UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrantx
Filed by a Party other than the Registrant¨
Check the appropriate box:
| x | Preliminary |
| ¨ | Confidential, |
| ¨ | Definitive |
| ¨ | Definitive |
| ¨ | Soliciting |
PARAMETRIC TECHNOLOGY CORPORATION
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (Check the appropriate box):
| x | No fee required |
| ¨ | Fee computed on table below per Exchange Act Rules 14a-(6)(i)(1) and 0-11. |
| (1) | Title of each class of securities to which transaction applies: |
| (2) | Aggregate number of securities to which transactions applies: |
| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
| (4) | Proposed maximum aggregate value of transaction: |
| (5) | Total fee paid: |
| ¨ | Fee paid previously with preliminary materials. |
¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.
| ¨ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. |
| (1) | Amount previously paid: |
| (2) | Form, schedule or registration statement no.: |
| (3) | Filing party: |
| (4) | Date filed: |
To our Stockholders:
Our Annual Report and Form 10-K describe PTC’s discipline in controlling expenses and improving profitability in 2004, and we plan to bring that same discipline to help the Company grow both revenue and profit in 2005 and in the future. We believe that this focus on growth, in addition to profitability, will enhance shareholder value.
Another initiative that is important to us is to improve our equity and compensation structure. Trends such as options expensing and evolving corporate governance best practices are causing many companies to rethink the compensation philosophies of their businesses. In doing so, we have determined that our existing equity infrastructure does not provide the flexibility required to address these new trends or allow us to take the necessary steps to keep employee and stockholder interests aligned.
PTC’s proxy statement for 2005 contains stockholder proposals that are designed to support the following objectives to improve our equity structure:
In order to make meaningful progress against these objectives, we are asking you to consider and approve two proposals this year:
Our Proxy Statement for our 2005 Annual Meeting of Stockholders includes detailed information concerning these proposals to aid you in the voting process. We look forward to seeing you at our Annual Meeting on March 10, 2005 where we will vote on these two stockholder proposals, as well as proposals to elect Board members and confirm the selection of our independent auditor for the current fiscal year.
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PARAMETRIC TECHNOLOGY CORPORATION
140 KENDRICK STREET
NEEDHAM, MASSACHUSETTS 02494
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on March 10, 2005
We will hold the Annual Meeting of Stockholders of Parametric Technology Corporation (“PTC”) at the offices of the Company, 140 Kendrick Street, Needham, Massachusetts 02494 on Thursday,time and location stated below.
Wednesday, March 10, 2005 at 9:7, 2012
8:00 a.m., local time. time
Parametric Technology Corporation
140 Kendrick Street
Needham, MA 02494
At this year’s Annual Meeting, we will ask you to:
Elect three directors to serve for the next three years;
Approve the compensation of our named executive officers;
Approve an amendment to our Articles of Organization authorizing us to change our corporate name to PTC; and
Confirm the selection of PricewaterhouseCoopers LLP as PTC’s independent registered public accounting firm for the current fiscal year.
We will also consider action on any other matter that may be properly brought before the meeting.
You may vote at the Annual Meeting if you were a PTC stockholder at the close of business on January 17, 2005. With6, 2012.
Whether or not you expect to attend the Proxy Statement,meeting, we are sendingencourage you PTC’s 2004 Annual Report to Stockholders, including our Annual Report on Form 10-K with our financial statements.vote your shares in advance of the meeting. You may vote your shares by internet, by telephone or, if you have requested a proxy card, by mail.
By Order of the Board of Directors
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AARON C. VON STAATS Secretary |
Needham, Massachusetts
January 27, 2005
26, 2012
Directions to our offices are as follows:Parametric Technology Corporation
From the North:
Route 128Rte. 95 South (128 South) to Exitexit 19B to Highland Avenue.(Highland Ave. exit). At the next traffic light take a left onto Hunting Road. LeftFollow to the next set of lights and go left onto Kendrick Street. PTC entrance is located approximately 1/8th mile on the right hand side.
From the South:
Route 128Rte. 95 North (128 North) to Exit 18, right onto Great Plain Avenue. RightAve. Take a right onto Greendale Avenue. RightAve. At the light take a right onto Kendrick Street. PTC entrance is located approximately 1/8th mile on the leftright hand side.
From either the East or West:East:
Mass Pike West to Route 128Rte. 95 South (128 South) to Exitexit 19B to Highland Avenue.(Highland Ave. exit). At the next traffic light take a left onto Hunting Road. LeftFollow to the next set of lights and go left onto Kendrick Street. PTC entrance is located approximately 1/8th mile on the right hand side.
side
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE, OR VOTE BY TELEPHONE OR ON THE INTERNET, IN ORDER TO ENSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE IS REQUIRED IF THE PROXY IS MAILED IN THE UNITED STATES.From the West:
Mass Pike East to Rte. 95 South (128 South) to exit 19B (Highland Ave. exit). At the light take a left onto Hunting Road. Follow to the next set of lights and go left onto Kendrick Street. PTC is located approximately 1/8th mile on the right hand side.
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PROXY STATEMENT FOR THE PARAMETRIC TECHNOLOGY CORPORATION
20052012 ANNUAL MEETING OF STOCKHOLDERS
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
Notice of Internet Availability of Proxy Materials. We are making this proxy statement and our annual report available to stockholders atwww.proxyvote.com.On January 26, 2012, we will begin mailing to our stockholders a notice containing instructions on how to access and review this proxy statement and our annual report at that website. The notice also instructs you how you may submit your proxy over the Internet. If you would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting those materials included in the notice.
Why Did We Send You thisThis Proxy Statement?Statement Was Provided to You.
As a stockholder, you have the right to attend and vote at the Parametric Technology Corporation (PTC) 20052012 Annual Meeting of Stockholders. If you attend the Annual Meeting, you may vote your shares directly. Whether or not you attend, you may vote by proxy, by which allows you to direct another person to vote your shares at the meeting on your behalf. The PTC Board of Directors is soliciting your proxy to encourage your participation in voting at the meeting and to obtain your support onfor the proposals presented.
There are two parts to our proxy solicitation: this proxy statement and the enclosed voting instruction form (which may also be called a “proxy card”). The proxy statement explains the proposals to be voted on at the Annual Meeting. You use the voting instruction form to authorize your shares to be voted as you wish.
We will begin mailing this proxy statement on January 27, 2005 to all stockholders entitled to vote. If you owned our common stock at the close of business on January 17, 2005, you are entitled to vote. On that date, there were [2xx,xxx,xxx] shares of common stock outstanding. Common stock is our only class of voting stock.
You have one vote for each share of common stock that you owned at the close of business on the record date, January 17, 2005. Your proxy card or other6, 2012. On that date, there were xxx,xxx,xxx shares of our common stock outstanding. Common stock is our only class of voting instruction form indicates the number.
stock.
How You May You Vote by Proxy?Proxy.
To vote, simply complete, sign and return the form before the meeting, and your shares will be voted as you direct. If you wish, in most cases you You may vote by telephoneproxy using the Internet or the Internet instead.
When you vote, you are givingtelephone by following the instructions on your “proxy” to the individuals we have designated to votenotice or your sharesproxy card, as you direct at the meeting.applicable. If you sign the form but do not make specific choices, they will vote your shares to:
If any matter not listed in the Noticerequested a printed set of Meeting is properly presented at the Annual Meeting, they will vote your shares in accordance with their best judgment. At the time we began printing this proxy statement, we knew of no matters that needed to be acted on at the meeting other than as discussed in this proxy statement.
Whethermaterials, you plan to attend the Annual Meeting or not, we urge you to complete, sign and date the enclosed voting instruction form and to return it promptly in the envelope provided. Returning the form will not affect your right to attend the Annual Meeting. If you wish to vote at the meeting despite having returned the form, see below under “May You Revoke Your Proxy” and “How May You Vote in Person.”
How May You Vote by Telephone or the Internet?
Instead of submitting yourmay also vote by mail onby signing, dating and returning the enclosed voting instruction form, you may vote by telephone or the Internet. proxy card.
Please note that there may beare separate telephone and Internet arrangements depending on whether
you are a registered stockholder (that is, if you hold your stock in your own name) or you hold your shares in “street name” (that is, in the name of a brokerage firm or bank that holds your securities account). In either case, you must follow the procedures described on your voting instruction form.notice or proxy card.
When you vote, you are giving your “proxy” to the individuals we have designated to vote your shares at the meeting as you direct. If you do not make specific choices, they will vote your shares to:
In orderelect the directors nominated by the Board;
approve the compensation of our named executive officers;
approve the amendment to vote online or via telephone, haveour Articles of Organization to permit the voting instruction formBoard of Directors, in hand,its discretion, to change the name of the company to PTC with an appropriate corporate indicator selected by the Board; and call the number or go to the website listed on the enclosed form and follow the instructions. The telephone and Internet voting procedures are designed to authenticate stockholders’ identities, to allow stockholders to give their voting instructions and to confirm that stockholders’ instructions have been recorded properly.
Weconfirm the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm.
If any matter not listed in the Notice of Meeting is properly presented at the Annual Meeting, they will vote your shares in accordance with their best judgment. As of the date hereof, we knew of no matters that needed to be acted on at the meeting other than as discussed in this proxy statement.
Whether you plan to attend the Annual Meeting or not, we encourage you to vote bypromptly. Voting promptly will not affect your right to attend the Internet.Annual Meeting. If you wish to vote at the Annual Meeting despite having voted previously, you may do so please authorize us to deliver future annual reportsby following the procedure described below under “Revoking Your Proxy” and proxy statements to you by e-mail. This lowers costs and speeds delivery.“How You May Vote in Person.”
May You RevokeRevoking Your Proxy?Proxy.
Yes. You may change your vote after you send in your voting instructions. A registered stockholderhave voted as described below.
Registered Stockholders. You may revoke ayour proxy by following any of these procedures:
If you voted by Internet or telephone, vote again using the Internet or telephone (which will supersede your earlier vote); or
If you voted by executing a proxy card, send in another signed voting instruction formproxy card with a later date; or
Send a letter revoking your proxy to PTC’s ClerkSecretary at the address indicated on page 3657 under “Information About Stockholder Proposals”;“Stockholder Proposals and Nominations,” or
Attend the Annual Meeting, notify us in writing that you are revoking your proxy and vote in person.
A holder of stock in street nameStreet Name Holders. You must follow the procedures required by the brokerage firm or bank through which you hold your shares to revoke ayour proxy. You should contact that firm directly for more information on thesethose procedures.
How You May You Vote in Person?Person.
If you You may attend the Annual Meeting and wish to vote in person, we will give you a ballot when you arrive.by ballot. If your shares are held in street name, you must bring an account statement or letter from the brokerage firm or bank showing that you were the beneficial owner of the shares on January 17, 20056, 2012 in order to be admitted to the meeting. To be able to vote,If you are not the holder of record, you will need to obtain a “legal proxy” from the holder of record.
record in order to be able to vote at the Annual Meeting.
What Are the Votes Required? How Are They Affected byRequired; Effect of Abstentions and Broker Non-Votes?Non-Votes.
The directors elected at the meeting will be thosethe directors receiving the highest number of votes.
The proposal to amend our Articles of Organization requiresadvisory vote on the affirmative vote of a majoritycompensation of our shares outstanding. The other proposalsnamed executive officers may be approved by the affirmative vote of a majority of the votes cast. Accordingly, if
The proposal to amend our Articles of Organization to change our corporate name to PTC may be approved by the affirmative vote of a majority of our shares outstanding.
Confirmation of the selection of PricewaterhouseCoopers LLP may be approved by the affirmative vote of a majority of the votes cast.
If you abstain from voting on a proposal, or if your broker or bank does not vote on any proposal because it has not received instructions from you and doesn’t have the authorityis not permitted to vote in its discretion (a broker non-vote), it will count as a vote against the proposal to amend our Articles of Organization andbut will not count as a vote for or against any other proposal. Brokers cannot vote in their discretion on the proposals to elect directors, approve the compensation of our executive officers or to change our corporate name described in the first three bullets above.
Voting and Tabulation of the other proposals.
Is Voting Confidential?Votes are Confidential.
Our policy is to We keep all the proxies, ballots and voting tabulations confidential. The Inspectors of Election will forward to management any written comments that you make on the proxy card without providing your name.
What AreDisclosure of Voting Results. We will provide the voting results on our website at www.ptc.com following the Annual Meeting and in a Current Report on Form 8-K filed with the Securities and Exchange Commission within four business days after the Annual Meeting.
Costs of Soliciting Proxies?Proxies.
PTC will pay all the costs of soliciting proxies. In addition to mailing the notices and providing these proxy materials, our directors and employees may solicit proxies by telephone, fax or other electronic means of communication, or in person. In
addition, The Proxy Advisory Group of Strategic Stock Surveillance, LLC is assisting us with the solicitation of proxies for a fee of $7,500, plus customary disbursements. We will reimburse banks, brokers, nominees and other fiduciaries for the expenses they incur in forwarding the proxy materials to you.
Stockholders Sharing the Same Surname and AddressAddress.
In some cases, stockholders holding their shares in a brokerage or bank account who share the same surname and address and have not given contrary instructions are receivingreceived only one copy of our annual report and proxy statement.the notice. This practice is designed to reduce duplicate mailings and save significant printing and postage costs as well as natural resources. If you would like to have additional copiesa separate copy of the notice or our annual report and/or proxy statement mailed to you or if you would like to receive separate copies of future mailings, please submit your request to the address or phone number that appears on your voting instruction form.
How May You Obtain an Annual Report on Form 10-K?notice or proxy card. We will deliver such additional copies promptly upon receipt of such request.
A copy of our Annual Report on Form 10-K forIn other cases, stockholders receiving multiple copies at the year ended September 30, 2004 was included with this proxy statement.same address may wish to receive only one. If you would like anotherto receive only one copy it is availablebut now receive more than one, please submit your request to the address or phone number that appears on our web site at www.ptc.com. We will also send you one without charge if you call (781) 370-5000, e-mail to IR@ptc.com,your notice or write to:
Investor Relations
Parametric Technology Corporation
140 Kendrick Street
Needham, MA 02494-2714
proxy card.
Where Can You Find the Voting Results?Additional Questions.
We will publish the voting results on PTC’s website at www.ptc.com following the Annual Meeting and in our Form 10-Q for the second quarter of fiscal 2005, which we will file with the Securities and Exchange Commission (“SEC”) in May 2005.
Whom Should You Call if You Have any Questions?
If you have any questions about the Annual Meeting or your ownership of PTC common stock, please contact PTC Investor Relations by telephone at (781) 370-5000 or e-mail at IR@ptc.com.
Obtaining a Copy of Our Annual Report on Form 10-K
A copy of our Annual Report on Form 10-K for the year ended September 30, 2011 was made available with this proxy statement.
You may obtain another copy of our Annual Report on Form 10-K free of charge:
on our website at www.ptc.com,
on the SEC’s website at www.sec.gov, or
by contacting PTC Investor Relations at:
Investor Relations
Parametric Technology Corporation
140 Kendrick Street
Needham, MA 02494-2714
Phone: (781) 370-5000
Email: ir@ptc.com
The first proposal on the agenda for the Annual Meeting will be to elect three Class III directors for three-year terms beginning at this Annual Meeting and expiring at the 2008 Annual Meeting. For a description of the three classes of directors, see “Information About The Directors” beginning on page 19.
Upon the recommendation of the Nominating and Corporate Governance Committee, the Board of Directors has nominated three current directors—Robert N. Goldman, C. Richard Harrisondirectors – Donald Grierson, James Heppelmann and Joseph M. O’Donnell—Renato Zambonini – for new three-year terms expiring at the 2015 Annual Meeting and recommends that you vote for their re-election. The recommendation that Messrs. Goldman, Harrisonelection.
Certain biographic and O’Donnell be renominated is based on the Nominating Committee’s consideration of their individual credentials and experience, their exemplary prior service as directors, the numerous contributions that theyother information about each have made to the work of the nominees appears in the table below. Also discussed are the experience, qualifications and skills of each of directors that led the Corporate Governance Committee and the Board to conclude that the nominee should serve as a director of the company. Information about their holdings of PTC stock is set forth in “Stock Owned by Directors their expected future contributions and their Board attendance records. The Nominating &Officers” on page 23.
Additional information with respect to the Corporate Governance Committee’s process for selecting and evaluating director nominees, including the search for, and selection of, Mr. Zambonini, is described under “Information About The Nominating Functions Of The Nominating &“The Corporate Governance Committee” on page 35.14. There were no nomineesnominations for director proposed by PTC stockholders.
Class I Directors | Director Since | Term Expires | ||||||
Donald K. Grierson, age 77 | 1987 | 2012 | ||||||
Chief Executive Officer (Retired), ABB Vetco International, an oil services business. Mr. Grierson was Chief Executive Officer and President of ABB Vetco Gray, Inc. from September 2002 to November 2004 and from 1991 to March 2001. Mr. Grierson served as Executive Director of ABB Vetco Gray, Inc. from March 2001 to September 2002.
As a former chief executive officer, Mr. Grierson has significant leadership, management and operating experience, as well as financial, strategic and corporate governance expertise. He also has a deep understanding of the manufacturing industry generally (the key industry served by PTC’s products). Given his tenure as a director PTC since 1987, Mr. Grierson has extensive knowledge of PTC’s business and the markets in which PTC operates. As Lead Independent Director since 2010, Mr. Grierson has been instrumental in developing Board meeting agendas and serving as a liaison between and among the directors and management.
Mr. Grierson attended 100% of the meetings of the Board and of the committees on which he serves during his current term. | ||||||||
James E. Heppelmann, age 47 | 2008 | 2012 | ||||||
President and Chief Executive Officer of PTC since October 2010. Mr. Heppelmann was President and Chief Operating Officer of PTC from March 2009 to September 2010, Executive Vice President and Chief Product Officer of PTC from February 2003 to February 2009, and Executive Vice President, Software Solutions and Chief Technology Officer of PTC from June 2001 to January 2003. Mr. Heppelmann joined PTC in 1998.
Through his positions with PTC and through his significant prior experience in the product development software industry (including as founder and President of Windchill Technology, which was acquired by PTC), Mr. Heppelmann has gained significant leadership, management and operating experience, extensive knowledge of PTC’s products and services and of the markets in which PTC competes, and technical, financial, strategic and marketing expertise. In his first year as President and Chief Executive Officer of PTC, PTC achieved its highest revenue year in the company’s history and improved operating margins, Mr. Heppelmann established a management team to support his vision and drive for excellence, and he was instrumental in identifying and achieving the successful acquisition of MKS Inc., a key strategic acquisition for PTC in 2011.
Mr. Heppelmann attended 100% of the meetings of the Board during his current term. | ||||||||
Class I Directors Renato Zambonini, age 65 President and Chief Executive Officer (Retired) of Cognos Incorporated, a global leader in corporate performance management solutions. Mr. Zambonini was Chief Executive Officer of Cognos from April 2002 to June 2004, President and Chief Executive Officer of Cognos from September 1995 to April 2002, and President of Cognos from January 1993 to September 1995. Mr. Zambonini has served as a director at CA, Inc. since 2005. Mr. Zambonini served as a director of Cognos Incorporated from 1994 to 2008, and as its Chairman of the Board from 2004 to 2008. He also served as a director at Reynolds and Reynolds Inc. from 2004 to 2007 and at Emergis Inc. from 2005 to 2008. In his position as Chief Executive Officer of Cognos, Mr. Zambonini is credited with having led Cognos’s transformation from a specialized business intelligence software tools provider to a global leader in corporate performance management solutions, demonstrating significant leadership and strategic vision. In addition, as result of his experiences at Cognos and as a director of other software companies, Mr. Zambonini has demonstrated leadership, management and operating experience, a deep understanding of software technology and the software industry, and significant financial, strategic and corporate governance expertise. Mr. Zambonini attended 100% of the meetings of the Board during his current term. Director
Since Term
Expires 2011 2012
The following table contains background information about eachBoard of Directors recommends that you vote FOR the nominees. For a descriptionelection of Donald Grierson, James Heppelmann and Renato Zambonini as Class I directors.
| PROPOSAL 2: | ADVISORY VOTE ON COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS |
We are seeking your advisory vote on the compensation of our Chief Executive Officer, our Chief Financial Officer, and our other most highly compensated executive officers named in the Summary Compensation Table on page 43 (collectively, our “named executive officers”). This “say-on-pay” proposal gives our stockholders the opportunity to express their holdingsviews on our named executive officers’ compensation. This vote is not intended to address any specific item of PTC’s stock, see “How Much Stock is Owned by Directorscompensation, but rather the overall compensation of our named executive officers. We ask that you support the compensation of our named executive officers as disclosed in “Compensation Discussion and Officers?”Analysis” beginning on page 23.25 and the tables and related disclosures contained in the “Executive Compensation” section beginning of page 43.
Why You Should Approve the Compensation of Our Named Executive Officers
Name, Age, Principal Occupation, Business Experience and Directorships | Director Since | Term Expires | ||
Class III Director Nominees: | ||||
Robert N. Goldman, age 55 Private investor since January 2003. Mr. Goldman was Chairman of the Board of eXcelon Corporation, a software developer, from September 2001 to December 2002 and Chief Executive Officer and President of eXcelon Corporation from November 1995 to September 2001. | 1991 | 2005 | ||
C. Richard Harrison, age 49 Chief Executive Officer and President of PTC since March 2000. Mr. Harrison was President and Chief Operating Officer of PTC from August 1994 to March 2000. | 1994 | 2005 | ||
Joseph M. O’Donnell, age 58 (1) Chairman of the Board, President and Chief Executive Officer of Artesyn Technologies, Inc., a provider of power conversion equipment and subsystems to the communications industry, since July 1994. | 2004 | 2005 | ||
Our compensation programs are designed to pay for performance. As described in “Compensation Discussion and Analysis” beginning on page 25, the compensation of our named executive officers is heavily weighted toward “at-risk” performance-based pay. For 2011, 52% of our CEO’s compensation and 48% of our other named executive officers’ compensation was performance-based, while our peer group companies provided an average of only 39% performance-based compensation to their CEOs and only 41% performance-based compensation to their other named executive officers. Moreover, our compensation programs are designed so that if the performance-based compensation is earned in full, total compensation earned by the executives will be between the second and third quartiles of the compensation paid by our peer group.
For 2011, the executives’ performance-based equity compensation was tied to achievement of an increase of approximately 20% in non-GAAP operating margin dollars over 2010 and their annual cash incentive plan bonus was tied to achievement of an increase of approximately 30% in non-GAAP operating margin dollars over 2010.
Because PTC achieved an approximately 30% increase in non-GAAP operating margin dollars, the executives earned 100% of their performance-based equity for 2011, but earned only between 96% and 98% (depending on the executive) of their annual incentive bonus, thus earning approximately 99% of their target annual compensation for achievement of approximately 99% of the performance-based compensation plan.
Our compensation programs are designed to align our executives’ interests with our stockholders’ interests. The time-based and performance-based equity awards that comprise a substantial portion of our executives’ annual compensation are subject to vesting over three years. Moreover, our executives are required to maintain certain levels of ownership of PTC stock (which amount excludes options and unvested equity). These two elements serve to align our executives’ interests with those of our stockholders in the long-term value of PTC stock.
Our compensation programs are designed to be fair and competitive. Our Compensation Committee is comprised only of independent directors and retains an independent compensation consultant to advise it on appropriate compensation practices.
Additional Information about Our Executive Compensation Programs
Additional information about our executive compensation programs, including additional best practices we maintain, our compensation philosophy, and a discussion of how we establish pay amounts, is discussed in “Compensation Disclosure and Analysis” beginning on page 25.
Effect of Say-on-Pay Vote
This say-on-pay vote, which is required by Section 14A of the Securities Exchange Act of 1934, is advisory only and is not binding on the company, the Compensation Committee or our Board of Directors. Although the vote is advisory, we, our Compensation Committee and our Board of Directors value the opinions of our stockholders and expect to take the outcome of this vote into account when considering future compensation arrangements for our executive officers. We will hold such a vote each year.
Board Recommendation
The Board of Directors recommends that you voteFOR the electionapproval of Robert N. Goldman, C. Richard Harrison and Joseph M. O’Donnell as Class III directors.the compensation of our named executive officers.
PTC regularly improves its equity incentive compensation plans to address compensation best practices and otherwise meet our changing needs and the expectations of our stockholders. The Board of Directors has amended our 2000 Equity Incentive Plan (“2000 EIP”) as described in this section, subject to stockholder approval. The Amended 2000 EIP will permit us to:
These reductions will lower two important measurements of potential dilution: options overhang and voting power dilution. Our short-term goal is to reduce the options overhang from its current level of 32% of total shares outstanding to 20%, with a corresponding reduction to voting power dilution (on a fully diluted basis) from its current level of 24% to approximately 16%. Our long-term goal is to reduce the options overhang to 15% of total shares outstanding, with a corresponding reduction to voting power dilution.
The Proposal.
We are seeking stockholder approval of the Amended 2000 EIP, which is attachedgenerally known as Appendix B to this proxy statement. The principal changes from the 2000 EIP as previously approved by our stockholders will:
The Board of Directors believes that these amendments to the 2000 EIP promote important corporate goals and are therefore in the best interests of PTC’s stockholders.
Principal Benefits of the Amended 2000 EIP.
In order to accomplish a significant reduction in overhang, the Amended 2000 EIP authorizes a stock option exchange program (the “Exchange Program”). This program will allow employees (excluding our executive officers) to cancel certain outstanding, out-of-the-money stock options for either cash or restricted stock, as determined by the Compensation Committee. To the extent eligible employees participate in the Exchange Program, our overhang would be reduced. The Exchange Program is described below.
In addition to reducing overhang through the Exchange Program, benefits of the Amended 2000 EIP include: (i) decreasing the potential stockholder dilution resulting from future equity incentive grants by enabling the Company to make more use of restricted stock grants, which require fewer shares than stock options to deliver comparable value; (ii) making it easier to meet industry standards and stockholder expectations for linking executive pay with performance; (iii) reducing expenses associated with equity-based compensation under forthcoming stock option expensing requirements; and (iv) generally maximizing the alignment of employee interests with those of our stockholders.
The use of awards other than stock options will give us more flexibility in responding to changing rules for accounting for the expense of equity compensation. With the Amended 2000 EIP, we will also be able to increase performance-based equity incentives for executive officers, under which vesting of awards is conditioned on achievement of PTC’s important business objectives. For fiscal 2005, we anticipate that 50% of the equity incentive awards issued to officers would be issued as performance-based restricted stock.
Increase Use of Restricted Stock Grants. Currently, the 2000 EIP limits the number of shares of stock (i.e. awards other than stock options) that may be granted for consideration less than fair market value to 10% of the total number of shares approved under the plan from time to time. The Amended 2000 EIP removes this limitation. To date, the great majority of employees eligible for equity compensation have received stock options. Removing the limit will permit us to grant shares of restricted stock on a broader basis and implement meaningful performance-based equity incentives for executive officers. The features of restricted stock and a description of other, related changes to be made by the Amended 2000 EIP are described below under “Summary of 2000 EIP.” These awards involve issuing fewer shares than stock options to deliver similar value, which will reduce overhang and potential stockholder dilution. Furthermore, the Exchange Program may require that we be able to issue a greater number of restricted shares than is currently possible. Accordingly, the Board believes that eliminating the 10% limit on grants of restricted stock is desirable.
Transfer Shares to the Amended 2000 EIP and Reduce Total Shares Issuable under PTC Plans. The Amended 2000 EIP reflects the transfer from our 1997 Nonstatutory Stock Option Plan (“1997 NSOP”) of 13,000,000 shares for issuance under the Amended 2000 EIP. When this transferred amount is added to the 2,195,666 shares remaining unissued under the 2000 EIP at December 31, 2004, a total of 15,195,666 shares would be available for issuance under the Amended 2000 EIP (excluding any shares that may be issued under the Exchange Program.) If the Amended 2000 EIP is approved, we will also terminate the 1997 NSOP with respect to future grants, and the 2000 EIP would become our sole vehicle for granting future equity awards. As of December 31, 2004, there were 18,940,057 shares available for grant under the 1997 NSOP. Accordingly, approving the Amended 2000 EIP and these related actions would immediately reduce the number of shares available for grant under all PTC’s plans by nearly 6,000,000. This number would be further reduced if 1997 NSOP options that are not cancelled in the Exchange Program later terminate, because the shares subject to those options would not be reissued.
These proposed reductions, which are discussed in further detail below, are illustrated in the following chart:
Current PTC Equity Program (as of December 31, 2004) | Approximation of resulting (assuming full participation) | |||
Shares underlying outstanding awards | 64,759,986 | 37,602,971 | ||
Shares available for awards | 21,135,723 | 15,195,666 | ||
Total | 85,895,709 | 52,798,637 |
Authorize the Grant of Restricted Stock Units. A restricted stock unit, or RSU, is the right to receive shares of common stock in the future subject to meeting specified conditions and subject to forfeiture. These awards are made in the form of “units,” each representing the equivalent of one share of common stock, although they may be settled in either cash or stock, at the Company’s discretion. Restricted stock units represent unfunded and unsecured obligations of PTC. In the discretion of the Compensation Committee, units may be awarded with rights to the payment of dividend equivalents. It is expected that RSUs would be used in lieu of restricted stock primarily where the recipient would be better served under applicable tax laws.
You will find a summary of the 2000 EIP’s principal features and additional information concerning our equity incentive plans in “Summary of 2000 EIP” below and in “Equity Compensation Plans” beginning on page 31.
The Exchange Program
Approval of the Amended 2000 EIP will also permit us to seek to reduce overhang through the proposed stock option Exchange Program. At present, approximately 58% of the outstanding options under the 2000 EIP and the 1997 NSOP are out-of-the-money; that is, they have exercise prices that are higher than the current fair market value of our common stock, in most cases substantially higher. We believe that our employees view these options as providing little or no incentive, and the Board wishes to reinvigorate our equity compensation program. The Exchange Program would provide a special, one-time opportunity for eligible active employees to cancel stock options that have exercise prices in specified ranges above the then current market price of our stock in exchange for either cash or grants of fewer shares of restricted stock. The amount of the cash payment or restricted stock would be determined using the valuation methodology described below under “Valuation.” We currently anticipate initiating the Exchange Program promptly after June 30, 2005, in order to coordinate with a new standard of accounting for stock options that takes effect for PTC in July 2005.
Under the Exchange Program, participants would be able to elect to return for cancellation all of their eligible stock options having an exercise price above a threshold set by the Compensation Committee (described further below under “Valuation”). In exchange, they would receive either cash or proportionally fewer shares of restricted stock. Participation in the program will be voluntary; however, a participant would be required to surrender all of his or her eligible options that have grant prices above the threshold to participate. Shares of restricted stock, if any, issued through the Exchange Program would be issued under the Amended 2000 EIP. Since they would be derived from shares otherwise issuable under the cancelled options, these shares would be in addition to the number of shares available for issuance under the Amended 2000 EIP as described above.
Eligibility. The Exchange Program will be open“PTC” to our active non-executive employees. Accordingly, our Chief Executive Officer andcustomers around the other executive officers listed in the summary compensation table on page 25 of this Proxy Statement will not be eligible to participate. The Exchange Program will include the employees of PTC’s participating subsidiaries worldwide, except where local laws make that impractical. The Exchange Program will not be available to former employees or to consultants or directors.
Executive Giveback. In order to help achieve our goal of reducing overhang, our Chief Executive Officer and the other executive officers listed in the summary compensation table on page 25 have agreed to cancel for no compensation the options they hold that have exercise prices above $15.50 per share (approximately 3,333,032 shares) in connection with the Exchange Program.
Valuation.world. We intend to set the value of the cash and restricted stock to be paid in the Exchange Program to be no greater than the value of the stock options being surrendered. We have worked with independent consultants to establish models for estimating the option values. We expect to use the Black-Scholes stock option valuation model, as well as a binomial model, and will base the exchange ratios on the values determined by these models. However, no payments of cash or restricted stock will have a value greater than 100% of the value of the cancelled options, as determined by the binomial model.
As an illustrative example, if we were to have initiated the Exchange Program beginning in December 2004, the following table illustrates the exchange price for each class of stock options eligible for exchange in the Exchange Program and the number of options eligible for exchange, assuming all of the currently eligible employees elected to participate and a value of $4.86 per share of common stock, being the 200-day average of the closing prices of our common stock as reported by the Nasdaq National Market for the period ending December 1, 2004.
Illustrative Table of Exchange Ratios
Exercise Price | Value Provided per Stock Option | Number of Shares Subject to Currently Eligible Options | Weighted Average Remaining Life of | Weighted Exercise Price | Total Value | ||||||||
$9.00 - $11.99 | $ | 1.06 | 6,498,844 | 4.58 | $ | 10.25 | $ | 6,875,776.95 | |||||
$12.00 - $14.99 | $ | 0.66 | 8,164,423 | 3.99 | $ | 13.42 | $ | 5,408,113.80 | |||||
$15.00 - $19.99 | $ | 0.41 | 4,672,867 | 3.59 | $ | 15.88 | $ | 1,934,566.94 | |||||
$20.00 - $24.99 | $ | 0.23 | 3,841,586 | 3.45 | $ | 21.86 | $ | 883,564.78 | |||||
$25.00 - Up | $ | 0.11 | 646,263 | 3.29 | $ | 28.53 | $ | 71,347.44 | |||||
| 23,823,983 | $ | 15,173,369.90 | |||||||||||
We currently anticipate offering to cancel options with exercise prices at $9.00 and above for cash. Based on the illustrative example above and assuming full participation of all outstanding options currently eligible as of December 31, 2004, the Exchange Program would result in the exchange of options for approximately 23,823,983 shares for the payment of approximately $15,173,370. The Company may elect to pay for certain of the exchanged options using restricted stock in lieu of cash, in which case the ratio of restricted stock would be set using the option valuation models described above and based on the fair market value of the restricted stock as determined by the Compensation Committee. Only options with exercise prices of $9.00 and above will be included in the Exchange Program and we would only offer to exchange restricted stock for options that have exercise prices less than 40% above the then-current market price of our common stock. If we offer to exchange options for restricted stock, the number of shares of restricted stock issued in connection with the Exchange Program will not exceed 5,000,000 shares. The total cash paid to optionholders in the Exchange Program will not exceed $20,000,000.
Vesting of Restricted Stock Awards Issued Pursuant to the Exchange Program. Although we currently anticipate paying cash in the Exchange Program, if restricted stock is issued in lieu of cash then, regardless of the class of option surrendered in the exchange, all restricted stock issued in the Exchange Program would vest one year following the grant date, subject to the participant’s continued employment with PTC. The vesting schedule for the restricted stock will not take into account the extent that any exchanged options were already vested, nor will it give credit for prior service with PTC (See “Summary of 2000 EIP” below for a discussion of vesting and forfeiture of restricted stock). The Board of Directors believes this new vesting schedule under the Exchange Program would enhance the motivational and retentive elements of the award and would thus benefit the stockholders.
Potential Effects of the Exchange Program. As of December 31, 2004, there were options outstanding under our equity incentive plans to purchase 64,759,986 shares of our common stock. The weighted average remaining life of these outstanding options was 5.73 years, while the weighted average exercise price was $9.83. We have an additional 21,135,723 shares available for grant under our existing equity plans, excluding our 2000 Employee Stock Purchase Plan. In the event the Amended 2000 EIP is approved by the stockholders, and assuming full
participation in the Exchange Program, we anticipate that the number of shares subject to options outstanding under our equity incentive plans would decrease to approximately 37,602,971 (with the resulting weighted average remaining life and weighted average exercise price of these outstanding options to be 7.07 years and $5.66, respectively). Moreover, the 2000 EIP would then be our sole vehicle to grant future discretionary equity awards, and the number of shares available for awards under the Amended 2000 EIP would be 15,195,666. These decreases in equity awards outstanding and shares available for future awards would reduce our current options overhang from 32% to 20%, and our current potential voting power dilution (on a fully diluted basis) from 24% to 16%.
Implementation of the Exchange Program. If the Amended 2000 EIP is approved by stockholders, we expect that eligible employees will be offered the opportunity to participate in the Exchange Program promptly after June 30, 2005. Participants will be given an election period (a minimum of 20 business days) in which to accept the offer. All of the eligible options of participating employees will be cancelled on the last day of the election period. The restricted stock issued as part of the Exchange Program, if any, would be issued as of the first business day after the end of the election period, and the cash payments will be distributed to participants as soon as practicable thereafter.
Accounting Treatment. Under current accounting rules, PTC will be required to record a fixed compensation expense on its income statement equal to the fair market value of the options exchanged for cash and shares of restricted stock in the Exchange Program. The expense for the restricted stock component, if any, generally will be amortized over the vesting period for these shares. The expense for cash payments will be recognized immediately.
U.S. Federal Income Tax Consequences. Cash received by participants will be recognized as ordinary income and PTC will be allowed a corresponding business expense deduction. The exchange of options for restricted stock grants, if any, should be treated as a non-taxable exchange, and no income for U.S. federal income tax purposes should be recognized by participants or PTC upon the grant of the new restricted stock awards. Upon vesting in the restricted stock, participants would be required to recognize ordinary income in an amount equal to the then-current fair market value of such restricted stock. We would generally be allowed a business expense deduction for the amount of any taxable income that is recognized by participants at the time such income is recognized.
International Tax Consequences. The Exchange Program will be offered on a worldwide basis (except where impractical under local law). Participants residing outside of the U.S. may be subject to laws other than those of this country. The international tax implications of the Exchange Program are not discussed in this proxy statement and will vary depending upon the tax laws of foreign jurisdictions; however, the tender offer documents we deliver to participants will contain a summary of the applicable international tax laws.
Why the Amended 2000 EIP and the Proposed Exchange are Important
It is important that we improve our capital structure. Approval of the Amended 2000 EIP will help us to reduce overhang. By providing the Company the ability to issue restricted stock in lieu of stock options going forward, it will help us minimize the dilutive impact and the expense associated with future equity grants.
We also believe that our ability to provide effective equity compensation incentives is essential for us to attract, retain and motivate key personnel. Competition for top-notch software developers, sales personnel and other skilled employees has become more intense as high technology companies proliferate rapidly. The Board of Directors believes that equity grants are a valuable tool to motivate and retain employees if the equity grants provide realistic incentives. The Exchange Program addresses out-of-the-money stock options that no longer have the intended retentive and incentive effects.
The Board also wishes to reinvigorate our equity compensation program going forward. Under the Amended 2000 EIP, the Compensation Committee will be able to issue restricted stock on a broader basis and to implement equity incentive awards that include performance-based vesting requirements that are tied to achieving operating and/or financial targets.
Board Recommendation
For the foregoing reasons, the Board of Directors believes that the Amended 2000 EIP will allow us to improve our compensation plans, improve our capital structure and better align our compensation needs and our stockholders’ interests. The Board recommends that you voteFOR approval of the Amended 2000 EIP and the Exchange Program.
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Summary of 2000 EIP
The following summarizes the principal features of the 2000 EIP as in effect now and notes certain additional changes under the Amended 2000 EIP.
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Federal Income Tax Consequences Relating to Awards under the 2000 EIP and Amended 2000 EIP
Incentive Stock Options. A participant does not realize taxable income upon the grant or exercise of an ISO under the 2000 EIP. If a participant does not dispose of shares received upon exercise of an ISO for at least two years from the date of grant and one year from the date of exercise, then (a) upon sale of the shares, any amount realized in excess of the exercise price is taxed to the participant as long-term capital gain and any loss sustained will be a long-term capital loss and (b) we may not take a deduction for Federal income tax purposes. The exercise of ISOs gives rise to an adjustment in computing alternative minimum taxable income that may result in alternative minimum tax liability for the participant.
If shares of common stock acquired upon the exercise of an ISO are disposed of before the end of the one and two-year periods described above (a “disqualifying disposition”), the participant realizes ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of the shares at exercise (or, if less, the amount realized on a sale of such shares) over the exercise price. We would be entitled to a tax deduction for the same amount. Any further gain realized by the participant would be taxed as a short-term or long-term capital gain and would not result in any deduction for us. A disqualifying disposition in the year of exercise will generally avoid the alternative minimum tax consequences of the exercise of an ISO.
Nonstatutory Stock Options. No income is realized by the participant at the time a nonstatutory option is granted. Upon exercise, the participant realizes ordinary income in an amount equal to the difference between the exercise price and the fair market value of the shares on the date of exercise. We would receive a tax deduction for the same amount. Upon disposition of the shares, appreciation or depreciation after the date of exercise is treated as a short-term or long-term capital gain or loss and will not result in any further tax deduction by us.
Restricted Stock.Generally, a participant will be taxed at the time the restrictions on the shares lapse. The excess of the fair market value of the shares at that time over the amount paid, if any, by the participant for the shares will be treated as ordinary income. The participant may instead elect at the time of grant to be taxed (as ordinary income) on the excess of the then fair market value of the shares over the amount paid, if any, for the shares. In either case, we would receive a tax deduction for the amount reported as ordinary income to the participant. Upon the participant’s disposition of the shares, any subsequent appreciation or depreciation is treated as a short or long-term capital gain or loss and will not result in any further tax deduction by us.
Restricted Stock Units.A participant does not realize taxable income upon the grant or vesting of a restricted stock unit as long as proper elections are made or the units only become payable upon an allowable distribution event or on a specified date. Otherwise, the participant will realize taxable income upon vesting of a restricted stock unit, and may be subject to interest and additional penalties that are applicable to certain forms of nonqualified deferred compensation. Assuming that proper elections are made or that the allowable distribution provisions are followed, when an award is settled, the participant will include as ordinary income an amount equal to the fair market value of the shares (or the amount of cash) distributed to settle the award. We would receive a corresponding tax deduction at the time of settlement. If the award is settled in shares, then any subsequent appreciation or depreciation is treated as short-term or long-term capital gain or loss and will not result in any further tax deduction by us.
Other Tax Matters. United States tax laws generally do not allow publicly-held companies to obtain tax deductions for compensation of more than $1 million paid in any year to any of the five most highly paid executive officers (each, a “covered person”) unless the compensation is “performance-based” as defined in Section 162(m) of the tax code. Stock options and SARs granted under the 2000 EIP are performance-based compensation if they have exercise prices not less than the fair value of common stock on the date of grant. In the case of restricted stock and restricted stock units, Section 162(m) requires that the general business criteria of any performance goals that are established by the Committee be approved (as they have been in the 2000 EIP) and periodically reapproved by stockholders in order for such awards to be considered performance-based and deductible by us. Generally, the performance goals must be established before the beginning of the relevant performance period. Furthermore, satisfaction of any performance goals during the relevant performance period must be certified by the Committee.
A participant who receives any accelerated vesting or exercise of options or stock appreciation rights or accelerated lapse of restrictions on restricted stock or restricted stock units in connection with a change in control might be deemed to have received an “excess parachute payment” under federal tax law. In such cases, the participant may be subject to an excise tax and we may be denied a tax deduction.
2000 EIP and 1997 NSOP Activity
2000 EIP. PTC’s stockholders have previously approved the issuance of 11,500,000 shares under the 2000 EIP. As of December 31, 2004, options exercisable for 8,818,572 shares were outstanding and 2,195,666 shares remained available for grant under the 2000 EIP. Under the 2000 EIP, we have to date granted stock options to purchase shares of common stock to the following persons or groups in the following amounts:
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1997 NSOP. As of December 31, 2004, under the 1997 NSOP, there were outstanding options exercisable for 39,101,803 shares and 18,940,057 shares remained available for grant.
The closing price of our common stock on December 31, 2004, as reported by the Nasdaq National Market, was $5.89.
The Proposal
Our Board of Directors has unanimously adopted a resolution seeking stockholder approval to amend PTC’sour Articles of Organization to effectchange the legal name of the company from “Parametric Technology Corporation” to “PTC” with an appropriate corporate indicator, such as “Corporation” or “Inc.”, selected by the Board. Accordingly, the name could be changed to “PTC Inc.”, “PTC Corporation” or a “reverse stock split” of PTC common stock in which every five outstanding
shares would be combined into two shares. This would result in no proportional change to any stockholder’s ownership of PTC (except to the extent of any resulting fractional share, as discussed below).similar name. If the stockholders approve this amendment to our Articles, the Board of Directors may, in its discretion, effect the reverse stock splitname change at any time before our 2006 Annual Meeting of Stockholders. The Board of Directors currently believes that a reverse stock split will be desirable for the Company and its shareholders. However, notwithstanding approval of this proposal by the stockholders, the Board of Directors may determine in its discretion that a reverse stock split is not in PTC’s best interests and may abandon it without further action by the stockholders.
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Reasons for the Proposed Reverse Stock SplitName Change
Since 2000, when we adopted PTC as the company brand, we have spent a significant amount of time and effort building the PTC brand. PTC is our registered trademark in the U.S. and other countries. However, our efforts to build and establish public awareness of the PTC brand are undermined because we are required to use our legal name in many situations. Changing our legal name to PTC will reinforce our efforts to build and establish the PTC brand.
When we named the company “Parametric Technology Corporation” in 1985, it reflected the significant advance made by PTC in the area of parametric CAD modeling with our Pro/ENGINEER® software solution. Since that time our business has evolved and we now offer solutions that enable our customers to create digital product content, collaborate with others in the product development process, control product content, automate product development processes, configure products and product content, and communicate product information to people and systems across the extended enterprise and the design, supply and services chain. In recognition of the fact that our business had become broader than parametric modeling, we adopted PTC as the company brand in 2000. We are now seeking to change the legal name of the company to reflect who we have been a public company quoted onbecome, the Nasdaq National Market since 1989. We had 270,489,479 shares of common stock outstanding as of January 3, 2005. This is significantly higher than the typical software company known as PTC.
Effect of our size and with a similar business model. Our Board of Directors believes that itthe Proposed Name Change
If effected, the name change will also cause PTC’s CUSIP number to change. (The CUSIP number is in the interest of our stockholders and PTC for us to have a number of shares outstanding that is comparableassigned to that of other widely owned public software companies. The Board of Directors also believes that an additional benefit of a reverse split may be to help bring our stock price in line with that of peer companies. A higher share price may enable us to attract additional institutional investors and investment funds whose investing guidelines would otherwise prohibit them from purchasing PTC stock. Our stockholders should also benefit from relatively lower trading costs for a higher priced stock. The combination of lower transaction costs and increased interest from institutional investors and investment funds can ultimately improve the trading liquidity of our common stock, which would benefit all stockholders. Reducing the number of shares outstanding would also reduce the Company’s costs associated with administering its stock plans.
In order to reduce the number of shares of PTC common stock outstanding (and thereby attempt to raisefacilitate identification of the per share price ofstock for trading purposes.)
Stockholders Holding PTC common stock proportionally),Stock in “Street Name.” Banks, brokers and other nominees will be instructed to effect the Board of Directors believes that it isname change and the CUSIP change in the best interestsaccounts of our stockholders for the Board to have the authority to implement a reverse stock split. When used in tandem with a program to reduce overhang and minimize the dilutive effect associated with future equity grants, a reverse stock split should be an effective way to improve PTC’s capital structure and in turn, benefit our existing shareholders.
If the stockholders approve this proposal, the reverse stock split will be effected, if at all, only upon a determination by the Board of Directors that the reverse stock split at a two-for-five ratio is in the best interests of the stockholders at that time. No further action on the part of stockholders will be required to either implement or abandon the reverse stock split. If the Board of Directors does not implement the reverse stock split before our 2006 Annual Meeting, the authority granted in this proposal will terminate.
Principal Effects of the Proposed Reverse Stock Split
If approved and effected, the reverse stock split would be effected simultaneously for all outstanding PTC common stock. The reverse stock split would affect all of PTC’s stockholders uniformly and will not affect any stockholder’s percentage ownership interest or proportionate voting power in PTC, except to the extent that the reverse stock split would otherwise result in any of PTC’s stockholders owning a fractional share. No fractional shares would be issued as a result of the reverse stock split. As described below, stockholders otherwise entitled to fractional shares as a result of the reverse stock split will be entitled to cash payments in lieu of such fractional shares. Such cash payments will reduce the number of post-reverse stock split stockholders to the extent there are current stockholders who would otherwise receive less than one share of PTC common stock after the reverse stock split. However, because the number of authorized shares of PTC common stock will not be reduced, the reverse stock split will increase the number of authorized and unissued shares that the Board of Directors may issue in the future without further stockholder action.
The principal effects of the reverse stock split will be that:
Effect on Stockholders with Post-Reverse Stock Split Fractional Shares. PTC stockholders will not receive fractional post-reverse stock split shares in connection with the reverse stock split. Instead, fractional shares would be addressed in one of the following ways, as determined by PTC in its discretion: (1) we will pay each stockholder otherwise entitled to a fractional share cash in an amount equal to such fraction multiplied by the value of the common stock on the effective date or (2) our transfer agent or a designated broker will aggregate all fractional shares and sell them as soon as practicable after the effective date at the then prevailing prices on the open market, on behalf of those holders who would otherwise be entitled to receive a fractional share. We expect that this sale would be conducted in an orderly fashion at a reasonable pace and that it may take several days to sell all of the aggregated fractional shares of common stock. After those sales are completed, each stockholder entitled thereto will receive a cash payment in an amount equal to the stockholder’s pro rata share of the total net proceeds of the sales. No transaction costs will be assessed on this sale. These cash proceeds will be subject to federal income tax. No interest will be paid for the period of time between the effective date of the reverse stock split and the date of payment for the cashed-out shares.
After the reverse stock split, a stockholder will have no further interest in PTC with respect to any cashed-out fractional share. A person otherwise entitled to a fractional interest will not have any voting, dividend or other rights, except to receive payment as described above.
NOTE: If you do not hold sufficient PTC shares in any given account to receive at least one share in the reverse stock split and you want to continue to hold PTC common stock after the reverse stock split, you may do so by taking either of the following actions far enough in advance so that it is completed by the effective date:
You should be aware that, under the escheat laws of the various jurisdictions where you reside, where PTC is domiciled, and where the funds will be deposited, sums due for fractional interests that are not timely claimed after the effective time may be required to be paid to the designated agent for each such jurisdiction. Thereafter, stockholders otherwise entitled to receive such funds may have to seek to obtain them directly from the state to which they were paid.
Effect on Registered and Beneficial Stockholders. Upon a reverse stock split, we intend to treat stockholderstheir customers holding PTC common stock in “street name” (i.e., through a bank, broker or other nominee) in the same manner as registered stockholders whose shares are registered in their names. Banks, brokers or other nominees will be instructed to effect the reverse stock split in the accounts of their customers holding PTC common stock in street name. However, such banks, brokers or other nominees may have different procedures than registered stockholders for processing the reverse stock split. If you hold your shares with such a bank, broker or other nominee and if you have any questions in this regard, we encourage you to contact your nominee..
Registered Stockholders.Registered stockholders who hold all their shares in certificate form will receive a transmittal letter from our transfer agent after the effective date of the reverse stock split. The letter of transmittal will contain instructions on howare not required to surrender your certificate(s) representing your pre-reverse stock split shares to the transfer agent. Upon receipt of your stock certificate youdo anything; new certificates will be issued when the old certificates are surrendered in connection with a new certificate for the appropriate number of post-reverse stock split shares. You may still sell your shares and deliver your old stock certificate to a broker even if you have not yet exchanged it for a new certificate.
STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY CERTIFICATE(S) UNTIL REQUESTED TO DO SO.
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Effect on Authorized SharesStockholders should not destroy their stock certificate(s) and should not submit any certificate(s) to us.. The reverse stock split would affect all issued and outstanding shares of PTC common stock and outstanding rights to acquire PTC common stock. Upon the effectiveness of the reverse stock split, the total number of authorized shares would not change and the number of authorized shares of PTC common stock that are not outstanding would increase due to the reduction in the number of shares of PTC common stock outstanding. As of January 3, 2005, we had 500,000,000 authorized shares of common stock, of which 270,489,479 shares were issued and outstanding. Following the reverse stock split we will continue to have 5,000,000 authorized shares of preferred stock, none of which are currently outstanding. Authorized but unissued shares are available for issuance by the Board of Directors, and we may issue such shares in the future. If we issue additional shares, the ownership interest of holders of PTC common stock will be diluted.
Procedure for Effecting Reverse Stock Splitthe Name Change
If the stockholders approve this proposal, and the Board of Directors decidesintends to implement the reverse stock split at any time before our 2006 Annual Meeting,name change. To do so, we will file Articles of Amendment with the Secretary of the Commonwealth of the Commonwealth of Massachusetts to amend Article 1 of PTC’s current Articles of Organization.Organization to state the new name. The reverse stock splitname change will become effective on the date of filing the Articles of Amendment, which is referred to asAmendment. However, notwithstanding approval of this proposal by the “effective date.” Beginning on the effective date, each certificate representing pre-reverse stock split shares will be deemed for all corporate purposes to evidence ownership of post-reverse stock split shares (less any fractional shares, as described above).
Accounting Matters
The reverse stock split will not affect the par value of PTC common stock. As a result, as of the effective time of the reverse stock split, the aggregate par value of PTC common stock on its balance sheet will be reduced in proportion to the reverse stock split ratio and the additional paid-in capital account will be increased by a corresponding amount. The per-share net income or loss and net book value of PTC common stock will be changed because there will be fewer shares of PTC’s common stock outstanding. In addition, the historical amounts of net income or loss per common share previously reported by PTC, as well as all reference to common stock share amounts, will be restated to reflect the reverse stock split as if it had been in effect as of the earliest reported period.
Certain Risk Factors Associated with the Proposed Reverse Stock Split
There can be no assurance that the total market capitalization of PTC common stock (the aggregate value of all PTC common stock at the then market price) after the proposed reverse stock split will be equal to or greater than the total market capitalization before the proposed reverse stock split or that the per share market price of PTC common stock following the reverse stock split will increase in proportion to the reduction in the number of shares of PTC common stock outstanding before the reverse stock split. For example, based on the closing market price of PTC common stock on January 3, 2005 of $5.66 per share, ifstockholders, the Board of Directors decided to implement the reverse stock split, there can be no assurancemay subsequently determine in its discretion that the post-split market price of PTC common stock would be $14.15 per share or greater. Accordingly, the total market capitalization of PTC common stock after the proposed reverse stock split may be lower than the total market capitalization before the proposed reverse stock split and,changing our name is not in the future, the market price of PTC common stock following the reverse stock split may not exceed or remain higher than the market price before the proposed reverse stock split.
A decline in the market price of PTC common stock after the reverse stock split may result in a greater percentage decline than would occur in the absence of a reverse stock split, and the liquidity of PTC common stock could be adversely affected following such a reverse stock split. The market price of PTC common stock will, however, also be based on PTC’s performance and other factors, which are unrelated to the number of shares outstanding.
A reverse stock split would increase the number of stockholders who own odd lots (less than 100 shares), potentially increasing their trading costs. Stockholders who hold odd lots typically incur higher costs to sell their sharesbest interests and may have greater difficulty in effecting sales.
The reverse stock split may have an anti-takeover effect. The increased proportion of authorized and unissued shares to outstanding shares could, in certain circumstances, have an anti-takeover effect. For example, it would permit issuances that would diluteabandon the stock ownership of a person seeking to effect a change inproposal without further action by the composition of the Board of Directors or contemplating a tender offer or other transaction for the combination of PTC with another company. However, the reverse stock split proposal is not being proposed in response to any effort of which we are aware to accumulate shares of PTC’s common stock or obtain control of PTC, nor is it part of a plan by management to recommend to the Board of Directors and stockholders a series of amendments to our Articles of Organization to address takeover concerns. Other than the reverse stock split proposal, the Board of Directors does not currently contemplate recommending the adoption of any other amendments to our Articles of Organization that could be construed to affect the ability of third parties to take over or change the control of PTC.
stockholders.
No Appraisal RightsBoard Recommendation
Under the Massachusetts Business Corporation Act, our stockholders are not entitled to appraisal rights with respect to the reverse stock split, and we will not independently provide stockholders with any such right.
Federal Income Tax Consequences of the Reverse Stock Split
The following summary of certain material United States federal income tax consequences of the reverse stock split does not purport to be a complete discussion of all of the possible federal income tax consequences of the reverse stock split and is included for general information only. Furthermore, it does not address any state, local or foreign income or other tax consequences. Also, it does not address the tax consequences to holders that are subject to special tax rules, such as banks, insurance companies, regulated investment companies, personal holding companies, foreign entities, nonresident alien individuals, broker-dealers and tax-exempt entities. The discussion is based on the provisions of the United States federal income tax law as of the date hereof, which is subject to change retroactively as well as prospectively. This summary also assumes that the pre-reverse stock split shares were, and the post-reverse stock split shares will be, held as a “capital asset,” as defined in the Tax Code (i.e., generally, property held for investment). The tax treatment of any stockholder may vary depending upon the particular circumstances of such stockholder. Each stockholder is urged to consult with such stockholder’s own tax advisor with respect to the tax consequences of the reverse stock split.
Other than the cash payments for fractional shares discussed below, no gain or loss should be recognized by a stockholder upon such stockholder’s exchange of pre-reverse stock split shares for post-reverse stock split shares pursuant to the reverse stock split. The aggregate tax basis of the whole post-reverse stock split shares received in the reverse stock split will be the same as the stockholder’s aggregate tax basis in the pre-reverse stock split shares exchanged therefor, less the portion of the basis in the pre-reverse stock split shares attributable to any fraction of a post-reverse stock split share for which the stockholder received cash. In general, stockholders who receive cash in exchange for their fractional share interests in the post-reverse stock split shares as a result of the reverse stock split will recognize gain or loss based on their adjusted basis in the fractional share interests redeemed. The stockholder’s holding period for the post-reverse stock split shares will include the period during which the stockholder held the pre-reverse stock split shares surrendered in the reverse stock split.
The receipt of cash instead of a fractional share of PTC common stock by a United States holder of PTC common stock will result in a taxable gain or loss to such holder for federal income tax purposes based upon the difference between the amount of cash received by such holder and the adjusted tax basis in the fractional shares as set forth above. The gain or loss will constitute a capital gain or loss and will constitute long-term capital gain or loss if the holder’s holding period is greater than one year as of the effective date. Our view regarding the tax consequences of the reverse stock split is not binding on the Internal Revenue Service or the courts.ACCORDINGLY, YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISOR WITH RESPECT TO ALL OF THE POTENTIAL TAX CONSEQUENCES TO YOU OF THE REVERSE STOCK SPLIT.
Recommendation of Board of Directors
The Board of Directors recommends athat you voteFOR the proposal to amend PTC’s Articles of Organization to effect a reverse stock split at a two-for-five ratio.name change from “Parametric Technology Corporation” to “PTC” with an appropriate corporate indicator selected by the Board.
The fourth proposal on the agenda for the Annual Meeting will beWe are asking stockholders to confirm the appointmentselection by the Audit Committee of the Board of Directors of PricewaterhouseCoopers LLP, an independenta registered public accounting firm, as PTC’s independent registered public accounting firm for the fiscal year ending September 30, 2005. 2012.
PricewaterhouseCoopers LLP served as our independent auditorsauditor for the fiscal year ended September 30, 2004. Further information2011. Information about PricewaterhouseCoopers LLP appears under “Information about ourOur Independent Registered Public Accounting Firm” on page 32.Firm.” Although stockholder confirmation of the selection of PricewaterhouseCoopers LLP is not required by law or our by-laws, and although this vote will not be binding on PTC, the Board of Directors believes that it is advisable to give stockholders an opportunity to provide guidance on this selection. In the eventIf this confirmation is not received, the Board will request that the Audit Committee will reconsider theits selection of PricewaterhouseCoopers LLP.
The Board of Directors recommends that youCONFIRM the selection of PricewaterhouseCoopers LLP as PTC’s independent registered public accounting firm.
The Board of Directors does not know of any other matters that may come before the meeting. However, if any other matters are properly presented to the Annual Meeting, the persons named in the accompanying voting instruction form will vote, or otherwise act, in accordance with their judgment on such matters.
INFORMATION ABOUT THE DIRECTORS
Our Board of Directors is divided into three classes with staggered three-year terms. There are currently two Class I directors, two Class II directors and three Class III directors, whose terms expire, respectively, at the 2006, 2007 and 2005 Annual Meetings of Stockholders. The Class III directors, who are described on page 3, are nominated for re-election at this Annual Meeting. The Class I and II directors will continue in office following the Annual Meeting. The following table contains information about each of the Class I and II directors. You will find information on director holdings of PTC stock in the section called “How Much Stock is Owned by Directors and Officers?” beginning on page 23.
Name, Age, Principal Occupation, Business Experience and Directorships | Director Since | Term Expires | ||
Class I Directors: | ||||
Donald K. Grierson, age 70 Director of ABB Vetco International. Mr. Grierson was Chief Executive Officer and President of ABB Vetco Gray, Inc., an oil services business, from 1991 to 2004. In addition to CEO and President, Mr. Grierson also served as Executive Director of ABB Vetco Gray, Inc., beginning March 2001. | 1987 | 2006 | ||
Oscar B. Marx, III, age 66 Non-Executive Chairman of the Board of Amerigon Incorporated, a high technology automotive component supplier, since March 2003. Mr. Marx served as Chief Executive Officer and Chairman of the Board of Amerigon Incorporated from October 2001 to March 2003. Mr. Marx also was Chief Executive Officer and President of TMW Enterprises, a private automotive investment firm, from July 1995 to February 2002, and since that date has been Vice President, Automotive Sector, and was a Director until December 2002. Director of Amerigon Incorporated and Tesma International, Inc. | 1995 | 2006 | ||
Class II Directors: | ||||
Michael E. Porter, age 57 Bishop William Lawrence University Professor at Harvard Business School. Professor Porter has been a Professor at Harvard Business School since 1973 and has been a University Professor since 2001. Director of Thermo Electron Corporation and Inforte Corporation. | 1995 | 2007 | ||
Noel G. Posternak, age 68 Chairman of the Board of Directors of PTC since June 2000. Senior Partner in the law firm of Posternak, Blankstein & Lund, L.L.P. since 1980, practicing in the area of business law and mergers and acquisitions. Director of TA Associates Realty Funds. | 1989 | 2007 | ||
All of our directors except Mr. Harrison, our President and Chief Executive Officer, and Professor Porter are “independent directors” as defined in the Nasdaq National Market listing standards.
Certain Relationships and Transactions
Mr. Harrison and Paul J. Cunningham, PTC’s Executive Vice President, Worldwide Sales, are first cousins.
Cornelius F. Moses, PTC’s Executive Vice President and Chief Financial Officer was an executive officer of Bradlees, Inc. within two years of its bankruptcy filing in January 2001.
Board Meetings and Attendance at the Annual Meeting
PTC’s Board currently schedules five regular meetings during each fiscal year, but will meet more often if necessary. The Board met eight times during fiscal 2004. We expect that each director will attend the Annual Meeting of Stockholders each year, barring other significant commitments or special circumstances. All directors then in office attended the 2004 Annual Meeting of Stockholders.
Stockholders may send communications to the Board of Directors in the manner described on the Investor Relations page at our web site (at www.ptc.com).
The Board has three standing committees: the Audit Committee, the Compensation Committee and the Nominating & Corporate Governance Committee.
The Audit Committee
The Audit Committee examines our accounting processes, reviews our financial disclosures, and meets with the independent auditors (including meeting privately, outside the presence of PTC management) to discuss our financial reporting policies and procedures and our internal controls. The Committee reports on such matters to our Board of Directors. In this connection, the Committee is directly responsible for the appointment (and where appropriate, replacement), evaluation and compensation of the work of the independent auditors. The Committee reviews the performance of the independent auditors in the annual audit and in assignments unrelated to the audit, assesses the independence of the auditors, and reviews their fees. At least once every three years, the Committee will evaluate the independent auditors’ tenure, the quality of their engagements and the associated costs to determine if independent auditor rotation is advisable.
The Committee is also responsible for pre-approving non-audit related services that may be performed by the independent auditors and for reviewing our internal controls over financial reporting and disclosure.
The Audit Committee operates under a written charter adopted by the Board of Directors (a copy of which is included as an Appendix A to this proxy statement and is available on our web site at www.ptc.com).
Messrs. Goldman, Marx (Chairman), and Posternak currently serve as members of the Audit Committee. All committee members are “independent directors” under both SEC rules and the listing requirements of the Nasdaq National Market governing the qualifications of members of the Audit Committee, and none of them has ever been an employee of PTC or any subsidiary. During fiscal 2004, the Audit Committee included at least one member who qualified as an Audit Committee Financial Expert, as defined by the SEC. That person was Oscar B. Marx, Chairman of the Audit Committee.
The Audit Committee met twelve times during fiscal 2004. The Committee’s report for 2004 appears on page 33.
The Compensation Committee
The Compensation Committee establishes the compensation levels for PTC’s executive officers (including granting stock options and other equity awards to executive officers) and oversees employee compensation programs, including PTC’s bonus programs and its equity incentive, stock option and employee stock purchase plans. The Committee acts under a written charter, which is available on our web site at www.ptc.com. Each year, the Committee reports to you on executive compensation. The Committee’s report for fiscal 2004 appears on pages 27 to 28.
Messrs. Goldman (Chairman) and Grierson currently serve as members of the Compensation Committee. Both Messrs. Goldman and Grierson qualify as “independent directors” under the Nasdaq National Market listing requirements. This committee met six times during fiscal 2004.
The Nominating & Corporate Governance Committee
The Nominating & Corporate Governance Committee is appointed by the Board to assess Board membership needs, make recommendations regarding potential candidates for election to the Board of Directors and membership on committees of the Board of Directors, develop and recommend policies and processes regarding corporate governance matters and maintain a CEO succession plan in order to ensure continuity of leadership for PTC. The Committee acts under a written charter, which is available on our web site at www.ptc.com. Further information about the operation of the Committee appears on page 35.
Messrs. Posternak (Chairman), Goldman and Grierson currently serve as members of the Nominating & Corporate Governance Committee. All Committee members qualify as “independent directors” under the Nasdaq National Market listing requirements. The committee met twice during fiscal 2004.
How We Compensate Our Directors
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Information About Certain Insider Relationships
Professor Michael E. Porter has a consulting arrangement with PTC under which he aids in the development of and participates in a series of executive management seminars sponsored by PTC. In fiscal 2004, Mr. Porter participated in one executive management seminar and received a $15,000 fee.
INFORMATION ABOUT PTC COMMON STOCK OWNERSHIP
Which Stockholders Own at Least 5% of PTC?
The following table shows all persons we know to be beneficial owners of at least 5% of PTC common stock as of November 30, 2004. “Beneficial owners” of PTC common stock are those who have the power to vote or to sell that stock. Our information is based in part on reports filed with the SEC by the firms listed in the table below. If you wish, you may obtain these reports from the SEC.
| Number of Shares Beneficially Owned(1) | Percentage of Common Stock Outstanding(2) | |||
Merrill Lynch & Co., Inc. (3) World Financial Center, 250 Vesey Street New York, NY 10381 | 38,740,928(3) | 14.3% | ||
Mellon Financial Corporation (4) One Mellon Center Pittsburgh, Pennsylvania 15258 | 19,543,417(4) | 7.2% | ||
Cooke & Bieler, L.P. (5) 1700 Market Street, Suite 3222 Philadelphia, PA 19103 | 16,718,709(5) | 6.2% | ||
The footnotes for this table appear below the next table.
How Much Stock is Owned by Directors and Officers?
The following table shows the PTC common stock beneficially owned by PTC’s directors and the executive officers named in the Summary Compensation Table, as well as all current directors and executive officers as a group, as of November 30, 2004.
| Number of Shares Beneficially Owned(1)(6) | Percentage of Common Stock Outstanding(2) | |||
Robert N. Goldman | 267,500 | * | ||
Donald K. Grierson | 207,500 | * | ||
Oscar B. Marx, III (7) | 291,350 | * | ||
Joseph M. O’Donnell | 0 | * | ||
Michael E. Porter | 777,400 | * | ||
Noel G. Posternak | 462,500 | * | ||
C. Richard Harrison (8) | 6,802,673 | 2.46% | ||
Barry F. Cohen | 1,481,046 | .54% | ||
Paul J. Cunningham | 1,612,836 | .59% | ||
Anthony DiBona (9) | 437,044 | * | ||
James E. Heppelmann | 1,631,216 | .60% | ||
Cornelius F. Moses (10) | 185,000 | * | ||
All directors, nominees for director, and current executive officers as a group (13 persons) | 14,290,581 | 5.04% |
* Less than 1% of outstanding shares of common stock.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires that our insiders—our directors, executive officers and 10%-or-greater stockholders—file reports with the SEC on their initial beneficial ownership of PTC common stock and any subsequent changes (in this case, “beneficial ownership” means a pecuniary interest in the shares). They must also provide us with copies of the reports.
On September 3, 2004, Michael E. Porter, a member of the Board of Directors, filed an SEC Form 4 reporting the disposition by a broker-managed account maintained on his behalf of 240 shares of common stock in 2002. On March 4, 2004, Tony DiBona, our Executive Vice President, Global Maintenance Services, filed an SEC Form 3/A amending his direct ownership of common stock to include 6,855 shares omitted from his original SEC Form 3 filing. Based on our review of all reports furnished to us, we believe that all of our insiders filed on a timely basis all other reports required by Section 16(a) for fiscal 2004.
INFORMATION ABOUT EXECUTIVE COMPENSATION
The tables on pages 25 through 26 show salaries, bonuses and other compensation paid for the last three fiscal years, options granted in fiscal 2004, options exercised in fiscal 2004 and option values as of year-end fiscal 2004 for the Chief Executive Officer and our five other most highly compensated executive officers.
Name and Principal Position | Year | Long-Term Compensation Awards | All Other Compen- sation($)(4) | ||||||||||
| Annual Compensation | Restricted Stock Awards($) | Shares Underlying Options(#) | |||||||||||
| Salary($)(1) | Bonus($)(2) | ||||||||||||
C. Richard Harrison Chief Executive Officer and President | 2004 2003 2002 | 500,000 500,000 400,000 | 700,000 387,500 455,000 | 800,000 1,300,000 600,000 | 6,150 6,000 5,750 | ||||||||
Barry F. Cohen Executive Vice President, Strategic Services and Partners | 2004 2003 2002 | 400,000 400,000 275,000 | 150,000 167,500 211,250 | 300,000 700,000 400,000 | 0 0 1,308 | ||||||||
Paul J. Cunningham Executive Vice President, Worldwide Sales | 2004 2003 2002 | 400,000 335,000 275,000 | 150,000 235,911 174,505 | 300,000 700,000 400,000 | 6,150 6,000 5,750 | ||||||||
Anthony DiBona Executive Vice President, Global Maintenance Services | 2004 2003 2002 | 325,000 272,548 250,000 | 500,000 250,367 219,478 | 175,000 175,000 100,000 | 6,150 6,000 5,750 | ||||||||
James E. Heppelmann Executive Vice President and Chief Product Officer | 2004 2003 2002 | 478,000 478,000 347,000 | 300,000 167,500 211,250 | 1,275,000 | (3) | 300,000 700,000 400,000 | 6,150 0 5,750 | ||||||
Cornelius F. Moses (5) Executive Vice President and Chief Financial Officer | 2004 2003 2002 | 400,000 123,077 0 | 400,000 167,500 0 | 300,000 700,000 0 | 6,150 0 0 | ||||||||
| Individual Grants | Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term(3) | |||||||||||
Number of Shares Underlying Options | Percentage of Total Options in Fiscal | Exercise Price Per Share($) | Expiration Date(2) | |||||||||
Name | 5%($)(4) | 10%($)(4) | ||||||||||
C. Richard Harrison | 800,000 | 10.9 | 4.59 | 3/3/2014 | 2,309,301 | 5,852,222 | ||||||
Barry F. Cohen | 300,000 | 4.1 | 4.59 | 3/3/2014 | 865,988 | 2,194,583 | ||||||
Paul J. Cunningham | 300,000 | 4.1 | 4.59 | 3/3/2014 | 865,988 | 2,194,583 | ||||||
Anthony DiBona | 175,000 | 2.4 | 4.59 | 3/3/2014 | 505,160 | 1,280,174 | ||||||
James E. Heppelmann | 300,000 | 4.1 | 4.59 | 3/3/2014 | 865,988 | 2,194,583 | ||||||
Cornelius F. Moses | 300,000 | 4.1 | 4.59 | 3/3/2014 | 865,988 | 2,194,583 | ||||||
Exercise Price per Share($) | Prices at: | Percentage Increases at: | ||||||||
Date of Grant | 5%($) | 10%($) | 5% | 10% | ||||||
3/3/2004 | 4.59 | 7.48 | 11.91 | 63 | 159 | |||||
Aggregated Option Exercises During Fiscal 2004 and Year-End Option Values
| Shares Acquired on Exercise(#) | Value Realized($)(1) | Number of Shares Underlying Unexercised Options at FY-End(#) | Value of Unexercised In- the-Money Options at FY-End($)(2) | |||||
Name | Exercisable/Unexercisable | Exercisable/Unexercisable | ||||||
C. Richard Harrison | 0 | 0 | 6,416,007/ 2,233,333 | 1,920,334/ 4,236,666 | ||||
Barry F. Cohen | 0 | 0 | 1,681,046/ 1,116,666 | 1,155,169/ 2,231,831 | ||||
Paul J. Cunningham | 80,000 | 186,264 | 1,675,336/ 1,124,166 | 891,969/ 2,231,831 | ||||
Anthony DiBona | 0 | 0 | 436,042/ 378,333 | 217,647/ 493,353 | ||||
James E. Heppelmann | 0 | 0 | 1,372,734/ 1,141,666 | 1,331,703/ 2,231,831 | ||||
Cornelius F. Moses | 0 | 0 | 175,000/ 825,000 | 343,000/ 1,236,000 | ||||
Report of the Compensation Committee
Executive Compensation Programs
Our executive compensation programs consist of three principal elements: base salary, cash bonus and equity incentive awards. We provide no special perquisites to our executives. Our objective traditionally has been to emphasize incentive compensation in the form of cash bonuses and stock option grants, rather than base salary. The Compensation Committee has determined that its focus going forward will be to establish broader executive compensation policies and to annually determine an appropriate mix of base salary, bonus and long-term incentive compensation for executive officers that serves to further those policies. Equity compensation will be used to promote both near- and longer-term corporate performance goals. We anticipate that restricted stock grants will play a larger role than the stock options we have historically used, since these awards involve issuing fewer shares than stock options to deliver similar value and, compared to stock options, they help to reduce overhang and potential stockholder dilution and to reduce expense. In addition, restricted stock grants continue to provide an incentive even if the stock price declines.
The Committee sets the annual base salary for executives after reviewing their historical compensation levels, evaluating past performance and assessing their expected future contributions. In setting base salaries, the Compensation Committee considers generally available information regarding salaries prevailing in the industry but does not tie salaries to any particular indices.
We maintain incentive plans under which executive officers (including the Chief Executive Officer) are paid cash bonuses after the end of each fiscal year. Payments of bonuses under the incentive plans are dependent on our achievement of certain financial targets established by our Board of Directors at the beginning of each fiscal year. A portion of these bonuses may from time to time also be based on individual performance goals. The Committee’s goal is to set both corporate-wide financial performance targets and specific metrics aligned with the executive’s functional area to provide the right mix of incentives to achieve desired results.
For the fiscal 2004 plan, the Committee designated for each officer a target cash bonus amount and initial thresholds for both expense and operating profit to be met by PTC in fiscal 2004 in order for any portion of the bonus to be paid. The executive officers designated to participate in the plan were: C. Richard Harrison, Chief Executive Officer and President; Barry F. Cohen, Executive Vice President, Strategic Services and Partners; Paul J. Cunningham, Executive Vice President, Worldwide Sales; Anthony DiBona, Executive Vice President, Global Maintenance Services; James E. Heppelmann, Executive Vice President and Chief Product Officer; and Cornelius F. Moses, Executive Vice President and Chief Financial Officer.
Under the plan, an officer’s target bonus was split into two halves. The Committee determined that no bonus would be paid unless PTC met designated operating expense and operating profit thresholds (the “Minimum Performance Thresholds”), whereupon the officer would be eligible for a payout of 50% of the officer’s target bonus. In addition to meeting the Minimum Performance Thresholds, payment of the second 50% of the target bonus was: for the Chief Executive Officer, contingent upon PTC meeting certain revenue targets; for the Chief Financial Officer, contingent upon PTC meeting certain expense targets; and for the remaining officers, contingent upon the officer’s particular division meeting one or more additional revenue targets. The plan also provided for upside bonus payments in the event the targets set for a particular officer were exceeded.
In fiscal 2004, the Minimum Performance Thresholds were met and, accordingly, all officers received the first 50% of their target bonuses. With respect to the second 50% of the officers’ bonuses, targets were met or
exceeded by five of the six participating officers, including the Chief Executive Officer and, accordingly, the second 50% of the cash bonus was paid to these executive officers. Two of these executive officers also received upside bonus payments based on exceeding their respective targets.
Total fiscal 2004 compensation for executive officers also included long-term incentives in the form of stock options that become exercisable in four annual installments subject to the executive’s continued employment with PTC. Equity incentives are instrumental in promoting the alignment of long-term interests between our executive officers and stockholders due to the fact that gains are directly correlated with increases in our stock price and long-term service by the executive. In making such awards, the Committee considered the contributions of each executive to our overall performance, the responsibilities to be assumed in the upcoming fiscal year, and awards to other executives in the industry holding comparable positions, as well as the executive’s position within PTC. As has been our practice, the Committee fixed the exercise price of the 2004 options at 100% of the fair market value of our common stock on the date of grant.
Compensation Deductibility
Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), imposes a limit on tax deductions for annual compensation in excess of one million dollars paid by a corporation to its chief executive officer and the other four most highly compensated executive officers of the corporation. This provision excludes certain forms of “performance based compensation,” including stock options, from the compensation taken into account for the purposes of that limit. The Committee believes that, although it is desirable for executive compensation to be tax deductible whenever in the Committee’s judgment that would be consistent with the objectives pursuant to which the particular compensation is paid, we should compensate our executive officers fairly in accordance with the guidelines discussed in this report and not be unduly limited by the anticipated tax treatment. Accordingly, the total compensation paid to an executive officer in any year may exceed the amount that is deductible. The Compensation Committee will continue to assess the impact of Section 162(m) of the Code on its compensation practices and determine what further action, if any, is appropriate.
Chief Executive Officer Compensation
For fiscal 2004, Mr. Harrison was awarded a $700,000 cash bonus, which represents 58% of his total cash compensation (base salary plus bonus). The bonus was earned based upon our achievement of revenue and expense targets established at the beginning of the fiscal year, as described above. In fiscal 2004, the Board of Directors granted Mr. Harrison options to purchase 800,000 shares of PTC’s common stock (exercisable in four equal annual installments and with an exercise price equal to the market value of our common stock on the date of grant). The amount of these option grants reflects Mr. Harrison’s overall contributions to PTC, including his efforts in positioning PTC for future growth and reducing its cost structure, and his anticipated future contributions, as well as the factors applicable to executive officers generally described above. At the start of fiscal 2005, Mr. Harrison’s performance was evaluated and his compensation determined in accordance with the factors described above applicable to executive officers generally. Mr. Harrison’s base salary was increased to $520,000 for fiscal 2005, representing a 4% increase from the fiscal 2003 and fiscal 2004 levels of $500,000. His target bonus remained unchanged at the 2004 level, while new performance targets were set for fiscal 2005.
Compensation Committee
Robert N. Goldman, Chairman
Donald K. Grierson
The following Stock Performance Graph compares the cumulative stockholder return on our common stock from September 30, 1999 to September 30, 2004 with the cumulative total return of the S&P 500 Index, the Nasdaq (U.S. Companies) Index and the Nasdaq Computer & Data Processing Index over the same period. The Stock Performance Graph assumes that the value of the investment in PTC common stock and each of the comparison groups was $100 on September 30, 1999, and assumes the reinvestment of dividends. We have never declared a dividend on our common stock. The stock price performance depicted in the graph below is not necessarily indicative of future price performance.
| 9/30/99 | 9/29/00 | 9/28/01 | 9/30/02 | 9/30/03 | 9/30/04 | |||||||
Parametric Technology Corporation (PTC) | 100.00 | 81.02 | 38.44 | 13.33 | 23.33 | 39.11 | ||||||
S&P 500 Index (S&P 500) | 100.00 | 113.28 | 83.13 | 66.10 | 82.22 | 93.63 | ||||||
Nasdaq (U.S. Companies) Index | 100.00 | 159.86 | 56.32 | 49.18 | 58.43 | 65.37 | ||||||
Nasdaq Computer & Data Processing Index (NC&D) | 100.00 | 133.05 | 50.85 | 39.56 | 55.97 | 63.65 |
Employment Agreements with Executive Officers
Agreement with Mr. Harrison
Mr. Harrison has an agreement that provides him with certain benefits in the event of a termination of his employment under certain circumstances and upon the occurrence of certain events. If we elect to terminate his employment (other than for “Cause,” as defined in the agreement) or effect a “Change in Status” (which, as defined in the agreement, includes a diminution in title, responsibilities or compensation), we must give him eighteen months’ prior notice and:
The agreement also provides that effective upon (i) a Change in Control (as described below), or (ii) Mr. Harrison’s death or disability: (A) all outstanding stock options and SARs held by Mr. Harrison shall immediately become exercisable in full, (B) all restrictions applicable to restricted stock held by Mr. Harrison shall immediately lapse, and (C) all other criteria for vesting of any award granted under any PTC stock plan and held by Mr. Harrison shall be deemed to have been met, notwithstanding any vesting schedule or other provisions to the contrary in the agreements evidencing such stock options, SARs, restricted stock or other award. A “Change in Control,” which is defined in the agreement, generally includes (a) any person or entity becoming the beneficial owner of 50% or more of the voting power of PTC, (b) a change in a majority of our directors, (c) a merger or consolidation in which our stockholders do not have majority voting power of the surviving entity, or (d) the approval by the stockholders of our liquidation or a sale or disposition of all or substantially all of our assets.
Agreements with other Executive Officers Listed in the Summary Compensation Table
PTC has entered into similar agreements with Messrs. Cohen, Cunningham, DiBona, Heppelmann, and Moses, which provide that (i) in the event we terminate their employment without Cause, or effect a Change in Status following a Change in Control of PTC, they are entitled to receive, during the twelve-month period following notice of termination (or until such earlier date as they commence employment with another company), a salary at a rate equal to the highest annual salary (excluding bonuses) received in the prior six months.
The Agreements further provide that, in the event of a Change in Control (i) all outstanding stock options and SARs held by the executive shall immediately become exercisable in full, (ii) all restrictions applicable to restricted stock held by the executive shall immediately lapse, and (iii) all other criteria for vesting of any award granted under any PTC stock plan and held by the executive shall be deemed to have been met, notwithstanding any vesting schedule or other provisions to the contrary in the agreements evidencing such stock options, SARs, restricted stock or other award.
The following table sets forth information regarding our equity compensation plans as of September 30, 2004:
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans | ||||||
Equity compensation plans approved by security holders | 25,763,738 | $ | 10.30 | 10,418,673 | (1) | ||||
Equity compensation plans not approved by security holders | 40,270,367 | (2) | $ | 9.30 | 18,445,337 | ||||
Total | 66,034,105 | (2) | $ | 9.69 | 28,864,010 | (1) | |||
Non-Stockholder Approved Plan
PTC maintains the 1997 Non-Statutory Stock Option (the “Plan”). The purpose of the Plan is to attract and retain key employees and consultants of PTC and our majority-owned subsidiaries, to provide an incentive for them to achieve long-range performance goals and to enable them to participate in our long-term growth. Our employees and consultants, and those of any of our majority-owned subsidiaries, capable of contributing significantly to the successful performance of PTC are eligible for option awards under the Plan. Our officers and directors are not eligible to participate in the Plan. Options granted under the Plan may only be stock options that arenot intended to be “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended.
The Plan is administered by the Committee. Subject to the provisions of the Plan, the Committee has the authority to select the employees and consultants to whom options are granted and determine the terms of each option, including the amount, exercise price, vesting schedule (generally in four equal annual installments on each of the first four anniversaries of the date of grant) and term, which may not exceed ten years. The per share exercise price of an option must be at least 100% of the fair market value of our common stock on the date of grant.
Options generally are exercisable only during an optionee’s term of employment or engagement as a consultant and for a period of between ten and ninety days after that term ends. In the case of termination as a result of death
or permanent disability, options generally are exercisable thereafter for twelve months; in the case of termination as a result of retirement, options generally are exercisable thereafter for three months. During the lifetime of the optionee, his or her option is exercisable only by him or her and is not transferable except by will or by the laws of descent and distribution.
The Committee may act to preserve an optionee’s rights under an option in the event of a change in control of PTC by (i) accelerating any time period relating to the exercise of the option, (ii) providing for compensating payments to the optionee, (iii) adjusting the terms of the option to reflect the change in control, (iv) causing the option to be assumed by another entity, or (v) making any other provision that the committee may consider equitable to optionees and in the best interests of PTC. Unless otherwise determined by the Board, stock options held by Senior Vice President and Vice President level employees become exercisable in full if, within one year following a change in control of PTC, such employee’s employment is terminated without cause, by the employee due to a Change in Status, or due to his or her death or partial or total disability.
The Board of Directors may amend, suspend or terminate the Plan or any portion thereof at any time. The Committee may amend, modify or terminate any outstanding award with the respective optionee’s consent unless the amendment would not materially and adversely affect the optionee in which case, consent is not required. However, the Committee may not, without stockholder approval, amend any outstanding option to reduce the exercise price at any time during the term of such option.
Plans Assumed in Connection with a Merger or Other Acquisition Transaction
PTC has also assumed stock options under certain equity plans of acquired companies. These plans are all inactive and no future options may be granted under them. The plans are all substantially similar to the Plan, discussed above, except that certain of the options outstanding are “incentive stock options” within the meaning of Section 422 of the Code.
INFORMATION ABOUT OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP, an independent registered public accounting firm, served as PTC’s independent auditors for fiscal 2004 and has reported on our 2004 consolidated financial statements. The Audit Committee of the Board of Directors has re-appointed PricewaterhouseCoopers LLP for fiscal year 2005 and, as described above, the Board is seeking your confirmation of PricewaterhouseCoopers LLP’s appointment. Representatives of PricewaterhouseCoopers LLP are expected to be present at our Annual Meeting. They will have the opportunity to make a statement if they so desire and will also be available to respond to appropriate questions from stockholders.
The Board of Directors does not know of any other matters to come before the meeting. If any other matters are properly presented to the Annual Meeting, the persons named in the voting instruction or proxy card will vote, or otherwise act, in accordance with their judgment on such matters.
ReportINFORMATION ABOUT OUR DIRECTORS AND OUR BOARD
Our Board of Directors is divided into three classes with staggered three-year terms. Messrs. Grierson, Heppelmann and Zambonini have been nominated for reelection as Class I directors at this Annual Meeting as described on page 4. The Class II and III directors named in the table below will continue in office following the Annual Meeting. Information about director holdings of PTC stock is set forth in “Stock Owned by Directors and Officers” on page 23.
Class II Directors | Director Since | Term Expires | ||||||
Thomas F. Bogan, age 60 | 2011 | 2013 | ||||||
Venture Partner of Greylock Partners, a venture capital firm, since January 2010, and a Partner of Greylock Partners from May 2004 to December 2009. Prior to that, Mr. Bogan was President of Rational Software Corporation, an S&P 500 enterprise software company, from 2000 to 2003, and Chief Operating Officer of Rational Software Corporation from 1999 to 2000. Mr. Bogan also serves as Chairman of the Board of Directors of Citrix Systems, Inc.
As a result of his experience at Rational Software, Mr. Bogan has demonstrated significant leadership and operational experience in the software industry. In addition, his experience at Rational in Application Lifecycle Management (ALM) is an asset as PTC integrates MKS, an ALM company acquired by PTC in 2011. Mr. Bogan also has significant strategic expertise as a result of his experience at Rational and as a venture capital investor at Greylock Partners, and significant financial and accounting expertise as a result of his positions as a financial officer in public and private companies and positions in public accounting earlier in his career. Mr. Bogan also has corporate governance expertise as a result of his position as Chairman of the Board of Directors of Citrix. | ||||||||
Michael E. Porter, age 64 | 1995 | 2013 | ||||||
Bishop William Lawrence University Professor based at Harvard Business School. Professor Porter has been a Professor at Harvard Business School since 1973 and has been a University Professor since 2001. He is also a director of Thermo Fisher Scientific Inc.
As a professor of competitive strategy at Harvard Business School and a leading expert in the business strategy field, Professor Porter has significant strategic expertise. As a director of PTC since 1995, Professor Porter has extensive knowledge of PTC’s business. | ||||||||
Robert P. Schechter, age 63 | 2009 | 2013 | ||||||
Chief Executive Officer (Retired), NMS Communications Corporation, a provider of hardware and software solutions for the communications industry. Mr. Schechter served as Chairman and Chief Executive Officer of NMS from 1995 to 2008.
As a result of his experience at NMS and at other companies in the software and technology industries, Mr. Schechter has significant leadership, management, international operating and sales and marketing experience, as well as significant corporate governance expertise. He also has significant financial and accounting expertise as a result of those experiences and as a former Partner at Coopers & Lybrand LLP and Chairman of its North East Region High Tech Practice.
Mr. Schechter was a director the following public companies for the periods stated: Unica Corporation, January 2005 – October 2010; Soapstone Networks, Inc., June 2003 – July 2009; Moldflow Corporation, January 2000 – June 2008; MapInfo Corporation, May 2002 – April 2007. | ||||||||
Class III Directors C. Richard Harrison, age 56 Executive Chairman of PTC since October 2010. Before that he held the following positions with PTC: Chairman and Chief Executive Officer from March 2009 to October 2010; Chief Executive Officer and President from March 2000 to March 2009; and President and Chief Operating Officer from August 1994 to March 2000. Mr. Harrison joined PTC in 1989. As Chief Executive Officer, Mr. Harrison led a successful turnaround of PTC and positioned PTC for future success. As a result of the positions he has held with PTC, Mr. Harrison has extensive leadership, management and operating experience, a deep knowledge of PTC’s products, services and business and the markets in which PTC competes, as well as significant financial, sales and marketing expertise. Paul A. Lacy, age 64 President (Retired), Kronos Incorporated, a global enterprise software company. Mr. Lacy served as President and Secretary of Kronos from May 2006 through June 2008. Prior to that, Mr. Lacy served as President, Chief Financial and Administrative Officer, Treasurer and Secretary of Kronos from November 2005 through April 2006, and as Executive Vice President and Chief Financial and Administrative Officer of Kronos from April 2002 through October 2005. During his tenure as President and the Chief Financial Officer of Kronos, Kronos grew from a $26 million hardware company into a $662 million public global enterprise software company and Mr. Lacy gained significant public company software experience. As a result of his experience at Kronos, Mr. Lacy possesses demonstrated leadership, management and operating experience and significant financial, accounting and corporate governance expertise. Director
Since Term
Expires 1994 2014 2009 2014
Our Board of Directors has determined that all of our directors except Mr. Harrison (our Executive Chairman), Mr. Heppelmann (our President and Chief Executive Officer) and Professor Porter (who has a consulting agreement with PTC as described in “Transactions with Related Persons” on page 21) are “independent directors” as defined in The NASDAQ Global Select Market listing standards. None of the Audit Committeeindependent directors, to our knowledge, had any business, financial, family or other type of relationship with PTC or its management other than as a director and stockholder.
Board Meetings and Attendance at the Annual Meeting
PTC’s Board currently schedules five regular meetings during each fiscal year, but will meet more often if necessary. The Board met seven times during 2011 and all directors attended all meetings held during their terms except for one director who was unable to attend a special meeting (not regularly scheduled) due to a prior commitment. We expect that each director will attend the Annual Meeting of Stockholders each year, barring other significant commitments or special circumstances. All of the directors attended the 2011 Annual Meeting of Stockholders.
Stockholders may send communications to the Board of Directors in the manner described in “IR Contacts” on the Investor Relations page of our website, www.ptc.com.
The Board has four standing committees:
the Audit Committee,
the Compensation Committee,
the Corporate Governance Committee, and
the Corporate Development Committee.
The Audit Committee
The Audit Committee is responsibleassists our Board in fulfilling its oversight responsibilities for reviewing PTC’saccounting and financial reporting process on behalf ofcompliance. This includes reviewing the Board of Directors. In fulfilling its responsibilities,financial information provided to stockholders and others, PTC’s accounting policies, disclosure controls and procedures, internal accounting and financial controls, and the audit process. The Committee has reviewed and discussed the audited financial statements for fiscal 2004meets with management and with PricewaterhouseCoopers LLP, our independent registered public accounting firm. In this process, the Committee met with PricewaterhouseCoopers LLP, with and without management present,firm to discuss our financial reporting policies and procedures, our internal control over financial reporting, the results of theirthe independent auditor’s examinations, PTC’s critical accounting policies and the overall quality of PTC’s financial reporting, and disclosure controls.
the Committee reports on such matters to our Board. The Committee has discussedmeets with the independent auditorsauditor with and without PTC management present.
The Committee is directly responsible for the matters required toappointment (and, if appropriate, replacement), evaluation and compensation of the independent auditor. The Committee reviews the independent auditor’s performance in conducting the annual financial statement audit and the audit of our internal control over financial reporting, assesses the independence of the auditor, and reviews the auditor’s fees. The Committee is also responsible for pre-approving audit and non-audit related services that may be performed by the independent auditor. Further information about the services and fees of PricewaterhouseCoopers LLP, our independent auditor, is provided in “Information about Our Independent Registered Public Accounting Firm.”
The Audit Committee acts under a written charter, which is available on the Investor Relations page of our website at www.ptc.com. Messrs. Schechter (Chairman), Lacy and Grierson currently serve as members of the Audit Committee. All committee members are “independent directors” under both SEC rules and the listing requirements of The NASDAQ Global Select Market governing the qualifications of members of the Audit Committee, and none of them has ever been an employee of PTC or any of its subsidiaries. The Board of Directors has determined that Mr. Schechter and Mr. Lacy qualify as Audit Committee Financial Experts, as defined by the SEC. The Audit Committee met ten times during 2011 and all members attended all meetings held during their terms.
Report of the Audit Committee
In fulfilling its responsibilities, the Audit Committee:
reviewed and discussed by Statement on Auditing Standards No. 61,Communicationthe audited financial statements for 2011 with Audit Committees, as amended. In addition, the Committee has management and with PricewaterhouseCoopers LLP;
| • | discussed with PricewaterhouseCoopers LLP the matters required to be discussed by the statement on Auditing Standards No. 61, as amended (AICPA,Professional Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T; |
discussed with PricewaterhouseCoopers LLP theirits independence from PTC and its management, including the matters in the letter and written disclosures received from PricewaterhouseCoopers LLP as required by Independence Standardsapplicable requirements of the Public Company Accounting Oversight Board Standard No. 1,Independence Discussionsregarding the independent auditor’s communications with Audit Committees. Thethe Audit Committee also concerning independence; and
considered whether the independent auditors’auditor’s provision of the other, non-audit related services to PTC, which are referred todescribed below in “Independent“Information about Our Independent Registered Public Accounting Firm – Services and Fees” below,, is compatible with maintaining independence.
Based on the Committee’s review and discussions with management the representations of the independent auditorsand PricewaterhouseCoopers LLP and the Committee’s review of PricewaterhouseCoopers LLP’sthe independent auditor’s report to the Committee, the Committee recommended to the Board of Directors that the audited financial statements be included in PTC’s Annual Report on Form 10-K for fiscal 2004the year ended September 30, 2011 for filing with the Securities and Exchange Commission.
Audit Committee
Robert P. Schechter, Chairman
Donald K. Grierson
Paul A. Lacy
The Compensation Committee
The Compensation Committee establishes the compensation levels for our executive officers and oversees our employee compensation programs, including the corporate bonus programs. This includes setting corporate goals and objectives relevant to compensation of executive officers and evaluating performance against those goals and objectives. The Committee is also responsible for administering our equity compensation plans. It also reviews and makes recommendations to the Board with respect to director compensation.
The Compensation Committee acts under a written charter, which is available on the Investor Relations page of our website at www.ptc.com. Messrs. Grierson (Chairman) and Schechter, both of whom qualify as “independent directors” under The NASDAQ Global Select Market listing requirements, currently serve as members of the Compensation Committee. The Committee met six times during 2011 and both members attended each meeting.
Executive Compensation Process.The Compensation Committee began the process of establishing executive compensation for fiscal 2011 after its March 2010 meeting, at which time it requested that Pearl Meyer & Partners, LLC, the Committee’s independent compensation consultant, provide information with respect to CEO peer group compensation in connection with the anticipated successions of Mr. Heppelmann to Chief Executive Officer and Mr. Harrison to Executive Chairman in October 2011. From that time through its May 2010 meeting, the Committee considered the peer group CEO compensation information provided and evaluated compensation strategies and structures. At its May 2010 meeting, the Committee finalized its compensation decisions with respect to Mr. Heppelmann and Mr. Harrison and authorized the company to enter into executive agreements with each of them reflecting their compensation in their 2011 roles of President and Chief Executive Officer and Executive Chairman, respectively. At its July 2010 meeting, the Committee began its consideration of the compensation for the other executive officers for 2011 with a review of peer group compensation for the respective executive positions. The Committee also began developing the executive incentive program to support the business plan for the next fiscal year. The Committee met again in September 2010 to evaluate PTC’s anticipated performance for the current fiscal year. At that time, the Committee also reviewed the amounts expected to be earned by the executives under the annual executive cash incentive plan and with respect to the annual performance-based restricted stock awards, and to further refine the executive performance-based compensation program to support the business plan for the next fiscal year. The Committee also established base salaries and target annual bonus amounts for the executive officers for the next fiscal year at the September meeting. The Committee then met again in November to review the financial results for the last completed fiscal year and determine the extent to which the performance criteria for the 2010 annual executive incentive plan and 2010 annual performance-based restricted stock awards were met. The Committee also established the performance criteria for the 2011 annual executive cash incentive plan and performance-based
equity awards and made the annual performance-based and time-based equity awards to the executives at this meeting. Decisions made with respect to executive compensation for 2011 are discussed in detail in “Compensation Discussion and Analysis.”
Director Compensation Process. At the meeting of the Board of Directors held directly after the Annual Meeting of Stockholders, the Compensation Committee recommends to the Board the compensation to be paid to the directors for the year. The Board, based on this recommendation, then establishes the annual compensation for the directors. In making its recommendation, the Committee considers a competitive assessment of the company’s director compensation with that of the peer group and reviews each element of director compensation, including the annual retainer, the committee chair retainer, meeting fees and equity awards, to determine whether the amounts are competitive and reasonable for the services provided by the directors.
Outside Advisors; Role of the Compensation Consultant. The Committee may engage compensation consultants or other advisors to provide information and advice to the Committee. The costs of such engagements are paid by the company. The Committee engaged Pearl Meyer & Partners, LLC as its independent compensation consultant for 2011. Pearl Meyer does not provide any other services to PTC and consults with PTC’s management only as necessary to provide the services described below.
Pearl Meyer provides a range of services to the Committee to support the Committee’s agenda and obligations, including providing legislative and regulatory updates, peer group compensation data so that the Committee can set compensation for executives in accordance with our policies, advice on the structure and competitiveness of our compensation programs (including benefits provided by our peers upon a change in control and otherwise as part of their compensation programs), and advice on the consistency of our programs with our executive compensation philosophy. Pearl Meyer attends Committee meetings, reviews compensation data with the Committee, and participates in discussions regarding executive compensation issues, but does not determine or recommend the amount or form of compensation established.
PTC paid $325,000 to Pearl Meyer & Partners for services performed for the Committee during 2011. PTC also purchased two compensation surveys from Pearl Meyer for an aggregate of $7,400 in 2011.
Consultation with Management; Committee Decisions.Members of management, including our Chief Executive Officer and President, our Chief Financial Officer, our Executive Vice President, Strategy (who is responsible for Human Resources), our Senior Vice President, Corporate Human Resources, and our Corporate Vice President and General Counsel, participate in Compensation Committee meetings as requested by the Committee to present and discuss the materials provided, including recommendations to be considered relative to executive pay and competitive market practices. These members of management primarily assist the Committee in understanding PTC’s business plan and long-term strategic direction, developing the performance targets for our performance-based compensation programs, and understanding the technical or regulatory considerations as well as the motivational factors of the decisions that are intended to drive executive and company performance. Although the Committee solicits input and perspective from management and Pearl Meyer with respect to executive compensation, decisions on executive compensation are made solely by the Compensation Committee and without the presence of the Chief Executive Officer.
Delegation under the Equity Plan.The Committee is authorized to delegate to executive officers the power to make awards under the 2000 Equity Incentive Plan other than to directors and executive officers and all determinations under the Plan with respect thereto, provided that the Committee establishes the aggregate and individual maximum amounts of such awards. The Committee has delegated to our Chief Executive Officer the authority to make awards to employees under the 2000 Equity Incentive Plan within established parameters. (See “Timing of Equity Grants” on page 40 for such parameters.)
The Corporate Governance Committee
The Corporate Governance Committee is responsible for corporate governance, including compliance, and the nomination of directors. The Corporate Governance Committee is appointed by the Board to:
Oscar B. Marx, Chairmandevelop and recommend policies and processes regarding corporate governance,
oversee the company’s implementation and administration of its compliance programs,
make recommendations regarding potential nominees for election to the Board and membership on committees of the Board, and
maintain a CEO succession plan in order to ensure continuity of leadership for PTC.
The Corporate Governance Committee acts under a written charter, which is available on the Investor Relations page of our website at www.ptc.com. Messrs. Grierson (Chairman), Bogan and Lacy currently serve as members of the Committee. All Committee members qualify as “independent directors” under The NASDAQ Global Select Market listing requirements. The Committee met twice during 2011 and all members attended each meeting held during their term.
Robert N. Goldman
Noel G. PosternakThe Corporate Governance Committee’s responsibilities regarding director nominations are to:
determine the desired Board skills and attributes for directors;
consider and recruit candidates to fill positions on the Board;
review candidates recommended by stockholders;
conduct the appropriate and necessary evaluations of the backgrounds and qualifications of possible director candidates; and
recommend director nominees for approval by the Board or the stockholders.
The Committee may obtain recommendations from director search firms engaged for the purpose of recruiting new directors, or through business and personal contacts. Director search firms engaged by the Committee will generally be paid a retainer to identify and screen candidates meeting specifications established by the Committee for a particular search. Such specifications will change from one search to another based on the Committee’s determination of the Board’s needs at the time.
During 2011, the Corporate Governance Committee undertook a search for two new directors that was conducted with the assistance of a professional search firm retained by the Committee. The search firm used the criteria provided by the Committee, which included financial expertise and technology industry experience, to identify potential candidates. Members of the Committee, the Board and executive management met with each of the candidates selected by the Committee to assess the qualifications and experience the candidate would bring to the Board. As a result, Mr. Zambonini and Mr. Bogan were elected to the Board in May 2011 and July 2011, respectively. In accordance with our policy of nominating directors elected to the Board other than by stockholders for reelection at the next annual meeting of stockholders, Mr. Zambonini has been nominated for reelection as a Class I director at this year’s annual meeting. With respect to Mr. Bogan, we elected him as a Class II director, which class comes up for reelection by stockholders next year in 2013. We did this because we must maintain three substantially equal classes of directors and the class up for election at this year’s annual meeting (Class I) already had three directors at the time we elected Mr. Bogan.
Qualifications for Director Nominees and Diversity
The Corporate Governance Committee does not rely on a fixed set of qualifications for director nominees. The Committee’s primary mandate with respect to director nominees is to create a Board with a diversity of skills and attributes that is aligned with PTC’s strategic needs. The minimum qualifications for director nominees are that they:
be able to dedicate the time and resources sufficient for the diligent performance of the duties required of a member of the Board of Directors;
not hold positions or interests that conflict with their responsibilities to PTC; and
comply with any other minimum qualifications for either individual directors or the Board as a whole mandated by applicable laws or regulations.
Additionally, PTC’s Corporate Governance Guidelines require that at least a majority of members of the Board of Directors qualify as independent directors in accordance with NASDAQ independence rules.
The Corporate Governance Committee’s process for evaluating nominees for director is to consider an individual’s skills, character and professional ethics, judgment, leadership experience, business experience and acumen, familiarity with relevant industry issues, national and international experience, and such other relevant criteria as may contribute to the Board’s effectiveness and PTC’s success. This evaluation is performed in light of the Committee’s view that diversity among the directors as to personal and professional experiences, opinions, perspectives and backgrounds is desirable. The Committee also strives to identify qualified women and minority candidates. The Committee does not foreclose any sources when identifying potential candidates.
The Corporate Governance Committee reviews candidates recommended by stockholders in the same manner and using the same general criteria as candidates recruited by the Committee and/or recommended by the Board. The Committee will consider persons recommended by stockholders for nomination as a director in accordance with the procedures described under “Stockholder Proposals and Nominations.”
The Corporate Development Committee
The Corporate Development Committee evaluates corporate development opportunities, including mergers and acquisitions, and assists management in developing strategies and processes regarding such initiatives. The Committee is authorized to approve transactions within parameters established by the Board from time to time. The Committee acts under a written charter, which is available on the Investor Relations page of our website at www.ptc.com.
Messrs. Porter (Chairman), Grierson and Zambonini, each of whom has extensive business expertise (including in the area of corporate strategy), serve as members of the Corporate Development Committee. The Committee did not meet during 2011.
Independent Registered Public Accounting Firm Services and FeesBoard Leadership Structure
Our Board leadership structure is currently comprised of an Executive Chairman (Mr. Harrison), who is our former Chief Executive Officer, and an Independent Lead Director (Mr. Grierson). Our Board does not have a set leadership structure and in recent years we have had, alternately, an independent Chairman, a combined Chairman and Chief Executive Officer with a Lead Independent Director, and a non-independent Executive Chairman with a Lead Independent Director. Our policy is to have a Lead Independent Director if the Executive Chairman or Chairman is not independent. We believe the current Board leadership structure serves us and our stockholders well by having an Executive Chairman who is involved in the business and the strategic direction of the company and a strong Lead Independent Director to provide independent leadership of the Board.
The role of the Lead Independent Director is to:
Preside at meetings of the Board when the Chairman is not present and at executive sessions of the independent directors,
Call meetings of the independent directors,
Serve as principal liaison on Board-wide issues between the independent directors and the Chairman,
Approve Board meeting agendas and schedules, including ensuring there is sufficient time for discussion of agenda items at each meeting,
Recommend the retention of outside advisors and consultants who report directly to the Board on Board-wide issues, and
If requested by shareholders, be available, as appropriate, for consultation and direct communication.
The Board exercises its oversight responsibilities with respect to the risks facing PTC at the Board level and through its committees, in particular, the Audit, Corporate Governance, and Compensation Committees.
The Audit Committee is responsible for overseeing risk management as it relates to PTC’s financial condition, financial statements, financial reporting process and accounting matters.
The Corporate Governance Committee oversees the Company’s compliance programs.
The Compensation Committee is responsible for overseeing PTC’s overall compensation practices, polices and programs and assessing the risks associated with such practices, policies and programs. (See “Assessment of Risks Associated with Our Compensation Programs” for a description of our assessment of those risks.)
The Board and the relevant committees review with PTC’s management the risk management practices for which they have oversight responsibility. Since overseeing risk is an ongoing process and inherent in PTC’s strategic decisions, the Board and the relevant committees do not view risk in isolation, but discuss risk throughout the year in relation to proposed actions and initiatives. We believe that having a Lead Independent Director enhances the Board’s ability to oversee the company’s risks.
INFORMATION ABOUT OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP, an independent registered public accounting firm, served as PTC’s independent auditor for 2011 and has reported on our 2011 consolidated financial statements and internal control over financial reporting. The Audit Committee of the Board of Directors has reappointed PricewaterhouseCoopers LLP for 2012 and, as described above, the Board is seeking your confirmation of that appointment.
The Audit Committee is responsible for the engagement of our independent auditorsauditor and for approving, in advance, all auditingaudit services and permitted non-audit services to be provided by the independent auditors.auditor. The Audit Committee maintainshas adopted a policy for the engagement of the independent auditorsauditor that is intended to maintain the independent auditor’s independence from PTC. In adopting the policy, the Audit Committee considered the various services that the independent auditors haveauditor has historically performed or may be neededasked to perform in the future. The policy, which is to be reviewed and re-adopted at least annually by the Audit Committee:
approves the performance by the independent auditor of certain types of services (principally audit-related and tax), subject to restrictions in some cases, based on the Committee’s determination that engaging the auditor for such services would not be likely to impair the independent auditor’s independence from PTC;
requires that management obtain the specific prior approval of the Audit Committee for each engagement of the independent auditor to perform other types of permitted services;
prohibits the performance by the independent auditor of certain types of services due to the likelihood that its independence would be impaired; and
sets an aggregate expenditure limitation on fees for approved services and provides for fee caps on certain categories of approved services that may not be exceeded without the prior approval of the Committee.
Any approval required under the policy must be given by the Audit Committee, by the Chairman of the Committee in office at the time, or by any other Committee member to whom the Committee has delegated that authority. The Audit Committee does not delegate its responsibilities to approve services performed by the independent auditorsauditor to any member of management.
The standard applied by the Audit Committee in determining whether to grant approval of anany engagement of the independent auditorsauditor is whether the services to be performed, the compensation to be paid therefor and other related factors are consistent with the independent auditors’auditor’s independence under guidelines of the Securities and Exchange Commission, the Public Company Accounting Oversight Board, and applicable professional standards. Relevant considerations include, but are not limited to, The Committee considers:
whether the work product is likely to be subject to, or implicated in, audit procedures during the audit of PTC’s financial statements;
whether the independent auditorsauditor would be functioning in the role of management or in an advocacy role;
whether performance of the service by the independent auditorsauditor would enhance PTC’s ability to manage or control risk or improve audit quality;
whether performance of the service by the independent auditorsauditor would increase efficiency because of theirthe auditor’s familiarity with PTC’s business, personnel, culture, systems, risk profile and other factors; and
whether the amount of fees involved, or the proportion of the total fees payable to the independent auditors in the period that is for tax and other non-audit services, would tend to reduce the independent auditors’auditor’s ability to exercise independent judgment in performing the audit.
The following table statesshows the fees we incurred for professional services rendered by PricewaterhouseCoopers LLP, during fiscal 20032011 and fiscal 20042010. All of the fees disclosed below were pre-approved by our independent auditors, PricewaterhouseCoopers LLP.the Audit Committee in accordance with the policy described above.
Type of Professional Services | Fiscal 2003 | Fiscal 2004 | ||||
Audit | $ | 1,472,000 | $ | 1,668,000 | ||
Audit-Related (1) | 155,000 | 100,000 | ||||
Tax (2) | 1,916,000 | 1,292,000 | ||||
All Other | — | — | ||||
Type of Professional Service Fees | Fiscal 2011 | Fiscal 2010 | ||||||
Audit Fees | $ | 3,396,200 | $ | 2,943,400 | ||||
Audit-Related Fees(1) | $ | 55,700 | $ | 52,300 | ||||
Tax Fees(2) | $ | 2,233,700 | $ | 2,067,700 | ||||
All Other Fees(3) | $ | 1,800 | $ | 1,500 | ||||
| (1) |
| (2) |
Type of Tax Service | Fiscal 2003 | Fiscal 2004 | ||||||
(a) | Tax compliance and preparation services (comprised of preparation of original and amended tax returns, claims for refunds, and tax payment planning services): | $ | 583,000 | $ | 253,000 | |||
(b) | Other tax services including tax advice services and assistance with tax audits: | 397,000 | 323,000 | |||||
(c) | Tax compliance services related to PTC’s expatriate employees: | 936,000 | 716,000 | |||||
| Total | $ | 1,916,000 | $ | 1,461,000 | ||||
Type of Tax Service | Fiscal 2011 | Fiscal 2010 | ||||||
Tax compliance and preparation services (comprised of preparation of original and amended tax returns, claims for refunds, and tax payment planning services) | $ | 598,100 | $ | 421,000 | ||||
Tax compliance services related to PTC’s expatriate employees | $ | 815,000 | $ | 801,400 | ||||
Other tax services including tax planning and advice services and assistance with tax audits | $ | 820,600 | $ | 845,300 | ||||
|
|
|
| |||||
Total | $ | 2,233,700 | $ | 2,067,700 | ||||
| (3) | Consists of accounting research software. |
We pay our directors a mix of cash and equity compensation. Due to their employment relationships with the company, Mr. Harrison, our Executive Chairman, and Mr. Heppelmann, our President and Chief Executive Officer, receive no compensation for their service as directors and, accordingly, are not named in the table below.
Cash Compensation
The amounts in the “Fees Earned or Paid in Cash” column reflect the named director’s annual board and committee retainer fees and meeting fees.
Board Retainer. Mr. Grierson, the Lead Independent Director, was paid an annual cash fee of $75,000 and each of the other directors was paid an annual cash fee of $35,000. If a director is elected to the board other than at an Annual Meeting of Stockholders, as were Messrs. Zambonini and Bogan, such director receives only a prorated portion of the annual fee for the year in which he is first elected.
Committee Retainer. Mr. Schechter and Mr. Grierson, who serve as Chairman of the Audit and Compensation Committees, respectively, were paid annual committee chairman fee of $10,000. Professor Porter, the Chairman of the Corporate Development Committee, was paid an annual committee chairman fee of $5,000. Mr. Grierson was paid a retainer of $5,000 for his service on a Special Committee of the Board. No committee chairman fees were paid to Mr. Grierson for serving as Chairman of the Corporate Governance Committee.
Meeting Fees. We pay each director a fee of $2,000 for attendance at each Board meeting and $2,000 for attendance at each committee meeting of which the director is a member.
Equity Compensation
We make annual equity awards to our directors. For their service as directors in 2011, we awarded:
10,103 shares of restricted stock to the Lead Independent Director, Mr. Grierson,
9,243 shares of restricted stock to the Chairman of the Audit Committee, Mr. Schechter,
8,383 shares of restricted stock to each of Mr. Lacy and Professor Porter,
6,818 shares of restricted stock to Mr. Zambonini, and
5,471 shares of restricted stock to Mr. Bogan.
We also made the following awards to each of Mr. Zambonini and Mr. Bogan upon their joining the Board in May 2011 and July 2011, respectively:
to Mr. Zambonini, 12,908 shares of restricted stock as a one-time new director award that will vest as to 6,454 shares in May 2012 and will vest as to the remaining 6,454 shares in May 2013.
to Mr. Bogan, 14,069 shares of restricted stock as a one-time new director award that will vest as to 7,035 shares in July 2012 and will vest as to the remaining 7,034 shares in July 2013.
Stock Ownership Policy
Our stock ownership policy for our outside directors requires them to attain and maintain an ownership level of PTC common stock, excluding unvested restricted stock, having a value equal to five times their respective annual Board retainer. The Director Stock Ownership Policy is available on the Investor Relations page of our website at www.ptc.com.
2011 Director Compensation Table
Name | Fees Earned or Paid in Cash ($) | Stock Awards(1) ($) | All Other Compensation ($) | Total ($) | ||||||||||||
Donald K. Grierson | $ | 140,000 | (2) | $ | 234,996 | (3) | $ | — | $ | 374,996 | ||||||
Lead Independent Director, | ||||||||||||||||
Chairman, Compensation Committee and Corporate Governance Committee | ||||||||||||||||
Thomas F. Bogan | $ | 24,450 | $ | 406,237 | (4) | $ | — | $ | 430,687 | |||||||
Paul A. Lacy | $ | 73,000 | $ | 194,989 | (3) | $ | $ | 267,989 | ||||||||
Michael E. Porter | $ | 52,000 | $ | 194,989 | (3) | $ | 15,000 | (7) | $ | 261,989 | ||||||
Chairman, Corporate Development Committee | ||||||||||||||||
Robert P. Schechter | $ | 91,000 | $ | 214,992 | (3) | $ | — | $ | 305,992 | |||||||
Chairman, Audit Committee | ||||||||||||||||
Renato Zambonini | $ | 31,750 | $ | 446,991 | (5) | $ | — | $ | 478,741 | |||||||
Robert Goldman(6) | $ | 20,000 | $ | — | $ | — | $ | 20,000 | ||||||||
| (1) | The number of outstanding stock options and shares of restricted stock held by each named director as of September 30, 2011 is shown in the table below. |
| Options | ||||||||||||||||
Name | Exercisable | Unexercisable | Total | Shares of Restricted Stock | ||||||||||||
Donald K. Grierson | 25,000 | — | 25,000 | 10,103 | ||||||||||||
Thomas F. Bogan | — | — | — | 19,540 | ||||||||||||
Paul A. Lacy | — | — | — | 16,700 | ||||||||||||
Michael E. Porter | 40,000 | — | 40,000 | 14,880 | ||||||||||||
Robert P. Schechter | — | — | — | 9,243 | ||||||||||||
Renato Zambonini | — | — | — | 19,726 | ||||||||||||
Robert N. Goldman | — | — | — | — | ||||||||||||
| (2) | Includes $9,000 paid for a Special Committee assignment. |
| (3) | Grant date fair value of restricted stock granted on March 9, 2011. The grant date fair value is equal to the number of shares granted multiplied by the closing price of $23.26 of our common stock on The NASDAQ Global Select Market on that date. |
| (4) | Grant date fair value of restricted stock granted on July 29, 2011 upon Mr. Bogan’s election as a director. The grant date fair value is equal to the number of shares granted multiplied by the closing price of $20.79 of our common stock on The NASDAQ Global Select Market on that date. |
| (5) | Grant date fair value of restricted stock granted on May 17, 2011 upon Mr. Zambonini’s election as a director. The grant date fair value is equal to the number of shares granted multiplied by the closing price of $22.66 of our common stock on The NASDAQ Global Select Market on that date. |
| (6) | Mr. Goldman’s term as a director ended in March 2011. |
| (7) | The amount represents one speaking engagement fee under Professor Porter’s consulting agreement with PTC. His agreement with us is described in “Transactions with Related Persons” on page 21. |
TRANSACTIONS WITH RELATED PERSONS
Review of Transactions with Related Persons
We have a written policy regarding the review, approval and ratification of transactions involving related persons. Related persons include our directors, executive officers and persons or entities that beneficially own 5% or more of our outstanding common stock and their respective immediate family members as defined in applicable SEC regulations. Our Audit Committee is responsible for reviewing and approving or ratifying any related party transaction exceeding a specified threshold and will consider:
if the transaction has an appropriate business purpose,
if the terms of the transaction are not less favorable to PTC than those that could be obtained from an unrelated third party,
if it is necessary or desirable for PTC to enter into the transaction at that time,
if the amount of consideration to be paid or received by PTC is appropriate, and
if entering into the transaction with the related person rather than an independent third party is desirable.
All related person transactions described below were reviewed and approved by the Audit Committee in accordance with such policy.
Transactions with Related Persons
Michael Porter, one of our directors, consults with our executives on strategic matters and participates in executive events sponsored by us for existing and potential customers. We had a contract with him that expired in November 2011 under which we paid a $15,000 speaking engagement fee in 2011. We entered into a new contract with him in November 2011. In consideration of the strategic consulting services to be provided under that agreement, we granted him 9,402 shares of restricted stock on November 15, 2011 (worth approximately $200,000 based on the grant date fair value of the shares), of which 4,701 will vest on November 15, 2012 and the remaining 4,701 will vest on November 15, 2013. Any unvested shares will be forfeited if PTC terminates the agreement for cause or if he terminates the contract before the termination date. If PTC terminates the agreement without cause, all unvested shares would vest at that time. He will also be paid $30,000 for each executive event in which he participates, up to a maximum of $240,000 over the term of the agreement, which ends on November 15, 2013.
PTC employs the following persons who are related to our executive officers as stated in the table below. Their compensation for 2011 is set forth in the table below.
Compensation of Related Employees
| Salary | Non-Equity Incentive Plan Bonus | 401(k) Plan Match | Equity Incentive(1) $ | Total | ||||||||||||||||
Matthew Cohen | $ | 212,558 | $ | 134,310 | $ | 6,377 | $ | 206,201 | $ | 559,446 | ||||||||||
Divisional Vice President – PTC University Son of Barry Cohen, Executive Vice President, Strategy | ||||||||||||||||||||
Emmanuel Govignon | $ | 103,788 | $ | 33,086 | $ | 3,114 | $ | 19,998 | $ | 159,986 | ||||||||||
Director, Portfolio and Planning, PTC University Stepson of Barry Cohen, Executive Vice President, Strategy | ||||||||||||||||||||
Howard Heppelmann | $ | 221,601 | $ | 149,596 | $ | 6,648 | $ | 154,628 | $ | 532,473 | ||||||||||
Vice President, Senior General Manager Brother of James Heppelmann, President and Chief Executive Officer | ||||||||||||||||||||
| (1) | Value on the date of grant. The RSUs granted vest over three years. |
INFORMATION ABOUT THE NOMINATING FUNCTIONS OF THEPTC COMMON STOCK OWNERSHIP
NOMINATING & CORPORATE GOVERNANCE COMMITTEEStockholders That Own at Least 5% of PTC
The following table shows all persons we believe to be beneficial owners of at least 5% of PTC common stock as of December 1, 2011. “Beneficial owners” of PTC common stock are those who have the power to vote or to sell that stock. Our information is based in part on reports filed with the Securities and Exchange Commission (SEC) by the firms listed in the table below. If you wish, you may obtain these reports from the SEC.
Stockholder | Number of Shares Beneficially Owned(1) | Percentage of Common Stock Outstanding(2) | ||||||
Ameriprise Financial, Inc.(3) | 12,426,723 | (3) | 10.48 | % | ||||
Columbia Management Investment Advisers, LLC Columbia Seligman Communications and Information Fund, Inc. c/o Ameriprise Financial, Inc. 145 Ameriprise Financial Center Minneapolis, MN 55474 | ||||||||
BlackRock, Inc.(4) | 9,408,053 | (4) | 7.94 | % | ||||
40 East 52nd Street New York, NY 10022 | ||||||||
Cramer Rosenthal McGlynn, LLC(5) | 6,788,187 | (5) | 5.73 | % | ||||
520 Madison Avenue New York, New York 10022 | ||||||||
The Nominating & Corporate Governance Committee’s responsibilities regarding director nominationsfootnotes for this table appear below the next table.
Stock Owned by Directors and Officers
The following table shows the PTC common stock beneficially owned by PTC’s current directors and named executive officers, as well as all current directors and executive officers as a group, as of November 30, 2011.
| Number of Shares Beneficially Owned(1)(6) | Percentage of Common Stock Outstanding(2) | |||||||
Thomas F. Bogan | 24,540 | 0.02 | % | |||||
Donald K. Grierson | 111,923 | 0.09 | % | |||||
Paul A. Lacy | 38,484 | 0.03 | % | |||||
Michael E. Porter(7) | 243,100 | 0.20 | % | |||||
Robert P. Schechter | 45,900 | 0.04 | % | |||||
Renato Zambonini | 29,726 | 0.03 | % | |||||
C. Richard Harrison(8) | 2,109,796 | 1.77 | % | |||||
James E. Heppelmann | 577,505 | 0.49 | % | |||||
Jeffrey D. Glidden | 17,970 | 0.02 | % | |||||
Barry F. Cohen | 571,473 | 0.48 | % | |||||
Marc Diouane | 27,040 | 0.02 | % | |||||
All directors, nominees for director, and current executive officers as a group (18 persons) | 4,144,706 | 3.48 | % | |||||
| (1) | Shares beneficially owned based on information available to us and applicable regulations. This does not constitute an admission by any stockholder that he beneficially owns the shares listed. Unless otherwise indicated, each stockholder referred to above has sole voting and investment power over the shares listed. |
| (2) | For purposes of determining the percentage of common stock outstanding, the number of shares deemed outstanding consists of the 118,553,036 shares outstanding as of December 1, 2011 and any shares subject to options held by the person that are exercisable on or before January 30, 2012. |
| (3) | As reported on Schedule 13G filed February 8, 2011, Ameriprise Financial, Inc. (“Ameriprise”) is the holding company of Columbia Management Investors Advisers, LLC (“Advisers”), a registered investment advisor and the advisor to Columbia Seligman Communications and Information Fund, Inc., a registered investment company (the “C&I Fund”). The C&I Fund holds 6,352,470 of the shares reported (5.36% of PTC’s common stock) directly and has sole voting power over those shares, while it shares investment power over them with Advisers and Ameriprise. Other clients of Advisers have the right to receive or the power to direct the receipt of dividends and proceeds from the sale of the other PTC shares included in the aggregate number of shares reported. Ameriprise and Advisers have no voting power over 8,213,858 of such shares and shared voting power over 4,212,865 of such shares. |
| (4) | As reported on Schedule 13G filed February 8, 2011, BlackRock, Inc. is a parent holding company that has beneficial ownership of the shares reported through its investment adviser subsidiaries. |
| (5) | As reported on Schedule 13G filed February 11, 2011, Cramer Rosenthal McGlynn, LLC is an investment advisor registered with the SEC which shares voting power over 9,400 of such shares. |
| (6) | The amounts listed include the following shares of common stock that may be acquired on or before January 30, 2012 through the exercise of options: Mr. Grierson, 25,000 shares; Mr. Porter, 40,000 shares; Mr. Harrison, 889,418 shares; Mr. Heppelmann, 269,997 shares; Mr. Cohen, 390,000 shares; and all directors and current executive officers as a group, 1,662,614 shares. |
| (7) | 10,000 of such shares are held in a margin account. |
| (8) | 1,584 of such shares are held jointly by Mr. Harrison with his spouse. |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires that our insiders—our directors, executive officers and 10%-or-greater stockholders—file reports with the SEC on their initial beneficial ownership of PTC common stock and any subsequent changes (in this case, “beneficial ownership” means a pecuniary interest in the shares).
Based on our review of all reports filed by our insiders or written representations from insiders that all reportable transactions were reported, we believe that all of our insiders filed on a timely basis all reports required by Section 16(a) for 2011, except for one Form 4 for Mr. Harrison that was filed one week late with respect to a vest of RSUs.
COMPENSATION DISCUSSION AND ANALYSIS
As discussed in Proposal 2 above, we are to: determineconducting a “say-on-pay” vote that asks for your approval of the desiredcompensation of our named officers as described in this section and in the tables and accompanying narrative contained in “Executive Compensation.”
The Compensation Committee of our Board skillsof Directors determines the compensation for our executives. We discuss below our executive compensation program and attributesthe compensation decisions made for directors; consider2011 for our Chief Executive Officer, our Chief Financial Officer, and recruit candidatesthe four other executive officers named in the Summary Compensation Table on page 43 (collectively, our “named executive officers”). The process we use to fill new positionsestablish pay is described in “The Compensation Committee” on page 12 of this proxy statement. We believe our executive compensation policies and practices appropriately balance the interests of our shareholders with those of our executives, who are shareholders themselves.
Executive Summary of Our Compensation Programs
We pay for performance. The core of our executive compensation philosophy is pay for performance. Accordingly, our executives’ compensation is heavily weighted toward “at-risk” performance-based compensation. Our executives’ compensation for 2011 reflects this linkage.
Fiscal 2011 was a successful year for PTC. We achieved our highest ever annual revenue, with revenue 16% higher than in 2010, and increased our non-GAAP operating margin by 13.2% and our non-GAAP earnings per share by 26%. These results reflect our progress toward delivering the long-term performance goals we have communicated to our shareholders – to deliver $1.6 billion in revenue and non-GAAP operating margin of 20-22% in fiscal 2014 and to deliver 20% non-GAAP earnings per share growth annually through 2014.
Our executives’ compensation for 2011 consisted of a base salary, a short-term incentive bonus under our annual cash incentive plan and long-term equity awards that are eligible to vest based on performance criteria and continued service. Based on the Board; review candidates recommended by stockholders; conductmix of these items, 52% of our CEO’s and 48% of our other named executives’ compensation was performance-based for 2011, which was a higher percentage than the appropriateaverage of our peers.
For 2011, our executives’ annual cash incentive plan bonus was tied to achievement of $214 million non-GAAP operating margin dollars (an increase of approximately 30% over 2010 performance) and necessary evaluationstheir performance-based equity compensation was tied to achievement of $194 million non-GAAP operating margin dollars (an increase of approximately 20% over 2010 performance). Based on PTC’s achievement of an approximately 30% increase in non-GAAP operating margin dollars in 2011 over 2010, the executives earned 100% of their performance-based equity for 2011, but earned only between 96% and 98% (depending on the executive) of their annual incentive bonus. In total, these executives earned approximately 99% of their target annual compensation for achievement of approximately 99% of the backgrounds and qualifications of possible director candidates; and recommend director nominees for approval by the Board or the stockholders.performance-based compensation plan.
| Our performance in 2011 relative to 2010 is shown in the first table below and the compensation earned by our executives for 2011 relative to 2010 is shown in the second table below. |
Fiscal 2011 Compared to Fiscal 2010
| 2011 | 2010 | % Change | ||||
Revenue | $1,166.9 million | $1,010.0 million | 16% | |||
Non-GAAP Operating Margin Dollars(1) | $211.4 million | $162.4 million | 30% | |||
Non-GAAP Operating Margin(1) | 17.7% | 15.6% | 13.2% | |||
Non-GAAP Earnings per Share(1) | $1.26 | $1.00 | 26% | |||
Stock Price on November 15, 2011 | $21.27 | $21.79 | (2.4)% |
| (1) | Non-GAAP Operating Margin Dollars, Non-GAAP Operating Margin and Non-GAAP EPS exclude from the equivalent GAAP results the effect of purchase accounting on the fair value of the acquired deferred maintenance balance of MKS Inc. of $2.6 million in 2011 and $0 in 2010, stock-based compensation expense of $45.4 million in 2011 and $48.9 million in 2010, amortization of acquired intangible assets and in-process research and development of $33.7 million in 2011 and $34.0 million in 2010, and $7.8 million of acquisition-related charges in 2011 and $0 in 2010. Non-GAAP EPS also excludes income tax adjustments of $(27.8 million) in 2011 and $21.3 million in 2010, a non-operating foreign currency translation loss of $5.1 million in 2011, and a gain on litigation resolution of $(9.0 million) in 2010. Non-GAAP Operating Margin Dollars also excludes compensation expense associated with bonus payments of $8.6 million in 2011 and $4.8 million in 2010 and revenue net of expenses of companies acquired in the year of $1.2 million in 2011 and $0 in 2010. |
2011 Compensation Earned Compared to 2010
| 2011(1) | 2010(1) | % Change | ||||||||||
James Heppelmann President and Chief Executive Officer | $ | 5,092,398 | (2) | $ | 5,458,451 | (6.71 | )%(2) | |||||
Jeffrey Glidden Executive Vice President, Chief Financial Officer(3) | $ | 2,395,765 | $ | 7,981 | (3) | (3) | ||||||
Barry Cohen Executive Vice President, Strategy | $ | 2,158,954 | $ | 2,856,129 | (24.41 | )% | ||||||
Marc Diouane Executive Vice President, Global Services and Partners | $ | 2,170,980 | — | (4) | — | (4) | ||||||
C. Richard Harrison Executive Chairman(5) | $ | 2,880,792 | $ | 7,951,031 | (63.77 | )% | ||||||
Paul Cunningham Former Executive Vice President, Worldwide Sales | $ | 2,166,304 | $ | 2,863,940 | (24.36 | )% | ||||||
| (1) | Compensation earned consists of salary paid, bonus paid under our annual executive incentive plan, initial vest date value of time-based and performance-based long-term equity (RSUs) earned, 401(k) Plan matching contributions and, for Mr. Diouane, relocation expenses and a car allowance. The RSUs were |
valued at the closing price of a share of our common stock on the NASDAQ Global Select Market on the applicable initial vest dates: $21.27 on November 15, 2011, $21.79 on November 15, 2010 and, for Mr. Harrison, $15.38 on September 30, 2011. All RSUs other than the 2011 RSUs awarded to Mr. Harrison are subject to time-based vesting and vest as to one-third of the RSUs on the initial vest date and an additional one-third of the RSUs on each of the first and second anniversaries of the initial vest date if the executive remains employed by us on the vest dates. Half of the 2011 RSUs for Mr. Harrison vested on September 30, 2011 and the remainder will vest on September 30, 2012 if he remains employed by us on that date. The 2011 amount for Mr. Heppelmann does not include a long-term performance-based RSU grant valued at approximately $7 million on the date of grant that becomes eligible to vest only in November 2013, 2014 and 2015 based on company performance from October 1, 2010 through those dates. The breakdown of the performance-based cash and equity earned for 2011 is shown in the table below. |
Breakdown of Performance-Based Cash and Equity Earned for 2011
| Performance- Based Cash Bonus | Performance-Based Equity (One-Third vests in each of November 2011, 2012 and 2013) | Total 2011 Performance- Based Compensation | ||||||||||
James Heppelmann President and Chief Executive Officer | $ | 984,300 | $ | 1,675,374 | $ | 2,659,674 | ||||||
Jeffrey Glidden Executive Vice President, Chief Financial Officer | $ | 293,340 | $ | 840,037 | $ | 1,133,377 | ||||||
Barry Cohen Executive Vice President, Strategy | $ | 293,340 | $ | 725,307 | $ | 1,018,647 | ||||||
Marc Diouane Executive Vice President, Global Services and Partners | $ | 294,135 | $ | 412,766 | $ | 706,901 | ||||||
Paul Cunningham Former Executive Vice President, Worldwide Sales | $ | 293,340 | $ | 725,307 | $ | 1,018,647 | ||||||
| (2) | Compensation for 2011 reflects the increase in compensation payable to Mr. Heppelmann as a result of his promotion to President and Chief Executive Officer on October 1, 2011. At that time, Mr. Heppelmann’s base salary increased from $550,000 to $750,000, his target bonus increased from $600,000 to $1,000,000 and his target annual equity award value increased from $3,000,000 to $3,450,000. |
| (3) | Mr. Glidden was appointed Executive Vice President, Chief Financial Officer on September 27, 2010, four days before the end of our 2010 fiscal year; accordingly, he was not eligible to participate in our incentive programs for fiscal 2010 and the amount shown for 2010 is his salary for that 4-day period. His long-tem equity for fiscal 2011 was granted upon his hire date and is reflected in the Summary Compensation Table on page 43 as compensation in 2010, rather than 2011. His equity is shown here in 2011 as it was intended as 2011 compensation. |
| (4) | Mr. Diouane was promoted to Executive Vice President, Global Services and Partners on October 1, 2010. Mr. Diouane was not one of our executive officers in 2010. |
| (5) | Mr. Harrison was our Chief Executive Officer in 2010 and became our Executive Chairman on October 1, 2011. |
We are responsive to shareholder concerns.
In selecting nominees2011, we received 77% approval of our Say-on-Pay proposal. While this represents a favorable outcome, in response to shareholder concerns and in our continuing efforts to improve our pay practices, we made the following changes for director,2012:
We eliminated all tax “gross up” provisions in our executive agreements.
We introduced a long-term incentive award that measures performance over a three-year period to motivate and reward superior, stretch performance above the Nominatingtarget performance in our other incentive plans, which are based on annual performance. Because our current long-term incentive plans do not reward performance above target performance, this award provides our executives an additional opportunity to earn up to 50% of the value of their normal long-term incentive grant contingent on the attainment of upside performance goals over a three-year period. The performance objectives are tied to increasing non-GAAP operating margins, the improvement of which is a key objective of the company and an appropriate complement to our current non-GAAP revenue and non-GAAP operating margin dollar growth goals. The award was structured so that, if earned, the total compensation payable to the executives would still fall within our target range of the second and third quartiles of peer group compensation.
We maintain other compensation practices that also benefit shareholders.
Our long-term equity incentives, including performance-based incentives, vest over a period of three years to ensure that our executives maintain a long-term view of shareholder value.
The amounts our executives can earn under our annual corporate performance-based incentive plans are capped and our executives do not have the ability to earn upside under those plans for performance beyond the targets; accordingly, amounts earned under the annual plan are predictable and upside performance can be shared with our shareholders.
We are mindful of risks to the company that could be posed by our compensation policies and practices and design our compensation policies and practices to manage such risk. (See “Assessment of Risks Associated with Our Compensation Programs” on page 42.)
Unvested and unexercised equity awards, including options, are not transferable.
We do not have a salary merit increase program for our executives.
We do not provide significant perquisites or supplemental retirement benefits to our executives. We believe the amounts we pay to our executives are fair and competitive and are sufficient without the use of perquisites or supplemental retirement benefits.
We require our executives to maintain specified levels of ownership of our stock to ensure that their interests are even more effectively linked to those of our shareholders. (See “Equity Ownership” on page 40.)
We do not allow our executives to hedge their exposure to ownership of, or interest in, our stock; nor do we allow them to engage in speculative transactions with respect to our stock.
Our executive agreements:
| — | do not contain tax “gross-ups” on “golden parachute” payments in connection with a change in control, and we have committed that we will not include such a gross-up in any future executive agreements, |
| — | contain “double triggers” that require termination in connection with a change in control before most equity is accelerated, and |
| — | provide only limited severance benefits, and no equity acceleration, in connection with terminations without cause absent a change in control. |
(See “Potential Payments on Termination or Change in Control” on page 52.)
Our Compensation Committee is comprised of two directors who are “independent” under NASDAQ Stock Market rules. (See “The Compensation Committee” on page 12.)
Our Compensation Committee’s independent compensation consultant, Pearl Meyer & Corporate Governance Committee reviews candidates recommended by stockholders in the same manner and using the same general criteria as candidates recruitedPartners, is retained directly by the Committee and/or recommendedand provides no other services to PTC. (See “The Compensation Committee” on page 12.)
Compensation Philosophy & Objectives
We believe that our compensation plans should align our executives’ interests with those of our shareholders and reward our executives for their contributions to the long-term success of PTC. We also believe that a substantial portion of our executives’ compensation should be performance-based to create appropriate incentives and rewards for achieving performance objectives established by the Board.Committee.
Accordingly, we design our compensation plans and associated performance objectives to:
motivate our executives to advance the interests of PTC and increase shareholder value;
reward our executives for their contributions to the success of PTC; and
retain the services of our executives as long as the interests of PTC are being satisfied and the compensation being paid is commensurate with the value being provided by the executive.
We assess the compensation we establish for our executives against the compensation paid to executives in similar positions in the peer group discussed below to ensure that the compensation we pay is competitive and fair to our executives and our shareholders. We seek to accomplish this by establishing target compensation generally within the second and third quartiles of the compensation paid by the peer group.
Components of Compensation
Main Components
Total direct compensation for our executives consists of the four components described in the table below. We also describe why we use each component and the important features of that component.
Component | Objective | Features | ||
Base Salary | Provide a minimum, fixed level of cash compensation. | • Set within the context of our annual competitive analysis. • Adjustments may be made to reflect market conditions for a position, changes in the status or duties associated with a position or internal equity. | ||
Annual Short-Term Performance-Based Bonus | Focus the executive on achieving specific goals related to PTC’s business plan for the current fiscal year. | • Performance goals and target bonus amounts established at beginning of fiscal year. • Performance metric for 2011 was non-GAAP operating margin dollars and was established to align with PTC’s 2011 upside business plan. | ||
Annual Long-Term Equity Incentive Awards | Promote alignment of the executive’s long-term personal interests with the long term interests of PTC and its shareholders. Provide a retention incentive. | • Provided in the form of restricted stock units (RSUs) for 2011. • 50% of the award is performance-based: — subject to performance criteria aligned with PTC’s 2011 business plan, — earned only to the extent the performance criteria are achieved, — RSUs earned are subject to subsequent time-based vesting (one-third vests upon determination of achievement of the performance goals established for that year, one-third in each of the next two years if the executive remains employed by PTC on the vest date). • 50% of the award is time-based and vests in three substantially equal annual installments over the three years following the date of grant if the executive remains employed by PTC on the vest date. | ||
Long-Term Performance-Based Equity Incentive Awards | Focus the executive on achieving PTC’s long-term goals and objectives. Promote alignment of the executive’s long-term personal interests with the long term interests of PTC and its shareholders. Provide a retention incentive. | • Provided in the form of RSUs for 2011. • Not granted every year. • 100% of the award is performance-based and incentivizes achievement of stretch goals. • Performance period extends over multiple fiscal years. • Will be earned and vest only to the extent the performance criteria are achieved. | ||
Other Benefits; Absence of Perquisites
Our executives are eligible to participate in the standard benefits and programs available to all PTC employees on the same terms and conditions as all employees, including our 401(k) savings plan. Consistent with our practices for employees who relocate at the request of the Company, we paid certain expenses in connection with the relocation of Mr. Diouane from Europe to the United States upon his promotion to Executive Vice President, Global Services and Partners in 2011. We also paid a car allowance for Mr. Diouane in 2011 as a result of his historical compensation arrangements with us, which ended in 2012. We provide no other significant benefits or perquisites to our executives.
Mix of Compensation Components
We use the compensation components described in the table above because we believe they provide an appropriate mix of guaranteed compensation and at-risk compensation that promotes short-term and long-term performance and produces appropriate rewards. With this mix, we provide a competitive base salary while motivating the executive to focus on achieving the business criteria that will produce a targeted level of performance for PTC, and we also provide the opportunity to earn additional compensation through short-term and long-term incentives.
The Nominatingmix of compensation for our executives is weighted toward at-risk pay (annual performance-based incentives and long-term performance-based equity incentives). Maintaining this pay mix results in a pay-for-performance orientation for all our executives.
We consider all pay elements and their impact on each executive’s target direct compensation when making determinations regarding the amount of each element. Our decisions regarding the pay mix also reflect our belief that long-term incentives, particularly equity awards, provide an important motivational and retentive aspect to the executive’s overall compensation package. This is why guaranteed compensation (base salary and time-based equity) for these executives makes up less of their target total direct compensation than it does for the average executive in the peer group.
Our compensation mix for 2011 was designed to provide approximately 52% of total compensation through at-risk pay for our Chief Executive Officer and almost 48% of total compensation through at-risk pay for our other executives. This is in contrast to our peer group (described below), where performance-based compensation made up an average of only 39% of the CEO’s compensation and 41% of the other named executives’ compensation. We achieved this mix by making 50% of our annual long-term equity incentive awards performance-based, while the majority of our peer group companies provided only time-based equity incentives. In addition, our annual short-term incentives are performance-based. Finally, even the guaranteed compensation provided to these executives carries an at-risk element as a substantial portion of this component is comprised of time-based restricted stock units that carry risks of forfeiture and market price decline.
How We Determine the Total Amount of Compensation
We make decisions regarding the amount and mix of compensation awarded to each of these executives based on:
objective data provided by our external compensation consultant, Pearl Meyer & Corporate GovernancePartners (we refer to this as the “competitive analysis”),
subjective analysis of the scope of each executive’s responsibilities, and
internal pay equity among the executives.
The competitive analysis provides detailed comparative data for our executive positions and assesses each component of compensation, including base salary, annual bonus, long-term incentives and total direct
compensation, as well as the mix of compensation between base salary, annual bonus and long-term incentives. We compare this information to our executives’ compensation by similarity of position and generally align our executives’ target total direct compensation to be within the second and third quartiles of peer compensation.
Benchmarking and Survey Data
Benchmarking Data.The peer group we used to benchmark the elements of executive pay was made up of publicly-traded U.S. companies within the software industry, most of which are in the enterprise software space, that have revenues and market capitalizations in a range appropriate for PTC. In evaluating and selecting companies for inclusion in our peer group, we target companies with revenue and market capitalization that are within an approximately 0.5x to 2x multiple when compared to PTC. However, we may include companies with revenue and market capitalizations outside of these parameters if there is strong product and/or service similarity (such as with Autodesk, Inc., BMC Software Inc., Citrix Systems Inc. and McAfee Inc.). We believe this group represents competition for executive talent in our industry. We review the peer group on an annual basis to ensure that the companies constituting this peer group remain relevant and provide meaningful compensation comparisons.
The 2011 peer group consisted of the companies listed below and was identical to the peer group for 2010 and 2009.
2011 Peer Group
| Revenue $M (Trailing 4 Quarters as of April 2, 2010)(1) | Market Capitalization $M (As of April 2, 2010)(1) | Criteria Matched | ||||||||||||||||||
Company | Product / Service Similarity | Revenue $500M - $2B | Market Capitalization $680M - $6B | |||||||||||||||||
PTC | $ | 956 | $ | 2,040 | ||||||||||||||||
Autodesk, Inc. | $ | 1,714 | $ | 6,405 | x | x | ||||||||||||||
BMC Software Inc. | $ | 1,899 | $ | 6,728 | x | x | ||||||||||||||
Cadence Design Systems, Inc. | $ | 853 | $ | 1,532 | x | x | x | |||||||||||||
Citrix Systems Inc. | $ | 1,614 | $ | 7,906 | x | x | ||||||||||||||
Compuware Corporation | $ | 916 | $ | 1,703 | x | x | x | |||||||||||||
Lawson Software Inc. | $ | 713 | $ | 975 | x | x | x | |||||||||||||
McAfee Inc. | $ | 1,927 | $ | 6,260 | x | x | ||||||||||||||
Mentor Graphics Corp. | $ | 803 | $ | 818 | x | x | x | |||||||||||||
Novell Inc. | $ | 850 | $ | 1,631 | x | x | x | |||||||||||||
Nuance Communications Inc. | $ | 996 | $ | 3,814 | x | x | x | |||||||||||||
Progress Software Corp. | $ | 502 | $ | 1,156 | x | x | x | |||||||||||||
Quest Software Inc. | $ | 695 | $ | 1,529 | x | x | x | |||||||||||||
Sybase Inc. | $ | 1,171 | $ | 3,619 | x | x | x | |||||||||||||
Synopsys Inc. | $ | 1,350 | $ | 3,209 | x | x | x | |||||||||||||
TIBCO Software, Inc. | $ | 621 | $ | 1,527 | x | x | x | |||||||||||||
Peer Group Median | $ | 916 | $ | 1,703 | ||||||||||||||||
Peer Group Average | $ | 1,108 | $ | 3,254 | ||||||||||||||||
| (1) | For PTC, reflects trailing four quarters revenue as of January 2, 2010 and market capitalization as of February 2010. |
Survey Data.We also use survey data for additional perspective. Our primary survey source is the CHiPS Executive Total Compensation Survey, a high technology executive compensation pay and policy survey. PTC participates in this survey and believes that it represents a good cross-section of the software industry. The data used was appropriate to PTC’s size and industry and represented 16 companies with a median revenue of
$1.2 billion. The CHiPS survey is published by the survey division of Pearl Meyer & Partners, which is a separate business unit from the consulting division we use for consulting services. Although PTC is on the Steering Committee for the CHiPS survey, its membership on the Steering Committee does not relyenable PTC to influence the results of the survey or the competitive analysis.
Subjective Analysis of Executive Responsibilities and Internal Pay Equity
While we use the objective market data as a starting point for determining the appropriate compensation for our executives, we recognize that circumstances could warrant a deviation from that data. Accordingly, for certain positions for which there are no comparable external benchmarks, we make our own judgments with regard to compensation levels. We consider both whether the amount seems fair for the responsibilities of the position and internal pay equity among the executives. See our analysis of the compensation decisions for Mr. Cohen in “Analysis of Compensation Decisions for 2011” below for a discussion of how this subjective analysis was used. Where benchmark data is available, we also consider internal pay equity among the executives as we do not believe the external benchmark should be the only determinant of compensation.
Consideration of Results of Prior Year Shareholder “Say-on-Pay” Vote
Last year was the first time we held a shareholder “say-on-pay” vote. Approximately 77% of our shareholders voted in favor of the compensation paid to our named executive officers for 2010. A few of our shareholders that voted against our 2010 executive compensation wrote to us to explain their reasons for their votes. Accordingly, when developing our executive compensation program for 2012, we considered the overall level of support and the comments provided by those shareholders who wrote to us. As a result, we made two significant changes to our 2012 compensation program. First, we eliminated all remaining golden parachute tax gross-up payments under our grandfathered executive agreements. Second, we reevaluated our long-term incentives to ensure that we were providing incentives for both annual performance and longer-term performance. Our historical and current annual long-term incentive awards consist of time-based RSUs and performance-based RSUs that are subject to subsequent time-based vesting. The performance criteria for the annual performance-based awards are one-year targets aligned to that year’s business plan that are intended to drive year-over-year performance to achieve selected financial and operating goals that will benefit the company over the longer term. The time-based vesting of these RSUs is intended to ensure that the executives take a longer term view of the value of the company so that the effects of efforts to achieve the annual performance criteria don’t harm the company over the longer term. For 2012, we structured the equity awards to include a long-term performance-based equity incentive award in addition to our annual performance-based and time-based awards. The long-term performance-based award has two and three year performance periods and criteria tied to our long-term goals and objectives, rather than an annual performance goal, to drive performance over an extended period and to further align our executives’ compensation with our long-term performance goals and objectives.
Analysis of Compensation Decisions for 2011
The target total direct compensation we established for each of the named executive officers is set forth in the table below.
2011 Target Compensation Plan
| Target Total Annual Compensation | Target Long-Term Equity | |||||||||||||||||||
Name | Salary | Target Annual Bonus | Performance- Based Equity | Time-Based Equity(1) | Target Total Direct Compensation | |||||||||||||||
James Heppelmann | $ | 750,000 | $ | 1,000,000 | $ | 1,725,000 | $ | 1,725,000 | $ | 5,200,000 | (2) | |||||||||
President and Chief Executive Officer | ||||||||||||||||||||
Jeffrey Glidden | $ | 415,000 | $ | 300,000 | $ | 750,000 | (3) | $ | 750,000 | (3) | $ | 2,215,000 | ||||||||
Executive Vice President, Chief Financial Officer | ||||||||||||||||||||
Barry Cohen | $ | 415,000 | $ | 300,000 | $ | 746,800 | $ | 746,800 | $ | 2,208,600 | ||||||||||
Executive Vice President, Strategy | ||||||||||||||||||||
Marc Diouane | $ | 350,000 | $ | 300,000 | $ | 425,000 | $ | 425,000 | (4) | $ | 1,500,000 | (4) | ||||||||
Executive Vice President, Global Services and Partners | ||||||||||||||||||||
C. Richard Harrison | $ | 500,000 | $ | — | $ | — | $ | 1,500,000 | (5) | $ | 2,000,000 | |||||||||
Executive Chairman | ||||||||||||||||||||
Paul Cunningham | $ | 415,000 | $ | 300,000 | $ | 746,800 | $ | 746,800 | $ | 2,208,600 | ||||||||||
Executive Vice President, Worldwide Sales | ||||||||||||||||||||
| (1) | The award values were established in November 2010, our usual timing, and the number of RSUs to be granted was established at that time based on the closing price of our common stock on November 3, 2010, $21.90 per share. Because we had a limited number of shares under our equity incentive plan at that time, the actual grants were not made until March 9, 2011 after shareholder approval of an increase in the number of shares available for issuance under our equity incentive plan. Accordingly, the value reflected in the Summary Compensation Table on page 43 reflects the grant date fair value of those awards based on the closing price of our common stock on March 9, 2011, $23.26 per share, rather than the target value above. |
| (2) | Does not include the long-term equity award granted to Mr. Heppelmann on October 1, 2010 upon his becoming our Chief Executive Officer. The award is subject to performance criteria and will vest only if earned beginning in 2013. Additional information about this award appears below under “Considerations for Mr. Heppelmann” and in “Executive Compensation.” |
| (3) | These amounts were awarded on September 27, 2010, in our fiscal 2010, upon Mr. Glidden’s hire. Accordingly, they appear in the Summary Compensation Table for 2010, rather than 2011. |
| (4) | Does not include a long-term equity award of $500,000 that vests over three years granted upon his promotion that is not part of his target total annual compensation. |
| (5) | Pursuant to Mr. Harrison’s agreement with us, under which he ceased his position as our Chief Executive Officer and became our Executive Chairman effective October 1, 2010, we granted Mr. Harrison $3,000,000 worth of restricted stock units, half of which vested at the end of 2011 and half of which are to vest at the end of 2012. Accordingly, the full $3,000,000 value appears in the Summary Compensation Table in 2011. |
Overall Considerations
We set target total direct compensation to be within the second and third quartiles (between the 25th and the 75th percentiles) of the peer group benchmark data, subject to the achievement of the performance objectives established by the Committee for the year. We believe that this competitive positioning of total direct compensation enables us to attract and retain skilled executives.
Considerations for Mr. Heppelmann
Mr. Heppelmann became our Chief Executive Officer on October 1, 2010, the beginning of our 2011 fiscal year. At that time, we increased his compensation to a level commensurate with his new role. In setting his target compensation, we considered the fact that 2011 would be Mr. Heppelmann’s first year in the role, but wanted to make sure that his overall compensation opportunity was competitive. Accordingly, we established his base salary at the 25th percentile of the peer group compensation for the CEO and his target incentive and equity incentives were set within our target range.
In addition, in order to recognize his promotion, align his incentives with sustained long-term exceptional performance and foster long term retention, we made a special one-time award to Mr. Heppelmann upon his promotion to CEO that will be realized, if earned, based on longer-term performance. Including the one-time award, the percentage of Mr. Heppelmann’s performance-based compensation is 80%, which is a significant proportion of his overall compensation for fiscal 2011 and represents a higher ratio of performance-based compensation when compared to our peer group CEOs, who on average have less than 40% performance-based compensation.
The award was valued at $7 million on the date of grant and will vest, only if earned, in installments in November 2013, 2014 and 2015.
The award will be realized only if the company achieves challenging performance goals over a five year period (described below in “Executive Compensation – Grants of Plan-Based Awards”); to be earned in full, the award requires that PTC achieve a 20% non-GAAP earnings per share compound annual growth rate over the period from September 30, 2010 through September 30, 2015.
Considerations for Mr. Glidden
Mr. Glidden became our Chief Financial Officer on September 27, 2010. Because our fiscal year ends on September 30, we provided only a base salary for Mr. Glidden for 2010 and he was not eligible to participate in the short-term incentive plan or to receive any long-term incentive equity for 2010. To establish annual target total direct compensation for Mr. Glidden for fiscal 2011, we evaluated competitive pay for chief financial officers in our peer group and positioned his overall target total direct compensation between the second and third quartiles, balancing his compensation with that of our other executives. Accordingly, we established his base salary for 2011 at an annual rate of $415,000. We also made two equity awards to Mr. Glidden on his start date as his long-term equity incentive awards for 2011. As with the long-term equity incentive awards we make to our other executives, 50% of the total equity awarded was time-based and vests in November 2011, 2012 and 2013 and 50% of the total equity awarded was subject to performance criteria and subsequent time-based vesting to the extent earned in November 2011, 2012 and 2013. The value of the awards on the award date was $1,500,000, which we determined was appropriate based on a fixed set of qualifications for director nominees. The Committee’s primary mandatecompetitive analysis with respect to director nomineesthe position and commensurate with the award levels for our other similarly situated executives, including Messrs. Cohen and Cunningham.
Considerations for Mr. Cohen
Mr. Cohen, our Executive Vice President, Strategy, has a unique position for which there is no appropriate match in the peer group or survey data, as the scope of his position is different from any specific position in the peer group or survey data.Mr. Cohen has responsibility for Corporate Strategy, Corporate Development, Customer Care and Technical Support, Global Education, and Human Resources.Accordingly, when setting target compensation amounts for Mr. Cohen, we considered internal equity by evaluating the scope and importance of his responsibilities compared to our other executives. For 2011, we made no changes to the target compensation levels for Mr. Cohen as we believed his pay level was appropriate when considering the compensation levels of our other executives.
Considerations for Mr. Diouane
Mr. Diouane became our Executive Vice President, Global Services and Partners on October 1, 2010. We established his base salary and target bonus amounts by reference to our other executive officers. In addition to his annual equity awards, in recognition of his promotion, we granted him a one-time equity award to increase his equity ownership over time and further align his interests with those of our shareholders. This grant will vest over three years. We tied one-half of his 2011 annual incentive bonus to the same performance goals as for the other executives and the other half to Global Services margins due to the importance of improving Global Services margins to the company’s goal of improving overall margins. Because Mr. Diouane was previously based in our offices in Europe, in accordance with our standard relocation practices, we also paid certain of Mr. Diouane’s expenses in connection with his relocation to our worldwide headquarters in Needham, Massachusetts.
Considerations for Mr. Harrison
In connection with Mr. Harrison’s transition from Chief Executive Officer to Executive Chairman effective October 1, 2010 (the beginning of our 2011 fiscal year), we entered into an agreement with him that provides for his employment as our Executive Chairman through November 2012. As reflected in the agreement, Mr. Harrison’s compensation decreased with the decrease in responsibilities and none of his compensation is subject to achievement of performance criteria. We believed this was appropriate due to the nature of his Executive Chairman role. Notwithstanding this change, because 75% of his annual compensation is delivered in equity and, accordingly, tied to the value of our stock, his interests remain closely aligned with those of our shareholders.
Considerations for Mr. Cunningham
Mr. Cunningham was our Executive Vice President, Worldwide Sales through April 2011 and remained employed by us as an Executive Advisor through fiscal 2011. Because Mr. Cunningham’s overall pay position was in line with that of our other executives and within our intended position with respect to the peer group, we made no changes to his target compensation for 2011.
The 2011 Performance-Based Compensation Structure and Criteria
Selection of Criteria
The performance measures we develop and use for our performance plans are measures designed to measure our success against our short-term and long-term business plans and objectives. These business plans and objectives are designed to create and deliver value to our shareholders over the long term.
For 2011, we selected non-GAAP operating margin dollars as the performance measure for our performance-based incentives due to the importance of increasing our non-GAAP earnings per share, which we believe will create value for our shareholders. Our executives’ annual cash incentive plan was tied to delivering $214 million in non-GAAP operating margin dollars and our executives’ performance-based restricted stock was tied to delivering $194 million in non-GAAP operating margin dollars, with the $194 million representing our business plan and the $214 million representing a Boardstretch goal. PTC achieved $211.4 million non-GAAP operating margin dollars under the plan in 2011. Accordingly, although we had a successful year, our executives did not earn 100% under their annual incentive plan as the stretch goal established for them was not achieved.
The 2011 Performance-Based Compensation Criteria and Achievement
The tables below show:
the performance criteria for the 2011 annual incentive plan,
the performance criteria for the 2011 performance-based long-term equity awards, and
in each case, the extent to which the performance criteria were achieved and performance-based incentive amounts were earned.
Annual Incentive Plan Criteria and Achievement.For 2011, the annual incentive plan was funded with cash. As shown in the table below, under the terms of the plan, no portion of the incentive amount would be earned unless the Non-GAAP Operating Margin Dollars Threshold of $178 million was met, at which point 50% of the target incentive would be earned. Thereafter, an additional portion of the incentive amount could be earned based on the extent to which Non-GAAP Operating Margin Dollars between $178 million and $194 million (“Target Goal”) were achieved and an additional percentage of the amount could be earned based on the extent to which Non-GAAP Operating Margin Dollars between $194 million and $214 million (“Stretch Goal”) were achieved. The additional portion that could be earned upon achievement of the Target Goal and the Stretch Goal differed among the executives, as described in the footnotes to the table below. To incentivize the executives to reach for achievement above our business plan, we structured these different payout levels so that each of the executives would earn only 93% of his target total cash compensation upon achievement of the Target Goal and would earn 100% of such compensation upon achievement of the Stretch Goal. The plan did not provide any upside earning potential beyond the 100% of the target bonus that could be earned upon achievement of the Stretch Goal; accordingly, each of the executive’s maximum possible payout under the plan was limited to his target annual bonus amount.
PTC achieved the Target Goal, but did not achieve the Stretch Goal. Accordingly, as shown in the second table below, less than 100% of the incentive amounts under the plan were earned.
Performance Criteria | Threshold (50% Earned) | Target Goal(1) | Stretch Goal(2) | Actual Achievement | ||||||||||||
Non-GAAP Operating Margin Dollars | $ | 178 million | $ | 194 million | $ | 214 million | $ | 211.4 million | ||||||||
| (1) | Up to an additional 38% of the target incentive could be earned by Mr. Heppelmann, up to an additional 20% of the target incentive could be earned by Mr. Diouane, and up to an additional 33% of the target incentive could be earned by each of the other named executive officers. |
| (2) | Up to an additional 12% of the target incentive could be earned by Mr. Heppelmann, up to an additional 30% of the target incentive could be earned by Mr. Diouane, and up to an additional 17% of the target incentive could be earned by each of the other named executive officers. No additional amounts could be earned for achievement above 100%. |
Amounts Earned under the 2011 Annual Incentive Plan.The table below shows the amount earned by each named executive officer under the 2011 annual incentive plan. Mr. Harrison did not participate in the plan.
Annual Incentive Plan Amounts Earned for 2011
Executive Officer | Target/Maximum Annual Bonus(1) | Percentage Earned | Amount Earned under the Plan | |||||||||
James Heppelmann | $ | 1,000,000 | 98.43 | % | $ | 984,300 | ||||||
Jeffrey Glidden | $ | 300,000 | 97.78 | % | $ | 293,340 | ||||||
Barry Cohen | $ | 300,000 | 97.78 | % | $ | 293,340 | ||||||
Marc Diouane | $ | 150,000 | 96.09 | % | $ | 144,135 | ||||||
Paul Cunningham | $ | 300,000 | 97.78 | % | $ | 293,340 | ||||||
| (1) | The Target bonus amount was also the maximum bonus amount that could be earned under the plan. No additional amounts could be earned under the plan. |
Global Services Incentive Plan for Mr. Diouane. As described above in “Considerations for Mr. Diouane”, half of Mr. Diouane’s annual target bonus of $300,000 was tied to the annual incentive plan for all executives and half of his target bonus was tied to the performance of Global Services, the function he leads, due to the
importance of Global Services margins to the company’s performance. Under the Global Services incentive plan, performance was evaluated quarterly and up to $37,500 (one quarter of his $150,000 target Global Services bonus) could be earned for each quarter. No amounts would be earned for any quarter unless a threshold of 65% of the Global Services operating margin plan for the quarter was achieved, after which the bonus was earned in direct proportion to the percentage of the Global Services operating margin dollars target achieved for the applicable quarter (the targets were $2.0 million for the first quarter, $4.8 million for the second quarter, $6.1 million for the third quarter, and $9.9 million for the fourth quarter). These performance targets, which required increasing profitability in the Global Services organization, were calculated by taking that portion of Global Services revenue and expenses for which Mr. Diouane was responsible ($76.2 million and $64.8 million, respectively for the fourth quarter of 2011 – total Global Services revenue and operating income for the year are shown on page F-36 of our 2011 Annual Report on Form 10-K) and making exclusions similar to those described in footnote (1) to the “Fiscal 2011 Compared to Fiscal 2010” table on page 26 above, in amounts relevant to the Global Services business. PTC achieved the targets in full each quarter and Mr. Diouane earned 100% of the $150,000 Global Services target bonus.
Performance-Based Long-Term Equity Criteria and Achievement.No portion of the long-term equity awards would be earned unless the Company achieved a Threshold target of $178 million Non-GAAP Operating Margin Dollars, at which point 50% of the awards would be earned. Thereafter, up to the additional 50% of the awards could be earned based on the extent to which the company earned Non-GAAP Operating Margin Dollars between $178 million and $194 million. Unlike the annual incentive plan, but consistent with our historical approach to long-term performance-based equity, the performance-based long-term equity was structured so that the executives would earn 100% of the award if PTC achieved its business plan of $194 million in Non-GAAP Operating Margin Dollars. No additional amounts could be earned for achievement above 100%. Accordingly, the Target Long-Term Equity Values, and the corresponding number of RSUs granted, were the maximum amounts that could be earned. The RSUs earned are also subject to subsequent time-based vesting, with one-third of the amount earned vesting in November 2011 and the remaining two-thirds vesting in two substantially equal installments in November 2012 and November 2013 if the executive remains employed by us on the vest date.
2011 Performance-Based Long-Term Equity Awards and Achievement
Performance Criteria | Threshold (50% Earned) | Target (Up to an Additional 50% Earned) | Actual Achievement | Actual Award Percentage Earned | ||||||||||||
Non-GAAP Operating Margin Dollars | $ | 178 million | $ | 194 million | $ | 211.4 million | 100 | % | ||||||||
Performance-Based Long-Term Equity Earned by the Executives for 2011.The table below shows the number of restricted stock units issued as performance-based long-term equity corresponding to the target long-term equity value for each executive and the actual number of RSUs earned by each of the executives for 2011. The Target Long Term Equity Value was also the maximum long-term equity value that could be earned; accordingly, the number of RSUs issued was the maximum number of RSUs that could be earned. Mr. Harrison was not issued performance-based equity for 2011.
Performance-Based Long-Term Equity Earned for 2011
Executive Officer | Target/Maximum Long-Term Equity Value(1) | Number of Performance- Based RSUs Issued(1)(2) | Number of Performance- Based RSUs Earned | |||||||||
James Heppelmann | $ | 1,725,000 | 78,767 | 78,767 | ||||||||
Jeffrey Glidden | $ | 750,000 | 39,494 | 39,494 | ||||||||
Barry Cohen | $ | 746,800 | 34,100 | 34,100 | ||||||||
Marc Diouane | $ | 425,000 | 19,406 | 19,406 | ||||||||
Paul Cunningham | $ | 746,800 | 34,100 | 34,100 | ||||||||
| (1) | The Target Long Term Equity Value was also the maximum long-term equity value that could be earned by the executive and the number of performance-based RSUs issued to each executive was the maximum |
number of RSUs that could be earned by the executive. No additional RSUs or other equity awards would be issued for performance above target performance. |
| (2) | The number of RSUs issued was determined by dividing the Target Long-Term Equity Value by closing price on the grant date and rounding down to the nearest whole share. For all executives other than Mr. Glidden, the number was based on the closing sale price of a share of PTC common stock of $21.90 on November 3, 2010, the date the awards were made and the performance criteria were established. For Mr. Glidden, the number was based on the closing sale price of a share of PTC common stock of $18.99 on September 27, 2010, the date the award was made. |
Severance and Change in Control Arrangements
We have historically had severance and change in control arrangements with our executives. The agreements require the executive to execute a non-compete agreement with PTC and to execute a general release of claims as a condition to receiving severance benefits. Each of the agreements has a one year term and renews automatically for successive one year terms if we do not elect to terminate the agreement. Accordingly, in May 2011, in connection with our annual review of such agreements, the Compensation Committee considered whether to maintain such agreements and/or whether to revise any of their terms. The Committee reviewed current market practices and the terms of the agreements with the Committee’s compensation consultant and determined that such agreements and their terms were substantially consistent with the practices of PTC’s peer companies. The Committee also considered the continuing consolidation in the industry and PTC’s depressed stock price. As a result of its review, the Committee decided that it was appropriate to maintain the agreements. Subsequently, the Committee reviewed the compensation payable to our Chief Executive Officer upon termination in connection with a broadchange in control and determined that it would be appropriate to increase the multiple receivable upon a change in control termination from 2x to 3x, which as part of the total compensation payable in such an event is within a competitive range of skillsmarket practice. The Committee also assessed whether to retain the provision in some of the agreements providing for the “gross-up” for taxes payable on “golden parachute” payments. This provision was included in some of the historical agreements with certain executives but was not included in agreements with newly appointed executive officers (Messrs. Glidden, Diouane, Ranaldi and attributesBerutti). As a result of its review, the Committee eliminated the gross-up benefit effective in November 2011.
The terms of these agreements are described in more detail under “Potential Payments upon Termination or Change in Control” on page 52.
Rationale for Agreements with Our Executive Officers, Other than Our Executive Chairman
The Committee believes that these agreements are important motivational and retention tools because, in a time of increased consolidation in our industry and increased competition for executive talent, they provide a measure of earnings security by offering income protection in the form of severance and continued benefits if the executive is terminated without cause, economic protection for the executive’s family if the executive becomes disabled or dies, and additional protections in connection with a change in control of PTC.
The Committee believes that providing severance to PTC employees, including these executives, is an appropriate bridge to subsequent employment if the person is terminated without cause. This is particularly so for executive-level positions for which the opportunities are typically more limited and the job search lead time is longer. The agreements also benefit PTC by enabling executives to remain focused on PTC’s business in uncertain times without the distraction of potential job loss.
The Committee believes these agreements are even more important in the context of a change in control as it believes they will motivate and encourage the executives to be receptive to potential strategic transactions that are in the best interest of shareholders, even if the executive faces potential job loss, which would otherwise result in losing the opportunity to vest in equity awards, which comprise a significant portion of each executive’s
compensation. The agreements for our executives are structured substantially as “double triggers” in that most of their unvested equity would remain subject to continued vesting requirements after a change in control and vesting would be accelerated only upon termination or constructive termination within two years of a change in control. Equity that would otherwise vest beyond this two-year period vests upon the change in control because otherwise that equity would not vest if the acquiring company terminated the executive’s employment after the two-year protection period established under the agreement and we wanted to ensure the executives received the benefit of that equity. We believe this benefits PTC and the potential acquirer because it enables PTC to retain and motivate the executive while a potential change in control is pending and provides an acquirer with the ability to retain desired executives using existing equity incentives and does not provide a one-time benefit to the executive that could undermine those efforts.
Rationale for Agreement with Our Executive Chairman
The agreement with our Executive Chairman, Mr. Harrison, our former Chief Executive Officer, is structured to ensure Mr. Harrison is available for a two-year transition period from October 2010 during which he continues to enhance PTC’s relationships with customers and otherwise advance PTC’s interests. The agreement terminates on November 30, 2012. Due to the unique nature of his current role, his agreement provides that his employment will terminate upon a change in control. Upon such termination, he would be paid the salary that would be payable for the remainder of the term of the contract absent such termination and all his unvested equity would vest.
Equity Ownership
Each year we examine the total equity ownership of our executive officers as part of the competitive analysis. Because we believe that the interests of our executives are more aligned with shareholders’ interests if they are shareholders themselves, we maintain a stock ownership policy for our executives. The policy requires the CEO and each of the other executives to attain and maintain an ownership level of PTC’s common stock equal to three times and one times, respectively, their individual annual salary through retention of vested shares or RSUs. The Executive Stock Ownership Policy is available on the Investor Relations page of our website at www.ptc.com.
Timing of Equity Grants
We do not time grants either to take advantage of a depressed stock price or in anticipation of an increase in stock price and have limited the amount of discretion that can be exercised in connection with the timing of awards. We generally make awards only on pre-determined dates to ensure that awards cannot be timed to take advantage of material non-public information. Typically, our annual executive awards are made in November after public release of the previous fiscal year’s financial results, awards to our Board of Directors are made on the day of the annual shareholders’ meeting and awards to our employees are made in November and March.
Awards to executive officers may be made only by the Compensation Committee. Other awards may be made by either the Compensation Committee or by our Chief Executive Officer pursuant to delegated authority. The Compensation Committee generally makes awards only at Committee meetings and generally does not make awards in trading blackout periods (the prophylactic period encompassing the end of each fiscal quarter through 48 hours after the earnings for that quarter are announced) unless special circumstances exist, such as a new hire or a contractual commitment. Our Chief Executive Officer may make awards only on the 15th of the month (or the next succeeding business day if the 15th is not a business day), other than in the months of January, April, July and October because the 15th of each of those months falls in a blackout period.
Tax and Accounting Considerations
Tax Considerations. We consider the tax (individual and corporate) consequences of our executive compensation plans when designing the plans. Section 162(m) of the Internal Revenue Code limits deduction of
compensation paid to the chief executive officer and three other most highly compensated executive officers of PTC (other than the chief financial officer) to $1,000,000 unless the compensation is “performance-based.” Performance-based restricted stock and RSUs are considered performance-based compensation under Section 162(m), while base salary and time-based restricted stock and RSUs are not. Because base salaries for these executives are not more than $1,000,000, any compensation that is alignednot deductible is attributable to vesting of time-based restricted stock or RSUs. For 2011, only the following amounts associated with our strategic needs. The minimum qualificationsvesting of time-based restricted stock and RSUs were not deductible under Section 162(m): $4.5 million for director nominees isMr. Harrison, $2.3 million for Mr. Heppelmann and $0.8 million for Mr. Cohen. We believe that they (i) be able to dedicate the time and resources sufficient for the diligent performancecost associated with vesting of these awards in excess of the duties requireddeductible amount is justified by the incentive and retention value provided by the equity award.
Accounting Considerations. We also consider the accounting expense impact when determining amounts of incentive grants to executives and employees. Under applicable accounting rules, grants of stock options, restricted stock, RSUs and other stock-based payments result in a memberstock-based compensation charge to PTC. The charge is equal to the fair value of the equity issued and is amortized over the vesting period of the award. For restricted stock and RSUs, fair value is the closing price of the stock on the grant date times the number of shares or RSUs granted.
Report of the Compensation Committee
The Compensation Committee has reviewed and discussed with management the foregoing Compensation Discussion and Analysis. Based on such review and discussions, the Compensation Committee recommended to the Board of Directors (ii)that the Compensation Discussion and Analysis be included in this proxy statement.
Compensation Committee
Donald K. Grierson, Chairman
Robert P. Schechter
ASSESSMENT OF RISKS ASSOCIATED WITH OUR COMPENSATION PROGRAMS
We have assessed our compensation plans and programs for all employees, including our executives, to ensure alignment of the various plans and programs with our business plan and to evaluate the potential risks associated with those plans and programs. We have concluded that, although we maintain performance-based incentive plans, our compensation policies and practices do not hold positionscreate any risks that are reasonably likely to have a material adverse effect on PTC.
As discussed in our 2011 proxy statement, in 2010 we completed an extensive review of our various compensation plans and programs. This review was undertaken by a cross-functional team of representatives from our Human Resources, Finance and Sales and Services Operations functions. They reviewed the structures of the plans and programs, the processes used with respect to those plans and programs, and the controls with respect to those plans and programs. They also validated our compensation mix against the compensation mix in the market. The results of this assessment were shared with the Compensation Committee, which concurred with the conclusions reached. In 2011, we reviewed all changes to existing compensation plans and all new compensation plans to ensure that such changes or plans did not create any risks that would be reasonably likely to have a material adverse effect on PTC. As stated above, we did not identify any policies or practices that create risks reasonably likely to have a material adverse effect on PTC.
The Compensation Committee regularly considers the risks associated with executive compensation and corporate incentive plans when designing such plans and the elements described below with respect to such plans and programs have generally been implemented by or at the direction of the Compensation Committee.
In undertaking the assessment, the assessment team and the Committee considered the following features of our executive compensation and corporate incentive plans and programs:
A detailed planning process with executive or Compensation Committee oversight exists for all compensation programs;
The proportion of an employee’s performance-based pay increases as the responsibility and potential impact of the employee’s position increases, which structure is in line with market practices;
All short-term incentive plans and commission plans are cash-based plans, which results in less total compensation being tied solely to stock performance;
We set performance goals that we believe are reasonable in light of past performance and market conditions;
We use a consistent corporate performance metric (non-GAAP operating margin dollars) from year to year, rather than changing the metric to take advantage of changing market conditions;
We use restricted stock units rather than stock options for equity awards because restricted stock units retain value even if the stock price declines so that employees are less likely to take unreasonable risks to get, or keep, options “in-the-money”;
We use time-based vesting over three years for our long-term equity awards to ensure our employees’ interests that conflictare aligned with their responsibilities to PTC, and (iii) comply with any other minimum qualificationsthose of our shareholders for either individual directors or the Board as a whole mandated by applicable laws or regulations. Additionally, PTC’s Corporate Governance Guidelines require thatlong-term performance of PTC;
Assuming achievement of at least a majorityminimum level of membersperformance, payouts under our performance-based plans result in some compensation at levels below full target achievement, rather than an “all-or-nothing” approach;
All organizations have a component of their leadership incentive plans tied to overall PTC performance to ensure cross-functional alignment with PTC’s business plan;
Our executive stock ownership policy requires our executives to hold certain levels of stock (not options, restricted stock units or restricted stock), which aligns an appropriate portion of their personal wealth to the long-term performance of PTC; and
We maintain effective controls and procedures to ensure that amounts are earned and paid in accordance with our plans and programs.
The discussion, table and footnotes below describe the total compensation paid for 2011 to our named executive officers (our Chief Executive Officer, our Chief Financial Officer, our three other most highly compensated executive officers, and our former Executive Vice President, Worldwide Sales).
As described above in “Compensation Discussion and Analysis” above and reflected in the Summary Compensation Table below, we pay these executive officers a mix of cash and equity compensation.
Cash Compensation. We pay these executives a base salary and a cash (non-equity) incentive plan bonus. We did not pay any discretionary cash bonuses to these executives.
Equity Compensation. We make annual equity awards to these executives in the form of restricted stock units (RSUs), half of which vest based on service and half of which are initially performance-based and then subject to subsequent time-based vesting. In addition, from time to time, including in 2010, we make special longer-term awards designed to incent and reward longer-term performance. We also made promotion awards in 2011 to each of Mr. Heppelmann and Mr. Diouane as shown in the Summary Compensation and Grants of Plan-Based Awards tables below and described in the footnotes thereto.
Other Forms of Compensation. We do not provide these executives with pensions or the ability to defer compensation. Amounts shown in the “All Other Compensation” column reflect the matching cash contribution under our 401(k) Savings Plan for those participating in the plan and, for Mr. Diouane, the relocation and other expenses footnoted below. We do not provide other significant benefits or perquisites to our executives.
Name and Principal Position | Year | Salary ($) | Stock Awards ($)(1) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($)(2) | Total ($) | ||||||||||||||||||
James E. Heppelmann | 2011 | $ | 750,000 | (3) | $ | 10,557,112 | (3) | $ | 984,340 | (3) | $ | 7,350 | $ | 12,298,762 | (3) | |||||||||
President and Chief Executive Officer(3) | 2010 | $ | 550,000 | $ | 3,599,984 | (4) | $ | 600,000 | $ | 7,802 | $ | 4,757,786 | (4) | |||||||||||
| 2009 | $ | 521,650 | $ | 5,219,354 | (5) | $ | — | $ | 6,901 | $ | 5,747,905 | (5) | ||||||||||||
Jeffrey D. Glidden | 2011 | $ | 415,000 | $ | — | $ | 293,340 | $ | 7,350 | $ | 715,690 | |||||||||||||
Executive Vice President, | 2010 | $ | 7,981 | $ | 1,499,982 | (6) | $ | — | $ | — | $ | 1,507,963 | ||||||||||||
Barry F. Cohen | 2011 | $ | 415,000 | $ | 1,539,956 | $ | 293,340 | $ | — | $ | 2,248,296 | |||||||||||||
Executive Vice President, Strategy | 2010 | $ | 415,000 | $ | 1,793,569 | (4) | $ | 300,000 | $ | — | $ | 2,508,569 | ||||||||||||
| 2009 | $ | 415,000 | $ | 2,651,251 | (5) | $ | — | $ | — | $ | 3,066,251 | (5) | ||||||||||||
Marc Diouane | 2011 | $ | 350,000 | $ | 1,390,003 | $ | 294,135 | $ | 154,249 | (8) | $ | 2,188,387 | ||||||||||||
Executive Vice President, Global Services and Partners(7) | ||||||||||||||||||||||||
C. Richard Harrison | 2011 | $ | 500,000 | $ | 2,999,981 | $ | — | $ | 7,350 | $ | 3,507,331 | |||||||||||||
Executive Chairman(9) | 2010 | $ | 600,000 | $ | 4,284,180 | $ | 1,200,000 | $ | 9,432 | $ | 6,093,612 | |||||||||||||
| 2009 | $ | 600,000 | $ | 8,512,742 | (5) | $ | — | $ | 8,682 | $ | 9,121,424 | (5) | ||||||||||||
Paul J. Cunningham | 2011 | $ | 415,000 | $ | 1,539,956 | $ | 293,340 | $ | 7,350 | $ | 2,255,646 | |||||||||||||
Former Executive Vice President, Worldwide Sales | 2010 | $ | 415,000 | $ | 1,793,569 | (4) | $ | 300,000 | $ | 7,811 | $ | 2,516,380 | ||||||||||||
| 2009 | $ | 415,000 | $ | 2,651,251 | (5) | $ | — | $ | 6,900 | $ | 3,073,151 | (5) | ||||||||||||
| (1) | Aggregate grant date fair value of awards. The grant date fair value is generally equal to the number of RSUs granted multiplied by the closing price of our stock on the NASDAQ Global Select Market on the grant date. The |
grant date fair values of performance-based stock awards included in the table are the maximum amounts that can be earned under those awards, which amounts are the amounts recorded by us under the accounting rules at the time of grant and are disclosed in the “Grant Date Fair Value of Stock Awards” column in the “Grants of Plan-Based Awards” table. Assumptions made in the valuation of these awards are described in Note K to our financial statements for the fiscal year ended September 30, 2011. |
| (2) | Other than for Mr. Diouane, amounts shown are matching contributions under PTC’s 401(k) Savings Plan and, for Mr. Harrison only, premiums for a supplemental disability insurance policy of $1,632 and $1,780 in 2010 and 2009, respectively. |
| (3) | Mr. Heppelmann became our President and Chief Executive Officer on October 1, 2010. At that time, we increased his base salary, target annual bonus (Non-Equity Incentive Plan Compensation) and long-term equity compensation (Stock Awards) as described in “Compensation Discussion and Analysis” above. “Stock Awards” for 2011 includes the special one-time performance-based grant made to Mr. Heppelmann upon his promotion to Chief Executive Officer valued at approximately $7 million on the date of grant that can be earned beginning in November 2013 and fully earned in November 2015 based on achievement of established performance criteria. The award is described below under “Grants of Plan-Based Awards – President and Chief Executive Officer Long-Term Performance-Based Award” on page 46. Excluding that award, Mr. Heppelmann’s compensation for 2011 would have been $5,298,768. If that award were amortized over its five-year term, Mr. Heppelmann’s compensation for 2011 would have been $6,698,768. |
| (4) | In 2010, we made “challenge grants” to our executives in the amounts set forth in the table below. Mr. Harrison did not receive such a grant as he was transitioning from being our Chief Executive Officer at the end of 2010. |
The challenge grants have a three-year performance measurement period and were designed to challenge the executives to achieve 20% average annual growth in non-GAAP EPS for 2010, 2011 and 2012. We selected this metric as it is the performance goal that we publicly announced to our stockholders – sustainable non-GAAP EPS growth of 20% annually. The grants are not eligible to vest until November 2012 and will vest only if the performance goal is achieved. We made these as incremental grants rather than using this metric as the performance criterion for our long-term performance-based equity as that would have reduced the executives’ eligible total direct compensation for 2010, 2011 and 2012 below our target total direct compensation amounts for those years. The target amount awarded to each executive was equal to his annual incentive, which we believed was appropriate given the expected incremental return to our stockholders.
Executive Officer | Challenge Grant Value | Challenge Grant RSUs Granted(1) | ||||||
James Heppelmann | $ | 600,000 | 39,473 | |||||
Barry Cohen | $ | 300,000 | 19,736 | |||||
Paul Cunningham | $ | 300,000 | 19,736 | |||||
| ||||||||
(1) Based on the closing sale price of a share of PTC common stock of $15.20 on November 3, 2009, the date the awards were made and the performance metric was established. |
| |||||||
| (5) | Stock Awards and Total Compensation for 2009 include the grant date value of performance-based shares issued under alternative performance plans. Under no circumstances could all of the performance-based shares be earned; if the performance-based shares were earned under one plan, the performance-based shares under the other plan would be forfeited. A substantial portion of these shares were not earned and were forfeited. The table below shows the value (as recorded at the time of grant under the accounting rules) of the performance-based shares granted under the initial and second performance plans, the value of the performance-based shares forfeited, and the Total Compensation actually earned for 2009. |
Name James E. Heppelmann Barry F. Cohen C. Richard Harrison Paul J. Cunningham Value of
Performance-
Based Shares
under Initial Plan Value of
Performance-
Based Shares
under Second Plan Value of
Performance-
Based Shares
under Both Plans Value of
Performance-Based
Shares Forfeited 2009 2009 Total
Compensation
Earned $2,470,517 $ 753,307 $ 3,223,824 $ 2,470,517 $ 3,277,388 $1,293,505 $ 364,236 $ 1,657,741 $ 1,293,505 $ 1,772,746 $4,049,755 $ 1,613,229 $ 5,662,984 $ 4,049,755 $ 5,071,669 $1,293,505 $ 364,236 $ 1,657,741 $ 1,293,505 $ 1,779,646
| (6) | Mr. Glidden joined PTC and became our Chief Financial Officer on September 27, 2010. The value shown in the Stock Awards column reflects stock granted on his hire date in 2010 for 2011 compensation. |
| (7) | Mr. Diouane was promoted to Executive Vice President, Global Services and Partners on October 1, 2010. Mr. Diouane had not previously been an executive officer of PTC. |
| (8) | Amount includes relocation expenses of $112,370 paid in connection with his relocation to the United States from Europe upon his promotion to Executive Vice President, Global Services and Partners, tax gross-ups of $25,648 associated with such relocation expenses, a car allowance of $14,244, and $1,987 of matching contributions under PTC’s 401(k) Savings Plan. |
| (9) | Mr. Harrison was our Chief Executive Officer in 2009 and 2010. He became our Executive Chairman in 2011. |
We tie a substantial portion of our executives’ compensation to PTC’s performance by making a number of plan-based awards each year. For 2011, our incentive awards to these executives, other than Mr. Harrison, consisted of:
an annual cash-based plan,
performance-based RSUs that vest to the extent earned over three years, and
time-based RSUs that vest over three years.
We also made a special one-time performance-based grant to Mr. Heppelmann in 2011 upon his promotion to Chief Executive Officer and a one-time time-based grant to Mr. Diouane upon his promotion to Executive Vice President, Global Services and Partners. Mr. Harrison received only a time-based grant that vests over two years rather than a traditional annual grant. We describe our compensation decisions for 2011, including the rationales for these grants and the calculation of “non-GAAP operating margin” for purposes of the incentive plans, more fully in “Compensation Discussion and Analysis” above.
Annual Incentive Plans
The amounts shown in the table below under “Estimated Possible Payouts under Non-Equity Incentive Plan Awards” are for our annual cash-based incentive plan and, for Mr. Diouane, a Global Services incentive plan as well. Amounts could be earned to the extent performance criteria established at the beginning of the year were achieved.
2011 Executive Incentive Plan
Each of the awards under the 2011 Executive Incentive Plan could be earned as follows:
50% of the award would be earned based on PTC’s achievement of $178 million non-GAAP operating margin dollars in 2011;
up to an additional 38%* of the award could be earned based on achievement of non-GAAP operating margin dollars between $178 million and $194 million in 2011; and
up to the remainder of the award could be earned based on achievement of non-GAAP operating margin dollars between $194 million and $214 million in 2011, with the full amount being earned if non-GAAP operating margin dollars of at least $214 million were achieved.
*The eligible amount varied among the executives and ranged from 20% to 38% as described in “Compensation Discussion and Analysis.”
PTC achieved $211.4 million non-GAAP operating margin dollars under the plan for 2011; accordingly, these awards were earned only in part as discussed in “Compensation Discussion and Analysis” above and the footnotes to the Grants of Plan-Based Awards table below.
Global Services Incentive Plan
As described above in “Compensation Discussion and Analysis” on page 37, half of Mr. Diouane’s annual target bonus was tied to a Global Services incentive plan. Under the Global Services incentive plan, performance was evaluated quarterly and up to $37,500 (one quarter of his $150,000 target Global Services bonus) could be earned for each quarter. No amounts would be earned for any quarter unless a threshold of 65% of the Global Services operating margin plan was achieved, after which the bonus was earned in direct proportion to the percentage of the Global Services operating margin dollars target achieved for the applicable quarter (the targets were $2.0 million for the first quarter, $4.8 million for the second quarter, $6.1 million for the third quarter, and $9.9 million for the fourth quarter). These performance targets, which required increasing profitability in the Global Services organization, were calculated by taking that portion of Global Services revenue and expenses for which Mr. Diouane was responsible ($76.2 million and $64.8 million, respectively for the fourth quarter of 2011 – total Global Services revenue and operating income for the year are shown on page F-36 of our 2011 Annual Report on Form 10-K) and making exclusions similar to those described in footnote (1) to the “Fiscal 2011 Compared to Fiscal 2010” table on page 26 above, in amounts relevant to the Global Services business. PTC achieved the targets in full each quarter and Mr. Diouane earned 100% of the $150,000 Global Services target bonus.
Long-Term Incentive Awards
Our annual long-term incentive awards consist of RSUs that vest over three years, half of which are performance-based and subject to subsequent time-based vesting if earned and half of which are time-based only. In 2011, we also made the promotion grants to Mr. Heppelmann and Mr. Diouane described above. Mr. Harrison, who became our Executive Chairman in 2011, received only a time-based grant that vests over two years rather than three years because the term of his Executive Chairman role with us is two years.
Performance-Based Restricted Stock Units.The shares shown in the table below under “Estimated Possible Payouts under Equity Incentive Plan Awards” are our annual performance-based awards and, for Mr. Heppelmann, his Long-Term Performance-Based Award described below.
The annual performance-based RSUs are subject to subsequent time-based vesting if earned. These RSUs could be earned to the extent PTC achieved the following performance criteria established at the beginning of the year:
50% of the award would be earned based on achievement of $178 million non-GAAP operating margin dollars for 2011; and
up to an additional 50% of the award could be earned based on achievement of non-GAAP operating margin dollars between $178 million and $194 million for 2011.
These awards were earned at the 100% level and vested as to one-third of the RSUs in November 2011. They will vest as to the remaining portion in two substantially equal installments in November 2012 and November 2013 if the executive remains employed by PTC on the vest date.
President and Chief Executive Officer Long-Term Performance-Based Award.As discussed above in “Compensation Discussion and Analysis,” we made special one-time performance-based grant to Mr. Heppelmann upon his promotion to CEO that can be earned only upon achievement of the established long-term performance criteria described below. Achievement of the applicable performance criteria is evaluated in November 2013, 2014 and 2015 and the RSUs earned in a period will vest at those times. RSUs not earned in a period can be earned in a later period. The number of RSUs eligible to be earned in a period is set forth in the table below.
November 2013 | November 2014 | November 2015 | ||||
Eligible RSUs | 120,027 | 240,054 less the number earned in 2013 | 360,082 less the number earned in 2013 and 2014 |
The eligible RSUs in any period begin vesting upon achievement of a 16% Non-GAAP Earnings per Share Compound Annual Growth Rate (Non-GAAP EPS CAGR) from the base date of September 30, 2010 through the September 30, 2013, September 30, 2014 and September 30, 2015 measurement dates, as applicable, and vest on a linear scale up to full vesting upon achievement of a 20% Non-GAAP EPS CAGR for the applicable period in accordance with the following schedule:
| 16% Non-GAAP EPS CAGR | 17% Non-GAAP EPS CAGR | 18% Non-GAAP EPS CAGR | 19% Non-GAAP EPS CAGR | 20% Non-GAAP EPS CAGR | ||||||||||||||||
% Eligible RSUs Vested | 20 | % | 40 | % | 60 | % | 80 | % | 100 | % | ||||||||||
Time-Based Restricted Stock Units. The shares shown in the table below under “All Other Stock Awards” are time-based restricted stock units. Other than for Mr. Harrison, these RSUs vest in three substantially equal installments, the first of which vested in November 2011, and the remainder of which vest in November 2012 and November 2013 if the executive remains employed by PTC on the vest date. Mr. Harrison’s award vests in two installments, the first of which vested in September 2011 and the second of which will vest in September 2012 if he remains employed by us on the vest date.
Grants of Plan-Based Awards in 2011
Name | Committee Resolution Date(1) | Grant Date | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | Estimated Possible Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Securities Underlying Stock or Units (#) | Grant Date Fair Value of Stock Awards(2) ($) | ||||||||||||||||||||||||||||||||||
| Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||||||||||||||||||||||||
James E. Heppelmann | 9/14/2010 | 10/1/2010 | (3) | 24,005 | 360,082 | 360,082 | $ | 6,999,994 | ||||||||||||||||||||||||||||||||
President and Chief Executive Officer | 11/3/2010 | 11/3/2010 | $ | 500,000 | $ | 880,000 | $ | 1,000,000 | (4) | |||||||||||||||||||||||||||||||
| 11/3/2010 | 11/3/2010 | (5) | 39,383 | 78,767 | 78,767 | $ | 1,724,997 | |||||||||||||||||||||||||||||||||
| 11/3/2010 | 3/9/2011 | (6) | 78,767 | $ | 1,832,120 | |||||||||||||||||||||||||||||||||||
Jeffrey D. Glidden | 11/3/2010 | 11/3/2010 | $ | 150,000 | $ | 249,000 | $ | 300,000 | (4) | |||||||||||||||||||||||||||||||
Executive Vice President, Chief Financial Officer | ||||||||||||||||||||||||||||||||||||||||
Barry F. Cohen | 11/3/2010 | 11/3/2010 | $ | 150,000 | $ | 249,000 | $ | 300,000 | (4) | |||||||||||||||||||||||||||||||
Executive Vice President, Strategy | 11/3/2010 | 11/3/2010 | (5) | 17,050 | 34,100 | 34,100 | $ | 746,790 | ||||||||||||||||||||||||||||||||
| 11/3/2010 | 3/9/2011 | (6) | 34,100 | $ | 793,166 | |||||||||||||||||||||||||||||||||||
Marc Diouane | 10/5/2010 | 10/5/2010 | (7) | 25,720 | $ | 513,628 | ||||||||||||||||||||||||||||||||||
Executive Vice President, Global Services and Partners | 11/3/2010 | 11/3/2010 | $ | 75,000 | $ | 105,000 | $ | 150,000 | (4) | |||||||||||||||||||||||||||||||
| 11/3/2010 | 11/3/2010 | $ | 37,500 | $ | 150,000 | $ | 150,000 | |||||||||||||||||||||||||||||||||
| 11/3/2010 | 11/3/2010 | (5) | 9,703 | 19,406 | 19,406 | $ | 424,991 | |||||||||||||||||||||||||||||||||
| 11/3/2010 | 3/9/2011 | (6) | 19,406 | $ | 451,384 | |||||||||||||||||||||||||||||||||||
C. Richard Harrison | 9/14/2010 | 10/1/2010 | (8) | 154,320 | $ | 2,999,981 | ||||||||||||||||||||||||||||||||||
Executive Chairman | ||||||||||||||||||||||||||||||||||||||||
Paul J. Cunningham | 11/3/2010 | 11/3/2010 | $ | 150,000 | $ | 249,000 | $ | 300,000 | (4) | |||||||||||||||||||||||||||||||
Former Executive Vice | 11/3/2010 | 11/3/2010 | (5) | 17,050 | 34,100 | 34,100 | $ | 746,790 | ||||||||||||||||||||||||||||||||
President, Worldwide | 11/3/2010 | 3/9/2011 | (6) | 34,100 | $ | 793,166 | ||||||||||||||||||||||||||||||||||
Sales | ||||||||||||||||||||||||||||||||||||||||
| (1) | The Compensation Committee resolved at its regular meeting held on September 14, 2010 to make the grants to Messrs. Heppelmann and Harrison effective as of October 1, 2010, the date on which Messrs. Heppelmann and Harrison assumed the roles of Chief Executive Officer and Executive Chairman, respectively. The Compensation Committee resolved at its November 3, 2010 meeting, our usual timing, to make the annual time-based grants to all the executives effective on the date additional shares were approved for issuance under the equity incentive plan (March 9, 2011) due to the limited number of shares available for grant under the equity incentive plan on November 3, 2010. Accordingly, the number of RSUs to be granted was established on November 3, 2010 by dividing the target value by the price of PTC stock on that date. Because the closing price was higher on March 9, 2011, the value shown as the grant value is above the target value. |
| (2) | Aggregate grant date fair value calculated by multiplying the number of RSUs granted by the closing price of a share of our common stock on the NASDAQ Global Select Market on the grant date. For performance-based awards, the value determined at the grant date assumes that the award will be earned in full. The closing price on October 1, 2010 was $19.44, on October 5, 2010 was $19.97, on November 3, 2010 was $21.90 and on March 9, 2011 was $23.26. |
| (3) | Performance-based restricted stock units that will be earned only to the extent the established performance criteria are met. Up to one-third of the RSUs are eligible to vest in November 2013, up to two-thirds of the RSUs are eligible to vest in November 2014 and up to 100% of the RSUs are eligible to vest in November 2015. The award is described above the table in “President and CEO Long-Term Performance-Based Award.” |
| (4) | These awards were not earned in full. The amounts earned by these executives were as follows: Mr. Heppelmann, $984,300; Messrs. Cohen, Glidden and Cunningham, $293,340; Mr. Diouane, $144,135. |
| (5) | Performance-based restricted stock units subject to subsequent time-based restrictions as described above. The restricted stock units could be earned only to the extent the established criteria were met. 100% of the restricted stock units were earned. One-third of such RSUs vested on November 15, 2011 and the remaining RSUs will vest in two substantially equal installments on November 15, 2012 and 2013. |
| (6) | Time-based restricted stock units. One third of these RSUs vested on November 15, 2011 and the remaining two-thirds will vest in two substantially equal installments on November 15, 2012 and November 15, 2013. |
| (7) | Time-based restricted stock units granted upon promotion that vest in three substantially equal installments in November 2011, 2012 and 2013. |
| (8) | Time-based restricted stock units that vested as to 77,160 RSUs on September 30, 2011 and will vest as to the remaining 77,160 RSUs on September 30, 2012. |
Outstanding Equity Awards at 2011 Fiscal Year-End
The following table shows the equity awards held by each named executive officer as of September 30, 2011. The equity awards in the table consist of stock options granted through 2004 and restricted stock units granted in 2009, 2010 and 2011.
Name | Option Awards | Stock Awards | ||||||||||||||||||||||||||||
| Equity Incentive Plan Awards | ||||||||||||||||||||||||||||||
| Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(1) | Market Value of Shares or Units of Stock That Have Not Vested ($)(2) | Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(3) | Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(2) | |||||||||||||||||||||||
James E. Heppelmann President and Chief Executive Officer | 79,999 | 8.50 | 5/30/2012 | |||||||||||||||||||||||||||
| 149,998 | 4.98 | 2/13/2013 | ||||||||||||||||||||||||||||
| 119,999 | 11.48 | 3/3/2014 | ||||||||||||||||||||||||||||
| 63,775 | (4) | $ | 980,860 | 39,473 | (8) | $ | 607,095 | |||||||||||||||||||||||
| 65,789 | (5) | $ | 1,011,835 | 360,082 | (9) | $ | 5,538,061 | |||||||||||||||||||||||
| 65,789 | (6) | $ | 1,011,835 | 78,767 | (10) | $ | 1,211,436 | |||||||||||||||||||||||
| 78,767 | (7) | $ | 1,211,436 | |||||||||||||||||||||||||||
Jeffrey D. Glidden Executive Vice President, Chief Financial Officer | 39,494 | (11) | $ | 607,418 | 39,494 | (12) | $ | 607,418 | ||||||||||||||||||||||
Barry F. Cohen Executive Vice President, Strategy | 159,999 | 8.50 | 5/30/2012 | |||||||||||||||||||||||||||
| 110,002 | 4.98 | 2/13/2013 | ||||||||||||||||||||||||||||
| 119,999 | 11.48 | 3/3/2014 | ||||||||||||||||||||||||||||
| 31,751 | (4) | $ | 488,330 | 19,736 | (8) | $ | 303,540 | |||||||||||||||||||||||
| 32,754 | (5) | $ | 503,757 | 34,100 | (10) | $ | 524,458 | |||||||||||||||||||||||
| 32,754 | (6) | $ | 503,757 | |||||||||||||||||||||||||||
| 34,100 | (7) | $ | 524,458 | |||||||||||||||||||||||||||
Marc Diouane Executive Vice President, Global Services and Partners | 4,000 | 20.75 | 11/15/2011 | |||||||||||||||||||||||||||
| 11,446 | (4) | $ | 176,039 | 19,406 | (10) | $ | 298,464 | |||||||||||||||||||||||
| 21,929 | (5) | $ | 337,268 | |||||||||||||||||||||||||||
| 19,406 | (7) | $ | 298,464 | |||||||||||||||||||||||||||
| 25,720 | (13) | $ | 395,574 | |||||||||||||||||||||||||||
C. Richard Harrison Executive Chairman | 228,235 | 8.50 | 5/30/2012 | |||||||||||||||||||||||||||
| 349,898 | 4.98 | 2/13/2013 | ||||||||||||||||||||||||||||
| 311,285 | 11.48 | 3/3/2014 | ||||||||||||||||||||||||||||
| 91,075 | (4) | $ | 1,400,734 | |||||||||||||||||||||||||||
| 93,951 | (5) | $ | 1,444,966 | |||||||||||||||||||||||||||
| 93,951 | (6) | $ | 1,444,966 | |||||||||||||||||||||||||||
| 77,160 | (14) | $ | 1,186,721 | |||||||||||||||||||||||||||
Paul J. Cunningham Former Executive Vice President, Worldwide Sales | 31,751 | (4) | $ | 488,330 | 19,736 | (8) | $ | 303,540 | ||||||||||||||||||||||
| 32,754 | (5) | $ | 503,757 | 34,100 | (10) | $ | 524,458 | |||||||||||||||||||||||
| 32,754 | (6) | $ | 503,757 | |||||||||||||||||||||||||||
| 34,100 | (7) | $ | 524,458 | |||||||||||||||||||||||||||
| (1) | The unvested RSU awards shown in this column are subject to time-based vesting. Some of these awards were subject initially to performance-based criteria, which were satisfied in whole or in part, and are now subject only to time-based vesting. |
| (2) | The market value of unvested shares and RSUs was calculated as of September 30, 2011 based on the closing price of a share of our common stock on the NASDAQ Global Select Market of $15.38. |
| (3) | The unvested RSUs shown in this column are subject to performance-based vesting. |
| (4) | Time-based RSUs awarded on May 13, 2009. The RSUs vested on November 15, 2011. |
| (5) | Time-based RSUs awarded on November 3, 2009. These RSUs vest in three substantially equal annual installments. The first and second installments vested on November 15, 2010 and 2011, and the remaining installment will vest on November 15, 2012. |
| (6) | Blended performance and time-based RSUs awarded on November 3, 2009. The RSUs vest in three substantially equal installments. The first and second installments vested on November 15, 2010 and 2011. The remaining RSUs will vest on November 15, 2012. |
| (7) | Time-based RSUs awarded on March 9, 2011. These RSUs vest in three substantially equal annual installments of 26,256 RSUs on November 15, 2011, 26,256 RSUs on November 15, 2012 and 26,255 RSUs on November 15, 2013. |
| (8) | Performance-based RSUs awarded on November 3, 2009. These RSUs are subject to performance criteria through 2012. If the performance criteria are determined to have been met, these RSUs will vest on November 15, 2012. |
| (9) | Performance-based restricted stock units awarded on October 1, 2010 that will be earned only to the extent the established performance criteria are met. Up to one-third of the restricted stock units are eligible to vest on the later of November 15, 2013 and the date the Compensation Committee determines the extent to which the performance criteria have been achieved. Up to two-thirds of the restricted stock units are eligible to vest on the later of November 15, 2014 and the date the Compensation Committee determines the extent to which the performance criteria have been met. Up to all of the restricted stock units are eligible to vest on the later of November 15, 2015 and the date the Compensation Committee determines the extent to which the performance criteria have been met. This grant is described above in “Grants of Plan-Based Awards – Long-Term Incentive Awards – President and Chief Executive Officer Long-Term Performance-Based Award.” |
| (10) | Blended performance-based and time-based RSUs awarded on November 3, 2010. The RSUs could be earned only to the extent the established criteria were met. The criteria were met in full for 2011 and one-third of such units vested on November 15, 2011. The remaining RSUs vest in two substantially equal installments on November 15, 2012 and 2013. |
| (11) | Time-based RSUs awarded on September 27, 2010. These RSUs vest in three substantially equal annual installments on November 15, 2011, November 15, 2012 and November 15, 2013. |
| (12) | Blended performance-based and time-based RSUs awarded on September 27, 2010. The RSUs could be earned only to the extent the established criteria were met. The criteria were met in full for 2011 and one-third of such units vested on November 15, 2011. The remaining RSUs vest in two substantially equal installments on November 15, 2012 and November 15, 2013. |
| (13) | Time-based RSUs awarded on October 5, 2010. These RSUs vest in three substantially equal annual installments of 8,574 RSUs on November 15, 2011, 8,573 RSUs on November 15, 2012 and 8,573 RSUs on November 15, 2013. |
| (14) | Time-based restricted stock units that vest on September 30, 2012. |
Option Exercises and Stock Vested in 2011
The following table shows the value realized by executive officers upon option exercises, if any, and vesting of restricted stock and restricted stock units during 2011.
| Option Awards | Stock Awards | |||||||||||||||
Name | Number of Shares Acquired on Exercise (#)(1) | Value Realized on Exercise ($)(1) | Number of Shares Acquired on Vesting (#)(2) | Value Realized on Vesting ($)(2) | ||||||||||||
James E. Heppelmann, | ||||||||||||||||
President and Chief Executive Officer | 230,000 | $ | 2,234,898 | 169,095 | $ | 3,700,787 | ||||||||||
Jeffrey D. Glidden, | ||||||||||||||||
Executive Vice President, Chief Financial Officer | — | — | — | — | ||||||||||||
Barry F. Cohen, | ||||||||||||||||
Executive Vice President, Strategy | 200,000 | $ | 2,133,901 | 90,859 | $ | 1,990,622 | ||||||||||
Marc Diouane, | ||||||||||||||||
Executive Vice President, Global Services and Partners | — | — | 30,753 | $ | 670,108 | |||||||||||
C. Richard Harrison, | ||||||||||||||||
Executive Chairman | 312,046 | $ | 2,757,894 | 337,780 | $ | 6,896,623 | ||||||||||
Paul J. Cunningham, | ||||||||||||||||
Former Executive Vice President, Worldwide Sales | 45,999 | $ | 473,763 | 90,859 | $ | 1,990,622 | ||||||||||
| (1) | The table below shows the dates the options exercised in fiscal 2011 were granted, the option exercise price, the dates on which they were exercised, the number of shares of each grant exercised and the per share values on exercise date for each executive. |
Name | Option Grant Date | Option Exercise Price | Exercise Date | Shares Exercised | Exercise Date per Share Value | Value Realized on Exercise | ||||||||||||||||||
James E. Heppelmann | 9/20/2001 | $ | 12.5750 | 11/8/2010 | 50,000 | $ | 22.4324 | $ | 492,870 | |||||||||||||||
| 9/20/2001 | $ | 12.5750 | 5/2/2011 | 92,048 | $ | 23.7720 | $ | 1,030,661 | ||||||||||||||||
| 9/20/2001 | $ | 12.5750 | 5/2/2011 | 7,952 | $ | 23.7720 | $ | 89,039 | ||||||||||||||||
| 5/30/2002 | $ | 8.50 | 9/6/2011 | 11,764 | $ | 16.2791 | $ | 91,513 | ||||||||||||||||
| 5/30/2002 | $ | 8.50 | 9/6/2011 | 68,236 | $ | 16.2791 | $ | 530,815 | ||||||||||||||||
Barry F. Cohen | 9/20/2001 | $ | 12.5750 | 5/2/2011 | 75,575 | $ | 23.3800 | $ | 816,588 | |||||||||||||||
| 9/20/2001 | $ | 12.5750 | 5/3/2011 | 49,554 | $ | 23.0900 | $ | 521,060 | ||||||||||||||||
| 9/20/2001 | $ | 12.5750 | 5/10/2011 | 51,015 | $ | 23.2100 | $ | 542,545 | ||||||||||||||||
| 9/20/2001 | $ | 12.5750 | 5/10/2011 | 23,856 | $ | 23.2100 | $ | 253,709 | ||||||||||||||||
C. Richard Harrison | 9/20/2001 | $ | 12.5750 | 10/29/2010 | 312,046 | $ | 21.4131 | $ | 2,757,894 | |||||||||||||||
Paul J. Cunningham | 9/20/2001 | $ | 12.5750 | 11/9/2010 | 21,000 | $ | 22.2766 | $ | 203,734 | |||||||||||||||
| 3/3/2004 | $ | 11.4750 | 11/9/2010 | 8,714 | $ | 22.2766 | $ | 94,125 | ||||||||||||||||
| 3/3/2004 | $ | 11.4750 | 11/9/2010 | 16,285 | $ | 22.2766 | $ | 175,904 | ||||||||||||||||
| (2) | The table below shows the dates the shares that vested in fiscal 2011 were granted, the dates on which they vested, the per share values on those dates, and the number of shares of each grant that vested for each executive. |
Grant | Grant Date per Share Value | Vest Date | Vest Date per Share Value | James E. Heppelmann | Jeffrey D. Glidden | Barry F. Cohen | Paul J. Cunningham | Marc Diouane | C. Richard Harrison | |||||||||||||||||||||||||||
11/7/2007 | $ | 18.58 | 11/9/2010 | $ | 22.20 | 39,530 | — | 26,353 | 26,353 | — | 75,592 | |||||||||||||||||||||||||
11/7/2007 | $ | 18.58 | 11/15/2010 | $ | 21.79 | — | — | — | — | 8,341 | — | |||||||||||||||||||||||||
5/13/2009 | $ | 10.43 | 11/15/2010 | $ | 21.79 | 63,775 | — | 31,752 | 31,752 | 11,447 | 91,076 | |||||||||||||||||||||||||
11/3/2009 | $ | 15.20 | 11/15/2010 | $ | 21.79 | 65,790 | — | 32,754 | 32,754 | 10,965 | 93,952 | |||||||||||||||||||||||||
10/1/2010 | $ | 19.44 | 9/30/2011 | $ | 15.38 | — | — | — | — | — | 77,160 | |||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
| 169,095 | — | 90,859 | 90,859 | 30,753 | 337,780 | |||||||||||||||||||||||||||||||
Potential Payments upon Termination or Change in Control
We have agreements with our executive officers that provide the benefits described below in connection with certain terminations or a change in control of PTC. We describe our reasons for providing these benefits in “Compensation Discussion and Analysis — Severance and Change in Control Arrangements” on page 39.
To receive the payments and benefits described below, the executive must execute a release of claims against PTC. The executive also must continue to comply with the material terms of his agreement, as applicable, and the terms of his Non-Disclosure, Non-Competition and Invention Agreement with PTC, which remains in effect after his termination of employment for two years for each of Mr. Harrison and Mr. Heppelmann and one year for each of the other executives with respect to the non-competition and non-solicitation provisions and indefinitely with respect to the other provisions.
Agreement with Mr. Harrison, Our Executive Chairman
Termination without Cause or for Good Reason
If we terminate Mr. Harrison’s employment without cause or if he resigns for good reason (including, generally, a reduction in compensation or benefits, a reduction in authority or responsibilities, or relocation of our principal office by over 50 miles):
he would be entitled to payment of all unpaid cash compensation payable under his agreement (up to the maximum $1,000,000 payable under the agreement),
the vesting of all outstanding equity awards he holds would be accelerated, and
each outstanding vested stock option he holds would remain exercisable until the close of business on the earlier of the end of the original term of the option and November 30, 2012.
Resignation for Convenience or Termination for Non-Performance.
If Mr. Harrison resigns for convenience or if we terminate his employment for non-performance of his employment responsibilities:
all unearned salary and any unvested equity granted pursuant to the agreement will be forfeited; and
as long as Mr. Harrison continues to serve on our Board of Directors, must qualify as independent directorsvesting would continue on any equity held by him other than equity granted under the agreement and the period during which he may exercise any vested stock options would be extended to the earlier of the original termination date of the option and February 28, 2013.
Termination for Cause (other than Non-Performance).If Mr. Harrison’s employment is terminated by us for reasons constituting Cause (other than non-performance described above), he would forfeit all of his unearned salary and unvested equity awards.
Change in accordanceControl.Mr. Harrison’s employment will terminate automatically upon a change in control of PTC. Upon such termination, he will be entitled to the payments and benefits described above underTermination without Cause or for Good Reason.
Death or Disability. If Mr. Harrison’s employment is terminated due to his death or disability, all outstanding equity awards that he holds would immediately become vested and exercisable in full.
No Excise Tax Gross-Up.Mr. Harrison is not eligible to receive a “gross-up” payment if any payments and benefits payable to him would constitute “parachute payments” under the Internal Revenue Code and be subject to the related excise tax.
Agreement with Nasdaq independence rules.Mr. Heppelmann, Our President and Chief Executive Officer
Termination without Cause
If we terminate Mr. Heppelmann’s employment without cause, he will be entitled to:
The Nominating & Corporate Governance Committee’s processpayment of his base salary over the two years following such event, paid at the highest rate in effect during the six months preceding such event,
payment of an amount equal to two times the average annual bonuses paid to him for evaluating nomineesthe two fiscal years preceding the year in which the termination occurs, paid over two years, and
continued participation in PTC’s medical, dental, vision and basic life insurance benefit plans (or payment in lieu thereof) for director, including nominees recommendedup to two years following such event.
Change in Control
Equity.Effective upon a change in control of PTC:
all performance criteria applicable to any equity award held by stockholders, isMr. Heppelmann will be deemed to consider an individual’s skills, characterhave been met in full, and professional ethics, judgment, leadership experience, business experience and acumen, familiarity with relevant industry issues, national and international experience, and other relevant criteria as may contribute
the vesting schedule applicable to PTC’s success. This evaluation is performed in lightany equity award held by Mr. Heppelmann will be amended to immediately vest any portion of such award scheduled to vest after the second anniversary of the Committee’s views aschange in control (unless the agreement is not assumed or replaced, in which case the equity award will become vested and exercisable in full).
These provisions are not applicable to what skill setany equity interests issued in connection with PTC’s annual incentive plan or other short-term incentive plans (“bonus equity”) or to any equity award specifically excluded from these provisions.
Annual Incentive Award/Annual Bonus Equity.In addition, upon a change in control, for any annual cash incentive award in effect for the year in which the change in control occurs and other characteristics would most complement thoseany bonus equity, all performance criteria will be deemed met in full and Mr. Heppelmann will be entitled to a lump sum payment of a pro-rata portion of any such annual cash incentive award and a pro-rata portion of any such bonus equity held by him will vest (such pro-rata portions to be based on the number of days elapsed in the applicable fiscal year).
Termination in Connection with a Change in Control
If within the two years following a change in control (or within the prior six months in certain circumstances) Mr. Heppelmann is terminated without cause or resigns for good reason (including, generally, a reduction in compensation, a reduction in authority or responsibilities, or relocation of our principal office by over 50 miles), Mr. Heppelmann will be entitled to:
a lump sum payment equal to three times his highest base salary in effect for the six months preceding such termination or required to take effect under the agreement,
a lump sum payment equal to three times his highest annual target bonus in effect for the year in which the change in control occurred or after the change in control or required to take effect under the agreement,
continued participation in PTC’s medical, dental, vision and basic life insurance benefit plans (or payment in lieu thereof) for up to two years following such event,
accelerated vesting in full of all equity awards held by him (other than any bonus equity held by him), and
the option exercise period for each stock option held by him will be extended until the earlier of the current directors, includingsecond anniversary of his termination of employment or the diversity, age, skills and experienceoriginal term of such option.
No Gross-Up Payment.Mr. Heppelmann is not under any circumstances entitled to a gross-up payment for any excise taxes to which he may be subject if any of the Board as above payments and benefits are considered to be “parachute payments.”
Death or Disability
If Mr. Heppelmann’s employment terminates by reason of his death or disability:
all performance criteria applicable to all equity awards held by him will be deemed to have been met in full, and
all equity awards held by him will immediately become vested and exercisable in full.
These provisions are not applicable to any bonus equity held by him, which would terminate on such event if the restrictions with respect thereto had not lapsed before such event.
Agreements with Mr. Cohen, Mr. Glidden and Marc Diouane (and, formerly, Mr. Cunningham)
Termination without Cause
If we terminate any of these executives’ employment without cause, the executive will be entitled to:
a whole. Withlump sum payment in an amount equal to his highest annual salary (excluding bonuses) in effect during the six months immediately preceding the termination date, and
continued participation in PTC’s medical, dental, vision and basic life insurance benefit plans (or payment in lieu thereof) for up to one year following such termination.
Change in Control
Equity.Effective upon a change in control of PTC:
all performance criteria applicable to any equity award held by the executive will be deemed to have been met in full, and
the vesting schedule applicable to any equity award held by the executive, including restricted stock, will be amended to immediately vest any portion of such award scheduled to vest after the second anniversary of the change in control (unless the agreement is not assumed or replaced, in which case the equity award will become vested and exercisable in full).
These provisions are not applicable to any bonus equity held by the executive.
Annual Cash Incentive/Bonus Equity.In addition, upon a change in control, with respect to identifying potential candidates,any annual cash incentive award in effect for the Committee doesyear in which the change in control occurs and any bonus equity, all performance criteria will be deemed met in full and each executive will be entitled to a lump sum payment of a
pro-rata portion of any such annual cash incentive award and a pro-rata portion of any such bonus equity held by the executive will vest (such pro-rata portions to be based on the number of days elapsed in the applicable fiscal year).
Termination in Connection with a Change in Control
If within the two years following a change in control the executive is terminated without cause or resigns for good reason (including, generally, a reduction in compensation, a reduction in authority or responsibilities, or relocation of our principal office by over 50 miles), the executive will be entitled to:
the benefits he would have received if his employment was terminated without cause as described above,
a lump sum payment equal to his highest annual target bonus in effect for the year in which the change in control occurred or after the change in control, and
accelerated vesting in full of all equity awards held by him (other than any bonus equity held by him).
No Gross-Up Payment.None of these executives is entitled under any circumstances to a gross-up payment for any excise taxes to which he may be subject if any of the above payments or benefits are considered to be “parachute payments.”
Termination upon Death or Disability
If the executive’s employment terminates due to his death or disability:
all performance criteria applicable to any equity awards held by him will be deemed to have been met in full, and
all equity awards held by him will immediately become vested and exercisable in full.
These provisions are not forecloseapplicable to any sources.bonus equity held by the executive, which would terminate on such event if the restrictions with respect thereto had not lapsed before such event.
Tabular Presentation of Benefits Provided
The table on the next page shows the benefits that would have been provided under the agreements described above had a change in control and/or termination of each executive’s employment occurred on September 30, 2011. Because Mr. Cunningham resigned as our Executive Vice President, Worldwide Sales, before fiscal year-end, he received no payments or other benefits pursuant to his executive agreement and is not included in the table below.
Potential Payments on Termination or Change in Control
| Circumstances of Termination or Event | ||||||||||||||||||||
| Termination without Cause | Termination for Cause or Voluntary Resignation | Change in Control | Termination without Cause or Resignation for Good Reason within 2 Years following a Change in Control | Disability or Death | ||||||||||||||||
James E. Heppelmann | ||||||||||||||||||||
President & Chief Executive Officer | ||||||||||||||||||||
Base Salary | $ | 1,500,000 | $ | — | $ | — | $ | 2,250,000 | $ | — | ||||||||||
Bonus | 1,584,300 | — | — | 3,000,000 | — | |||||||||||||||
Pro-Rated Bonus | — | — | 1,000,000 | — | — | |||||||||||||||
Accelerated Equity | — | — | 3,576,634 | (1) | 5,226,893 | (2) | 11,572,558 | (2) | ||||||||||||
Benefits Continuation | 79,869 | — | — | 79,869 | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 3,164,169 | $ | — | $ | 4,576,634 | $ | 10,556,762 | $ | 11,572,558 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Jeffrey D. Glidden | ||||||||||||||||||||
Executive Vice President, Chief Financial Officer | ||||||||||||||||||||
Base Salary | $ | 415,000 | $ | — | $ | — | $ | 415,000 | $ | — | ||||||||||
Bonus | — | — | 300,000 | — | ||||||||||||||||
Pro-Rated Bonus | — | — | 300,000 | — | — | |||||||||||||||
Accelerated Equity | — | — | 404,925 | (3) | 809,911 | (2) | 1,214,836 | (2) | ||||||||||||
Benefits Continuation | 55,592 | — | — | 55,592 | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 470,592 | $ | — | $ | 704,925 | $ | 1,580,503 | $ | 1,214,836 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Barry F. Cohen | ||||||||||||||||||||
Executive Vice President, Strategy | ||||||||||||||||||||
Base Salary | $ | 415,000 | $ | — | $ | — | $ | 415,000 | $ | — | ||||||||||
Bonus | — | — | — | 300,000 | — | |||||||||||||||
Pro-Rated Bonus | — | — | 300,000 | — | — | |||||||||||||||
Accelerated Equity | — | — | 349,618 | (3) | 2,498,681 | (2) | 2,848,299 | (2) | ||||||||||||
Benefits Continuation | 80,652 | — | — | 80,652 | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 495,652 | $ | — | $ | 649,618 | $ | 3,294,333 | $ | 2,848,299 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Marc Diouane | ||||||||||||||||||||
Executive Vice President, Global Services and Partners | ||||||||||||||||||||
Base Salary | $ | 415,000 | $ | — | $ | — | $ | 415,000 | $ | — | ||||||||||
Bonus | — | — | — | 300,000 | — | |||||||||||||||
Pro-Rated Bonus | — | — | $ | 300,000 | — | — | ||||||||||||||
Accelerated Equity | — | — | $ | 330,808 | (3) | 1,175,001 | (2) | 1,505,809 | (2) | |||||||||||
Benefits Continuation | 28,844 | — | — | 28,844 | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 443,844 | $ | — | $ | 630,808 | $ | 1,918,845 | $ | 1,505,809 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
C. Richard Harrison | ||||||||||||||||||||
Executive Chairman | ||||||||||||||||||||
Base Salary | $ | 500,000 | $ | — | $ | 500,000 | (4) | $ | — | $ | — | |||||||||
Accelerated Equity | 5,477,387 | — | 5,477,387 | (2) | — | 5,477,387 | (2) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 5,977,387 | $ | — | $ | 5,977,387 | $ | — | $ | 5,477,387 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| (1) | Value of unvested shares and restricted stock units that would have vested from and after the second anniversary of the change in control that accelerate and become fully vested, based on a closing stock price of $15.38 on September 30, 2011. Includes 50% of the special award granted October 1, 2010 that is not subject to the Change in Control provisions of his executive agreement. |
| (2) | Value of unvested shares and restricted stock units that accelerate and become fully vested based on a closing stock price of $15.38 on September 30, 2011. |
| (3) | Value of unvested shares and restricted stock units that would have vested from and after the second anniversary of the change in control that accelerate and become fully vested, based on a closing stock price of $15.38 on September 30, 2011. |
| (4) | Mr. Harrison’s employment is automatically terminated upon a change in control and all outstanding amounts become payable. |
STOCKHOLDER PROPOSALS AND NOMINATIONS
How to Submit a Proposal
If you wish to recommendnominate a person for election as a director candidate for consideration by the Committee, you should provide the following information to Aaron von Staats, Clerk, Parametric Technology Corporation, 140 Kendrick Street, Needham, Massachusetts 02494: (a) a brief statement outlining the reasons the nominee would be an effective director for PTC; (b) (i) the name, age, and business and residence addresses of the candidate, (ii) the principal occupation or employment of the candidate for the past five years, as well as information about any other board of directors and board committee on which the candidate has served during that period, (iii) the number of shares of PTC stock, if any, beneficially owned by the candidate and (iv) details of any business or other significant relationship the candidate has ever had with PTC; and (c) (i) your name and record address and the name and address of the beneficial owner of our shares, if any, on whose behalf the proposal is made and (ii) the number of shares of PTC stock that you and such other beneficial owner, if any, beneficially own. The Committee may seek further information from or about you, the candidate, or any such other beneficial owner, including information about all business and other relationships between the candidate and you and between the candidate and any such other beneficial owner.
INFORMATION ABOUT STOCKHOLDER PROPOSALS
If you wish to make aanother proposal for consideration at the 20062013 Annual Meeting of Stockholders, you must give written notice to us between September 29, 200527, 2012 and October 28, 2005,27, 2012, including the information required by our by-laws. The information required by our by-laws with respect to director nominations is described below.
Under SEC rules, if you desire that such proposal be included in our proxy statement and proxy card, you must give written notice to us no later than September 29, 2005. Your written proposal must be sent to: Aaron von Staats, Clerk, Parametric Technology Corporation, 140 Kendrick Street, Needham, Massachusetts 02494. 27, 2012.
Your written proposal must be sent to: | Aaron C. von Staats Secretary Parametric Technology Corporation 140 Kendrick Street Needham, Massachusetts 02494 |
In order to curtail controversy as to the date on which PTC receives a proposal, you should submit your proposal by Certified Mail-Return Receipt Requested.
Information to be Provided in Connection with Director Nominations
If you wish to recommend a person for election as a director, your proposal should include the information described below and a brief statement describing the reasons you believe the person would be an effective director for PTC.
Information about the Director Nominee
You must provide the following information about the director nominee:
the name, age, and business and residence addresses of the person,
the principal occupation or employment of the person for the past five years, as well as information about any other Board of Directors and board committee on which the person has served during that period,
the number of shares of PTC stock, if any, beneficially owned by the person,
whether or not the person is currently “independent” from PTC under the independence standards of the NASDAQ Global Select Market and all facts that currently prevent the person from being independent under such standards, if applicable, and
any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended.
Information about the Nominating Stockholder
You must provide the following information about yourself:
your name and record address and the name and address of the beneficial owner of our shares, if any, on whose behalf the proposal is made,
a description of all familial, compensatory, financial and/or other relationships, arrangements and transactions, existing at any time within the preceding three years or currently proposed, between the
director nominee and you or the beneficial owner of our shares on whose behalf the proposal is made, if any, or any of your or their respective affiliates and associates, and |
the details of all the following that are held and/or beneficially owned, directly or indirectly, including through any entity, by you and by such beneficial owner, if any:
| — | the number of shares of PTC stock, |
| — | any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to PTC stock or with a value derived in whole or in part from the value of PTC stock, whether or not such instrument or right is subject to settlement in PTC stock or otherwise (a “derivative instrument”) and any other direct or indirect opportunity of any such person to profit or share in any profit derived from any increase or decrease in the value of PTC stock, |
| — | any proxy, contract, arrangement, understanding, or relationship pursuant to which you or such other beneficial owner, if any, has a right to vote any shares of PTC stock, |
| — | any short interest in PTC stock (that is, if you directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, have the opportunity to profit or share in any profit derived from any decrease in the value of PTC stock), |
| — | any rights to dividends on PTC stock that are separated or separable from PTC stock, and |
| — | any performance-related fees (other than an asset-based fee) that you or such beneficial owner, if any, is entitled to based on any increase or decrease in the value of PTC stock or derivative instruments, if any, as of the date of your notice, including without limitation any such interest held by members of your immediate family sharing the same household. |
The Committee may require any proposed nominee to furnish such other information as it may reasonably require to determine the proposed nominee’s eligibility, or lack thereof, to serve as a director of PTC.
By Order of the Board of Directors,
AARON C. VON STAATS
AARON C.VON STAATS
Clerk
Secretary
January 27, 2005
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING OF STOCKHOLDERS. WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE OR VOTE BY TELEPHONE OR ON THE INTERNET. A PROMPT RESPONSE WILL GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION WILL BE APPRECIATED.
PARAMETRIC TECHNOLOGY CORPORATION
AUDIT COMMITTEE CHARTER
The audit committee is a committee appointed each year by the board of directors. Its primary function is to assist the board in fulfilling its oversight responsibilities for accounting and financial reporting compliance, including reviewing the financial information provided to the stockholders and others, the Corporation’s accounting policies, disclosure controls and procedures and internal accounting and financial controls, and the audit process.
Oversight of Independent Accountant
The independent accountant shall be ultimately accountable to the board of directors and its audit committee, as representatives of the stockholders. In this connection, the audit committee, as a committee of the board, shall be directly responsible for the appointment (and where appropriate, replacement), evaluation and compensation of the work of the independent accountant, including resolving any disagreements between management and the independent accountant regarding financial reporting. The committee shall receive direct reports from the independent accountant. The committee shall be responsible for approving, in advance, all auditing services and permitted non-audit services provided by the independent accountant.
The audit committee shall also be responsible for overseeing the independence of the independent accountant. In this connection, the audit committee shall receive from the independent accountant a formal written statement delineating all relationships between the independent accountant and the Corporation, consistent with Independence Standards Board Standard No. 1, and shall actively engage in a dialogue with the independent accountant with respect to any disclosed relationships or services that may impact its objectivity and independence and take, or recommend that the full board of directors take, appropriate action regarding the independence of the independent accountant.
In the course of its appointment of the independent accountant, the audit committee will, at least once every three years, evaluate the tenure of the independent accountant’s service, the quality of its engagements and the associated costs to determine if independent accountant rotation is advisable.
Responsibilities for Accounting and Financial Reporting Compliance
The audit committee’s role is one of oversight, and it is recognized that the Corporation’s management is responsible for preparing the financial statements and that the independent accountant is responsible for auditing those financial statements.
The following functions shall be the common recurring activities of the audit committee in carrying out its oversight function. These functions are set forth as a guide and may be varied from time to time as appropriate in the circumstances. In meeting its responsibilities, the audit committee is expected to:
1. Provide an open avenue of communication between the independent accountant and the board of directors.
2. Inquire of management and the independent accountant about significant risks or exposures with respect to accounting methods and financial practices and assess the steps management has taken to minimize such risk to the Corporation.
3. Consider, in consultation with the independent accountant, the audit scope and plan of the independent accountant.
4. Review with the independent accountant the coordination of audit effort to assure completeness of coverage and reduction of redundant efforts.
5. Monitor the adequacy and effectiveness of the Corporation’s internal controls and internal auditing procedures, including computerized information system controls and security, and consider and review with the independent accountant:
a. Such adequacy and effectiveness and how the Corporation’s financial systems and controls compare with industry practices;
b. Any significant deficiencies in the design or operation of those controls that could adversely affect the Corporation’s ability to record, process, summarize and report financial data;
c. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Corporation’s internal controls; and
d. Any related significant findings and recommendations of the independent accountant and internal auditing personnel together with management’s responses thereto.
6. Regarding the Corporation’s accounting practices:
a. Review with the independent accountant the acceptability and quality of the Corporation’s accounting principles and policies, as contemplated by Statement of Auditing Standards No. 61, and discuss with the independent accountant how the Corporation’s accounting policies compare with those in the industry;
b. Review with management and the independent accountant the Corporation’s critical accounting policies and practices, and the accounting estimates resulting from the application thereof;
c. Discuss with the independent accountant all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, the ramifications of use of such alternative disclosures and treatments, and the treatment preferred by the independent accountant; and
d. Discuss with the independent accountant periodically whether all material correcting adjustments identified by the outside auditor in accordance with generally accepted accounting principles and the rules of the SEC are reflected in the Corporation’s financial statements.
7. Review with management and the independent accountant any material financial or other arrangements of the Corporation that do not appear on the Corporation’s financial statements and any transactions or courses of dealing with third parties that are significant in size or involve terms or other aspects that differ from those likely to be negotiated with independent parties, and which arrangements or transactions are relevant to an understanding of the Corporation’s financial statements.
8. Review with management quarterly and at the completion of the annual examination:
a. The independent accountant’s audit of the Corporation’s financial statements and limited review in accordance with Statement of Accounting Standards No. 71 of financial statements included in the Corporation’s quarterly SEC reports;
b. Any significant changes required in the independent accountant’s audit plan; and
c. Other matters related to the conduct of the audit, which are to be communicated to the committee under generally accepted auditing standards.
9. Review with the independent accountant all material communications between the independent accountant and management, such as any management letter or schedule of unadjusted differences.
10. Consider and review with management:
a. Significant findings during the year and management’s responses thereto; and
b. Any difficulties encountered by the independent accountant in the course of its audit, including any restrictions on the scope of work or access to required information and any serious difficulties or disputes with management encountered during the course of the audit.
11. Review legal and regulatory matters that may have a material impact on the financial statements, related Corporation compliance policies, and programs and reports received from regulators.
12. Meet with the independent accountant and management in separate executive sessions to discuss any matters that the committee or these groups believe should be discussed privately with the audit committee.
13. Recommend to the board whether, based on the reviews and discussions referred to above, the financial statements should be included in the Corporation’s Annual Report on Form 10-K.
14. Oversee the Corporation’s disclosure controls and procedures.
15. Perform such other functions as assigned by law, the Corporation’s charter or by-laws, or the board of directors.
Related Party Transactions and Complaint Procedures
The committee shall review and approve all related-party transactions involving the Corporation.
Any issue of significant financial misconduct shall be brought to the attention of the audit committee for its consideration. The committee shall establish procedures for (a) the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or auditing matters and (b) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.
Meetings and Authority
The audit committee shall meet at least five times per year or more frequently as circumstances require. The committee may ask members of management or others to attend meetings and provide pertinent information as necessary.
The committee shall report committee actions to the board of directors with such recommendations as the committee may deem appropriate, and shall make recommendations to the board of directors with respect to initiating investigations into any matters within the committee’s scope of responsibilities.
In discharging its oversight role, the audit committee shall have the authority to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the Corporation, to engage independent counsel and other advisers, and to determine the compensation to be paid such counsel and advisers by the Corporation, as it determines necessary to carry out it duties.
Membership
The audit committee shall consist of at least three members of the board who shall meet all applicable regulatory and exchange requirements of independence and financial expertise. Audit committee members and the committee chairman shall be designated annually by the full board of directors and shall serve at the pleasure of the board.
Review of Charter
This audit committee charter shall be reviewed and reassessed for adequacy annually by the audit committee.
29-July-2004
PARAMETRIC TECHNOLOGY CORPORATION
2000 EQUITY INCENTIVE PLAN
26, 2012
As amended by theThe Board of Directors on January 5, 2005, subject to stockholder approval
1. Purpose.
The purpose ofhopes that stockholders will attend the Parametric Technology Corporation 2000 Equity Incentive Plan (the “Plan”) is to attract and retain directors and key employees and consultants of the Company and its Affiliates, to provide an incentive for them to achieve performance goals, and to enable them to participate in the growth of the Company by granting Awards with respect to the Company’s Common Stock. Certain capitalized terms used herein are defined in Section 9 below.
2. Administration.
The Plan shall be administered by the Committee; provided, that the Board may in any instance perform any of the functions of the Committee hereunder. The Committee shall select the Participants to receive Awards and shall determine the terms and conditions of the Awards. The Committee shall have authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the operation of the Plan as it shall from time to time consider advisable, and to interpret the provisions of the Plan. The Committee’s decisions shall be final and binding. To the extent permitted by applicable law, the Committee may delegate to one or more executive officers of the Company the power to make Awards to Participants who are not Reporting Persons or Covered Employees and all determinations under the Plan with respect thereto, provided that the Committee shall fix the maximum amount of such Awards for all such Participants and a maximum for any one Participant.
3. Eligibility.
All directors and all employees and consultants of the Company or any Affiliate capable of contributing to the successful performance of the Company are eligible to be Participants in the Plan. Incentive Stock Options may be granted only to persons eligible to receive such Options under the Code.
4. Stock Available for Awards.
(a) Amount. Awards, including Incentive Stock Options, may be made under the Plan for up to an aggregate of 24,500,000 shares of Common Stock, and such additional number of shares, not to exceed 5,000,000, may be issued in the form of Restricted Stock as are required to carry out the Option exchange program authorized by Section 5(d) of this Plan, in each case subject to adjustment under subsection (b). If any Award expires or is terminated unexercised or is forfeited, the shares subject to such Award, to the extent of such expiration, termination, or forfeiture, shall again be available for award under the Plan. Common Stock issued through the assumption or substitution of outstanding grants from an acquired company shall not reduce the shares available for Awards under the Plan. Shares issued under the Plan may consist of authorized but unissued shares or treasury shares.
(b) Adjustment. In the event that the Committee determines that any stock dividend, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares or other transaction affects the Common Stock such that an adjustment is required in order to preserve the benefits intended to be provided by the Plan, then the Committee (subject in the case of Incentive Stock Options to any limitation required under the Code) shall equitably adjust any or all of (i) the number and kind of shares in respect of which Awards may be made under the Plan, (ii) the number and kind of shares subject to outstanding Awards and (iii) the exercise price with respect to any of the foregoing, provided that the number of shares subject to any Award shall always be a whole number, and if considered appropriate, the Committee may make provision for a cash payment with respect to an outstanding Award.
(c) Limit on Individual Grants. Subject to adjustment under subsection (b) above, the maximum number of shares of Common Stock that are either subject to Options and Stock Appreciation Rights or are granted as Restricted Stock Units, Restricted Stock or unrestricted stock Awards with respect to which Performance Goals apply under Section 7 below that may be granted to any Participant in the aggregate in any fiscal year shall not exceed 2,000,000.
5. Stock Options.
(a) Grant of Options. Subject to the provisions of the Plan, the Committee may grant options (“Options”) to purchase shares of Common Stock (i) complying with the requirements of Section 422 of the Code or any successor provision and any regulations thereunder (“Incentive Stock Options”) and (ii) not intended to comply with such requirements (“Nonstatutory Stock Options”). The Committee shall determine the number of shares subject to each Option and the exercise price therefor, which shall not be less than 100% of the Fair Market Value of the Common Stock on the date of grant, provided that a Nonstatutory Stock Option granted to a new employee or consultant in connection with the hiring of such person may have a lower exercise price so long as it is not less than 100% of Fair Market Value on the date the person accepts the Company’s offer of employment or the date employment commences, whichever is lower. No Options may be granted hereunder more than ten years after the effective date of the Plan.
(b) Terms and Conditions. Each Option shall be exercisable at such times and subject to such terms and conditions as the Committee may specify in the applicable grant or thereafter. The Committee may impose such conditions with respect to the exercise of Options, including conditions relating to applicable federal or state securities laws, as it considers necessary or advisable.
(c) Payment. No shares shall be delivered pursuant to any exercise of an Option until payment in full of the exercise price therefor is received by the Company. Such payment may be made in whole or in part in cash or, to the extent permitted by the Committee at or after the grant of the Option, by delivery of shares of Common Stock owned by the optionee valued at their Fair Market Value on the date of delivery, or such other lawful consideration, including a payment commitment of a financial or brokerage institution, as the Committee may determine.
(d) Exchange Program. Notwithstanding the provisions of Section 8(i), the Committee may, at any time before the Company’s 2006 Annual Meeting of Stockholders and without further stockholder approval, undertake an exchange program under which employees deemed eligible by the Committee (other then the Company’s Chief Executive OfficerStockholders. Whether or anynot you plan to attend, we encourage you to vote in advance of the other executive officers named in the summary compensation table in the Company’s proxy statement for the Company’s 2005 Annual Meeting of Stockholders) may elect to surrender for cancellation outstanding Options granted under any plan of the Company that have at the time an exercise price at or above a level determined by the Committee in exchange for cash and/or not more than an aggregate of 5,000,000 shares of Restricted Stock issued under this Plan, the form of such consideration to be determined by the Committee in its discretion. Such Exchange Program shall provide that each eligible Participant must exchange or surrender Options with a fair value (as determined by the Committee using established valuation methods, including but not limited to the Black-Scholes model) equal to or greater than the fair value of the replacement Award or the amount of any cash consideration, as the case may be. Replacement Awards shall have such other terms and conditions, with respect to vesting and otherwise, as may be determined by the Committee.
6. Stock Appreciation Rights.
(a) Grant of SARs. Subject to the provisions of the Plan, the Committee may grant rights to receive any excess in value of shares of Common Stock over the exercise price (“Stock Appreciation Rights” or “SARs”). The Committee shall determine at the time of grant or thereafter whether SARs are settled in cash, Common Stock or other securities of the Company, Awards or other property, and may define the manner of determining the excess in value of the shares of Common Stock.
(b) Exercise Price. The Committee shall fix the exercise price of each SAR or specify the manner in which the price shall be determined. An SAR may not have an exercise price less than 100% of the Fair Market Value of the Common Stock on the date of the grant, provided that such an SAR granted to a new employee or consultant in connection with the hiring of such person may have a lower exercise price so long as it is not less than 100% of Fair Market Value on the date the person accepts the Company’s offer of employment or the date employment commences, whichever is lower.
7. Stock and Stock Unit Awards.
(a) Grant of Restricted or Unrestricted Stock Awards. The Committee may grant shares of Common Stock subject to forfeiture (“Restricted Stock”) and determine the duration of the period (the “Restricted Period”) during which, and the conditions under which, the shares may be forfeited to the Company and the other terms and conditions of such Awards. Shares of Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered, except as permitted by the Committee, during the Restricted Period. Shares of Restricted Stock shall be evidenced in such manner as the Committee may determine. Any certificates issued in respect of shares of Restricted Stock shall be registered in the name of the Participant and unless otherwise determined by the Committee, deposited by the Participant, together with a stock power endorsed in blank, with the Company. At the expiration of the Restricted Period, the Company shall deliver such certificates to the Participant or if the Participant has died, to the Participant’s Designated Beneficiary. The Committee also may make Awards of shares of Common Stock that are not subject to restrictions or forfeiture, on such terms and conditions as the Committee may determine from time to time.
(b) Grant of Restricted Stock Units. The Committee may grant the right to receive in the future shares of Common Stock subject to forfeiture (“Restricted Stock Units”) and determine the duration of the Restricted Period during which, and the conditions under which, the Award may be forfeited to the Company and the other terms and conditions of such Awards. Restricted Stock Unit Awards shall constitute an unfunded and unsecured obligation of the Company, and shall be settled in shares of Common Stock or cash, as determined by the Committee at the time of grant or thereafter. Such Awards shall be made in the form of “units” with each unit representing the equivalent of one share of Common Stock.
(c) Performance Goals; Consideration. The Committee may establish Performance GoalsStockholders. Voting promptly will greatly facilitate arrangements for the granting of Restricted Stock, unrestricted stock Awards, Restricted Stock Units or the lapse of risk of forfeiture of Restricted Stock or Restricted Stock Units. Shares of Restricted Stock or unrestricted stock or Restricted Stock Units maymeeting and your cooperation will be issued for no cash consideration, such minimum consideration as may be required by applicable law or such other consideration as the Committee may determine.
8. General Provisions Applicable to Awards.
(a) Documentation. Each Award under the Plan shall be evidenced by a writing delivered to the Participant or agreement executed by the Participant specifying the terms and conditions thereof and containing such other terms and conditions not inconsistent with the provisions of the Plan as the Committee considers necessary or advisable to achieve the purposes of the Plan or to comply with applicable tax and regulatory laws and accounting principles.
(b) Committee Discretion. Each type of Award may be made alone, in addition to or in relation to any other Award. The terms of each type of Award need not be identical, and the Committee need not treat Participants uniformly. Except as otherwise provided by the Plan or a particular Award, any determination with respect to an Award may be made by the Committee at the time of grant or at any time thereafter.
(c) Dividends and Cash Awards. In the discretion of the Committee, any Award under the Plan may provide the Participant with (i) dividends or dividend equivalents payable (in cash or in the form of Awards under the Plan) currently or deferred with or without interest and (ii) cash payments in lieu of or in addition to an Award.
(d) Termination of Service. The Committee shall determine the effect on an Award of the disability, death, retirement or other termination of service of a Participant and the extent to which, and the period during
which, the Participant’s legal representative, guardian or Designated Beneficiary may receive payment of an Award or exercise rights thereunder.
(e) Change in Control. In order to preserve a Participant’s rights under an Award in the event of a change in control of the Company (as defined by the Committee), the Committee in its discretion may, at the time an Award is made or at any time thereafter, take one or more of the following actions: (i) provide for the acceleration of any time period relating to the exercise or payment of the Award, (ii) provide for payment to the Participant of cash or other property with a Fair Market Value equal to the amount that would have been received upon the exercise or payment of the Award had the Award been exercised or paid upon the change in control, (iii) adjust the terms of the Award in a manner determined by the Committee to reflect the change in control, (iv) cause the Award to be assumed, or new rights substituted therefor, by another entity, or (v) make such other provision as the Committee may consider equitable to Participants and in the best interests of the Company.
(f) Transferability. In the discretion of the Committee, any Award may be made transferable upon such terms and conditions and to such extent as the Committee determines, provided that Incentive Stock Options may be transferable only to the extent permitted by the Code. The Committee may in its discretion waive any restriction on transferability.
(g) Withholding Taxes. The Participant shall pay to the Company, or make provision satisfactory to the Committee for payment of, any taxes required by law to be withheld in respect of Awards under the Plan no later than the date of the event creating the tax liability. The Company and its Affiliates may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind due to the Participant hereunder or otherwise. In the Committee’s discretion, the minimum tax obligations required by law to be withheld in respect of Awards may be paid in whole or in part in shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their Fair Market Value on the date of retention or delivery.
(h) Foreign Nationals. Awards may be made to Participants who are foreign nationals or employed outside the United States on such terms and conditions different from those specified in the Plan as the Committee considers necessary or advisable to achieve the purposes of the Plan or to comply with applicable laws.
(i) Amendment of Award. The Committee may amend, modify or terminate any outstanding Award, including substituting therefor another Award of the same or a different type, changing the date of exercise or realization and converting an Incentive Stock Option to a Nonstatutory Stock Option, provided that the Participant’s consent to such action shall be required (a) if such action would terminate, or reduce the number of shares issuable under, an Option, unless any time period relating to the exercise of such Option or the eliminated portion, as the case may be, is accelerated before such termination or reduction, in which case the Committee may provide for the Participant to receive cash or other property equal to the net value that would be received upon exercise of the terminated Option or the eliminated portion, as the case may be, and (b) in any other case, unless the Committee determines that the action, taking into account any related action, would not materially and adversely affect the Participant. The Committee shall not, without further approval of the stockholders of the Company, authorize the amendment of any outstanding Option to reduce the exercise price. Furthermore, no Option shall be canceled and replaced with Options having a lower exercise price without approval of the stockholders of the Company.
9. Certain Definitions.
“Affiliate” means any business entity in which the Company owns directly or indirectly 50% or more of the total voting power or has a significant financial interest as determined by the Committee.
“Award” means any Option, Stock Appreciation Right, Restricted Stock or Restricted Stock Unit granted under the Plan.
“Board” means the Board of Directors of the Company.
“Code” means the Internal Revenue Code of 1986, as amended from time to time, or any successor law.
“Committee” means one or more committees each comprised of not less than two members of the Board appointed by the Board to administer the Plan or a specified portion thereof. Unless otherwise determined by the Board, if a Committee is authorized to grant Awards to a Reporting Person or a Covered Employee, each member shall be a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act or an “outside director” within the meaning of Section 162(m) of the Code, respectively.
“Common Stock” or “Stock” means the Common Stock, $.01 par value, of the Company.
“Company” means Parametric Technology Corporation, a Massachusetts corporation.
“Covered Employee” means a “covered employee” within the meaning of Section 162(m) of the Code.
“Designated Beneficiary” means the beneficiary designated by a Participant, in a manner determined by the Committee, to receive amounts due or exercise rights of the Participant in the event of the Participant’s death. In the absence of an effective designation by a Participant, “Designated Beneficiary” means the Participant’s estate.
“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any successor law.
“Fair Market Value” means, with respect to Common Stock or any other property, the fair market value of such property as determined by the Committee in good faith or in the manner established by the Committee from time to time.
“Participant” means a person selected by the Committee to receive an Award under the Plan.
“Performance Goals” means one or more objective performance goals based on one or more of the following criteria established by the Committee: revenue; revenue growth; sales; expenses; margins; net income; earnings or earnings per share; cash flow; shareholder return; return on investment; return on invested capital, assets, or equity; profit before or after tax; operating profit; return on research and development investment; market capitalization; new product releases; quality improvements; market share; cycle time reductions; customer satisfaction measures; strategic positioning or marketing programs; business/information systems improvements; expense management; infrastructure support programs; human resource programs; customer programs; technology development programs; or any combination of any of the foregoing, and may be particular to a Participant or may be based, in whole or in part, on the performance of the division, department, line of business, subsidiary, or other business unit, whether or not legally constituted, in which the Participant works or on the performance of the Company generally.
“Reporting Person” means a person subject to Section 16 of the Exchange Act.
10. Miscellaneous.
(a) No Right To Employment. No person shall have any claim or right to be granted an Award. Each employee of the Company or any of its Affiliates is an employee-at-will (that is to say that either the Participant or the Company or any Affiliate may terminate the employment relationship at any time for any reason or no reason at all) unless and only to the extent provided in a written employment agreement for a specified term executed by the chief executive officer of the Company or his duly authorized designee or the authorized signatory of any Affiliate. Neither the adoption, maintenance, nor operation of the Plan nor any Award hereunder shall confer upon any employee or consultant of the Company or of any Affiliate any right
with respect to the continuance of his/her employment by or other service with the Company or any such Affiliate nor shall they interfere with the rights of the Company (or Affiliate) to terminate any employee at any time or otherwise change the terms of employment, including, without limitation, the right to promote, demote or otherwise re-assign any employee from one position to another within the Company or any Affiliate.
(b) No Rights As Stockholder. Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any shares of Common Stock to be issued under the Plan until he or she becomes the holder thereof. A Participant to whom Common Stock is awarded shall be considered the holder of the Stock at the time of the Award except as otherwise provided in the applicable Award.
(c) Effective Date. The Plan shall be effective on the date it is approved by the stockholders.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan or any portion thereof at any time, subject to such stockholder approval as the Board determines to be necessary or advisable to comply with any tax or regulatory requirement.
(e) Governing Law. The provisions of the Plan shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts.
As amended by the Board of Directors on January 5, 2005, subject to stockholder approvalappreciated.
PARAMETRIC TECHNOLOGY CORPORATION 140 KENDRICK STREET NEEDHAM, MA 02494 | VOTE BY INTERNET -www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. 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. | |
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VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. | ||
VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. | ||
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
M39575-P18795 KEEP THIS PORTION FOR YOUR RECORDS - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - | ||||
| THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. | DETACH AND RETURN THIS PORTION ONLY | |||
| PARAMETRIC TECHNOLOGY CORPORATION | For All | Withhold All | For All Except | To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. | ||||||||||||||||||
The Board of Directors recommends you vote FOR ALL nominees: | ||||||||||||||||||||||
Vote on Directors | ¨ | ¨ | ¨ | |||||||||||||||||||
| 1. | Elect three Class I Directors to serve for the next three years: | |||||||||||||||||||||
Nominees: | ||||||||||||||||||||||
01) Donald K. Grierson 02) James E. Heppelmann 03) Renato Zambonini | ||||||||||||||||||||||
Vote on Proposals | ||||||||||||||||||||||
The Board of Directors recommends you vote FOR the following proposals: | For | Against | Abstain | |||||||||||||||||||
| 2. | Advisory vote to approve the compensation of our named executive officers. | ¨ | ¨ | ¨ | ||||||||||||||||||
| 3. | Approve an amendment to our Articles of Organization to change our corporate name to PTC with an appropriate corporate indicator selected by the Board of Directors. | ¨ | ¨ | ¨ | ||||||||||||||||||
| 4. | Confirm the selection of PricewaterhouseCoopers LLP as PTC’s independent registered public accounting firm for the current fiscal year. | ¨ | ¨ | ¨ | ||||||||||||||||||
For address changes and/or comments, please check this box and write them on the back where indicated. | ¨ | |||||||||||||||||||||
Please indicate if you plan to attend this meeting. | ¨ | ¨ | ||||||||||||||||||||
| Yes | No | |||||||||||||||||||||
| Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. | ||||||||||||||||||||||
| Signature [PLEASE SIGN WITHIN BOX] | Date | Signature (Joint Owners) | Date | |||||||||||||||||||
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Form 10-K Wrap are available at www.proxyvote.com.
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M39576-P18795
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PARAMETRIC TECHNOLOGY CORPORATION
PROXY FOR THE
TO BE HELD ON MARCH
The undersigned, revoking all prior proxies, hereby appoints
You may vote at the Annual Meeting if you were a PTC stockholder at the close of business on January
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF THE SIGNED PROXY IS RETURNED BUT NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTEDFOR THE ELECTION OF THE NOMINEES FOR THE BOARD OF DIRECTORS LISTED ON THE REVERSE SIDE, ANDFORPROPOSALS 2, 3 AND 4. THE PROXIES ARE AUTHORIZED TO VOTE IN THEIR DISCRETION UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING.
(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED REPLY
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
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KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
PARAMETRIC TECHNOLOGY CORPORATION
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