfully steered the Company through an accelerated transition to the cloud in 2018. Based on the Company's strong performance in 2018, and shareholder return of 19% in 2018, the CLD Committee increased Mr. Reiner's target pay by 6% to remain in line with the median of our updated peer group. For the fourth year in a row, the CLD Committee did not change Mr. Reiner’s base salary and cash incentive target for 2019. The Committee instead increased Mr. Reiner’s performance-based equity compensation, from $4.3 million in 2018 to $4.65 million in 2019, consistent with the median target equity compensation for our peer CEOs. This decision was based on Mr. Reiner’s continued impact on the Company’s successful operational and financial progress on our cloud transition and the resulting growth in shareholder return since the start of 2016. Together these decisions resulted in Mr. Reiner’s total target compensation approximating the median of peer compensation for 2019, although the target incentive and 50% of the equity award will be forfeited if performance at the end of the performance period does not meet the minimum required performance levels.
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| | | Cash Compensation | | Target Equity1 | Total Target Compensation |
| | | Base Salary | | Incentive Target | | Incentive Earned | | RSUs | | MSUs/PRSUs | |
| 2018 | | $ | 525,000 |
| | $ | 577,500 |
| | $ | 799,838 |
| | $ | 2,150,012 |
| | $ | 2,150,012 |
| | $ | 5,402,524 |
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| (Decided Jan. 2018) | | (+0% vs. 2017) |
| | (+0% vs. 2017) |
| | (138.5% of target) (+91% vs. 2017) |
| | (+11% vs.2017) |
| | (+11% vs. 2017) |
| | (9% vs. 2017) (vs. 23% TSR in 2017) |
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| 2019 | | $ | 525,000 |
| | $ | 577,500 |
| | Not Yet Earned | | $ | 2,325,001 |
| | $ | 2,325,001 |
| | $ | 5,752,502 |
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| (Decided Jan. 2019) | | (+0% vs. 2018) |
| | (+0% vs. 2018) |
| | | (+8% vs.2018) |
| | (+8% vs.2018) |
| | (+6% vs. 2018) (vs. 19% TSR in 2018) |
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Recognize individual performance | | Encourage personal achievement by rewarding individual performance |
Align(1) | Target equity reflects target award value approved by the interestsCLD Committee on the date of our executives with thosegrant calculated and does not reflect the fair value as reported in the 2018 Summary Compensation Table below in this Proxy Statement. |
Stefan Schulz, Executive Vice President and Chief Financial Officer
Mr. Schulz joined the Company in March 2015 as Executive Vice President and Chief Financial Officer. Mr. Schulz's leadership has been integral to the Company’s cloud transition and corresponding shift to a cloud-based financial model. For 2019, the CLD Committee decided to increase Mr. Schulz’s base salary and cash incentive target by 3% from 2018 to $392,000 and $314,000 at target, respectively. The Committee also decided to increase Mr. Schulz’s target equity-based compensation from $1.8 million in 2018 to $2.0 million in 2019 due to Mr. Schulz’s impact on the Company’s successful operational and financial progress on our cloud transition, and the resulting growth in shareholder return in 2018.
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| | | Cash Compensation | | Target Equity1 | Total Target Compensation |
| | | Base Salary | | Incentive Target | | Incentive Earned | | RSUs | | MSUs/PRSUs | |
| 2018 | | $ | 380,000 |
| | $ | 304,000 |
| | $ | 421,040 |
| | $ | 1,080,000 |
| | $ | 720,000 |
| | $ | 2,484,000 |
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| (Decided Jan. 2018) | | (+4% vs. 2017) |
| | (+4% vs. 2017) |
| | (138.5% of target) (+98% vs. 2018) |
| | (+20% vs. 2017) |
| | (+20% vs. 2017) |
| | (+15% vs. 2017) (vs. 23% TSR in 2017) |
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| 2019 | | $ | 392,000 |
| | $ | 314,000 |
| | Not Yet Earned | | $ | 1,200,000 |
| | $ | 800,000 |
| | $ | 2,706,000 |
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| (Decided Jan. 2019) | | (+3% vs. 2018) |
| | (+3% vs. 2018) |
| | | (+11% vs. 2018) |
| | (+11% vs. 2018) |
| | (+9% vs. 2018) (vs. 19% TSR in 2018) |
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| (1) | Target equity reflects target award value approved by the CLD Committee on the date of our stockholders | | Incentivizegrant calculated and rewarddoes not reflect the creation and preservation of stockholderfair value as reported in the 2018 Summary Compensation Table below in this Proxy Statement. |
Thomas F. Dziersk, Executive Vice President, Worldwide Sales
Mr. Dziersk joined the Company in October 2017 as Executive Vice President, Worldwide Sales. Mr. Dziersk is responsible for the Company’s sales results across all geographies and business lines, as well as all sales enablement operations. For 2019, the CLD Committee decided to increase Mr. Dziersk’s base salary and cash incentive target by 2% from 2018 to $383,000 and $383,000 at target, respectively. The Committee also decided to set Mr. Dziersk’s target equity-based compensation at $1.6 million in 2019, a pay level within the market range offered by the Company’s peers for the same type and scope of responsibility.
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| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Cash Compensation | | Target Equity1 | Total Target Compensation |
| | | Base Salary | | Incentive Target | | Incentive Earned | | RSUs | | MSUs/PRSUs | |
| 2018 | | $ | 375,000 |
| | $ | 375,000 |
| | $ | 519,375 |
| | $ | 240,000 |
| | $ | 160,000 |
| | $ | 1,150,000 |
|
| (Decided Jan. 2018) | | (+0% vs. 2017 annualized) |
| | (+0% vs. 2017 annualized) |
| | (138.5% of target) |
| | (Prorated given Oct 2017 grant) |
| | (Prorated given Oct 2017 grant) |
| (Prorated given Oct 2017 grant) |
|
| 2019 | | $ | 383,000 |
| | $ | 383,000 |
| | Not Yet Earned | | $ | 960,000 |
| | $ | 640,000 |
| | $ | 2,366,000 |
|
| (Decided Jan. 2019) | | (+2% vs. 2018) |
| | (+2% vs. 2018) |
| | | (+0% vs. annualized 2018) |
| | (+0% vs. annualized 2018) |
| | (+1% vs. annualized 2018) (vs. 19% TSR in 2018) |
|
| |
| (1) | Target equity compensation represents total target equity compensation approved by the CLD Committee on the date of grant and does not reflect the fair value as reported in the 2018 Summary Compensation Table below in this Proxy Statement. |
Pay Ratio Disclosure
Under Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, the Company is required to provide the ratio of the annual total compensation of our Chief Executive Officer to the annual total compensation of the median employee of the Company (Pay Ratio Disclosure). For 2017,2018, the median annual total compensation of all employees of the Company and its subsidiaries other than our CEO, was $107,000.$91,177. Our CEO's total annual compensation for 20172018 for purposes of the Pay Ratio Disclosure was $4,996,267.$6,757,227. The ratio of the total annual compensation of our CEO to the median of all other employees was 47:74:1. As SEC rules permit different methodologies, exemptions, estimates and assumptions for identifying the median employee and calculating pay ratio, our Pay Ratio Disclosure may not be comparable to the pay ratio reported by other companies.
We identified the median employee by examining the 20172018 total cash compensation for all individuals, excluding our CEO, who were employed by us during the 20172018 calendar year (whether employed on a full-time, part-time, or seasonal basis). For such employees, we did not make any assumptions, adjustments, or estimates with respect to total cash compensation, and we did not annualize the compensation for any full-time employees that were not employed by us for all of 2017.2018. We used the relevant exchange rate on December 31, 2017 and we excluded employees that were acquired in connection with our acquisition of Vayant in August 2017, as the acquisition occurred in the second half of the year.2018. After identifying the median employee criteria, we calculated annual total compensation for such employee using the same methodology we use for our NEOs as set forth in the 20172018 Summary Compensation Table below.
Role of Our Compensation and Leadership Development Committee
The responsibility for establishing, administering and interpreting our policies governing the compensation and benefits for our NEOs, as well as granting any share-based awards to our NEOs, lies with our Compensation and Leadership DevelopmentCLD Committee, which consists entirely of non-employee directors. Our Compensation and Leadership DevelopmentCLD Committee has taken the following steps to ensure that our executive compensation and benefit policies are consistent with both our compensation philosophy and our Corporate Governance Guidelines:
solicited recommendations from an independent executive compensation consultant to evaluate our executive compensation practices and assisted in developing and implementing the executive compensation programs;
established a practice, in accordance with the rules of the NYSE, of reviewing the performance and determining the compensation earned, paid or awarded to our Chief Executive Officer;
established a policy, in accordance with the rules of the NYSE, to review on an annual basis the performance of our other executive officers with assistance from our Chief Executive Officer and determined what we believe to be appropriate total compensation for these executive officers; and
our Compensation and Leadership DevelopmentCLD Committee members attended continuing education related to compensation best practices provided by NYSE, NACD, and Equilar, among others.
Our Compensation and Leadership DevelopmentCLD Committee considers a broad range of facts and circumstances in setting executive compensation. Among the factors considered for our executives generally in 2017,2018, and for the NEOs in particular, are recommendations from our compensation consulting firm, Compensia, Inc. (Compensia)Frederic W. Cook & Co. (FW Cook), advice from our Chief Executive Officer, general economic and market conditions, our financial condition and operating results, our operating plan, our geographic location and the objectives of our executive compensation policies described above. The weight given to each factor differs from year to year and may differ among individual NEOs in any given year.
Our Compensation and Leadership DevelopmentCLD Committee establishes executive compensation programs that the Compensation and Leadership DevelopmentCLD Committee believes, based on the members’ experience, is the most appropriate to achieve the goals described above. Our Compensation and Leadership DevelopmentCLD Committee continues to evaluate our executive compensation programs on a quantitative and qualitative basis on at least a yearly basis or more frequently if circumstances dictate. Our Compensation and Leadership DevelopmentCLD Committee expects to make new awards and adjustments to our executive compensation programs as appropriate.
Role of Management
During 2017,2018, Mr. Reiner reviewed the performance and compensation of the NEOs, other than himself, and made recommendations as to their compensation to the Compensation and Leadership DevelopmentCLD Committee. In making its decisions regarding executive compensation, the Compensation and Leadership DevelopmentCLD Committee meets outside the presence of executive officers when making final decisions about each executive officer. The Chief Executive Officer is periodically present during portions of these deliberations that relate to the compensation for other executive officers. In addition, for share-based grants to employees who are not NEOs, the Compensation and Leadership DevelopmentCLD Committee may delegatehas delegated to the Chief Executive Officer the authority to make share-based awards within certain limitations on aggregate grants and specific award terms.
Role of Our Independent Compensation Consultant
The Compensation and Leadership DevelopmentCLD Committee retained CompensiaFW Cook to advise the Compensation and Leadership DevelopmentCLD Committee on executive compensation matters for 2017 due to the breadth and depth of Compensia’s experience with executive compensation matters. During 2017, Compensia advised the Compensation and Leadership Development Committee on a variety of subjects such as compensation plan design and trends, pay for performance analytics, benchmarking norms, executive compensation best practices, and other related matters. Compensia reports directly to the Committee, participates in meetings as requested and communicates with the Compensation and Leadership Development Committee Chair between meetings as necessary. Compensia served as our independent compensation consultant from 2010 to 2017.
Following the results of our Say-on-Pay shareholder vote in 2017, the Compensation and Leadership Development Committee decided to reevaluate our independent compensation consultant and secure a fresh perspective on executive compensation. After considering several leading advisors, Compensation and Leadership Development Committee retained Frederic W. Cook & Co., Inc. (FW Cook) to advise the Compensation and Leadership Development Committee on executive compensation matters2018 due to the breadth and depth of FW Cook'sCook’s experience with executive compensation matters and their particular expertise in the software industry. During 2018, FW Cook advised the Compensation and Leadership DevelopmentCLD Committee on a variety of subjects such as compensation plan design and trends, pay for performance analytics, benchmarking norms, executive compensation best practices, and other related matters. FW Cook reports directly to the Committee, participates in meetings as requested and communicates with the Compensation and Leadership DevelopmentCLD Committee Chair between meetings as necessary. FW Cook has served as our independent compensation consultant since 2017.
Prior to engaging each of Compensia and FW Cook, the Compensation and Leadership DevelopmentCLD Committee reviewed each firm’sFW Cook's qualifications, as well as their independence and any potential conflicts of interest. The Compensation and Leadership DevelopmentCLD Committee has the sole authority to modify or approve the compensation for each of Compensia and FW Cook, determine the nature and scope of their services, evaluate their performance, and terminate their engagement and hire replacement or additional consultants at any time. Neither Compensia or FW Cook performeddid not perform any services for us in 20172018 other than as serving as advisors to the Compensation and Leadership DevelopmentCLD Committee.
Peer Group
To assist the Compensation and Leadership DevelopmentCLD Committee in its deliberations on executive compensation, the Committee each year reviews our peer group with our compensation consultant for appropriateness based on a variety of factors including: similarities in revenue, market capitalization, revenue, relevant industries, the overlapping labor market for top management talent, our status as a publicly traded, U.S.-based firm, and various other characteristics. InAdditionally, in late 2017, the Committee specifically focusedbegan to focus on reconsidering peers with a founder CEO who did not appear to be paid in a manner that reflects the external pay market. As a result of this review, the Committee made the following changes to the peer group:
|
| | | | |
2016 Peer Group (Count = 18) | | 2017 Peer Group (Count = 17) | | 2018 Peer Group (Count = 16) | | 2019 Peer Group (Count = 18) |
| — | | —8x8 | | 8x8 |
| Aspen Tech | | Aspen Tech | | Aspen Tech |
| Bazaarvoice | | Bazaarvoice— | | Bazaarvoice— |
| — | | —Benefitfocus | | Benefitfocus |
| Bottomline Tech | | Bottomline Tech | | Bottomline Tech |
— | | — | | Broadsoft |
| Callidus Software | | Callidus Software | | Callidus Software |
| Cornerstone | | Cornerstone | | Cornerstone |
— | | | | Coupa Software |
| | | | Ellie Mae |
| | | | Five9 |
| HubSpot | | — | | — |
| Imperva | | Imperva | | Imperva |
Jive SoftwareLivePerson | | — | | — |
LivePersonLogMeIn (revenue above range) | | LivePerson— | | — |
LogMeIn | | LogMeIn | | LogMeIn |
—Model N | | Model N | | Model N |
| | | | Monotype Imaging |
| Paylocity | | Paylocity | | Paylocity |
Realpage (revenue above range)— | | — | | — |
| — | | Q2 Holdings | | Q2 Holdings |
| | | | Quotient Tech |
| — | | RingCentral | | RingCentral |
| SPS Commerce | | SPS Commerce | | SPS Commerce |
— | | — | | Q2 Holdings |
TubeMogul | | — | | — |
| Varonis Systems | | Varonis Systems— | | — |
| VASCO Data | | VASCO Data— | | — |
| — | | —Workiva | | Workiva |
Removed for 2017 due to acquisition: | | Removed for 2018 due to acquisition: | | |
Constant Contact | | ApigeeRemoved for 2019 due to acquisition: | | |
DemandwareApigee | | Jive SoftwareBazaarvoice | | |
MarketoJive Software | | Broadsoft | | |
| TubeMogul | | | | |
With these changes, the Compensation and Leadership DevelopmentCLD Committee examined the compensation practices of these companies, which we believe most closely approximate the size, scope and complexity of our business. The 20172018 peer group was set in late 2016 and referenced for setting target compensation levels for NEOs for 2017. The 2018 peer group was established in late 2017 and referenced for setting target compensation for the hiring of Mr. Dziersk, our Executive Vice President, Worldwide Sales, and target compensation levels for NEOs for 2018, among other things. The 2019 peer group was established in late 2018 and referenced for setting target compensation levels for NEOs for 2019, among other things.
Compensia for 2016/2017 and FW Cook for 2017/2018, each prepared a compensation analysis using data gathered from publicly available information for these peer groups. The Compensation and Leadership DevelopmentCLD Committee used this data to compare the compensation of our NEOs to similarly positioned persons within the peer group and to determine the relative compensation for each NEO position, based on direct, quantitative comparisons of pay levels.
Components of Executive Compensation
Compensation decisions for our NEOs for 2017 were made prior to our 2017 Say-on-Pay vote in May 2017. As a result, the feedback provided by our stockholders after that vote was not taken into account for the 2017 compensation decisions described below.
Base Salaries
We use base salaries primarily to compensate and retain our NEOs for their services. Base salaries for our NEOs are reviewed on an annual basis and represent the minimum payment for a satisfactory level of individual performance as long as the executive remains employed with us. Base salary is set at the Compensation and Leadership DevelopmentCLD Committee’s discretion after taking into account the competitive landscape including the compensation practices of the companies in our selected peer groups, our business strategy, our performance goals and certain individual factors, such as position, salary history, individual performance and contribution, length of service with the Company and placement within the general base salary range offered to our NEOs.
Executive compensation activities in 2017.2018. Based on the criteria above, the Compensation and Leadership DevelopmentCLD Committee made no change to the base salaries for either of Messrs. Reiner, Schulz, or Schulz. The Committee set Mr. Dziersk’s initial annual base salary at $375,000 based on the criteria above, based on his significant previous experience leading global sales for other SaaS companies of business intelligent solutions and his expected contributions in 2018. Dziersk.
Cash Incentives
For 2017,2018, we utilized a cash incentive plan for Messrs. Reiner, and Schulz, under which cash incentive payments could be made at the end of the quarter and after the end of each year based on our performance against our corporate objectives for each quarter and the year, respectively. We also utilized a cash incentive plan for Mr. Dziersk under which cash incentive payments could be made after the end of each year based on our performance against our corporate objectives for the fourth quarter.each year. The cash incentive programs wereprogram was intended to reward our NEOs upon the achievement of financial performance goals. Each component of eachthe cash incentive plan had minimum threshold target and maximum levels and operated independent of the other components in that the target incentive payment amount for each component was payable if we hit our target level for that component. Actual results between the minimum threshold, target and the maximum goal levels would be pro-rated. We use our cash incentive plansplan to align our NEOs' performance with our financial results and to motivate our NEOs to successfully implement our cloud strategy and execute our corresponding financial plan by achieving quarterly and annual goals that were set at the beginning of the year and remained unchanged through the end of the year.
Executive compensation activities in 2017.2018. Our Compensation and Leadership DevelopmentCLD Committee approved our 20172018 Named Executive Officer Plan (2017(2018 NEO Plan) for each of our NEOs in March 2018, and many of the changes reflected in the 2018 NEO Plan were in response to feedback received after the 2017 and amended the plan in May 2017 solely to clarify certain definitions to match our public financial disclosures.Say-on-Pay vote. The 20172018 NEO Plan eliminated the annual contract value (ACV) bookings and discretionary elementsnon-GAAP gross profit from the 20162017 Named Executive Officer Plan (2016(2017 NEO Plan), retained the ARR and free cash flow elements from the 20162017 NEO Plan, and added non-GAAP gross profittotal revenue as a new element for 2017. ACV2018. Gross profit was eliminated because ACV from new bookings is already reflected in ARR, and ACV was, instead, replaced with the additiontotal revenue because we believe that total revenue will be an increasingly valuable indication of non-GAAP gross profit. We believed thattop line growth. Overall, ARR, non-GAAP gross profit,total revenue, and free cash flow were the best indicators to measure the health and trajectory of our overall cloud business at this point in our cloud transition. InThe 2018 NEO Plan also eliminated the quarterly component and utilizes only annual performance periods for all measures in order to closely tie NEO compensation to the performance ofeliminate shareholder confusion on how our business, the 2017 NEO Plan set target incentive payment amounts based upon achievement of quarterly and annual goals related to ARR and non-GAAP gross profit, and annual goals related to free cash flow.are defined. The weighting of the 20172018 NEO Plan components is set forth in the following table:
|
| | | |
| Component Weighting | Quarterly | | Annually |
Non-GAAP Gross Profit1 | 20.0% | | 5% |
| | (5% per Qtr) | | |
ARR2 | 28% | | 22% |
| | (7% per Qtr) | | |
Free Cash Flow3 | - | | 25.0% |
| Subtotal: | 48% | | 52% |
| | | | |
| Total Incentive Opportunity | 100.0% |
|
| | |
| Component | | Weighting |
ARR1 | | 50% |
Free Cash Flow2 | | 25% |
| Total Revenue | | 25% |
| Total Incentive Opportunity | 100% |
| |
| (1) | Non-GAAP gross profit is defined as gross profit calculated in accordance with generally accepted accounting principles, excluding the impact of stock-based compensation, severance and the amortization of acquisition-related intangibles. For a reconciliation of this non-GAAP financial measure to our results as reported under the generally accepted accounting principles in the United States (GAAP), see Exhibit 99.1 to our Current Report on Form 8-K furnished to the Securities and Exchange Commission (SEC) on February 6, 2018, which Current Report and the exhibit thereto are hereby incorporated by reference in this Proxy Statement. |
| |
(2) | ARR is used to assess the trajectory of our cloud business. ARR means, as of a specified date, the contracted recurring revenue, including contracts with a future start date, together with annualized overage fees incurred above contracted minimum transactions, and excluding perpetual and term license agreements recognized as license revenue in accordance with GAAP. ARR should be viewed independently of revenue and any other GAAP measure. |
| |
(3)(2) | Free cash flowCash Flow is a non-GAAP financial measure which is defined as net cash provided by (used in) operating activities, less additions to property, plant and equipment, purchases of other (non-acquisition-related) intangible assets and capitalized internal-use software development costs. |
Payouts under the 20172018 NEO Plan were based on Company performance compared to aggressive goals set for each component’s target. Our primary growth-oriented performance metric is ARR and our ARR performance goal required 23%19% growth at target for 2017, which is 12% more aggressive than the approximately 18% median revenue17% average top line growth experiencedrequired to achieve target level incentive compensation by our 2018 peers. Payouts were made each quarter and at the end of the yearpeer companies for each of Messrs. Reiner and Schulz, and following the end of year for Mr. Dziersk prorated based on his start date. In addition, the Committee based Mr. Dziersk's 2017 incentive on preset targets for the fourth quarter (Q4) in 2017 for ARR and non-GAAP gross profit, and the preset target for full year free cash flow.2017. The Compensation and Leadership DevelopmentCLD Committee authorized the payments in February 2018 under the 2017 NEO Plan2019 for payment after audited results were determined for each quarter and annual performance period.2018. The quarterly and annual target, minimum threshold and maximum for each component are set forth in the following table:
|
| | | | | |
| | Threshold, Target, & Maximum Goals ($M) |
| | Quarterly | Annual |
| Component | Q1 | Q2 | Q3 | Q4 | 2017 |
| Non-GAAP Gross Profit |
| Maximum | — | — | — | — | $111.5 |
| Target | $23.3 | $25.5 | $26.8 | $30.7 | $106.2 |
| Threshold | $22.4 | $24.5 | $25.7 | $29.4 | $102.0 |
| ARR |
| Maximum | — | — | — | — | $153.9 |
| Target | $127.6 | $134.7 | $140.5 | $150.1 | $150.1 |
| Threshold | $125.9 | $130.8 | $135.7 | $144.3 | $144.3 |
| Free Cash Flow |
| Maximum | — | — | — | — | $(15.2) |
| Target | — | — | — | — | $(19.0) |
| Threshold | — | — | — | — | $(22.0) |
|
| | | | | | | |
| | Goals ($M) | | Performance Achieved |
| Component | Threshold | | Target | | Maximum | |
ARR1 | 180.0 | | 190.4 | | 195.7 | | 190.5 |
| Free Cash Flow | (6.0) | | (2.0) | | 1.0 | | (0.5) |
Total Revenue1 | 185.0 | | 192.0 | | 197.0 | | 198.5 |
| |
| (1) | Performance achievement shown on a constant currency basis. |
For the 20172018 NEO Plan, the Compensation and Leadership DevelopmentCLD Committee set the incentive pay as a percentage of the annual base salary of each of Messrs. Reiner, Schulz, and Schulz,Dziersk, based on achievement of the minimum threshold targets for each component above, as set forth in the following table:
|
| | | | | | |
| Named Executive Officer | | At Target Threshold | | At Target | | At Target Maximum |
| Andres D. Reiner | | 55% | | 110% | | 220% |
| Stefan B. Schulz | | 40% | | 80% | | 160% |
Thomas F. Dziersk(1) | | 50% | | 100% | | 200% |
| |
(1) | Reflects annualized amount of Mr. Dziersk's incentive opportunity, Mr. Dziersk's actual 2017 incentive opportunity was prorated based on his commencement of employment with the Company in October 2017. |
|
| | | | | | |
| Named Executive Officer | | At Target Threshold | | At Target | | At Target Maximum |
| Andres D. Reiner | | 55% | | 110% | | 220% |
| Stefan B. Schulz | | 40% | | 80% | | 160% |
| Thomas F. Dziersk | | 50% | | 100% | | 200% |
The actual payout for 20172018 performance as a percentage of the base salary of each 20172018 NEO reflects actual performance against the target range as described above, and are set forth in the following table:
|
| | | | |
| Named Executive Officer | | Actual Payout |
| | As a % of Base | | As a % of Target |
| Andres D. Reiner | | 79.97% | | 72.7% |
| Stefan B. Schulz | | 58.16% | | 72.7% |
Thomas F. Dziersk(1) | | 20.37% | | 88.5% |
| |
(1) | For 2017, Mr. Dziersk’s annual incentive target was prorated based on his commencement of employment with us in October 2017. |
Mr. Dziersk also received a one-time sign on bonus of $100,000 to facilitate his transition into the Company. |
| | | | |
| Named Executive Officer | | Actual Payout |
| | As a % of Base | | As a % of Target |
| Andres D. Reiner | | 152.35% | | 138.5% |
| Stefan B. Schulz | | 110.8% | | 138.5% |
| Thomas F. Dziersk | | 138.5% | | 138.5% |
For 2017,2018, the Compensation and Leadership DevelopmentCLD Committee decided upon the target total cash compensation (base salary plus target cash incentives) for Mr.Messrs. Reiner, Mr. Schulz, and Mr. Dziersk based on each individual’s compensation history, recent individual performance and contribution, as well as the competitive landscape including the compensation practices of the companies in our selected peer groups, our business strategy, and placement within the peer group compensation range for each position.
ActualNEO bonuses for our CEO in 2017 were 53% lower than his actual bonus in 2016, with2018 included no adjustment outside of the formulaic outcome driven by performance versus the goals that were set at the start of the year. We believe that the 20172018 goals were aggressive based on performance benchmarking of the growth rates compared to our 2017 Peer Group as well as due to the below-target funding outcome despite the operational successes experienced during the year,2018 peer group, which contributed to our 55%59% stock price increase between December 31, 20162017 and March 16, 2018.15, 2019.
Executive compensation activities in 2018.2019. In February 2018,January 2019, our Compensation and Leadership DevelopmentCLD Committee approved our 20182019 Named Executive Officer Plan (2018(2019 NEO Plan) for each of our NEOs. Many of the changes reflected inCompared to the 2018 NEO Plan, were in response to feedback received after the 2017 Say-on-Pay vote. Compared to the 2017 NEO Plan, the 20182019 NEO Plan retained the total revenue element, eliminated the ARR and free cash flow elements, eliminated the non-GAAP gross profit metric,Free Cash Flow metrics, and added a new total revenue metric as total revenue has become an increasingly relevant measure of growth at this point in our cloud transition. Given the continued importance of ARR in measuring the growth of our cloud business, a minimum threshold was added to the plan that requires ARR to reach a certain level before any incentive is payable.non-GAAP Recurring Revenue Gross Margin metric. The Compensation and Leadership DevelopmentCLD Committee believes that ARR, total revenue and free cash flowNon-GAAP Recurring Revenue Gross Margin are the best indicators to measure the growth and efficiency of our business at this advancing stage of our cloud transition. The 2018 NEO Plan also eliminated the quarterly component, and utilizes only annual performance periods for all measures in order to eliminate shareholder confusion on how our quarterly goals are defined. The weighting of the 20182019 NEO Plan components is set forth in the following table:
|
| | | | | |
| 2018 Annual | Threshold | | Target | | Maximum |
| ARR | 25.0% | | 50.0% | | 100.0% |
| Total Revenue | 12.5% | | 25.0% | | 50.0% |
| Free Cash Flow | 12.5% | | 25.0% | | 50.0% |
| Annual Total: | 50.0% | | 100.0% | | 200.0% |
|
| | | | | |
| Component | Threshold | | Target | | Maximum |
| Total Revenue | 30% | | 60% | | 120% |
Non-GAAP Recurring Revenue Gross Margin1
| 20% | | 40% | | 80% |
| Total Incentive Opportunity | 50.0% | | 100.0% | | 200.0% |
| |
| (1) | Non-GAAP Recurring Revenue Gross Margin is used to measure the efficiency of our business, and is defined as (a) total recurring revenue (comprised of subscription and maintenance & support revenue), less recurring cost of revenue excluding share-based compensation, amortization of acquisition-related |
intangibles, acquisition-related expenses and non-cash rent expense on the preoccupied new PROS headquarters (non-GAAP Recurring Cost of Revenue), divided by (b) total recurring revenue, expressed as a percentage.
In setting the targets for these components, the Compensation and Leadership DevelopmentCLD Committee believed that there was a reasonable likelihood that we could achieve the targets specified if we execute on our business plan. For the 20182019 NEO Plan, the incentive payment as a percentage of the base salary for each continuing NEO remains unchanged from 2017.2018.
Equity Awards
The Compensation and Leadership DevelopmentCLD Committee believes that equity compensation plans are an essential tool to link the long-term interests of stockholders and employees, especially the NEOs, and serve to motivate NEOs to make decisions that will, in the long run, deliver the best returns to stockholders.
Executive compensation activities in 20172018. In 2017,2018, the Compensation and Leadership DevelopmentCLD Committee considered the equity mix for our NEOs and believed it was in the best interests of our stockholders to grant equity awards in aan equal mix of MSUs and RSUs to our Chief Executive Officer and adjusted thean equity mix for Mr.Messrs. Schulz and Dziersk to be 60% RSUs and 40% MSUs to better align with our peer group compensation practices. We also provided an initial equity grant to Mr. Dziersk upon joining the Company in October 2017 of 60% RSUs and 40% MSUs. RSUs granted in 20172018 (January 2018 RSUs) to our NEOs vest in four equal annual installments on January 110th of each year for Messrs. Reiner and Schulz and on October 9 of each year for Mr. Dziersk.year.
The Compensation and Leadership DevelopmentCLD Committee determines the size of awards following review of competitive market data from our peer group, as well as subjective factors such as relative job scope, individual performance, tenure and experience, expected future contributions to the growth and development of the Company, Company performance, historical equity compensation awarded to ana NEO, and the unvested equity position held by each NEO. These factors are reflected in the MSU and RSU grants made in January 20172018 to Mr.Messrs. Reiner, and Mr. Schulz, and in October 2017 to Mr. Dziersk.
For 2017,2018, the value of Mr. Reiner’s target equity award was based on the Company’s positive results against targets in 20162017 and the substantial progress made in leading the Company’s cloud transition. The value of Mr. Schulz's target equity grant in 2018 was based on his especially positive performance in 2017 and thehis direct impact of histhe performance on the Company’s results. The value of Mr. Dziersk's targetFor 2018, the CLD Committee provided a small equity grant was basedto Mr. Dziersk in order to get him on his significant previous experience leading global salesthe same annual equity cycle as our other NEOs going forward.
RSUs are intended to assist in retaining our NEOs and to reward them for other SaaS companiessustaining and increasing the share price of business intelligent solutions and his expected contributions to the Company.our Common Stock.
MSUs are performance-vested units under which the actual number of shares of our Common Stock received following vesting is based on the Company's total stockholder return (TSR) in relation to the Index over a specified performance period. The MSUs awarded in January 20172018 (January 20172018 MSUs) to Messrs. Reiner, and Schulz, have a three year performance period beginning January 2017. The MSUs awarded in October 2017 (October 2017 MSUs) to Mr.and Dziersk have a three-year performance period beginning OctoberJanuary 2017. If we under-perform the Index, the percentage at which the MSUs convert into shares of our Common Stock will be reduced from 100%, at a rate of 2.5 to 1 (2½-percentage-point reduction in the number of target units for each percentage point of under-performance), with a minimum percentage of 0%. If we outperform the Index, the percentage at which the MSUs convert to shares will be increased from 100%, at a rate of 2.5 to 1 (2½-percentage-point increase in the number of target units for each percentage point of over-performance), with a maximum percentage of 200%.
The Compensation and Leadership DevelopmentCLD Committee believes that MSUs reward for performance and adjust the reward and the performance for overall market conditions that may have contributed to the outcome. The value realized from MSUs can differ materially from reported pay because MSUs may not vest, or may vest below target if our TSR does not sufficiently perform relative to the Index over the three year performance measurement period. For example, neither the MSUs granted in 2014 nor January 2015 vested.did not vest. These limited vesting results were caused by the decrease in the Company’s stock price during the early stages of the Company’s transition to a cloud company.
RSUs are intended to assist in retaining our NEOs and to reward them for sustaining and increasing the share price of our Common Stock. RSUs granted in 2017 to each of Messrs. Reiner and Schulz vest in four equal annual installments on January 1st of each year (January 2017 RSUs), and RSUs granted in 2017 to Mr. Dziersk vest in four equal annual installments on October 9 of each year (October 2017 RSUs).
PRSUs are performance vested restricted stock units distinct from MSUs which vest upon achievement of certain performance metrics, which were granted in 2016 with price contingencies that were materially higher than stock price at the time (Stock Price PRSUs). Stock Price PRSUs vest if the average trailing closing price of the Company's Common Stock meets certain minimum stock price growth hurdles, and are intended to further align the interests of the Company’s senior management with the Company’s shareholders and further enhances the relationship between their pay and performance. After consulting with Compensia in 2016 on the unvested equity value remaining for Messrs. Reiner and Schulz, the Committee decided to provide a one-time grant of PRSUs (2016 PRSUs) to (a) retain our NEOs who we believe have more value in the marketplace after demonstrating success in our cloud transition, (b) reward our NEOs for creating shareholder value by executing on all key milestones during the first 15 months of our cloud transition, and (c) encourage our NEOs to create further incremental shareholder value through our cloud transition, with shareholder-friendly payouts only if our stock price substantially appreciates and exceeds preset share price growth targets. The Committee did not grant PRSUs in 2017 and has no plan to grant PRSUs in 2018.hurdles. The actual number of shares of our Common Stock issuable under 2016the Stock Price PRSUs is based on our stockaverage per share closing price performance for at least 105 calendar days prior to September 9, 2020, with 25% vesting at $27 (vested in 2017), an additional 25% vesting at $33 (vested in 2018), and the remaining 50% vesting at $41 (each, an Average Per Share Closing Price)(not yet vested). The 2016Stock Price PRSUs were partially earned in 2017 and 2018 based on achieving the first two of three stock price growth goals. The remaining 2016Stock Price PRSUs have not been earned yet as the applicable stock price hurdles havehurdle has not been achieved. In the event of a change in control, the stock price at the time of the change in control would determine the percentage of 2016 PRSUs issued using the same price hurdles above. The
following table shows the number of 2016Stock Price PRSUs that were earned during 2017 through 2018 and the number that remain unearned but potentially earnable for each of our NEOs:
| | | Named Executive Officer | PRSUs per Price Hurdle | Stock Price PRSUs per Price Hurdle |
| Earned in 2017 | | Outstanding as of December 31, 2017 | Earned in 2017 | | Earned in 2018 | | Outstanding as of 12/31/2018 |
| td7/share | | $33/share | | $41/share | td7/share | | $33/share | | $41/share |
| Andres D. Reiner | 50,000 | | 50,000 | | 100,000 | 50,000 | | 50,000 | | 100,000 |
| Stefan B. Schulz | 15,000 | | 15,000 | | 30,000 | 15,000 | | 15,000 | | 30,000 |
| Thomas F. Dziersk | — | | — | | — | — | | — | | — |
The following table sets forth information as of December 31, 20172018 with respect to compensation plans under which our equity securities are authorized for issuance. For additional information on our equity compensation plans, see Note 1011 of the Notes to the Consolidated Financial Statements in our 20172018 Annual Report.
|
| | | | | | | | | |
| | I | | II | | III |
| Plan Category | Number of securities to be issued upon exercise of outstanding options and rights | | Weighted-average exercise price of outstanding options and rights | | Number of securities remaining available for future issuance under plans (excluding securities listed in Column (I)) |
| All compensation plans previously approved by security holders | 3,356,030 |
| | $ | 11.39 |
| | 2,348,370 |
|
| All compensation plans not previously approved by security holders | — |
| | — |
| | — |
|
| Total | 3,356,030 |
| | $ | 11.39 |
| | 2,348,370 |
|
Our 2017 Plan provides for a maximum aggregate number of 2,500,000 shares that may be issued under such 2017 Plan. Our 2007 Equity Incentive Plan (2007 Plan) provided a formula for automatic increases in the number of securities available for issuance under such plan. The maximum aggregate number of securities that could have been issued under the 2007 Plan cumulatively increased by a number of shares equal to the lesser of (i) 3.5% of the number of securities issued and outstanding on the immediately preceding December 31, (ii) 900,000 shares, and (iii) an amount determined by our Board of Directors. |
| | | | | | | | | | |
| | I | | II | | III |
| Plan Category | Number of securities to be issued upon exercise of outstanding options and rights | | Weighted-average exercise price of outstanding options and rights | | Number of securities remaining available for future issuance under plans (excluding securities listed in Column (I)) |
| All compensation plans previously approved by security holders | $ | 2,889,749 |
| | $ | 10.92 |
| | 1,347,240 |
|
| All compensation plans not previously approved by security holders | — |
| | — |
| | — |
|
| Total | 2,889,749 |
| | $ | 10.92 |
| | 1,347,240 |
|
Executive compensation activities in 2018. 2019. In 2018,2019, the Compensation and Leadership DevelopmentCLD Committee reviewed the equity mix for our NEOs and believed it was in our best interests to continue to grant equity awards in an equal 50/50 mix of MSUsPRSUs and RSUs to Mr. Reiner, and 60% RSUs and 40% MSUsPRSUs for Messrs. Schulz and Dziersk to align with our peer group compensation practices. RSUs granted in 20182019 to our NEOs vest in four equal annual installments on January 10th15th of each year. After considering feedback from stockholders, the CLD Committee decided to move from TSR-linked MSUs to PRSUs tied to achievement of internal performance metrics. The MSUsPRSUs awarded in 2018 (2018 MSUs) to each2019 (2019 PRSUs), are payable in shares of our NEOs haveCommon Stock, and vest at up to 200% of the grant amount on the third anniversary of the grant based upon achievement of certain internal performance metrics set by the Committee over a three-yeartwo-year performance period beginning February 2018.January 2019. If we under-performachieve the Index,target performance level, the percentage at which the 2018 MSUs2019 PRSUs convert into shares of our Common Stock will be 100%. If we fail to achieve the performance level at target, the percentage at which the 2019 PRSUs convert into shares of our Common Stock will be reduced from 100%, at a rate of 2.5 to 1 (twothrough linear interpolation between 50% threshold and one-half-percentage-point reduction in the number of target units for each percentage point of under-performance),100% achievement, with a minimum percentage of 0%. for performance below threshold. If we outperformperform above the Index,target performance level, the percentage at which the 2018 MSUs2019 PRSUs convert to shares of our Common Stock will be increased from 100%, at a rate of 2.5 to 1 (2½-percentage-point increase in the number of target units for each percentage point of over-performance),through linear interpolation, with a maximum percentage of 200%. for performance above maximum performance levels.
Other Compensation
Benefits. We provide ourOur NEOs the following benefits, generally on the same terms as we provide our other employees:
health, dental, travel, accident insurance and vision;
life insurance;
employee assistance plan;
medical and dependent care flexible spending account;
short-and long-term disability, accidental death and dismemberment;
a 401(k) plan;
an employee stock purchase plan;
paid time off;
sick days; and
business-related tuition reimbursement.
We believe these benefits are consistent with companies with which we compete for employees.
401(k) Plan. We provide a tax-qualified employee savings and retirement plan (401(k) Plan) intended to qualify under Section 401(a) of the Code. Contributions, and income earned thereon, are not taxable to employees until withdrawn. Under the 401(k) Plan, employees may elect to reduce their current compensation up to the statutorily prescribed annual limit and have the amount of the reduction contributed to the 401(k) Plan. The 401(k) Plan also permits us to make matching contributions to the plan on behalf of participants. Historically, our matching contribution has been 50% of the first 6% of employee eligible compensation. We may also make discretionary contributions. In 2017, we matched 50% of each employee’s contribution up to 6% of the employee’s eligible income contributed to our 401(k) Plan and made no discretionary contributions.
Employee Stock Purchase Plan. We provide an employee stock purchase plan (ESPP) intended to qualify as an “employee stock purchase plan” under section 423 of the Code. At the beginning of each offering under the plan, each participant in the ESPP is granted the right to purchase (Purchase Right) through accumulated payroll deductions up to a number of shares of our Common Stock determined on the first day of the offering period. The Purchase Right is automatically exercised on the last day of the offering period unless the participant has withdrawn from participation in the ESPP prior to such date. Generally, all of our employees are eligible to participate if they are employed by us, or any participating subsidiary, for at least 20 hours per week. However, an employee may not be granted ain our health and welfare programs, 401(k) plan, Employee Stock Purchase Right if such employee immediately afterPlan and other benefit programs on the grant would own stock possessing 5% or more of the total combined voting power or value of all classes of our capital stock or that of any related corporation.same basis as other U.S. employees.
Severance Compensation and Termination Protection
We generally provide our NEOs with severance packages if they are terminated without cause (as defined in their employment agreements) or for good reason (as defined in their employment agreements) in order to attract and retain them. The amount of severance benefits is described below, and in more detail elsewhere in the section titled “Potential Payments Upon Termination or Change of Control” on page 4341 of this Proxy Statement. The Compensation and Leadership DevelopmentCLD Committee reviews the potential payouts to ensure their market-competitiveness in order to incentivize our NEOs to maintain focus on both daily and long-term efforts.
Our severance compensation provisions are designed to meet the following objectives:
Change in Control: As part of our normal course of business, we may engage in discussions with other companies about possible collaborations and/or other ways in which the companies may work together to further our respective long-term objectives. In certain scenarios, the potential for merger or being acquired may be in the best interests of our stockholders. We provide a component of severance compensation if ana NEO is terminated as a result of a change of control transaction to promote the ability of our NEOs to act in the best interests of our stockholders even though they could be terminated as a result of the transaction.
Termination Without Cause or For Good Reason: If we terminate the employment of one of our NEOs “without cause” or one of our NEOs resigns for “good reason,” each as defined in the applicable agreement, we are obligated to make certain payments based on the NEO's then-effective base salary. We believe this is appropriate because the terminated NEO is bound by confidentiality and non-competition provisions continuing after termination. We also believe it is beneficial to have a mutually-agreed severance package in place prior to any termination event, to avoid disruptive conflicts and provide us with more flexibility to make a change in management if such a change is in our and our stockholders’ best interests.
Employment Agreements
Andres D. Reiner. In May 2013,December 2018, we entered into ana second amended and restated employment agreement with Mr. Reiner, our Chief Executive Officer and President.President, in order to reflect current competitive market practices. This agreement automatically renewed for an additional three-year term in May 2016, and will automatically renew for additional three-year terms unless the Company decides not to renew. The base salary payable to Mr. Reiner is subject to periodic review by our Compensation and Leadership DevelopmentCLD Committee. In the event Mr. Reiner’s employment with us is terminated by him for good reason, by us without cause or we decide not to renew his agreement, he will receive (i) his full base salary each month for the following 12 months, (ii) any unpaid bonus earned prior to the termination relating to periods preceding the date of termination, (iii) the payment of a bonus at 100% of performance targets, including discretionary components, within the bonus plan in effect as if employed by us for 12 months, (iv) an amount equal to 12 times the monthly cost of Mr. Reiner's health benefits, and (v) the acceleration of vesting of all equity awards with respect to such shares that would have vested following his termination date, and (vi) the dateacceleration of termination. Alternatively,vesting of all market stock awards where the number of units vesting is determined as if the performance period ended on his termination date. If Mr. Reiner’s employment is terminated by us without cause, if he resigns for good reason, or we decide not to renew his agreement within six months prior to, or any time after, a change of control of the Company, he will receive (i) an amount equal to 150% of his annual salary, (ii) any unpaid bonus earned prior to the termination relating to periods preceding the date of termination, (iii) the payment of an aggregate bonus equal to 100% of performance targets, including any discretionary components, within the bonus plan in effect as if employed by us for eighteen months, (iv) an amount equal to 18 times the monthly cost of Mr. Reiner's health benefits, and (v) the acceleration of vesting of all equity awards.awards with respect to shares that would have vested following the Termination Date. If Mr. Reiner's employment with us terminates due to his death or disability, his employment will automatically terminate and he will be entitled to accelerated vesting of (i) all equity awards with respect to all shares that would have vested after the termination date, and (ii) all MSUs at 100% of the target number granted. In addition, if the surviving or acquiring entity (or its parent entity) elects not to assume, continue or substitute for the equity awards or options due under the either the 2007 Plan or 2017 Plan, all outstanding equity awards and options under each plan will vest in full and become fully exercisable. Mr. Reiner is subject to non-competition and non-solicitation restrictions during the term of his employment and for the 12-month period following the termination of his employment.
Stefan B. Schulz. In March 2015,December 2018, we entered into an amended and restated employment agreement with Mr. Schulz, our Executive Vice President and Chief Financial Officer.Officer, in order to reflect current competitive market practices. This agreement is for a three-year term and automatically renews for three-year terms unless the Company decides not to renew. The base salary payable to Mr. Schulz is subject to periodic review by our Compensation and Leadership DevelopmentCLD Committee. In the event Mr. Schulz's employment with us is terminated by him for good reason, by us without cause, or we decide not to renew his agreement, he will receive (i) his full base salary each month for the following 12 months, (ii) any unpaid bonus earned prior to the termination relating to periods preceding the date of termination, (iii) the payment of a bonus at 100% of performance targets, including discretionary components, within the bonus plan in effect as if employed by us for 12 months, (iv) an amount equal to 12 times the monthly cost of Mr. Schulz's health benefits, and (v) to the extent that the aggregate amount paid pursuant to items (i) through (iv) is not at least $1,000,000, the acceleration of vesting of certainall equity awards with respect to bringsuch shares that would have vested following the total separation pay packagedate of termination and prior to $1,000,000.the first anniversary of his termination date, and (vi) the acceleration of vesting of all market stock awards scheduled to vest prior to the first anniversary of his termination date, where the applicable performance period is deemed to have ended on his termination date. Alternatively, if Mr. Schulz's employment is terminated by us without cause, if he resigns for good reason, or we decide not to renew his agreement within six months prior to, or any time after, a change of control of the Company, he will receive (i) an amount equal to 150% of his annual salary, (ii) any unpaid bonus earned prior to the termination relating to periods preceding the date of termination, (iii) the payment of an aggregate bonus equal to 100% of performance targets, including discretionary components, within the bonus plan in effect as if employed by us for 18 months, (iv) an amount equal to 18 times the monthly cost of Mr. Schulz's health benefits, and (v) the acceleration of vesting of all equity awards with respect to such shares that would have vested following the date of termination. In addition, if the surviving or
acquiring entity (or its parent entity) elects not to assume, continue or substitute for the equity awards or options due under the 2007 Plan or 2017 Plan, all outstanding equity awards and options under each plan will vest in full and become fully exercisable. If Mr. Schulz's employment with us terminates due to his death or disability, his employment will automatically terminate and he will be entitled to accelerated vesting of (i) all equity awards with respect to all shares that would have vested after the termination date, and (ii) all MSUs at 100% of the target number granted. Mr. Schulz is subject to non-competition and non-solicitation restrictions during the term of his employment and for the 12-month period following the termination of his employment.
Thomas F. Dziersk. In October 2017, we entered into an employment agreement with Mr. Dziersk, our Executive Vice President, Worldwide Sales. This agreement is for a three-year term and automatically renews for three-year terms unless the Company decides not to renew. The base salary payable to Mr. Dziersk is subject to periodic review by our Compensation and Leadership DevelopmentCLD Committee. In the event Mr. Dziersk's employment with us is terminated by him for good reason, by us without cause, or we decide not to renew his agreement, he will receive (i) his full base salary each month for the following 12 months, and (ii) an amount equal to 12 times the monthly cost of Mr. Dziersk's health benefits. Alternatively, if Mr. Dziersk's employment is terminated by us without cause, if he resigns for good reason, or we decide not to renew his agreement within six months prior to, or any time after, a change of control of the Company, he will receive (i) an amount equal to 150% of his annual salary, (ii) any unpaid bonus earned prior to the termination relating to periods preceding the date of termination, (iii) an amount equal to 18 times the monthly cost of Mr. Dziersk's health benefits, and (iv) the acceleration of vesting of all equity awards with respect to such shares that would have vested following the date of termination. In addition, if the surviving or acquiring entity (or its parent entity) elects not to assume, continue or substitute for the equity awards or options due under the 2017 Plan, all outstanding equity awards and options under the 2017 Plan will vest in full and become fully exercisable. Mr. Dziersk is subject to non-competition and non-solicitation restrictions during the term of his employment and for the 12-month period following the termination of his employment.
“Cause” is defined in these employment agreements as (a) a breach by our officer of his duties of confidentiality which causes a material harm to us, (b) his conviction of, or a plea of guilty or no contest to, a felony or any other crime involving dishonesty or moral turpitude under the laws of the United States; (c) continued failure to perform assigned duties or comply with any Company policy after notice and a cure period; (d) any material breach by our officer of his employment agreement or any other agreement between our officer and us after notice and a cure period; (e) any intentional wrongdoing by them that adversely affects us; and (f) any failure to cooperate in good faith with us in any governmental investigation or formal proceeding.
Each of our NEOs can resign for “good reason” and be entitled to severance. “Good reason” is defined in their employment agreements as (i) a material diminution in their authority, duties or responsibilities or the assignment of duties to them that are not materially commensurate with their position with us, other than where they are asked to assume substantially similar duties and responsibilities in a larger entity after any change of control; (ii) the relocation of their offices to more than 25 miles from their present location; (iii) a material reduction in their base salaries other than reductions which are part of a general reduction affecting all employees; (iv) our failure to provide them with similar benefits thatthan we provide to our other employees; (v) any material breach by us of any provision of their employment agreement; or (vi) any failure by any successor corporation to assume our obligations under the NEO's employment agreement.
Executive Stock Ownership Guidelines
As part of our overall corporate governance and compensation practices, our Board of Directors adopted stock ownership guidelines for our NEOs and directors. These guidelines are designed to align our NEOs’ and directors' interests with our stockholders’ long-term interests by promoting long-term share ownership, which reduces the incentive for excessive short-term risk taking and further increase our NEOs’ and directors’ alignment with stockholder interests. These guidelines require our Chief Executive Officer to hold shares of our stock worth foursix times his annual salary and each other NEO is required to hold shares of our stock worth two times their annual salary. The guidelines also state that each non-employee director is required to hold shares of our stock worth five times the annual retainer for directors. Share units or unexercised options held by ana NEO or director under any of our equity incentive plans are included, at 50%100% of their intrinsic value, in calculating the value of ownership to determine whether this minimum ownership requirement has been met. Shares held by ana NEO or director under either of our equity incentive plans will continue to be included in calculating the value of ownership to determine whether this minimum ownership requirement has been met. Our NEOs must attain this ownership threshold within five years after being appointed as ana NEO. Our directors must attain this ownership threshold within six years after joining our Board of Directors.Board. As of December 31, 2017,2018, each of our NEOs and directors were in compliance with the applicable guidelines.
Clawback Policy
Our “clawback” policy permits our Board of Directors to consider and make a decision in its sole discretion to recover, under applicable law, any incentive bonuses awarded to NEOs whose fraud or intentional misconduct significantly contributed to a restatement of
financial results that led to the awarding of incentive bonuses. This “clawback” policy is designed to further link our executive compensation and our long-term performance.
Tax and Accounting Considerations
Tax Considerations
We are subject to Limits on Deductibility of Compensation. Section 162(m) of the Code (Section 162(m)), which limits the amount generally prevents us from deducting as a business expense that we may deduct forportion of compensation paid to certain of our executive officers. Generally, Section 162(m) prohibits us from taking a federal income taxofficers that exceeds $1,000,000. Historically, there was an exception to this $1,000,000 deduction limit for remuneration in excess of $1 million paid in a taxable year to our CEO and each of our three other most highly compensated executive officers (not including the CFO for taxable years ending on or before December 31, 2017). For taxable years ending on or before December 31, 2017, remuneration in excess of $1 million may be deducted if, among other things, it qualifiescompensation that qualified as “performance-based compensation” within the meaning of the Code. In this regard, the compensation income realized upon the exercise of stock options and settlement of other performance-based equity awards granted under a stockholder-approved equity incentive plan generally will be deductible so long as the awards are granted by a committee whose members are non-employee directors and certain other conditions are satisfied.
Section 162(m). Under federal tax legislation enacted on December 22, 2017, referred to as the Tax Cuts and effectiveJobs Act (Tax Act), the performance-based exemption was repealed for taxable years beginning on or after January 1, 2018, the exemption from the $1 million deduction limit for performance-based compensation has been repealed, and the persons treated as covered employees subject to the deduction limit have been expanded to include our CFO as well as our CEO and our three other most highly paid named executive officers. Further, any executive officer who wasmandated that once an individual is treated as a covered employee for any taxablea given year, beginning after December 31, 2016that individual will continue to be treated as a covered employee for all subsequent years. Accordingly, any compensation paid to our covered executive officers in all future years. However, the prior Section 162(m) provisionsexcess of $1 million in any one year will continuenot be deductible unless it qualifies for transition relief applicable to apply to remuneration paid pursuant to binding written contractscertain arrangements in effect onplace as of November 2, 2017 and that are not materially modified after that date.
2017. The Compensation and Leadership DevelopmentCLD Committee believes that its primary responsibility is to provide a compensation program to meet our stated business objectives, and accordingly the Company reserves the right to pay compensation that is not tax-deductible if it determines that such a payment is in the best interests of the Company and our stockholders.
REPORT OF THE COMPENSATION AND LEADERSHIP DEVELOPMENT COMMITTEE OF THE BOARD OF DIRECTORS
We, the Compensation and Leadership Development Committee of the Board of Directors of PROS Holdings, Inc., have reviewed and discussed the preceding Compensation Discussion and Analysis with management and FW Cook. Based on this review and discussion, we recommended to the Board of Directors, and the Board of Directors has agreed that the Compensation Discussion and Analysis be included in this Proxy Statement.
THE COMPENSATION AND LEADERSHIP DEVELOPMENT COMMITTEE OF THE BOARD OF DIRECTORS
Greg B. Petersen, Chairman
Leslie RechanPenelope Herscher
William Russell
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table presents the compensation paid to or earned by our NEOs, including our Chief Executive Officer, our Chief Financial Officer, and our Executive Vice President, Worldwide Sales during 2018, 2017 2016 and 2015:2016:
| | Name and Principal Position | | Year | | Salary ($) | | Bonus ($) | | Stock Awards (1) ($) | | Non-Equity Incentive Plan Compensation ($) | | All Other Compensation (2) ($) | | Total ($) | | Year | | Salary | | Bonus | | Stock Awards (1) | | Non-Equity Incentive Plan Compensation | | All Other Compensation (2) | | Total |
| Andres D. Reiner | | 2017 | | $ | 525,000 |
| | $ | — |
| | $ | 4,032,840 |
| (3) | $ | 419,843 |
| | $ | 18,584 |
| | $ | 4,996,267 |
| | 2018 | | $ | 525,000 |
| | $ | — |
| | $ | 5,408,210 |
| (3) | $ | 799,838 |
| | $ | 1,785 |
| | $ | 6,734,832 |
|
| President and | | 2016 | | $ | 525,000 |
| | $ | — |
| | $ | 4,696,100 |
| (4) | $ | 887,618 |
| | $ | 20,837 |
| | $ | 6,129,555 |
| |
| Chief Executive Officer | | 2015 | | $ | 525,000 |
| | $ | — |
| | $ | 3,472,040 |
| (5) | $ | 144,375 |
| | $ | 17,576 |
| | $ | 4,158,991 |
| |
| President and Chief Executive Officer | | | 2017 | | $ | 525,000 |
| | $ | — |
| | $ | 4,032,840 |
| (4) | $ | 419,843 |
| | $ | 18,584 |
| | $ | 4,996,267 |
|
| | | | 2016 | | $ | 525,000 |
| | $ | — |
| | $ | 4,696,100 |
| (5) | $ | 887,618 |
| | $ | 20,837 |
| | $ | 6,129,555 |
|
| Stefan B. Schulz | | 2017 | | $ | 365,000 |
| | $ | — |
| | $ | 1,528,423 |
| (7) | $ | 212,284 |
| | $ | 20,981 |
| | $ | 2,126,688 |
| | 2018 | | $ | 380,000 |
| | $ | — |
| | $ | 2,186,406 |
| (6) | $ | 421,040 |
| | $ | 5,660 |
| | $ | 2,993,106 |
|
| Executive Vice President | | 2016 | | $ | 365,000 |
| | $ | — |
| | $ | 2,320,825 |
| (8) | $ | 448,804 |
| | $ | 19,721 |
| | $ | 3,154,350 |
| | 2017 | | $ | 365,000 |
| | $ | — |
| | $ | 1,528,423 |
| (7) | $ | 212,284 |
| | $ | 20,981 |
| | $ | 2,126,688 |
|
| and Chief Financial Officer | | 2015 | | $ | 289,198 |
| (6) | $ | — |
| | $ | 2,780,800 |
| (9) | $ | 70,000 |
| | $ | 115,781 |
| (10) | $ | 3,255,779 |
| | 2016 | | $ | 365,000 |
| | $ | — |
| | $ | 2,320,825 |
| (8) | $ | 448,804 |
| | $ | 19,721 |
| | $ | 3,154,350 |
|
| Thomas F. Dziersk | | 2017 | | $ | 85,336 |
| (11) | $ | 100,000 |
| (12) | $ | 2,697,901 |
| (13) | $ | 76,377 |
| | $ | 5,418 |
| | $ | 2,965,032 |
| | 2018 | | $ | 375,000 |
| | $ | — |
| | $ | 485,863 |
| (11) | $ | 519,375 |
| | $ | — |
| | $ | 1,380,238 |
|
| Executive Vice President, | | 2016 | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | 2017 | | $ | 85,336 |
| (9) | $ | 100,000 |
| (10) | $ | 2,697,901 |
| (12) | $ | 76,377 |
| | $ | 5,418 |
| | $ | 2,965,032 |
|
| Worldwide Sales | | 2015 | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | 2016 | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| |
| (1) | These amounts representRepresents the aggregate grant date fair value of equity awards granted in the specified fiscal year as calculated in accordance with GAAP. For additional information about theequity award valuation assumptions, with respect to equity awards, refer to Note 1013 of our financial statements in our Form 10-K for the year ended December 31, 2017, as filed with the SEC.2018. |
| |
| (2) | Represents executive physicals for Messrs. Reiner and Schulz, and for 2016 and 2017 also represents matching contributions for each individual’s 401(k) Plan contributions, life insurance premiums and health insurance. For Mr. Reiner, includes executive physical. |
| |
| (3) | Represents 82,948 RSUs awarded to Mr. Reiner on January 8, 2018 and 82,948 MSUs awarded on January 12, 2018. The 2018 RSUs vest annually in one fourth installments on January 10th of each year and have a grant date fair value of $27.02. The 2018 MSUs will vest on January 10, 2021, and have a grant date fair value of $38.18. For additional information regarding the 2018 MSUs and RSUs, see "2018 Grants of Plan-Based Awards" below. |
| |
| (4) | Represents 84,000 RSUs and 84,000 MSUs awarded to Mr. Reiner on January 20, 2017. January 2017The RSUs vest annually in one-fourthone fourth installments on January 11st of each year and have a grant date fair value of $21.02. JanuaryThe 2017 MSUs will vest on March 1, 2020, and have a grant date fair value of $26.99. For additional information regarding January 2017 MSUs, see “Grants of Plan-Based Awards” below. |
| |
(4)(5) | Represents 90,000 RSUs and 90,000 MSUs awarded to Mr. Reiner on March 24, 2016 and 200,000 PRSUs awarded to Mr. Reiner on September 9, 2016. |
The RSUs awarded on March 24, 2016 (2016 RSUs) vest annually in one-fourth installments on March 1 of each year and have a grant date fair value of $11.40. MSUs awarded on March 24, 2016 (2016 MSUs) are performance-vested units under which the number of shares of Common Stock received following vesting is based on our TSR in relation to the Index over the period from March 1, 2016 to March 1, 2019 (2016 MSU Performance Period), vest on March 1, 2019, and have a grant date fair value of $14.29. 2016 PRSUs vest based on stock price performance criteria, and have a grant date fair value of $11.92.
| |
(5) | Represents 57,200 RSUs and 57,200 MSUs awarded to Mr. Reiner on January 23, 2015. RSUs awarded on January 23, 2015 (January 2015 RSUs) vest annually in one-fourthone fourth installments on January 1March 1st of each year and have a grant date fair value of $27.11.$11.40. The 2016 MSUs awardedvest on January 23, 2015 (January 2015 MSUs) are performance-vested units under which the number of shares of Common Stock received following vesting is based on our TSR in relation to the Index over a three year period ending December 31, 2017 (January 2015 MSU Performance Period), vested on JanuaryMarch 1, 2018,2019, and have a grant date fair value of $33.59.
$14.29. The Stock Price PRSUs will vest based on stock price performance criteria, and have a grant date fair value of $11.92. |
| |
| (6) | Represents 41,667 RSUs awarded to Mr. Schulz commenced his employment with uson January 8, 2018 and 27,778 MSUs awarded on January 12, 2018. The 2018 RSUs vest annually in March 2015.one fourth installments on January 10th of each year and have a grant date fair value of $27.02. The 2018 MSUs will vest on January 10, 2021, and have a grant date fair value of $38.18. For additional information regarding the 2018 MSUs and RSUs, see "2018 Grants of Plan-Based Awards" below. |
| |
| (7) | Represents 39,200 RSUs and 26,100 MSUs awarded to Mr. Schulz on January 20, 2017. January 2017The RSUs vest annually in one-fourthone fourth installments on January 11st of each year and have a grant date fair value of $21.02. JanuaryThe 2017 MSUs will vest on March 1, 2020, and have a grant date fair value of $26.99. For additional information regarding January 2017 MSUs, see "Grants of Plan-Based Awards" below. |
| |
| (8) | Represents 62,500 2016 RSUs and 62,500 2016 MSUs awarded to Mr. Schulz on March 24, 2016 and 60,000 2016 PRSUs awarded to Mr. Schulz on September 9, 2016. 2016The RSUs vest annually in one-fourthone fourth installments on March 11st of each year and have a grant date fair value of $11.40. The 2016 MSUsvest on March 1, 2019, and have a grant date fair value of $14.29. 2016$14.29. The Stock Price PRSUs vest based on stock price performance, criteria, and have a grant date fair value of $11.92. |
| |
| (9) | Represents 82,500 RSUs and 27,500 MSUs awarded on March 3, 2015. RSUs awarded on March 3, 2015 (March 2015 RSUs) vest annually in one-fourth installments on March 3 of each year and have a grant date fair value of $24.32. MSUs awarded on March 3, 2015 (March 2015 MSUs) are performance-vested units under which the number of shares of Common Stock received following vesting is based on our TSR in relation to the Index over a three-year period ending March 2, 2018 (March 2015 MSU Performance Period), vested on March 3, 2018, and have a grant date fair value of $33.59.
|
| |
(10) | Includes one-time relocation and related costs in the amount of $100,000 related to Mr. Schulz's relocation to Houston, Texas in connection with his employment with the Company. |
| |
(11) | Mr. Dziersk commenced his employment with us in October 2017. |
| |
(12)(10) | Represents a one-time cash inducement award following commencement of Mr. Dziersk's employment. |
| |
(13)(11) | Represents 9,259 RSUs awarded to Mr. Dziersk on January 8, 2018 and 6,173 MSUs awarded on January 12, 2018. The 2018 RSUs vest annually in one fourth installments on January 10th of each year and have a grant date fair value of $27.02. The 2018 MSUs will vest on January 10, 2021, and have a grant date fair value of $38.18. For additional information regarding the 2018 MSUs and RSUs, see "2018 Grants of Plan-Based Awards" below. |
| |
| (12) | Represents 59,504 RSUs and 39,66939,699 MSUs awarded to Mr. Dziersk on October 9, 2017. OctoberThe 2017 RSUs vest annually in one-fourthone fourth installments on October 99th of each year and have a grant date fair value of $24.48. OctoberThe 2017 MSUs will vest on October 9, 2020, and have a grant date fair value of $31.29. For additional information regarding October 2017 MSUs, see "Grants of Plan-Based Awards" below. |
Grants of Plan-Based Awards
The following table shows all plan-based awards granted to our NEOs during 2017,2018, including:
| | | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Awards | All Other Stock Awards: Number of Shares of Stock or Units(#) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair value of Options and Awards ($) | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Awards | All Other Stock Awards: Number of Shares of Stock or Units (#) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair value of Options and Awards ($) |
| Name | | Type of Award | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Target (#) | Maximum (#) | | Type of Award | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Target (#) | Maximum (#) |
| Andres D. Reiner | | RSU | 1/20/2017 | | | 84,000 |
| $ | 21.02 |
| $ | 1,765,680 |
| | RSU | 1/8/2018 | | | 82,948 |
| $ | 27.02 |
| $ | 2,241,255 |
|
| | | MSU(1) | 1/20/2017 | | 84,000 |
| 168,000 |
| | $ | 26.99 |
| $ | 2,267,160 |
| | MSU(1) | 1/12/2018 | | 82,948 |
| 165,896 |
| | $ | 38.18 |
| $ | 3,166,955 |
|
| | | Cash incentive | | $ | 288,750 |
| $ | 577,500 |
| $ | 1,155,000 |
| | | | Cash incentive | | $ | 288,750 |
| $ | 577,500 |
| $ | 1,155,000 |
| | |
| Stefan B. Schulz | | RSU | 1/20/2017 | | | 39,200 |
| $ | 21.02 |
| $ | 823,984 |
| | RSU | 1/8/2018 | | | 41,667 |
| $ | 27.02 |
| $ | 1,125,842 |
|
| | | MSU(1) | 1/20/2017 | | 26,100 |
| 52,200 |
| | $ | 26.99 |
| $ | 704,439 |
| | MSU(1) | 1/12/2018 | | 27,778 |
| 55,556 |
| | $ | 38.18 |
| $ | 1,060,564 |
|
| | | Cash incentive | | $ | 146,000 |
| $ | 292,000 |
| $ | 584,000 |
| | | | Cash incentive | | $ | 152,000 |
| $ | 304,000 |
| $ | 608,000 |
| | |
| Thomas F. Dziersk | | RSU | 10/9/2017 | | | 59,504 |
| $ | 24.48 |
| $ | 1,456,658 |
| | RSU | 1/8/2018 | | | 9,259 |
| $ | 27.02 |
| $ | 250,178 |
|
| | | MSU(2) | 10/9/2017 | | 39,669 |
| 79,338 |
| | $ | 31.29 |
| $ | 1,241,243 |
| | MSU(1) | 1/12/2018 | | 6,173 |
| 12,346 |
| | $ | 38.18 |
| $ | 235,685 |
|
| | | Cash incentive(3) | 10/6/2017 | $ | 43,151 |
| $ | 86,301 |
| $ | 172,603 |
| | | | Cash incentive | | $ | 187,500 |
| $ | 375,000 |
| $ | 75,000 |
| | |
| |
| (1) | The January 20172018 MSUs are performance-vested units under which the number of shares of Common Stock received following vesting is based on ourthe Company's TSR in relation to the Index over thea three year period from February 28, 2017 to February 28,ending December 31, 2020 (January 20172018 MSU Performance Period). The January 20172018 MSUs vest on March 1, 2020,January 10, 2021, and the maximum number of shares issuable upon vesting is 200% of the number of January 20172018 MSUs initially granted based on the average price of our Common Stock relative to the Index during the January 20172018 MSU Performance Period. Includes the target number of shares issuable for January 2017 MSUs at the grant date fair value per share of $26.99.$38.18 for the January 2018 MSUs. |
| |
(2) | October 2017 MSUs are performance-vested units under which the number of shares of Common Stock received following vesting is based on our TSR in relation to the Index over a three-year period ending October 9, 2020 (October 2017 MSU Performance Period). October 2017 MSUs vest on October 9, 2020, and the maximum number of shares issuable upon vesting is 200% of the number of October 2017 MSUs initially granted based on the average price of our Common Stock relative to the Index during the October 2017 MSU Performance Period. Includes the target number of shares issuable for October 2017 MSUs at the grant date fair value per share of $31.29. |
| |
(3) | Mr. Dziersk's bonus is pro-rated to his commencement of employment with the Company on October 9, 2017. |
Outstanding Equity Awards at Fiscal Year End
The following table presents the number of options to purchase shares of our Common Stock, SARs, RSUs, MSUs and PRSUs held by our NEOs as of December 31, 2017:2018:
| | | | | Option Awards | | Stock Awards | | Option Awards | | Stock Awards |
| Name | | Number of securities underlying unexercised options/SARs (#) Exercisable | | Number of securities underlying unexercised options/SARs (#) Unexercisable | | Option/SARs exercise price ($) | | Option/SARs expiration date | | Equity incentive plan awards: number of unearned shares, units or other rights that have not vested (#) | | Equity incentive plan awards: market or payout value of unearned shares, units or other rights that have not vested ($) | | Number of securities underlying unexercised options/SARs (#) Exercisable | | Number of securities underlying unexercised options/SARs (#) Unexercisable | | Option/SARs exercise price ($) | | Option/SARs expiration date | | Equity incentive plan awards: number of unearned shares, units or other rights that have not vested (#) | | Equity incentive plan awards: market or payout value of unearned shares, units or other rights that have not vested ($) |
| Andres D. Reiner | | 50,000 |
| | — |
| | 12.72 |
| | 5/14/2018 | | | | | | 20,000 |
| | — |
| | 8.68 |
| | 3/9/2020 | | | | |
| | | 20,000 |
| | — |
| | 8.68 |
| | 3/9/2020 | | | | | |
| | | 180,000 |
| | — |
| | 11.33 |
| | 12/14/2020 | | | | | | 180,000 |
| | — |
| | 11.33 |
| | 12/14/2020 | | | | |
| | | | | | | | | 9,225 |
| (1) | | $ | 244,001 |
| | | | | | | | 14,300 |
| (1) | | $ | 449,020 |
|
| | | | | | | | | 28,600 |
| (2) | | $ | 756,470 |
| | | | | | | | 45,000 |
| (2) | | $ | 1,413,000 |
|
| | | | | | | | | 57,200 |
| (3) | | $ | 1,512,940 |
| | | | | | | | 90,000 |
| (3) | | $ | 2,826,000 |
|
| | | | | | | | | 67,500 |
| (4) | | $ | 1,785,375 |
| | | | | | | | 100,000 |
| (4) | | $ | 3,140,000 |
|
| | | | | | | | | 90,000 |
| (5) | | $ | 2,380,500 |
| | | | | | | | 63,000 |
| (5) | | $ | 1,978,200 |
|
| | | | | | | | | 150,000 |
| (6) | | $ | 3,967,500 |
| | | | | | | | 84,000 |
| (6) | | $ | 2,637,600 |
|
| | | | | | | | | 84,000 |
| (7) | | $ | 2,221,800 |
| | | | | | | | 82,948 |
| (7) | | $ | 2,604,567 |
|
| | | | | | | | | 84,000 |
| (8) | | $ | 2,221,800 |
| | | | | | | | 82,498 |
| (8) | | $ | 2,604,567 |
|
| Stefan B. Schulz | | — |
| | — |
| | | | 41,250 |
| (9) | | $ | 1,091,063 |
| | — |
| | — |
| | | | 20,625 |
| (9) | | $ | 647,625 |
|
| | | | | | | | | 27,500 |
| (10) | | $ | 727,375 |
| | | | | | | | 31,250 |
| (2) | | $ | 981,250 |
|
| | | | | | | | | 46,875 |
| (4) | | $ | 1,239,844 |
| | | | | | | | 62,500 |
| (3) | | $ | 1,962,500 |
|
| | | | | | | | | 62,500 |
| (5) | | $ | 1,653,125 |
| | | | | | | | 30,000 |
| (4) | | $ | 942,000 |
|
| | | | | | | | | 45,000 |
| (6) | | $ | 1,190,250 |
| | | | | | | | 29,400 |
| (5) | | $ | 923,160 |
|
| | | | | | | | | 39,200 |
| (7) | | $ | 1,036,840 |
| | | | | | | | 26,100 |
| (6) | | $ | 819,540 |
|
| | | | | | | | | 26,100 |
| (8) | | $ | 690,345 |
| | | | | | | | 41,667 |
| (7) | | $ | 1,308,344 |
|
| | | | | | | | | | 27,778 |
| (8) | | $ | 872,229 |
|
| Thomas F. Dziersk | | — |
| | — |
| | | | 59,504 |
| (11) | | $ | 1,573,881 |
| | — |
| | — |
| | | | 44,628 |
| (10) | | $ | 1,401,319 |
|
| | | | | | | | | 39,669 |
| (12) | | $ | 1,049,245 |
| | | | | | | | 39,669 |
| (11) | | $ | 1,245,607 |
|
| | | | | | | | | | 9,259 |
| (7) | | $ | 290,733 |
|
| | | | | | | | | | 6,173 |
| (8) | | $ | 193,832 |
|
| |
| (1) | Represents the unvested portion of 36,900the 57,200 RSUs awarded to Mr. Reiner on February 11, 2014, whichJanuary 23, 2015. The RSUs vest annually in one-fourthone fourth installments on January 1 of each year and have a grant date fair value of $37.25. |
| |
(2) | Represents the unvested portion of January 2015 RSUs, which vest annually in one-fourth installments on January 11st of each year and have a grant date fair value of $27.11. |
| |
(3)(2) | Represents the number and market value, as of December 31, 2017, of January 2015 MSUs that would have been earned if the performance goals related to these awards were met at the target level at the end of the January 2015 MSU Performance Period. |
| |
(4) | Represents the unvested portion of 90,000 and 62,500 2016 RSUs awarded to Messrs. Reiner and Schulz respectively, whichon March 24, 2016. These RSUs vest annually in one fourth installments on March 1st of each year and have a grant date fair value of $11.40. |
| |
(5)(3) | Represents 2016 MSUs awarded to Messrs. Reiner and Schulz on March 24, 2016. These 2016 MSUs vest on March 1, 2019. The amounts shown above reflect the number and market value, as of December 31, 2017,2018, of 2016 MSUs that would be earned if the performance goals related to these awards were met at the target level at the end of the 2016 MSU Performance Period. If the minimum performance threshold is not met, there will be no payout. The number of shares that will actually be earned will depend on our TSR during thefrom March 1, 2016 MSU Performance Periodand March 1, 2019 as compared to the Index. |
| |
(6)(4) | Represents the unvested portion of 200,000 and 60,000 2016Stock Price PRSUs awarded on September 9, 2016 to Messrs. Reiner and Schulz respectively. 2016on September 9, 2016. These Stock Price PRSUs vest if the average trailing closing price of the Company'sour Common Stock meets certain minimum performance hurdlesis $41 for at least 105 calendar days prior to September 9, 2020, with 25% vesting at $27, an additional 25% vesting at $33, and the remaining 50% vesting at $41.2020. |
| |
(7)(5) | Represents the unvested portion of January 2017 RSUs whichawarded to Messrs. Reiner and Schulz on January 20, 2017. These RSUs vest annually in one-fourthone fourth installments on January 11st of each year and have a grant date fair value of $21.02. |
| |
(8)(6) | Represents 2017 MSUs awarded to Messrs. Reiner and Schulz on January 20, 2017. These 2017 MSUs vest on March 1, 2020. The amounts shown above reflect the number and market value, as of December 31, 2017,2018, of January 2017 MSUs that would be earned if the performance goals related to these awards were met at the target level at the end of the January 2017 MSU Performance Period. If the minimum performance threshold is not met, there will be no payout. The number of shares actually earned will depend on our TSR from February 28, 2017 and February 28, 2020 as compared to the Index. |
| |
| (7) | Represents 2018 RSUs awarded to Messrs. Reiner, Schulz, and Dziersk on January 8, 2018. These RSUs vest annually in one fourth installments on January 10th of each year and have a grant date fair value of $27.02. |
| |
| (8) | Represents 2018 MSUs awarded to Messrs. Reiner, Schulz, and Dziersk on January 12, 2018. These 2018 MSUs vest on January 10, 2021. The amounts shown above reflect the number and market value, as of December 31, 2018, of 2018 MSUs that would be earned if performance goals were met at the target level at the end of the 2018 MSU Performance Period. If the minimum performance threshold is not met, there will be no payout. The number of shares that will actually be earned will depend on our TSR duringfor the January2017 RSU Performance Periodperiod from January 1, 2018 and December 31, 2020 as compared to the Index. |
| |
| (9) | Represents the unvested portion of the RSUs awarded to Mr. Schulz on March 20153, 2015. Mr. Schulz was awarded 82,500 RSUs. The RSUs which vest annually in one-fourthone fourth installments on March 33rd of each year and have a grant date fair value of $24.32. |
| |
| (10) | Represents the number and market value, as of December 31, 2017, of March 2015 MSUs that would be earned if the performance goals related to these awards were met at the target level at the end of the March 2015 MSU Performance Period. The number of shares that will actually be earned depend on our TSR for the period from March 3, 2015 and March 2, 2018 as compared to the Index. |
| |
(11) | Represents the unvested portion of the RSUs awarded to Mr. Dziersk on October 20179, 2017. Mr. Dziersk was awarded 59,504 RSUs. The RSUs which vest annually in one-fourthone fourth installments on October 99th of each year and have a grant date fair value of $24.48. |
| |
(12)(11) | Represents October 2017 MSUs awarded on October 9, 2017 to Mr. Dziersk. These October 2017 MSUs vest on October 9, 2020. The amounts shown above reflect the number and market value, as of December 31, 2017,2018, of October 2017 MSUs that would be earned if the performance goals related to these awards were met at the target level at the end of the October 2017 MSU Performance Period. If the minimum performance threshold is not met, there will be no payout. The number of shares that will actually be earned depend on our TSR for the period from October 9, 2017 and October 9, 2020 as compared to the Index. |
Option Exercises and Equity Awards Vested
The following table presents information on the exercises of stock options and vesting of PRSUs, RSUs and MSUs for our NEOs during the year ended December 31, 2017:2018:
| | | | | Option Awards | | Stock Awards | | Option Awards | | Stock Awards |
| Name | | Number of shares acquired on exercise(1) (#) | | Value realized on exercise ($)(2) | | Number of shares acquired on RSU vesting (3) (#) | | Number of shares acquired on PRSU vesting (4) (#)
| | Value realized on vesting (5) ($) | | Number of shares acquired on exercise(1) (#) | | Value realized on exercise ($)(2) | | Number of shares acquired on RSU vesting(3) (#) | | Number of shares acquired on PRSU and MSU vesting(4) (#)
| | Value realized on vesting(5) ($) |
| Andres D. Reiner | | 150,000 |
| | $ | 1,826,633 |
| | 72,275 |
| | 50,000 |
| | $ | 3,065,108 |
| | 50,000 |
| | $ | 979,467 |
| | 67,025 |
| | 50,000 |
| | $ | 3,672,811 |
|
| Stefan B. Schulz | | — |
| | — |
| | 36,250 |
| | 15,000 |
| | $ | 1,276,288 |
| | — |
| | — |
| | 46,050 |
| | 23,650 |
| | $ | 2,237,444 |
|
| Thomas F. Dziersk | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 14,876 |
| | — |
| | 481,239 |
|
| |
| (1) | Represents the exercise of options |
| |
| (2) | Represents the value realized upon exercise of options |
| |
| (3) | Represents the vesting of RSUs |
| |
| (4) | Represents the vesting of PRSUs and MSUs |
| |
| (5) | Represents the value realized upon vesting of RSUs and PRSUs |
Potential Payments Upon Termination of Employment or Change of Control
The following table represents amounts payable at, following, or in connection with the events described below, assuming that such events occurred on December 31, 20172018 for each of the NEOs:
| | | | Potential Payment on | Potential Payment on |
| Name | Voluntary Termination or Termination for Cause ($) | | Involuntary Termination (Without Cause) or Termination by NEO for Good Reason ($) | | Involuntary Termination (Without Cause) or Termination by NEO for Good Reason on Change of Control ($) | Voluntary Termination or Termination for Cause ($) | | Involuntary Termination (Without Cause) or Termination by NEO for Good Reason ($) | | Involuntary Termination (Without Cause) or Termination by NEO for Good Reason on Change of Control ($) |
| Andres D. Reiner | | | | | | | | | | |
Severance(1) | $ | — | | | $ | 1,102,500 | | | $ | 1,653,750 | | $ | — | | | $ | 1,102,500 | | | $ | 1,653,750 | |
Bonus(2) | $ | — | | | $ | 281,245 | | | $ | 281,245 | | $ | — | | | $ | 577,500 | | | $ | 577,500 | |
Health Benefits(3) | $ | — | | | $ | 22,992 | | | $ | 34,489 | | $ | — | | | $ | 20,659 | | | $ | 30,989 | |
| Accelerated Equity | $ | — | | | $ | 5,007,646 | | | $ | 15,090,386 | | |
Accelerated Equity(4) | | $ | — | | | $ | 21,456,203 | | | $ | 14,512,954 | |
| Total | $ | — | | | $ | 6,414,384 | | | $ | 17,059,870 | | $ | — | | | $ | 23,156,862 | | | $ | 16,775,193 | |
| Stefan B. Schulz | | | | | | | | | | |
Severance(1) | $ | — | | | $ | 657,000 | | | $ | 985,500 | | $ | — | | | $ | 684,000 | | | $ | 1,026,000 | |
Bonus(2) | $ | — | | | $ | 142,205 | | | $ | 142,205 | | $ | — | | | $ | 304,000 | | | $ | 304,000 | |
Health Benefits(3) | $ | — | | | $ | 18,339 | | | $ | 27,508 | | $ | — | | | $ | 18,547 | | | $ | 27,821 | |
| Accelerated Equity | $ | — | | | $ | 182,456 | | | $ | 3,367,746 | | $ | — | | | $ | 5,698,032 | | | $ | 7,514,648 | |
| Total | $ | — | | | $ | 1,000,000 | | | $ | 4,522,959 | | $ | — | | | $ | 6,704,579 | | | $ | 8,872,469 | |
| Thomas F. Dziersk | | | | | | | | | | |
Severance(1) | $ | — | | | $ | 375,000 | | | $ | 1,125,000 | | $ | — | | | $ | 375,000 | | | $ | 562,500 | |
Bonus(2) | $ | — | | | $ | 76,377 | | | $ | 76,377 | | $ | — | | | $ | — | | | $ | 375,000 | |
Health Benefits(3) | $ | — | | | $ | 19,114 | | | $ | 28,671 | | $ | — | | | $ | 18,547 | | | $ | 27,821 | |
| Accelerated Equity | $ | — | | | $ | — | | | $ | 2,623,126 | | $ | — | | | $ | — | | | $ | 3,131,491 | |
| Total | $ | — | | | $ | 470,491 | | | $ | 3,853,174 | | $ | — | | | $ | 393,547 | | | $ | 4,096,812 | |
| |
| (1) | Reflects then current base monthly salary for 12 months for termination without cause, and 18 months for termination without cause upon change of control, and in each case, payable on normal payroll cycles. For Messrs. Reiner and Schulz, also reflects the payment of a bonus at 100% of performance targets, including the discretionary components, within the bonus plan in effect as if employed by the Company for 12 months for termination without cause, and for 18 months for termination without cause on change of control. |
| |
| (2) | Reflects 20172018 earned but unpaid bonus.bonus, assuming target level performance on a completed bonus period. |
| |
| (3) | Reflects health benefits as made generally available to employees for 12 months for termination without cause, and for 18 months for termination without cause on change of control. |
| |
| (4) | Includes the acceleration of vesting of all market stock awards (a) for involuntary termination based on 2016 MSUs vesting at 200% of the target number granted due to our stock price performance relative to the Index, and (b) for involuntary termination associated with a change of control based on 2016 MSUs vesting at the target number granted. |
PROPOSAL TWO
NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION
What am I voting on?
As required pursuant to Section 14A of the Exchange Act, we are providing our stockholders with the opportunity to vote to approve, on an advisory or non-binding basis, the compensation of our NEOs as disclosed in this Proxy Statement in accordance with SEC rules. We currently conduct this advisory vote on an annual basis and expect to conduct the next advisory vote at our Annual Meeting to be held in 2019.2020.
As described in the “Executive Summary” and “Compensation Discussion and Analysis” sections of this Proxy Statement, our executive compensation program is designed to attract, retain, and motivate talented individuals with the executive experience and leadership skills necessary for us to manage our business and meet our long-term objectives. We seek to provide executive compensation that is competitive with companies that are similar to us. We also seek to provide near-term and long-term financial incentives that reward well-performing executives when strategic corporate objectives designed to increase long-term stockholder value are achieved. We believe that executive compensation should include base salary, cash incentives and equity awards. We also believe that our executive officers’ base salaries should be set at levels relative to comparable companies, and cash and equity incentives should generally be set at levels that give executives the opportunity to achieve above-average total compensation reflecting above-average Company performance. In particular, our executive compensation philosophy is to promote long-term value creation for our stockholders by rewarding improvement in selected financial metrics and by using equity incentives. Please see our “Compensation Discussion and Analysis” on page 2322 of this Proxy Statement and related compensation tables for detailed information about our executive compensation programs, including information about the fiscal year 20172018 compensation of our NEOs.
This vote is advisory and therefore not binding. However, the Compensation and Leadership Development Committee values the opinions of our stockholders and to the extent there is any significant vote against the NEO compensation as disclosed in this Proxy Statement, we will consider those stockholders’ concerns, and the Compensation and Leadership Development Committee will evaluate whether any actions are necessary to address those concerns.
Note that because the advisory vote on executive compensation occurs well after the beginning of the compensation year, in most cases it may not be feasible to change any executive compensation program in consideration of any one year’s advisory vote on executive compensation.
Vote Required
The affirmative vote of a majority of the outstanding shares of our Common Stock entitled to vote and present in person or represented by proxy at the Annual Meeting is required for advisory approval of this proposal. A properly executed proxy marked “ABSTAIN” with respect to this matter is considered entitled to vote, and thus will have the effect of a vote against this matter.
In accordance with Delaware law, abstentions will be counted for purposes of determining both whether a quorum is present at the Annual Meeting and the total number of shares represented and voting on this proposal. While broker non-votes will be counted for purposes of determining the presence or absence of a quorum, broker non-votes will not be counted for purposes of determining the number of shares represented and voting with respect to the particular proposal on which the broker has expressly not voted and, accordingly, will not affect the approval of this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING “FOR” THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT.
DIRECTOR COMPENSATIONPROPOSAL THREE
APPROVAL OF PROPOSED AMENDMENTS TO 2017 EQUITY INCENTIVE PLAN
What am I voting on?
Stockholders are being asked to approve the following amendments (Proposed Amendments) to our 2017 Equity Incentive Plan (2017 Plan):
The BoardIncreased Shares Authorized for Issuance. An increase of Directors has approved a compensation structure2,050,000 shares, for non-employee directors consistingan aggregate maximum number of an equity award, annual cash retainer, andshares of our common stock authorized for issuance under the 2017 Plan of 4,550,000 shares, subject to adjustment for certain positions,changes in our capitalization. The 2017 Plan provides that all of these shares may be issued upon the exercise of incentive stock options.
Extension of Plan Term. An extension of the term of the 2017 Plan for an additional two years (currently scheduled to expire in May 2027) to May 7, 2029.
Add Eligibility for More Favorable French Tax Treatment. Stockholder approval of the amended 2017 Equity Plan, including a supplemental cash retainer(s). All cash retainersFrench sub-plan, enables us to grant Awards in France that qualify for favorable income tax and social security treatment in France should we decide to grant such awards to employees in France who are paideligible to participate in the 2017 Plan.
On March 22, 2019 our Board, upon the recommendation of the CLD Committee, voted to amend the 2017 Plan to incorporate the Proposed Amendments and certain additional clarifying changes, subject to the approval of the Proposed Amendments by the Company's stockholders. If our stockholders approve the Proposed Amendments, they will become effective on the day of the Annual Meeting. If the Proposed Amendments are not approved, the Proposed Amendments will not take effect and the 2017 Plan will remain in effect, including only the clarifying changes.
Key Plan Features
The 2017 Plan, as amended, contains a number of provisions that we believe are consistent with best practices in equity compensation and which protect the interests of stockholders:
Fixed plan term. The 2017 Plan has a fixed term of ten years.
No evergreen authorization. The 2017 Plan does not have an evergreen provision, which would have permitted an annual increase in the number of shares authorized for issuance without further stockholder approval.
No liberal share recycling on options and stock appreciation rights. The 2017 Plan generally provides for gross share counting. The number of shares remaining available for grant under the 2017 Plan is reduced by the gross number of shares subject to options and stock appreciation rights settled on a quarterly basis. Innet basis, and any shares withheld for taxes in connection with the exercise or settlement of options and stock appreciation rights will not again be available for the future grant of awards. Shares withheld or reacquired by the Company for taxes up to the minimum statutory withholding rate in connection with the vesting or settlement of full value awards will not reduce the number of shares remaining available for the future grant of awards.
Individual award limits. The 2017 Plan limits the maximum number of shares for which share-denominated awards may be granted to any employee in any fiscal year and the maximum dollar amount that an employee may earn for each fiscal year contained in a performance period under a cash-denominated award.
Non-employee director award limit. The number of shares for which awards may be granted to any non-employee member of our Board in a fiscal year is limited.
No discounted options or stock appreciation rights. Options and stock appreciation rights must have an exercise price or base price at or above the fair market value per share of Directors received 6,310 RSUsour common stock on the date of grant.
Prohibition of option repricing. The 2017 Plan prohibits the repricing of stock options and stock appreciation rights without the approval of our stockholders.
Minimum vesting. The 2017 Plan requires each stock-based award to have a minimum vesting period of one year, except for 5% of the aggregate number of shares authorized for issuance under the 2017 Plan.
Performance-based awards. Performance share and performance unit awards require the achievement of pre-established goals. The 2017 Plan establishes a list of measures of business and financial performance from which vestedthe CLD Committee may construct predetermined performance goals that must be met for an award to vest, although the CLD Committee may choose construct performance goals using alternative metrics.
No liberal change-in-control definition. The 2017 Plan does not contain a “liberal” change in control definition (e.g., mergers require actual consummation).
No automatic vesting upon a change in control. With the exception of awards held by non-employee directors, the 2017 Plan does not provide for automatic acceleration of award vesting upon a change in control. The 2017 Plan allows for an acquiring corporation to assume, continue or substitute new awards for outstanding awards, and, if such awards are assumed, continued or replaced, their vesting will generally not accelerate in connection with the change in control, unless the award holder is involuntarily terminated without cause within 18 months following the change in control. The vesting of awards that are not assumed, continued or replaced will be accelerated. The vesting of awards held by non-employee directors will accelerate in full upon a change in control.
No tax gross-ups. The 2017 Plan does not provide for any tax gross-ups.
Limitation on January 1, 2018. Eachdividends and dividend equivalents. Dividend equivalents may not be granted in connection with options or stock appreciation rights. Any dividends or dividend equivalents payable in connection with a full value award will be subject to the same restrictions as the underlying award and will not be paid until and unless such award vests.
The above description is a summary only and is qualified in its entirety by reference to the complete text of the 2017 Plan, as amended, which is attached to this Proxy Statement as Appendix A and which we encourage stockholders to read in its entirety.
Purpose
Competition for talent in the software industry is intense and our Board believes equity plays an important role in the success of the Company by encouraging and enabling the employees, officers, non-employee memberdirectors and other key persons of the Company and its subsidiaries upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business to acquire a proprietary interest in the Company. Our Board anticipates that providing such persons with a direct stake in the Company will assure a closer identification of the interests of such individuals with those of the Company and its stockholders, thereby stimulating their efforts on the Company's behalf and strengthening their desire to remain with the Company. Further, our Board believes that the use of equity-based incentive awards supports the Company's goal of aligning our employees' compensation with long-term shareholder value, and serves as a retention tool for talent in a highly competitive environment.
In approving the initial adoption of the 2017 Plan, our stockholders authorized us to issue up to 2,500,000 shares of our Boardcommon stock under the 2017 Plan. As of Directors received an annual cash retainerMarch 15, 2019, a total of $35,000 in 2017. The non-executive chairman470,611 shares remained available for the future grant of awards under the 2017 Plan.
We believe that these shares remaining available for future award grants under the 2017 Plan is insufficient to meet our future needs. If the Proposed Amendments are approved by our stockholders, our CLD Committee will have flexibility to use various equity-based incentive awards as compensation tools to secure and retain our employees, consultants, and directors, motivate our workforce, and to align their interests with those of our Board of Directors received a supplemental retainer of $50,000 in 2017. In addition, each non-employee director serving as a chair or member of a standing committeestockholders. Based on our current equity award practices, we expect that the additional shares that would be authorized by the Proposed Amendments would be sufficient for grants by the CLD Committee for approximately 2 to 3 years, assuming we continue to grant awards consistent with our current practices and historical usage, and further dependent on the price of our Boardshares and hiring activity during the next few years, forfeitures of Directors receivedoutstanding awards, and noting that future circumstances may require us to change our current equity grant practices. We cannot predict our future equity grant practices, the following supplemental cash retainer(s):future price of our shares or future hiring activity with any degree of certainty at this time, and the share reserve under the 2017 Plan could last for a shorter or longer time.
Dilution, Burn Rate and Equity Overhang
We recognize that equity awards dilute existing stockholders. Our CLD Committee regularly reviews our equity compensation program to ensure that we balance our employee compensation objectives with our stockholders’ interest in limiting dilution from equity awards.
Our CLD Committee also regularly reviews our burn rate and potential dilution from equity compensation. Our equity award burn rate averaged 4.0% of weighted average common shares outstanding over the last three fiscal years, calculated as follows:
|
| | | | | | | | | | | | |
| Committee Role | | Audit Committee ($) | | Compensation and Leadership Development Committee ($) | | Nominating and Corporate Governance Committee ($) |
| Member | | $ | 15,000 |
| | $ | 15,000 |
| | $ | 7,500 |
|
| Chair | | $ | 30,000 |
| | $ | 20,000 |
| | $ | 10,000 |
|
|
| | | | | | | | | |
| | | | Fiscal Year | | 3-Year |
| Burn Rate | | 2016 | | 2017 | | 2018 | | Average |
| Time-vested RSUs granted | | 1,353,000 | | 964,000 | | 829,000 | | |
Performance-Based awards earned (1) | | 252,000 | | 220,000 | | 200,000 | | |
| Total | | 1,605,000 | | 1,184,000 | | 1,029,000 | | |
| | | | | | | | | | |
| Weighted-average common shares outstanding | | 30,395,000 | | 31,627,000 | | 34,465,000 | | |
| | | | | | | | | | |
Gross burn rate (2) | | 5.3% | | 3.7% | | 3.0% | | 4.0% |
| | | | | | | | | | |
(1) Sum of MSUs earned in each year and 115,000 Market-based RSUs earned in each of 2017 and 2018. |
(2) Total number of RSUs granted and Performance-Based awards earned in each year divided by weighted average common shares outstanding |
Our total potential dilution from equity compensation, which includes all outstanding equity awards and shares available for grant under the 2017 Plan, was 10.2% of fully-diluted shares outstanding as of December 31, 2018, calculated as follows:
|
| | | |
| | | As of |
| Potential Dilution | | | December 31, 2018 |
| Stock-Settled SARs outstanding | | 287,000 |
| RSUs outstanding | | 1,969,000 |
Target Performance-Based awards outstanding (1) | | 634,000 |
| Total shares available for grant under the 2017 Plan | | 1,347,240 |
Total potential dilution (2) | | 10.2% |
| | | |
(1) Sum of 419,000 target MSUs outstanding and 215,000 Market-Based RSUs outstanding. |
(2) We define total potential dilution as the sum of Stock-Settled SARs outstanding, RSUs outstanding,Target Performance-Based awards outstanding, and total shares available for grant under the 2017 Plan, which together are referred to as the "Total Outstanding and Available Shares," divided by the sum of Total Outstanding and Available Shares and 37,155,906 common shares outstanding as of 12/31/2018. |
Summary of 2017 Plan, As Amended
The following description of certain features of the 2017 Plan, as amended, is intended to be a summary only. The summary is qualified in its entirety by the full text of the 2017 Plan, as amended, that is attached hereto as Appendix A.
General. The purpose of the 2017 Plan is to advance the interests of the Company and its stockholders by providing an incentive program that will enable the Company to attract and retain employees, consultants and directors and to provide them with an equity interest in the growth and profitability of the Company. These incentives are provided through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, other stock-based awards and cash-based awards.
Authorized Shares. The maximum aggregate number of shares authorized for issuance under the 2017 Plan is currently 2,500,000. If the Proposed Amendments are approved, the aggregate number of shares authorized for issuance under the 2017 Plan will be increased by 2,050,000 to a new total of 4,550,000.
Share Counting. Each share made subject to an award will reduce the number of shares remaining available for grant under the 2017 Plan by one share. If any award granted under the 2017 Plan expires or otherwise terminates for any reason without having been exercised or settled in full, or if shares subject to forfeiture or repurchase are forfeited or repurchased by the Company for not more than the participant’s purchase price, any such shares reacquired or subject to a terminated award will again become available for issuance under the 2017 Plan. Shares will not be treated as having been issued under the 2017 Plan and will therefore not reduce the number of shares available for issuance to the extent an award is settled in cash. Shares that are withheld or that are tendered in payment of the exercise price of an option will not be made available for new awards under the 2017 Plan. However, shares withheld or reacquired by the Company in satisfaction of a tax withholding obligation determined by the minimum statutory withholding rate in connection with the vesting or settlement of any full value award (but not options or stock appreciation rights) will not reduce the number of shares remaining available for the future grant of awards. Shares withheld for taxes in excess of
the minimum statutory withholding rate will not again be available for grant under the 2017 Plan. Upon the exercise of a stock appreciation right or net exercise of an option, the number of shares available under the 2017 Plan will be reduced by the gross number of shares for which the award is exercised.
Adjustments for Capital Structure Changes. Appropriate and proportionate adjustments will be made to the number of shares authorized under the 2017 Plan, to the numerical limits on certain types of awards described below, and to outstanding awards in the event of any change in our common stock through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares or similar change in our capital structure, or if we make a distribution to our stockholders in a form other than common stock (excluding regular, periodic cash dividends) that has a material effect on the fair market value of our common stock. In such circumstances, the CLD Committee also reimburse our directorshas the discretion under the 2017 Plan to adjust other terms of outstanding awards as it deems appropriate.
Non-employee Director Award Limits. A non-employee director may not be granted awards under the 2017 Plan in any fiscal year having an aggregate grant date fair value exceeding $500,000.
Other Award Limits. The 2017 Plan establishes limits on the maximum aggregate number of shares or dollar value for which awards may be granted to an employee in any fiscal year, as follows:
No more than 1,250,000 shares under stock-based awards.
No more than $2,000,000 for each full fiscal year contained in the performance period under cash-based awards.
In addition, to comply with applicable tax rules, the 2017 Plan also limits to 4,550,000 the number of shares that may be issued upon the exercise of incentive stock options granted under the 2017 Plan.
Administration. The 2017 Plan generally will be administered by the CLD Committee of the Board, although the Board retains the right to appoint another of its committees to administer the 2017 Plan or to administer the 2017 Plan directly. For purposes of this summary, the term “Committee” will refer to either such duly appointed committee or the Board. Subject to the provisions of the 2017 Plan, the Committee determines in its discretion the persons to whom and the times at which awards are granted, the types and sizes of awards, and all of their terms and conditions. The Committee may, subject to certain limitations on the exercise of its discretion provided by the 2017 Plan, amend, cancel or renew any award, waive any restrictions or conditions applicable to any award, and accelerate, continue, extend or defer the vesting of any award.
The 2017 Plan provides, subject to certain limitations, for indemnification by the Company of any director, officer or employee against all reasonable out-of-pocket expenses, including attorneys’ fees, incurred in connection with (i) their attendance at our Boardany legal action arising from such person’s action or failure to act in administering the 2017 Plan. All awards granted under the 2017 Plan will be evidenced by a written or digitally signed agreement between the Company and the participant specifying the terms and conditions of Directors, committee meetings,the award, consistent with the requirements of the 2017 Plan. The Committee will interpret the 2017 Plan and other Company meetings,awards granted thereunder, and (ii) director continuing education programs, including participationall determinations of the Committee generally will be final and binding on all persons having an interest in the National Association2017 Plan or any award.
Prohibition of Corporate Directors (NACD)Option and SAR Repricing. The 2017 Plan expressly provides that, without the approval of a majority of the votes cast in person or by proxy at a meeting of our stockholders, the Committee may not provide for any of the following with respect to options or stock appreciation rights: (1) the cancellation of outstanding options or stock appreciation rights with exercise prices per share greater than the then fair market value of the Company’s common stock in exchange for new options or stock appreciation rights having a lower exercise price, other awards or payments in cash (except in the event of a change in control), or (2) the amendment of outstanding options or stock appreciation rights to reduce the exercise price.
Minimum Vesting. No more than 5% of the aggregate number of shares authorized under the 2017 Plan may be issued pursuant to stock-based awards that vest earlier than one year following the date of grant. This minimum vesting requirement will not prohibit the Committee from accelerating vesting in connection with a participant’s death or disability or in connection with a change in control of the Company. Also, the minimum vesting requirement will not apply to awards granted by another company that we assume or substitute for in connection with our acquisition of such company or to awards granted to our non-employee directors that vest on the earlier of the one year anniversary of the date of grant or the next annual meeting of the stockholders which is at least 50 weeks after the immediately preceding year’s annual meeting.
Eligibility. Awards may be granted to employees, directors and consultants of the Company or any present or future parent or subsidiary corporation or other affiliated entity of the Company. Incentive stock options may be granted only to employees
who, as of the time of grant, are employees of the Company or any parent or subsidiary corporation of the Company. As of March 15, 2019, we had approximately 1,042 employees, 7 non-employee directors, as well as other consultants, who would be eligible under the 2017 Plan.
Stock Options. The Committee may grant nonstatutory stock options, incentive stock options within the meaning of Section 422 of the Code, or any combination of these. The exercise price of each option may not be less than the fair market value of a share of our common stock on the date of grant. However, any incentive stock option granted to a person who at the time of grant owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company (10% Stockholder) must have an exercise price equal to at least 110% of the fair market value of a share of common stock on the date of grant. On March 15, 2019, the closing price of our common stock as reported on the New York Stock Exchange was $41.95 per share.
The 2017 Plan provides that the option exercise price may be paid in cash, by check, or cash equivalent; by means of a broker-assisted cashless exercise; by means of a net-exercise procedure; to the extent legally permitted, by tender to the Company of shares of common stock owned by the participant having a fair market value not less than the exercise price; by such other lawful consideration as approved by the Committee; or by any combination of these. Nevertheless, the Committee may restrict the forms of payment permitted in connection with any option grant. No option may be exercised unless the participant has made adequate provision for federal, state, local and foreign taxes, if any, relating to the exercise of the option, including, if permitted or required by the Company, through the participant’s surrender of a portion of the option shares to the Company.
Options will become vested and exercisable at such times or upon such events and subject to such terms, conditions, performance criteria or restrictions as specified by the Committee, subject to the minimum vesting requirements described above. The maximum term of any option granted under the 2017 Plan is ten years, provided that an incentive stock option granted to a 10% Stockholder must have a term not exceeding five years. Unless otherwise permitted by the Committee, an option generally will remain exercisable for three months following the participant’s termination of service, provided that if service terminates as a result of the participant’s death or disability, the option generally will remain exercisable for 12 months, but in any event the option must be exercised no later than its expiration date.
Options are nontransferable by the participant other than by will or by the laws of descent and distribution, and are exercisable during the participant’s lifetime only by the participant. However, an option may be assigned or transferred to certain family members or trusts for their benefit to the extent permitted by the Committee and, in the case of an incentive stock option, only to the extent that the transfer will not terminate its tax qualification. No option may be transferred to a third party financial institution for value.
Stock Appreciation Rights. The Committee may grant stock appreciation rights either in tandem with a related option (Tandem SAR) or independently of any option (Freestanding SAR). A Tandem SAR requires the option holder to elect between the exercise of the underlying option for shares of common stock or the surrender of the option and the exercise of the related stock appreciation right. A Tandem SAR is exercisable only at the time and only to the extent that the related stock option is exercisable, while a Freestanding SAR is exercisable at such times or upon such events and subject to such terms, conditions, performance criteria or restrictions as specified by the Committee. The exercise price of each stock appreciation right may not be less than the fair market value of a share of our common stock on the date of grant.
Upon the exercise of any stock appreciation right, the participant is entitled to receive an amount equal to the excess of the fair market value of the underlying shares of common stock as to which the right is exercised over the aggregate exercise price for such shares. Payment of this amount upon the exercise of a Tandem SAR may be made only in shares of common stock whose fair market value on the exercise date equals the payment amount. At the Committee’s discretion, payment of this amount upon the exercise of a Freestanding SAR may be made in cash or shares of common stock. The maximum term of any stock appreciation right granted under the 2017 Plan is ten years.
Stock appreciation rights are generally nontransferable by the participant other than by will or by the laws of descent and distribution, and are generally exercisable during the participant’s lifetime only by the participant. If permitted by the Committee, a Tandem SAR related to a nonstatutory stock option and a Freestanding SAR may be assigned or transferred to certain family members or trusts for their benefit to the extent permitted by the Committee. Other terms of stock appreciation rights are generally similar to the terms of comparable stock options.
Restricted Stock Awards. The Committee may grant restricted stock awards under the 2017 Plan either in the form of a restricted stock purchase right, giving a participant an immediate right to purchase common stock, or in the form of a restricted stock bonus, in which stock is issued in consideration for services to the Company rendered by the participant. The Committee determines the purchase price payable under restricted stock purchase awards, which may be less than the then current fair market value of our common stock. Restricted stock awards may be subject to vesting conditions based on such service or performance criteria as the Committee specifies, including the attainment of one or more performance goals similar to those described below in connection with performance awards. Shares acquired pursuant to a restricted stock award may not be transferred by the participant until vested. Unless otherwise provided by the Committee, a participant will forfeit any shares of restricted stock as to which the vesting restrictions have not lapsed prior to the participant’s termination of service. Participants holding restricted stock will have the right to vote the shares and to receive any dividends or other distributions paid in cash or shares, subject to the same vesting conditions as the original award.
Restricted Stock Units. The Committee may grant restricted stock units under the 2017 Plan, which represent rights to receive shares of our common stock at a future date determined in accordance with the participant’s award agreement. No monetary payment is required for receipt of restricted stock units or the shares issued in settlement of the award, the consideration for which is furnished in the form of the participant’s services to the Company. The Committee may grant restricted stock unit awards subject to the attainment of one or more performance goals similar to those described below in connection with performance awards, or may make the awards subject to vesting conditions similar to those applicable to restricted stock awards. Restricted stock units may not be transferred by the participant. Unless otherwise provided by the Committee, a participant will forfeit any restricted stock units which have not vested prior to the participant’s termination of service. Participants have no voting rights or rights to receive cash dividends with respect to restricted stock unit awards until shares of common stock are issued in settlement of such awards. However, the Committee may grant restricted stock units that entitle their holders to dividend equivalent rights, which are rights to receive cash or additional restricted stock units whose value is equal to any cash dividends the Company pays. Dividend equivalent rights will be subject to the same vesting conditions and settlement terms as the original award.
Performance Awards. The Committee may grant performance awards subject to such conditions and the attainment of such performance goals over such periods as the Committee determines in writing and sets forth in a written agreement between the Company and the participant. These awards may be designated as performance shares or performance units, which consist of unfunded bookkeeping entries generally having initial values equal to the fair market value determined on the grant date of a share of common stock in the case of performance shares and a monetary value established by the Committee at the time of grant in the case of performance units. Performance awards will specify a predetermined amount of performance shares or performance units that may be earned by the participant to the extent that one or more performance goals are attained within a predetermined performance period. To the extent earned, performance awards may be settled in cash, shares of common stock (including shares of restricted stock that are subject to additional vesting) or any combination of these.
Performance goals will be based on the attainment of specified target levels with respect to one or more measures of business or financial performance of the Company and each subsidiary corporation consolidated with the Company for financial reporting purposes, or such division or business unit of the Company as may be selected by the Committee. The Committee, in its discretion, may base performance goals on one or more of the following such measures (or any other metric or goal the Committee may determine): bookings, revenue; sales; expenses; operating income; gross margin; operating margin; earnings before any one or more of: stock-based compensation expense, interest, taxes, depreciation and amortization; pre-tax profit; adjusted pre-tax profit; net operating income; net income; economic value added; free cash flow; operating cash flow; balance of cash, cash equivalents and marketable securities; stock price; earnings per share; return on stockholder equity; return on capital; return on assets; return on investment; total stockholder return, employee satisfaction; employee retention; market share; customer satisfaction; product development; research and development expense; completion of an identified special project and completion of a joint venture or other corporate transaction.
The target levels with respect to these performance measures may be expressed on an absolute basis or relative to an index, budget or other standard specified by the Committee. The degree of attainment of performance measures will be calculated in accordance with the Company’s financial statements, generally accepted accounting principles, if applicable, or other methodology established by the Committee, but prior to the accrual or payment of any performance award for the same performance period, and, according to criteria established by the Committee, excluding the effect (whether positive or negative) of any event the Committee determines is appropriate to exclude, including changes in accounting standards or any unusual or infrequently occurring event or transaction.
Following completion of the applicable performance period, the Committee will certify in writing the extent to which the applicable performance goals have been attained and the resulting value to be paid to the participant. The Committee retains the discretion to reduce the amount that would otherwise be payable on the basis of the performance goals attained. The Committee may make positive or negative adjustments to performance award payments to reflect the participant’s individual job performance or other factors determined by the Committee. In its discretion, the Committee may provide for a participant awarded performance shares to receive dividend equivalent rights with respect to cash dividends paid on the Company’s common stock to the extent that the performance shares become vested. The Committee may provide for performance award payments in lump sums or installments.
Unless otherwise provided by the Committee, if a participant’s service terminates due to the participant’s death or disability prior to completion of the applicable performance period, the final award value will be determined at the end of the performance period on the basis of the performance goals attained during the entire performance period but will be prorated for the number of days of the participant’s service during the performance period. The Committee may provide similar treatment for a participant whose service is involuntarily terminated. If a participant’s service terminates prior to completion of the applicable performance period for any other reason, the 2017 Plan provides that the performance award will be forfeited, unless otherwise determined by the Committee. No performance award may be sold or transferred other than by will or the laws of descent and distribution prior to the end of the applicable performance period.
Cash-Based Awards and Other Stock-Based Awards. The Committee may grant cash-based awards or other stock-based awards in such amounts and subject to such terms and conditions as the Committee determines. Cash-based awards will specify a monetary payment or range of payments, while other stock-based awards will specify a number of shares or units based on shares or other equity-related awards. Such awards may be subject to vesting conditions based on continued performance of service or subject to the attainment of one or more performance goals similar to those described above in connection with performance awards. Settlement of awards may be in cash or shares of common stock, as determined by the Committee. A participant will have no voting rights with respect to any such award unless and until shares are issued pursuant to the award. The Committee may grant dividend equivalent rights with respect to other stock-based awards that will be subject to the same vesting conditions and settlement terms as the original award.. The effect on such awards of the participant’s termination of service will be determined by the Committee and set forth in the participant’s award agreement.
Change in Control. The 2017 Plan provides that a “Change in Control” occurs upon (a) a person or entity (with certain exceptions described in the 2017 Plan) becoming the direct or indirect beneficial owner of more than 50% of the Company’s voting stock; (b) stockholder approval of a liquidation or dissolution of the Company; or (c) the occurrence of any of the following events upon which the stockholders of the Company immediately before the event do not retain immediately after the event direct or indirect beneficial ownership of more than 50% of the voting securities of the Company, its successor or the entity to which the assets of the company were transferred: (i) a sale or exchange by the stockholders in a single transaction or series of related transactions of more than 50% of the Company’s voting stock; (ii) a merger or consolidation in which the Company is a member.party; or (iii) the sale, exchange or transfer of all or substantially all of the assets of the Company (other than a sale, exchange or transfer to one or more subsidiaries of the Company).
If a Change in Control occurs, the surviving, continuing, successor or purchasing entity or its parent may, without the consent of any participant, either assume or continue outstanding awards or substitute substantially equivalent awards for its stock. If so determined by the Committee, stock-based awards will be deemed assumed if, for each share subject to the award prior to the Change in Control, its holder is given the right to receive the same amount of consideration that a stockholder would receive as a result of the Change in Control. The vesting of any awards that are not assumed, continued or replaced in connection with a Change in Control will be accelerated in full, and, if not exercised prior to the Change in Control, will terminate effective as of the time of the Change in Control. The vesting of any awards that are assumed, continue or replaced will be accelerated in full if, within 18 months following the Change in Control, the holder’s employment is terminated without cause or the holder resigns following reduction in base salary of 15% or more.
Subject to the restrictions of Section 409A of the Code, the Committee may provide for the acceleration of vesting or settlement of any or all outstanding awards upon such other terms and to such extent as it determines. The vesting of all awards held by non-employee directors will be accelerated in full upon a Change in Control.
The 2017 Director Compensation TablePlan also authorizes the Committee, in its discretion and without the consent of any participant, to cancel each or any award denominated in shares of stock upon a Change in Control in exchange for a payment to the participant with respect each vested share (and each unvested share if so determined by the Committee) subject to the canceled award of an amount equal to the excess of the consideration to be paid per share of common stock in the Change in Control transaction over the exercise or purchase price per share, if any, under the award.
The following table sets forthAwards Subject to Section 409A of the Code. Certain awards granted under the 2017 Plan may be deemed to constitute “deferred compensation” within the meaning of Section 409A of the Code, providing rules regarding the taxation of nonqualified deferred compensation paidplans, and the regulations and other administrative guidance issued pursuant to our non-employee directors for service on our Board during 2017. Compensation for Andres D. Reiner our PresidentSection 409A. Any such awards will be required to comply with the requirements of Section 409A. Notwithstanding any provision of the 2017 Plan to the contrary, the Committee is authorized, in its sole discretion and Chief Executive Officer is set forth inwithout the "Summary Compensation" table on page 40consent of this Proxy Statement. Mr. Reiner does not receive any compensation for his servicesparticipant, to amend the 2017 Plan or any award agreement as a director.it deems necessary or advisable to comply with Section 409A.
|
| | | | | | | | | | | | |
| Name | | Fees Earned or Paid in Cash ($) | | Restricted Stock Units ($) (1) | | Total ($) |
| Ellen Keszler | | $ | 57,500 |
| | $ | 136,044 |
| | $ | 193,544 |
|
| Greg B. Petersen | | $ | 70,000 |
| | $ | 136,044 |
| | $ | 206,044 |
|
| Leslie Rechan | | $ | 57,500 |
| | $ | 136,044 |
| | $ | 193,544 |
|
| William Russell | | $ | 110,000 |
| | $ | 136,044 |
| | $ | 246,044 |
|
| Timothy V. Williams | | $ | 72,500 |
| | $ | 136,044 |
| | $ | 208,544 |
|
| Mariette M. Woestemeyer | | $ | 35,000 |
| | $ | 136,044 |
| | $ | 171,044 |
|
| Ronald F. Woestemeyer | | $ | 35,000 |
| | $ | 136,044 |
| | $ | 171,044 |
|
| |
(1) | These amounts represent the aggregate grant date fair value of equity awards granted for such director's services in 2017 as calculated in accordance with GAAP. For additional information about the valuation assumptions with respect to equity awards, refer to Note 10 of our financial statements in our Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC. The January 3, 2017 grant of RSUs awarded to all non-employee directors vested in full on January 1, 2018 and had a grant date fair value of $21.56. |
Tax Aspects Under the Code
The following table presentssummary is intended only as a general guide to the aggregate numberU.S. federal income tax consequences of outstanding RSUsparticipation in the 2017 Plan and does not attempt to describe all possible federal or other tax consequences of such participation or tax consequences based on particular circumstances.
Incentive Stock Options. A participant recognizes no taxable income for regular income tax purposes as a result of the grant or exercise of an incentive stock option awards heldqualifying under Section 422 of the Code. Participants who neither dispose of their shares within two years following the date the option was granted nor within one year following the exercise of the option will normally recognize a capital gain or loss upon the sale of the shares equal to the difference, if any, between the sale price and the purchase price of the shares. If a participant satisfies such holding periods upon a sale of the shares, we will not be entitled to any deduction for federal income tax purposes. If a participant disposes of shares within two years after the date of grant or within one year after the date of exercise (a “disqualifying disposition”), the difference between the fair market value of the shares on the option exercise date and the exercise price (not to exceed the gain realized on the sale if the disposition is a transaction with respect to which a loss, if sustained, would be recognized) will be taxed as ordinary income at the time of disposition. Any gain in excess of that amount will be a capital gain. If a loss is recognized, there will be no ordinary income, and such loss will be a capital loss. Any ordinary income recognized by our non-employee directorsthe participant upon the disqualifying disposition of the shares generally should be deductible by us for federal income tax purposes, except to the extent such deduction is limited by applicable provisions of the Code.
In general, the difference between the option exercise price and the fair market value of the shares on the date of exercise of an incentive stock option is treated as an adjustment in computing the participant’s alternative minimum taxable income and may be subject to an alternative minimum tax which is paid if such tax exceeds the regular tax for the year. Special rules may apply with respect to certain subsequent sales of December 31, 2017:the shares in a disqualifying disposition, certain basis adjustments for purposes of computing the alternative minimum taxable income on a subsequent sale of the shares and certain tax credits which may arise with respect to participants subject to the alternative minimum tax.
|
| | | | | | |
| Name | | Restricted Stock Units (#) (1) | | Stock Option Awards (#) (2) |
Penny Herscher3 | | — |
| | — |
|
| Ellen Keszler | | 6,310 |
| | 30,000 |
|
| Greg B. Petersen | | 6,310 |
| | — |
|
| Leslie Rechan | | 6,310 |
| | — |
|
| William Russell | | 6,310 |
| | — |
|
| Timothy V. Williams | | 6,310 |
| | — |
|
| Mariette M. Woestemeyer | | 6,310 |
| | — |
|
| Ronald F. Woestemeyer | | 6,310 |
| | — |
|
| |
(1) | Represents RSUs granted on January 3, 2017, which fully vested on January 1, 2018, under the 2017 director compensation policy, for all non-employee directors. Each RSU represents the contingent right to receive one share of Common Stock. |
| |
(2) | Represents options to purchase 30,000 shares of our Common Stock granted on August 21, 2008 which previously vested and are immediately exercisable. |
| |
(3) | Ms. Herscher joined our Board of Directors in January 2018. |
Stock Appreciation Rights. A Participant recognizes no taxable income upon the receipt of a stock appreciation right. Upon the exercise of a stock appreciation right, the participant generally will recognize ordinary income in an amount equal to the excess of the fair market value of the underlying shares of common stock on the exercise date over the exercise price. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. We generally should be entitled to a deduction equal to the amount of ordinary income recognized by the participant in connection with the exercise of the stock appreciation right, except to the extent such deduction is limited by applicable provisions of the Code.
Restricted Stock. A participant acquiring restricted stock generally will recognize ordinary income equal to the excess of the fair market value of the shares on the “determination date” over the price paid, if any, for such shares. The “determination date” is the date on which the participant acquires the shares unless the shares are subject to a substantial risk of forfeiture and are not transferable, in which case the determination date is the earlier of (i) the date on which the shares become transferable or (ii) the date on which the shares are no longer subject to a substantial risk of forfeiture (e.g., when they become vested). If the determination date follows the date on which the participant acquires the shares, the participant may elect, pursuant to Section 83(b) of the Code, to designate the date of acquisition as the determination date by filing an election with the Internal Revenue Service no later than 30 days after the date on which the shares are acquired. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of shares acquired pursuant to a restricted stock award, any gain or loss, based on the difference between the sale price and the fair market value of the shares on the determination date, will be taxed as capital gain or loss. We generally should be entitled to a deduction equal to the amount of ordinary income recognized by the participant on the determination date, except to the extent such deduction is limited by applicable provisions of the Code.
Restricted Stock Unit, Performance, Cash-Based and Other Stock-Based Awards. A participant generally will recognize no income upon the receipt of a restricted stock unit, performance share, performance unit, cash-based or other stock-based award. Upon the settlement of such awards, participants normally will recognize ordinary income in the year of settlement in an amount equal to the cash received and the fair market value of any substantially vested shares of stock received. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. If the participant receives shares of restricted stock, the participant generally will be taxed in the same manner as described above under “Restricted Stock.” Upon the sale of any shares received, any gain or loss, based on the difference between the sale price and the fair market value of the shares on the determination date (as defined above under “Restricted Stock”), will be taxed as capital gain or loss. We generally should be entitled to a deduction equal to the amount of ordinary income recognized by the participant on the determination date, except to the extent such deduction is limited by applicable provisions of the Code.
Options Granted to Certain Persons
Since its inception, no options have been granted under the 2017 Plan to (i) any current executive officers, (ii) any current directors who are not executive officers, or (iii) any employees, including current officers who are not executive officers. Since its inception, no options have been granted under the 2017 Plan to any other nominee for election as a director, or any associate of any such director, nominee or executive officer.
Vote Required
Approval of this proposal requires the affirmative vote of a majority of the shares present or represented by proxy and entitled to vote on this proposal. If you hold your shares in your own name and abstain from voting on this matter, your abstention will have the same effect as a negative vote. If you hold your shares through a broker and you do not instruct the broker on how to vote on this proposal, your broker will not have authority to vote your shares. Broker non-votes will have no effect on the outcome of this vote. Abstentions and broker non-votes will each be counted as present for purposes of determining the presence of a quorum.
THE BOARD UNANIMOUSLY RECOMMENDS VOTING “FOR” THE APPROVAL OF THE PROPOSED AMENDMENTS TO THE 2017 EQUITY INCENTIVE PLAN.
SECURITY OWNERSHIP
The following tables set forth information regarding beneficial ownership of our Common Stock for each person known to own beneficially more than 5% of our outstanding Common Stock; each director and director nominee; and each of our NEOs, named in the Summary Compensation table, both individually and as a group. Applicable percentage of ownership is based on 32,588,92438,036,801 shares of our Common Stock outstanding as of the Record Date, unless otherwise noted below, together with applicable options for each stockholder. Beneficial ownership includes shares of Common Stock that the stockholder has a right to acquire within 60 days of the Record Date through the exercise of any option or other right. Unless otherwise indicated, the principal address of each of the stockholders below is c/o PROS Holdings, Inc., 3100 Main Street, Suite 900, Houston, Texas 77002.
|
| | | | | | |
| Principal Shareholders | | Shares Beneficially Owned | | Percentage |
Brown Capital Management, LLC (1) | | 4,880,236 |
| | 14.9 | % |
Ronald F. and Mariette M. Woestemeyer (2) | | 3,870,801 |
| | 11.8 | % |
Riverbridge Partners, LLC (3) | | 2,505,848 |
| | 7.6 | % |
Conestoga Capital Advisors, LLC (4) | | 1,927,134 |
| | 5.9 | % |
Daruma Capital Management LLC (5) | | 1,882,401 |
| | 5.7 | % |
BlackRock, Inc. (6) | | 1,714,104 |
| | 5.2 | % |
|
| | | | | | |
| Principal Shareholders | | Shares Beneficially Owned | | Percentage |
Brown Capital Management, LLC(1) | | 5,580,504 |
| | 14.7 | % |
Ronald F. and Mariette M. Woestemeyer(2) | | 3,887,403 |
| | 10.2 | % |
PRIMECAP Management Company(3) | | 2,815,900 |
| | 7.4 | % |
Conestoga Capital Advisors, LLC(4) | | 2,634,109 |
| | 6.9 | % |
BlackRock, Inc.(5) | | 2,321,872 |
| | 6.1 | % |
Riverbridge Partners, LLC(6) | | 2,218,402 |
| | 5.8 | % |
| |
| (1) | Information regarding Brown Capital Management, LLC (Brown Capital)(Brown) is based solely upon a Schedule 13G/A filed by Brown Capital with the SEC on February 14, 2018,2019, which indicates that Brown Capital beneficially owned 4,880,8365,580,504 shares of our Common Stock as of December 31, 2017,2018, with sole voting power with respect to 2,621,2883,082,517 shares of our Common Stock and sole dispositive power with respect to 4,880,2365,580,504 shares of our Common Stock. The address of Brown Capital is 1201 N. Calvert Street, Baltimore, MD 21202. |
| |
| (2) | Includes 3,870,8013,887,403 shares held by various trusts for the benefit of certain family members. The address for Mr. & Mrs. Woestemeyer is c/o PROS Holdings, Inc., 3100 Main Street, Suite 900, Houston, Texas 77002. |
| |
| (3) | Information regarding Riverbridge Partners LLC (Riverbridge)PRIMECAP Management Company (PRIMECAP) is based solely upon a Schedule 13G/A filed by RiverbridgePRIMECAP with the SEC on January 29, 2018,February 8, 2019, which indicates that RiverbridgePRIMECAP beneficially owned 2,505,8482,815,900 shares of our Common Stock as of December 31, 2017,2018, with sole voting power with respect to 1,692,6632,641,500 shares of our Common Stock and sole dispositive power with respect to 2,505,8482,641,500 shares of our Common Stock. The address of RiverbridgePRIMECAP is 80 South Eighth St.177 E. Colorado Blvd., Suite 1200, Minneapolis, MN 55402.11th Floor, Pasadena, CA 91105. |
| |
| (4) | Information regarding Conestoga Capital Advisors, LLC (Conestoga) is based solely upon a Schedule 13G13G/A filed by Conestoga with the SEC on January 17, 2018,8, 2019, which indicates that Conestoga beneficially owned 1,927,1342,634,109 shares of our Common Stock as of December 31, 2017,2018, with sole voting power with respect to 1,726,7862,354,386 shares of our Common Stock and sole dispositive power with respect to 1,927,1342,634,109 shares of our Common Stock. The address of Conestoga is 550 E. Swedesford Road, Suite 120, Wayne, PA 19087. |
| |
| (5) | Information regarding Daruma Capital Management, LLC (Daruma)BlackRock, Inc. (BlackRock) is based solely upon a Schedule 13G13G/A filed by DarumaBlackRock with the SEC on February 14, 2018,6, 2019, which indicates that DarumaBlackRock beneficially owned 1,882,4012,321,872 shares of our Common Stock as of December 31, 2017, with shared voting power with respect to 808,762 shares of our Common Stock and shared dispositive power with respect to 1,882,401 shares of our Common Stock. The address of Daruma is 626 King Avenue, Bronx, NY 10464. |
| |
(6) | Information regarding BlackRock, Inc. (BlackRock) is based solely upon a Schedule 13G filed by BlackRock with the SEC on February 1, 2018, which indicates that BlackRock beneficially owned 1,714,104 shares of our Common Stock as of December 31, 2017, with sole voting power with respect to 1,668,6542,096,161 shares of our Common Stock and sole dispositive power with respect to 1,714,1042,321,872 shares of our Common Stock. The address of BlackRock is 55 East 52nd Street, New York, NY 10055. |
| |
| (6) | Information regarding Riverbridge Partners LLC (Riverbridge) is based solely upon a Schedule 13G/A filed by Riverbridge with the SEC on January 25, 2019, which indicates that Riverbridge beneficially owned 2,218,402 shares of our Common Stock as of December 31, 2018, with sole voting power with respect to 1,536,516 shares of our Common Stock and sole dispositive power with respect to 2,218,402 shares of our Common Stock. The address of Riverbridge is 80 South Eighth St., Suite 1200, Minneapolis, MN 55402. |
| | | Name of Beneficial Owner | | Shares Beneficially Owned1 | | Percentage | | Shares Beneficially Owned1 | | Percentage |
| Named Executive Officers | | | | | | | | |
Andres D. Reiner2 | | 670,074 |
| | 2.0 | % | |
Andres D. Reiner(2) | | | 767,252 |
| | 2.0 | % |
| Stefan B. Schulz | | 86,883 |
| | * |
| | 193,949 |
| | * |
|
| Thomas F. Dziersk | | — |
| | * |
| | 8,357 |
| | * |
|
| Non-Employee Directors and Director Nominees | | | | | | | | |
| Penelope Herscher | | — |
| | * |
| | 3,189 |
| | * |
|
Ellen Keszler3 | | 92,477 |
| | * |
| |
| Greg B. Petersen | | 97,543 |
| | * |
| | 103,119 |
| | * |
|
| Leslie Rechan | | 30,644 |
| | * |
| | 30,704 |
| | * |
|
| William Russell | | 120,977 |
| | * |
| | 126,571 |
| | * |
|
| Timothy V. Williams | | 102,477 |
| | * |
| | 108,071 |
| | * |
|
Mariette M. Woestemeyer4 | | 3,870,801 |
| | 11.8 | % | |
Ronald F. Woestemeyer4 | | 3,870,801 |
| | 11.8 | % | |
Mariette M. Woestemeyer(3) | | | 3,887,403 |
| | 10.2 | % |
Ronald F. Woestemeyer(3) | | | 3,877,403 |
| | 10.2 | % |
| All NEOs, directors and director nominees as a group | | 5,071,876 |
| | 15.4 | % | | 5,228,615 |
| | 13.7 | % |
* Represents less than 1% of the outstanding shares of Common Stock
| |
| (1) | Includes shares held and stock options, RSUs, PRSUs, MSUs and stock appreciation rights (SARs) vesting and exercisable within 60 days of the Record Date. MSUs are displayed at 100% of the target number granted. |
| |
| (2) | Includes 215,000200,000 shares issuable pursuant to stock options and SARs that are immediately exercisable or exercisable within 60 days of the Record Date. |
| |
| (3) | Includes 30,000 shares issuable pursuant to stock options which are immediately exercisable. |
| |
(4) | Mr. and Mrs. Woestemeyer jointly beneficially own an aggregate of 3,870,8013,887,403 shares, which include shares held by various trusts for the benefit of certain family members. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires each of our directors and NEOs, among others, to file with the SEC an initial report of ownership and reports of changes in ownership of Common Stock of the Company. Such persons are required by SEC regulations to furnish us with copies of all such filings. Based on a review of the copies of such forms in our possession, and on written representations from reporting persons, we believe that during 2017,2018, all of our NEOs and directors filed the required reports on a timely basis under Section 16(a).
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Since January 1, 2017,2018, there has not been (nor is there currently proposed), any transaction or series of similar transactions to which we were or are a party in which the amount involved exceeded or exceeds $120,000 and in which any of our directors, executive officers, holders of more than 5% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest, other than compensation arrangements with directors and executive officers, and the transactions described below:
Relationships with Management, Founders and Investors
Ownership. Ronald F. Woestemeyer and Mariette Woestemeyer, who each serve on our Board, of Directors, jointly hold more than 5% of our Common Stock.
Indemnification agreements. We have entered into indemnification agreements with each of our current directors and officers. These agreements require us, among other things, to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to us, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. We also intend to enter into indemnification agreements with our future directors and officers.
Employment arrangements. We have entered into employment agreements with each of our executive officers, which address, among other things, the terms of their employment, such as base salary, severance payments and payment on a change in control.
Family relationships. Mr. Rob Reiner, who serves as our Chief Technology Officer is the brother of Andres Reiner, our CEO. All compensation paid to Mr. R. Reiner has been approved by our Compensation and Leadership Development Committee, which reviews and approves all compensation for our NEOs and any family members who are employees.
Procedures for Related Party Transactions
Under our Code of Business Conduct and Ethics, our employees and officers are discouraged from entering into any transaction that may cause a conflict of interest. In addition, they must report any potential conflict of interest, including related party transactions, to their managers or our compliance officer who then reviews and summarizes the proposed transaction for our Audit Committee. Pursuant to its charter, our Audit Committee must then approve any related party transactions, including those transactions involving our directors. In approving or rejecting such proposed transactions, the Audit Committee considers the relevant facts and circumstances available and deemed relevant to the Audit Committee, including the material terms of the transactions, risks, benefits, costs, availability of other comparable services or products and, if applicable, the impact on a director’s independence. Our Audit Committee will approve only those transactions that, in light of known circumstances, are in, or are not inconsistent with, our best interests, as our Audit Committee determines in the good faith exercise of its discretion.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee operates under a written charter adopted by the Board of Directors, a current copy of which is available under Corporate Governance in the Investor Relations section of our website at www.PROS.comwww.pros.com. The Audit Committee reviews and assesses the adequacy of its charter at least annually and, when appropriate, recommends changes to the Board to reflect the evolving role of the Audit Committee. The Audit Committee is composed of non-employee directors who meet the independence and financial literacy requirements of the NYSE and additional, heightened independence criteria applicable to members of the Audit Committee under SEC and NYSE rules. The Audit Committee currently consists of Timothy V. Williams (Chairman), Greg B. Petersen and Ellen Keszler.Les Rechan. Our Board of Directors has determined that each of the members of the Audit Committee are each an “Audit Committee financial expert” as is currently defined under SEC regulations and the rules of the NYSE.
Primary Responsibilities
The Audit Committee oversees the Company’s accounting and financial reporting processes on behalf of the Board of Directors, and assists the Board in fulfilling its oversight responsibility relating to the integrity of the Company’s financial statements and the financial reporting process, the systems of internal accounting and financial controls, and the annual independent audit of the Company’s financial statements. The Audit Committee also oversees the independent auditors’ qualifications and independence. The Company’s management has the primary responsibility for preparing the Company’s financial statements, for maintaining effective internal control over financial reporting, and for assessing the effectiveness of internal control over financial reporting.
Oversight of Independent Auditors
The Audit Committee engaged PricewaterhouseCoopers LLP (PwC) as our independent auditors for the year ended December 31, 2017.2018. In its meetings with our independent auditors, the Audit Committee asks them to address, and discusses their responses to, several questions that the Audit Committee believes are relevant to its oversight. The Audit Committee also discussed with the independent auditors those matters required to be discussed by the auditors with the Audit Committee under the rules adopted by the Public Company Accounting Oversight Board (PCAOB). The Audit Committee received the written disclosures and the letter from the independent auditors required by applicable requirements of the PCAOB regarding the independent auditors’ communication with the Audit Committee concerning independence, and has discussed with the independent auditors their independence.
2017
2018 Audited Financial Statements
In its oversight role, the Audit Committee relies on the work and assurances of the Company’s management. In fulfilling its oversight responsibilities in 2017,2018, the Audit Committee reviewed and discussed with management the Company’s consolidated financial statements for the fiscal year ended December 31, 2017,2018, including a discussion of, among other things, the quality of the Company’s accounting principles, the reasonableness of significant estimates and judgments, and the clarity of disclosures in the Company’s financial statements.
The Audit Committee has (1) reviewed and discussed the audited financial statements with management, (2) discussed with PwC, our independent registered public accounting firm, the matters required to be discussed by the statement on Auditing StandardsStandard No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU Section 380)1301, “Communications with Audit Committees”, as adopted by the Public Company Accounting Oversight Board, in Rule 3200T, (3) received the written disclosures and the letter from the independent accountant required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence, and has discussed with the independent accountant the independent accountant’s independence, and (4) considered with the independent auditors whether the provision of non-audit services provided by them to the Company during 20172018 was compatible with their independence. Based upon these discussions and reviews, the Audit Committee recommended to our Board of Directors, and the Board has approved, that the audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 20172018 and filed with the SEC.
THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Timothy V. Williams, Chairman
Ellen Keszler
Greg B. Petersen
Les Rechan
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES
The Audit Committee has adopted a policy for the pre-approval of services performed by our independent registered public accounting firm. Under this policy, each year the Audit Committee pre-approves the audit engagement terms and fees and may also pre-approve detailed types of audit-related and permitted tax services, subject to certain dollar limits, to be performed during the year. All other permitted non-audit services are required to be pre-approved by the Audit Committee on an engagement-by-engagement basis.
The following table summarizes the aggregate fees in 20172018 billed for professional services rendered to us by PwC in 20172018 and 2016.2017. A description of these various fees and services follows the table:
| | | | | 2017 | | 2016 | | 2018 | | 2017 |
| Audit fees | | $ | 2,058,773 |
| | $ | 1,434,387 |
| | $ | 1,845,680 |
| | $ | 2,058,773 |
|
| Audit-related fees | | — |
| | — |
| | — |
| | — |
|
| Tax fees | | 31,000 |
| | 140,000 |
| | 41,992 |
| | 31,000 |
|
| All other fees | | 1,919 |
| | 1,919 |
| | 1,919 |
| | 1,919 |
|
| Total fees | | $ | 2,091,692 |
| | $ | 1,576,306 |
| | $ | 1,889,591 |
| | $ | 2,091,692 |
|
Fees Billed by PricewaterhouseCoopers, LLP
Audit fees. The aggregate fees billed to us by PwC in connection with the annual audit of our financial statements, reviews of our financial statements included in quarterly reports on Form 10-Q, consents related to documents filed with the SEC and comfort letters, were $2,058,773$1,845,680 and $1,434,387$2,058,773 for the years ended December 31, 2018 and 2017, and 2016, respectively. The increase in audit fees in 2017 primarily related to additional procedures required in connection with the adoption of Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers (Topic 606)", as amended, effective in the first quarter of 2018, purchase price allocation and audit impact of the Vayant acquisition as well as audit and comfort letter procedures associate with our convertible debt offering.
Audit-related fees. Audit-related fees consist of fees for professional services that are reasonably related to the performance of the audit or review of the Company's financial statements. This category may include fees related to due diligence related to mergers and acquisitions, accounting and financial reporting consultations and research necessary to comply with generally accepted audit standards. There were no audit-related fees billed for the years ended December 31, 20172018 and 2016.2017.
Tax fees. The aggregate tax fees billed to us by PwC related to tax compliance, tax advice and tax planning, and were $31,000$41,992 and $140,000$31,000 for the years ended December 31, 2018 and 2017, and 2016, respectively. The higher fees in 2016 primarily related to one-time tax projects for the period.
All other fees. The other fees consist of subscription fees for an accounting and auditing research tool.
Audit Committee Approval of Services
The Audit Committee is authorized by its charter to pre-approve all auditing and permitted non-audit services to be performed by our independent registered public accounting firm. The Audit Committee reviews and approves the independent registered public accounting firm’s retention to perform attest services, including the associated fees. The Audit Committee also evaluates other known potential engagements of the independent registered public accounting firm, including the scope of the proposed work and the proposed fees, and approves or rejects each service, taking into account whether the services are permissible under applicable law and the possible impact of each non-audit service on the independent registered public accounting firm’s independence from management. At subsequent meetings, the Audit Committee receives updates on services actually provided by the independent registered public accounting firm, and management may present additional services for approval. The Audit Committee has delegated to the chairman of the Audit Committee the authority to evaluate and approve engagements on behalf of the Audit Committee in the event that a need arises for pre-approval between Audit Committee meetings. If the Chairman approves any such engagements, he reports that approval to the full Audit Committee at its next meeting. During fiscal year 2017,2018, all such services were pre-approved in accordance with the procedures described above.
Our Audit Committee has reviewed the fees described above and believes that such fees are compatible with maintaining the independence of PwC.
PROPOSAL THREEFOUR
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM APPOINTMENT
The Audit Committee has selected the independent registered public accounting firm of PwC to audit our consolidated financial statements for the fiscal year ending December 31, 2018.2019. We have determined to submit the selection of auditors to stockholder ratification, even though it is not required by our governing documents or Delaware law. If the selection of PwC as our independent auditors is not ratified by our stockholders, our Audit Committee will reconsider, but might not change, its selection. Notwithstanding the selection and ratification, the Audit Committee, in its discretion, may appoint a different independent registered public accounting firm at any time, if it believes doing so would be in the best interests of us and our stockholders.
PwC has audited our financial statements annually since 2002. Representatives of PwC are expected to be present at the Annual Meeting with the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.
Vote Required
Approval of the ratification of the appointment of PwC as our independent registered public accounting firm requires the affirmative vote of the holders of at least a majority of the outstanding shares of our Common Stock entitled to vote and present or represented at the Annual Meeting. A properly executed proxy marked “ABSTAIN” with respect to this matter is considered entitled to vote and thus, will have the effect of a vote against this matter.
In accordance with Delaware law, abstentions will be counted for purposes of determining both whether a quorum is present at the Annual Meeting and the total number of shares represented and voting on this proposal. While broker non-votes will be counted for purposes of determining the presence or absence of a quorum, broker non-votes will not be counted for purposes of determining the number of shares represented and voting with respect to the particular proposal on which the broker has expressly not voted and, accordingly, will not affect the approval of this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING “FOR” THE RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2018.2019.
STOCKHOLDERS PROPOSALS
Stockholders may present proposals for action at meetings of stockholders only if they comply with the rules established by the SEC, applicable Delaware law and our amended and restated bylaws, as contained in the Current Report on Form 8-K filed with the SEC on August 21, 2013 (Bylaws). No stockholder proposals were received for consideration at the Annual Meeting.
Stockholders interested in submitting a proposal for inclusion in our proxy materials and for consideration at the 20192020 annual meeting of our stockholders (2019(2020 Annual Meeting) may do so by following the procedures set forth in Rule 14a-8 under the Exchange Act, as amended. To be eligible for inclusion in such proxy materials, stockholder proposals must be received by our Corporate Secretary no later than December 31, 2018.November 26, 2019.
Under our Bylaws, for any stockholder proposal or director nomination that is not submitted for inclusion in the next year’s proxy statement but instead is proposed to be presented directly at our 20192020 Annual Meeting, the stockholder must provide us written notice not later than the close of business on the later of the ninetieth day prior to our 20192020 Annual Meeting or the tenth day following the date on which public announcement of the date of the 20192020 Annual Meeting is first made. Any such notice for director nominations must satisfy the requirements specified in Article II, Section 2.15(b) of our Bylaws. Any such notice for other stockholder proposals (other than director nomination) must satisfy the requirements specified in Article I, Section 1.10(b) of our Bylaws. In the absence of such notice meeting the above requirements, a stockholder shall not be entitled to present any business at our 20192020 Annual Meeting.
Notwithstanding the above, in the event that the number of directors to be elected at an annual meeting of stockholders is increased and there is no public announcement by the Company naming the nominees for the additional directorships at least 100 days prior to the first anniversary of the date of the Company’s previous year’s annual meeting of stockholders, a stockholder’s notice shall also be considered timely, but only with respect to nominees for the additional directorships, if it is be delivered to the Corporate Secretary at our principal executive offices not later than the close of business on the 10th day following the day on which such public announcement is first made by the Company. In the event the Company calls a special meeting of stockholders for the purpose of electing one or more directors to the Board, of Directors, any such stockholder may nominate a person(s), for election to such positions as are specified in the Company’s notice of meeting, if the stockholder’s notice is delivered to the Corporate Secretary at our principal executive offices not earlier than the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by our Board of Directors to be elected at such meeting.
EXPENSES AND SOLICITATION
We will bear the expense of soliciting proxies in the enclosed form. In addition, we might reimburse banks, brokerage firms, and other custodians, nominees and fiduciaries representing beneficial owners of our Common Stock, for their expenses in forwarding soliciting materials to those beneficial owners. Proxies may also be solicited by our directors, officers or employees, personally or by telephone, telegram, facsimile or other means of communication. We do not intend to pay additional compensation for doing so.
NO INCORPORATION BY REFERENCE OF
CERTAIN PORTIONS OF THIS PROXY STATEMENT
Notwithstanding anything to the contrary set forth in any of our filings made under the Securities Act of 1933, as amended, or the Exchange Act, as amended, that might incorporate information in this Proxy Statement, neither the Audit Committee Report nor the Compensation and Leadership Development Committee Report is to be incorporated by reference into any such filings as provided by SEC regulations. In addition, this Proxy Statement includes certain website addresses intended to provide inactive, textual references only. The information on these websites shall not be deemed part of this Proxy Statement.
OTHER MATTERS
The Board of Directors knows of no other matters to be submitted at the Annual Meeting. If any other matters properly come before the Annual Meeting, the persons appointed in the enclosed proxy intend to vote the shares represented thereby in accordance with their best judgment on such matters, under applicable laws.
The Board of Directors
PROS HOLDINGS, INC.
March 30, 201825, 2019
APPENDIX A
PROS
AMENDED AND RESTATED
2017 EQUITY INCENTIVE PLAN
|
| | | | | | |
| TABLE OF CONTENTS |
| Section | Page | |
| 1. | Establishment, Purpose and Term of Plan | 1 |
|
| | 1.1 |
| Establishment | | 1 |
|
| | 1.2 |
| Purpose | | 1 |
|
| | 1.3 |
| Term of Plan | | 1 |
|
| 2. | Definitions and Construction | |
| | 2.1 |
| Definitions | | 1 |
|
| | 2.2 |
| Construction | | 8 |
|
| 3. | Administration | 8 |
|
| | 3.1 |
| Administration by the Committee | 8 |
|
| | 3.2 |
| Authority of Officers | 9 |
|
| | 3.3 |
| Administration with Respect to Insiders | 9 |
|
| | 3.4 |
| Powers of the Committee | 9 |
|
| | 3.5 |
| Option or SAR Repricing | 10 |
|
| | 3.6 |
| Indemnification | 10 |
|
| 4. | Shares Subject to Plan | 10 |
|
| | 4.1 |
| Maximum Number of Shares Issuable | 11 |
|
| | 4.2 |
| Share Counting | 11 |
|
| | 4.3 |
| Adjustments for Changes in Capital Structure | 11 |
|
| | 4.4 |
| Assumption or Substitution of Awards | 12 |
|
| 5. | Eligibility, Participation and Award Limitations | 12 |
|
| | 5.1 |
| Persons Eligible for Awards | 12 |
|
| | 5.2 |
| Participation in the Plan | 12 |
|
| | 5.3 |
| Incentive Stock Option Limitations | 12 |
|
| | 5.4 |
| Award Limits | 13 |
|
| | 5.5 |
| Nonemployee Director Award Limit | 13 |
|
| | 5.6 |
| Minimum Vesting | 13 |
|
| 6. | Stock Options | 13 |
|
| | 6.1 |
| Exercise Price | 13 |
|
| | 6.2 |
| Exercisability and Term of Options | 14 |
|
| | 6.3 |
| Payment of Exercise Price | 14 |
|
| | 6.4 |
| Effect of Termination of Service | 15 |
|
| | 6.5 |
| Transferability of Options | 16 |
|
| 7. | Stock Appreciation Rights | 16 |
|
| | 7.1 |
| Types of SARs Authorized | 16 |
|
| | 7.2 |
| Exercise Price | 17 |
|
| | 7.3 |
| Exercisability and Term of SARs | 17 |
|
| | 7.4 |
| Exercise of SARs | 17 |
|
| | 7.5 |
| Deemed Exercise of SARs | 18 |
|
| | 7.6 |
| Effect of Termination of Service | 18 |
|
| | 7.7 |
| Transferability of SARs | 18 |
|
| 8. | Restricted Stock Awards | 18 |
|
| | 8.1 |
| Types of Restricted Stock Awards Authorized | 18 |
|
| | 8.2 |
| Purchase Price | 18 |
|
|
| | | | | | |
| | 8.3 |
| Purchase Period | 19 |
|
| | 8.4 |
| Payment of Purchase Price | 19 |
|
| | 8.5 |
| Vesting and Restrictions on Transfer | 19 |
|
| | 8.6 |
| Voting Rights; Dividends and Distributions | 19 |
|
| | 8.7 |
| Effect of Termination of Service | 20 |
|
| | 8.8 |
| Nontransferability of Restricted Stock Award Rights | 20 |
|
| 9. | Restricted Stock Units | 20 |
|
| | 9.1 |
| Grant of Restricted Stock Unit Awards | 20 |
|
| | 9.2 |
| Purchase Price | 20 |
|
| | 9.3 |
| Vesting | 21 |
|
| | 9.4 |
| Voting Rights, Dividend Equivalent Rights and Distributions | 21 |
|
| | 9.5 |
| Effect of Termination of Service | 21 |
|
| | 9.6 |
| Settlement of Restricted Stock Unit Awards | 21 |
|
| | 9.7 |
| Nontransferability of Restricted Stock Unit Awards | 22 |
|
| 10. | Performance Awards | 22 |
|
| | 10.1 |
| Types of Performance Awards Authorized | 22 |
|
| | 10.2 |
| Initial Value of Performance Shares and Performance Units | 22 |
|
| | 10.3 |
| Establishment of Performance Period, Performance Goals and Performance Award Formula | 23 |
|
| | 10.4 |
| Measurement of Performance Goals | 23 |
|
| | 10.5 |
| Settlement of Performance Awards | 25 |
|
| | 10.6 |
| Voting Rights; Dividend Equivalent Rights and Distributions | 26 |
|
| | 10.7 |
| Effect of Termination of Service | 27 |
|
| | 10.8 |
| Nontransferability of Performance Awards | 27 |
|
| 11. | Cash-Based Awards and Other Stock-Based Awards | 27 |
|
| | 11.1 |
| Grant of Cash-Based Awards | 27 |
|
| | 11.2 |
| Grant of Other Stock-Based Awards | 27 |
|
| | 11.3 |
| Value of Cash-Based and Other Stock-Based Awards | 28 |
|
| | 11.4 |
| Payment or Settlement of Cash-Based Awards and Other Stock-Based Awards | 28 |
|
| | 11.5 |
| Voting Rights; Dividend Equivalent Rights and Distributions | 28 |
|
| | 11.6 |
| Effect of Termination of Services | 29 |
|
| | 11.7 |
| Nontransferability of Cash-Based Awards and Other Stock-Based Awards | 29 |
|
| 12. | Standard Forms of Award Agreement | 29 |
|
| | 12.1 |
| Award Agreements | 29 |
|
| | 12.2 |
| Authority to Vary Terms | 29 |
|
| 13. | Change in Control | 29 |
|
| | 13.1 |
| Effect of Change in Control on Awards | 29 |
|
| | 13.2 |
| Effect of Change in Control on Nonemployee Director Awards | 31 |
|
| | 13.3 |
| Federal Excise Tax Under Section 4999 of the Code | 31 |
|
| 14. | Compliance with Securities Law | 32 |
|
| 15. | Compliance with Section 409A | 32 |
|
| | 15.1 |
| Awards Subject to Section 409A | 32 |
|
| | 15.2 |
| Deferral and/or Distribution Elections | 33 |
|
| | 15.3 |
| Subsequent Elections | 33 |
|
| | 15.4 |
| Payment of Section 409A Deferred Compensation | 34 |
|
| 16. | Tax Withholding | 36 |
|
| | 16.1 |
| Tax Withholding in General | 36 |
|
|
| | | | | | |
| | 16.2 |
| Withholding in or Directed Sale of Shares | 36 |
|
| 17. | Amendment, Suspension or Termination of Plan | 36 |
|
| 18. | Miscellaneous Provisions | 37 |
|
| | 18.1 |
| Repurchase Rights | 37 |
|
| | 18.2 |
| Forfeiture Events | 37 |
|
| | 18.3 |
| Provision of Information | 37 |
|
| | 18.4 |
| Rights as Employee, Consultant or Director | 37 |
|
| | 18.5 |
| Rights as a Stockholder | 38 |
|
| | 18.6 |
| Delivery of Title to Shares | 38 |
|
| | 18.7 |
| Franctional Shares | 38 |
|
| | 18.8 |
| Retirement and Welfare Plans | 38 |
|
| | 18.9 |
| Beneficiary Designation | 38 |
|
| | 18.10 |
| Severability | 38 |
|
| | 18.11 |
| No Constraint on Corporate Action | 39 |
|
| | 18.12 |
| Unfunded Obligation | 39 |
|
| | 18.13 |
| Choice of Law | 39 |
|
PROS
Amended and Restated 2017 Equity Incentive Plan
1.Establishment, Purpose and Term of Plan.
1.1Establishment. The Amended and Restated PROS 2017 Equity Incentive Plan (the “Plan”) is hereby established effective as of May __, 2019, the date of its approval by the stockholders of the Company (the “Effective Date”). The PROS 2017 Equity Incentive Plan was originally approved by stockholders of the Company on May 11, 2017, was amended and restated on March 22, 2019 by the Board, and certain amendments to the Plan requiring stockholder approval were submitted for approval by the stockholders of the Company at the Company’s 2019 annual meeting of stockholders.
1.2Purpose. The purpose of the Plan is to advance the interests of the Participating Company Group and its stockholders by providing an incentive to attract, retain and reward persons performing services for the Participating Company Group and by motivating such persons to contribute to the growth and profitability of the Participating Company Group. The Plan seeks to achieve this purpose by providing for Awards in the form of Options, Stock Appreciation Rights, Restricted Stock Awards, Restricted Stock Units, Performance Shares, Performance Units, Cash-Based Awards and Other Stock-Based Awards.
1.3Term of Plan. The Plan will continue in effect until its termination by the Committee; provided, however, that all Awards must be granted, if at all, within ten (10) years from the Effective Date.
2.Definitions and Construction.
2.1 Definitions. Whenever used herein, the following terms have their respective meanings set forth below:
(a)“Affiliate” means (i) a parent entity, other than a Parent Corporation, that directly, or indirectly through one or more intermediary entities, controls the Company or (ii) a subsidiary entity, other than a Subsidiary Corporation, that is controlled by the Company directly or indirectly through one or more intermediary entities. For this purpose, the terms “parent,” “subsidiary,” “control” and “controlled by” have the meanings assigned such terms for the purposes of registration of securities on Form S-8 under the Securities Act.
(b)“Award” means any Option, Stock Appreciation Right, Restricted Stock Purchase Right, Restricted Stock Bonus, Restricted Stock Unit, Performance Share, Performance Unit, Cash-Based Award or Other Stock-Based Award granted under the Plan.
(c)“Award Agreement” means a written or electronic agreement between the Company and a Participant setting forth the terms, conditions and restrictions applicable to an Award.
(d)“Board” means the Board of Directors of the Company.
(e)“Cash-Based Award” means an Award denominated in cash and granted pursuant to Section 11.
(f)“Cashless Exercise” means a Cashless Exercise as defined in Section 6.3(b)(i).
(g)“Cause” means, unless such term or an equivalent term is otherwise defined by the applicable Award Agreement or other written agreement between a Participant and a Participating Company applicable to an Award, any of the following: (i) the Participant’s theft, dishonesty, willful misconduct, breach of fiduciary duty for personal profit, or falsification of any Participating Company documents or records; (ii) the Participant’s material failure to abide by a Participating Company’s code of conduct or other policies (including, without limitation, policies relating to confidentiality and reasonable workplace conduct); (iii) the Participant’s unauthorized use, misappropriation, destruction or diversion of any tangible or intangible asset or corporate opportunity of a Participating Company (including, without limitation, the Participant’s improper use or disclosure of a Participating Company’s confidential
or proprietary information); (iv) any intentional act by the Participant which has a material detrimental effect on a Participating Company’s reputation or business; (v) the Participant’s repeated failure to perform any reasonable assigned duties after written notice from a Participating Company of, and a reasonable opportunity to cure, such failure; (vi) any material breach by the Participant of any employment, service, non-disclosure, non-competition, non-solicitation or other similar agreement between the Participant and a Participating Company, which breach is not cured pursuant to the terms of such agreement; or (vii) the Participant’s conviction (including any plea of guilty or nolo contendere) of any criminal act involving fraud, dishonesty, misappropriation or moral turpitude, or which impairs the Participant’s ability to perform his or her duties with a Participating Company.
(h)“Change in Control” means the occurrence of any one or a combination of the following:
(i)any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as such term is defined in Rule 13d‑3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the total Fair Market Value or total combined voting power of the Company’s then‑outstanding securities entitled to vote generally in the election of Directors; provided, however, that a Change in Control shall not be deemed to have occurred if such degree of beneficial ownership results from any of the following: (A) an acquisition by any person who on the Effective Date is the beneficial owner of more than fifty percent (50%) of such voting power, (B) any acquisition directly from the Company, including, without limitation, pursuant to or in connection with a public offering of securities, (C) any acquisition by the Company, (D) any acquisition by a trustee or other fiduciary under an employee benefit plan of a Participating Company or (E) any acquisition by an entity owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the voting securities of the Company; or
(ii)an Ownership Change Event or series of related Ownership Change Events (collectively, a “Transaction”) in which the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding securities entitled to vote generally in the election of Directors or, in the case of an Ownership Change Event described in Section 2.1(ee)(iii), the entity to which the assets of the Company were transferred (the “Transferee”), as the case may be; or
(iii)a date specified by the Committee following approval by the stockholders of a plan of complete liquidation or dissolution of the Company;
provided, however, that a Change in Control shall be deemed not to include a transaction described in subsections (i) or (ii) of this Section 2.1(h) in which a majority of the members of the board of directors of the continuing, surviving or successor entity, or parent thereof, immediately after such transaction is comprised of Incumbent Directors.
For purposes of the preceding sentence, indirect beneficial ownership includes, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company or the Transferee, as the case may be, either directly or through one or more subsidiary corporations or other business entities. The Committee shall determine whether multiple events described in subsections (i), (ii) and (iii) of this Section 2.1(h) are related and to be treated in the aggregate as a single Change in Control, and its determination shall be final, binding and conclusive.
(i)“Code” means the Internal Revenue Code of 1986, as amended, and any applicable regulations and administrative guidelines promulgated thereunder.
(j)“Committee” means the Compensation and Leadership Development Committee and such other committee or subcommittee of the Board, if any, duly appointed to administer the Plan and having such powers in each instance as specified by the Board. If, at any time, there is no committee of the Board then authorized or properly constituted to administer the Plan, the Board must exercise all of the powers of the Committee granted herein, and, in any event, the Board may in its discretion exercise any or all of such powers.
(k)“Company” means PROS Holdings, Inc., a Delaware corporation, and any successor corporation thereto.
(l)“Consultant” means a person engaged to provide consulting or advisory services (other than as an Employee or a Director) to a Participating Company, provided that the identity of such person, the nature of such services or the entity to which such services are provided would not preclude the Company from offering or selling securities to such person pursuant to the Plan in reliance on registration on Form S‑8 under the Securities Act.
(m)“Director” means a member of the Board.
(n)“Disability” means, unless such term or an equivalent term is otherwise defined by the applicable Award Agreement or other written agreement between the Participant and a Participating Company applicable to an Award, the permanent and total disability of the Participant, within the meaning of Section 22(e)(3) of the Code.
(o)“Dividend Equivalent Right” means the right of a Participant, granted at the discretion of the Committee or as otherwise provided by the Plan, to receive a credit for the account of such Participant in an amount equal to the cash dividends paid on one share of Stock for each share of Stock represented by an Award held by such Participant. Dividend Equivalent Rights may not be granted in connection with an Option or SAR.
(p)“Employee” means any person treated as an employee (including an Officer or a Director who is also treated as an employee) in the records of a Participating Company and, with respect to any Incentive Stock Option granted to such person, who is an employee for purposes of Section 422 of the Code; provided, however, that neither service as a Director nor payment of a Director’s fee is sufficient to constitute employment for purposes of the Plan. The Company shall determine in good faith and in the exercise of its discretion whether an individual has become or has ceased to be an Employee and the effective date of such individual’s employment or termination of employment, as the case may be. For purposes of an individual’s rights, if any, under the terms of the Plan as of the time of the Company’s determination of whether or not the individual is an Employee, all such determinations by the Company are final, binding and conclusive as to such rights, if any, notwithstanding that the Company or any court of law or governmental agency subsequently makes a contrary determination as to such individual’s status as an Employee.
(q)“Exchange Act” means the Securities Exchange Act of 1934, as amended.
(r)“Fair Market Value” means, as of any date, the value of a share of Stock or other property as determined by the Committee, in its discretion, or by the Company, in its discretion, if such determination is expressly allocated to the Company herein, subject to the following:
(i)Except as otherwise determined by the Committee, if, on such date, the Stock is listed or quoted on a national or regional securities exchange or quotation system, the Fair Market Value will be the closing price of a share of Stock as quoted on the national or regional securities exchange or quotation system constituting the primary market for the Stock, as reported in The Wall Street Journal or such other source as the Company deems reliable. If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or quotation system, the date on which the Fair Market Value is established will be the last day on which the Stock was so traded or quoted prior to the relevant date, or such other appropriate day as determined by the Committee, in its discretion.
(ii)Notwithstanding the foregoing, the Committee may, in its discretion, determine the Fair Market Value of a share of Stock on the basis of the opening, closing, or average of the high and low sale prices of a share of Stock on such date or the preceding trading day, the actual sale price of a share of Stock received by a Participant, any other reasonable basis using actual transactions in the Stock as reported on a national or regional securities exchange or quotation system, or on any other basis consistent with the requirements of Section 409A. The Committee may vary its method of determination of the Fair Market Value as provided in this Section for different purposes under the Plan to the extent consistent with the requirements of Section 409A.
(iii)If, on such date, the Stock is not listed or quoted on a national or regional securities exchange or quotation system, the Fair Market Value of a share of Stock must be determined by the Committee
in good faith without regard to any restriction other than a restriction which, by its terms, will never lapse, and in a manner consistent with the requirements of Section 409A.
(s)“Full Value Award” means any Award settled in Stock, other than (i) an Option, (ii) a Stock Appreciation Right, or (iii) a Restricted Stock Purchase Right or an Other Stock-Based Award under which the Company will receive monetary consideration equal to the Fair Market Value (determined on the effective date of grant) of the shares subject to such Award.
(t)“Incentive Stock Option” means an Option intended to be (as set forth in the Award Agreement) and which qualifies as an incentive stock option within the meaning of Section 422(b) of the Code.
(u)“Incumbent Director” means a Director who either (i) is a member of the Board as of the Effective Date or (ii) is elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but excluding a Director who was elected or nominated in connection with an actual or threatened proxy contest relating to the election of Directors of the Company).
(v)“Insider” means an Officer, a Director or other person whose transactions in Stock are subject to Section 16 of the Exchange Act.
(w)“Net Exercise” means a Net Exercise as defined in Section 6.3(b)(iii).
(x)“Nonemployee Director” means a Director who is not an Employee.
(y)“Nonemployee Director Award” means any Award granted to a Nonemployee Director.
(z)“Non-Exempt Employee” means an Employee who is a non-exempt employee for purposes of the Fair Labor Standards Act of 1938, as amended.
(aa)“Nonstatutory Stock Option” means an Option not intended to be (as set forth in the Award Agreement evidencing such Option) or which does not qualify as an incentive stock option within the meaning of Section 422(b) of the Code.
(bb) “Officer” means any person designated by the Board as an officer of the Company.
(cc) “Option” means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant to the Plan.
(dd) “Other Stock-Based Award” means an Award denominated in shares of Stock and granted pursuant to Section 11.
(ee) “Ownership Change Event” means the occurrence of any of the following with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of securities of the Company representing more than fifty percent (50%) of the total combined voting power of the Company’s then outstanding securities entitled to vote generally in the election of Directors; (ii) a merger or consolidation in which the Company is a party; or (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company (other than a sale, exchange or transfer to one or more subsidiaries of the Company).
(ff) “Parent Corporation” means any present or future “parent corporation” of the Company, as defined in Section 424(e) of the Code.
(gg) “Participant” means any eligible person who has been granted one or more Awards.
(hh) “Participating Company” means the Company or any Parent Corporation, Subsidiary Corporation or Affiliate.
(ii) “Participating Company Group” means, at any point in time, the Company and all other entities collectively which are then Participating Companies.
(jj) “Performance Award” means an Award of Performance Shares or Performance Units.
(kk) “Performance Award Formula” means, for any Performance Award, a formula or table established by the Committee pursuant to Section 10.3 which provides the basis for computing the value of a Performance Award at one or more levels of attainment of the applicable Performance Goal(s) measured as of the end of the applicable Performance Period.
(ll) “Performance Goal” means a performance goal established by the Committee pursuant to Section 10.3.
(mm) “Performance Period” means a period established by the Committee pursuant to Section 10.3 at the end of which one or more Performance Goals are to be measured.
(nn) “Performance Share” means a right granted to a Participant pursuant to Section 10 to receive a payment equal to the value of a Performance Share, as determined by the Committee, based upon attainment of applicable Performance Goal(s).
(oo) “Performance Unit” means a right granted to a Participant pursuant to Section 10 to receive a payment equal to the value of a Performance Unit, as determined by the Committee, based upon attainment of applicable Performance Goal(s).
(pp) “Restricted Stock Award” means an Award of a Restricted Stock Bonus or a Restricted Stock Purchase Right.
(qq) “Restricted Stock Bonus” means Stock granted to a Participant pursuant to Section 8.
(rr) “Restricted Stock Purchase Right” means a right to purchase Stock granted to a Participant pursuant to Section 8.
(ss) “Restricted Stock Unit” means a right granted to a Participant pursuant to Section 9 to receive on a future date or occurrence of a future event a share of Stock or cash in lieu thereof, as determined by the Committee.
(tt) “Rule 16b‑3” means Rule 16b‑3 under the Exchange Act, as amended from time to time, or any successor rule or regulation.
(uu) “SAR” or “Stock Appreciation Right” means a right granted to a Participant pursuant to Section 7 to receive payment, for each share of Stock subject to such Award, of an amount equal to the excess, if any, of the Fair Market Value of a share of Stock on the date of exercise of the Award over the exercise price thereof.
(vv) “Section 409A” means Section 409A of the Code.
(ww) “Section 409A Deferred Compensation” means compensation provided pursuant to an Award that constitutes nonqualified deferred compensation within the meaning of Section 409A.
(xx) “Securities Act” means the Securities Act of 1933, as amended.
(yy) “Service” means a Participant’s employment or service with the Participating Company Group, whether as an Employee, a Director or a Consultant. Unless otherwise provided by the Committee, a Participant’s Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders Service or a change in the Participating Company for which the Participant renders Service, provided that there is no interruption or termination of the Participant’s Service. Furthermore, a Participant’s Service shall not be deemed to have been interrupted or terminated if the Participant takes any military leave, sick leave, or other bona fide leave of absence approved by the Company. However, unless otherwise provided by the Committee, if any such leave taken by a Participant exceeds ninety (90) days, then on the ninety-first (91st) day following the
commencement of such leave the Participant’s Service shall be deemed to have terminated, unless the Participant’s right to return to Service is guaranteed by statute or contract. Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, an unpaid leave of absence shall not be treated as Service for purposes of determining vesting under the Participant’s Award Agreement. A Participant’s Service shall be deemed to have terminated either upon an actual termination of Service or upon the business entity for which the Participant performs Service ceasing to be a Participating Company. Subject to the foregoing, the Company, in its discretion, shall determine whether the Participant’s Service has terminated and the effective date of and reason for such termination.
(zz) “Stock” means the common stock of the Company, as adjusted from time to time in accordance with Section 4.3.
(aaa) “Stock Tender Exercise” means a Stock Tender Exercise as defined in Section 6.3(b (ii).
(bbb) “Subsidiary Corporation” means any present or future “subsidiary corporation” of the Company, as defined in Section 424(f) of the Code.
(ccc) “Substitute Awards” shall mean Awards granted or Stock issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, in each case by a company acquired by the Company or any Subsidiary Corporation or with which the Company or any Subsidiary Corporation combines.
(ddd) “Ten Percent Owner” means a Participant who, at the time an Option is granted to the Participant, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of a Participating Company (other than an Affiliate) within the meaning of Section 422(b)(6) of the Code.
(eee) “Trading Compliance Policy” means the written policy of the Company pertaining to the purchase, sale, transfer or other disposition of the Company’s equity securities by Directors, Officers, Employees or other service providers who may possess material, nonpublic information regarding the Company or its securities.
(fff) “Vesting Conditions” mean those conditions established in accordance with the Plan prior to the satisfaction of which an Award or shares subject to an Award remain subject to forfeiture or a repurchase option in favor of the Company exercisable for the Participant’s monetary purchase price, if any, for such shares upon the Participant’s termination of Service or failure of a performance condition to be satisfied.
2.2 Construction. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.
3.Administration.
3.1 Administration by the Committee. The Plan must be administered by the Committee. All questions of interpretation of the Plan, of any Award Agreement or of any other form of agreement or other document employed by the Company in the administration of the Plan or of any Award shall be determined by the Committee, and such determinations shall be final, binding and conclusive upon all persons having an interest in the Plan or such Award, unless fraudulent or made in bad faith. Any and all actions, decisions and determinations taken or made by the Committee in the exercise of its discretion pursuant to the Plan or Award Agreement or other agreement thereunder (other than determining questions of interpretation pursuant to the preceding sentence) shall be final, binding and conclusive upon all persons having an interest therein. All expenses incurred in connection with the administration of the Plan shall be paid by the Company.
3.2 Authority of Officers. Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election that is the responsibility of or that is allocated to the Company herein, provided that the Officer has apparent authority with respect to such matter, right, obligation, determination or election.
3.3 Administration with Respect to Insiders. With respect to participation by Insiders in the Plan, at any time that any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act, the Plan must be administered in compliance with the requirements, if any, of Rule 16b‑3.
3.4 Powers of the Committee. In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, the Committee shall have the full and final power and authority, in its discretion:
(a)to determine the persons to whom, and the time(s) at which, Awards are granted and the number of shares of Stock, units or monetary value to be subject to each Award;
(b)to determine the type of Award granted;
(c)to determine the Fair Market Value of Stock or other property;
(d)to determine the terms, conditions and restrictions applicable to each Award (which need not be identical) and any shares acquired pursuant thereto, including, without limitation, (i) the exercise or purchase price of shares of Stock pursuant to any Award, (ii) the method of payment for shares of Stock purchased pursuant to any Award, (iii) the method for satisfaction of any tax withholding obligation arising in connection with any Award, including by the withholding or delivery of shares of Stock, (iv) the timing, terms and conditions of the exercisability or vesting of any Award or any shares acquired pursuant thereto, (v) the Performance Measures, Performance Period, Performance Award Formula and Performance Goals applicable to any Award and the extent to which such Performance Goals have been attained, (vi) the time of expiration of any Award, (vii) the effect of any Participant’s termination of Service on any of the foregoing, and (viii) all other terms, conditions and restrictions applicable to any Award or shares acquired pursuant thereto not inconsistent with the terms of the Plan;
(e)to determine whether an Award will be settled in Stock, cash, other property or in any combination thereof;
(f)to approve one or more forms of Award Agreement;
(g)to amend, modify, extend, cancel or renew any Award or to waive any restrictions or conditions applicable to any Award or any shares of Stock acquired pursuant thereto;
(h)to accelerate, continue, extend or defer the exercisability or vesting of any Award or any shares of Stock acquired pursuant thereto, including with respect to the period following a Participant’s termination of Service;
(i)to prescribe, amend or rescind rules, guidelines and policies relating to the Plan, and to adopt sub-plans or supplements to, or alternative versions of, the Plan, including, without limitation, as the Committee deems necessary or desirable to comply with the laws of, or to accommodate the tax policy, accounting principles or custom of, foreign jurisdictions whose residents may be granted Awards; and
(j)to correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award Agreement and to make all other determinations and take such other actions with respect to the Plan or any Award as the Committee may deem advisable to the extent not inconsistent with the provisions of the Plan or applicable law.
3.5 Option or SAR Repricing. Without the affirmative vote of holders of a majority of the shares of Stock cast in person or by proxy at a meeting of the stockholders of the Company at which a quorum representing a majority of all outstanding shares of Stock is present or represented by proxy, the Committee shall not approve a program providing for either (a) the cancellation of outstanding Options or SARs having exercise prices per share greater than the then Fair Market Value of Stock (“Underwater Awards”) and the grant in substitution therefor of new Options or SARs having a lower exercise price, other Awards or payments in cash (except in the event of a Change in Control), or (b) the amendment of outstanding Awards to reduce the exercise price thereof. This Section shall not be construed to apply to (i) “issuing or assuming a stock option in a transaction to which Section 424(a) applies,” within the meaning of Section 424 of the Code, (ii) adjustments pursuant to the assumption of or substitution for an Option or SAR in a manner that would comply with Section 409A, or (iii) an adjustment pursuant to Section 4.3.
3.6 Indemnification. In addition to such other rights of indemnification as they may have as members of the Board or the Committee or as officers or employees of the Participating Company Group, to the extent permitted by applicable law, members of the Board or the Committee and any officers or employees of the Participating Company Group to whom authority to act for the Board, the Committee or the Company is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same.
4.Shares Subject to Plan.
4.1 Maximum Number of Shares Issuable. Subject to adjustment as provided in Sections 4.2 and 4.3, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be equal to 4,550,000 shares, and shall consist of authorized but unissued or reacquired shares of Stock or any combination thereof.
4.2 Share Counting. If an outstanding Award for any reason expires or is terminated or canceled without having been exercised or settled in full, or if shares of Stock acquired pursuant to an Award subject to forfeiture or repurchase are forfeited or repurchased by the Company for an amount not greater than the Participant’s purchase price, the shares of Stock allocable to the terminated portion of such Award or such forfeited or repurchased shares of Stock shall again be available for issuance under the Plan. Shares of Stock shall not be deemed to have been issued pursuant to the Plan with respect to any portion of an Award that is settled in cash. Upon payment in shares of Stock pursuant to the exercise of an SAR, the number of shares available for issuance under the Plan shall be reduced by the gross number of shares for which the SAR is exercised. If the exercise price of an Option is paid by tender to the Company, or attestation to the ownership, of shares of Stock owned by the Participant, or by means of a Net Exercise, the number of shares available for issuance under the Plan shall be reduced by the gross number of shares for which the Option is exercised. Shares withheld or reacquired by the Company in satisfaction of tax withholding obligations pursuant to the exercise or settlement of Options or SARs pursuant to Section 16.2 shall not again be available for issuance under the Plan. Shares withheld or reacquired by the Company in satisfaction of tax withholding obligations pursuant to the vesting or settlement of Full Value Awards pursuant to Section 16.2 will again become available for issuance under the Plan; provided, however, that any shares so withheld or tendered above the applicable minimum statutory withholding rate will not become available again for issuance under the Plan.
4.3 Adjustments for Changes in Capital Structure. Subject to any required action by the stockholders of the Company and the requirements of Sections 409A and 424 of the Code to the extent applicable, in the event of any change in the Stock effected without receipt of consideration by the Company, whether through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or similar change in the capital structure of the Company, or in the event of payment of a dividend or distribution to the stockholders of the Company in a form other than Stock (excepting regular, periodic cash dividends) that has a material effect on the Fair Market Value of Stock, appropriate and proportionate adjustments will be made in the number and kind of shares of Stock subject to the Plan and to any outstanding Awards, the Award limits set forth in Section 5.3 and Section 5.4, and in the exercise or purchase price per share of Stock under any outstanding Award in order to prevent dilution or enlargement of Participants’ rights under the Plan. For purposes of the foregoing, conversion of any convertible securities of the Company will not be treated as “effected without receipt of consideration by the Company.” If a majority of the shares which are of the same class as the shares that are subject to outstanding Awards are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares of another corporation (the “New Shares”), the Committee may unilaterally amend the outstanding Awards to provide that such Awards are for New Shares. In the event of any such amendment, the number of shares subject to, and the exercise or purchase price per share of, the outstanding Awards must be adjusted in a fair and equitable manner as determined by the Committee, in its discretion. Any fractional share resulting from an adjustment pursuant to this Section shall be rounded down to the
nearest whole number and the exercise or purchase price per share shall be rounded up to the nearest whole cent. In no event may the exercise or purchase price, if any, under any Award be decreased to an amount less than the par value, if any, of the Stock subject to such Award. The Committee in its discretion, may also make such adjustments in the terms of any Award to reflect, or related to, such changes in the capital structure of the Company or distributions as it deems appropriate, including modification of Performance Goals, Performance Award Formulas and Performance Periods. Any adjustments determined by the Committee pursuant to this Section shall be final, binding and conclusive.
4.4 Assumption or Substitution of Awards. The Committee may, without affecting the number of shares of Stock reserved or available hereunder, authorize the issuance or assumption of benefits under this Plan in connection with any merger, consolidation, acquisition of property or stock, or reorganization upon such terms and conditions as it may deem appropriate, subject to compliance with Section 409A and any other applicable provisions of the Code.
5.Eligibility, Participation and Award Limitations.
5.1 Persons Eligible for Awards. Awards may be granted only to Employees, Consultants and Directors.
5.2 Participation in the Plan. Awards are granted solely at the discretion of the Committee. Eligible persons may be granted more than one Award. However, eligibility in accordance with this Section shall not entitle any person to be granted an Award, or, having been granted an Award, to be granted an additional Award.
5.3 Incentive Stock Option Limitations.
(a)Maximum Number of Shares Issuable Pursuant to Incentive Stock Options. Subject to adjustment as provided in Section 4.3, the maximum aggregate number of shares of Stock that may be issued under the Plan pursuant to the exercise of Incentive Stock Options shall not exceed 4,550,000 shares. The maximum aggregate number of shares of Stock that may be issued under the Plan pursuant to all Awards other than Incentive Stock Options will be the number of shares determined in accordance with Section 4.1, subject to adjustment as provided in Sections 4.2 and 4.3.
(b)Persons Eligible. An Incentive Stock Option may be granted only to a person who, on the effective date of grant, is an Employee of the Company, a Parent Corporation or a Subsidiary Corporation (each being an “ISO-Qualifying Corporation”). Any person who is not an Employee of an ISO-Qualifying Corporation on the effective date of the grant of an Option to such person may be granted only a Nonstatutory Stock Option.
(c)Fair Market Value Limitation. To the extent that options designated as Incentive Stock Options (granted under all stock plans of the Participating Company Group, including the Plan) become exercisable by a Participant for the first time during any calendar year for stock having a Fair Market Value greater than One Hundred Thousand Dollars ($100,000), the portion of such options which exceeds such amount shall be treated as Nonstatutory Stock Options. For purposes of this Section, options designated as Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of Stock shall be determined as of the time the option with respect to such Stock is granted. If the Code is amended to provide for a limitation different from that set forth in this Section, such different limitation shall be deemed incorporated herein effective as of the date and with respect to such Options as required or permitted by such amendment to the Code. If an Option is treated as an Incentive Stock Option in part and as a Nonstatutory Stock Option in part by reason of the limitation set forth in this Section, the Participant may designate which portion of such Option the Participant is exercising. In the absence of such designation, the Participant shall be deemed to have exercised the Incentive Stock Option portion of the Option first. Upon exercise of the Option, shares of Stock issued pursuant to each such portion shall be separately identified.
5.4 Award Limits. Subject to adjustment as provided in Section 4.3, no Employee shall be granted within any fiscal year of the Company one or more share-denominated Awards which in the aggregate are for more than 1,250,000 shares or one or more cash-dominated Awards which could result in such Employee receiving more than $2,000,000 or equivalent value in shares for each full fiscal year of the Company contained in the Performance Period for such Award.
5.5 Nonemployee Director Award Limit. Notwithstanding any other provision of the Plan to the contrary, the aggregate grant date fair value (computed as of the date of grant in accordance with generally accepted accounting principles in the United States) of all Awards granted to any Nonemployee Director during any fiscal year of the Company shall not exceed $500,000.
5.6 Minimum Vesting. As provided in Section 4, no Award (other than cash-based Awards) shall vest earlier than one year following the date of grant of such Award; provided that, the foregoing minimum vesting requirement shall not apply to any (a) acceleration of vesting of any Award, including upon death, disability, or in connection with a Change in Control, as determined by the Committee in its discretion, (b) Substitute Awards, (c) Awards to non-employee Directors that vest on the earlier of the one year anniversary of the date of grant or the next annual meeting of stockholders which is at least 50 weeks after the immediately preceding year’s annual meeting, and (d) other Awards up to a maximum of five percent (5%) of the aggregate number of shares of Stock that may be issued under the Plan (subject to adjustment as provided in Section 4.3).
6.Stock Options.
Options shall be evidenced by Award Agreements specifying the number of shares of Stock covered thereby, in such form as the Committee establishes. Such Award Agreements may incorporate all or any of the terms of the Plan by reference and must comply with and will be subject to the following terms and conditions:
6.1 Exercise Price. The Committee, in its discretion, shall establish the exercise price for each Option; provided, however, that (a) the exercise price per share will not be less than the Fair Market Value per share of Stock on the effective date of grant of the Option and (b) the exercise price per share for any Incentive Stock Option granted to a Ten Percent Owner, must be no less than one hundred ten percent (110%) of the Fair Market Value per share of Stock on the effective date of grant of the Option. Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an exercise price less than the minimum exercise price set forth above if such Option is granted pursuant to an assumption or substitution for another option in a manner that would qualify under the provisions of Section 409A or Section 424(a) of the Code.
6.2 Exercisability and Term of Options. Subject to the minimum vesting provisions of Section 5.6, Options will be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria and restrictions as determined by the Committee and set forth in the Award Agreement evidencing such Option; provided, however, that (a) no Option will be exercisable after the expiration of ten (10) years after the effective date of grant of such Option, (b) no Incentive Stock Option granted to a Ten Percent Owner will be exercisable after the expiration of five (5) years after the effective date of grant of such Option and (c) no Option granted to a Non-Exempt Employee will be first exercisable until at least six (6) months following the date of grant of such Option (except in the event of such Non-Exempt Employee’s death, disability or retirement, upon a Change in Control, or as otherwise permitted by the Worker Economic Opportunity Act). Subject to the foregoing, unless otherwise specified by the Committee in the grant of an Option, each Option terminates ten (10) years after the effective date of grant of the Option, unless earlier terminated in accordance with its provisions.
6.3 Payment of Exercise Price.
(a)Forms of Consideration Authorized. Except as otherwise provided below, payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option must be made (i) in cash, by check or in cash equivalent; (ii) if permitted by the Committee and subject to the limitations contained in Section 6.3(b), by means of (1) a Cashless Exercise, (2) a Stock Tender Exercise or (3) a Net Exercise; (iii) by such other consideration as may be approved by the Committee from time to time to the extent permitted by applicable law, or (iv) by any combination thereof. The Committee may from time to time grant Options which do not permit all of the foregoing forms of consideration to be used in payment of the exercise price or which otherwise restrict one or more forms of consideration.
(b)Limitations on Forms of Consideration.
(i)Cashless Exercise. A “Cashless Exercise” means the delivery of a properly executed notice of exercise together with irrevocable instructions to a broker providing for the assignment to the
Company of the proceeds of a sale or loan with respect to some or all of the shares of Stock being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System). The Company reserves, at any and all times, the right, in the Company’s sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options by means of a Cashless Exercise, including with respect to one or more Participants specified by the Company notwithstanding that such program or procedures may be available to other Participants.
(ii)Stock Tender Exercise. A “Stock Tender Exercise” means the delivery of a properly executed exercise notice accompanied by a Participant’s tender to the Company, or attestation to the ownership, in a form acceptable to the Company of whole shares of Stock owned by the Participant having a Fair Market Value that does not exceed the aggregate exercise price for the shares of Stock with respect to which the Option is exercised. A Stock Tender Exercise is not permitted if it would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company’s Stock. If required by the Company, an Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock unless such shares either have been owned by the Participant for a period of time required by the Company (and not used for another option exercise by attestation during such period) or were not acquired, directly or indirectly, from the Company.
(iii)Net Exercise. A “Net Exercise” means the delivery of a properly executed exercise notice followed by a procedure pursuant to which (1) the Company will reduce the number of shares otherwise issuable to a Participant upon the exercise of an Option by the largest whole number of shares having a Fair Market Value that does not exceed the aggregate exercise price for the shares with respect to which the Option is exercised, and (2) the Participant shall pay to the Company in cash the remaining balance of such aggregate exercise price not satisfied by such reduction in the number of whole shares to be issued.
6.4 Effect of Termination of Service.
(a) Option Exercisability. Subject to earlier termination of the Option as otherwise provided by this Plan and unless otherwise provided by the Committee, a Participant may exercise an Option after the Participant’s termination of Service to the extent it is then vested only during the applicable time period determined in accordance with this Section and the Option will thereafter terminate.
(i) Disability. If the Participant’s Service terminates because of the Disability of the Participant, the Option, to the extent unexercised and exercisable for vested shares of Stock on the date on which the Participant’s Service terminated, may be exercised by the Participant (or the Participant’s guardian or legal representative) at any time prior to the expiration of twelve (12) months (or such longer or shorter period provided by the Award Agreement) after the date on which the Participant’s Service terminated, but in any event no later than the date of expiration of the Option’s term as set forth in the Award Agreement evidencing such Option (the “Option Expiration Date”).
(ii) Death. If the Participant’s Service terminates because of the death of the Participant, the Option, to the extent unexercised and exercisable for vested shares of Stock on the date on which the Participant’s Service terminated, may be exercised by the Participant’s legal representative or other person who acquired the right to exercise the Option by reason of the Participant’s death at any time prior to the expiration of twelve (12) months (or such longer or shorter period provided by the Award Agreement) after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date. The Participant’s Service will be deemed to have terminated on account of death if the Participant dies within three (3) months (or such longer or shorter period provided by the Award Agreement) after the Participant’s termination of Service.
(iii) Termination for Cause. Notwithstanding any other provision of the Plan to the contrary, if the Participant’s Service is terminated for Cause or if, following the Participant’s termination of Service and during any period in which the Option otherwise would remain exercisable, the Participant engages in any act that would constitute Cause, the Option will terminate in its entirety and cease to be exercisable immediately upon such termination of Service or act.
(iv)Other Termination of Service. If the Participant’s Service terminates for any reason, except Disability, death or Cause, the Option, to the extent unexercised and exercisable for vested shares of Stock on the date on which the Participant’s Service terminated, may be exercised by the Participant at any time prior to the expiration of three (3) months (or such longer or shorter period provided by the Award Agreement) after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date.
(b) Extension if Exercise Prevented by Law. Notwithstanding the foregoing, other than termination of Service for Cause, if the exercise of an Option within the applicable time periods set forth in Section 6.4(a) is prevented by the provisions of Section 14 below, the Option shall remain exercisable until the later of (i) thirty (30) days after the date such exercise first would no longer be prevented by such provisions or (ii) the end of the applicable time period under Section 6.4(a), but in any event no later than the Option Expiration Date.
6.5 Transferability of Options. During the lifetime of the Participant, an Option shall be exercisable only by the Participant or the Participant’s guardian or legal representative. An Option is not subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution. Notwithstanding the foregoing, to the extent permitted by the Committee, in its discretion, and set forth in the Award Agreement evidencing such Option, an Option shall be assignable or transferable subject to the applicable limitations, if any, described in the General Instructions to Form S‑8 under the Securities Act or, in the case of an Incentive Stock Option, only as permitted by applicable regulations under Section 421 of the Code in a manner that does not disqualify such Option as an Incentive Stock Option. An Option shall never be transferred to a third-party financial institution for value.
7.Stock Appreciation Rights.
Stock Appreciation Rights must be evidenced by Award Agreements specifying the number of shares of Stock subject to the Award, in such form as the Committee establishes. Such Award Agreements may incorporate all or any of the terms of the Plan by reference and must comply with and be subject to the following terms and conditions:
7.1 Types of SARs Authorized. SARs may be granted in tandem with all or any portion of a related Option (a “Tandem SAR”) or may be granted independently of any Option (a “Freestanding SAR”). A Tandem SAR may only be granted concurrently with the grant of the related Option.
7.2 Exercise Price. The exercise price for each SAR will be established in the discretion of the Committee; provided, however, that (a) the exercise price per share subject to a Tandem SAR will be the exercise price per share under the related Option and (b) the exercise price per share subject to a Freestanding SAR may not be less than the Fair Market Value per share of Stock on the effective date of grant of the SAR. Notwithstanding the foregoing, an SAR may be granted with an exercise price lower than the minimum exercise price set forth above if such SAR is granted pursuant to an assumption or substitution for another stock appreciation right in a manner that would qualify under the provisions of Section 409A of the Code.
7.3 Exercisability and Term of SARs.
(a)Tandem SARs. Tandem SARs are exercisable only at the time and to the extent, and only to the extent, that the related Option is exercisable, subject to such provisions as the Committee may specify where the Tandem SAR is granted with respect to less than the full number of shares of Stock subject to the related Option. The Committee may, in its discretion, provide in any Award Agreement evidencing a Tandem SAR that such SAR may not be exercised without the advance approval of the Company and, if such approval is not given, then the Option will nevertheless remain exercisable in accordance with its terms. A Tandem SAR will terminate and cease to be exercisable no later than the date on which the related Option expires or is terminated or canceled. Upon the exercise of a Tandem SAR with respect to some or all of the shares of Stock subject to such SAR, the related Option shall be canceled automatically as to the number of shares with respect to which the Tandem SAR was exercised. Upon the exercise of an Option related to a Tandem SAR as to some or all of the shares subject to such Option, the related Tandem SAR is canceled automatically as to the number of shares with respect to which the related Option was exercised.
(b)Freestanding SARs. Subject to the minimum vesting provisions of Section 5.6, Freestanding SARs are exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria and restrictions as determined by the Committee and set forth in the Award Agreement evidencing such SAR; provided, however, that (i) no Freestanding SAR will be exercisable after the expiration of ten (10) years after the effective date of grant of such SAR and (ii) no Freestanding SAR granted to a Non-Exempt Employee will be first exercisable until at least six (6) months following the date of grant of such SAR (except in the event of such Non-Exempt Employee’s death, disability or retirement, upon a Change in Control, or as otherwise permitted by the Worker Economic Opportunity Act). Subject to the foregoing, unless otherwise specified by the Committee in the grant of a Freestanding SAR, each Freestanding SAR terminates ten (10) years after the effective date of grant of the SAR, unless earlier terminated in accordance with its provisions.
7.4 Exercise of SARs. Upon the exercise (or deemed exercise pursuant to Section 7.5) of an SAR, the Participant (or the Participant’s legal representative or other person who acquired the right to exercise the SAR by reason of the Participant’s death) shall be entitled to receive payment of an amount for each share with respect to which the SAR is exercised equal to the excess, if any, of the Fair Market Value per share of Stock on the date of exercise of the SAR over the exercise price. The Company shall pay such amount (a) in the case of a Tandem SAR, solely in shares of Stock in a lump sum upon the date of exercise of the SAR and (b) in the case of a Freestanding SAR, in cash, shares of Stock, or any combination thereof as determined by the Committee, in a lump sum upon the date of exercise of the SAR. When payment is to be made in shares of Stock, the number of shares to be issued will be determined on the basis of the Fair Market Value of Stock on the date of exercise of the SAR. For purposes of Section 7, an SAR is deemed exercised on the date on which the Company receives notice of exercise from the Participant or as otherwise provided in Section 7.5.
7.5 Deemed Exercise of SARs. If, on the date on which an SAR would otherwise terminate or expire, the SAR by its terms remains exercisable immediately prior to such termination or expiration and, if so exercised, would result in a payment to the holder of such SAR, then any portion of such SAR which has not previously been exercised is automatically deemed to be exercised as of such date with respect to such portion.
7.6 Effect of Termination of Service. Subject to earlier termination of the SAR as otherwise provided herein and unless otherwise provided by the Committee, an SAR shall be exercisable after a Participant’s termination of Service only to the extent and during the applicable time period determined in accordance with Section 6.4 (treating the SAR as if it were an Option) and thereafter terminates.
7.7 Transferability of SARs. During the lifetime of the Participant, an SAR is only exercisable by the Participant or the Participant’s guardian or legal representative. An SAR is not subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution. Notwithstanding the foregoing, to the extent permitted by the Committee, in its discretion, and set forth in the Award Agreement evidencing such Award, a Tandem SAR related to a Nonstatutory Stock Option or a Freestanding SAR is assignable or transferable subject to the applicable limitations, if any, described in the General Instructions to Form S‑8 under the Securities Act.
8.Restricted Stock Awards.
Restricted Stock Awards must be evidenced by Award Agreements specifying whether the Award is a Restricted Stock Bonus or a Restricted Stock Purchase Right and the number of shares of Stock subject to the Award, in such form as the Committee establishes. Such Award Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
8.1 Types of Restricted Stock Awards Authorized. Restricted Stock Awards may be granted in the form of either a Restricted Stock Bonus or a Restricted Stock Purchase Right. Restricted Stock Awards may be granted upon such conditions as the Committee shall determine, including, without limitation, upon the attainment of one or more Performance Goals described in Section 10.4. If either the grant of or satisfaction of Vesting Conditions applicable to a Restricted Stock Award is to be contingent upon the attainment of one or more Performance Goals, the Committee shall follow procedures substantially equivalent to those set forth in Sections 10.3 through 10.5(a).
8.2 Purchase Price. The purchase price for shares of Stock issuable under each Restricted Stock Purchase Right will be established by the Committee in its discretion. No monetary payment (other than applicable tax withholding) is required as a condition of receiving shares of Stock pursuant to a Restricted Stock Bonus, the consideration for which is services actually rendered to a Participating Company or for its benefit. Notwithstanding the foregoing, if required by applicable state corporate law, the Participant shall furnish consideration in the form of cash or past services rendered to a Participating Company or for its benefit having a value not less than the par value of the shares of Stock subject to a Restricted Stock Award.
8.3 Purchase Period. A Restricted Stock Purchase Right is exercisable within the period established by the Committee, which shall in no event exceed thirty (30) days from the effective date of the grant of the Restricted Stock Purchase Right.
8.4 Payment of Purchase Price. Except as otherwise provided below, payment of the purchase price for the number of shares of Stock being purchased pursuant to any Restricted Stock Purchase Right shall be made (a) in cash, by check or in cash equivalent, (b) by such other consideration as may be approved by the Committee from time to time to the extent permitted by applicable law, or (c) by any combination thereof.
8.5 Vesting and Restrictions on Transfer. Subject to the minimum vesting provisions of Section 5.6, shares issued pursuant to any Restricted Stock Award may (but need not) be made subject to Vesting Conditions based upon the satisfaction of such Service requirements, conditions, restrictions or performance criteria, including, without limitation, Performance Goals as described in Section 10.4, as established by the Committee and set forth in the Award Agreement evidencing such Award. During any period in which shares acquired pursuant to a Restricted Stock Award remain subject to Vesting Conditions, such shares may not be sold, exchanged, transferred, pledged, assigned or otherwise disposed of other than pursuant to an Ownership Change Event or as provided in Section 8.8. The Committee, in its discretion, may provide in any Award Agreement evidencing a Restricted Stock Award that, if the satisfaction of Vesting Conditions with respect to any shares subject to such Restricted Stock Award would otherwise occur on a day on which the sale of such shares would violate the provisions of the Trading Compliance Policy, then satisfaction of the Vesting Conditions automatically shall be determined on the next trading day on which the sale of such shares would not violate the Trading Compliance Policy. Upon request by the Company, each Participant shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.
8.6 Voting Rights; Dividends and Distributions. Except as provided in this Section 8.6, Section 8.5 and any Award Agreement, during any period in which shares acquired pursuant to a Restricted Stock Award remain subject to Vesting Conditions, the Participant shall have all of the rights of a stockholder of the Company holding shares of Stock, including the right to vote such shares and to receive all dividends and other distributions paid with respect to such shares; provided, however, that such dividends and distributions shall be subject to the same Vesting Conditions as the shares subject to the Restricted Stock Award with respect to which such dividends or distributions were paid. In the event of a dividend or distribution paid in shares of Stock or other property or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.3, any and all new, substituted or additional securities or other property (other than regular, periodic cash dividends) to which the Participant is entitled by reason of the Participant’s Restricted Stock Award shall be immediately subject to the same Vesting Conditions as the shares subject to the Restricted Stock Award with respect to which such dividends or distributions were paid or adjustments were made.
8.7 Effect of Termination of Service. Unless otherwise provided by the Committee in the Award Agreement evidencing a Restricted Stock Award, if a Participant’s Service terminates for any reason, whether voluntary or involuntary (including the Participant’s death or disability), then (a) the Company shall have the option to repurchase for the purchase price paid by the Participant any shares acquired by the Participant pursuant to a Restricted Stock Purchase Right which remain subject to Vesting Conditions as of the date of the Participant’s termination of Service and (b) the Participant shall forfeit to the Company any shares acquired by the Participant pursuant to a Restricted Stock Bonus which remain subject to Vesting Conditions as of the date of the Participant’s termination of Service. The Company shall have the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company.
8.8 Nontransferability of Restricted Stock Award Rights. Rights to acquire shares of Stock pursuant to a Restricted Stock Award are not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or the laws of descent and distribution. All rights with respect to a Restricted Stock Award granted to a Participant hereunder shall be exercisable during his or her lifetime only by such Participant or the Participant’s guardian or legal representative.
9.Restricted Stock Units.
Restricted Stock Unit Awards must be evidenced by Award Agreements specifying the number of Restricted Stock Units subject to the Award, in such form as the Committee establishes. Such Award Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
9.1 Grant of Restricted Stock Unit Awards. Restricted Stock Unit Awards may be granted upon such conditions as the Committee shall determine, including, without limitation, upon the attainment of one or more Performance Goals described in Section 10.4. If either the grant of a Restricted Stock Unit Award or the Vesting Conditions with respect to such Award is to be contingent upon the attainment of one or more Performance Goals, the Committee shall follow procedures substantially equivalent to those set forth in Sections 10.3 through 10.5(a).
9.2 Purchase Price. No monetary payment (other than applicable tax withholding, if any) may be required as a condition of receiving a Restricted Stock Unit Award, the consideration for which shall be services actually rendered to a Participating Company or for its benefit. Notwithstanding the foregoing, if required by applicable state corporate law, the Participant shall furnish consideration in the form of cash or past services rendered to a Participating Company or for its benefit having a value not less than the par value of the shares of Stock issued upon settlement of the Restricted Stock Unit Award.
9.3 Vesting. Subject to the minimum vesting provisions of Section 5.6, Restricted Stock Unit Awards may (but need not) be made subject to Vesting Conditions based upon the satisfaction of such Service requirements, conditions, restrictions or performance criteria, including, without limitation, Performance Goals as described in Section 10.4, as established by the Committee and set forth in the Award Agreement evidencing such Award.
9.4 Voting Rights, Dividend Equivalent Rights and Distributions. Participants have no voting rights with respect to shares of Stock represented by Restricted Stock Units until the date of the issuance of such shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). However, the Committee, in its discretion, may provide in the Award Agreement evidencing any Restricted Stock Unit Award that the Participant shall be entitled to Dividend Equivalent Rights with respect to the payment of cash dividends on Stock during the period beginning on the date such Award is granted and ending, with respect to each share subject to the Award, on the earlier of the date the Award is settled or the date on which it is terminated. Dividend Equivalent Rights, if any, will be paid by crediting the Participant with a cash amount or with additional whole Restricted Stock Units as of the date of payment of such cash dividends on Stock, as determined by the Committee. The number of additional Restricted Stock Units (rounded to the nearest whole number), if any, to be credited will be determined by dividing (a) the amount of cash dividends paid on the dividend payment date with respect to the number of shares of Stock represented by the Restricted Stock Units previously credited to the Participant by (b) the Fair Market Value of Stock on such date. Such cash amount or additional Restricted Stock Units are subject to the same terms and conditions and must be settled in the same manner and at the same time as the Restricted Stock Units originally subject to the Restricted Stock Unit Award. In the event of a dividend or distribution paid in shares of Stock or other property or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.3, appropriate adjustments will be made in the Participant’s Restricted Stock Unit Award so that it represents the right to receive upon settlement any and all new, substituted or additional securities or other property (other than regular, periodic cash dividends) to which the Participant would be entitled by reason of the shares of Stock issuable upon settlement of the Award, and all such new, substituted or additional securities or other property are immediately subject to the same Vesting Conditions as are applicable to the Award.
9.5 Effect of Termination of Service. Unless otherwise provided by the Committee and set forth in the Award Agreement evidencing a Restricted Stock Unit Award, if a Participant’s Service terminates for any reason, whether voluntary or involuntary (including the Participant’s death or disability), then the Participant shall forfeit to the Company any Restricted Stock Units pursuant to the Award which remain subject to Vesting Conditions as of the date of the Participant’s termination of Service.
9.6 Settlement of Restricted Stock Unit Awards. The Company shall issue to a Participant on the date on which Restricted Stock Units subject to the Participant’s Restricted Stock Unit Award vest or on such other date determined by the Committee in compliance with Section 409A, if applicable, and set forth in the Award Agreement one (1) share of Stock (and/or any other new, substituted or additional securities or other property pursuant to an adjustment described in Section 9.4) for each Restricted Stock Unit then becoming vested or otherwise to be settled on such date, subject to the withholding of applicable taxes, if any. The Committee, in its discretion, may provide in any Award Agreement evidencing a Restricted Stock Unit Award that if the settlement date with respect to any shares issuable upon vesting of Restricted Stock Units would otherwise occur on a day on which the sale of such shares would violate the provisions of the Trading Compliance Policy, then the settlement date will be deferred until the next trading day on which the sale of such shares would not violate the Trading Compliance Policy but in any event no later than the 15th day of the third calendar month following the year in which such Restricted Stock Units vest. If permitted by the Committee, the Participant may elect, consistent with the requirements of Section 409A, to defer receipt of all or any portion of the shares of Stock or other property otherwise issuable to the Participant pursuant to this Section, and such deferred issuance date(s) and amount(s) elected by the Participant must be set forth in the Award Agreement. Notwithstanding the foregoing, the Committee, in its discretion, may provide for settlement of any Restricted Stock Unit Award by payment to the Participant in cash of an amount equal to the Fair Market Value on the payment date of the shares of Stock or other property otherwise issuable to the Participant pursuant to this Section.
9.7 Nontransferability of Restricted Stock Unit Awards. The right to receive shares pursuant to a Restricted Stock Unit Award is not subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution. All rights with respect to a Restricted Stock Unit Award granted to a Participant hereunder will be exercisable during his or her lifetime only by such Participant or the Participant’s guardian or legal representative.
10.Performance Awards.
Performance Awards must be evidenced by Award Agreements in such form as the Committee establishes. Such Award Agreements may incorporate all or any of the terms of the Plan by reference and must comply with and will be subject to the following terms and conditions:
10.1 Types of Performance Awards Authorized. Performance Awards may be granted in the form of either Performance Shares or Performance Units. Each Award Agreement evidencing a Performance Award must specify the number of Performance Shares or Performance Units subject thereto, the Performance Award Formula, the Performance Goal(s) and Performance Period applicable to the Award, and the other terms, conditions and restrictions of the Award.
10.2 Initial Value of Performance Shares and Performance Units. Unless otherwise provided by the Committee in granting a Performance Award, each Performance Share has an initial monetary value equal to the Fair Market Value of one (1) share of Stock, subject to adjustment as provided in Section 4.3, on the effective date of grant of the Performance Share, and each Performance Unit has an initial monetary value established by the Committee at the time of grant. The final value payable to the Participant in settlement of a Performance Award determined on the basis of the applicable Performance Award Formula will depend on the extent to which Performance Goals established by the Committee are attained within the applicable Performance Period established by the Committee.
10.3 Establishment of Performance Period, Performance Goals and Performance Award Formula. In granting each Performance Award, the Committee shall establish in writing the applicable Performance Period (subject to the minimum vesting provisions of Section 5.6), Performance Award Formula and one or more Performance Goals which, when measured at the end of the Performance Period, shall determine on the basis of the
Performance Award Formula the final value of the Performance Award to be paid to the Participant. The Company shall notify each Participant granted a Performance Award of the terms of such Award, including the Performance Period, Performance Goal(s) and Performance Award Formula.
10.4 Measurement of Performance Goals. Performance Goals must be established by the Committee on the basis of targets to be attained (“Performance Targets”) with respect to one or more measures of business or financial performance (each, a “Performance Measure”), subject to the following:
(a)Performance Measures. Performance Measures must be calculated in accordance with the Company’s financial statements, or, if such measures are not reported in the Company’s financial statements, they must be calculated in accordance with generally accepted accounting principles, a method used generally in the Company’s industry, or in accordance with a methodology established by the Committee prior to the grant of the Performance Award. As specified by the Committee, Performance Measures may be calculated with respect to the Company and each Subsidiary Corporation consolidated therewith for financial reporting purposes, one or more Subsidiary Corporations or such division or other business unit of any of them selected by the Committee. Unless otherwise determined by the Committee, the Performance Measures applicable to the Performance Award will be calculated prior to the accrual of expense for any Performance Award for the same Performance Period and excluding the effect (whether positive or negative) on the Performance Measures of any event the Committee determines is appropriate to exclude, including change in accounting standards or any unusual or infrequently occurring event or transaction. Each such adjustment, if any, shall be made solely for the purpose of providing a consistent basis from period to period for the calculation of Performance Measures in order to prevent the dilution or enlargement of the Participant’s rights with respect to a Performance Award. Performance Measures may be based upon one or more of the following, as determined by the Committee (or any other metric or goal as the Committee may determine): revenue; sales; expenses; operating income; gross margin; operating margin; earnings before any one or more of: stock-based compensation expense, interest, taxes, depreciation and amortization; pre-tax profit; net operating income; net income; economic value added; free cash flow; operating cash flow; balance of cash, cash equivalents and marketable securities; stock price; earnings per share; return on stockholder equity; return on capital; return on assets; return on investment; total stockholder return; employee satisfaction; employee retention; market share; customer satisfaction; product development; research and development expenses; completion of an identified special project; completion of a joint venture or other corporate transaction; and bookings.
(b)Performance Targets. Performance Targets may include a minimum, maximum, target level and intermediate levels of performance, with the final value of a Performance Award determined under the applicable Performance Award Formula by the Performance Target level attained during the applicable Performance Period. A Performance Target may be stated as an absolute value, an increase or decrease in a value, or as a value determined relative to an index, budget or other standard selected by the Committee.
10.5 Settlement of Performance Awards.
(a) Determination of Final Value. As soon as practicable following the completion of the Performance Period applicable to a Performance Award, the Committee shall certify in writing the extent to which the applicable Performance Goals have been attained and the resulting final value of the Award earned by the Participant and to be paid upon its settlement in accordance with the applicable Performance Award Formula.
(b) Discretionary Adjustment of Award Formula. In its discretion, the Committee may, either at the time it grants a Performance Award or at any time thereafter, provide for the positive or negative adjustment of the Performance Award Formula applicable to a Performance Award granted to any Participant to reflect such Participant’s individual performance in his or her position with the Company or such other factors as the Committee may determine. The Committee shall have the discretion, on the basis of such criteria as may be established by the Committee, to reduce some or all of the value of the Performance Award that would otherwise be paid to the Employee upon its settlement notwithstanding the attainment of any Performance Goal and the resulting value of the Performance Award determined in accordance with the Performance Award Formula.
(c)Effect of Leaves of Absence. Unless otherwise required by law or a Participant’s Award Agreement, payment of the final value, if any, of a Performance Award held by a Participant who has taken in
excess of thirty (30) days in unpaid leaves of absence during a Performance Period will be prorated on the basis of the number of days of the Participant’s Service during the Performance Period during which the Participant was not on an unpaid leave of absence.
(d)Notice to Participants. As soon as practicable following the Committee’s determination and certification in accordance with Sections 10.5(a) and (b), the Company shall notify each Participant of the determination of the Committee.
(e)Payment in Settlement of Performance Awards. As soon as practicable following the Committee’s determination and certification in accordance with Sections 10.5(a) and (b), but in any event within the Short-Term Deferral Period described in Section 15.1 (except as otherwise provided below or consistent with the requirements of Section 409A), payment will be made to each eligible Participant (or such Participant’s legal representative or other person who acquired the right to receive such payment by reason of the Participant’s death) of the final value of the Participant’s Performance Award. Payment of such amount will be made in cash, shares of Stock, or a combination thereof as determined by the Committee. Unless otherwise provided in the Award Agreement evidencing a Performance Award, payment will be made in a lump sum. If permitted by the Committee, the Participant may elect, consistent with the requirements of Section 409A, to defer receipt of all or any portion of the payment to be made to the Participant pursuant to this Section, and such deferred payment date(s) elected by the Participant must be set forth in the Award Agreement. If any payment is to be made on a deferred basis, the Committee may, but is not obligated to, provide for the payment during the deferral period of Dividend Equivalent Rights or interest.
(f)Provisions Applicable to Payment in Shares. If payment is to be made in shares of Stock, the number of such shares of Stock shall be determined by dividing the final value of the Performance Award by the Fair Market Value of Stock determined by the method specified in the Award Agreement. Shares of Stock issued in payment of any Performance Award may be fully vested and freely transferable shares or may be shares of Stock subject to Vesting Conditions as provided in Section 8.5. Any shares subject to Vesting Conditions must be evidenced by an appropriate Award Agreement and will be subject to the provisions of Sections 8.5 through 8.8 above.
10.6 Voting Rights; Dividend Equivalent Rights and Distributions. Participants have no voting rights with respect to shares of Stock represented by Performance Share Awards until the date of the issuance of such shares, if any (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). However, the Committee, in its discretion, may provide in the Award Agreement evidencing any Performance Share Award that the Participant will be entitled to Dividend Equivalent Rights with respect to the payment of cash dividends on Stock during the period beginning on the date the Award is granted and ending, with respect to each share subject to the Award, on the earlier of the date on which the Performance Shares are settled or the date on which they are forfeited. Such Dividend Equivalent Rights, if any, will be credited to the Participant either in cash or in the form of additional whole Performance Shares as of the date of payment of such cash dividends on Stock, as determined by the Committee. The number of additional Performance Shares (rounded to the nearest whole number), if any, to be so credited shall be determined by dividing (a) the amount of cash dividends paid on the dividend payment date with respect to the number of shares of Stock represented by the Performance Shares previously credited to the Participant by (b) the Fair Market Value per share of Stock on such date. Dividend Equivalent Rights, if any, will be accumulated and paid to the extent that the related Performance Shares become nonforfeitable. Settlement of Dividend Equivalent Rights may be made in cash, shares of Stock, or a combination thereof as determined by the Committee, and may be paid on the same basis as settlement of the related Performance Share as provided in Section 10.5. Dividend Equivalent Rights will not be paid with respect to Performance Units. In the event of a dividend or distribution paid in shares of Stock or other property or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.3, appropriate adjustments shall be made in the Participant’s Performance Share Award so that it represents the right to receive upon settlement any and all new, substituted or additional securities or other property (other than regular, periodic cash dividends) to which the Participant would be entitled by reason of the shares of Stock issuable upon settlement of the Performance Share Award, and all such new, substituted or additional securities or other property shall be immediately subject to the same Performance Goals as are applicable to the Award.
10.7 Effect of Termination of Service. Unless otherwise provided by the Committee and set forth in the Award Agreement evidencing a Performance Award, the effect of a Participant’s termination of Service on the Performance Award will be as follows:
(a) Death or Disability. If the Participant’s Service terminates because of the death or Disability of the Participant before the completion of the Performance Period applicable to the Performance Award, the final value of the Participant’s Performance Award will be determined by the extent to which the applicable Performance Goals have been attained with respect to the entire Performance Period and will be prorated based on the number of months of the Participant’s Service during the Performance Period. Payment will be made following the end of the Performance Period in any manner permitted by Section 10.5.
(b) Other Termination of Service. If the Participant’s Service terminates for any reason except death or Disability before the completion of the Performance Period applicable to the Performance Award, such Award is forfeited in its entirety; provided, however, that in the event of an involuntary termination of the Participant’s Service, the Committee, in its discretion, may waive the automatic forfeiture of all or any portion of any such Award and determine the final value of the Performance Award in the manner provided by Section 10.7(a). Payment of any amount pursuant to this Section will be made following the end of the Performance Period in any manner permitted by Section 10.5.
10.8 Nontransferability of Performance Awards. Prior to settlement in accordance with the provisions of the Plan, no Performance Award is subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution. All rights with respect to a Performance Award granted to a Participant hereunder is exercisable during his or her lifetime only by such Participant or the Participant’s guardian or legal representative.
11.Cash-Based Awards and Other Stock-Based Awards.
Cash-Based Awards and Other Stock-Based Awards must be evidenced by Award Agreements in such form as the Committee establishes. Such Award Agreements may incorporate all or any of the terms of the Plan by reference and will comply with and be subject to the following terms and conditions:
11.1 Grant of Cash-Based Awards. Subject to the provisions of the Plan, the Committee, at any time and from time to time, may grant Cash-Based Awards to Participants in such amounts and upon such terms and conditions, including the achievement of performance criteria, as the Committee determines.
11.2 Grant of Other Stock-Based Awards. The Committee may grant other types of equity-based or equity-related Awards not otherwise described by the terms of this Plan (including the grant or offer for sale of unrestricted securities, stock-equivalent units, stock appreciation units, securities or debentures convertible into common stock or other forms determined by the Committee) in such amounts and subject to such terms and conditions as the Committee shall determine. Other Stock-Based Awards may be made available as a form of payment in the settlement of other Awards or as payment in lieu of compensation to which a Participant is otherwise entitled. Other Stock-Based Awards may involve the transfer of actual shares of Stock to Participants, or payment in cash or otherwise of amounts based on the value of Stock and may include, without limitation, Awards designed to comply with or take advantage of the applicable local laws of jurisdictions other than the United States.
11.3 Value of Cash-Based and Other Stock-Based Awards. Each Cash-Based Award shall specify a monetary payment amount or payment range as determined by the Committee. Each Other Stock-Based Award must be expressed in terms of shares of Stock or units based on such shares of Stock, as determined by the Committee. Subject to the minimum vesting provisions of Section 5.6, The Committee may require the satisfaction of such Service requirements, conditions, restrictions or performance criteria, including, without limitation, Performance Goals as described in Section 10.4, as established by the Committee and set forth in the Award Agreement evidencing such Award. If the Committee exercises its discretion to establish performance criteria, the final value of Cash-Based Awards or Other Stock-Based Awards that will be paid to the Participant will depend on the extent to which the performance criteria are met. The establishment of performance criteria with respect to the grant or vesting
of any Cash-Based Award or Other Stock-Based Award shall follow procedures substantially equivalent to those applicable to Performance Awards set forth in Section 10.
11.4 Payment or Settlement of Cash-Based Awards and Other Stock-Based Awards. Payment or settlement, if any, with respect to a Cash-Based Award or Other Stock-Based Award will be made in accordance with the terms of the Award, in cash, shares of Stock or other securities or any combination thereof as the Committee determines. The determination and certification of the final value with respect to any Cash-Based Award or Other Stock-Based Award will comply with the requirements applicable to Performance Awards set forth in Section 10. To the extent applicable, payment or settlement with respect to each Cash-Based Award and Other Stock-Based Award shall be made in compliance with the requirements of Section 409A.
11.5 Voting Rights; Dividend Equivalent Rights and Distributions. Participants have no voting rights with respect to shares of Stock represented by Other Stock-Based Awards until the date of the issuance of such shares of Stock (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), if any, in settlement of such Award. However, the Committee, in its discretion, may provide in the Award Agreement evidencing any Other Stock-Based Award that the Participant shall be entitled to Dividend Equivalent Rights with respect to the payment of cash dividends on Stock during the period beginning on the date such Award is granted and ending, with respect to each share subject to the Award, on the earlier of the date the Award is settled or the date on which it is terminated. Such Dividend Equivalent Rights, if any, will be paid in accordance with the provisions set forth in Section 9.4. Dividend Equivalent Rights are not granted with respect to Cash-Based Awards. In the event of a dividend or distribution paid in shares of Stock or other property or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.3, appropriate adjustments will be made in the Participant’s Other Stock-Based Award so that it represents the right to receive upon settlement any and all new, substituted or additional securities or other property (other than regular, periodic cash dividends) to which the Participant would be entitled by reason of the shares of Stock issuable upon settlement of such Award, and all such new, substituted or additional securities or other property are immediately subject to the same Vesting Conditions and performance criteria, if any, as are applicable to the Award.
11.6 Effect of Termination of Service. Each Award Agreement evidencing a Cash-Based Award or Other Stock-Based Award must set forth the extent to which the Participant shall have the right to retain such Award following termination of the Participant’s Service. Such provisions will be determined in the discretion of the Committee, need not be uniform among all Cash-Based Awards or Other Stock-Based Awards, and may reflect distinctions based on the reasons for termination, subject to the requirements of Section 409A, if applicable.
11.7 Nontransferability of Cash-Based Awards and Other Stock-Based Awards. Prior to the payment or settlement of a Cash-Based Award or Other Stock-Based Award, the Award is not subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution. The Committee may impose such additional restrictions on any shares of Stock issued in settlement of Cash-Based Awards and Other Stock-Based Awards as it may deem advisable, including, without limitation, minimum holding period requirements, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such shares of Stock are then listed and/or traded, or under any state securities laws or foreign law applicable to such shares of Stock.
12.Standard Forms of Award Agreement.
12.1 Award Agreements. Each Award must comply with and be subject to the terms and conditions set forth in the appropriate form of Award Agreement approved by the Committee and as amended from time to time. No Award or purported Award is a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement, which execution may be evidenced by electronic means.
12.2 Authority to Vary Terms. The Committee has the authority from time to time to vary the terms of any standard form of Award Agreement either in connection with the grant or amendment of an individual Award or in connection with the authorization of a new standard form or forms; provided, however, that the terms and
conditions of any such new, revised or amended standard form or forms of Award Agreement are not inconsistent with the terms of the Plan.
13.Change in Control.
13.1 Effect of Change in Control on Awards. In the event of a Change in Control, outstanding Awards will be subject to the definitive agreement entered into by the Company in connection with the Change in Control. Subject to the requirements and limitations of Section 409A, if applicable, the Committee may provide for any one or more of the following:
(a)Accelerated Vesting. In its discretion, the Committee may provide in the grant of any Award or at any other time may take such action as it deems appropriate to provide for acceleration of the exercisability, vesting and/or settlement in connection with a Change in Control of each or any outstanding Award or portion thereof and shares acquired pursuant thereto upon such conditions, including termination of the Participant’s Service prior to, upon, or following the Change in Control, and to such extent as the Committee determines.
(b)Assumption, Continuation or Substitution. In the event of a Change in Control, the surviving, continuing, successor, or purchasing corporation or other business entity or parent thereof, as the case may be (the “Acquiror”), may, without the consent of any Participant, assume or continue the Company’s rights and obligations under each or any Award or portion thereof outstanding immediately prior to the Change in Control or substitute for each or any such outstanding Award or portion thereof a substantially equivalent award with respect to the Acquiror’s stock, as applicable. For purposes of this Section, if so determined by the Committee in its discretion, an Award denominated in shares of Stock will be deemed assumed if, following the Change in Control, the Award confers the right to receive, subject to the terms and conditions of the Plan and the applicable Award Agreement, for each share of Stock subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash, other securities or property or a combination thereof) to which a holder of a share of Stock on the effective date of the Change in Control was entitled (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Stock); provided, however, that if such consideration is not solely common stock of the Acquiror, the Committee may, with the consent of the Acquiror, provide for the consideration to be received upon the exercise or settlement of the Award, for each share of Stock subject to the Award, to consist solely of common stock of the Acquiror equal in Fair Market Value to the per share consideration received by holders of Stock pursuant to the Change in Control. Any Award or portion thereof which is neither assumed or continued by the Acquiror in connection with the Change in Control nor exercised or settled as of the time of consummation of the Change in Control will become immediately exercisable and vested in full (a) as of ten (10) days prior to, and subject to, the consummation of the Change in Control or (b) settled effective immediately prior to the time of consummation of the Change in Control, as applicable. Any Award or portion thereof that is immediately exercisable and vested in full pursuant to the preceding sentence to the extent unexercised immediately prior to the consummation of the Change in Control shall terminate and cease to be outstanding effective as of the time of the consummation of the Change in Control.
(c)Termination in Connection with a Change in Control. Notwithstanding any other provision of the Plan to the contrary, if the Participant’s Service is terminated without Cause or the Participant voluntarily terminates the Participant’s employment after a reduction of the Participant’s base salary of fifteen percent (15%) or greater without the Participant’s express written consent within eighteen (18) months following the consummation of a Change in Control, such Participant’s Awards will become immediately exercisable and vested in full as of the date of such termination. Such immediately exercisable and fully vested Awards will be settled to the extent possible on the date of the Participant’s termination pursuant to this subsection (c). Awards requiring the Participant’s exercise, may be exercised by the Participant at any time prior to the expiration of three (3) months after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date.
(d)Cash-Out of Outstanding Stock-Based Awards. The Committee may, in its discretion and without the consent of any Participant, determine that, upon the occurrence of a Change in Control, each or any Award denominated in shares of Stock or portion thereof outstanding immediately prior to the Change in Control and not previously exercised or settled shall be canceled in exchange for a payment with respect to each vested share (and each unvested share, if so determined by the Committee) of Stock subject to such canceled Award in (i) cash, (ii) stock
of the Company or of a corporation or other business entity a party to the Change in Control, or (iii) other property which, in any such case, will be in an amount having a Fair Market Value equal to the Fair Market Value of the consideration to be paid per share of Stock in the Change in Control, reduced (but not below zero) by the exercise or purchase price per share, if any, under such Award. In the event such determination is made by the Committee, an Award having an exercise or purchase price per share equal to or greater than the Fair Market Value of the consideration to be paid per share of Stock in the Change in Control may be canceled without payment of consideration to the holder thereof. Payment pursuant to this Section (reduced by applicable withholding taxes, if any) will be made to Participants in respect of the vested portions of their canceled Awards as soon as practicable following the date of the Change in Control and in respect of the unvested portions of their canceled Awards in accordance with the vesting schedules applicable to such Awards.
13.2 Effect of Change in Control on Nonemployee Director Awards. Subject to the requirements and limitations of Section 409A, if applicable, including as provided by Section 15.4(f), in the event of a Change in Control, each outstanding Nonemployee Director Award shall become immediately exercisable and vested in full and, except to the extent assumed, continued or substituted for pursuant to Section 13.1(b), will be settled effective immediately prior to the time of consummation of the Change in Control.
13.3 Federal Excise Tax Under Section 4999 of the Code.
(a) Excess Parachute Payment. If any acceleration of vesting pursuant to an Award and any other payment or benefit received or to be received by a Participant would subject the Participant to any excise tax pursuant to Section 4999 of the Code due to the characterization of such acceleration of vesting, payment or benefit as an “excess parachute payment” under Section 280G of the Code, then, provided such election would not subject the Participant to taxation under Section 409A, the Participant may elect to reduce the amount of any acceleration of vesting called for under the Award in order to avoid such characterization.
(b) Determination by Tax Firm. To aid the Participant in making any election called for under Section 13.3(a), no later than the date of the occurrence of any event that might reasonably be anticipated to result in an “excess parachute payment” to the Participant as described in Section 13.3(a), the Company shall request a determination in writing by the professional firm engaged by the Company for general tax purposes, or, if the tax firm so engaged by the Company is serving as accountant or auditor for the Acquiror, the Company will appoint a nationally recognized tax firm to make the determinations required by this Section (the “Tax Firm”). As soon as practicable thereafter, the Tax Firm shall determine and report to the Company and the Participant the amount of such acceleration of vesting, payments and benefits which would produce the greatest after-tax benefit to the Participant. For the purposes of such determination, the Tax Firm may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Participant shall furnish to the Tax Firm such information and documents as the Tax Firm may reasonably request in order to make its required determination. The Company shall bear all fees and expenses the Tax Firm charges in connection with its services contemplated by this Section.
14.Compliance with Securities Law.
The grant of Awards and the issuance of shares of Stock pursuant to any Award is subject to compliance with all applicable requirements of federal, state and foreign law with respect to such securities and the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, no Award may be exercised or shares issued pursuant to an Award unless (a) a registration statement under the Securities Act is at the time of such exercise or issuance in effect with respect to the shares issuable pursuant to the Award, or (b) in the opinion of legal counsel to the Company, the shares issuable pursuant to the Award may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any shares under the Plan will relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to issuance of any Stock, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.
15. Compliance with Section 409A.
15.1 Awards Subject to Section 409A. The Company intends that Awards granted pursuant to the Plan either be exempt from or comply with Section 409A, and the Plan shall be so construed. The provisions of this Section 15 apply to any Award or portion thereof that constitutes or provides for payment of Section 409A Deferred Compensation. Such Awards may include, without limitation:
(a)A Nonstatutory Stock Option or SAR that includes any feature for the deferral of compensation other than the deferral of recognition of income until the later of (i) the exercise or disposition of the Award or (ii) the time the stock acquired pursuant to the exercise of the Award first becomes substantially vested.
(b)Any Restricted Stock Unit Award, Performance Award, Cash-Based Award or Other Stock-Based Award that either (i) provides by its terms for settlement of all or any portion of the Award at a time or upon an event that will or may occur later than the end of the Short-Term Deferral Period (as defined below) or (ii) permits the Participant granted the Award to elect one or more dates or events upon which the Award will be settled after the end of the Short-Term Deferral Period.
Subject to the provisions of Section 409A, the term “Short-Term Deferral Period” means the 2½ month period ending on the later of (i) the 15th day of the third month following the end of the Participant’s taxable year in which the right to payment under the applicable portion of the Award is no longer subject to a substantial risk of forfeiture or (ii) the 15th day of the third month following the end of the Company’s taxable year in which the right to payment under the applicable portion of the Award is no longer subject to a substantial risk of forfeiture. For this purpose, the term “substantial risk of forfeiture” has the meaning provided by Section 409A.
15.2 Deferral and/or Distribution Elections. Except as otherwise permitted or required by Section 409A, the following rules applies to any compensation deferral and/or payment elections (each, an “Election”) that may be permitted or required by the Committee pursuant to an Award providing Section 409A Deferred Compensation:
(a) Elections must be in writing and specify the amount of the payment in settlement of an Award being deferred, as well as the time and form of payment as permitted by this Plan.
(b) Elections must be made by the end of the Participant’s taxable year prior to the year in which services commence for which an Award may be granted to the Participant.
(c)Elections continue in effect until a written revocation or change in Election is received by the Company, except that a written revocation or change in Election must be received by the Company prior to the last day for making the Election determined in accordance with paragraph (b) above or as permitted by Section 15.3.
15.3 Subsequent Elections. Except as otherwise permitted or required by Section 409A, any Award providing Section 409A Deferred Compensation which permits a subsequent Election to delay the payment or change the form of payment in settlement of such Award must comply with the following requirements:
(a) No subsequent Election may take effect until at least twelve (12) months after the date on which the subsequent Election is made.
(b) Each subsequent Election related to a payment in settlement of an Award not described in Section 15.4(a)(ii), 15.4(a)(iii) or 15.4(a)(vi) must result in a delay of the payment for a period of not less than five (5) years from the date on which such payment would otherwise have been made.
(c) No subsequent Election related to a payment pursuant to Section 15.4(a)(iv) may be made less than twelve (12) months before the date on which such payment would otherwise have been made.
(d)Subsequent Elections continue in effect until a written revocation or change in the subsequent Election is received by the Company, except that a written revocation or change in a subsequent Election must be received by the Company prior to the last day for making the subsequent Election determined in accordance the preceding paragraphs of this Section 15.3.
15.4 Payment of Section 409A Deferred Compensation.
(a) Permissible Payments. Except as otherwise permitted or required by Section 409A, an Award providing Section 409A Deferred Compensation must provide for payment in settlement of the Award only upon one or more of the following:
(i)The Participant’s “separation from service” (as defined by Section 409A);
(ii)The Participant’s becoming “disabled” (as defined by Section 409A);
(iii)The Participant’s death;
(iv)A time or fixed schedule that is either (i) specified by the Committee upon the grant of an Award and set forth in the Award Agreement evidencing such Award or (ii) specified by the Participant in an Election complying with the requirements of Section 15.2 or 15.3, as applicable;
(v)A change in the ownership or effective control or the Company or in the ownership of a substantial portion of the assets of the Company determined in accordance with Section 409A; or
(vi)The occurrence of an “unforeseeable emergency” (as defined by Section 409A).
(b) Installment Payments. It is the intent of this Plan that any right of a Participant to receive installment payments (within the meaning of Section 409A) will, for all purposes of Section 409A, be treated as a right to a series of separate payments.
(c) Required Delay in Payment to Specified Employee Pursuant to Separation from Service. Notwithstanding any provision of the Plan or an Award Agreement to the contrary, except as otherwise permitted by Section 409A and to the extent necessary to avoid the imposition of taxes under Section 409A, no payment pursuant to Section 15.4(a)(i) in settlement of an Award providing for Section 409A Deferred Compensation may be made to a Participant who is a “specified employee” (as defined by Section 409A) as of the date of the Participant’s separation from service before the date (the “Delayed Payment Date”) that is six (6) months after the date of such Participant’s separation from service, or, if earlier, the date of the Participant’s death. All such amounts that would, but for this paragraph, become payable prior to the Delayed Payment Date will be accumulated and paid on the Delayed Payment Date.
(d) Payment Upon Disability. All distributions of Section 409A Deferred Compensation payable pursuant to Section 15.4(a)(ii) by reason of a Participant becoming disabled will be paid in a lump sum or in periodic installments as established by the Participant’s Election. If the Participant has made no Election with respect to distributions of Section 409A Deferred Compensation upon becoming disabled, all such distributions will be paid in a lump sum upon the determination that the Participant has become disabled.
(e)Payment Upon Death. If a Participant dies before complete distribution of amounts payable upon settlement of an Award subject to Section 409A, such undistributed amounts will be distributed to his or her beneficiary under the distribution method for death established by the Participant’s Election upon receipt by the Committee of satisfactory notice and confirmation of the Participant’s death. If the Participant has made no Election with respect to distributions of Section 409A Deferred Compensation upon death, all such distributions will be paid in a lump sum upon receipt by the Committee of satisfactory notice and confirmation of the Participant’s death.
(f)Payment Upon Change in Control. Notwithstanding any provision of the Plan or an Award Agreement to the contrary, to the extent that any amount constituting Section 409A Deferred Compensation would become payable under this Plan by reason of a Change in Control, such amount will become payable only if the event constituting a Change in Control would also constitute a change in ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company within the meaning of Section 409A. Any Award which constitutes Section 409A Deferred Compensation and which would vest and otherwise become payable upon a Change in Control as a result of the failure of the Acquiror to assume, continue or substitute for such Award in accordance with Section 13.1(b) will vest to the extent provided by such Award but will be converted
automatically at the effective time of such Change in Control into a right to receive, in cash on the date or dates such award would have been settled in accordance with its then existing settlement schedule (or as required by Section 15.4(c)), an amount or amounts equal in the aggregate to the intrinsic value of the Award at the time of the Change in Control.
(g)Payment Upon Unforeseeable Emergency. The Committee shall have the authority to provide in the Award Agreement evidencing any Award providing for Section 409A Deferred Compensation for payment pursuant to Section 15.4(a)(vi) in settlement of all or a portion of such Award in the event that a Participant establishes, to the satisfaction of the Committee, the occurrence of an unforeseeable emergency. In such event, the amount(s) distributed with respect to such unforeseeable emergency cannot exceed the amounts reasonably necessary to satisfy the emergency need plus amounts necessary to pay taxes reasonably anticipated as a result of such distribution(s), after taking into account the extent to which such emergency need is or may be relieved through reimbursement or compensation by insurance or otherwise, by liquidation of the Participant’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship) or by cessation of deferrals under the Award. All distributions with respect to an unforeseeable emergency shall be made in a lump sum upon the Committee’s determination that an unforeseeable emergency has occurred. The Committee’s decision with respect to whether an unforeseeable emergency has occurred and the manner in which, if at all, the payment in settlement of an Award will be altered or modified, is final, conclusive, and not subject to approval or appeal.
(h)Prohibition of Acceleration of Payments.Notwithstanding any provision of the Plan or an Award Agreement to the contrary, this Plan does not permit the acceleration of the time or schedule of any payment under an Award providing Section 409A Deferred Compensation, except as permitted by Section 409A.
(i)No Representation Regarding Section 409A Compliance. Notwithstanding any other provision of the Plan, the Company makes no representation that Awards will be exempt from or comply with Section 409A. No Participating Company is liable for any tax, penalty or interest imposed on a Participant by Section 409A.
16. Tax Withholding.
16.1 Tax Withholding in General. The Company has the right to deduct from any and all payments made under the Plan, or to require the Participant, through payroll withholding, cash payment or otherwise, to make adequate provision for, the federal, state, local and foreign taxes (including social insurance), if any, required by law to be withheld by any Participating Company with respect to an Award or the shares acquired pursuant thereto. The Company has no obligation to deliver shares of Stock, to release shares of Stock from an escrow established pursuant to an Award Agreement, or to make any payment in cash under the Plan until the Participating Company Group’s tax withholding obligations have been satisfied by the Participant.
16.2 Withholding in or Directed Sale of Shares. The Company has the right, but not the obligation, to deduct from the shares of Stock issuable to a Participant upon the exercise or settlement of an Award, or to accept from the Participant the tender of, a number of whole shares of Stock having a Fair Market Value, as determined by the Company, equal to all or any part of the tax withholding obligations of any Participating Company. The Fair Market Value of Stock withheld or tendered to satisfy any such tax withholding obligations may not (a) be less than the amount determined by the applicable minimum statutory withholding rates; and (b) exceed the amount determined by the maximum applicable statutory withholding rates applicable to the Participant and to the particular Award or the shares acquired pursuant thereto. Any shares withheld above minimum statutory rates shall not be added back into the share authorization of Section 4.1, in accordance with Section 4.2. The Company may require a Participant to direct a broker, upon the vesting, exercise or settlement of an Award, to sell a portion of the shares subject to the Award determined by the Company in its discretion to be sufficient to cover the tax withholding obligations of any Participating Company and to remit an amount equal to such tax withholding obligations to such Participating Company in cash.
17. Amendment, Suspension or Termination of Plan.
The Committee may amend, suspend or terminate the Plan at any time. However, without the approval of the Company’s stockholders, there shall be (a) no increase in the maximum aggregate number of shares of Stock that may be issued under the Plan (except by operation of the provisions of Sections 4.2 and 4.3), (b) no change in the class of persons eligible to receive Incentive Stock Options, and (c) no other amendment of the Plan that would require
approval of the Company’s stockholders under any applicable law, regulation or rule, including the rules of any stock exchange or quotation system upon which the Stock may then be listed or quoted. No amendment, suspension or termination of the Plan shall affect any then outstanding Award unless expressly provided by the Committee. Except as provided by the next sentence, no amendment, suspension or termination of the Plan may have a materially adverse effect on any then outstanding Award without the consent of the Participant. Notwithstanding any other provision of the Plan or any Award Agreement to the contrary, the Committee may, in its sole and absolute discretion and without the consent of any Participant, amend the Plan or any Award Agreement, to take effect retroactively or otherwise, as it deems necessary or advisable for the purpose of conforming the Plan or such Award Agreement to any present or future law, regulation or rule applicable to the Plan, including, but not limited to, Section 409A.
18. Miscellaneous Provisions.
18.1 Repurchase Rights. Shares issued under the Plan may be subject to one or more repurchase options, or other conditions and restrictions as determined by the Committee in its discretion at the time the Award is granted. The Company has the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company. Upon request by the Company, each Participant shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.
18.2 Forfeiture Events.
(a) The Committee may specify in an Award Agreement that the Participant’s rights, payments, and benefits with respect to an Award will be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events may include, but are not be limited to, termination of Service for Cause or any act by a Participant, whether before or after termination of Service, that would constitute Cause for termination of Service, or any accounting restatement due to material noncompliance of the Company with any financial reporting requirements of securities laws as a result of which, and to the extent that, such reduction, cancellation, forfeiture, or recoupment is required by applicable securities laws.
(b) If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under the securities laws, any Participant who knowingly or through gross negligence engaged in the misconduct, or who knowingly or through gross negligence failed to prevent the misconduct, and any Participant who is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002, shall reimburse the Company for (i) the amount of any payment in settlement of an Award received by such Participant during the twelve (12) month period following the first public issuance or filing with the United States Securities and Exchange Commission (whichever first occurred) of the financial document embodying such financial reporting requirement, and (ii) any profits realized by such Participant from the sale of securities of the Company during such twelve (12) month period.
18.3 Provision of Information. Each Participant will be given access to information concerning the Company equivalent to that information generally made available to the Company’s common stockholders.
18.4 Rights as Employee, Consultant or Director. No person, even though eligible pursuant to Section 5, has a right to be selected as a Participant, or, having been so selected, to be selected again as a Participant. Nothing in the Plan or any Award granted under the Plan confers on any Participant a right to remain an Employee, Consultant or Director or interfere with or limit in any way any right of a Participating Company to terminate the Participant’s Service at any time. To the extent that an Employee of a Participating Company other than the Company receives an Award under the Plan, that Award will in no event be understood or interpreted to mean that the Company is the Employee’s employer or that the Employee has an employment relationship with the Company.
18.5 Rights as a Stockholder. A Participant has no rights as a stockholder with respect to any shares covered by an Award until the date of the issuance of such shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment will be made for
dividends, distributions or other rights for which the record date is prior to the date such shares are issued, except as provided in Section 4.3 or another provision of the Plan.
18.6 Delivery of Title to Shares. Subject to any governing rules or regulations, the Company shall issue or cause to be issued the shares of Stock acquired pursuant to an Award and shall deliver such shares to or for the benefit of the Participant by means of one or more of the following: (a) by delivering to the Participant evidence of book entry shares of Stock credited to the account of the Participant, (b) by depositing such shares of Stock for the benefit of the Participant with any broker with which the Participant has an account relationship, or (c) by delivering such shares of Stock to the Participant in certificate form.
18.7 Fractional Shares. The Company is not be required to issue fractional shares upon the exercise or settlement of any Award.
18.8 Retirement and Welfare Plans. Neither Awards made under this Plan nor shares of Stock or cash paid pursuant to such Awards may be included as “compensation” for purposes of computing the benefits payable to any Participant under any Participating Company’s retirement plans (both qualified and non-qualified) or welfare benefit plans unless such other plan expressly provides that such compensation must be taken into account in computing a Participant’s benefit.
18.9 Beneficiary Designation. Subject to local laws and procedures, each Participant may file with the Company a written designation of a beneficiary who is to receive any benefit under the Plan to which the Participant is entitled in the event of such Participant’s death before he or she receives any or all of such benefit. Each designation will revoke all prior designations by the same Participant, will be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Company during the Participant’s lifetime. If a married Participant designates a beneficiary other than the Participant’s spouse, the effectiveness of such designation may be subject to the consent of the Participant’s spouse. If a Participant dies without an effective designation of a beneficiary who is living at the time of the Participant’s death, the Company will pay any remaining unpaid benefits to the Participant’s legal representative.
18.10 Severability. If any one or more of the provisions (or any part thereof) of this Plan shall be held invalid, illegal or unenforceable in any respect, such provision will be modified so as to make it valid, legal and enforceable, and the validity, legality and enforceability of the remaining provisions (or any part thereof) of the Plan will not in any way be affected or impaired thereby.
18.11 No Constraint on Corporate Action. Nothing in this Plan will be construed to: (a) limit, impair, or otherwise affect the Company’s or another Participating Company’s right or power to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge or consolidate, or dissolve, liquidate, sell, or transfer all or any part of its business or assets; or (b) limit the right or power of the Company or another Participating Company to take any action which such entity deems to be necessary or appropriate.
18.12 Unfunded Obligation. Participants shall have the status of general unsecured creditors of the Company. Any amounts payable to Participants pursuant to the Plan are considered unfunded and unsecured obligations for all purposes, including, without limitation, Title I of the Employee Retirement Income Security Act of 1974. No Participating Company will be required to segregate any monies from its general funds, or to create any trusts, or establish any special accounts with respect to such obligations. The Company shall retain at all times beneficial ownership of any investments, including trust investments, which the Company may make to fulfill its payment obligations hereunder. Any investments or the creation or maintenance of any trust or any Participant account will not create or constitute a trust or fiduciary relationship between the Committee or any Participating Company and a Participant, or otherwise create any vested or beneficial interest in any Participant or the Participant’s creditors in any assets of any Participating Company. Participants have no claim against any Participating Company for any changes in the value of any assets which may be invested or reinvested by the Company with respect to the Plan.
18.13 Choice of Law. Except to the extent governed by applicable federal law, the validity, interpretation, construction and performance of the Plan and each Award Agreement shall be governed by the laws of the State of Texas, without regard to its conflict of law rules.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the foregoing sets forth the PROS 2017 Equity Incentive Plan as duly adopted by the Board on March 22, 2019.
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| Damian Olthoff, Secretary |
