The Ultimate Software Group, Inc.
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
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Pursuant to
Section 240.14a-11(c)
or
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THE ULTIMATE SOFTWARE GROUP, INC.
(Name of Registrant as Specified in
Its Charter)
Name of Person(s) Filing Proxy
Statement, if Other Than the Registrant)
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pursuant to Exchange Act
Rule 0-11
(set forth the amount on which the filing fee is calculated and
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Form, Schedule or Registration Statement No.:
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THE
ULTIMATE SOFTWARE GROUP, INC.
2000 ULTIMATE WAY
WESTON, FLORIDA 33326
April 13,
2007
Dear Stockholder:
You are cordially invited to attend the 2007 Annual Meeting of
Stockholders of The Ultimate Software Group, Inc. (the
Company or Ultimate Software), which
will be held on Tuesday, May 15, 2007, at 10:00 a.m.
(EDT), at the Companys principal corporate office at 2000
Ultimate Way, Weston, Florida 33326 (the Annual
Meeting).
The principal business of the meeting will be (i) to elect
two directors to serve until the 2010 Annual Meeting of
Stockholders or until their successors are duly elected and
qualified; (ii) to approve the amendment of the 2005 Equity
and Incentive Plan; (iii) to ratify the appointment of KPMG
LLP as the Companys independent registered public
accounting firm for the fiscal year ending December 31,
2007; and (iv) to transact such other business as may
properly come before the meeting or any postponement or
adjournment thereof. During the Annual Meeting, we will also
review the results of the past fiscal year and report on
significant aspects of our operations during the first quarter
of fiscal 2007.
Whether you plan to attend the Annual Meeting or not, please
complete, sign, date and return the enclosed proxy card in the
postage prepaid envelope provided so that your shares will be
voted at the meeting. If you decide to attend the meeting, you
may, of course, revoke your proxy and personally cast your votes.
For your benefit, enclosed is a copy of Ultimate Softwares
Annual Report to Stockholders, including our Annual Report on
Form 10-K
filed with the Securities and Exchange Commission, which
includes audited consolidated financial statements and notes
thereto. We thank you for your continued interest in Ultimate
Software.
Sincerely yours,
Scott Scherr
Chairman, President and Chief Executive Officer
TABLE OF CONTENTS
THE
ULTIMATE SOFTWARE GROUP, INC.
2000 ULTIMATE WAY
WESTON, FLORIDA 33326
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
TO BE HELD ON MAY 15,
2007
TO THE
STOCKHOLDERS OF THE ULTIMATE SOFTWARE GROUP, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders
of The Ultimate Software Group, Inc. (the Company)
will be held on Tuesday, May 15, 2007, at 10:00 a.m.
(EDT), at the Companys principal corporate office at 2000
Ultimate Way, Weston, Florida 33326 for the following purposes:
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1.
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To elect two directors to serve until the 2010 Annual Meeting of
Stockholders or until their successors are duly elected and
qualified;
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2.
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To approve the amendment of the 2005 Equity and Incentive Plan;
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3.
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To ratify the appointment of KPMG LLP as the Companys
independent registered public accounting firm for the fiscal
year ending December 31, 2007; and
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4.
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To transact such other business as may properly come before the
meeting or any postponement or adjournment thereof.
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Holders of record of the voting stock of the Company at the
close of business on March 16, 2007 are entitled to notice
of and to vote at the Annual Meeting or any postponement or
adjournment thereof.
Enclosed are a Proxy Statement, a form of proxy and an
addressed return envelope. ALL STOCKHOLDERS, WHETHER OR NOT THEY
EXPECT TO BE PRESENT AT THE MEETING, ARE REQUESTED TO FILL IN,
SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ACCOMPANYING ENVELOPE AS PROMPTLY AS POSSIBLE. Stockholders who
attend the meeting may, if they desire, revoke their proxies and
vote in person.
By Order of the Board of Directors:
Vivian Maza
Secretary
Weston, Florida
April 13, 2007
THE
ULTIMATE SOFTWARE GROUP, INC.
2000 ULTIMATE WAY
WESTON, FLORIDA 33326
FOR
ANNUAL MEETING OF
STOCKHOLDERS
MAY 15, 2007
The enclosed proxy is solicited on behalf of the Board of
Directors (the Board) of The Ultimate Software
Group, Inc. (the Company) for use at the Annual
Meeting of Stockholders (the Annual Meeting) to be
held on Tuesday, May 15, 2007, at 10:00 a.m. (EDT), at
the Companys principal corporate office at 2000 Ultimate
Way, Weston, Florida 33326 and at any postponement or
adjournment thereof, for the purposes set forth in the Notice of
Annual Meeting of Stockholders. This Proxy Statement, the
accompanying proxy and the Companys Annual Report to
Stockholders for 2006 including therewith the Companys
Annual Report on
Form 10-K
for the year ended December 31, 2006, (the
Form 10-K),
are first being mailed to stockholders commencing on or about
April 13, 2007.
Proxies are being solicited from holders of the Companys
common stock, par value $0.01 per share (the Common
Stock). If a proxy is properly executed and returned, the
shares represented by it will be voted and, where specification
is made by the stockholder as provided in such proxy, will be
voted in accordance with such specification. Unless a
stockholder specifies otherwise, all shares represented by valid
proxies will be voted (i) FOR the election of the persons
named in this Proxy Statement as nominees of the Company under
the heading Election of Directors; (ii) FOR the
approval of the amendment of the 2005 Equity and Incentive Plan;
(iii) FOR the ratification of the appointment of KPMG LLP
as the Companys independent registered public accounting
firm for the fiscal year ending December 31, 2007 and
(iv) at the discretion of the proxy holders on any other
matter that may properly come before the Annual Meeting or any
adjournment thereof.
SOLICITATION
OF PROXIES
The Company is paying the costs of solicitation, including the
cost of preparing and mailing this Proxy Statement. Proxies are
being solicited primarily by mail, but in addition, the
solicitation by mail may be followed by solicitation in person,
or by telephone or facsimile, by directors, officers and other
employees of the Company without additional compensation.
Brokers, dealers, banks, voting trusts, custodians and other
institutions, and their nominees, who are holders of shares of
the Companys Common Stock on the Record Date, referred to
below, will be requested to forward the soliciting material to
the beneficial owners of such shares of Common Stock and to
obtain authorization for the execution of proxies. The Company
will, upon request, reimburse such institutions for their
reasonable expenses in forwarding proxy material to their
beneficial owners.
VOTING
RIGHTS AND PROCEDURES
Only stockholders of record of the Common Stock of the Company
at the close of business on March 16, 2007 (the
Record Date), will be entitled to vote at the Annual
Meeting. As of that date, a total of 25,069,013 shares of
Common Stock were outstanding, each share being entitled to one
vote. There is no cumulative voting.
A majority of the issued and outstanding shares of Common Stock
entitled to vote at the Annual Meeting, represented in person or
by proxy, constitutes a quorum for the transaction of business
at the Annual Meeting. If a stockholder abstains from voting as
to any matter, then the shares held by such stockholder shall be
deemed present at the Annual Meeting for purposes of determining
a quorum. If a broker returns a non-vote proxy,
indicating a lack of authority to vote on such matter, then the
shares covered by such non-vote shall be
deemed present at the Annual Meeting for purposes of determining
a quorum but shall not be deemed to have been voted in favor of
or against such matter.
Assuming the presence of a quorum, the affirmative vote of a
plurality of the votes cast is required for the election of
directors. If a stockholder returns a proxy withholding
authority to vote the proxy with respect to a nominee for
director, then the shares of the Common Stock covered by such
proxy shall be deemed present at the Annual Meeting for purposes
of determining a quorum and for purposes of calculating the vote
with respect to such nominee, but shall not be deemed to have
been voted for such nominee. In the election of directors,
abstentions will have no effect on the outcome of the vote.
The affirmative vote of the holders of a majority of the shares
represented in person or by proxy and entitled to vote is
required for the approval of the amendment of the 2005 Equity
and Incentive Plan. Abstentions will have the effect of votes
against the approval of the Companys amendment
of the 2005 Equity and Incentive Plan. If a broker returns a
non-vote proxy, indicating a lack of authority to
vote on such matter, then the shares covered by such non-vote
shall be deemed present at the Annual Meeting for purposes of
determining a quorum but shall not be deemed to have been voted
in favor of or against such matter.
The affirmative vote of the holders of a majority of the shares
represented in person or by proxy and entitled to vote at the
Annual Meeting is required for the ratification of the
appointment of KPMG LLP as the Companys independent
registered public accounting firm for the fiscal year ending
December 31, 2007. Abstentions will not be counted either
for or against the proposal for the ratification of the
appointment of KPMG LLP as the Companys independent
registered public accounting firm for 2007.
A stockholder may revoke a proxy at any time prior to its
exercise by giving to the Secretary of the Company a written
notice of revocation of the proxys authority prior to the
voting thereof or by submitting a duly executed proxy bearing a
later date, or by voting in person, at the Annual Meeting.
PROPOSAL I
ELECTION OF DIRECTORS
The Board of the Company is currently composed of seven members
divided into three classes. The members of each class are
elected to serve three-year terms with the term of office of
each class ending in successive years. Messrs. Scott Scherr
and Alois T. Leiter are the directors in the class whose term
expires at the Annual Meeting.
The Board has nominated Messrs. Scott Scherr and Alois T.
Leiter for election to the Board at the Annual Meeting for a
term of three years, expiring at the 2010 Annual Meeting, and
each has indicated a willingness to serve. Messrs. LeRoy A.
Vander Putten and Robert A. Yanover serve in the class whose
term expires at the Annual Meeting in 2008. Messrs. Rick A.
Wilber, Marc D. Scherr and James A. FitzPatrick, Jr. serve
in the class whose term expires at the Annual Meeting in 2009.
The affirmative vote of a plurality of the votes cast at the
Annual Meeting is necessary to elect the nominees as directors.
The persons named as proxies in the enclosed form of proxy will
vote the proxies received by them FOR the election of
Messrs. Scott Scherr and Alois T. Leiter, unless authority
is withheld by the stockholder in the proxy. In the event that
either of Messrs. Scott Scherr and Alois T. Leiter becomes
unavailable for election at the Annual Meeting, the persons
named as proxies in the enclosed form of proxy may vote for a
substitute nominee in their discretion as recommended by the
Board.
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The following table sets forth certain information concerning
the nominees, based on data furnished by them. Information
regarding incumbent directors whose terms are not expiring is
included in the section labeled Directors and Executive
Officers below.
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Name of Nominee
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Age
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Principal Occupation
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Scott Scherr
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55
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Chairman of the Board, President
and Chief Executive Officer, The Ultimate Software Group, Inc.
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Alois T. Leiter
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41
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Television Commentator, Yankees
Entertainment and Sports Network
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Scott Scherr has served as President and a director of the
Company since its inception in April 1996 and has been Chairman
of the Board and Chief Executive Officer of the Company since
September 1996. Mr. Scherr is also a member of the
Executive Committee of the Board. In 1990, Mr. Scherr
founded The Ultimate Software Group, Ltd. (the
Partnership), the business and operations of which
were assumed by the Company in 1998. Mr. Scherr served as
President of the Partnerships general partner from the
inception of the Partnership until its dissolution in March
1998. From 1979 until 1990, he held various positions at
Automatic Data Processing, Inc. (ADP), a payroll
services company, where his titles included Vice President of
Operations and Sales Executive. Prior to joining ADP,
Mr. Scherr operated Management Statistics, Inc., a data
processing service bureau founded by his father, Reuben Scherr,
in 1959. He is the brother of Marc Scherr, the Vice Chairman of
the Board of the Company, and the
father-in-law
of Adam Rogers, Senior Vice President, Chief Technology Officer.
Alois T. Leiter has served as director of the Company since
October 2006. Mr. Leiter was a three-time Major League
Baseball World Champion and two-time All-Star pitcher formerly
with the New York Yankees, New York Mets, Toronto Blue Jays, and
Florida Marlins, and has been an official spokesperson for the
Company since 2002. Mr. Leiter has served as a television
commentator for the Yankees Entertainment and Sports Network
since 2006. Mr. Leiter is president and founder of
Leiters Landing, a charitable organization formed in 1996.
Mr. Leiter has served on the Executive Committee of New
York Citys official tourism marketing organization,
NYC & Company, since 2000 and is a member of the Board
of Directors of Americas Camp, a legacy organization of
the Twin Towers Fund, on which he also served as a board member.
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF MESSRS.
SCOTT SCHERR AND ALOIS T. LEITER AS DIRECTORS OF THE COMPANY TO
HOLD OFFICE UNTIL THE 2010 ANNUAL MEETING AND UNTIL THEIR
RESPECTIVE SUCCESSORS ARE ELECTED AND QUALIFIED.
PROPOSAL II APPROVAL
OF THE AMENDMENT OF THE 2005 EQUITY
AND INCENTIVE PLAN
The Companys 2005 Equity and Incentive Plan (the
Plan) authorizes the grant of options to directors,
officers and employees of the Company to purchase shares of the
Companys Common Stock. The Plan also authorizes the grant
to such persons of restricted and non-restricted shares of
Common Stock, stock appreciation rights, stock units and cash
performance awards (collectively, and together with stock
options, the Awards). The Plan was approved by the
Companys stockholders at the Annual Meeting of
stockholders on May 17, 2005.
Sole
Purpose of Proposal to Amend the Plan
The sole purpose of the proposal to amend the Plan is to
increase the number of shares of the Companys Common Stock
authorized for issuance pursuant to Awards granted under the
Plan by 3,000,000 shares. The aggregate
number of shares of Common Stock previously authorized for
issuance under all Awards granted under the Companys
Nonqualified Stock Option Plan, as amended and restated as of
December 20, 2002 (referred to in this Proxy Statement as
the Prior Plan), and the Plan is
9,000,000 shares. As of the Record Date, the aggregate
number of shares of Common Stock that remain available for new
Awards under the Plan is 41,901 shares. In the twelve
months ended December 31, 2006, Awards with respect
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to 1,018,758 shares of Common Stock were granted under the
Plan. Without an amendment to the Plan to increase the number of
shares of Common Stock authorized to be issued pursuant to
Awards granted under the Plan, the Compensation Committee of the
Board (the Compensation Committee) would be severely
restricted in its ability to grant Awards, other than cash
awards, under the Plan. The Board believes it is essential that
its Compensation Committee is able to continue to grant Awards
of equity based compensation under the Plan in order to attract
and maintain qualified employees, officers and directors and to
tie their compensation in part to the performance of the
Companys Common Stock.
By unanimous written consent dated as of March 13, 2007,
the Board has approved, subject to stockholder approval at the
2007 Annual Meeting, an amendment of the Plan, the sole purpose
of which is to increase the number of shares of Common Stock
authorized for issuance pursuant to Awards granted under the
Plan by an additional 3,000,000 shares. The Plan, as so
amended and restated in its entirety, is hereinafter referred to
as the Amended and Restated Plan.
The following is a summary of the material terms of the Amended
and Restated Plan. This summary is qualified by reference to the
full text of the Amended and Restated Plan, which is attached
hereto as Appendix A.
Description
of the Plan
Purpose. The objectives of the Amended and
Restated Plan are (i) to provide a vehicle for compensating
the Companys key personnel by giving them the opportunity
to acquire a proprietary interest in the Companys Common
Stock by receiving equity-based incentive compensation;
(ii) to provide management with an equity ownership in the
Company commensurate with Company performance, as reflected in
increased stockholder value; (iii) to attract, motivate and
retain key employees, non-employee directors and other service
providers by maintaining competitive compensation levels; and
(iv) to provide an incentive to management for continuous
employment with or service to the Company.
Reservation of Shares. Subject to stockholder
approval at the 2007 Annual Meeting, and subject to adjustments
as described below, the maximum aggregate number of shares of
the Companys Common Stock that may be issued under all
Awards granted under the Prior Plan and the Amended and Restated
Plan shall be 12,000,000 shares. As of the Record Date, an
aggregate of 8,958,099 shares of Common Stock have either
(i) already been issued as a result of the exercise of
stock options under the Prior Plan and the Plan or (ii) are
subject to outstanding Awards granted under the Plan and Prior
Plan. Accordingly, as of the Record Date, only
41,901 shares remain available for new Awards under the
Plan.
Shares of Common Stock issued and sold under the Amended and
Restated Plan may be either authorized but unissued shares or
shares held in the Companys treasury. To the extent that
any Award under the Prior Plan or the Amended and Restated Plan
payable in shares of Common Stock is forfeited, cancelled,
returned to the Company for failure to satisfy vesting
requirements or upon the occurrence of other forfeiture events,
or otherwise terminates without payment being made thereunder,
the shares of Common Stock covered thereby will no longer be
charged against the foregoing maximum share limitation and may
again be made subject to Awards under the Amended and Restated
Plan. In addition, any shares of Common Stock exchanged by a
participant or withheld from a participant as full or partial
payment to the Company of the exercise price or the tax
withholding upon exercise or payment of an Award under the Prior
Plan or the Amended and Restated Plan will be returned to the
number of shares of Common Stock available for issuance under
the Amended and Restated Plan. Any Awards settled in cash will
not be counted against the share limitations under the Amended
and Restated Plan. The maximum number of shares of Common Stock
that may be returned or added to the aggregate share reserve
under the Amended and Restated Plan upon the termination,
forfeiture, cancellation or other disposition of an Award
granted under the Prior Plan and the Plan is limited to
9,000,000 shares.
Adjustments. In the event of a
recapitalization, reclassification or other specified event
affecting the Company or the shares of Common Stock, appropriate
and equitable adjustments shall be made to the number and kind
of shares of Common Stock available for grant, as well as to
other maximum limitations under the
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Amended and Restated Plan, and the number and kind of shares of
Common Stock or other rights and prices under outstanding Awards
to prevent dilution or enlargement of a participants
rights under an Award.
Administration. The Amended and Restated Plan
is administered by the Compensation Committee. The Compensation
Committee shall, to the extent deemed necessary or advisable by
the Board, be constituted so each committee member will satisfy
the requirements for (i) an independent
director under rules adopted by the NASDAQ Stock Market,
(ii) a non-employee director for purposes of
Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the
Exchange Act) and (iii) an outside
director under section 162(m) of the Internal Revenue
Code (the Code). Subject to the limitations set
forth in the Amended and Restated Plan, the Compensation
Committee has the authority to determine the persons to whom
Awards are to be granted, the types of Awards to be granted, the
time at which Awards will be granted, the number of shares of
Common Stock, units or other rights subject to each Award, the
exercise, base or purchase price of an Award, the time or times
at which the Award will become vested, exercisable or payable,
the performance criteria, performance goals and other conditions
of an Award, and the duration of the Award. Subject to the terms
of the Amended and Restated Plan, the Compensation Committee
shall have the authority to amend the terms of an Award in any
manner that is permitted by the Amended and Restated Plan for
the grant of an Award, provided that no such action shall
adversely affect the rights of a participant with respect to an
outstanding Award without the participants consent. The
Compensation Committee will have the right, from time to time,
to delegate to one or more of the Companys officers the
authority of the Compensation Committee to grant and determine
the terms and conditions of Awards, subject to certain
limitations. Any Awards under the Amended and Restated Plan made
to non-employee members of the Board must be approved by the
Board.
Eligibility. Awards under the Amended and
Restated Plan may be granted to any current or prospective
employee, officer, director, consultant or advisor of the
Company or any of its subsidiaries. As of March 31, 2007,
the Company had 670 employees, (including 3 named executive
officers), and 5 non-employee directors who are eligible to
participate in the Plan. The 3 named executive officers are the
only executive officers of the Company.
Stock Options. Stock options granted under the
Amended and Restated Plan may be issued as either incentive
stock options (within the meaning of section 422 of the
Code), or as nonqualified options. Except in the case of options
issued to non-employee Directors in lieu of fees for Board
services as described below, the exercise price of an option
will be 100% of the fair market value of a share of the
Companys Common Stock on the date of the grant of the
option, or such other amount as determined by the Compensation
Committee. The Compensation Committee will determine the vesting
and/or
exercisability requirements and the term of exercise of each
option, including the effect of termination of employment or
service of a participant. The maximum term of a stock option
will be ten years from the date of grant. To exercise an option,
the participant must pay the exercise price, subject to
specified conditions, (i) in cash, (ii) in shares of
Common Stock that have been held for at least six months,
(iii) through an open-market broker-assisted transaction,
(iv) by combination of any of the above methods, or
(v) by such other method approved by the Compensation
Committee, and must pay any required tax withholding amounts.
For purposes of section 422 of the Code, the maximum value
of shares of Common Stock (determined at the time of grant) that
may be subject to incentive stock options that become
exercisable by an employee in any one year is limited to
$100,000. Subject to adjustments as described above, the maximum
number of shares of Common Stock that may be covered under
options granted under the Amended and Restated Plan to any
participant in any calendar year is 500,000 shares of
Common Stock. All options are nontransferable except upon death
by the participants will or the laws of descent and
distribution or, in the case of nonqualified options, to family
members of the participant or to trusts for the benefit of the
participant or such participants family members, as may be
approved by the Compensation Committee and set forth in the
award agreement in accordance with the terms of the Amended and
Restated Plan. The Amended and Restated Plan prohibits the
cancellation, substitution or amendment of an option for the
purpose of reducing the exercise price of a previously granted
option, except for equitable adjustments for changes in the
Companys corporate structure, as described above.
Director Fee Options. The Amended and Restated
Plan provides for the periodic grant of nonqualified stock
options to its non-employee directors in lieu of cash payment of
directors fees that are earned during the calendar quarter
ending immediately prior to the date of grant. The exercise
price per share of each option
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will be 30% of the fair market value of a share of the
Companys Common Stock on the date of grant, or such other
amount as determined by the Board. The total discount from fair
market value on all options granted to non-employee directors
for a calendar quarter will be equivalent to the retainer fees
and Board committee fees earned by the non-employee directors
for such quarter. Each option will be fully and immediately
vested as of the date of grant, but will become exercisable only
upon the earliest to occur of the following events: (i) the
fifth anniversary of the date of grant, (ii) the date on
which the non-employee director ceases to be a member of the
Board, and (iii) the effective date of a change in
control (as defined in the Amended and Restated Plan) of
the Company. Each option will remain exercisable for the period
specified in the award agreement as provided by the Compensation
Committee at the time of grant. In lieu of the foregoing, the
Compensation Committee may, in its discretion, cancel the right
of the non-employee director to exercise the option upon or
following the occurrence of an exercise event as described above
in exchange for a cash settlement payment equal to the product
of: (i) the number of shares of stock subject to the option
being cancelled, multiplied by (ii) the excess of the per
share fair market value of the stock on the date of cancellation
of the option over the exercise price per share of the option.
Stock Appreciation Rights. A stock
appreciation right entitles the participant, upon settlement or
exercise, to receive a payment based on the excess of the fair
market value of a share of Common Stock on the date of
settlement or exercise over the base price of the right,
multiplied by the number of shares of Common Stock as to which
the right is being settled or exercised. The base price may not
be less than the fair market value of a share of Common Stock on
the date of grant. The Compensation Committee will determine the
vesting requirements and the term of exercise of each stock
appreciation right, including the effect of termination of
employment or service of a participant. The maximum term of a
stock appreciation right will be ten years from the date of
grant. Subject to adjustments as described above, the maximum
number of shares of Common Stock that may be subject to stock
appreciation rights granted under the Amended and Restated Plan
to any participant during any calendar year is
500,000 shares of Common Stock. Stock appreciation rights
may be payable in cash or in shares of Common Stock or in a
combination of both. The Amended and Restated Plan prohibits the
repricing of stock appreciation rights, as described
above for stock options.
Restricted Stock Awards. A restricted stock
award represents shares of Common Stock that are issued subject
to restrictions on transfer and vesting requirements as
determined by the Compensation Committee. Vesting requirements
may be based on the continued employment or service of the
participant for specified time periods and on the attainment of
specified business performance goals established by the
Compensation Committee. Subject to the transfer restrictions and
vesting requirements of the Award, the participant will have the
rights of a stockholder of the Company, including all voting and
dividend rights, during the restriction period, unless the
Compensation Committee determines otherwise at the time of the
grant. Subject to adjustments as described above, the maximum
number of shares of Common Stock that may be subject to
restricted stock awards granted under the Amended and Restated
Plan to any participant during any calendar year is
250,000 shares of Common Stock.
Stock Units. An award of stock units provides
the participant the right to receive a payment based on the
value of a share of Common Stock. Stock units may be subject to
vesting requirements, restrictions and conditions to payment as
the Compensation Committee determines are appropriate. Such
vesting requirements may be based on the continued employment or
service of the participant for a specified time period or on the
attainment of specified business performance goals established
by the Compensation Committee. A stock unit award may also be
granted on a fully vested basis, with a deferred payment date.
Stock unit awards are payable in cash or in shares of Common
Stock or in a combination of both. Stock units may also be
granted together with related dividend equivalent rights.
Subject to adjustments as described above, the maximum number of
shares of Common Stock that may be subject to stock units
granted under the Amended and Restated Plan to any participant
during any calendar year is 250,000 shares of Common Stock.
Stock Awards. A stock award represents shares
of Common Stock that are issued free of restrictions on transfer
and free of forfeiture conditions and to which the participant
is entitled all incidents of ownership. A stock award may be
granted for past services, in lieu of bonus or other cash
compensation, directors fees or for any other valid
purpose as determined by the Compensation Committee. Subject to
adjustments as described above, the maximum number of shares of
Common Stock that may be subject to stock awards
6
granted under the Amended and Restated Plan to any participant
during any calendar year is 250,000 shares of Common Stock.
Performance Awards. The Compensation Committee
may grant performance awards under the Amended and Restated
Plan, which shall represent the right to receive a payment in
cash if performance goals established by the Compensation
Committee for a performance period are satisfied. The
Compensation Committee may grant performance awards that are
intended to qualify as performance-based compensation under
section 162(m) of the Code, as well as performance awards
that are not intended to so qualify. At the time a performance
award is granted, the Compensation Committee will determine, in
its sole discretion, the applicable performance period and
performance goals to be achieved during the performance period,
as well as such other conditions as the Compensation Committee
deems appropriate. The Compensation Committee may also determine
a target payment amount or a range of payment amounts for each
Award. The maximum amount of compensation that may be payable to
a participant during any one calendar year with respect to
performance awards is $2 million. In the case of
performance awards that are intended to qualify as
performance-based compensation under section 162(m) of the
Code, the Compensation Committee will designate performance
criteria from among the criteria set forth below.
Section 162(m) Awards. Awards of options
and stock appreciation rights granted under the Amended and
Restated Plan are intended by their terms to qualify for the
performance-based compensation exception under
section 162(m) of the Code. In addition, the Compensation
Committee may grant awards of restricted stock, stock units,
stock awards or performance awards that are intended to qualify
for the performance-based compensation exception under
section 162(m) of the Code. Under section 162(m), the
terms of such award must state, in terms of an objective formula
or standard, the method of computing the amount of compensation
payable under the award, and must preclude discretion to
increase the amount of compensation payable under the terms of
the award (but may give the Compensation Committee discretion to
decrease the amount of compensation payable). For each such
award, the performance criteria upon which the payment or
vesting may be based shall be limited to one or more of the
following performance measures, which may be applied with
respect to the Company, any subsidiary or any business unit:
annual recurring revenues; recurring revenues; services
revenues; license revenues; net or gross revenue; operating
expenses; cash flow; total earnings; earnings per share, diluted
or basic; earnings before interest and taxes; earnings before
interest, taxes, depreciation and amortization; gross or
operating margin; return on equity; return on capital; return on
investment; market share; economic value added; stock price; and
total stockholder return. The foregoing performance criteria
shall have any reasonable definitions that the Compensation
Committee may specify, which may include or exclude any items
specified by the Compensation Committee, including but not
limited to any or all of the following items: discontinued
operations, extraordinary, unusual or non-recurring items,
effects of accounting changes, effects of currency or interest
rate fluctuations, effects of financing activities (e.g., effect
on earnings per share of issuing convertible debt securities),
changes in tax rates, expenses for restructuring or productivity
initiatives, litigation losses, non-operating items, effects of
acquisitions or divestitures and changes of law or regulation
affecting the Companys business. The foregoing performance
measures may be determined on an absolute basis or relative to
internal goals or relative to levels attained in prior years, or
related to other companies or indices, or as ratios expressing
relationships between two or more performance measures.
Effect of Change in Control. The Compensation
Committee may, in an award agreement, provide for the effect of
a change in control (as defined in the Amended and
Restated Plan) on an Award. These provisions may include the
acceleration of vesting of an Award, the elimination or
modification of performance or other conditions, the extension
of the time for exercise or realizing gain from an Award, the
acceleration of payment, cash settlement of an Award or other
adjustments that the Compensation Committee considers
appropriate. Unless otherwise provided by the Compensation
Committee and set forth in the applicable award agreement, upon
a change in control, (i) each outstanding option and stock
appreciation right, to the extent that it has not otherwise
become vested and exercisable, will automatically become fully
and immediately vested and exercisable, without regard to any
otherwise applicable vesting requirement, (ii) each
restricted stock award will become fully and immediately vested
and all forfeiture and transfer
7
restrictions thereon will lapse, and (iii) each outstanding
stock unit award, stock award and performance award will become
immediately and fully vested and payable.
Term; Amendment and Termination. The Amended
and Restated Plan will terminate on December 15, 2014,
unless earlier terminated by the Board. The Board may terminate
or amend the Amended and Restated Plan at any time, subject to
stockholder approval under certain circumstances provided in the
Amended and Restated Plan. However, no termination or amendment
of the Amended and Restated Plan will adversely affect the
rights of a participant under any previously granted Award.
New Plan
Benefits
By unanimous written consent dated as of March 13, 2007,
the Compensation Committee has approved the grant to
Mr. Scott Scherr of an Award of 60,000 restricted shares of
Common Stock, contingent upon the approval by the stockholders
of the Amended and Restated Plan at the 2007 Annual Meeting.
Such restricted stock Award would be issued on the date of the
2007 Annual Meeting, would become fully vested on the fourth
anniversary of the 2007 Annual Meeting and would have such other
terms as are provided in a Restricted Stock Award Agreement
entered into in accordance with the Plan. The Compensation
Committee resolution states that, in the event that the
stockholders do not approve the Amended and Restated Plan, the
Company will pay to Mr. Scherr, on the date such restricted
stock Award otherwise would have become fully vested, an amount
in cash equal to the fair market value of the shares of Common
Stock that otherwise would have been subject to such restricted
stock Award, as determined pursuant to the Plan.
The terms and number of Awards to be granted in the future under
the Amended and Restated Plan are to be determined in the
discretion of the Compensation Committee. Since no such
determinations have yet been made (other than the Award to
Mr. Scott Scherr described above), the benefits or amounts
that will be received by or allocated to the Companys
executive officers or other eligible employees cannot be
determined at this time.
Grants
under the Plan in 2006
In 2006, no stock options were granted under the Plan to the
Companys executive officers. In 2006, stock options were
granted (i) to other employees of the Company to purchase
an aggregate of 693,850 shares of Common Stock at an
average weighted exercise price of $21.62 per share,
(ii) to the non-employee directors of the Company for Board
services as a group to purchase an aggregate of
8,390 shares of Common Stock at an average weighted
exercise price of $5.74 per share and (iii) to
Mr. Alois T. Leiter,upon his election to the Board, to
purchase an aggregate of 25,000 shares of Common Stock at
an exercise price of $24.20 per share.
Also in 2006, each of the executive officers received grants of
restricted stock as disclosed in the Grants of Plan Based
Awards in 2006 table on page 26. The executive
officers as a group received Awards under the Plan for an
aggregate of 205,000 restricted shares of Common Stock. In 2006,
Awards were also granted under the Plan to other employees of
the Company for an aggregate of 58,000 restricted shares of
Common Stock.
Also in 2006, Messrs. Scott Scherr and Marc D. Scherr
received grants of 15,756 and 12,762 stock unit awards under the
Plan, respectively.
As of the Record Date, the closing price on the NASDAQ National
Market of the Companys Common Stock was $24.96 per
share.
U.S. Federal
Income Tax Consequences
The following summarizes the United States federal income tax
consequences of Awards under the Amended and Restated Plan to
participants who are subject to United States tax. The tax
consequences of the Amended and Restated Plan to the Company and
participants in other jurisdictions are not summarized below.
Stock Options. An optionee will not generally
recognize taxable income upon the grant of a nonqualified stock
option to purchase shares of Common Stock. Upon exercise of the
option, the optionee will generally
8
recognize ordinary income for federal income tax purposes equal
to the excess of the fair market value of the shares of Common
Stock over the exercise price. The tax basis of the shares of
Common Stock in the hands of the optionee will equal the
exercise price paid for the shares of Common Stock plus the
amount of ordinary compensation income the optionee recognizes
upon exercise of the option, and the holding period for the
shares of Common Stock for capital gains purposes will commence
on the day the option is exercised. An optionee who sells any of
the shares of Common Stock will recognize short-term or
long-term capital gain or loss measured by the difference
between the tax basis of the shares of Common Stock and the
amount realized on the sale. The Company will be entitled to a
federal income tax deduction equal to the amount of ordinary
compensation income recognized by the optionee. The deduction
will be allowed at the same time the optionee recognizes the
income.
An optionee will not generally recognize income upon the grant
of an incentive stock option to purchase shares of Common Stock
and will not generally recognize income upon exercise of the
option, provided that the optionee is an employee of the Company
or a subsidiary at all times from the date of grant until three
months prior to exercise. If an optionee who has exercised an
incentive stock option sells the shares of Common Stock acquired
upon exercise more than two years after the grant date and more
than one year after exercise, capital gain or loss will be
recognized equal to the difference between the sales price and
the exercise price. An optionee who sells the shares of Common
Stock before the expiration of the foregoing holding periods
will generally recognize ordinary income upon the sale, and the
Company will be entitled to a corresponding federal income tax
deduction at the same time the participant recognizes ordinary
income.
Other Awards. The current United States
federal income tax consequences of other Awards authorized under
the Amended and Restated Plan are generally in accordance with
the following: (i) stock appreciation rights are generally
subject to ordinary income tax at the time of settlement;
(ii) restricted stock is generally subject to ordinary
income tax at the time the restrictions lapse, unless the
recipient elects to accelerate recognition as of the date of
grant; (iii) stock units and performance awards are
generally subject to ordinary income tax at the time of payment,
and (iv) unrestricted stock awards are generally subject to
ordinary income tax at the time of grant. In each of the
foregoing cases, the Company will generally be entitled to a
corresponding federal income tax deduction at the same time the
participant recognizes ordinary income.
Section 162(m). Section 162(m) of
the Code generally disallows the corporate tax deduction for
certain compensation paid in excess of $1,000,000 annually to
each of the chief executive officer and the four other most
highly paid executive officers of publicly held companies.
Awards that qualify as performance-based
compensation are exempt from section 162(m), thus
allowing the Company the full federal tax deduction otherwise
permitted for such compensation. If approved by the
Companys stockholders, the Amended and Restated Plan will
enable the Compensation Committee to grant Awards that will be
exempt from the deduction limits of section 162(m).
Equity
Compensation Plan Information
The following table summarizes the securities authorized for
issuance under the Companys equity compensation plans as
of December 31, 2006:
|
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|
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|
|
|
|
|
|
(c)
|
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|
|
|
|
|
|
|
|
Number of
|
|
|
|
(a)
|
|
|
|
|
|
Securities Remaining
|
|
|
|
Number of
|
|
|
|
|
|
Available for Future
|
|
|
|
Securities to be
|
|
|
(b)
|
|
|
Issuance under
|
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|
|
Isssued Upon
|
|
|
Weighted-Average
|
|
|
Equity Compensation
|
|
|
|
Exercise of
|
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|
Exercise Price of
|
|
|
Plans (Excluding
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
Securities
|
|
|
|
Options
|
|
|
Options
|
|
|
Reflected in
|
|
Plan Category
|
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and Awards
|
|
|
and Awards
|
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|
Column (a))
|
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|
Equity compensation plans approved
by security holders
|
|
|
4,921,985
|
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|
$
|
10.07
|
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|
|
575,931
|
|
Equity compensation plans not
approved by security holders
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Total
|
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4,921,985
|
|
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$
|
10.07
|
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|
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575,931
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|
|
|
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|
9
THE BOARD RECOMMENDS A VOTE FOR THE APPROVAL OF THE
AMENDMENT OF THE 2005 EQUITY AND INCENTIVE PLAN.
PROPOSAL III RATIFICATION
OF THE APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The audit committee of the Board (the Audit
Committee) has appointed KPMG LLP as the independent
registered public accounting firm for the Company for the fiscal
year ending December 31, 2007. KPMG LLP has served as the
independent registered public accounting firm for the Company
since 2002. A representative of KPMG LLP will be present at the
Annual Meeting and will be given an opportunity to make a
statement. The representative will also be available to respond
to appropriate questions from stockholders.
Stockholder ratification of the appointment of KPMG LLP as the
Companys independent registered public accounting firm is
not required by the Companys bylaws or otherwise. However,
the Board is submitting the selection of KPMG LLP to the
stockholders for ratification as a matter of corporate practice.
The affirmative vote of the holders of a majority of the shares
represented in person or by proxy and entitled to vote is
required for the ratification of the appointment of KPMG LLP as
the Companys independent registered public accounting firm
for the fiscal year ending December 31, 2007. Abstentions
will not be counted either for or against the proposal for the
ratification of the appointment of KPMG LLP as the
Companys independent registered public accounting firm for
2007. If the stockholders fail to ratify the selection, the
Audit Committee will reconsider whether or not to retain the
firm. Even if the selection is ratified, the Audit Committee, in
its discretion, may direct the appointment of a different
independent registered public accounting firm at any time during
the year if the Audit Committee determines that such a change
would be in the best interests of the Company and its
stockholders.
THE BOARD RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF KPMG LLP AS THE COMPANYS INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING
DECEMBER 31, 2007.
Corporate
Governance, Board Meetings and Committees of the Board
During fiscal 2006, the Board held five meetings. During fiscal
2006, each director holding office during the year attended all
of the meetings of the Board and all of the meetings of the
committees of the Board on which he served. The Board has an
Executive Committee, an Audit Committee and a Compensation
Committee, which are described below.
Interested parties may communicate with the Board, anonymously
if they wish, by sending a written note or memo to the
Secretary, The Ultimate Software Group, Inc., 2000 Ultimate Way,
Weston, Florida 33326. Communications that are intended
specifically for non-management or independent directors should
be sent to the above address to the attention of the Chairman of
the Audit Committee. All such communications will be delivered
unopened by the Secretary to the Chairman of the Board or the
Chairman of the Audit Committee, as applicable.
Following consultation with counsel and based upon the facts
described below, the Board has determined that the following
individuals are independent directors within the meaning of the
rules of the National Association of Securities Dealers, Inc.
(NASD): James A. FitzPatrick, Jr., LeRoy A.
Vander Putten, Rick A. Wilber, Robert A. Yanover and Alois T.
Leiter. In the course of the Boards determination
regarding the independence of each non-employee director, it
considered any transactions, relationships and arrangements as
required by the NASD rules governing independence standards for
directors. In particular, with respect to each of the three most
recent completed fiscal years, the Board evaluated for
(i) Mr. FitzPatrick, the annual amount of fees the
Company paid for legal services to Dewey Ballantine LLP, the law
firm in which Mr. FitzPatrick is a partner, and
(ii) Mr. Leiter, the annual amount of charitable
contributions the Company made to Leiters Landing, the
non-profit charitable organization benefiting children that was
formed by Mr. Leiter, in connection with his acting as a
spokesperson for the Company. These relationships and
transactions are described in further detail below under
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
10
The Board determined that the annual payment or contribution, as
the case may be, to either of these organizations constituted an
amount less than the greater of $200,000 or five percent of such
organizations annual consolidated gross revenues during
each of such organizations three most recent completed
fiscal years, as such threshold is set forth in NASD
Rule 4200(a)(15)(D). The Board determined that these
relationships would not interfere with the ability of either
Mr. FitzPatrick or Mr. Leiter in exercising
independent judgment in carrying out the responsibilities of a
director.
The independent directors met regularly in executive session and
outside the presence of the Companys management throughout
the 2006 fiscal year, and will do so throughout fiscal 2007 in
compliance with the NASD rules.
Nominating Committee. The Board does
not have a standing nominating committee or committee performing
similar functions. The Board has determined that it is
appropriate not to have a nominating committee because of the
relatively small size of the Board and because the entire Board,
the majority of whom are independent directors, functions in the
capacity of a nominating committee. The Board has adopted
processes with respect to the nomination of directors that
require that a majority of the independent directors shall
recommend to the Board the nominees to stand for election at the
Annual Meeting.
When considering potential director candidates, the Board
considers the candidates independence (as mandated by the
NASD rules), character, judgment, age, skills, financial
literacy, and experience in the context of the needs of the
Company and the Board. In 2006, the Company did not pay any fees
to a third party to assist in identifying or evaluating
potential nominees.
The Board will consider director candidates recommended by the
Companys stockholders in a similar manner as those
recommended by members of management or other directors. The
name and qualifications of, and other information specified in
the Companys Bylaws with respect to, any recommended
candidate for director should be sent to the attention of the
Secretary of the Company in accordance with the procedures set
forth under the caption Stockholder Proposals for the 2008
Annual Meeting.
The Company does not have a policy with respect to attendance by
the directors at the Annual Meeting of Stockholders. One of the
seven members of the Board attended the 2006 Annual Meeting of
Stockholders.
Executive Committee. The Executive
Committee of the Board is composed of Messrs. Scott Scherr
(Chairman), Marc D. Scherr and Robert A. Yanover. The Executive
Committee has the authority to exercise (except as provided by
law or as may have been specifically reserved by or for the
Board) all the powers and authority of the Board in the
management of the business and affairs of the Company between
regular meetings of the Board and while the Board is not in
session. The Executive Committee held no meetings during fiscal
2006.
Audit Committee. Messrs. Robert A.
Yanover (Chairman), Rick A. Wilber and LeRoy A. Vander Putten
are members of the Audit Committee of the Board. The Audit
Committee oversees the Companys financial reporting
process on behalf of the Board and reviews the independence of
the Companys auditors. The Audit Committee held four
meetings during fiscal 2006.
The Board has determined that the Audit Committees current
member composition satisfies the NASD rules that govern audit
committee composition, including the requirement that audit
committee members all be independent directors as
that term is defined by NASD Rule 4200(a)(15). The Board
has determined that Mr. LeRoy A. Vander Putten is an
audit committee financial expert as defined in the
rules of the Securities and Exchange Commission (the
SEC).
The Companys independent registered public accounting firm
for the fiscal year ended December 31, 2006 was KPMG LLP. A
representative of KPMG LLP will be present at the Annual Meeting
and will be given an opportunity to make a statement. The
representative will also be available to respond to appropriate
questions from stockholders.
Compensation
Committee. Messrs. LeRoy A. Vander
Putten (Chairman), Robert A. Yanover, Rick A. Wilber and Alois
T. Leiter are members of the Compensation Committee of the
Board. Mr. Leiter was appointed as a member of the
Compensation Committee by the Board on February 6, 2007.
The Compensation
11
Committee is responsible for determining the compensation and
benefits for the executive officers of the Company and
administers the Companys stock-based plans and oversees
such other benefit plans as the Company may from time to time
maintain. The Compensation Committee held four meetings during
fiscal 2006. The Compensation Committee does not have a charter.
Director
Compensation
As compensation for serving on the Board, each non-employee
director of the Company receives a quarterly retainer of $5,000,
payable exclusively in the form of options to purchase Common
Stock granted under the Companys 2005 Equity and Incentive
Plan (the Plan). Additional compensation is provided
for serving on Committees of the Board, payable exclusively in
the form of options to purchase Common Stock under the Plan, as
follows: (1) the Chairman of the Audit Committee receives a
quarterly retainer of $1,250; (2) the Chairman of the
Compensation Committee received a quarterly retainer of $625
during the first and second quarter of fiscal 2006; commencing
with respect to service during the third fiscal quarter of 2006,
the Chairman of the Compensation Committee receives a quarterly
retainer of $1,250; (3) for attendance at each Compensation
Committee meeting, each Committee member receives $1,000 and the
Chairman of the Compensation Committee received $2,000 during
the first and second quarter of fiscal 2006; commencing with
respect to service during the third fiscal quarter of 2006, the
Chairman of the Compensation Committee receives $2,500;
(4) for attendance at each Audit Committee meeting, each
Committee member receives $1,500 and the Committee Chairman
receives $2,500. All such options are fully vested upon the date
of grant and have an exercise price equal to 30% of the fair
market value of the Companys Common Stock on the date of
grant. The total discount from fair market value on all options
granted to directors for a calendar quarter is equivalent to the
retainer fees and attendance fees earned by the non-employee
directors for such quarter. Options to purchase Common Stock
granted to the non-employee directors under the Plan as
compensation for Board and Committee service may not be
exercised until the earliest to occur of (i) the fifth
anniversary of the date of grant, (ii) the date on which
the non-employee director ceases to be a member of the Board and
(iii) a change in control of the Company, as defined in the
Plan (Change in Control). All directors are
reimbursed (in cash) for expenses incurred in connection with
their attendance at Board and committee meetings. In addition,
in connection with their having joined the Board, each
non-employee Director has received a single option to purchase
25,000 shares of the Companys Common Stock. All such
options were fully vested upon the date of grant and have an
exercise price equal to 100% of the fair market value of the
Companys Common Stock on the date of grant.
2006
DIRECTOR COMPENSATION
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Change in
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Pension Value
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and Nonqualified
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Fees Earned
|
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Non-Equity
|
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Deferred
|
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or Paid in
|
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Stock
|
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Option
|
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Incentive Plan
|
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|
Compensation
|
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All Other
|
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|
|
Name (1)
|
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Cash ($)
|
|
|
Awards ($)
|
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Awards ($) (2)
|
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|
Compensation ($)
|
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Earnings
|
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|
Compensation ($)
|
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Total ($)
|
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|
James A. FitzPatrick
|
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$
|
21,554
|
|
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|
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|
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|
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$
|
21,554
|
|
Alois T. Leiter
|
|
|
|
|
|
|
|
|
|
|
206,013
|
|
|
|
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206,013
|
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LeRoy A. Vander Putten
|
|
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|
40,576
|
|
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40,576
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Rick A. Wilber
|
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32,379
|
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32,379
|
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Robert A. Yanover
|
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42,099
|
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42,099
|
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|
|
|
(1) |
|
Messrs. Scott Scherr and Marc D. Scherr are not included in
this table as they are employees of the Company and receive no
compensation for their services as directors. The compensation
for Messrs. Scott Scherr and Marc D. Scherr as employees is
shown in the Summary Compensation Table. |
|
(2) |
|
The amounts included in the Options Award column
represent the compensation cost recognized by the Company in
2006 related to stock option awards to directors, computed in
accordance with SFAS No. 123 (revised 2004),
Share-Based Payment
(SFAS No. 123R). Upon his election to the
Board on October 23, 2006, Mr. Leiter was granted an
option under the Plan to purchase 25,000 shares of the
Companys Common Stock with an exercise price of 100% of
the fair market value of such shares on that date. The grant
date fair value of such option was $206,013. This option was
fully vested upon the date of grant and |
12
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therefore expensed in accordance with SFAS No. 123R in
fiscal 2006. Prior to 2006, each of the other non-employee
directors also received an option to purchase 25,000 shares
of the Companys Common Stock with an exercise price of
100% of the fair market value of such shares on the respective
dates of grant which were also fully vested as of the date of
grant. For a discussion of valuation assumptions for grants made
as compensation for Board and Committee service as well as
Mr. Leiters election to the Board, see the table
below. |
BLACK-SCHOLES
ASSUMPTIONS
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Stock Option Grant Date
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|
|
Jan. 3, 2006
|
|
|
Apr. 3, 2006
|
|
|
Jul. 3, 2006
|
|
|
Oct. 2, 2006
|
|
|
Oct. 23, 2006(1)
|
|
|
Risk Free Rate
|
|
|
4.75
|
%
|
|
|
4.75
|
%
|
|
|
4.88
|
%
|
|
|
4.60
|
%
|
|
|
4.60
|
%
|
Expected Volatility
|
|
|
40.00
|
%
|
|
|
40.00
|
%
|
|
|
40.70
|
%
|
|
|
40.30
|
%
|
|
|
40.30
|
%
|
Expected Life
|
|
|
4.50
|
|
|
|
4.50
|
|
|
|
4.66
|
|
|
|
4.76
|
|
|
|
4.76
|
|
Dividend Yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Grant Date Fair Value
|
|
$
|
14.92
|
|
|
$
|
19.87
|
|
|
$
|
14.69
|
|
|
$
|
16.61
|
|
|
$
|
8.24
|
|
|
|
|
(1) |
|
The option granted on October 23, 2006 was to
Mr. Leiter for election to the Board. The grant date fair
value was calculated in accordance with SFAS No. 123R.
Due to a 100% fair market value of the shares on the date of
grant (versus the 30% discounted fair value for options granted
as compensation for Board and Committee service), the grant date
fair value was lower. |
The amounts reported in the Director Compensation table above
represent the dollar amount of stock option awards recognized
for each director as compensation costs for Board services
(excluding forfeiture assumptions) in accordance with
SFAS No. 123R for fiscal 2006.
Under SFAS No. 123R, the fair value of each stock
option award is estimated on the grant date using the
Black-Scholes option valuation model based on the assumptions
noted in the table above. The Companys computation of the
expected volatility for each grant date above during the year
ended December 31, 2006 is based primarily upon historical
volatility and the expected term of the option. The expected
term is based on the historical exercise experience under the
share-based plans of the underlying award (including
post-vesting employment termination behavior) and represents the
period of time the share-based awards are expected to be
outstanding. The interest rate is based on the
U.S. Treasury yield in effect at the time of grant for a
period commensurate with the estimated expected life.
The number of outstanding Option Awards for each non-employee
director as of December 31, 2006 was as follows:
|
|
|
|
|
|
|
Outstanding
|
|
Name
|
|
Option Awards
|
|
|
James A. FitzPatrick
|
|
|
61,846
|
|
Alois T. Leiter
|
|
|
25,000
|
|
LeRoy A. Vander Putten
|
|
|
59,255
|
|
Rick A. Wilber
|
|
|
73,526
|
|
Robert A. Yanover
|
|
|
100,469
|
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding
beneficial ownership of the Companys Common Stock as of
February 28, 2007 (unless otherwise noted) by (i) each
person who is known by the
13
Company to own beneficially more than 5% of the Common Stock;
and (ii) each of the Companys directors and executive
officers and all directors and executive officers of the Company
as a group.
|
|
|
|
|
|
|
|
|
|
|
Amount and Nature
|
|
|
|
|
|
|
Of Beneficial
|
|
|
Percent
|
|
Name And Address Of Beneficial Owner
|
|
Ownership (1)
|
|
|
of Class (2)
|
|
|
William Blair & Company,
L.L.C. (3)
|
|
|
3,073,105
|
|
|
|
12.2
|
%
|
222 W. Adams
Chicago, IL 60606
|
|
|
|
|
|
|
|
|
Janus Capital Management L.L.C.
and Janus Venture Fund (4)
|
|
|
1,932,431
|
|
|
|
7.7
|
%
|
151 Detroit Street
Denver, CO 80206
|
|
|
|
|
|
|
|
|
Scott Scherr (5)
|
|
|
424,167
|
|
|
|
1.7
|
%
|
Marc D. Scherr (6)
|
|
|
602,562
|
|
|
|
2.4
|
%
|
Mitchell K. Dauerman (7)
|
|
|
184,092
|
|
|
|
0.7
|
%*
|
James A. FitzPatrick, Jr.(8)
|
|
|
60,290
|
|
|
|
0.2
|
%*
|
LeRoy A. Vander Putten(9)
|
|
|
74,300
|
|
|
|
0.3
|
%*
|
Rick A. Wilber(10)
|
|
|
361,655
|
|
|
|
1.4
|
%
|
Robert A. Yanover(11)
|
|
|
232,136
|
|
|
|
0.9
|
%*
|
Alois T. Leiter(12)
|
|
|
153,153
|
|
|
|
0.6
|
%*
|
All directors and executive
officers as a group (8 persons) (13)
|
|
|
2,092,355
|
|
|
|
8.3
|
%
|
|
|
|
* |
|
Indicates beneficial ownership of less than 1.0% of the
outstanding Common Stock. |
|
(1) |
|
Beneficial ownership is determined in accordance with the rules
of the SEC and includes voting or investment power with respect
to securities. Shares of Common Stock issuable upon the exercise
of stock options exercisable within 60 days of the date
hereof are deemed outstanding and to be beneficially owned by
the person holding such option for purposes of computing such
persons percentage ownership, but are not deemed
outstanding for the purpose of computing the percentage
ownership of any other person. The Company has made restricted
stock awards to executive officers under the Plan
(Restricted Stock Awards). The shares of Common
Stock issued under the Restricted Stock Awards are subject to
certain vesting requirements and restrictions on transfers. The
holders of such shares have all the rights of a stockholder with
respect to such shares, including the right to vote the shares
and receive all dividends and other distributions paid or made
with respect thereto, unless the Compensation Committee
determines otherwise at the time the Restricted Stock Award is
granted. Each Restricted Stock Award becomes vested on the
fourth (4th) anniversary of the respective date of grant,
subject to the grantees continued employment with the
Company or any subsidiary on each such vesting date and further
subject to accelerated vesting in the event of a Change in
Control or the grantees death, disability or termination
of the grantees employment with the Company without cause.
All shares of Common Stock issued under the Restricted Stock
Awards are considered to be beneficially owned for purposes of
computing the holders respective percentages of ownership
in this table. Except for shares held jointly with a
persons spouse or subject to applicable community property
laws, or as indicated in the footnotes to this table, each
stockholder identified in the table possesses the sole voting
and investment power with respect to all shares of Common Stock
shown as beneficially owned by such stockholder. The Company has
also made awards of stock units under the Plan (Stock Unit
Awards). A Stock Unit Award is a grant of a number of
hypothetical share units with respect to shares of Common Stock
that are subject to vesting and transfer restrictions and
conditions under a stock unit award agreement. The value of each
unit is equal to the fair market value of one share of Common
Stock on any applicable date of determination. The payment with
respect to each unit under a Stock Unit Award may be made, at
the discretion of the Compensation Committee, in cash or shares
of Common Stock or in a combination of both. Stock Unit Awards
are not included in this table since the grantee does not have
any rights as a stockholder with respect to the shares subject
to a Stock Unit Award until such time as shares of Common Stock
are delivered to the grantee pursuant to the terms of the
related stock unit award agreement. |
14
|
|
|
(2) |
|
Applicable percentage of ownership is based on
25,147,341 shares of Common Stock outstanding. |
|
(3) |
|
Represents shares held as of December 31, 2006 as reported
on Schedule 13G/A filed by William Blair & Company, LLC
(William Blair). As reported on Schedule 13G/A,
William Blair is a broker dealer registered under
Section 15 of the Exchange Act and an investment adviser
registered under Section 203 of the Investment Advisers Act
of 1940, as amended (the Investment Advisors Act).
William Blair has sole voting power and sole dispositive power
of 3,073,105 shares of Common Stock of the Company. |
|
(4) |
|
Represents shares held as of December 31, 2006 as reported
on Schedule 13G filed by the respective stockholders. As
reported on Schedule 13G, Janus Capital Management LLC
(Janus Capital) has an indirect 82.5% ownership
stake in Enhanced Investment Technologies, LLC
(INTECH) and an indirect 30% ownership stake in
Perkins, Wolf, McDonnell and Company, LLC (Perkins
Wolf). Due to this ownership structure, holdings for Janus
Capital, Perkins Wolf and INTECH are aggregated for purposes of
the shares reported on the December 31, 2006
Schedule 13G. Janus Capital, Perkins Wolf and INTECH are
registered investment advisers, each furnishing investment
advice to various investment companies registered under
Section 8 of the Investment Company Act of 1940, as amended
(the Investment Company Act) and to individual and
institutional clients (collectively referred to as Managed
Portfolios). As a result of its role as investment advisor
or
sub-adviser
to the Managed Portfolios, Janus Capital may be deemed to be the
beneficial owner of 1,932,431 shares of Common Stock of the
Company held by such Managed Portfolios. However, Janus Capital
does not have the right to receive any dividends from, or the
proceeds from the sale of, the securities held in the Managed
Portfolios and disclaims any ownership associated with such
rights. Janus Venture Fund is an investment company registered
under the Investment Company Act and is one of the Managed
Portfolios to which Janus Capital provides investment advice. |
|
(5) |
|
Represents exercisable options to purchase 244,167 shares
of Common Stock held by Mr. Scott Scherr, and
180,000 shares of Common Stock subject to Restricted Stock
Awards. Excludes 24,929 shares of Common Stock subject to
Stock Unit Awards. |
|
(6) |
|
Represents 10,000 shares of Common Stock held by
Mr. Marc D. Scherr, 16,066 shares of Common Stock held
by certain trusts established for the benefit of Mr. Marc
D. Scherrs children, exercisable options to purchase
411,496 shares of Common Stock and 165,000 shares of
Common Stock subject to Restricted Stock Awards. Excludes
20,192 shares of Common Stock subject to Stock Unit Awards.
Mr. Marc D. Scherr disclaims beneficial ownership of the
shares owned by the trusts established for the benefit of his
children. |
|
(7) |
|
Represents exercisable options to purchase 159,092 shares
of Common Stock held by Mr. Dauerman and 25,000 shares
of Common Stock subject to Restricted Stock Awards. |
|
(8) |
|
Represents 2,000 shares of Common Stock held by
Mr. FitzPatrick and exercisable options to purchase
58,290 shares of Common Stock. |
|
(9) |
|
Represents 21,260 shares of Common Stock held by
Mr. Vander Putten and exercisable options to purchase
53,040 shares of Common Stock. |
|
(10) |
|
Represents 293,173 shares of Common Stock held by
Mr. Wilber and exercisable options to purchase
68,482 shares of Common Stock. The shares shown include
50,000 shares of Common Stock pledged by Mr. Wilber. |
|
(11) |
|
Represents 78,696 shares of Common Stock held by Yanover
Associates as of February 28, 2007 and a warrant to
purchase 10,000 shares of Common Stock held by Yanover
Associates, 44,743 shares of Common Stock held by Yanover
Family Limited Partnership (YFLP), and exercisable
options held by Mr. Yanover to purchase 98,697 shares
of Common Stock. Mr. Yanover is the President of the
general partner of Yanover Associates and an officer of the
general partner of YFLP. Mr. Yanover disclaims beneficial
ownership of the shares held by the YFLP. |
|
(12) |
|
Represents 127,238 shares of Common Stock held by
Mr. Leiter, exercisable options to purchase
25,000 shares of Common Stock and 915 shares of Common
Stock held by certain trusts for the benefit of Mr. Leiter
s children. |
15
|
|
|
(13) |
|
Represents an aggregate of 532,367 shares of Common Stock,
a warrant to purchase 10,000 shares of Common Stock,
370,000 shares of Common Stock subject to Restricted Stock
Awards and exercisable options to purchase an aggregate of
1,118,264 shares of Common Stock. Excludes
45,121 shares of Common Stock subject to Stock Unit Awards. |
DIRECTORS
AND EXECUTIVE OFFICERS
The directors and executive officers (Messrs. Scott Scherr,
Marc D. Scherr and Mitchell K. Dauerman), and their ages as of
February 18, 2007, are as follows:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position(s)
|
|
Scott Scherr
|
|
|
54
|
|
|
Chairman of the Board, President
and Chief Executive Officer
|
Marc D. Scherr
|
|
|
49
|
|
|
Vice Chairman of the Board and
Chief Operating Officer
|
Mitchell K. Dauerman
|
|
|
49
|
|
|
Executive Vice President, Chief
Financial Officer and Treasurer
|
James A.
FitzPatrick, Jr.
|
|
|
57
|
|
|
Director
|
Alois T. Leiter
|
|
|
41
|
|
|
Director
|
LeRoy A. Vander Putten
|
|
|
72
|
|
|
Director
|
Rick A. Wilber
|
|
|
60
|
|
|
Director
|
Robert A. Yanover
|
|
|
70
|
|
|
Director
|
Marc D. Scherr has been a director of the Company since its
inception in April 1996 and has served as Vice Chairman since
July 1998 and as Chief Operating Officer since October 2003.
Mr. Scherr is also a member of the Executive Committee of
the Board. Mr. Scherr became an executive officer of the
Company effective March 1, 2000. Mr. Scherr served as
a director of Gerschel & Co., Inc., a private
investment firm from January 1992 until March 2000. In December
1995, Mr. Scherr co-founded Residential Company of America,
Ltd. (RCA), a real estate firm, and served as
President of its general partner until March 2000.
Mr. Scherr also served as Vice President of RCAs
general partner from its inception in August 1993 until December
1995. From 1990 to 1992, Mr. Scherr was a real estate
pension fund advisor at Aldrich, Eastman & Waltch.
Previously, he was a partner in the Boston law firm of
Fine & Ambrogne. Mr. Scherr is the brother of
Scott Scherr, Chairman of the Board, President and Chief
Executive Officer of the Company
Mitchell K. Dauerman has served as Executive Vice President of
the Company since April 1998 and as Chief Financial Officer and
Treasurer of the Company since September 1996. From 1979 to
1996, Mr. Dauerman held various positions with KPMG LLP,
serving as a Partner in the firm from 1988 to 1996.
Mr. Dauerman is a Certified Public Accountant.
James A. FitzPatrick, Jr. has served as a director of the
Company since July 2000. Mr. FitzPatrick is a partner in
the law firm Dewey Ballantine LLP, which provides legal services
to the Company. Before joining Dewey Ballantine LLP as a partner
in February 1989, Mr. FitzPatrick was a partner in the law
firm LeBoeuf, Lamb, Leiby & MacRae.
LeRoy A. Vander Putten has served as a director of the Company
since October 1997, is Chairman of the Compensation Committee of
the Board and is a member of the Audit Committee of the Board.
Mr. Vander Putten is a retired insurance company executive.
He served as the Executive Chairman of The Insurance Center,
Inc., a holding company for 14 insurance agencies, from October
2001 to January 27, 2006. Previously, he served as the
Chairman of CORE Insurance Holdings, Inc., a member of the GE
Global Insurance Group, engaged in the underwriting of casualty
reinsurance, from August 2000 to August 2001. From April 1998 to
August 2000, he served as Chairman of Trade Resources
International Holdings, Ltd., a corporation engaged in trade
finance for exporters from developing countries. From January
1988 until May 1997, Mr. Vander Putten was Chairman and
Chief Executive Officer of Executive Risk Inc., a specialty
insurance holding
16
company. From August 1982 to January 1988, Mr. Vander
Putten served as Vice President and Deputy Treasurer of The
Aetna Life and Casualty Company, an insurance company.
Rick A. Wilber has served as a director of the Company since
October 2002 and is a member of the Audit Committee and a member
of the Compensation Committee of the Board. Mr. Wilber
formerly served on the Companys Board of Directors from
October 1997 through May 2000. Since 1995, Mr. Wilber has
been the President of Lynns Hallmark Cards, which owns and
operates a number of Hallmark Card stores. Mr. Wilber was a
co-founder of Champs Sports Shops and served as its President
from 1974 to 1984. He served on the Board of Royce Laboratories,
a pharmaceutical concern, from 1990 until April 1997, when the
company was sold to Watson Pharmaceuticals, Inc., a
pharmaceutical concern.
Robert A. Yanover has served as a director of the Company since
January 1997 and is Chairman of the Audit Committee and a member
of the Compensation Committee of the Board. Mr. Yanover
founded Computer Leasing Corporation of Michigan, a private
leasing company, in 1975 and has served as its President since
that time. Mr. Yanover also founded Lason, Inc., a
corporation specializing in the imaging business, and served as
Chairman of the Board from its inception in 1987 until 1998 and
as a director through February 2001.
Information regarding Messrs. Scott Scherr and Alois T.
Leiter is included under the heading
PROPOSAL I ELECTION OF DIRECTORS.
COMPENSATION
DISCUSSION AND ANALYSIS
Executive
Compensation Policy
As a provider of Web-based payroll and talent management
solutions, our long-term success depends on our ability to
develop, enhance and market our products and services to keep
pace with our competitors; adapt to technological advancements
and changing industry standards; and expand the functionality of
our products and services to address the increasingly
sophisticated requirements of our customers. To achieve these
goals, it is critical that we be able to attract, motivate and
retain highly talented individuals at all levels of the
organization who are committed to the Companys core values
of excellence, integrity and teamwork.
It is our belief that compensation should be based on the level
of job responsibility, individual performance and Company
performance. As employees progress to higher levels in the
organization, an increasing proportion of their pay should be
linked to Company performance, since they are more able to
affect the Companys results. Additionally, compensation
should reflect the value of the job in the marketplace. In order
to attract and retain a highly skilled work force, we must
remain competitive with the pay of other employers who compete
with us for talent. Although the programs and individual pay
levels will always reflect differences in job responsibilities,
geographies and marketplace considerations, the overall
structure of compensation and benefit programs should be broadly
similar across the Company.
Our Compensation Committee is responsible for developing and
approving the Companys compensation program for the
executive officers and other officers of the Company. In
addition, our Compensation Committee administers the
Companys equity based plan and oversees such other benefit
plans as the Company may from time to time maintain.
Our Compensation Committee is composed of four non-employee
directors, Messrs. LeRoy A. Vander Putten (Chairman), Rick
A. Wilber, Robert A. Yanover and, since February 6, 2007,
Alois T. Leiter.
For 2006, the executive compensation program was designed to
reward executive officers for achieving the Companys
strategic goals and to align the interests of the executive
officers with those of the Companys stockholders. In
particular, the Companys 2005 Equity and Incentive Plan
(the Plan) is intended to (i) provide a vehicle
for compensating the Companys key personnel by giving them
the opportunity to acquire a proprietary interest in the
Companys Common Stock by receiving equity-based incentive
compensation; (ii) provide management with equity ownership
in the Company commensurate with Company performance, as
reflected in increased stockholder value; (iii) attract,
motivate and retain key employees and non-employee
17
directors by maintaining competitive compensation levels; and
(iv) provide an incentive to management for continuous
employment with or service to the Company.
This philosophy is reflected in a compensation package that is
generally comprised of three elements (collectively, Total
Compensation): (i) base salary, which is determined
on the basis of the individuals position and
responsibilities with the Company; (ii) incentive
performance awards payable in cash and tied to the achievement
of the Companys achievement of specified financial
targets; and (iii) long-term stock-based incentive
compensation, which is related to the Companys achievement
of specified financial and other performance targets and which
includes the issuance of restricted stock awards
and/or stock
unit awards that create a link between executive compensation
and the interests of the Companys stockholders. The
Committee also has granted stock options to executive officers
in prior years.
The
Compensation Committees Processes
The Compensation Committee utilizes different processes to
assist it in ensuring that the Companys executive
compensation program is achieving its objectives. Among those
are:
|
|
|
|
|
Industry Comparison. The Compensation
Committee establishes Total Compensation levels for executives
that it believes are competitive with industry compensation
practices of other software and technology companies of
comparable size. In order to enhance its objectivity and
independence, the Compensation Committee has, from time to time,
obtained advice
and/or
recommendations of an outside compensation consulting firm,
Watson Wyatt and Company (Watson Wyatt). In
addition, the Compensation Committee reviews available
information, including information published in secondary
sources, regarding prevailing salaries and compensation programs
offered to chief executive officers by competing businesses that
are comparable to the Company in terms of size and industry
group. Generally, the Chief Executive Officer provides
recommendations for compensation changes to the Compensation
Committee for its review. The Companys objective is
generally to set the Total Compensation of the executive
officers of the Company at the middle range of comparable sized
companies. The Compensation Committee believes Total
Compensation for each of the executive officers is competitive
with other software and technology companies of comparable size.
|
|
|
|
Assessment of Company Performance. The
Compensation Committee uses Company performance measures in
establishing total compensation ranges. The Compensation
Committee may consider various measures of Company performance,
including sales, earnings per share and growth in recurring
revenue. The Compensation Committee makes a subjective
determination after considering such measures collectively. In
addition, as described in more detail below, the Compensation
Committee may grant performance awards under a formula provided
for under the Plan. Such awards shall represent the right to
receive a payment in cash or equity if performance goals
established by the Compensation Committee for a certain
performance period are satisfied.
|
|
|
|
Assessment of Individual
Performance. Individual performance has a strong
impact on the compensation of all employees, including the
executive officers. The members of the Compensation Committee
meet with the Chief Executive Officer, and then meet in
executive session, when compensation is being considered in
order to evaluate the Chief Executive Officers performance
for the year. This evaluation is considered by the Compensation
Committee in setting the Chief Executive Officers
compensation. For the other executive officers, the Compensation
Committee receives a compensation recommendation from the Chief
Executive Officer and may also exercise its judgment based on
the Compensation Committees assessment of the performance
of such executive officers.
|
Components
of Executive Compensation for 2006
The Companys compensation program balances both the mix of
cash and equity compensation and the mix of currently-paid and
longer-term compensation in a way that furthers the compensation
objectives discussed above. Following is a discussion of the
Compensation Committees considerations in establishing
each of the components for the executive officers.
18
Base
Salary
Base salary is the fixed element of employees annual cash
compensation. Our executive compensation program is designed to
align executive performance with the financial and strategic
objectives of the Company, to reward executive management for
the successful performance of these objectives and to encourage
the executives to be focused on building long-term success.
Therefore, a portion of these employees total compensation
is performance-based.
The Compensation Committee annually reviews and determines the
base salary of the Chief Executive Officer and the base salaries
of the other executive officers based on the recommendations of
the Chief Executive Officer. Base salaries are generally
adjusted to reflect promotions, increases in responsibilities
and competitive considerations. In order to attract and retain
qualified executives, the Company provides base salaries it
considers to be competitive.
While determining the compensation for the Companys
President and Chief Executive Officer, Mr. Scott Scherr,
for 2006, the Compensation Committee reviewed the current and
long term incentive compensation, as well as change in control
and severance arrangements, of the chief executive officers of
certain internet based software and service companies that have
market capitalizations comparable to that of the Company.
However, while taking this information into account, the
Compensation Committee did not attempt to benchmark
Mr. Scherrs compensation against the compensation of
these or other chief executive officers. Instead, the
Compensation Committee exercised its own judgment and, based
upon Mr. Scherrs personal performance, in particular
his leadership of the Company in transitioning from a business
strategy which primarily centered on sales of perpetual licenses
of UltiPro to a business strategy focused on maximizing
recurring revenue streams, the Compensation Committee determined
that as of January 1, 2006, Mr. Scherrs base
salary should be increased from $500,000 to $550,000.
Mr. Scherrs base salary of $500,000 in 2005 had not
changed from his base salary in 2004.
The Compensation Committee reviewed with Mr. Scott Scherr
the performance of Mr. Marc D. Scherr as the Companys
Chief Operating Officer, and his work in overseeing the
Companys strategic activities. The Compensation Committee
also reviewed with Mr. Scott Scherr the performance of
Mr. Dauerman as the Companys Chief Financial Officer,
including his oversight of financial and accounting functions
and the Companys relationships with the investment
community. Based upon Mr. Scott Scherrs
recommendation and its review with him, the Compensation
Committee determined that as of January 1, 2006,
Mr. Marc D. Scherrs base salary should be increased
from $450,000 to $495,000 and Mr. Mitchell K.
Dauermans base salary should be increased from $375,000 to
$412,500. Mr. Marc D. Scherrs base salary of $450,000
in 2005 had not changed from his base salary in 2004.
Mr. Dauermans base salary of $375,000 in 2005 had
increased from his base salary of $350,000 in 2004.
Incentive
Compensation
From time to time, on a discretionary basis, the Compensation
Committee approves (i) incentive performance awards payable
in cash and tied to the achievement of performance goals
(Cash Bonuses); and (ii) long-term stock-based
incentive compensation. In order to provide incentives to new
employees and in recognition of superior performance, promotions
and increased responsibilities of executive officers and
employees, the Company provides long-term stock-based incentive
compensation payable through the issuance of (i) options to
purchase shares of the Companys Common Stock (Stock
Options); (ii) Restricted Stock Awards;
and/or
(iii) Stock Unit Awards (collectively, Stock-Based
Compensation). All employees of the Company are eligible
for discretionary Cash Bonuses and Stock-Based Compensation,
based on their individual achievement of performance goals and
as approved by the Compensation Committee. In February 2006, the
Compensation Committee reviewed the Companys business plan
for 2006 with Messrs. Scott Scherr and Marc D. Scherr and
subsequently established the performance goals for performance
awards for the executive officers with respect to 2006
performance.
19
Incentive
Performance Awards
The Compensation Committee may grant performance awards under
the Plan, which shall represent the right to receive a payment
in cash or equity if the performance goals established by the
Compensation Committee for a performance period are satisfied.
At the time a performance award is granted, the Compensation
Committee shall determine, in its sole discretion, the
applicable performance period and performance goals to be
achieved during the performance period, as well as such other
conditions as the Compensation Committee deems appropriate. The
Compensation Committee may also determine a target payment
amount or a range of payment amounts for each award. The
performance goals applicable to a performance award grant may be
subject to adjustments as the Compensation Committee shall deem
appropriate to reflect significant unforeseen events, such as
changes in law, accounting practices or unusual or nonrecurring
items or occurrences. At the end of the performance period, the
Compensation Committee shall determine the extent to which
performance goals have been attained, or a degree of achievement
between minimum and maximum levels, in order to establish the
level of payment to be made, if any.
Mr. Scott Scherr was granted Cash Bonuses aggregating
$155,834 for 2006 (net of the Elected Deferral, as defined and
discussed below) and $225,000 (net of the Elected Deferral) for
2005. Mr. Scherrs 2006 Cash Bonus was in connection
with the Companys performance measured against certain
performance criteria under the Plan (as specifically designated
by the Compensation Committee) two-thirds based on growth in
recurring revenues (target of 27.5% increase in recurring
revenues over 2005) and one-third based on pre tax earnings
per share before the charge to earnings resulting from Awards
under the Plan (target of $0.37) (the 2006 Overall Company
Objectives). The Compensation Committee chose these
criteria to encourage the executive officers to focus on
building both recurring revenues and pre tax earnings. Special
emphasis was given to recurring revenue growth as the Company
continues its transition to a model based primarily on recurring
revenue.
Mr. Marc D. Scherr was granted Cash Bonuses aggregating
$126,225 for 2006 (net of the Elected Deferral) and $182,250
(net of the Elected Deferral) for 2005. Mr. Scherrs
2006 Cash Bonus was in connection with the Companys
performance measured against the 2006 Overall Company Objectives.
Mr. Mitchell K. Dauerman was granted Cash Bonuses
aggregating $116,875 for 2006 and $168,750 for 2005.
Mr. Dauermans 2006 Cash Bonus was in connection with
the Companys performance measured against the 2006 Overall
Company Objectives.
Long-Term
Stock-Based Incentive Compensation
The Company grants long-term equity incentives in the form of
Stock-Based Compensation that convert into shares of Common
Stock. The Compensation Committee has sole discretion in
awarding stock options and does not delegate such authority to
our management nor does our management have the ability to
select or influence stock option grant dates. The exercise price
of the stock options granted to employers who are participants
under the Plan was equal to 100 percent of the per share
fair market value of the Common Stock at the closing price of
the Common Stock on NASDAQ on the date of grant. In 2006, all
such grants were made on the respective dates of the regular
quarterly meetings of the Board and the Compensation Committee
which are scheduled by the Board or the Compensation Committee,
as applicable, well in advance and generally occur at the same
times each year. Each of the regular quarterly meetings of the
Board and Board committees is held in advance of the date of the
respective earnings release in order that the Board and the
Audit Committee may review the financial results prior to their
release. The exercise price of the stock options granted to
non-employee directors under the Plan as compensation for Board
services was equal to 30% of the per share fair market value of
the Common Stock at the closing price of the Common Stock on
NASDAQ on the first trading day of the calendar quarter
following the calendar quarter in which such compensation was
earned. Although employees and non-employee directors may have
been in possession of material non-public information at the
time of a stock option grant, we have not timed nor do we plan
to time our release of material non-public information for the
purpose of affecting the value of executive compensation.
Stock Options align employee incentives with stockholders
because Stock Options have value only if the stock price
increases over time. The Companys
10-year
Stock Options, granted at the market price on the date
20
of the grant, help focus employees on long-term growth. In
addition, Stock Options are intended to help retain key
employees because they typically vest over 3 years and, if
not exercised, are forfeited if the employee leaves the Company.
The 3-year
vesting also helps keep employees focused on long-term
performance. The Company does not reprice Stock Options;
likewise, if the stock price declines after the grant date, we
do not replace Stock Options.
In 2006, the Company awarded Stock Options to newly hired
employees and to certain employees, other than executive
officers, in recognition of their promotions
and/or
performance. The Compensation Committee did not grant any Stock
Options to executive officers in 2006. However, consistent with
the objective of increasing the equity based component of
executive compensation as recommended by Watson Wyatt in 2004,
the Compensation Committee determined that additional equity
awards should be made to the executive officers in view of their
performance and the respective levels of their equity ownership
in the Company. In order to reduce dilution to stockholders, the
Compensation Committee determined to issue Restricted Stock
Awards, rather than Stock Options, to the executive officers.
Nevertheless, the Company reserves the right to issue Stock
Options to executive officers in the future.
During 2006, the Compensation Committee provided long-term
stock-based incentive compensation to Mr. Scott Scherr
based on his performance as discussed above, his level of equity
ownership in the Company and the determination by the
Compensation Committee to increase the equity related component
of executive compensation, consistent with the recommendations
of Watson Wyatt. During 2006, Mr. Scherr received two
grants of Restricted Stock Awards aggregating 110,000 restricted
shares of Common Stock.
As approved by the Compensation Committee and provided for in
the Plan, Mr. Scott Scherr deferred receipt of one-half of
his cash performance bonus earned in 2006, or $155,834, in
exchange for the grant of a Stock Unit Award under the Plan (the
Elected Deferral). Upon this election and at the
direction of the Compensation Committee, the Company provided a
matching contribution equal to one-half of the amount deferred
(the Company Match). The amount of
Mr. Scherrs Company Match was $77,917. The number of
stock units subject to such Stock Unit Award, or
9,173 units, was determined by dividing the total amount
deferred (including the Company Match) by the fair market value
of a share of the Companys Common Stock on the date of
payment of the non-deferred portion of the cash performance
award. The Stock Unit Award resulting from the Elected Deferral
was granted on a fully vested basis, with a deferred payment
date of five years after the grant date. The Stock Unit Award
resulting from the Company Match vests on the fourth anniversary
of the date of grant, subject to Mr. Scherrs
continued employment with the Company or any subsidiary on such
vesting date and subject further to accelerated vesting in the
event of a Change in Control, his death or disability or the
termination of his employment by the Company without cause. The
Stock Unit Awards granted as a result of the Elected Deferral
and Company Match were earned in 2006 and issued in February
2007. The amount charged to the Companys income statement
for 2006 attributable to the Stock Unit Awards earned by
Mr. Scherr is included in the Stock Awards
column of the Summary Compensation Table.
During 2006, the Compensation Committee provided long-term
stock-based incentive compensation to Mr. Marc D. Scherr
based on his performance as discussed above, his level of equity
ownership in the Company and the determination by the
Compensation Committee to increase the equity related component
of executive compensation, consistent with the recommendations
of Watson Wyatt. During 2006, Mr. Scherr received two
grants of Restricted Stock Awards aggregating 80,000 restricted
shares of Common Stock.
As approved by the Compensation Committee and provided for in
the Plan, Mr. Marc D. Scherr deferred receipt of one-half
of his cash performance bonus earned in 2006, or $126,225, in
exchange for the grant of a Stock Unit Award under the Plan.
Upon this election and at the direction of the Compensation
Committee, the Company provided a Company Match equal to
approximately one-half of the amount deferred. The amount of
Mr. Scherrs Company Match was $63,112. The number of
stock units subject to such Stock Unit Award, or
7,430 units, was determined by dividing the total amount of
cash bonus deferred (including the Company Match) by the fair
market value of a share of the Companys Common Stock on
the date of payment of the non-deferred portion of the cash
performance award. The Stock Unit Award resulting from the
Elected Deferral was granted on a fully vested basis, with a
deferred payment date of five years after the grant date.
21
The Stock Unit Award resulting from the Company Match vests on
the fourth anniversary of the date of grant, subject to
Mr. Scherrs continued employment with the Company, or
any subsidiary, on such vesting date and subject further to
accelerated vesting in the event of a Change in Control, his
death or disability or the termination of his employment by the
Company without cause. The Stock Unit Awards granted as a result
of the Elected Deferral and Company Match were earned in 2006
and issued in February 2007. The amount charged to the
Companys income statement for 2006 attributable to the
Stock Unit Awards earned by Mr. Scherr is included in the
Stock Awards column of the Summary Compensation
Table.
During 2006, the Compensation Committee provided long-term
stock-based incentive compensation to Mr. Mitchell K.
Dauerman based on his performance as discussed above, his level
of equity ownership in the Company and the determination by the
Compensation Committee to increase the equity related component
of executive compensation, consistent with the recommendations
of Watson Wyatt. During 2006, Mr. Dauerman received one
grant of a Restricted Stock Award for 15,000 restricted shares
of Common Stock.
Holders of Restricted Stock Awards have all rights of a
stockholder including the right to vote the shares and receive
all dividends and other distributions paid or made with respect
thereto. Each Restricted Stock Award becomes vested on the
fourth anniversary of the respective date of grant, subject to
the grantees continued employment with the Company or any
subsidiary on each such vesting date.
Holders of Stock Unit Awards do not have any rights as a
stockholder with respect to the shares subject to a Stock Unit
Award until such time as shares of Common Stock are delivered to
the participant pursuant to the terms of the award agreement.
Severance
Benefits
Except as described below, the Company is not obligated to pay
severance or other enhanced benefits to executive officers upon
termination of their employment.
In March 2004, the Board adopted two Change in Control Bonus
Plans. One Change in Control Bonus Plan provides for the payment
of cash amounts to the Companys three executive officers
upon a change in control of the Company. The other
Change in Control Bonus Plan provides for the payment of cash
amounts in the event of a change in control to
employees other than executive officers of the Company
designated by the Compensation Committee. (The two Change in
Control Bonus Plans are hereinafter referred to collectively as
the CIC Plan.) A change in control would
occur if more than 50% of the Companys Common Stock were
acquired by a person or entity other than the Company, a
subsidiary or an employee benefit plan of the Company. There are
other conditions that could result in a change in control event.
The amount of the payments to be made to the executive officers
under the CIC Plan is based upon the gross consideration
received by the Company or its stockholders in the change in
control transaction (the CIC Consideration). The
aggregate amount of payments (including the gross up
payments described below) that may be made to all participants
under the CIC Plan may not exceed 4% of the CIC Consideration.
To the extent this limit would otherwise be exceeded, the
Compensation Committee would reduce one or more payments in its
discretion in the manner that it determines to be equitable. No
payments will be made under the CIC Plan to any participant
whose employment with the Company is terminated prior to the
consummation of the change in control transaction.
In adopting the CIC Plan, the Board determined not to require
that only participants whose employment was terminated in
connection with a change in control would be eligible to receive
the CIC Consideration. The view of the Board upon adoption of
the CIC Plan was that the ownership of equity in the Company by
executives and employees was relatively small and that the CIC
Consideration would provide a fair and reasonable means by which
they could participate with stockholders in connection with a
change in control. In addition, it was the view of the Board
that these payment arrangements would encourage executives and
employees to remain with the Company during a period of
uncertainty in connection with a proposed change of control.
Under the CIC Plan, Messrs. Scott Scherr, Marc D. Scherr
and Mitchell K. Dauerman would be entitled to payments equal to
1.0%, 0.75% and 0.25%, respectively, of the CIC Consideration.
To the extent that
22
change in control payments to these individuals, whether under
the CIC Plan or otherwise, would exceed the limitations of
Section 280G of the Internal Revenue Code, they would be
entitled to receive an additional gross up payment
to indemnify them for the effect of the resulting excise tax
imposed on the individuals, subject to the 4% aggregate
limitation referred to above. Assuming that there was a change
in control on December 31, 2006, at the closing price of
the Companys Common Stock on NASDAQ on the last trading
day of the year, Messrs. Scott Scherr, Marc D. Scherr and
Mitchell K. Dauerman would have been entitled to receive
approximately $8.4 million, $6.2 million and
$1.9 million, respectively, inclusive of amounts in respect
of such gross up under the CIC Plan.
The Board may amend or terminate the CIC Plan at any time,
provided that any resulting reduction in a participants
right to payments is compensated for by an arrangement of
comparable or greater value. Unless sooner terminated by the
Board, the CIC Plan will automatically terminate on
March 5, 2009.
Accelerated
Vesting
In addition to the severance provisions described above, the
Companys stock-based compensation for our executive
officers is subject to accelerated vesting under certain
circumstances described below.
Stock Options. The Companys stock
options issued to the executive officers pursuant to the Prior
Plan and the Plan ordinarily vest 25% on the date of grant and
25% on each of the first three anniversaries of the date of
grant, subject to each executive officers continued
employment with the Company. However, pursuant to the terms of
the Prior Plan and the Nonqualified Stock Option Award
Agreements entered into between the Company and the executive
officers under the Plan, in the event of death, disability or a
change in control of the Company (each, an Accelerated
Vesting Occurrence), each executive officers
unvested stock options under the Prior Plan and the Plan would
immediately vest and become fully exercisable. Assuming that
there was an Accelerated Vesting Occurrence on December 31,
2006, the unvested stock options held by Messrs. Scott
Scherr, Marc D. Scherr and Mitchell K. Dauerman would have
automatically vested and they would have been entitled to
receive amounts equal to the value of $549,650, $412,238 and
$63,813, respectively as a result of such acceleration. These
amounts are derived from the difference between the per share
fair market value of the Common Stock, at the closing price of
the Common Stock on NASDAQ on the last trading day of 2006 (the
Year End Fair Market Value) and the exercise prices
of unvested options held by them, multiplied by the number of
shares subject to the options being accelerated.
Restricted Stock Awards. The Companys
shares of restricted stock issued pursuant to the Plan
ordinarily vest on the fourth anniversary of the date of grant,
subject to each executive officers continued employment
with the Company. However, pursuant to the terms of the
Restricted Stock Award Agreements entered into between the
Company and the executive officers under the Plan, in the event
of an Accelerated Vesting Occurrence, each executive
officers shares of unvested restricted stock would
immediately vest and become fully exercisable. Assuming that
there was an Accelerated Vesting Occurrence on December 31,
2006, the unvested shares of restricted stock held by
Messrs. Scott Scherr, Marc D. Scherr and Mitchell K.
Dauerman would have automatically vested and they would have
been entitled to receive amounts equal to the value of
$4,186,800, $2,791,200 and $581,500, respectively as a result of
such acceleration. These amounts are derived from the per share
Year End Fair Market Value of the Common Stock multiplied by the
number of shares being accelerated. In addition, pursuant to the
terms of the Restricted Stock Award Agreements entered into
between the Company and the executive officers under the Plan,
in the event an executive officers employment is
terminated by the Company without cause (a Termination
Without Cause Occurrence), 1/48th (one forty-eighth)
of the shares of restricted stock for each complete month of
continued employment by the executive officer with the Company
following the applicable dates of grant would immediately vest
and become fully exercisable. Assuming that there was a
Termination Without Cause Occurrence on December 31, 2006,
a portion of the unvested shares of restricted stock held by
Messrs. Scott Scherr, Marc D. Scherr and Mitchell K.
Dauerman would have automatically vested on a pro rated basis as
described above and they would have been entitled to receive
amounts equal to the value of $862,558, $559,694 and $82,379,
respectively as a result of such acceleration. These amounts are
derived from the per share Year End Fair Market Value of the
Common Stock multiplied by the pro rated number of shares being
accelerated.
23
Stock Units. The Companys stock units
attributable to the Companys matching contribution of a
portion of cash bonuses voluntarily deferred by an executive
officer under the Plan ordinarily vest on the fourth anniversary
of the date of grant, subject to each executive officers
continued employment with the Company. However, pursuant to the
terms of the Stock Unit Award Agreements entered into between
the Company and the executive officers under the Plan, in the
event of an Accelerated Vesting Occurrence, each executive
officers unvested stock units would immediately vest and
become fully exercisable. Assuming that there was an Accelerated
Vesting Occurrence on December 31, 2006, the unvested stock
units held by Messrs. Scott Scherr and Marc D. Scherr would
have automatically vested and they would have been entitled to
receive amounts equal to the value of $122,157 and $98,939,
respectively as a result of such acceleration. These amounts are
derived from the per share Year End Fair Market Value of the
Common Stock multiplied by the number of shares subject to the
stock units being accelerated.
In addition, pursuant to the terms of the Stock Unit Award
Agreements entered into between the Company and the executive
officers under the Plan, in the event of a Termination Without
Cause Occurrence, 1/48th (one forty-eighth) of the stock
units for each complete month of continued employment by the
executive officer with the Company following the applicable
dates of grant would immediately vest and become fully
exercisable. Assuming that there was a Termination Without Cause
Occurrence on December 31, 2006, a portion of the unvested
stock units held by Messrs. Scott Scherr and Marc D. Scherr
would have automatically vested on a pro rated basis as
described above and they would have been entitled to receive
amounts equal to the value of $25,449 and $20,612, respectively
as a result of such acceleration. These amounts are derived from
the per share Year End Fair Market Value of the Common Stock
multiplied by the pro rated number of shares subject to the
stock units being accelerated.
Tax
Deductibility of Executive Compensation
In general, Section 162(m) of the Code disallows a
deduction for any compensation paid in excess of $1 million
during a calendar year to any of the chief executive officer and
the four most highly paid executive officers of publicly held
companies, subject to an exception for compensation that
qualifies as performance-based compensation. The
Compensation Committee has endeavored, to the extent it deems
consistent with the best interests of the Company and its
stockholders, to obtain maximum deductibility of compensation
paid to executive officers. For example, awards of stock options
under the Plan satisfy the requirements for performance-based
compensation under Section 162(m). However, the
Compensation Committee also recognizes the need to retain
flexibility to make compensation decisions that may not meet
Section 162(m) standards when necessary to enable the
Company to meet its overall objectives, even if the Company may
not deduct all of the compensation. Accordingly, the
Compensation Committee will award non-deductible compensation in
appropriate circumstances. For 2006, all of the compensation
paid by the Company was tax deductible, consistent with the
limitations of Section 162(m).
Employee
Benefits
The Company offers core employee benefits coverage in order to
provide our workforce with a reasonable level of financial
support in the event of illness or injury, and to enhance
productivity and job satisfaction through programs that focus on
work/life balance.
The benefits available are the same for all U.S. employees
and executive officers and include medical and dental coverage,
disability insurance, and life insurance. In addition, our
401(k) Plan provides a reasonable level of retirement income
reflecting employees careers with the Company. All
U.S. employees, including executive officers, participate
in these plans.
The cost of post-employment benefits is partially borne by the
employee, including each executive officer.
Perquisites
The Company does not provide significant perquisites or personal
benefits to executive officers.
24
EXECUTIVE
COMPENSATION
SUMMARY
COMPENSATION TABLE
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Non-Equity
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Incentive Plan
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All Other
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Name and Principal Position
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Year
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Salary
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Stock Awards(1)
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Option Awards(2)
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Compensation(3)
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Compensation(4)
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Total
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Scott Scherr
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2006
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$
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550,000
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$
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829,886
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$
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290,153
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$
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155,834
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$
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3,750
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$
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1,829,623
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Chairman of the Board, President
and Chief
Executive Officer
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Marc D. Scherr
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2006
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$
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495,000
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$
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577,426
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$
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227,250
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$
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126,225
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$
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3,750
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$
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1,429,651
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Vice Chairman and Chief Operating
Officer
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Mitch Dauerman
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2006
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$
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412,500
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$
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60,096
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$
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48,249
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$
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116,875
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$
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3,750
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$
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641,469
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Executive Vice President,
Chief Financial Officer
and Treasurer
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(1) |
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Includes shares of Common Stock subject to Restricted Stock
Awards granted to the executive in 2006 and 2005 under
Restricted Stock Award agreements. The aggregate number of
restricted shares of Common Stock issued to Messrs. Scott
Scherr, Marc D. Scherr and Mitchell K. Dauerman in 2006 was
110,000, 80,000 and 15,000, respectively. In accordance with
SFAS No. 123R, the grant date fair value of such
shares was $2,506,000, $1,819,000 and $363,000, respectively.
The aggregate number of restricted shares of Common Stock issued
to Messrs. Scott Scherr, Marc D. Scherr and Mitchell K.
Dauerman in 2005 was 70,000, 40,000 and 10,000, respectively. In
accordance with SFAS No. 123R, the grant date fair
value of such shares was $1,173,500, $666,250 and $171,100,
respectively. The restricted shares granted in 2006 and 2005
vest upon the fourth anniversary of the respective date of
grant, subject to the executives continued employment by
the Company, or a subsidiary, on the vesting date and subject
further to accelerated vesting in the event of a Change in
Control, the executives death or disability or the
termination of the executives employment by the Company
without cause. In the cases of Messrs. Scott Scherr and
Marc D. Scherr, for 2006 and 2005, the grants of Stock Unit
Awards were made in lieu of 50% of their cash performance
bonuses earned for 2006 and 2005 performance that they elected
to defer pursuant to the Plan. Upon their election to defer 50%
of their earned cash bonuses, the Company matched 50% of the
amounts deferred by Messrs. Scott Scherr and Marc D.
Scherr, payable in Stock Unit Awards and included herein. The
aggregate number of Stock Unit Awards issued to
Messrs. Scott Scherr and Marc D. Scherr in 2006 (for
performance in 2005) was 15,756 and 12,762, respectively.
The aggregate number of Stock Unit Awards issued to
Messrs. Scott Scherr and Marc D. Scherr in 2007 (for
performance in 2006) was 9,173 and 7,430, respectively. The
total amount in the Stock Awards column above
represents the expense of both Restricted Stock Awards and Stock
Unit Awards recognized in the income statement for each
executive officer as compensation costs (excluding forfeiture
assumptions) in accordance with SFAS No. 123R during
fiscal 2006. A discussion of the assumptions used in calculating
these values may be found in Note 12 on
pages 65-73
of the Annual Report on
Form 10-K. |
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(2) |
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Includes option awards granted in 2005, 2004 and 2003. There
were no option awards granted in 2006. The aggregate number of
option awards issued to Messrs. Scott Scherr and Marc D.
Scherr in 2005 was 80,000 and 60,000, respectively. The
aggregate number of option awards issued to Messrs. Scott
Scherr, Marc D. Scherr and Mitchell K. Dauerman in 2004 was
100,000, 75,000 and 25,000, respectively. The aggregate number
of option awards issued to Messrs. Scott Scherr, Marc D.
Scherr and Mitchell K. Dauerman in 2003 was 129,167, 98,417 and
31,751, respectively. The amounts reported under Option
Awards above represent the expense of those stock option
awards vesting in 2006 recognized in the statement of operations
for each executive officer as compensation costs (excluding the
forfeiture assumption) in accordance with
SFAS No. 123R for fiscal 2006. Under
SFAS No. 123R, the fair value of each stock option
award is estimated on the grant date using the Black-Scholes
option valuation model based on the assumptions noted in the
following table. The Companys computation of the expected
volatility for each grant date above during the year ended
December 31, 2006 is based primarily upon historical
volatility and the expected term of the option. The expected
term is based on the historical exercise experience under the
share-based plans of the underlying award (including
post-vesting employment termination behavior) and |
25
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represents the period of time the share-based awards are
expected to be outstanding. The interest rate is based on the
U.S. Treasury yield in effect at the time of grant for a
period commensurate with the estimated expected life. The table
below details the assumptions used for the option awards granted
in 2005, 2004 and 2003. |
BLACK-SCHOLES
ASSUMPTIONS
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Stock Option Grant Date
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May 17,
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Oct. 20,
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Oct. 31,
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Jan. 02,
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2005
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2004
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2003
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2003
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Risk Free Rate
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3.63
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%
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3.50
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%
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3.13
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%
|
|
|
3.13
|
%
|
Expected Volatility
|
|
|
42.57
|
%
|
|
|
46.37
|
%
|
|
|
46.00
|
%
|
|
|
46.00
|
%
|
Expected Life
|
|
|
4.00
|
|
|
|
4.00
|
|
|
|
4.00
|
|
|
|
4.00
|
|
Divident Yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Grant Date Fair Value
|
|
$
|
6.01
|
|
|
$
|
5.24
|
|
|
$
|
3.71
|
|
|
$
|
1.38
|
|
|
|
|
(3) |
|
Includes cash performance bonuses earned by the executive
officers in 2006. |
|
(4) |
|
Consists of contributions by the Company to the Companys
401(k) Plan on behalf of the executive officers indicated. |
GRANTS OF
PLAN-BASED AWARDS IN 2006
The following table provides information concerning the annual
performance bonus and long-term incentive awards made to the
executive officers in fiscal 2006. The annual performance
bonuses granted on February 8, 2006 in the form of stock
units were for the executive officers performance in 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other Stock
|
|
|
|
|
|
|
|
|
|
Estimated Possible Payouts Under
|
|
|
Awards: Number of
|
|
|
|
|
|
|
|
|
|
Non-Equity Incentive Plan Awards(1)
|
|
|
Shares of Stock
|
|
|
Grant Date Fair
|
|
Name
|
|
Grant Date
|
|
|
Threshold ($)
|
|
|
Target ($)
|
|
|
Maximum ($)
|
|
|
or Units (#)
|
|
|
Value ($)
|
|
|
Scott Scherr
|
|
|
2/8/2006
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
60,000
|
|
|
$
|
1,296,000
|
|
|
|
|
2/8/2006
|
|
|
$
|
137,500
|
|
|
$
|
275,000
|
|
|
$
|
550,000
|
|
|
|
|
|
|
$
|
|
|
|
|
|
2/8/2006
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
15,756
|
|
|
$
|
337,494
|
|
|
|
|
10/23/2006
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
50,000
|
|
|
$
|
1,210,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marc D. Scherr
|
|
|
2/8/2006
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
45,000
|
|
|
$
|
972,000
|
|
|
|
|
2/8/2006
|
|
|
$
|
111,375
|
|
|
$
|
222,750
|
|
|
$
|
445,500
|
|
|
|
|
|
|
$
|
|
|
|
|
|
2/8/2006
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
12,762
|
|
|
$
|
273,362
|
|
|
|
|
10/23/2006
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
35,000
|
|
|
$
|
847,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mitchell K. Dauerman
|
|
|
2/8/2006
|
|
|
$
|
51,562
|
|
|
$
|
103,125
|
|
|
$
|
206,250
|
|
|
|
|
|
|
$
|
|
|
|
|
|
10/23/2006
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
15,000
|
|
|
$
|
363,000
|
|
|
|
|
(1) |
|
These columns show the range of payouts for 2006 performance
under the incentive performance awards described on
pages 20-22. Performance at a level below the threshold
criteria would not result in a bonus payout. The cash bonuses
for 2006 performance paid in early 2007 are shown in the Summary
Compensation table on page 25. |
The Company has no employment agreements with its executive
officers.
The material factors necessary to understand each of the awards
listed in the Grants of Plan-Based Awards in 2006 table are
discussed in detail above under the heading Compensation
Discussion and Analysis under the subheading
Incentive Compensation.
26
OUTSTANDING
EQUITY AWARDS AT 2006 FISCAL YEAR-END
The following table sets forth, for the Companys Chief
Executive Officer and all other executive officers of the
Company, certain information concerning unexercised options;
stock that has not vested; and equity incentive plan awards as
of the end of the Companys last completed fiscal year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
Market Value
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
Number of Shares or
|
|
|
or Units
|
|
|
|
|
|
|
Unexercised Options
|
|
|
Unexercised Options
|
|
|
Option Exercise
|
|
|
Option Expiration
|
|
|
Units That Have Not
|
|
|
That Have Not
|
|
|
Vest Date of
|
|
Name
|
|
(#) Exercisable
|
|
|
(#) Unexercisable
|
|
|
Price ($)
|
|
|
Date
|
|
|
Vested (#)
|
|
|
Vested ($) (4)
|
|
|
Stock Awards
|
|
|
Scott Scherr
|
|
|
79,167
|
|
|
|
|
|
|
$
|
3.49
|
|
|
|
1/2/2013
|
(1)
|
|
|
20,000
|
|
|
$
|
465,200
|
|
|
|
5/17/2009
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
$
|
9.40
|
|
|
|
10/31/2013
|
(1)
|
|
|
50,000
|
|
|
$
|
1,163,000
|
|
|
|
10/18/2009
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
|
$
|
13.05
|
|
|
|
10/20/2014
|
(1)
|
|
|
60,000
|
|
|
$
|
1,395,600
|
|
|
|
2/8/2010
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
$
|
15.90
|
|
|
|
5/17/2015
|
(1)
|
|
|
5,252
|
|
|
$
|
122,162
|
|
|
|
2/8/2010
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
$
|
13.05
|
|
|
|
10/20/2014
|
(1)
|
|
|
50,000
|
|
|
$
|
1,163,000
|
|
|
|
10/23/2010
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
$
|
15.90
|
|
|
|
5/17/2015
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marc D. Scherr
|
|
|
25,298
|
|
|
|
|
|
|
$
|
7.21
|
|
|
|
11/1/2007
|
(2)
|
|
|
15,000
|
|
|
$
|
348,900
|
|
|
|
5/17/2009
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
$
|
10.00
|
|
|
|
7/10/2008
|
(1)
|
|
|
25,000
|
|
|
$
|
581,500
|
|
|
|
10/18/2009
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,285
|
|
|
|
|
|
|
$
|
7.75
|
|
|
|
1/27/2009
|
(1)
|
|
|
4,254
|
|
|
$
|
98,948
|
|
|
|
2/8/2010
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
|
$
|
8.03
|
|
|
|
2/2/2010
|
(1)
|
|
|
45,000
|
|
|
$
|
1,046,700
|
|
|
|
2/8/2010
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
$
|
3.38
|
|
|
|
2/7/2011
|
(1)
|
|
|
35,000
|
|
|
$
|
814,100
|
|
|
|
10/23/2010
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
246
|
|
|
|
|
|
|
$
|
2.78
|
|
|
|
7/1/2008
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,417
|
|
|
|
|
|
|
$
|
3.49
|
|
|
|
1/2/2013
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
$
|
9.40
|
|
|
|
10/31/2013
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,250
|
|
|
|
|
|
|
$
|
13.05
|
|
|
|
10/20/2014
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
$
|
15.90
|
|
|
|
5/17/2015
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,750
|
|
|
$
|
13.05
|
|
|
|
10/20/2014
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
$
|
15.90
|
|
|
|
5/17/2015
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mitchell K. Dauerman
|
|
|
3,591
|
|
|
|
|
|
|
$
|
7.75
|
|
|
|
1/27/2009
|
(1)
|
|
|
10,000
|
|
|
$
|
232,600
|
|
|
|
10/18/2009
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
|
$
|
7.63
|
|
|
|
10/21/2009
|
(1)
|
|
|
15,000
|
|
|
$
|
348,900
|
|
|
|
10/23/2010
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
$
|
3.38
|
|
|
|
2/7/2010
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,751
|
|
|
|
|
|
|
$
|
3.49
|
|
|
|
1/2/2013
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
$
|
9.40
|
|
|
|
10/31/2013
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,750
|
|
|
|
|
|
|
$
|
13.05
|
|
|
|
10/20/2014
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,250
|
|
|
$
|
13.05
|
|
|
|
10/20/2014
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All such options vest and become exercisable in equal annual
installments, each of which shall relate to 25% of the number of
shares of Common Stock subject to such Option, on the respective
dates of grant and each of the first three anniversaries
thereof, subject to the optionees continued employment
with the Company or any Subsidiary on each such vesting date or
accelerated vesting in the event of a Change in Control, death,
disability or termination of employment by the Company without
cause. All such options expire ten years from the date of grant. |
|
(2) |
|
All such options vested on the date of grant. All such options
expire ten years from the date of grant. |
|
(3) |
|
All such restricted stock grants and the matching portion of the
restricted stock units fully vest on the fourth anniversary of
the date of grant subject to accelerated vesting in the event of
a Change in Control, death, disability or termination of
employment by the Company without cause. |
|
(4) |
|
The market value of the unvested equity incentive plan awards
was calculated based on the closing market price of the
registrants stock at the end of the last completed fiscal
year. Per NASDAQ, the closing price of the Companys stock
on December 31, 2006 was $23.26. |
27
OPTION
EXERCISES AND STOCK VESTED IN 2006
The following table sets forth, for the Companys Chief
Executive Officer and all other executive officers of the
Company, certain information concerning each exercise of stock
options, and each vesting of stock, including restricted stock,
restricted stock units and similar instruments, during the last
completed fiscal year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of Shares
|
|
|
|
|
|
Number of Shares
|
|
|
|
|
|
|
Acquired on
|
|
|
Value Realized on
|
|
|
Acquired on
|
|
|
Value Realized on
|
|
Name
|
|
Exercise (#)
|
|
|
Exercise ($)(1)
|
|
|
Vesting (#)
|
|
|
Vesting ($)(2)
|
|
|
Scott Scherr
|
|
|
316,725
|
|
|
$
|
5,678,490
|
|
|
|
10,504
|
|
|
$
|
225,000
|
|
Marc D. Scherr
|
|
|
145,200
|
|
|
$
|
2,671,315
|
|
|
|
8,508
|
|
|
$
|
182,250
|
|
Mitchell K. Dauerman
|
|
|
77,500
|
|
|
$
|
1,258,129
|
|
|
|
|
|
|
$
|
|
|
|
|
|
(1) |
|
Amounts reflect the difference between the exercise price of the
option and the market price of the underlying shares at the time
of the exercise. |
|
(2) |
|
Amounts reflect the market value of the stock on the day the
stock unit vested. Even though these stock units become fully
vested, they are subject to a deferred payment date of five
years from the date of the grant. |
Compensation
Committee Report
The Compensation Committee has reviewed and discussed with the
Companys management the disclosure set forth under the
heading Compensation Discussion and Analysis
appearing on pages 17-24 of this Proxy Statement. Based on
such review and discussions, the Compensation Committee has
recommended to the Board that such Compensation Discussion
and Analysis be included in this Proxy Statement.
LeRoy A. Vander Putten, Chairman
Rick A. Wilber
Robert A. Yanover
Alois T. Leiter
Members of the Compensation Committee
Audit
Committee Report
The Audit Committee is composed of three non-employee directors,
Messrs. Robert A. Yanover (Chairman), LeRoy A. Vander
Putten and Rick A. Wilber, and operates under a written charter
adopted by the Board, a copy of which is available on the
Companys website at www.ultimatesoftware.com. The Audit
Committee oversees the Companys financial reporting
process on behalf of the Board, reviews the independence of the
Companys auditors and fulfills the other responsibilities
provided for in its charter. The Audit Committee has sole
authority to appoint the independent auditors and terminate
their engagement.
Management is responsible for the Companys consolidated
financial statements, systems of internal control and the
financial reporting process. The Companys independent
registered public accounting firm, KPMG LLP, is responsible for
performing an independent audit of the Companys
consolidated financial statements and expressing an opinion on
the conformity of those consolidated financial statements with
generally accepted accounting principles. In addition, KPMG was
responsible for expressing an opinion on managements
assessment of the effectiveness of the Companys internal
control over financial reporting and the effectiveness of
internal controls over financial reporting as of
December 31, 2006. The Audit Committees
responsibility is to monitor and oversee these processes.
The Audit Committee has implemented procedures to ensure that
during the course of each fiscal year it devotes the attention
it deems necessary or appropriate to fulfill its oversight
responsibilities under the Audit Committees charter. To
carry out its responsibilities, the Audit Committee held four
meetings during fiscal 2006.
28
The Audit Committee hereby reports as follows:
|
|
|
|
1.
|
The Audit Committee reviewed and discussed the audited
consolidated financial statements with management and has met
with the independent registered public accounting firm, KPMG
LLP, with and without management present, to discuss the results
of their fiscal 2006 examination, their evaluation of the
Companys internal controls, and the overall quality of the
Companys financial reporting.
|
|
|
2.
|
The Audit Committee discussed with KPMG LLP the matters required
to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as amended.
|
|
|
3.
|
The Audit Committee reviewed the written disclosures and the
letter received from KPMG LLP required by Independence Standards
Board Standard No. 1, Independence Discussions with
Audit Committees, and discussed with KPMG LLP that
firms independence from the Company and its management,
including whether the independent auditors provision of
non-audit services to the Company are compatible with
maintaining their independence.
|
In reliance on the reviews and discussions referred to above,
the Audit Committee recommended to the Board that the
Companys audited consolidated financial statements as of
and for the year ended December 31, 2006 be included in the
Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006 for filing with
the SEC.
Robert A. Yanover, Chairman
LeRoy A. Vander Putten
Rick A. Wilber
Members of the Audit Committee
KPMG LLP
Fees
The following table presents fees for professional services
rendered by the Companys independent registered public
accounting firm, KPMG LLP, for the audit of the Companys
annual consolidated financial statements and internal control
over financial reporting for the years ended December 31,
2006 and 2005, together with fees billed for other services
rendered by KPMG LLP during those periods.
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Audit Fees (1)
|
|
$
|
445,000
|
|
|
$
|
395,000
|
|
Audit-Related Fees (2)
|
|
|
134,000
|
|
|
|
122,000
|
|
Tax Fees (3)
|
|
|
|
|
|
|
|
|
All Other Fees (4)
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
Total Fees
|
|
$
|
582,000
|
|
|
$
|
520,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consists of the aggregate fees incurred for the audits of the
Companys consolidated financial statements for fiscal
years 2006 and 2005 and the reviews of the Companys 2006
and 2005 quarterly reports on
Forms 10-Q.
The audit fees for the years ended December 31, 2006 and
2005 also include fees for services rendered in connection with
Section 404 of the Sarbanes-Oxley Act internal controls
audit work and, to a lesser extent, services performed in
connection with review of the Companys
Form S-8
in 2005 and the issuance of a consent resulting from such
reviews. During 2005, the Company filed a registration statement
with the SEC on
Form S-8
covering shares of Common Stock which become issuable under the
Plan. |
|
(2) |
|
Consists of fees incurred for services provided by KPMG LLP in
relation to the issuances of Statement of Auditing Standards
(SAS) 70 service auditors reports during 2006 and 2005. |
|
(3) |
|
There were no fees incurred for tax compliance services during
2006 and 2005. |
29
|
|
|
(4) |
|
Consists of the aggregate fees for products and services
provided by KPMG LLP that were not reported above under
Audit Fees, Audit-Related Fees, or
Tax Fees. During 2006 and 2005, the Company
purchased two licenses for KPMGs Accounting Research
OnLine software. |
Audit
Committee Pre-approval of Audit and Permissible Non-Audit
Services of Independent Auditors
Consistent with the SEC requirements regarding auditor
independence, the Audit Committee has adopted a policy to
pre-approve services to be performed by the Companys
principal independent auditor prior to commencement of the
specified service. Under the policy, the Audit Committee must
pre-approve the provision of services by the Companys
principal auditor prior to commencement of the specified
service. The requests for pre-approval are submitted to the
Audit Committee by the Chairman of the Board, President and
Chief Executive Officer, the Chief Financial Officer, or a
designee of either with a statement as to whether, in their
view, the request is consistent with the SEC rules on auditor
independence. All of the services performed by KPMG LLP during
2006 and 2005 were pre-approved by the Audit Committee.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. James A. FitzPatrick, Jr. is a partner in the law
firm Dewey Ballantine LLP, which provides legal services to the
Company.
Mr. Alois T. Leiter has entered into an agreement with the
Company pursuant to which he agreed to (i) attend and
participate in certain internal meetings of the Company;
(ii) assist the Companys salespeople with prospects;
and (iii) act as an official spokesperson for the Company
in exchange for which the Company agreed to make contributions
to Leiters Landing, a non-profit charitable organization
benefiting children that was formed by Mr. Leiter, in the
amount of one tenth (1/10) of one percent, or 0.1%, of the
Companys total annual revenue as reported on its financial
statements, such payments not to exceed $200,000 in any one year.
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the
Companys executive officers and directors and persons who
beneficially own more than 10% of the Companys Common
Stock to file initial reports of ownership and reports of
changes in ownership with the SEC. Such executive officers,
directors and greater than 10% beneficial owners are required by
the regulations of the SEC to furnish the Company with copies of
all Section 16(a) reports they file. Based solely on a
review of the copies of such reports furnished to the Company
and written representations from the executive officers and
directors, the Company believes that all Section 16(a)
filing requirements applicable to its executive officers and
directors and greater than 10% beneficial owners were met during
2006, except that the Company, acting pursuant to a power of
attorney granted by Mr. Robert A. Yanover, inadvertently
filed one day late with the SEC a Form 4 reporting a sale
of shares of the Companys Common Stock on May 1,
2006. In addition, the Company, acting pursuant to such power of
attorney, inadvertently failed to report on a timely basis the
exercise of a warrant for the Companys Common Stock on
November 4, 2006. This transaction was subsequently
reported on a Form 5 filed with the SEC on
February 15, 2007.
STOCKHOLDER
PROPOSALS FOR THE 2008 ANNUAL MEETING
Under the rules of the SEC, any proposal by a stockholder to be
presented at the 2008 Annual Meeting of Stockholders and to be
included in the Companys Proxy Statement for such meeting
must be received at the Companys principal corporate
office: 2000 Ultimate Way, Weston, Florida 33326, no later than
the close of business on December 15, 2007. Proposals
should be sent to the attention of the Secretary of the Company.
Any such stockholder proposal must comply with the applicable
rules of the SEC.
Under the Companys By-Laws, proposals of Stockholders not
included in the proxy materials may be presented at the 2008
Annual Meeting of Stockholders only if the Companys
Secretary has been notified of the nature of the proposal and is
provided certain additional information at least sixty days but
not more than
30
ninety days prior to April 13, 2008, the first anniversary
of the Proxy Statement in connection with the 2007 Annual
Meeting of Stockholders (subject to exceptions if the 2007
Annual Meeting is advanced by more than thirty days and the
proposal is a proper one for stockholder action).
OTHER
MATTERS
Financial
Statements
A copy of the Companys Annual Report to Stockholders,
including therewith a copy of the Companys Annual Report
on
Form 10-K
for the year ended December 31, 2006, is being provided to
stockholders of the Company with this Proxy Statement.
Other
The Company is not aware of any other matters that may come
before the Annual Meeting. If other matters are properly
presented at the Annual Meeting, it is the intention of the
persons named as proxies in the enclosed proxy to vote in
accordance with their best judgment.
By Order of the Board of Directors:
Vivian Maza
Secretary
Weston, Florida
April 13, 2007
31
Appendix A
THE
ULTIMATE SOFTWARE GROUP, INC.
AMENDED
AND RESTATED 2005 EQUITY AND INCENTIVE PLAN
The Ultimate Software Group, Inc., a Delaware corporation
(together with its affiliates and subsidiaries, the
Company), hereby amends and restates The Ultimate
Software Group, Inc. 2005 Equity and Incentive Plan (as so
amended and restated, the Plan), effective as of
May 15, 2007, the date of the Companys 2007 annual
meeting of stockholders, or the date of any adjournment thereof,
to provide in its entirety as follows:
The objectives of the Plan are (i) to provide a vehicle for
compensating the Companys key personnel by giving them the
opportunity to acquire a proprietary interest in the
Companys Common Stock by receiving equity-based incentive
compensation; (ii) to provide management with an equity
ownership in the Company commensurate with Company performance,
as reflected in increased stockholder value; (iii) to
attract, motivate and retain key employees, non-employee
directors and other service providers by maintaining competitive
compensation levels; and (iv) to provide an incentive to
management for continuous employment with or service to the
Company.
Wherever the following capitalized terms are used in the Plan,
they shall have the meanings specified below:
(a) Award means an award of an Option,
Stock Appreciation Right, Restricted Stock Award, Stock Unit
Award, Stock Award or Performance Award granted under the Plan.
(b) Award Agreement means an agreement
entered into between the Company and a Participant setting forth
the terms and conditions of an Award granted to a Participant.
(c) Board means the Board of Directors
of the Company.
(d) Change in Control shall have the
meaning set forth in Section 14.2 hereof.
(e) Code means the Internal Revenue Code
of 1986, as amended.
(f) Committee means the Compensation
Committee of the Board or a successor thereof, or any other
committee of the Board appointed by the Board to administer the
Plan from time to time.
(g) Common Stock means the
Companys Common Stock, par value $.01 per share.
(h) Company means The Ultimate Software
Group, Inc., a Delaware corporation.
(i) Date of Grant means the date on
which an Award under the Plan is made by the Committee, or such
later date as the Committee may specify to be the effective date
of the Award.
(j) Director Fee Option means an Option
granted in lieu of certain directors fees under
Section 13 of the Plan.
(k) Disability means a condition in
which a Participant is considered disabled within
the meaning of Section 409A(a)(2)(C) of the Code, unless
otherwise provided in an Award Agreement.
(l) Eligible Person means any person who
is an employee, officer, director, consultant or advisor of the
Company or any Subsidiary, as determined by the Committee, or
any person who is determined by the Committee to be a
prospective employee, officer, director, consultant or advisor
of the Company or any Subsidiary.
(m) Exchange Act means the Securities
Exchange Act of 1934, as amended.
(n) Fair Market Value with respect to
the value of a share of Common Stock as of a particular day,
shall mean the last reported sale price (as reported on the
NASDAQ) of the Common Stock on such day (unless such day is not
a trading day, in which case, on the last trading day
immediately preceding such day on which the Common Stock is
traded on the NASDAQ). If the Common Stock is not listed on the
NASDAQ, the Committee shall determine in good faith the Fair
Market Value in whatever manner it considers appropriate.
(o) Incentive Stock Option means an
Option to purchase shares of Common Stock granted under
Section 6 hereof that is intended to meet the requirements
of Section 422 of the Code and the regulations promulgated
thereunder.
(p) NASDAQ means The Nasdaq Stock
Markets National Market.
(q) Non-Employee Director means any
member of the Board who is not an officer or employee of the
Company.
(r) Nonqualified Stock Option means an
Option to purchase shares of Common Stock granted under
Section 6 hereof that is not an Incentive Stock Option.
(s) Option means an Incentive Stock
Option or a Nonqualified Stock Option granted under the Plan.
(t) Participant means any Eligible
Person who holds an outstanding Award under the Plan.
(u) Performance Awards means an Award
under Section 11 hereof entitling a Participant to a
payment in cash at the end of a performance period, if the
performance and other conditions established by the Committee
are satisfied.
(v) Plan means The Ultimate Software
Group, Inc. 2005 Equity and Incentive Plan as set forth herein,
as amended from time to time.
(w) Prior Plan means The Ultimate
Software Group, Inc. Nonqualified Stock Option Plan, as amended
and restated as of December 20, 2002.
(x) Restricted Stock Award means an
Award under Section 8 hereof entitling a Participant to
shares of Common Stock that are nontransferable and subject to
forfeiture until specific conditions established by the
Committee are satisfied.
(y) Section 162(m) Award means any
Award that is intended to qualify for the performance-based
compensation exception under Section 162(m) of the Code and
the regulations promulgated thereunder.
(z) Stock Appreciation Right means an
Award under Section 7 hereof entitling a Participant to
receive a payment, representing the difference between a base
price per share and the Fair Market Value of a share of Common
Stock on the date of exercise.
(aa) Stock Award means an Award under
Section 10 hereof entitling a Participant to shares of
Common Stock that are free of transfer restrictions and
forfeiture conditions imposed by the Plan.
(bb) Stock Unit Award means an Award
under Section 9 hereof entitling a Participant to a payment
of a unit value based on the Fair Market Value of a share of
Common Stock.
(cc) Subsidiary means an entity (whether
or not a corporation) that is wholly or majority owned or
controlled, directly or indirectly, by the Company, or any other
affiliate of the Company that is so designated, from time to
time, by the Committee; provided, however, that with respect to
Incentive Stock Options, the term Subsidiary shall
include only an entity that qualifies under Section 424(f)
of the Code as a subsidiary corporation with respect
to the Company.
Section 3.1 Committee
Members. The Plan shall be administered by a
Committee comprised of no fewer than two members of the Board.
Solely to the extent deemed necessary or advisable by the Board,
each Committee member shall satisfy the requirements for
(i) an independent director under rules adopted
by the
A-2
NASDAQ, (ii) a nonemployee director for
purposes of such
Rule 16b-3
under the Exchange Act and (iii) an outside
director under Section 162(m) of the Code. The
Committee shall have such powers and authority as may be
necessary or appropriate for the Committee to carry out its
functions as described in the Plan. No member of the Committee
shall be liable for any action or determination made in good
faith by the Committee with respect to the Plan or any Award
thereunder.
Section 3.2 Committee
Authority. Subject to the express limitations of
the Plan, the Committee shall have authority in its discretion
to determine the Eligible Persons to whom, and the time or times
at which, Awards may be granted, the number of shares, units or
other rights subject to each Award, the exercise, base or
purchase price of an Award (if any), the time or times at which
an Award will become vested, exercisable or payable, the
performance criteria, performance goals and other conditions of
an Award, the duration of the Award, and all other terms of the
Award. Subject to the terms of the Plan, the Committee shall
have the authority to amend the terms of an Award in any manner
that is permitted by the Plan for the grant of an Award,
provided that no such action shall adversely affect the rights
of a Participant with respect to an outstanding Award without
the Participants consent. The Committee shall also have
discretionary authority to interpret the Plan, to make all
factual determinations under the Plan, and to make all other
determinations necessary or advisable for Plan administration,
including, without limitation, to correct any defect, to supply
any omission or to reconcile any inconsistency in the Plan or
any Award Agreement hereunder. The Committee may prescribe,
amend, and rescind rules and regulations relating to the Plan.
The Committees determinations under the Plan need not be
uniform and may be made by the Committee selectively among
Participants and Eligible Persons, whether or not such persons
are similarly situated. All interpretations, determinations, and
actions by the Committee shall be final, conclusive, and binding
upon all parties.
Section 3.3 Delegation
of Authority. The Committee shall have the right,
from time to time, to delegate to one or more officers of the
Company the authority of the Committee to grant and determine
the terms and conditions of Awards granted under the Plan,
subject to the requirements of Section 157(c) of the
Delaware General Corporation Law and such other limitations as
the Committee shall determine. In no event shall such authority
be delegated with respect to Awards to any members of the Board
or any Participant who the Committee determines may be subject
to
Rule 16b-3
under the Exchange Act or Section 162(m) of the Code. In
the event that authority is delegated to an officer or officers
in accordance with the foregoing, all provisions of the Plan
relating to the Committee shall be interpreted in a manner
consistent with the foregoing by treating any such reference as
a reference to such officer or officers for such purpose.
Section 3.4 Grants
to Committee Members. Any Awards under the Plan
made to Non-Employee Directors shall be approved by the Board.
With respect to awards to such directors, all rights, powers and
authorities vested in the Committee under the Plan shall instead
be exercised by the Board, and all provisions of the Plan
relating to the Committee shall be interpreted in a manner
consistent with the foregoing by treating any such reference as
a reference to the Board for such purpose.
|
|
4.
|
SHARES SUBJECT
TO THE PLAN
|
Section 4.1 Share
Limitation. No further grants may be made under
the Prior Plan, but awards made under the Prior Plan shall
remain outstanding in accordance with their terms. Subject to
adjustment pursuant to Section 4.2 hereof, the maximum
aggregate number of shares of Common Stock which may be issued
under all (i) stock options granted under the Prior Plan
and (ii) Awards granted to Participants under the Plan
shall be 12,000,000 shares. Shares of Common Stock issued
under the Plan may be either authorized but unissued shares or
shares held in the Companys treasury. To the extent that
any Award under the Plan or any stock option under the Prior
Plan payable in shares of Common Stock is forfeited, cancelled,
returned to the Company for failure to satisfy vesting
requirements or upon the occurrence of other forfeiture events,
or otherwise terminates without payment being made thereunder,
the shares of Common Stock covered thereby will no longer be
counted against the foregoing maximum share limitation and may
again be made subject to Awards under the Plan pursuant to such
limitation. In addition, any shares of Common Stock exchanged by
a Participant or withheld from a Participant as full or partial
payment to the Company of the exercise price or tax withholding
upon exercise or payment of an Award under the Plan or any stock
option under the Prior Plan shall be added to the foregoing
maximum share limitation and may be made subject to Awards under
the
A-3
Plan pursuant to such limitation. Any Awards under the Plan
settled in cash shall not be counted against the foregoing
maximum share limitation. Notwithstanding the foregoing, the
maximum number of shares of Common Stock that may be returned or
added to the aggregate share reserve under the Plan upon the
termination, forfeiture, cancellation or other disposition of a
stock option granted under the Prior Plan shall be limited to
6,000,000 shares.
Section 4.2 Adjustments. If
there shall occur any recapitalization, reclassification, stock
dividend, extraordinary dividend, stock split, reverse stock
split, or other distribution with respect to the shares of
Common Stock, or any merger, reorganization, consolidation or
other change in corporate structure affecting the Common Stock,
the Committee shall, in the manner and to the extent that it
deems appropriate and equitable to the Participants and
consistent with the terms of the Plan, cause an adjustment to be
made in (i) the maximum number and kind of shares provided
in Section 4.1 hereof, (ii) the maximum number and
kind of shares or units set forth in Sections 6.1, 7.1,
8.1, 9.1 and 10.1 hereof, (iii) the number and kind of
shares of Common Stock, units, or other rights subject to then
outstanding Awards, (iv) the price for each share or unit
or other right subject to then outstanding Awards, (v) the
performance measures or goals relating to an Award and
(v) any other terms of an Award that are affected by the
event to prevent dilution or enlargement of a Participants
rights under an Award. Notwithstanding the foregoing, in the
case of Incentive Stock Options, any such adjustments shall be
made in a manner consistent with the requirements of
Section 424(a) of the Code.
|
|
5.
|
ELIGIBILITY
AND AWARDS
|
All Eligible Persons are eligible to be designated by the
Committee to receive an Award under the Plan. The Committee has
the authority, in its sole discretion, to determine and
designate from time to time those Eligible Persons who are to be
granted Awards, the types of Awards to be granted and the number
of shares or units subject to the Awards that are granted under
the Plan. To the extent deemed necessary by the Committee, an
Award will be evidenced by an Award Agreement as described in
Section 15.1 hereof.
Section 6.1 Grant
of Option. An Option may be granted to any
Eligible Person selected by the Committee. Subject to the
provisions of Section 6.6 hereof and Section 422 of
the Code, each Option shall be designated, in the discretion of
the Committee, as an Incentive Stock Option or a Nonqualified
Stock Option. The maximum number of shares of Common Stock that
may be subject to Options granted to any Participant during any
calendar year shall be limited to 500,000 shares (subject
to adjustment as provided in Section 4.2 hereof).
Section 6.2 Exercise
Price. The exercise price under any Option
granted to Participants under the Plan shall be equal to
100 percent of the Fair Market Value per share of the
Common Stock on the Date of Grant, or such other amount as may
be determined by the Committee.
Section 6.3 Vesting;
Term of Option. The Committee, in its sole
discretion, shall prescribe the time or times at which, or the
conditions upon which, an Option or portion thereof shall become
vested
and/or
exercisable, and may accelerate the exercisability of any Option
at any time. The period during which a vested Option may be
exercised shall be ten years from the Date of Grant, unless a
shorter exercise period is specified by the Committee in an
Award Agreement. An Option may be earlier terminated as
specified by the Committee and set forth in an Award Agreement
upon or following the termination of a Participants
employment or other service with the Company or any Subsidiary,
including by reason of voluntary resignation, death, Disability,
termination for cause or any other reason.
Section 6.4 Option
Exercise; Tax Withholding. Subject to such terms
and conditions as shall be specified in an Award Agreement, an
Option may be exercised in whole or in part at any time during
the term thereof by notice in the form required by the Company,
together with payment of the aggregate exercise price therefor.
Payment of the exercise price shall be made in the manner set
forth in the Award Agreement, unless otherwise provided by the
Committee: (i) in cash or by cash equivalent acceptable to
the Committee, (ii) by payment in shares of Common Stock
that have been held by the Participant for at least six months
(or such
A-4
other period as the Committee may deem appropriate for purposes
of applicable accounting rules), valued at the Fair Market Value
of such shares on the date of exercise, (iii) through an
open-market broker-assisted transaction, (iv) by a
combination of the foregoing methods, or (v) by such other
method as may be approved by the Committee and set forth in the
Award Agreement. In addition to and at the time of payment of
the exercise price, the Participant shall pay to the Company the
full amount of any and all applicable income tax and employment
tax amounts required to be withheld in connection with such
exercise, payable under such of the methods described above for
the payment of the exercise price of the Options as may be
approved by the Committee and set forth in the Award Agreement.
Section 6.5 Limited
Transferability of Nonqualified Options. All
Options shall be nontransferable except (i) upon the
Participants death, by the Participants will or the
laws of descent and distribution or (ii) in the case of
Nonqualified Stock Options only, on a
case-by-case
basis as may be approved by the Committee in its discretion, in
accordance with the terms provided below. An award for a
Nonqualified Stock Option may provide that the Participant shall
be permitted to, during his or her lifetime and subject to the
prior approval of the Committee at the time of proposed
transfer, transfer all or part of the Option to the
Participants family member, as defined in the
Award Agreement in a manner consistent with the requirements for
the
Form S-8
registration statement under the Securities Act of 1933, which
may include a trust for the benefit of a Participant
and/or a
Participants family member. The transfer of a Nonqualified
Stock Option may be subject to such other terms and conditions
as the Committee may in its discretion impose from time to time.
Subsequent transfers of an Option shall be prohibited other than
by will or the laws of descent and distribution upon the death
of the transferee.
Section 6.6 Additional
Rules for Incentive Stock Options.
(i) Eligibility. An Incentive Stock
Option may only be granted to an Eligible Person who is
considered an employee of the Company or any Subsidiary for
purposes of Treasury Regulation §1.421-7(h).
(ii) Annual Limits. No Incentive Stock
Option shall be granted to a Participant as a result of which
the aggregate Fair Market Value (determined as of the Date of
Grant) of the stock with respect to which Incentive Stock
Options are exercisable for the first time in any calendar year
under the Plan and any other stock option plans of the Company
or any Subsidiary would exceed $100,000, determined in
accordance with Section 422(d) of the Code. This limitation
shall be applied by taking Incentive Stock Options into account
in the order in which granted.
(iii) Ten Percent Stockholders. If an
Option granted under the Plan is intended to be an Incentive
Stock Option, and if the Participant, at the time of grant, owns
stock possessing ten percent or more of the total combined
voting power of all classes of Common Stock of the Company or
any Subsidiary, then (a) the Option exercise price per
share shall in no event be less than 110 percent of the
Fair Market Value of the Common Stock on the date of such grant
and (b) such Option shall not be exercisable after the
expiration of five years following the date such Option is
granted.
(iv) Termination of Employment. An Award
of an Incentive Stock Option may provide that such Option may be
exercised not later than 3 months following termination of
employment of the Participant with the Company and all
Subsidiaries, or not later than one year following death or a
permanent and total disability within the meaning of
Section 22(e)(3) of the Code, as and to the extent
determined by the Committee to comply with the requirements of
Section 422 of the Code.
(v) Other Terms and Conditions;
Nontransferability. Any Incentive Stock Option
granted hereunder shall contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as are
deemed necessary or desirable by the Committee, which terms,
together with the terms of the Plan, shall be intended and
interpreted to cause such Incentive Stock Option to qualify as
an incentive stock option under Section 422 of
the Code. An Award Agreement for an Incentive Stock Option may
provide that such Option shall be treated as a Nonqualified
Stock Option to the extent that certain requirements applicable
to incentive stock options under the Code shall not
be satisfied. An Incentive Stock Option shall by its terms be
nontransferable other than by will or by the laws of descent and
distribution, and shall be exercisable during the lifetime of a
Participant only by such Participant.
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(vi) Disqualifying Dispositions. If
shares of Common Stock acquired by exercise of an Incentive
Stock Option are disposed of within two years following the Date
of Grant or one year following the issuance of such shares to
the Participant upon exercise, the Participant shall, promptly
following such disposition, notify the Company in writing of the
date and terms of such disposition and provide such other
information regarding the disposition as the Company may
reasonably require.
Section 6.7 Repricing
of Stock Options Prohibited. The Committee shall
not cause the cancellation, substitution or amendment of an
Option that would have the effect of reducing the exercise price
of an Option previously granted under the Plan, or otherwise
approve any modification to an Option that would be treated as a
repricing under the then applicable rules,
regulations or listing requirements adopted by the NASDAQ,
except in accordance with an adjustment permitted under
Section 4.2 hereof.
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7.
|
STOCK
APPRECIATION RIGHTS
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Section 7.1 Grant
of Stock Appreciation Rights. A Stock
Appreciation Right may be granted to any Eligible Person
selected by the Committee. A Stock Appreciation Right granted to
an Eligible Person is an Award in the form of a right to
receive, upon settlement or exercise of the right but without
other payment, an amount based on appreciation in the Fair
Market Value of shares of Common Stock over a base price
established for the Award. Stock Appreciation Rights shall be
settled or exercisable at such time or times and upon conditions
as may be approved by the Committee, provided that the Committee
may accelerate the settlement or exercisability of a Stock
Appreciation Right at any time. The maximum number of shares of
Common Stock that may be subject to Stock Appreciation Rights
granted to any Participant during any calendar year shall be
limited to 500,000 shares (subject to adjustment as
provided in Section 4.2 hereof).
Section 7.2 Vesting;
Term; Base Price of Stock Appreciation Rights. A
Stock Appreciation Right shall be settled or exercisable at such
time or times as determined by the Committee, but in no event
after 10 years from the Date of Grant. The base price of a
Stock Appreciation Right shall be determined by the Committee in
its sole discretion; provided, however, that the base price per
share of any such Stock Appreciation Right shall not be less
than 100 percent of the Fair Market Value of the shares of
Common Stock on the Date of Grant.
Section 7.3 Payment
of Stock Appreciation Rights. A Stock
Appreciation Right will entitle the holder, upon settlement or
exercise of the Stock Appreciation Right, as applicable, to
receive payment of an amount determined by multiplying:
(i) the excess of the Fair Market Value of a share of
Common Stock on the date of settlement or exercise of the Stock
Appreciation Right over the base price of such Stock
Appreciation Right, by (ii) the number of shares as to
which such Stock Appreciation Right is settled or exercised.
Payment of the amount determined under the foregoing may be
made, as approved by the Committee and set forth in the Award
Agreement, in cash, in shares of Common Stock valued at their
Fair Market Value on the date of settlement or exercise, as
applicable, or in a combination of cash and shares of Common
Stock, subject to applicable tax withholding requirements.
Section 7.4 Repricing
of Stock Appreciation Rights Prohibited. The
Committee shall not cause the cancellation, substitution or
amendment of a Stock Appreciation Right that would have the
effect of reducing the base price of a Stock Appreciation Right
previously granted under the Plan, or otherwise approve any
modification to a Stock Appreciation Right that would be treated
as a repricing under the then applicable rules,
regulations or listing requirements adopted by the NASDAQ,
except in accordance with an adjustment permitted under
Section 4.2 hereof.
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8.
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RESTRICTED
STOCK AWARDS
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Section 8.1 Grant
of Restricted Stock Awards. A Restricted Stock
Award may be granted to any Eligible Person selected by the
Committee. A Restricted Stock Award granted to an Eligible
Person represents shares of Common Stock that are issued subject
to such vesting and transfer restrictions as the Committee shall
determine and set forth in an Award Agreement. The Committee
may, in connection with any Restricted Stock Award, require the
payment of a specified purchase price. The Committee may grant
Restricted Stock Awards that are Section 162(m) Awards, as
well as Restricted Stock Awards that are not Section 162(m)
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Awards. The maximum number of shares of Common Stock that may be
subject to Restricted Stock Awards granted to a Participant
during any one calendar year shall be limited to
250,000 shares (subject to adjustment as provided in
Section 4.2 hereof).
Section 8.2 Vesting
Requirements. The restrictions imposed on shares
granted under a Restricted Stock Award shall lapse in accordance
with the vesting requirements specified by the Committee in the
Award Agreement, provided that the Committee may accelerate the
vesting of a Restricted Stock Award at any time. Such vesting
requirements may be based on the continued employment of the
Participant with the Company or its Subsidiaries for a specified
time period or periods. Such vesting requirements may also be
based on the attainment of specified performance goals or
measures established by the Committee in its sole discretion. In
the case of any Restricted Stock Award that is a
Section 162(m) Award, any such performance-based vesting
requirements shall be based upon the performance criteria
identified in Section 12.2 hereof, and the terms of the
Award shall otherwise comply with the requirements described in
Section 12.3 hereof. If the vesting requirements of a
Restricted Stock Award shall not be satisfied, the Award shall
be forfeited and returned to the Company, with any purchase
price paid by the Participant to be refunded, unless otherwise
provided by the Committee.
Section 8.3 Restrictions. Shares
granted under any Restricted Stock Award may not be transferred,
assigned or subject to any encumbrance, pledge, or charge until
all applicable restrictions are removed or have expired, unless
otherwise allowed by the Committee. Failure to satisfy any
applicable restrictions shall result in the subject shares of
the Restricted Stock Award being forfeited and returned to the
Company, with any purchase price paid by the Participant to be
refunded, unless otherwise provided by the Committee. The
Committee may require in an Award Agreement that certificates
representing the shares granted under a Restricted Stock Award
bear a legend making appropriate reference to the restrictions
imposed, and that certificates representing the shares granted
or sold under a Restricted Stock Award will remain in the
physical custody of an escrow holder until all restrictions are
removed or have expired.
Section 8.4 Rights
as Stockholder. Subject to the foregoing
provisions of this Section 8 and the applicable Award
Agreement, the Participant will have all rights of a stockholder
with respect to the shares granted to the Participant under a
Restricted Stock Award, including the right to vote the shares
and receive all dividends and other distributions paid or made
with respect thereto, unless the Committee determines otherwise
at the time the Restricted Stock Award is granted.
Section 8.5 Section 83(b)
Election. If a Participant makes an election
pursuant to Section 83(b) of the Code with respect to a
Restricted Stock Award, the Participant shall be required to
file, within 30 days following the Date of Grant, a copy of
such election with the Company and with the Internal Revenue
Service, in accordance with the regulations under
Section 83 of the Code. The Committee may provide in an
Award Agreement that the Restricted Stock Award is conditioned
upon the Participants refraining from making an election
with respect to the Award under Section 83(b) of the Code.
Section 9.1 Grant
of Stock Unit Awards. A Stock Unit Award may be
granted to any Eligible Person selected by the Committee. A
Stock Unit Award is an Award to an Eligible Person of a number
of hypothetical share units with respect to shares of Common
Stock that are granted subject to such vesting and transfer
restrictions and conditions of payment as the Committee shall
determine and set forth in an Award Agreement. The value of each
unit under a Stock Unit Award is equal to the Fair Market Value
of the Common Stock on any applicable date of determination. The
Committee may grant Stock Unit Awards that are
Section 162(m) Awards, as well as a Stock Unit Awards that
are not Section 162(m) Awards. The maximum number of units
that may be subject to Stock Unit Awards granted to a
Participant during any one calendar year shall be limited to
250,000 units (subject to adjustment as provided in
Section 4.2 hereof). A Stock Unit Award shall be subject to
such restrictions and conditions as the Committee shall
determine. A Stock Unit Award may be granted, at the discretion
of the Committee, together with a dividend equivalent right with
respect to the same number of shares of Common Stock.
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Section 9.2 Vesting
of Stock Unit Awards. On the Date of Grant, the
Committee shall determine, in its sole discretion, any vesting
requirements with respect to a Stock Unit Award, which shall be
set forth in the Award Agreement, provided that the Committee
may accelerate the vesting of a Stock Unit Award at any time.
Vesting requirements may be based on the continued employment of
the Participant with the Company or its Subsidiaries for a
specified time period or periods. Vesting requirements may also
be based on the attainment of specified performance goals or
measures established by the Committee in its sole discretion. In
the case of any Stock Unit Award that is a Section 162(m)
Award, any such performance-based vesting requirements shall be
based upon the performance criteria identified in
Section 12.2 hereof, and the terms of the Award shall
otherwise comply with the requirements described in
Section 12.3 hereof. A Stock Unit Award may also be granted
on a fully vested basis, with a deferred payment date.
Section 9.3 Payment
of Stock Unit Awards. A Stock Unit Award shall
become payable to a Participant at the time or times determined
by the Committee and set forth in the Award Agreement, which may
be upon or following the vesting of the Award. The payment with
respect to each share unit under a Stock Unit Award shall be
determined by reference to the Fair Market Value of one share of
Common Stock on each applicable payment date. Payment may be
made, at the discretion of the Committee, in cash or in shares
of Common Stock, or in a combination thereof, subject to
applicable tax withholding requirements. In accordance with
Section 15.4 hereof, the Committee may permit a Participant
to defer the receipt of payment under a Stock Unit Award until
such date or event as may be elected by the Participant in
accordance with rules established by the Committee.
Section 9.4 No
Rights as Stockholder. The Participant shall not
have any rights as a stockholder with respect to the shares
subject to a Stock Unit Award until such time as shares of
Common Stock are delivered to the Participant pursuant to the
terms of the Award Agreement.
10. STOCK
AWARDS
Section 10.1 Grant
of Stock Awards. A Stock Award may be granted to
any Eligible Person selected by the Committee. A Stock Award may
be granted for past services, in lieu of bonus or other cash
compensation, directors fees or for any other valid
purpose as determined by the Committee. A Stock Award granted to
an Eligible Person represents shares of Common Stock that are
issued free of restrictions on transfer and other incidents of
ownership and free of forfeiture conditions, except as otherwise
provided in the Plan and the Award Agreement. The Committee may,
in connection with any Stock Award, require the payment of a
specified purchase price. The Committee may grant Stock Awards
that are Section 162(m) Awards, as well as Stock Awards
that are not Section 162(m) Awards. The maximum number of
shares of Common Stock that may be subject to Stock Awards
granted to a Participant during any one calendar year shall be
limited to 250,000 shares (subject to adjustment as
provided in Section 4.2 hereof).
Section 10.2 Rights
as Stockholder. Subject to the foregoing
provisions of this Section 10 and the applicable Award
Agreement, the Participant will have all rights of a stockholder
with respect to the shares granted to him under a Stock Award,
including the right to vote the shares and receive all dividends
and other distributions paid or made with respect thereto.
Section 11.1 Grant
of Performance Awards. The Committee may grant
Performance Awards under the Plan, which shall represent the
right to receive a payment in cash if performance goals
established by the Committee for a performance period are
satisfied. The Committee may grant Performance Awards that are
Section 162(m) Awards, as well as Performance Awards that
are not Section 162(m) Awards. At the time a Performance
Award is granted, the Committee shall determine, in its sole
discretion, the applicable performance period and performance
goals to be achieved during the performance period, as well as
such other conditions as the Committee deems appropriate. The
Committee may also determine a target payment amount or a range
of payment amounts for each Award. The performance goals
applicable to a Performance Award grant may be subject to
adjustments as the Committee shall deem appropriate to reflect
significant unforeseen events, such as changes in law,
accounting practices or unusual or nonrecurring items or
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occurrences. The Committees authority to make such
adjustments shall be subject to such limitations as the
Committee deems appropriate in the case of a Performance Award
that is a Section 162(m) Award. In the case of any
Performance Award that is a Section 162(m) Award,
performance goals shall be based upon the performance criteria
identified in Section 12.2 hereof, and the terms of the
Award shall otherwise comply with the requirements described in
Section 12.3 hereof. The maximum amount of cash
compensation that may be paid to a Participant during any one
calendar year under Performance Awards shall be $2,000,000.
Section 11.2 Payment
of Performance Awards. At the end of the
performance period, the Committee shall determine the extent to
which performance goals have been attained, or a degree of
achievement between minimum and maximum levels, in order to
establish the level of payment to be made, if any. Payments of
Performance Awards shall generally be made as soon as
practicable following the end of the performance period, subject
to any tax withholding requirements.
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12.
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SECTION 162(M)
AWARDS
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Section 12.1 Awards. Awards
of Options and Stock Appreciation Rights granted under the Plan
are intended by their terms to qualify as Section 162(m)
Awards. Restricted Stock Awards, Stock Unit Awards, Stock Awards
and Performance Awards granted under the Plan may qualify as
Section 162(m) Awards if the Awards are granted or become
payable or vested based upon pre-established performance goals
in accordance with this Section 12.
Section 12.2 Performance
Criteria. In the case of a Restricted Stock
Award, Stock Unit Award, Stock Award or Performance Award that
is intended to be a Section 162(m) Award, the performance
criteria upon which the grant, payment or vesting may be based
shall be limited to one or more of the following performance
measures, which may be applied with respect to the Company, any
Subsidiary or any business unit: annual recurring revenues;
recurring revenues; services revenues; license revenues; net or
gross revenue; operating expenses; cash flow; total earnings;
earnings per share, diluted or basic; earnings before interest
and taxes; earnings before interest, taxes, depreciation, and
amortization; gross or operating margin; return on equity;
return on capital; return on investment; market share; economic
value added; stock price; and total stockholder return. The
foregoing performance criteria shall have any reasonable
definitions that the Committee may specify, which may include or
exclude any items specified by the Committee, including but not
limited to any or all of the following items: discontinued
operations, extraordinary, unusual or non-recurring items,
effects of accounting changes, effects of currency or interest
rate fluctuations, effects of financing activities (e.g., effect
on earnings per share of issuing convertible debt securities),
changes in tax rates, expenses for restructuring or productivity
initiatives, litigation losses, non-operating items, effects of
acquisitions or divestitures and changes of law or regulation
affecting the Companys business. The foregoing performance
measures may be determined on an absolute basis or relative to
internal goals or relative to levels attained in prior years, or
related to other companies or indices, or as ratios expressing
relationships between two or more performance measures. In the
case of Awards that are not Section 162(m) Awards, the
Committee may designate performance criteria from among the
foregoing or such other performance criteria as it shall
determine in its sole discretion.
Section 12.3 Section 162(m)
Requirements. In the case of a Restricted Stock
Award, Stock Unit Award, Stock Award or Performance Award that
is intended to be a Section 162(m) Award, the Committee
shall make such determinations with respect to an Award as
required by Section 162(m) of the Code within 90 days
after the beginning of the performance period (or such other
time period as is required under Section 162(m) of the
Code). As and to the extent required by Section 162(m) of
the Code, the terms of an Award that is a Section 162(m)
Award must state, in terms of an objective formula or standard,
the method of computing the amount of compensation payable under
the Award, and must preclude discretion to increase the amount
of compensation payable under the terms of the Award (but may
allow the Committee discretion to decrease the amount of
compensation payable).
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Section 13.1 Board
Discretion. Subject to the express limitations of
the Plan, the Board shall have authority in its discretion to
determine the Non-Employee Directors of the Company to whom, and
the time or times at which, Options may be granted, the number
of shares subject to each Option, the exercise price of an
Option, the time or times at which an Option will become vested
and exercisable, the duration of an Option, and all other terms
of an Option. Unless otherwise provided by the Board and set
forth in an Award Agreement, Non-Employee Directors of the
Company shall be granted Director Fee Options in accordance with
the provisions of this Section 13.
Section 13.2 Grant
of Director Fee Option. Subject to
Sections 13.1 and 13.7 hereof, as of each Date of Grant
(determined under Section 13.3 hereof), each Non-Employee
Director of the Company shall receive a grant of a Director Fee
Option at an exercise price (determined under Section 13.4
hereof) to purchase a number of shares of Common Stock
(determined under Section 13.5 hereof) in lieu of
directors fees which such Non-Employee Director earned
during the calendar quarter ending immediately prior to such
Date of Grant.
Section 13.3 Date
of Grant. The Date of Grant of a Director Fee
Option shall be the first business day of the calendar quarter
immediately following the calendar quarter during which
directors fees are earned by a Non-Employee Director, with
the first such Date of Grant to be January 3, 2005.
Section 13.4 Exercise
Price. The exercise price of each share of Common
Stock subject to a Director Fee Option shall be 30% of the Fair
Market Value of a share of Common Stock on the applicable Date
of Grant, or such other amount as may be determined by the
Board. Payment of the exercise price shall be determined in
accordance with the provisions of Section 6.4 hereof.
Section 13.5 Number
of Shares. The number of shares of Common Stock
subject to any Director Fee Option shall equal (i) the
dollar amount of the Non-Employee Directors fees which
were earned during the calendar quarter ending immediately prior
to the Date of Grant, divided by (ii) the excess of the
Fair Market Value of a share of Common Stock on the applicable
Date of Grant over the exercise price of the Director Fee Option
(determined in accordance with Section 13.4 hereof),
rounded to the nearest whole share.
Section 13.6 Vesting. Each
Director Fee Option shall be fully vested on the Date of Grant.
Section 13.7 Exercise. A
Director Fee Option shall first become exercisable on the
earliest to occur of the following events: (i) the fifth
anniversary of the Date of Grant, (ii) the date on which
the Non-Employee Director ceases to be a member of the Board,
and (iii) the effective date of a Change in Control; and
shall remain exercisable for the period specified in the Award
Agreement as provided by the Committee at the time of grant. To
the extent that a Director Fee Option is not exercised within
the applicable time period (or is not otherwise settled in
accordance with Section 13.8 hereof), such Director Fee
Option shall be terminated and the Non-Employee Directors
rights thereunder shall be automatically forfeited.
Section 13.8 Cash
Settlement. Notwithstanding the provisions of
Section 13.7 hereof, the Committee may, in its discretion,
cancel the right of a Non-Employee Director to exercise a
Director Fee Option upon or following the occurrence of an
exercise event as described in Section 13.7 hereof in
exchange for a cash payment to the Non-Employee Director equal
to the product of (i) the number of shares of Common Stock
subject to the Director Fee Option being cancelled, multiplied
by (ii) the excess of the per share Fair Market Value of
the Common Stock on the date of cancellation of the Director Fee
Option over the exercise price per share of the Director Fee
Option.
Section 14.1 Effect
of Change in Control. The Committee may, at the
time of the grant of an Award and as set forth in an Award
Agreement, provide for the effect of a Change in
Control (as defined below) on an Award. Such provisions
may include any one or more of the following: (i) the
acceleration or extension of time periods for purposes of
exercising, vesting in, or realizing gain from any Award,
(ii) the elimination or modification of performance or
other conditions related to the payment or other rights under an
Award,
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(iii) provision for the cash settlement of an Award for an
equivalent cash value, as determined by the Committee, or
(iv) such other modification or adjustment to an Award as
the Committee deems appropriate to maintain and protect the
rights and interests of Participants upon or following a Change
in Control. Unless otherwise provided by the Committee and set
forth in the Award Agreement, upon a Change in Control,
(i) each outstanding Option and Stock Appreciation Right,
to the extent that it shall not otherwise have become vested and
exercisable, shall automatically become fully and immediately
vested and exercisable, without regard to any otherwise
applicable vesting requirement, (ii) each Restricted Stock
Award shall become fully and immediately vested and all
forfeiture and transfer restrictions thereon shall lapse, and
(iii) each outstanding Stock Unit Award, Stock Award and
Performance Award shall become immediately and fully vested and
payable.
Section 14.2 Definition
of Change in Control. For purposes of this
Agreement, a Change in Control shall be deemed to
have occurred upon:
(i) the consummation of any consolidation or merger of the
Company pursuant to which the stockholders of the Company
immediately prior to the merger or consolidation do not
represent, immediately after the merger or consolidation, the
beneficial owners (within the meaning of
Rule 13d-3
under the Securities Exchange Act of 1934 (the Exchange
Act)) of 50% or more of the combined voting power of the
Companys (or the surviving entitys) then outstanding
securities ordinarily (and apart from rights occurring in
special circumstances) having the right to vote in the election
of directors;
(ii) the consummation of any sale, lease, exchange or
transfer (in any single transaction or series of related
transactions) of all or substantially all of the assets or
business of the Company and its Subsidiaries; or
(iii) the occurrence of any event the result of which is
that any person (as such term is used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act), other
than (A) the Company or any Subsidiary, or (B) any
employee benefit plan sponsored by the Company or any
Subsidiary, shall become the beneficial owner (within the
meaning of
Rule 13d-3
under the Exchange Act) of securities of the Company
representing more than 50% of the combined voting power of the
Companys then outstanding securities ordinarily (and apart
from rights accruing in special circumstances) having the right
to vote in the election of directors, as a result of a tender,
leveraged buyout or exchange offer, open market purchases,
privately negotiated purchases, other arrangements or
understandings or otherwise.
Section 15.1 Form
of Agreement. To the extent deemed necessary by
the Committee, an Award under the Plan shall be evidenced by an
Award Agreement in a form approved by the Committee setting
forth the number of shares of Common Stock or units subject to
the Award, the exercise price, base price, or purchase price of
the Award, the time or times at which an Award will become
vested, exercisable or payable and the term of the Award. The
Award Agreement shall also set forth the effect on an Award of
termination of employment under certain circumstances. The Award
Agreement shall be subject to and incorporate, by reference or
otherwise, all of the applicable terms and conditions of the
Plan, and may also set forth other terms and conditions
applicable to the Award as determined by the Committee
consistent with the limitations of the Plan. Award Agreements
evidencing Incentive Stock Options shall contain such terms and
conditions as may be necessary to meet the applicable provisions
of Section 422 of the Code.
Section 15.2 Forfeiture
Events. The Committee may specify in an Award
Agreement at the time of the Award that the Participants
rights, payments and benefits with respect to an Award shall be
subject to reduction, cancellation, forfeiture or recoupment
upon the occurrence of certain specified events, in addition to
any otherwise applicable vesting or performance conditions of an
Award. Such events shall include, but shall not be limited to,
termination of employment for cause, violation of material
Company policies, breach of noncompetition, confidentiality or
other restrictive covenants that may apply to the Participant,
or other conduct by the Participant that is detrimental to the
business or reputation of the Company.
Section 15.3 No
Assignment or Transfer; Beneficiaries. Except as
provided in Section 6.5 hereof, Awards under the Plan shall
not be assignable or transferable, except by will or by the laws
of descent and
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distribution, and during the lifetime of a Participant, an Award
shall be exercised only by such Participant or by his guardian
or legal representative. Notwithstanding the foregoing, the
Committee may provide in the terms of an Award Agreement that
the Participant shall have the right to designate a beneficiary
or beneficiaries who shall be entitled to any rights, payments
or other benefits specified under an Award following the
Participants death.
Section 15.4 Deferrals
of Payment. The Committee may permit a
Participant to defer the receipt of payment of cash or delivery
of shares of Common Stock that would otherwise be due to the
Participant by virtue of the exercise of a right or the
satisfaction of vesting or other conditions with respect to an
Award. If any such deferral is to be permitted by the Committee,
the Committee shall establish the rules and procedures relating
to such deferral, including, without limitation, the period of
time in advance of payment when an election to defer may be
made, the time period of the deferral and the events that would
result in payment of the deferred amount, the interest or other
earnings attributable to the deferral and the method of funding,
if any, attributable to the deferred amount.
Section 15.5 Rights
as Stockholder. A Participant shall have no
rights as a holder of shares of Common Stock with respect to any
unissued securities covered by an Award until the date the
Participant becomes the holder of record of such securities.
Except as provided in Section 4.2 hereof, no adjustment or
other provision shall be made for dividends or other stockholder
rights, except to the extent that the Award Agreement provides
for dividend payments or dividend equivalent rights.
Section 15.6 Employment
or Service. Nothing in the Plan, in the grant of
any Award or in any Award Agreement shall confer upon any
Eligible Person any right to continue in the service of the
Company or any of its Subsidiaries, or to serve as a director
thereof, or interfere in any way with the right of the Company
or any of its Subsidiaries to terminate the Participants
employment or other service relationship for any reason at any
time.
Section 15.7 Securities
Laws. No shares of Common Stock will be issued or
transferred pursuant to an Award unless and until all then
applicable requirements imposed by Federal and state securities
and other laws, rules and regulations and by any regulatory
agencies having jurisdiction, and by any exchanges upon which
the shares of Common Stock may be listed, have been fully met.
As a condition precedent to the issuance of shares pursuant to
the grant or exercise of an Award, the Company may require the
Participant to take any reasonable action to meet such
requirements. The Committee may impose such conditions on any
shares of Common Stock issuable under the Plan as it may deem
advisable, including, without limitation, restrictions under the
Securities Act of 1933, as amended, under the requirements of
any exchange upon which such shares of the same class are then
listed, and under any blue sky or other securities laws
applicable to such shares. The Committee may also require the
Participant to represent and warrant at the time of issuance or
transfer that the shares of Common Stock are being acquired only
for investment purposes and without any current intention to
sell or distribute such shares.
Section 15.8 Tax
Withholding. The Participant shall be responsible
for payment of any taxes or similar charges required by law to
be withheld from an Award or an amount paid in satisfaction of
an Award, which shall be paid by the Participant on or prior to
the payment or other event that results in taxable income in
respect of an Award. The Award Agreement shall specify the
manner in which the withholding obligation shall be satisfied
with respect to the particular type of Award.
Section 15.9 Unfunded
Plan. The adoption of the Plan and any setting
aside of cash amounts or shares of Common Stock by the Company
with which to discharge its obligations hereunder shall not be
deemed to create a trust or other funded arrangement. The
benefits provided under the Plan shall be a general, unsecured
obligation of the Company payable solely from the general assets
of the Company, and neither a Participant nor the
Participants permitted transferees or estate shall have
any interest in any assets of the Company by virtue of the Plan,
except as a general unsecured creditor of the Company.
Notwithstanding the foregoing, the Company shall have the right
to implement or set aside funds in a grantor trust, subject to
the claims of the Companys creditors, to discharge its
obligations under the Plan.
A-12
Section 15.10 Other
Compensation and Benefit Plans. The adoption of
the Plan shall not affect any other share incentive or other
compensation plans in effect for the Company or any Subsidiary,
nor shall the Plan preclude the Company from establishing any
other forms of share incentive or other compensation for
employees of the Company or any Subsidiary. The amount of any
compensation deemed to be received by a Participant pursuant to
an Award shall not constitute compensation with respect to which
any other employee benefits of such Participant are determined,
including, without limitation, benefits under any bonus,
pension, profit sharing, life insurance or salary continuation
plan, except as otherwise specifically provided by the terms of
any such plan.
Section 15.11 Plan
Binding on Transferees. The Plan shall be binding
upon the Company, its transferees and assigns, and the
Participant, his or her executor, administrator and permitted
transferees and beneficiaries.
Section 15.12 Construction
and Interpretation. Whenever used herein, nouns
in the singular shall include the plural, and the masculine
pronoun shall include the feminine gender. Headings of Sections
hereof are inserted for convenience and reference and constitute
no part of the Plan.
Section 15.13 Severability. If
any provision of the Plan or any Award Agreement shall be
determined to be illegal or unenforceable by any court of law in
any jurisdiction, the remaining provisions hereof and thereof
shall be severable and enforceable in accordance with their
terms, and all provisions shall remain enforceable in any other
jurisdiction.
Section 15.14 Foreign
Jurisdictions. The Committee may adopt, amend and
terminate such arrangements and grant such Awards, not
inconsistent with the intent of the Plan, as it may deem
necessary or desirable to comply with any tax, securities,
regulatory or other laws of other jurisdictions with respect to
Awards that may be subject to such laws. The terms and
conditions of such Awards may vary from the terms and conditions
that would otherwise be required by the Plan solely to the
extent the Committee deems necessary for such purpose. Moreover,
the Board may approve such supplements to or amendments,
restatements or alternative versions of the Plan, not
inconsistent with the intent of the Plan, as it may consider
necessary or appropriate for such purposes, without thereby
affecting the terms of the Plan as in effect for any other
purpose.
Section 15.15 Governing
Law. The Plan and all rights hereunder shall be
subject to and interpreted in accordance with the laws of the
State of Delaware, without reference to the principles of
conflicts of laws, and to applicable Federal securities laws.
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16.
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EFFECTIVE
DATE, AMENDMENT AND TERMINATION
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Section 16.1 Effective
Date. The Plan shall become effective following
its adoption by the Board and upon its approval by the
Companys stockholders. The term of the Plan shall be
10 years from the date of such adoption by the Board,
subject to Section 16.3 hereof.
Section 16.2 Amendment. The
Board may at any time and from time to time and in any respect,
amend or modify the Plan; provided, however, that the Board may
seek the approval of any amendment or modification by the
Companys stockholders to the extent it deems necessary or
advisable in its sole discretion for purposes of compliance with
Section 162(m) or Section 422 of the Code, the listing
requirements of the NASDAQ or other exchange or securities
market or for any other purpose. No amendment or modification of
the Plan shall adversely affect any Award theretofore granted
without the consent of the Participant or the permitted
transferee of the Award.
Section 16.3 Termination. The
Plan shall terminate on December 15, 2014, which is the
date immediately preceding the tenth anniversary of the date of
the Plans adoption by the Board. The Board may, in its
sole discretion and at any earlier date, terminate the Plan.
Notwithstanding the foregoing, no termination of the Plan shall
adversely affect any Award theretofore granted without the
consent of the Participant or the permitted transferee of the
Award.
THE
ULTIMATE SOFTWARE GROUP, INC.
A-13
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MR A SAMPLE
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DESIGNATION (IF ANY)
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Using a black ink pen, mark your votes with an X as shown in
this example. Please do not write outside the designated areas.
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x |
Annual Meeting Proxy Card
6PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. 6
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A
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Proposals The Board of
Directors recommends a vote FOR all the nominees listed and
FOR Proposals 2 and 3. |
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1. To
elect two directors to serve until the 2010 Annual Meeting.
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For
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01 - Scott Scherr
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02 - Alois T. Leiter
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To approve the amendment to the 2005 Equity and incentive Plan. |
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To ratify KPMG LLP as the Companys independent
registered public accounting firm for fiscal year ending
December 31, 2007 |
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Change of Address Please print
new address below.
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Meeting Attendance |
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Mark box to the right if you plan to attend the Annual Meeting. |
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Authorized Signatures This section must be completed for your vote to be counted. Date and Sign Below |
Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such.
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Date (mm/dd/yyyy) Please print date below. |
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Signature 1 Please keep signature within the box. |
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Signature 2 Please keep signature within the box. |
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/ / |
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C 1234567890 J N T
1 U P X 0 1 3 0 5 8 1
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MR A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE
140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND
MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND
MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND
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<STOCK#>
00PBPF
6PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. 6
Proxy The Ultimate Software Group, Inc.
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 15, 2007
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned, revoking all prior proxies, hereby appoints Mitchell K. Dauerman and Vivan
Maza, with full power of substitution, as proxies to represent and vote, as designated herein, all
the shares of Common Stock of The Ultimate Software Group, Inc. (the Company) which the
undersigned would be entitled to vote if personally present at the Annual Meeting of Stockholders
of the Company to be held at 2000 Ultimate Way, Weston, Florida, on Tuesday, May 15, 2007, at 10:00
a.m. (E.D.T.), and at any adjournment thereof (the Annual Meeting).
In their discretion, the proxies are authorized to vote upon such other matters as may properly
come before the Annual Meeting.
This proxy, when properly executed, will be voted in the manner directed herein by the undersigned
stockholder. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE ELECTION AS DIRECTOR OF THE
NOMINEES NAMED HEREIN, FOR THE APPROVAL OF THE AMENDMENT OF THE 2005 EQUITY AND INCENTIVE PLAN AND
FOR THE RATIFICATION OF KPMG LLP AS THE COMPANYS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR
THE FISCAL YEAR ENDING DECEMBER 31, 2007. Attendance of the undersigned at the Annual Meeting will
not be deemed to revoke this proxy unless the undersigned shall revoke this proxy in writing or
shall deliver a subsequently dated proxy to the Secretary of the Company prior to the Annual
Meeting or shall vote in person at the Annual Meeting.
PLEASE FILL IN, DATE, SIGN AND MAIL THIS PROXY IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE