def14a-106769_hps.htm
UNITED
STATES
SECURITIES
EXCHANGE COMMISSION
Washington,
DC 20549
SCHEDULE
14A
INFORMATION
REQUIRED IN PROXY STATEMENT
SCHEDULE
14A INFORMATION
PROXY
STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE
ACT OF 1934
Filed
by the Registrant x
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Filed
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the appropriate box:
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¨ Preliminary
Proxy Statement
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¨ Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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x Definitive
Proxy Statement
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¨ Definitive
Additional Materials
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¨ Soliciting
Material Pursuant to Rule 14a-12
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HEARTLAND
PAYMENT SYSTEMS, 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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of Filing Fee (Check the appropriate
box):
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Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was
determined):
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maximum aggregate value of
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0-11(a)(2) and identify the filing for which the offsetting fee was paid
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Form,
Schedule or Registration Statement
No.:
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HEARTLAND
PAYMENT SYSTEMS, INC.
90
NASSAU STREET
PRINCETON,
NJ 08542
NOTICE OF 2010 ANNUAL
MEETING OF
STOCKHOLDERS
TO
BE HELD ON MAY 14, 2010
The Board
of Directors of Heartland Payment Systems, Inc. (the “Company”) hereby gives
notice that the 2010 Annual Meeting of Stockholders will be held at the Nassau
Inn, 10 Palmer Square, Princeton, NJ 08542, on Friday, May 14, 2010 at 10:00
a.m. (local time), for the following purposes:
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1.
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To
elect seven (7) Directors, nominated by the Board of Directors, to the
Company’s Board of Directors for terms expiring at the 2011 Annual Meeting
and until their successors are duly elected and qualified as provided in
the Company’s Bylaws;
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2.
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To
approve the amendment and restatement of Heartland Payment System, Inc.’s
2008 Equity Incentive Plan;
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3.
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To
ratify the selection of Deloitte & Touche LLP as our independent
registered public accounting firm for the fiscal year ending December 31,
2010; and
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4.
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To
transact any other business that may properly come before the Annual
Meeting or any adjournments or postponements
thereof.
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Proposal
Number One relates solely to the election of seven (7) Directors nominated by
the Board of Directors and does not include any other matters relating to the
election of Directors, including without limitation, the election of Directors
nominated by any stockholder of the Company.
This
notice of meeting, the Company’s Proxy Statement and the accompanying proxy
card, and the Company’s Annual Report, including the Company’s Form 10-K for the
fiscal year ended December 31, 2009, were first mailed on or about April 23,
2010. Stockholders of
record at the close of business on March 15, 2010 are entitled to notice of and
vote at the meeting and any adjournments or postponements thereof. If
you attend the meeting you may vote in person if you wish, even though you have
previously returned your proxy.
You are
entitled to attend the Annual Meeting in person only if you were a stockholder
of the Company as of the close of business on the Record Date or hold a valid
proxy for the Annual Meeting. You should be prepared to present photo
identification for admittance. If you are not a stockholder of record
but hold shares through a broker, bank, trustee or nominee (i.e., in street
name), you should provide proof of beneficial ownership as of the Record Date
(such as your most recent account statement prior to the Record Date), a copy of
the voting instruction card provided by your broker, bank, trustee or nominee,
or similar evidence of ownership.
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By
Order of the Board of Directors
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/s/
Charles H.N. Kallenbach
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Charles
H.N. Kallenbach
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General
Counsel, Chief Legal Officer and
Secretary
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Princeton,
New Jersey
Date: April
23, 2010
IMPORTANT: YOUR
VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN
THE ENCLOSED ENVELOPE. THIS WILL ENSURE REPRESENTATION OF YOUR SHARES
AT THE MEETING.
HEARTLAND
PAYMENT SYSTEMS, INC.
90
NASSAU STREET
PRINCETON,
NJ 08542
PROXY
STATEMENT
2010
Annual Meeting of Stockholders
To Be
Held On May 14, 2010
This Proxy Statement and the
accompanying Notice of Annual Meeting of Stockholders are being furnished in
connection with the solicitation by the Board of Directors of Heartland Payment
Systems, Inc., a Delaware corporation (the “Company”), of proxies for use at the
2010 Annual Meeting of Stockholders (the “Annual Meeting”) of the Company to be
held on Friday, May 14, 2010, at 10:00 a.m., Eastern Time, at the Nassau Inn, 10
Palmer Square, Princeton, New Jersey 08542, and at any adjournments
thereof. This Proxy Statement and the enclosed proxy card and the
Company’s Annual Report to Stockholders, including the Company’s Form 10-K for
the fiscal year ended December 31, 2009, are first being sent to stockholders on
or about April 23, 2010.
Voting
Securities. The close of business on March 15, 2010 has been
selected as the record date (the “Record Date”) for determining the holders of
outstanding shares of the Company’s common stock, par value $0.001 per share
(the “Common Stock”), entitled to receive notice of and vote at the Annual
Meeting. On the Record Date, there were approximately 37,765,033 shares of
Common Stock outstanding and approximately 29 holders of record. Each
holder of record is entitled to one (1) vote at the Annual Meeting for each
share of Common Stock held by such stockholder on the Record Date. No
other class of securities will be entitled to vote at the Annual
Meeting. Stockholders have no cumulative voting rights.
Quorum. The
presence in person or by properly executed proxy of the record holders of a
majority of the outstanding shares of Common Stock as of the Record Date will
constitute a quorum at the Annual Meeting. Shares that are voted
“FOR, AGAINST, ABSTAIN” or “WITHHOLD” on a matter are treated as being present
at the Annual Meeting for purposes of establishing a quorum.
Vote
Required. Under Delaware law and the Company’s Certificate of
Incorporation and Bylaws, as each is in effect on the date hereof, if a quorum
exists at the meeting, the affirmative vote of a plurality of the votes cast at
the meeting is required for the election of Directors. A properly
executed proxy marked “Withhold Authority” with respect to the election of one
or more Directors will not be voted with respect to the Director or Directors
indicated, although it will be counted for purposes of determining whether there
is a quorum. For each other proposal to be considered at the Annual
Meeting, the affirmative vote of the holders of a majority of the shares of
Common Stock represented in person or by proxy and entitled to vote on the item
will be required for approval.
Abstentions. Under
the Company’s Bylaws and applicable Delaware law, abstentions will be counted
for purposes of determining both (i) the presence or absence of a quorum
for transacting business and (ii) the total number of shares present in
person or represented by proxy and entitled to vote on a proposal. A
properly executed proxy marked “Abstain” with respect to any such matter will
not be voted, although it will be counted for purposes of determining whether
there is a quorum. Accordingly, for any matter other than the
election of Directors an abstention will have the same effect as a vote against
the proposal.
Broker
Non-Votes. “Broker non-votes” (i.e., shares held by a broker,
bank, trustee or nominee which are represented at the meeting, but with respect
to which the broker, bank, trustee or nominee is not empowered to vote on a
particular non-routine proposal) will be counted in determining whether a quorum
is present. In tabulating the voting result for any particular
proposal, shares that constitute broker non-votes are not considered votes cast
on that proposal. Thus, broker non-votes will not affect the outcome
of any matter being voted on at the meeting. Under New York Stock
Exchange rules, beneficial owners of shares held in street name who do not
provide the broker, bank, trustee or nominee that holds such shares with
specific voting instructions empower the broker, bank, trustee or nominee to
have discretion to vote such shares on Proposal 3 (Ratification of Appointment
of Independent Registered Public Accounting Firm), but not with respect to
Proposal 1 (Election of Directors), Proposal 2 (Approval of the Amendment and
Restatement of Heartland Payment System Inc.’s 2008 Equity Incentive Plan), or
any Stockholder Proposals, in which case, such shares will be counted as a
“broker non-vote” on those proposals.
Voting of
Proxies. All shares represented by a valid proxy card received
prior to the Annual Meeting will be voted, and where a stockholder specifies by
means of the proxy a choice with respect to any matter to be acted upon, the
shares will be voted in accordance with the specification so made. If
no choice is indicated on the proxy card, the shares will be voted FOR all
nominees and FOR all other proposals described herein.
A
stockholder giving a proxy has the power to revoke his or her proxy at any time
prior to the time it is voted by delivering to our Corporate Secretary at the
address given above, a written instrument revoking the proxy or a duly executed
proxy with a later date, or by attending the Annual Meeting and voting in
person.
The Board
of Directors does not anticipate that any other matters will be brought before
the Annual Meeting. If, however, other matters are properly
presented, the persons named in the proxy card that accompanies this Proxy
Statement will have discretion, to the extent allowed by Delaware law, to vote
in accordance with their own judgment on such matters.
If
you have any questions or need assistance in
voting
your shares please call:
105
Madison Avenue
New York,
New York 10016
(212)
929-5500 (Call Collect)
or
Call
Toll-Free (800) 322-2885
Email:
proxy@mackenziepartners.com
PROPOSAL
NO. 1:
ELECTION
OF DIRECTORS
General
Seven (7)
individuals, all of whom are presently members of our Board of Directors, have
been nominated for election as our Directors for terms expiring at our 2011
Annual Meeting and until their respective successors are elected and
qualified. The persons named in the proxy card that accompanies this
Proxy Statement, who have been designated by our Board of Directors, intend,
unless otherwise instructed on the proxy card, to vote for the election to the
Board of Directors of the persons named below. If any nominee should
become unavailable to serve, the proxy may be voted for the election of another
person designated by the Board of Directors. The Board of Directors
has no reason to believe any of the persons named will be unable to serve if
elected.
Vote
Required
If a quorum is present, the affirmative
vote of the holders of a plurality of the shares of Common Stock present or
represented at the Annual Meeting and entitled to vote on the matter is required
for approval of Proposal No. 1.
Board
Recommendation
The Board of Directors recommends that
stockholders vote FOR the nominees listed below.
Information
Concerning Directors and Nominees
Information regarding each nominee for
Director is set forth in the following table:
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Term
Expires at the
Annual
Meeting Held
In
The Year
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Robert
O. Carr
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64
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2000
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Chairman
and Chief Executive Officer
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2010
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Mitchell
L. Hollin
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47
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2001
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Director
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2010
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Robert
H. Niehaus
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54
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2001
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Director
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2010
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Marc
J. Ostro, Ph.D.
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60
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2002
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Director
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2010
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Jonathan
J. Palmer
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66
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2003
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Director
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2010
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George
F. Raymond
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72
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2004
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Director
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2010
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Richard
W. Vague
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54
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2007
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Director
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2010
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Our
policy is not to discriminate on the basis of race, gender or ethnicity and our
Board of Directors is supportive of any qualified candidate who would also
provide our Board with more diversity; however, we have no formal policy
regarding Board diversity. Our Nominating Committee and Board of Directors may
consider a broad range of factors relating to the qualifications and background
of nominees, which may include diversity, which is not only limited to race,
gender or national origin. Our Nominating Committee’s and Board of Directors’
priority in selecting Board members is identification of persons who will
further the interests of our stockholders through his or her established record
of professional accomplishment, the ability to contribute positively to the
collaborative culture among Board members, and professional and personal
experiences and expertise relevant to our business strategy. The biographical
information presented below includes certain qualifications, attributes, skills
and other information with respect to the seven directors currently serving on
our Board of Directors that caused our Nominating Committee and Board of
Directors to determine that the person should serve as one of our
directors:
Robert O.
Carr, age 64, has served as Chairman of our Board of Directors and as our
Chief Executive Officer since our inception in
October 2000. Mr. Carr had been Chairman of the Members’
Committee and Chief Executive Officer of our predecessor, Heartland Payment
Systems LLC, from March 1997 to October 2000 when the merger of
Heartland Payment Systems LLC into our Company became
effective. Mr. Carr co-founded Heartland Payment Systems LLC
with Heartland Bank in March 1997. Prior to founding Heartland,
Mr. Carr worked in the payments and software development industries for 25
years. Mr. Carr received a B.S. and M.S. in Mathematics and
Computer Science from the University of Illinois. Because of Mr.
Carr’s deep knowledge of our business and industry as well as his detailed and
in-depth knowledge of the issues, opportunities and challenges facing us, we
believe that he is an invaluable member of our Board of Directors.
Mitchell L.
Hollin, age 47, has served as one of our Directors since October
2001. Mr. Hollin is a Partner of LLR Capital, L.P., which is the
general partner of LLR Equity Partners, L.P., an independent private equity
firm, which he joined in August 2000. From 1994 until joining LLR
Capital, L.P., Mr. Hollin was a founder and Managing Director of Advanta
Partners LP, a private equity firm affiliated with Advanta
Corporation. Prior to his involvement with Advanta Partners LP, Mr.
Hollin was a Vice President at Cedar Point Partners LP, a middle market buyout
firm and before that an Associate at Patricof & Co. Ventures, Inc., an
international venture capital firm. Mr. Hollin is a member of the board of
directors of various private companies. Mr. Hollin received a B.S. in
Economics and an M.B.A. from the Wharton School of the University of
Pennsylvania. We believe Mr. Hollin’s 20 plus years of private equity
investment experience with industry expertise in financial services, information
technology and outsourced business services as well as his service as a director
of numerous companies provides our Board of Directors with insight into the
strategic and operational issues that our Company faces.
Robert H.
Niehaus, age 54, has
served as one of our Directors since October 2001. Mr. Niehaus is a
Managing Director of Greenhill & Co., Inc. and serves as the Chairman and a
Senior Member of GCP 2000, LLC and the Chairman and a Senior Member of Greenhill
Capital Partners, LLC, which control the general partners of Greenhill Capital
Partners. Mr. Niehaus has been a member of Greenhill & Co.’s
Management Committee since its formation in January 2004. Mr. Niehaus
joined Greenhill & Co. in January 2000 as a Managing Director to begin the
formation of Greenhill Capital Partners. Prior to joining Greenhill
& Co., Mr. Niehaus spent 17 years at Morgan Stanley & Co., where he was
a Managing Director in the merchant banking department from 1990 to
1999. Mr. Niehaus was vice chairman and a director of the Morgan
Stanley Leveraged Equity Fund II, L.P., a private equity investment fund, from
1992 to 1999, and was Vice Chairman and a Director of Morgan Stanley Capital
Partners III, L.P., a private equity fund,
from 1994
to 1999. Mr. Niehaus was also the Chief Operating Officer of Morgan
Stanley’s merchant banking department from 1996 to 1998. Mr. Niehaus
is a director of Exco Holdings, Inc., an oil and gas company, Global Signal
Inc., a company that owns and manages wireless communications towers and other
communications sites, and various private companies. Mr. Niehaus
received a B.A. in International Affairs from the Woodrow Wilson School at
Princeton University and an M.B.A. from the Harvard Business
School. Mr. Niehaus has substantial experience in investment banking
and financial services, and has served as a director of numerous
companies. He is familiar with and has designed complex capital
structures.
Marc J. Ostro,
Ph.D., age
60, has served as one of our Directors since October 2002. Since
February 17, 2006, Dr. Ostro has served as a General Partner in Devon Park
Bioventures, a venture capital fund targeting investments in therapeutics
companies and, in certain cases, medical device, diagnostic and drug discovery
technology companies. Previously, from January 2002 to February 2006,
Dr. Ostro was a partner at TL Ventures, L.P., a Pennsylvania-based venture
capital firm. Immediately prior to that, Dr. Ostro was a private consultant to
the biotechnology industry since May 2000. From November 1997 to May
2000, he was Senior Managing Director and Group Leader for KPMG Life Science
Corporate Finance (Mergers and Acquisitions). In 1981, Dr. Ostro
co-founded The Liposome Company, a biotechnology company. Dr. Ostro
received a B.S. in Biology from Lehigh University, a Ph.D. in Biochemistry from
Syracuse University, and was a Postdoctoral Fellow and Assistant Professor at
the University of Illinois Medical School. Dr. Ostro brings to the
Board significant experience with complex capital structures and related issues
and with assisting companies with strategic allocation of capital
resources.
Jonathan J.
Palmer, age
66, has served as one of our Directors since November 2003. Since
November 2005, Mr. Palmer has served as President and Chief Executive Officer of
FSV Payment Systems, a leading prepaid debit issuer and
processor. From 1999 to October 2003, Mr. Palmer served as President
and Chief Executive Officer of Vital Processing Services. From 1996
to 1999, he served as President and CEO of Wellspring Resources, an outsourced
benefits administrator. From 1990 to 1996, Mr. Palmer was the Chief
Retail Banking and Technology Executive at Barnett Banks, where he created
Barnett Technologies, an outsourced services firm offering a wide range of back
office functions for banks. Prior to joining Barnett Banks, he was an
Executive Vice President with Shearson Lehman Brothers, and held a number of
roles at Fidelity Bank in Philadelphia, succeeding to Vice Chairman in the late
1980s. Mr. Palmer received a B.S. in Applied Mathematics from LaSalle
University, and an M.B.A. from the Wharton School of the University of
Pennsylvania. Mr. Palmer brings to our Board substantial experience
in our industry, having served as Chief Executive Officer of several companies
in the payment processing industry. Because of such experience, we
believe that Mr. Palmer has a deep understanding of many of the strategic and
operational issues we face and provides useful insight to our Board as we review
our strategic initiatives.
George F.
Raymond, age 72, has served as one of
our Directors since March 2004. Mr. Raymond has served as President
of Buckland Corporation, a consulting company to the information technology
industry, since 1989. Previously, Mr. Raymond was Chief Executive Officer of
Automatic Business Centers, Inc., a payroll processing company he founded in
1972 and sold to Automatic Data Processing Corporation in 1989. Mr.
Raymond is a director of Analytical Graphics, Inc., a privately held software
solutions provider, and NationsHealth, a health care provider. Mr.
Raymond received a B.B.A. in Accounting from the University of Massachusetts and
qualified as a C.P.A. in Pennsylvania. Because of his extensive
experience as a financial expert and as a consultant to the information
technology industry, we believe that Mr. Raymond is able to provide valuable
input into our financial affairs, as well as other matters; in particular, his
prior career as an executive with payroll companies provides deep perspectives
on our opportunities and challenges in Heartland Payroll Company.
Richard W.
Vague, age 54, has served as one of our Directors since May
2007. Since 2007, Mr. Vague has served as Chief Executive Officer and
Co-Founder of Energy Plus, a Philadelphia-based, progressive, independent Energy
Service Company (ESCO). Immediately prior to that, Mr. Vague served
as the Chief Executive Officer of Barclays Bank Delaware, a financial
institution and credit card issuer, since December 2004. Previously,
Mr. Vague was Chief Executive Officer of Juniper Financial, a direct consumer
credit card bank, since he co-founded that company in 2000 ; the company was
sold to Barclays Bank Delaware in 2004. From 1985 to 2000, Mr. Vague
was the co-founder, Chairman and Chief Executive Officer of First
USA. He also served for a period as Chairman of Paymentech, the
merchant processing subsidiary of First USA. In 1997, Bank One
acquired First USA. Mr. Vague serves as a Director of Barclays Bank
Delaware. Mr. Vague received a B.S. in communication from the
University of Texas at Austin. Mr. Vague has served as a Chief
Executive Officer and corporate Chairman in our industry for more than 20 years,
which gives him an understanding of many of the strategic and operational issues
we face.
There are
no family relationships among any of the Company’s directors or executive
officers.
Information
Concerning the Board of Directors
Under our
Certificate of Incorporation and Bylaws, the Board of Directors determines the
number of directors on the Board. We currently have seven (7)
Directors. The Board of Directors held 16 meetings during the fiscal year ended
December 31, 2009. Each of our Directors attended at least 75% of the
aggregate number of meetings of the Board of Directors and relevant committees
held during fiscal year 2009.
It is our
policy to encourage directors to attend our annual meetings of
stockholders. All of our Directors attended our 2009 annual meeting
of stockholders.
The Board
of Directors has determined that the following Directors are “independent” under
current New York Stock Exchange (“NYSE”) rules: Mitchell L. Hollin, Robert H.
Niehaus, Marc J. Ostro, Ph.D., Jonathan J. Palmer, George F. Raymond and Richard
W. Vague. To be considered independent our Directors must meet the
bright-line independence standards under the listing standards of the NYSE, and
the Board of Directors must affirmatively determine that the Director otherwise
has no material relationship with us, directly, or as an officer, shareowner or
partner of an organization that has a relationship with us.
Robert O.
Carr serves as Chairman at meetings of the Board of Directors. The
Chairman of our Nominating and Corporate Governance Committee, Dr. Ostro,
presides over executive sessions of our non-management
Directors. During fiscal year 2009, three (3) executive sessions of
our non-management Directors were held. The Board of Directors has
standing Audit, Compensation and Nominating/Corporate Governance
Committees.
For
additional information on our corporate governance, including the charters
approved by the Board of Directors for the Audit Committee, the Compensation
Committee and the Nominating/Corporate Governance Committee, the Code of
Business Conduct and Ethics and the Corporate Governance Guidelines, please
visit our investor relations website at
www.heartlandpaymentsystems.com. Printed copies of this information
may be obtained by requesting copies from our Corporate Secretary, Heartland
Payment Systems, Inc., 90 Nassau Street, Princeton, New Jersey
08542.
Board
Leadership Structure and Board’s Role in Risk Oversight
Robert O.
Carr has served as Chairman of the Board of Directors and Chief Executive
Officer since our inception in June 2000. The Board of Directors
believes that Mr. Carr’s service as both Chairman of the Board of Directors and
Chief Executive Officer is in our best interests and the best interests of our
stockholders. This Board leadership structure is commonly utilized by
public companies in the United States, and we believe that this Board leadership
structure has been effective for us. Mr. Carr possesses detailed and
in-depth knowledge of the issues, opportunities and challenges facing us, and is
thus best positioned to develop agendas that ensure that our Board’s time and
attention are focused on the matters that are most critical to us. We
believe this eliminates the potential for duplication of efforts and
inconsistent actions. Additionally, having one person serve as both
Chairman of the Board of Directors and Chief Executive Officer shows our
employees, customers, stockholders and other constituencies that we are under
strong and decisive leadership, ensures clear accountability and enhances our
ability to communicate our message and strategy clearly and
consistently.
While our
Bylaws and Corporate Governance Guidelines do not require that our Chairman of
the Board of Directors and Chief Executive Officer positions be filled by the
same person, our Board of Directors believes that having Mr. Carr fill both
positions is the appropriate leadership structure for us and demonstrates our
commitment to good corporate governance.
Risk is
inherent with every business, and how well a business manages risk can
ultimately determine its success. Management is responsible for the day-to-day
management of risks we face, while our Board of Directors, as a whole and
through its Committees, has responsibility for the oversight of risk management.
In its risk oversight role, our Board of Directors has the responsibility to
satisfy itself that the risk management processes designed and implemented by
management are adequate and functioning as designed.
Our Board
of Directors is actively involved in oversight of risks that could affect us.
This oversight is conducted primarily through the Audit Committee of the Board
of Directors, as disclosed in the description of the Audit Committee below and
in the charter of the Audit Committee, but our full Board of Directors has
retained responsibility for general oversight of risks. Our Board of Directors
satisfies this responsibility through full reports by the Audit Committee chair
regarding the Audit Committee’s considerations and actions, as well as through
regular reports directly from officers responsible for oversight of particular
risks within our Company, as our Board of Directors believes that full and open
communication between management and the Board of Directors is essential for
effective risk management and oversight.
Board
Committees
Audit
Committee. Our Audit Committee is solely responsible for the
appointment of and reviewing fee arrangements with our independent registered
accounting firm, and approving any non-audit services by our independent
registered accounting firm. (See the section entitled, “Principal Accountant
Fees and Services” below). Our Audit Committee reviews and monitors
our internal accounting procedures and reviews the scope and results of the
annual audit and other services provided by our independent registered
accounting firm. Our Audit Committee
reviews
our major financial risk exposures with management. Our Audit Committee
currently consists of Messrs. Palmer and Raymond and Dr. Ostro, each of whom is
an independent director under current NYSE rules and Rule 10A-3 under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is chaired
by Mr. Raymond. We believe that each of the members of the Audit
Committee is financially sophisticated and is able to read and understand our
consolidated financial statements. Our Board of Directors has
determined that Mr. Raymond is an Audit Committee ‘‘financial expert’’ as
defined in Item 407(d)(5) of Regulation S-K. Our Audit Committee held
five (5) meetings during fiscal 2009.
Compensation Committee. Our Compensation
Committee is primarily responsible for reviewing and approving the compensation
and benefits of our named executive officers and Directors, evaluating the
performance and compensation of our executive officers in light of our corporate
goals and objectives, administering our employee benefit plans and making
recommendations to our Board of Directors regarding these matters, and
administering our equity compensation plans. Our Compensation
Committee currently consists of Messrs. Hollin, Niehaus and Palmer, each of whom
is an independent director under current NYSE rules. Mr. Niehaus
serves as chairman of our Compensation Committee. Our Compensation
Committee held three (3) meetings
during fiscal 2009.
Our Chief
Executive Officer conducts performance reviews of members of executive
management and, except with respect to himself, makes recommendations
to the Compensation Committee on compensation, including wage increases, bonuses
and equity grants, based on the Company’s overall performance and his assessment
of the individual’s responsibilities and performance. The
Compensation Committee reviews these recommendations independently and approves,
with any modifications it considers appropriate, the compensation for members of
executive management, including our Chief Executive Officer. For the
fiscal year 2009, the Compensation Committee engaged the services of an
independent compensation consulting firm, Frederic W. Cook & Co., Inc. (“FW
Cook”) to review our compensation structure as more fully described in the
section entitled “Compensation Discussion and Analysis” below. FW
Cook does not provide any other services to us or our affiliates.
For
additional disclosure on our compensation of our named executive officers see
the section entitled “Compensation Discussion and Analysis” below.
Nominating/Corporate Governance
Committee. Our Nominating/Corporate Governance Committee makes
recommendations to the Board of Directors concerning nominations to the Board,
including nominations to fill a vacancy (including a vacancy created by an
increase in the size of the Board of Directors). The
Nominating/Corporate Governance Committee will consider nominees for our Board
of Directors nominated by stockholders upon submission in writing to our
Corporate Secretary of the names of such nominees in accordance with our
Bylaws. This Committee is also charged with shaping corporate
governance policies and codes of ethical and legal conduct, and monitoring
compliance with such policies. Our Nominating/Corporate Governance
Committee currently consists of Mr. Raymond and Dr. Ostro, each of whom is an
independent director under current NYSE rules. Dr. Ostro serves as chairman of
our Nominating/Corporate Governance Committee. Our Nominating/Corporate
Governance Committee did not hold any meetings during fiscal 2009 but did act by
unanimous written consent once.
Communication
with Directors
Stockholders who wish to communicate
with the entire Board of Directors, the non-management Directors as a group or
the Chairs of any of the Board committees may do so telephonically by calling
Charles Kallenbach, our General Counsel, Chief Legal Officer and Corporate
Secretary, at 609-683-3831, extension 2224 or by mail c/o Corporate Secretary,
Heartland Payment Systems, Inc., 90 Nassau Street, 2nd
Floor, Princeton, New Jersey 08542. Communications are distributed to
the Board, or to any individual Director or Directors as appropriate, depending
on the facts and circumstances outlined in the communication. In that
regard, the Board of Directors has requested that certain items that are
unrelated to the duties and responsibilities of the Board of Directors should be
excluded, such as spam, job inquiries, business solicitations or product
inquiries. In addition, material that is unduly hostile, threatening,
illegal or similarly unsuitable will be excluded, with the provision that any
communication that is filtered out must be made available to any Director upon
request.
Our Board
of Directors has also adopted policies designed to allow stockholders and other
interested parties to communicate directly with our Directors. Any interested
party that wishes to communicate directly with the Board or any Director or the
non-management Directors as a group should send communications in writing to
Chairman of the Audit Committee (currently George F. Raymond), c/o Heartland
Payment Systems, Inc., 90 Nassau Street, Princeton, New Jersey
08542. The mailing envelope must contain a clear notation indicating
that the enclosed letter is “Stockholder/Interested Party – Non-Management
Director Communication,” “Stockholder/Interested Party – Board Communication,”
“Stockholder/Interested Party – Audit Committee Communication” or
“Stockholder/Interested Party – Director Communication,” as
appropriate. All such letters must identify the author as a
stockholder or other interested party and clearly state whether the intended
recipients are all members of the Board, a committee of the Board or certain
specified individual Directors. Copies of all such letters will be
circulated to the appropriate Director or Directors. There is no
screening process in respect of communications from stockholders or other
interested parties which are sent in such manner. Interested parties
may also call Mr. Raymond with such concerns at (239) 948-9453 or (856)
235-8379. The information for communicating with the Audit Committee
and non-management Directors is also available in the Corporate Governance
Guidelines which are located in the investor relations section of our website,
www.heartlandpaymentsystems.com.
Director
Compensation
In 2009, members of the Board of
Directors who were not our employees received annualized retainers at the rate
of $20,000. Mr. Carr, as an employee of the Company, did not receive
compensation for his service on the Board of Directors. The chair of
the Audit Committee, Mr. Raymond, received an additional annualized retainer at
the rate of $15,000. The chairs of our Compensation Committee and
Nominating/Corporate Governance Committee, Mr. Niehaus and Dr. Ostro,
respectively, each received an additional annualized retainer at the rate of
$5,000. In addition, all members of the Board of Directors who were not our
employees received $1,500 for each board meeting attended in person and $1,000
for each committee meeting attended in person. Any new non-employee
Director who has not been in our prior employ will receive an initial option to
purchase 10,000 shares of our Common Stock on the date such individual joins the
Board of Directors. These options will vest over a period of two (2)
years. In addition, beginning after the third anniversary of the date
a non-employee Director joins the Board, each such non-employee Director
will receive an annual grant of a vested option to purchase 5,000 shares of our
Common Stock in the fourth quarter of each calendar year. See the
section entitled, “Heartland Payment Systems, Inc. Amended and Restated 2008
Equity Incentive Plan” below.
Under
these arrangements, we paid the members of the Board of Directors who are not
our employees the following compensation during the fiscal year ended December
31, 2009:
Name
|
|
Fees
Earned
or
Paid
in
Cash
($)
|
|
Option
Awards
($)(1)
|
|
Total
Compensation
($)
|
|
|
|
|
|
|
|
Mitchell
L. Hollin
|
|
$30,500
|
|
$39,800
|
|
$70,300
|
Robert
H. Niehaus
|
|
$32,500
|
|
$39,800
|
|
$72,300
|
Marc
J. Ostro, Ph.D.
|
|
$35,500
|
|
$39,800
|
|
$75,300
|
Jonathan
J. Palmer
|
|
$30,500
|
|
$39,800
|
|
$70,300
|
George
F. Raymond
|
|
$40,500
|
|
$39,800
|
|
$80,300
|
Richard
W. Vague
|
|
$30,500
|
|
$39,800
|
|
$70,300
|
|
(1)
|
Amounts
represent the aggregate fair value of stock options granted in 2009 as
determined under SFAS No. 123R (ASC
718).
|
|
Options
Granted to Directors in 2009
|
Name
|
|
Number
of
Securities
Underlying
Options
Granted
(#)
|
|
Exercise
Price
|
|
Grant
Date
|
|
Expiration
Date
|
|
Grant
Date
Fair
Value
of
Stock
and
Option
Awards
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Mitchell
L. Hollin
|
|
5,000
|
|
$ 8.88
|
|
5/11/2009
|
|
5/11/2014
|
|
$17,350(2a)
|
|
|
5,000
|
|
$12.16
|
|
11/6/2009
|
|
11/6/2014
|
|
$22,450(2b)
|
Robert
H. Niehaus
|
|
5,000
|
|
$ 8.88
|
|
5/11/2009
|
|
5/11/2014
|
|
$17,350(2a)
|
|
|
5,000
|
|
$12.16
|
|
11/6/2009
|
|
11/6/2014
|
|
$22,450(2b)
|
Marc
J. Ostro, Ph.D.
|
|
5,000
|
|
$ 8.88
|
|
5/11/2009
|
|
5/11/2014
|
|
$17,350(2a)
|
|
|
5,000
|
|
$12.16
|
|
11/6/2009
|
|
11/6/2014
|
|
$22,450(2b)
|
Jonathan
J. Palmer
|
|
5,000
|
|
$ 8.88
|
|
5/11/2009
|
|
5/11/2014
|
|
$17,350(2a)
|
|
|
5,000
|
|
$12.16
|
|
11/6/2009
|
|
11/6/2014
|
|
$22,450(2b)
|
George
F. Raymond
|
|
5,000
|
|
$ 8.88
|
|
5/11/2009
|
|
5/11/2014
|
|
$17,350(2a)
|
|
|
5,000
|
|
$12.16
|
|
11/6/2009
|
|
11/6/2014
|
|
$22,450(2b)
|
Richard
W. Vague
|
|
5,000
|
|
$ 8.88
|
|
5/11/2009
|
|
5/11/2014
|
|
$17,350(2a)
|
|
|
5,000
|
|
$12.16
|
|
11/6/2009
|
|
11/6/2014
|
|
$22,450(2b)
|
(1)
|
Amounts
represent the aggregate fair value of stock options granted in 2009 as
determined under SFAS No. 123R (ASC 718). Under SFAS No. 123R
(ASC 718), we estimate the grant date fair value of the stock options we
issue using a Black-Scholes valuation model for “plain-vanilla” stock
options and performance-based stock options, and we use a lattice
valuation model to measure grant date fair value for stock options
containing market vesting conditions. Our assumption for expected
volatility is based on our historical volatility for those option grants
whose expected life fall within a period we have sufficient historical
volatility data related to market trading of our own Common Stock. For
those option grants whose expected life is longer than we have sufficient
historical volatility data related to market trading of our own Common
Stock, we determine an expected volatility assumption by referencing the
average volatility experienced by a group of our public company
peers. For plain-vanilla stock options, we estimate the
expected life of a stock option based on the simplified method as provided
by the staff of the SEC in Staff Accounting Bulletins 107 and 110 (ASC
718-10-S99). The simplified method is used because, at this point, we do
not have sufficient historical information to develop reasonable
expectations about future exercise patterns. For the
performance-based options, the expected life is estimated based on the
average of three possible performance condition outcomes. Our
dividend yield assumption is based on dividends expected to be paid over
the expected life of the stock option. Our risk-free interest rate
assumption for stock options granted is determined by using U.S. treasury
rates of the same period as the expected option term of each stock
option.
|
(2)
|
The
fair value of options granted shown below was estimated at the grant date
using the following weighted average
assumptions:
|
|
(a)
|
(b)
|
Fair
Value of Each Option
|
$3.47
|
$4.49
|
Expected
volatility
|
52%
|
60%
|
Expected
life
|
3.75
years
|
2.5
years
|
Expected
dividends
|
0.50%
|
0.40%
|
Risk-free
interest rate
|
1.60%
|
1.13%
|
|
Director
Options Outstanding at December 31,
2009
|
|
|
Number
of Stock
Options
|
|
Name
|
|
Outstanding
|
|
|
|
|
|
Mitchell
L. Hollin
|
|
30,000
|
|
Robert
H. Niehaus
|
|
30,000
|
|
Marc
J. Ostro, Ph.D.
|
|
60,000
|
|
Jonathan
J. Palmer
|
|
30,000
|
|
George
F. Raymond
|
|
30,000
|
|
Richard
W. Vague
|
|
25,000
|
|
Director
Nomination
Criteria for Board
Membership. In selecting candidates for appointment or
re-election to the Board, the Nominating/Corporate Governance Committee
considers the appropriate balance of experience, skills and characteristics
required of the Board of Directors, and seeks to insure that: at least a
majority of the Directors are independent under the rules of the SEC and the
NYSE, members of our Audit Committee meet the financial literacy and
sophistication requirements under the rules of the NYSE and at least one (1) of
member of our Audit Committee qualifies as an “audit committee financial expert”
under the rules of the SEC. Nominees for Director are selected on the
basis of their depth and breadth of experience, integrity, ability to make
independent analytical inquiries, understanding of our business environment, and
willingness to devote adequate time to Board duties. For more
information on the qualifications, attributes, skills and other biographical
information of each of our nominees for Director, see “Information Concerning
Directors and Nominees” above.
Stockholder
Nominees. The Nominating/Corporate Governance Committee will
consider written proposals from stockholders for nominees for
Director. Any such nominations should be submitted to the
Nominating/Corporate Governance Committee c/o our Corporate Secretary and should
include the following information: (a) all information relating to such nominee
that is required to be disclosed pursuant to Regulation 14A under the Exchange
Act (including such person’s written consent to being named in the proxy
statement as a nominee and to serving as a Director if elected); (b) the names
and addresses of the stockholders making the nomination and the number of shares
of the Company’s Common Stock which are owned beneficially and of record by such
stockholders; and (c) appropriate biographical information and a statement as to
the qualification of the nominee, and should be submitted in the time frame
described in the Bylaws of the Company and under the caption, “Stockholder
Proposals for 2010 Annual Meeting.” No director nominations were
submitted by stockholders for the 2010 Annual Meeting.
Process for Identifying and
Evaluating Nominees. The Nominating/Corporate Governance
Committee believes we are well served by our current Directors. In
the ordinary course, absent special circumstances or a material change in the
criteria for Board membership, the Nominating/Corporate Governance Committee
will recommend that the Board of Directors re-nominate incumbent Directors who
continue to be qualified for Board service and are willing to continue as
Directors. If an incumbent Director is not standing for re-election,
or if a vacancy on the Board occurs between annual stockholder meetings, the
Nominating/Corporate Governance Committee will seek out potential candidates for
Board appointment who meet the criteria for selection as a nominee and have the
specific qualities or skills being sought. Director candidates will
be selected based on input from members of the Board, our senior management and,
if the Nominating/Corporate Governance Committee deems appropriate, a
third-party search firm. The Nominating/Corporate Governance
Committee will evaluate each candidate’s qualifications and check relevant
references. In addition, such candidates will be interviewed by at
least one member of the Nominating/Corporate Governance
Committee. Candidates meriting serious consideration will meet with
all members of the Board. Based on this input, the
Nominating/Corporate Governance Committee will evaluate which of the prospective
candidates is qualified to serve as a Director and whether the committee should
recommend to the Board that this candidate be appointed to fill a current
vacancy on the Board, or presented for the approval of the stockholders, as
appropriate.
Since becoming a public company, we
have never received a proposal from a stockholder to nominate a
Director. Although the Nominating/Corporate Governance Committee has
not adopted a formal policy with respect to stockholder nominees, the Committee
expects that the evaluation process for a stockholder nominee would be similar
to
the
process outlined above. No formal policy regarding stockholder
nominees has been implemented because there has never been a proposal from a
qualifying stockholder to nominate a Director.
Board Nominees for the 2010 Annual
Meeting. Robert O. Carr, Mitchell L. Hollin, Robert H.
Niehaus, Marc J. Ostro, Ph.D., Jonathan J. Palmer, George F. Raymond, and
Richard W. Vague are the nominees listed in this Proxy Statement, and each such
person is a current Director standing for re-election.
If a
quorum is present, the affirmative vote of a plurality of the shares of Common
Stock present or represented by valid proxies at the Annual Meeting and entitled
to vote on the matter is required for the election of
Directors.
THE
BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTEFOR APPROVAL OF
ROBERT
O. CARR, MITCHELL L. HOLLIN, ROBERT H. NIEHAUS, MARC J. OSTRO, PH.D.,
JONATHAN
J. PALMER, GEORGE F. RAYMOND, AND RICHARD W. VAGUE FOR ELECTION TO
THE
BOARD OF DIRECTORS.
PROPOSAL
NO. 2.
APPROVAL
OF THE AMENDMENT AND RESTATEMENT
OF
HEARTLAND PAYMENT SYSTEM, INC.’S 2008 EQUITY INCENTIVE PLAN
General
The
Compensation Committee of the Board of Directors and the Board of Directors have
approved and adopted an amendment and restatement of the 2008 Equity Incentive
Plan (the “2008 Plan”), subject to stockholder approval at the Annual
Meeting. The amendment and restatement of the 2008 Plan has been
adopted by the Board of Directors and proposed to the stockholders because the
2008 Plan has a limited number of shares remaining for issuance.
Vote
Required
If a quorum is present, the affirmative
vote of the holders of a majority of the shares of Common Stock present or
represented at the Annual Meeting and entitled to vote on the matter is required
for approval of Proposal No. 2.
Board
Recommendation
The Board of Directors recommends that
stockholders vote FOR adoption of the amended and restated 2008
Plan.
Purpose of the Amended and Restated
2008 Plan
The Board
of Directors believes that an increase in the shares of common stock available
for awards under the 2008 Plan is necessary in order to permit us to continue
our practice of granting stock awards to attract, retain and motivate the best
available talent for the successful conduct of our business in responding to
changing circumstances over time.
Under the
New York Stock Exchange rules, we are required to obtain stockholder approval of
the amendment and restatement of the 2008 Plan. Stockholder approval
of the amendment and restatement also will permit us to continue to grant
“incentive stock options” eligible for special tax treatment under
Section 422 of the Internal Revenue Code of 1986, as amended (the
“Code”). Finally, stockholder approval will constitute approval of
(i) the performance criteria upon which performance-based awards that are
intended to be deductible by us under Code Section 162(m) of may be based under
the 2008 Plan; (ii) the annual per participant limit of 1,812,500 shares
(3,625,000 in the case of a
new hire)
of common stock underlying stock options and stock appreciation rights that may
be granted under the 2008 Plan; (iii) the annual per participant limit of
671,296 shares (1,342,592 in the case of a new hire) of common stock for grants
of restricted stock or other stock awards payable in shares of common stock
other than stock options and stock appreciation rights; (iv) the annual per
participant limit of $9,000,000 for grants of performance-based cash bonuses
(“cash awards”); and (v) the classes of employees eligible to receive awards
under the 2008 Plan.
The
amended and restated 2008 Plan will be effective on the date of stockholder
approval at the Annual Meeting. If our stockholders do not approve
the amended and restated 2008 Plan, the provisions of the 2008 Plan prior to the
amendment and restatement will continue in effect.
The
principal amendments to the 2008 Plan made by the amendment and restatement are
as follows:
· Increase,
effective as of January 1, 2010, in the share reserve available for awards from
1,058,781 to 7,700,000 shares;
· Decrease
from 2.7 to 1.9 the number of shares by which each share subject to an award,
other than an option or stock appreciation right, granted after December 31,
2009 reduces the available share reserve;
· Decrease
from 2.7 to 1.9 the number of shares by which each share subject to an award,
other than an option or stock appreciation right, that after December 31, 2009
expires, is cancelled, is settled in cash, or terminates, increases the
available share reserve;
· Clarification
that options and stock appreciation rights may only be transferred for estate
planning purposes, to the extent permitted by the Administrator (as defined
below), to certain family members of a participant, trusts for the benefit of
the participant and/or family members and to other entities owned by the
participant and /or family members;
· Requirement
that any dividends or dividend equivalents on stock awards that vest based on
the achievement of performance criteria may not be paid unless and until the
stock award is earned; and
· Extension
of the term of the 2008 Plan until May 14, 2020 (i.e., the tenth anniversary of
the Annual Meeting).
We have
followed a responsible approach to equity-based compensation in the past. As
shown in the following table, our three-year average annual burn rate has been
2.36%, well below the RiskMetrics Group burn rate threshold of 5.47% applied to
our industry. A burn rate is the number of non-performance based
awards granted and performance based awards earned divided by the weighted
average number of shares outstanding for such year.
|
Options
Granted
|
RSUs/RSAs
Granted
|
Performance
Options
Earned
(a)
|
Total
|
Weighted
Average
Common
Shares
Outstanding
|
Total
Granted/
Weighted
Average
Common
Shares
Outstanding
|
|
|
|
|
|
|
|
2009
|
1,726,175
|
362,360
|
0
|
2,088,535
|
37,483,000
|
5.57%
|
2008
|
256,790
|
0
|
0
|
256,790
|
37,521,000
|
0.68%
|
2007
|
314,983
|
0
|
0
|
314,983
|
37,686,000
|
0.84%
|
|
|
|
|
|
|
|
(a)
465,000 of the price contingent options granted in 2009 will begin to vest
only after the closing price of our common stock is $17.76 per share or
more for 30 consecutive trading days and the remaining 465,000 price
contingent options granted in 2009 will begin to vest only after the
closing price of our common stock is $26.64 per share or more for 30
consecutive trading days. Performance metrics for the 2,538,000
performance options granted in 2008 include consolidated net revenue
growth at a compound annual growth rate of at least 15% and fully diluted
EPS growth at compound annual growth rate of at least
25%.
|
We
provide further information with respect to awards outstanding under the 2008
Plan as of December 31, 2009 below in this proxy statement under the
heading “Equity Compensation Plan Information.”
Summary
of the 2008 Plan
The
following summary of the key provisions of the amended and restated 2008 Plan
does not purport to be a complete description of all the provisions of the 2008
Plan as amended and restated, and is qualified in its entirety by the provisions
of the amendment and restatement of the 2008 Plan, a copy of which is attached
as Appendix A to this Proxy Statement.
Eligibility. Employees
(including executive officers), members of the Board of Directors, and
consultants of Heartland and our affiliates may participate in the 2008 Plan as
designated by the Administrator. Incentive stock options may be granted only to
employees of Heartland or our subsidiaries. We have approximately
3,055 employees, including five (5) named executive officers and employee
directors, and six (6) non-employee directors.
Types of
Awards. The types of stock awards that will be available for
grant under the 2008 Plan are:
|
·
|
incentive
stock options;
|
|
·
|
nonstatutory
stock options;
|
|
·
|
restricted
stock bonus awards;
|
|
·
|
stock
appreciation rights;
|
|
·
|
restricted
stock units;
|
|
·
|
performance
share bonus awards;
|
|
·
|
performance
share units; and
|
|
·
|
performance
cash bonuses
|
Share Reserve. A
total of 7,700,000 shares of our Common Stock are proposed to be reserved for
issuance under the amended and restated 2008 Plan, minus (x) one (1) share
for every one (1) share that is subject to outstanding options or stock
appreciation rights granted under the 2008 Plan after December 31, 2009, and
(y) one and nine tenths (1.9) shares for every one (1) share that is
subject to restricted stock bonus award, restricted stock unit, phantom stock
unit, performance share bonus award, or performance share unit granted under the
2008 Plan after December 31, 2009. Not more than 6,700,00 shares of
Common Stock may be issued under the 2008 Plan pursuant to incentive stock
options (the “ISO Limit”).
The share
reserve shall not be reduced if we issue awards under the 2008 Plan in
assumption of, or in substitution or exchange for, awards previously granted by
an entity that we (or one of our subsidiaries) acquire. Additionally,
shares available under a pre-existing plan approved by the stockholders of an
entity that we or any of our subsidiaries acquire or with which we or any of our
subsidiaries combines (as adjusted, to the extent appropriate, using the
exchange ratio or other adjustment or valuation ratio or formula used in such
transaction) may be used by us for awards granted under the 2008 Plan and shall
not reduce the share reserve; provided that the issuance of such awards shall
comply in all cases with any applicable stock exchange listing
requirements.
If after
December 31, 2009 any shares covered by an award granted under the 2008 Plan or
the Amended and Restated 2000 Equity Incentive Plan, or to which such award
relates, are forfeited, or if an award has expired unexercised or has been
terminated, cancelled or settled in cash, or we reacquire or repurchase unvested
shares, then such shares shall revert to and become available for grant under
the 2008 Plan in the following manner: (x) one (1) share for every one (1) share
that was subject to a outstanding option or stock appreciation right, and
(y) one and nine tenths (1.9) shares for every one (1) share that was
subject to an outstanding restricted stock bonus award, restricted stock unit,
phantom stock unit, performance share bonus award, or performance share
unit. However, shares used by a participant to pay the exercise price
of an option exercise or withholding taxes in respect of any award, shares
subject to a stock appreciation right that are not issued when it is settled in
shares on exercise and shares repurchased on the open market using option
exercise proceeds shall not revert to or become available under the 2008
Plan.
Section 162(m)
Limit. In order that certain stock and cash awards granted
under the 2008 Plan may continue to qualify under Section 162(m) of the Code,
which permits performance-based compensation meeting the requirements
established by the Internal Revenue Service to be excluded from the limitation
on deductibility of compensation in excess of $1 million paid to our CEO
and our other three most highly compensated executive officers at the end of the
year (other than our CFO), the 2008 Plan limits awards that are intended to
comply with Section 162(m) to any participant during any fiscal year to no more
than 1,812,500 shares of common stock subject to options or stock appreciation
rights, no more than 671,296 shares of common stock subject to grants of stock
awards other than option or stock appreciation rights, and no more than
$9,000,000 subject to cash awards in respect of performance-based awards (each
such limit a “Section 162(m) Limit”). However, new participants may
receive a stock award covering up to an additional 1,812,500 shares of common
stock subject to options or stock appreciation rights, and up to an additional
671,296 shares of common stock subject to stock awards other than option or
stock appreciation rights, if such award is in connection with his or her
initial service. Among other things, the 2008 Plan sets out
categories of performance criteria, which are discussed under the heading
“Performance Based Awards” below, that may be used in issuing performance-based
awards and permits the Board of Directors to grant performance-based awards that
will meet the requirements of Section 162(m) in order to permit us to deduct the
full value of any compensation granted to certain specified senior
executives.
Administration of the 2008
Plan. The Board of Directors, the Compensation Committee of
the Board or a committee of officers or directors appointed by the Board
(collectively, the “Administrator”) administers the 2008 Plan. To make grants to
certain of our officers and key employees, the members of the committee
approving such grant must qualify as “non-employee directors” under
Rule 16b-3 of the Securities Exchange Act of 1934, and as “outside
directors” under Section 162(m) of the Code. References to the
Administrator in this proposal include the Board, any committee of the Board and
any directors or officers to whom the Committee properly delegates
authority.
The
Administrator has the authority to perform the following actions:
|
·
|
designate
participants under the 2008 Plan;
|
|
·
|
determine
the type(s), number, terms and conditions of awards, as well as the timing
and manner of grant, subject to the terms of the 2008
Plan;
|
|
·
|
interpret
the 2008 Plan and establish, adopt or revise any rules and procedures to
administer the 2008 Plan;
|
|
·
|
adopt
such sub-plans and/or make such amendments to the terms of stock awards
under the 2008 Plan as necessary or desirable for awards made to
participants outside of the United States;
and
|
|
·
|
make
all other decisions and determinations that may be required under the 2008
Plan.
|
Adjustments Made by the
Administrator under the 2008 Plan. In the event of any change
in the common stock subject to the 2008 Plan or subject to any award by reason
of a merger, consolidation, reorganization, recapitalization, reincorporation,
stock dividend, spinoff, dividend in property other than cash, stock split,
liquidating dividend, extraordinary dividends or distributions, combination of
shares, exchange of shares, change in corporate structure or other similar
transaction, the class(es) and maximum number of securities subject to the 2008
Plan, the ISO Limit, and the Section 162(m) Limit shall be adjusted and then
outstanding awards shall be appropriately adjusted in the class(es) and number
of securities or other property subject to the awards, the price per share of
the securities or other property subject to such awards, and any other affected
terms of such awards. The Administrator shall make such adjustments,
and its determination shall be final, binding and conclusive.
Options. The 2008
Plan provides that options shall have an exercise price that is at least equal
to 100% of the fair market value of our common stock on the date the option is
granted (with the exception of such adjustments as may be required or desirable
under foreign law); provided that the exercise price of an incentive stock
option granted to an employee who holds more than 10% of our voting stock may
not be less than 110% of the fair market value of our common stock on the date
the option is granted. However, we may grant options with exercise
prices equal to less than the fair market value of our common stock on the date
of grant in connection with an acquisition by us of another company, or
otherwise if done in a manner that satisfies the provisions of Section 424 of
the Code. To the extent permitted by law and as determined by the
Administrator, an option holder may exercise an option by payment of the
exercise price in a number of different manners, including (1) in cash or by
check or wire transfer, (2) pursuant to a “same day sale” program, (3) by the
surrender of shares of common stock already owned by the option holder,
(4) through a cashless “net exercise” arrangement (under which the
participant will receive only the net shares after
deduction
of the number of shares with a fair market value equal to the exercise price),
or (5) such other form of consideration permitted by applicable law as
determined by the Administrator. Options awarded under the 2008 Plan
may be granted for terms of up to five (5) years. Unless the option
holder’s option agreement provides otherwise, in the event of the option
holder’s termination of service, the option holder (or in the event of death,
the holder’s beneficiary or successor) will have up to one month in the case of
a voluntary termination, or three months in the case of an involuntary
termination (other than for cause, and six months on account of disability or
twelve months on account of death) to exercise vested options. No
option may be exercised after the expiration of its term.
Restricted Stock Bonuses and
Performance Share Bonuses. Restricted stock bonus awards and
performance share bonus awards are grants of common stock not requiring any
monetary consideration (other than payment of the par value of the shares of
common stock to the extent required by law), but subject to restrictions, as
determined by the Administrator. Generally, unless the participant’s
award agreement provides otherwise, the participant may not sell, transfer, or
otherwise dispose of the shares issued in the participant’s name at the time of
grant until those conditions are met. The vesting of restricted stock
bonus awards will generally be based on the participant’s continuous service;
the vesting of performance share bonus awards will be based on the achievement
of certain performance criteria, as determined by the
Administrator. In the event a participant’s continuous service
terminates or a participant fails to meet service and/or performance criteria,
all unvested shares as of the date of termination automatically will be
reacquired by us at no cost to us.
Stock Appreciation
Rights. The Administrator may grant stock appreciation rights
independently of or in connection with an option grant. The base
price per share of a stock appreciation right shall be at least 100% of the fair
market value of our common stock on the date of grant. However, we
may grant stock appreciation rights with exercise prices equal to less than the
fair market value of our common stock on the date of grant in connection with an
acquisition by us of another company, or otherwise if done in a manner that
satisfies the provisions of Section 424 of the Code. Each stock
appreciation right will entitle a participant upon exercise and redemption to an
amount equal to (a) the excess of (1) the fair market value on the exercise
or redemption date of one share of common stock over (2) the exercise or
base price, times (b) the number of shares of common stock covered by the
stock appreciation right being exercised or redeemed. Payment shall
be made in shares of common stock or in cash, or a combination of both, as
determined by the Administrator. No stock appreciation right will be
exercisable or redeemable after five (5) years from the date of grant, and any
stock appreciation rights granted in connection with an option will
automatically have the same exercise price and associated term until expiration
of the associated option.
Phantom Stock
Units. A phantom stock unit entitles the participant to
receive the value of one share of common stock, redeemable upon terms and
conditions set by the Administrator. Distributions upon redemption of
phantom stock units may be in shares of common stock valued at fair market value
on the date of redemption or in cash, or a combination of both, as determined by
the Administrator.
Restricted Stock Units and
Performance Share Units. The Administrator may also award
restricted stock units or performance share units, both of which entitle the
participant to receive one share of common stock at the time the unit vests. For
restricted stock units, vesting will generally be based on the participant’s
continuous service; for performance share units, vesting will be based on the
achievement of certain performance criteria, as determined by the
Administrator. In the event a participant’s continuous service
terminates or a participant fails to meet the predetermined performance
criteria, all unvested shares of common stock subject to these awards as of the
date of termination will be forfeited.
Performance Based
Awards. In connection with performance-based awards (other
than stock options or stock appreciation rights) that are intended to satisfy
the requirements of Section 162(m), each eligible participant’s stock or cash
award will be based on one or more pre-established performance targets which, in
the discretion of the Administrator, will be based on one or more of the
following objective business criteria: (a) pre-tax income; (b) revenue
or sales; (c) operating income; (d) operating profit; (e) net
earnings; (f) net income; (g) cash flow; (h) earnings per share
or book value per share; (i) return on equity; (j) return on invested
capital or assets; (k) cost reductions or savings or expense management;
(l) funds from operations; (m) improvements in capital structure;
(n) maintenance or improvement of profit margins; (o) market share;
(p) working capital; (q) stock price; (r) consolidated earnings
before any one or more of the following items: interest, taxes, depreciation or
amortization; (s) implementation of our targets, critical processes and/or
projects; (t) gross margins; (u) specified product sales; (v) inventory turns;
(w) distributor, executive distributor and/or preferred customer numbers, (x)
product subscription numbers; or (y) distributor and customer retention
rates. However, the Administrator shall have the discretion to
appropriately adjust its evaluation of
performance
against predetermined targets to account for, among other things, the effects of
currency fluctuations and other extraordinary items.
The
performance targets applicable to such stock or cash awards will be established
in writing by the Administrator. To the extent permitted under
Section 162(m)(4)(C) of the Code, such performance targets may be established
not later than ninety (90) days after the commencement of the period of service
to which the performance targets relate, provided that the outcome is
substantially uncertain at the time the Administrator actually establishes the
performance targets; provided, further, that in no event shall the performance
targets be established after 25% of the period of service (as scheduled in good
faith at the time the performance targets are established) has
elapsed. Unless otherwise permitted under Section 162(m), no
performance-based stock award which is intended to qualify as “qualified
performance-based compensation” will be paid to a participant unless and until
the Administrator makes a certification in writing with respect to the level of
performance attained by us for the performance period to which such performance
award relates.
If our
stockholders approve the amendment and restatement of the 2008 Plan under this
Proposal, in order to assure our continued ability to deduct awards made under
the 2008 Plan in the future, we will be required under Section 162(m) to
seek stockholder approval of certain terms of the 2008 Plan again in
2015. The 2008 Plan also allows our Board or Compensation Committee
to grant Plan awards that do not comply with the Section 162(m)
requirements at any time.
Dividends; Dividend
Equivalents. Any dividends or dividend equivalents provided
with respect to (i) performance share bonus awards and performance share units
and (ii) restricted stock bonus awards, phantom stock units and restricted stock
units that vest based on the attainment of performance targets will be subject
to the same vesting schedule as the underlying award, including continued
employment and achievement of the performance targets.
No Repricing. The
2008 Plan prohibits the repricing of stock options or stock appreciation rights
awarded under the 2008 Plan, which includes reduction in exercise price, base
price, or replacement of underwater options or stock appreciation rights with
new options or stock appreciation right, with any other form of equity award or
with cash.
Forfeiture of
Awards. To the extent set forth in an award agreement and in
the discretion of the Administrator, in the event that a participant has engaged
in “harmful conduct” (defined below) at any time during participant’s service
with us or following termination, or participant’s service is terminated for
cause, all outstanding stock awards may be forfeited in the discretion of the
Administrator. In addition, the Administrator retains the discretion
to require the participant to repay to us the amount of certain gains that the
participant realized from stock awards granted under the 2008 Plan, or forfeit
and return to us unvested shares. “Harmful conduct” as defined in the
2008 Plan means a breach in any material respect of an agreement not to reveal
confidential information regarding our business operations, or to refrain from
solicitation of our customers, suppliers or employees.
Transferability. Options
and stock appreciation rights granted under the 2008 Plan will not be
transferable other than by will or by the laws of descent and distribution,
unless the Administrator permits transfers for estate planning purposes to
certain family members of the participant, family trusts, or other family-owned
entities under such terms and conditions determined by the
Administrator.
Change of
Control. In the event of a change of control, as defined in
the 2008 Plan, other than dissolution, the Administrator may provide for the (1)
assumption or continuation of any stock awards outstanding under the 2008 Plan,
(2) issuance of substitute awards that will substantially preserve the terms of
any awards, (3) payment in exchange for the cancellation or redemption of an
award or (4) any combination of the foregoing. Furthermore, at
any time the Administrator may provide for the acceleration of exercisability
and/or vesting of an award.
Acceleration of Vesting on Death or
Disability. In the case of death or disability of an employee,
or death of a member of the Board, any unvested awards (excluding
performance-based awards) shall immediately become vested and exercisable (as
applicable) in full.
Section 409A. The
American Jobs Creation Act of 2004 introduced Section 409A of the Code covering
certain nonqualified deferred compensation arrangements. Section 409A
generally establishes rules that must be followed with respect to covered
deferred compensation arrangements in order to avoid the imposition of an
additional 20% tax (plus interest) upon the service provider who is entitled to
receive the deferred compensation. Certain awards that may
be
granted
under the 2008 Plan may constitute “deferred compensation” within the meaning of
and subject to Section 409A of the Code. The 2008 Plan is intended to
be interpreted and operated in accordance with Section 409A, including any
regulations or guidance issued by the Treasury Department, and contains a number
of provisions intended to avoid the imposition of additional taxes on the 2008
Plan participants under Section 409A of the Code. The Administrator
may amend the 2008 Plan and outstanding awards to preserve the intended benefits
of awards granted under the 2008 Plan and to avoid the imposition of an
additional tax under Section 409A. In addition, no award under the
2008 Plan can be granted, deferred, paid out or modified under the 2008 Plan in
a manner that would result in the imposition of an additional tax under Section
409A on a participant. The Administrator may also permit awardees
whom it selects to defer compensation payable pursuant to the terms of an award
under the 2008 Plan. Any such deferral arrangement will be in writing
and must comply with Section 409A of the Code.
Amendment or
Termination. The Administrator may amend, suspend, or
terminate the 2008 Plan in any respect at any time, subject to stockholder
approval where such approval is required by applicable law or stock exchange
rules. The Administrator may not amend the 2008 Plan to permit the
repricing of options or stock appreciation rights or to grant optionholders or
holders of stock appreciation rights additional rights to transfer their awards
without prior stockholder approval. Further, no amendment to the 2008
Plan may materially impair any of the rights of a participant under any awards
previously granted without his or her written consent.
Term. The Board
adopted the 2008 Plan, as amended and restated, on March 26, 2010, and the
amended and restated 2008 Plan will become effective on the date it is approved
by our stockholders. Unless earlier terminated by the Administrator,
the 2008 Plan will expire on the tenth anniversary of the date our stockholders
approve the amendment and restatement of the 2008 Plan at the Annual Meeting or,
if later, on the date any subsequent amendment that adds shares to the Plan is
approved by stockholders. No awards will be granted under the 2008
Plan after that date. If the amended and restated 2008 Plan is not
approved by our stockholders, the 2008 Plan as currently in effect will continue
in accordance with its terms. The 2008 Plan will expire on May 1,
2018 if the amended and restated 2008 Plan is not approved by our
stockholders,
Tax
Status of 2008 Plan Awards
The
advice set forth below was not intended or written to be used, and it cannot be
used, by any taxpayer for the purpose of avoiding United States federal tax
penalties that may be imposed on the taxpayer. The advice was written
to support the promotion or marketing of the transaction(s) or matter(s)
addressed herein. Each taxpayer should seek advice based upon the
taxpayer’s particular circumstances from an independent tax
advisor. The foregoing language is intended to satisfy the
requirements under the regulations in Section 10.35 of Circular
230.
The
following discussion of the U.S. federal income tax status of awards under the
2008 Plan is based on current U.S. federal tax laws and regulations and does not
purport to be a complete description of the U.S. federal income tax
laws. Participants may also be subject to certain state and local
taxes or may be subject to taxes imposed by countries other than the U.S., none
of which are described below.
Nonqualified Stock Options and
Incentive Stock Options. No income will be realized by an
optionholder, and no deduction will be taken by us, upon grant of a nonqualified
stock option. Upon exercise of a nonqualified stock option, the
optionholder will recognize ordinary income as well as social security tax on
the amount equal to the excess, if any, of the fair market value of the
underlying stock over the option exercise price (the “spread”) at the time of
exercise. The spread will be deductible by us for federal income tax
purposes, subject to the possible limitations on deductibility under Sections
162(m) and 280G of the Code of compensation paid to executives designated in
those sections. The optionholder’s tax basis in the underlying shares
acquired by exercise of a nonqualified stock option will equal the exercise
price plus the amount taxable as compensation to the
optionholder. Upon sale of the shares received by the optionholder
upon exercise of the nonqualified stock option, any gain or loss is generally
long term or short term capital gain or loss, depending on the length of the
period that the optionholder holds the shares. The optionholder’s
holding period for shares acquired pursuant to the exercise of a nonqualified
stock option will begin on the date of exercise of such
option. Additional considerations may be applicable to individuals
who are subject to the reporting and short-swing profit provisions under
Section 16 of the Exchange Act.
The
payment by an optionholder of the exercise price, in full or in part, with
previously acquired shares of common stock will not affect the tax treatment of
the exercise described above. No gain or loss generally will be
recognized by the optionholder upon the surrender of the previously acquired
shares to us, and shares received by the
optionholder,
equal in number to the previously surrendered shares, will have the same tax
basis as the shares surrendered to us and will have a holding period that
includes the holding period of the shares surrendered. The value of
shares received by the optionholder in excess of the number of shares
surrendered to us will be taxable to the optionholder. Such
additional shares will have a tax basis equal to the fair market value of such
additional shares as of the date ordinary income is recognized, and will have a
holding period that begins on the date ordinary income is
recognized.
The Code
requires that, for incentive stock option treatment, shares acquired through
exercise of an incentive stock option cannot be disposed of before two years
from the date of grant and one year from the date of exercise. Incentive stock
option holders will generally incur no federal income tax liability at the time
of grant or upon exercise of such options. However, the spread will
be an “item of tax preference” which may give rise to “alternative minimum tax”
liability at the time of exercise. If the optionholder does not
dispose of the shares before two years from the date of grant and one year from
the date of exercise, the difference between the exercise price and the amount
realized upon disposition of the shares will constitute long term capital gain
or loss, as the case may be. Assuming both the holding periods are
satisfied, no deduction will be allowable to us for federal income tax purposes
in connection with the grant or exercise of the option. If, within
two years of the date of grant or within one year from the date of exercise, the
holder of shares acquired through the exercise of an incentive stock option
disposes of such shares, the optionholder will generally realize ordinary
taxable compensation at the time of such disposition equal to the difference
between the exercise price and the lesser of the fair market value of the stock
on the date of initial exercise or the amount realized on the subsequent
disposition, and such amount will generally be deductible by us for federal
income tax purposes, subject to the possible limitations on deductibility under
Sections 162(m) and 280G of the Code for compensation paid to executives
designated in those sections.
Other
Awards. Generally, we will be entitled to a tax deduction
in connection with an award under the 2008 Plan in an amount equal to the
ordinary income realized by the participant at the time the participant
recognizes such income. Participants typically are subject to income
tax and recognize such tax at the time that an award is exercised, vests or
becomes non-forfeitable, unless the award provides for a further
deferral.
Accounting
Treatment
We will
recognize compensation expense in connection with awards granted under the 2008
Plan as required under the applicable accounting standards, including FASB
Accounting Standards Codification Topic 718 (formerly referred to as FAS
123(R)). We currently amortize compensation expense associated with
equity awards over an award’s requisite service period and established fair
value of equity in accordance with applicable accounting
standards.
New
Plan Benefits
Because
the grant of awards under the 2008 Plan is within the discretion of the
Administrator, the Company cannot determine the dollar value or number of shares
of common stock that will in the future be received by or allocated to any
participant in the 2008 Plan. Accordingly, in lieu of providing
information regarding benefits that will be received under the 2008 Plan, the
following table provides information concerning the benefits that were received
by the following persons and groups during 2009: each named executive officer;
all current executive officers, as a group; all current directors who are not
executive officers, as a group; and all employees who are not executive
officers, as a group.
|
|
Options
|
|
|
Restricted
Stock
|
|
Name
and Position
|
|
Average
Exercise
Price
|
|
|
Number
(#)
|
|
|
Dollar
Value ($)
|
|
|
Number (#)
|
|
Robert
O. Carr, CEO and Chairman
|
|
$ |
8.88 |
|
|
|
1,395,000 |
|
|
$ |
8.88 |
|
|
|
265,000 |
|
Robert
H.B Baldwin, Jr., President CFO
|
|
$ |
8.88 |
|
|
|
95,300 |
|
|
$ |
8.88 |
|
|
|
26,000 |
|
Charles
H.N. Kallenbach, GC, Chief Legal Officer and Secretary
|
|
$ |
8.88 |
|
|
|
40,000 |
|
|
$ |
8.88 |
|
|
|
15,000 |
|
Sanford
C. Brown, Chief Sales Officer
|
|
$ |
8.88 |
|
|
|
65,000 |
|
|
$ |
8.88 |
|
|
|
15,000 |
|
Steven
M. Elefant, Chief Information Officer
|
|
$ |
10.05 |
|
|
|
70,000 |
|
|
|
— |
|
|
|
— |
|
All
current executive officers, as a group
|
|
$ |
8.93 |
|
|
|
1,665,300 |
|
|
$ |
8.88 |
|
|
|
321,000 |
|
All
current directors who are not executive officers, as a
group
|
|
$ |
10.52 |
|
|
|
60,000 |
|
|
|
— |
|
|
|
— |
|
All
current employees who are not executive officers, as a
group
|
|
$ |
9.59 |
|
|
|
930,875 |
|
|
$ |
10.97 |
|
|
|
41,360 |
|
On April
19, 2010, the closing price of our Common Stock, as reported on the New York
Stock Exchange, was $18.68 per share.
If a
quorum is present, the affirmative vote of a majority of the shares of Common
Stock present or represented by valid proxies at the Annual Meeting and entitled
to vote on the matter is required for the amendment and restatement of the 2008
Plan.
THE
BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS
VOTE
FOR AMENDMENT AND RESTATEMENT OF THE 2008 PLAN.
PROPOSAL
NO. 3.
RATIFICATION
OF APPOINTMENT OF INDEPENDENT
REGISTERED
PUBLIC ACCOUNTING FIRM
The Audit
Committee of the Board has selected Deloitte & Touche LLP to continue to
serve as our independent registered public accounting firm for the fiscal year
ending December 31, 2010. We are asking our stockholders to ratify
this appointment. If ratification by the stockholders of the
appointment of Deloitte & Touche LLP as our independent registered public
accounting firm is not obtained, the Audit Committee will reconsider this
appointment. Even if the appointment is ratified, the Audit Committee, in its
discretion, may appoint 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 our best interests and in the best interests of our
stockholders.
Representatives
of Deloitte & Touche LLP are expected to be present at the Annual
Meeting. They will
have the opportunity to make a statement if they desire to do so and are also
expected to be available to respond to appropriate
questions
from stockholders. See – “”Principal Accountant Fees and Services”
for the aggregate audit fees, audit-related fees, tax fees and all other fees
paid by us to Deloitte & Touche in 2008 and 2009.
If a
quorum is present, the affirmative vote of the holders of a majority of the
shares of Common Stock present or represented by valid proxies at the Annual
Meeting and entitled to vote on the matter is required for approval of
Proposal No. 3.
THE
BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR RATIFICATION OF
THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY’S
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL
YEAR
ENDING
DECEMBER 31, 2010
REPORT
OF THE AUDIT COMMITTEE
The
primary responsibilities of the Audit Committee are to oversee our financial
reporting process on behalf of the Board of Directors, to review our financial
statements, appoint, review and approve fee arrangements with our independent
accountants, and to report the results of the Audit Committee’s activities to
the Board of Directors.
Our
management has the primary responsibility for the financial statements and
financial reporting process, including the systems of internal
control. Our independent accountants, Deloitte & Touche LLP, are
responsible for auditing those financial statements in accordance with generally
accepted accounting principles and issuing a report thereon. The
Audit Committee has reviewed and discussed with management and the independent
accountants our audited financial statements as of and for the year ended
December 31, 2009.
The Audit
Committee has discussed with the independent accountants the matters required to
be discussed by the Statement on Auditing Standards No. 61, Codification of
Statements on Auditing Standards, as amended, by the Auditing Standards Board of
the American Institute of Certified Public Accountants and adopted by the Public
Company Accounting Oversight Board (“PCAOB”). The Audit Committee has
received and reviewed the written disclosures and the letter from the
independent accountants required by PCAOB Ethics and Independence Rule 3526,
Communication with Audit Committees Concerning Independence, and has discussed
with the independent accountants their independence. In addition, the
Audit Committee has considered the compatibility of non-audit services with the
independent accountant’s independence.
Based on
the reviews and discussions referred to above, the Audit Committee recommended
to the Board of Directors that the audited financial statements, referred to
above, be included in our Annual Report on Form 10-K for the year ended
December 31, 2009 for filing with the SEC.
This
report has been furnished by the members of the Audit Committee:
George F.
Raymond, Chairman
Marc J.
Ostro, Ph.D.
Jonathan
J. Palmer
EXECUTIVE
OFFICERS OF THE REGISTRANT
The following table sets forth
information regarding our executive officers as of December 31,
2009.
|
|
|
|
|
Robert
O. Carr
|
|
64
|
|
Chairman
of the Board and Chief Executive Officer
|
Robert
H.B. Baldwin, Jr.
|
|
55
|
|
President
and Chief Financial Officer
|
Sanford
C. Brown
|
|
38
|
|
Chief
Sales Officer
|
Charles
H.N. Kallenbach
|
|
46
|
|
General
Counsel, Chief Legal Officer and Secretary
|
Steven
M. Elefant
|
|
51
|
|
Chief
Information Officer
|
Robert O.
Carr, age 64, has
served as Chairman of our Board of Directors and as our Chief Executive Officer
since our inception in October 2000. Mr. Carr had been
Chairman of the Members’ Committee and Chief Executive Officer of our
predecessor, Heartland Payment Systems LLC, from March 1997 to
October 2000 when the merger of Heartland Payment Systems LLC into our
Company became effective. Mr. Carr co-founded Heartland Payment
Systems LLC with Heartland Bank in March 1997. Prior to founding
Heartland, Mr. Carr worked in the payments and software development industries
for 25 years. Mr. Carr received a B.S. and M.S. in Mathematics
and Computer Science from the University of Illinois.
Robert H.B.
Baldwin, Jr., age 55, has served as our Chief Financial Officer since our
inception in October 2000 and has served as our President since October
2007. Mr. Baldwin had been Chief Financial Officer and Secretary of our
predecessor, Heartland Payment Systems LLC, from May 2000 to
October 2000. From July 1998 to May 2000,
Mr. Baldwin served as the Chief Financial Officer of COMFORCE Corp., a
publicly-traded staffing company. From 1985 through July 1998,
Mr. Baldwin was a Managing Director in Smith Barney’s Financial
Institutions advisory business and from 1980 to 1985, he was a Vice President
with Citicorp. Mr. Baldwin received a B.A. in History from
Princeton University and an M.B.A. from Stanford University.
Sanford C.
Brown, age 38, has served as our Chief Sales Officer since January 2,
2006. Prior to accepting this role, Mr. Brown served as our Senior Vice
President of Sales Management and was responsible for our sales infrastructure,
sales policy, and formulating business development strategies. From late
2000 to 2003, Mr. Brown, served as our Senior Vice President of Hospitality
Marketing and was responsible for strategies to develop and acquire
relationships with trade associations nationally. Mr. Brown has served in
a variety of other sales and sales management positions since joining our
predecessor in 1997, including District, Division, Regional and Vice President
positions. Mr. Brown attended Northern Arizona University where he
studied Marketing.
Charles H.N.
Kallenbach, age 46, has served as our General Counsel and Chief Legal
Officer since January 2, 2007 and our Secretary since January 17,
2007. From February 2004 through December 2006, Mr. Kallenbach was
senior Vice President, Legal and Regulatory and Secretary for SunCom Wireless
Holdings Inc., an NYSE-listed wireless communications company that was acquired
by T-Mobile. From September 2001 to January 2004, Mr. Kallenbach was
Vice President and General Counsel for Eureka Broadband
Corporation. From January 2000 to September 2001, he was Vice
President, General Counsel and Secretary, as well as Vice President of Human
Resources for 2nd
Century Communications. From April 1996 to January 2000, Mr.
Kallenbach was Vice President Legal and Regulatory Affairs for e.spire
Communications, Inc. Prior to that, he practiced law with Jones Day
and Swidler & Berlin from November 1990 to April 1996. He also
served as Legislative Assistant to United States Senator Arlen Specter from June
1985 to July 1987. Mr. Kallenbach holds a Bachelor of Arts from the
University of Pennsylvania and a Juris Doctor from the New York University
School of Law.
Steven M.
Elefant, age 51, has served as our Chief Information Officer since
August 2009. From January 2009 to August 2009, Mr. Elefant
served as our executive director of end-to-end encryption focusing on developing
point-of-sale products and executing our E3™ security platform that encrypts
cardholder data from the point of swipe/entry at a merchant location through the
payments processing network and to the card brands. From November
2008 to January 2009, Mr. Elefant served as a consultant to us to bring our
Software as a Service (SaaS) applications to our merchant base. Mr.
Elefant was the founder of several Silicon Valley startup and venture capital
firms. He is co-founder and served as the chief executive officer from 1988 to
1996 and Chairman in 1997of ICVerify, Inc., a leader in payments processing
integration of PC-based POS software. Mr. Elefant has been an active member of
the U.S. Secret Service
Electronic
Crimes Task Force for more than six years, as well as the Federal Bureau of
Investigation’s Infragard Electronic Crimes Task Force for the past five
years. Mr. Elefant received a Bachelor of Arts, Political Science
from the University of California, Los Angeles (UCLA).
EXECUTIVE
COMPENSATION
COMPENSATION
DISCUSSION AND ANALYSIS
This
compensation discussion and analysis provides the principles and objectives
underlying our executive compensation policies and the most significant factors
relevant to an analysis of these policies and provides information
about the fiscal year 2009 compensation programs for our named executive
officers.
Compensation
Objectives
The
primary objective of our compensation program is to provide our named executive
officers with strong incentives to drive our growth and profitability, while
achieving a successful balance between near-term performance and our long-term
success. The Board of Directors and the Compensation Committee
observe that while our stock price is not controllable by our management, an
incentive structure that encourages superior short-term performance (relative to
the industry, and the overall equity market) while also focusing attention on
investing for long-term growth is most likely to result in our stock
outperforming the broad equity markets, such as the Dow Jones Industrial Average
and the S&P 500 over both the near- and
long-term. Ultimately, it is that outperformance of our stock
(measured as the total return, inclusive of dividends) that is most important to
our stockholders and the compensation objectives are thus intended to focus
management on that outcome.
The
compensation program adopted by the Board of Directors and the Compensation
Committee is designed to align individual compensation with our growth and
profitability, our near-term performance relative to our industry, our long term
success in creating stockholder value and the market for our executive
talent. This is done using a mix of “at risk” annual short-term
incentive cash compensation, balanced by performance-based long-term equity
incentives.
The
factors we consider in setting executive compensation levels are:
|
1.
|
Performance
(short-term and long-term results against our budgets and established
performance objectives);
|
|
2.
|
Overall
cost (relative to budget and our overall financial
position);
|
|
3.
|
Relative
internal value of positions;
|
|
5.
|
Regulatory
guidelines (for example, Internal Revenue Code Section 162(m));
and
|
|
6.
|
Compensation
data regarding an executive’s historical compensation compared to
executives’ compensation at selected comparable
companies.
|
Elements
of Compensation
The
elements of our compensation program include the following:
|
·
|
annual
incentive cash compensation;
|
|
·
|
stock
incentive programs (stock options, restricted stock units, etc.);
and
|
|
·
|
severance
arrangements.
|
We choose
to pay each element, in large part, for the following reasons:
|
·
|
Wages: Salary
provides guaranteed cash compensation to secure the services of our
executive talent.
|
|
·
|
Annual Incentive Cash
Compensation: Our named executive officers are eligible
to receive annual incentive cash compensation in order to reward and
incentivize our short-term financial and operating
performance. Such rewards may be unrelated to share price
performance for the applicable period (either absolute or relative),
because the equity markets’ performance on a short-term basis can diverge
significantly from our actual financial and operating
performance.
|
|
·
|
Stock Incentive
Programs: Providing named executive officers with the
opportunity to create significant wealth through stock ownership is viewed
as a powerful tool to attract and retain highly qualified executives, to
achieve strong long-term stock price performance and to help align our
executives’ interests with our stockholders’
interests.
|
|
·
|
Severance: Most
of our named executive officers were provided with severance packages in
consideration for delivering to us a non-competition/non-solicitation
agreement. We believe the severance package enhances the
enforceability of the non-competition/non-solicitation
agreement. The Board of Directors believes that such agreements
serve to reduce the likelihood that competitors will seek to hire our
named executive officers who have significant knowledge about our
operations and short- and long-term strategies. New named
executive officers may be offered a severance package to the extent that
it is a necessary part of the employment offer, recognizing that the new
executive is joining a team with members who have such a
package. In addition, we believe the severance arrangements
provide a valuable retention tool for our named executive
officers.
|
|
·
|
Other
Benefits: Named executive officers do not participate in
any retirement or pension plan other than our standard 401(k) plan because
participation in the long-term appreciation in the value of our stock is
expected to provide significant retirement value if we
perform. Named executive officers also participate in various
medical, dental, life, and disability programs offered by us to
employees at large.
|
Determining
Executive Compensation
It is the
responsibility of the Compensation Committee to administer our compensation
programs and practices to ensure that they are in line with our compensation
objectives. 2009 was a difficult year for our Company. The
ongoing global recession represented a difficult business environment for
us. The processing system intrusion, which was discovered and
publicly announced in early 2009, as well as the costs of defending our Company
in various intrusion-related matters, negatively impacted our 2009 financial
performance and raised numerous and significant unanticipated challenges for our
executive officers. Furthermore, and compounding these issues, Mr.
Carr, our Chief Executive Officer, was also forced in a margin call to dispose
of all of his shares of our common stock in 2009. Our compensation
decisions for 2009 were all determined against this backdrop of surprising and
difficult business conditions, and, therefore, in many instances, represented a
diversion from past years’ practices. Due to these adverse
conditions, the price of our common stock began the year on January 2, 2009 at
$18.00 per share, but fell to a low of $3.78 per share on March 9,
2009. By the end of 2009, however, based largely on the efforts of
our named executive officers responding to the significant challenges posed by
these circumstances, our stock price had recovered to $13.13 per
share by December 31, 2009. Through the course of the year, our named
executive officers contributed substantially to the accelerated development of
our end-to-end encryption technology, or E3, made significant strides in
resolving claims and litigation associated with the intrusion (including
entering into settlements on terms deemed acceptable and attractive to us with
American Express and with respect to cardholder class action claims, and
securing the dismissal of the securities class action claim that had been
asserted against us), the launch of our aggressive communication effort with our
merchant clients to mitigate the impact of intrusion-related attrition, the
successful reaffirmation of our processing system as compliant with the Payment
Card Industry Data Security Standard (“PCI DSS”), and the formation and growth
of the Payments Processing Information Sharing Council (which fosters
information sharing on data security within the payments processing
community).
For the
fiscal year 2009, the Compensation Committee engaged the services of an
independent compensation consulting firm, Frederic W. Cook & Co., Inc. (“FW
Cook”) to review our compensation structure. FW Cook reports to the
Compensation Committee and does not perform any other work for the Board of
Directors or our Company besides advising on executive compensation
matters. In light of the challenges facing us resulting from the
previously announced intrusion of our processing system, the current
macro-economic and prevailing market conditions and the significant reduction of
equity ownership suffered by our Chief Executive Officer as a result of the
previously announced forced sales of all of his shares of our common stock
through margin calls by his lender, the Compensation Committee directed FW Cook
to review and recommend changes to our compensation structure and philosophy in
2009. The results of this review and changes implemented at FW Cook’s
recommendation are described throughout this Compensation Discussion and
Analysis.
The
Compensation Committee, with FW Cook, developed a peer group of companies,
identifying other publicly-traded U.S.-based companies in the “Software and
Services” S&P GICS group with revenue sizes between one-quarter and four
time’s our revenues. Based on these objective factors, the peer group
of companies used for fiscal year 2009 market comparisons was comprised of the
following companies:
ACI
Worldwide
|
Acxiom
|
Convergys
|
|
|
|
CSG
Systems
|
Euronet
Worldwide
|
Genpact
|
|
|
|
Global
Cash Access
|
Global
Payments
|
GSI
Commerce
|
|
|
|
Jack
Henry
|
Mantech
International
|
Maximus
|
|
|
|
Micros
Systems
|
Moneygram
International
|
Sykes
Enterprises
|
|
|
|
Total
Systems Services
|
Verifone
Holdings
|
Wright
Express
|
|
|
|
From 2008
to 2009, FW Cook added Genpact, GSI Commerce, Micros Systems and Total Systems
Services to our peer group and eliminated eFunds, Cybersource, DealerTrak
Holdings, TNS and Ultimate Software from our peer group because these companies
no longer met the selection criteria for this group. FW Cook also
developed a secondary peer group which was used for measuring the range of
possible equity awards granted to our Chief Executive Officer. This
secondary peer group is described later in this Compensation Discussion and
Analysis.
While we
do not directly tie our named executive officers’ compensation to the
compensation of our peers’ executives, FW Cook’s comparisons and analysis served
as a reference point both to examine compensation for 2009 and on which to base
changes to compensation figures and programs in 2009. As noted above,
FW Cook also reviewed and assisted us in changing our compensation philosophy
with respect to our executive officers. As part of this review, FW
Cook examined the overall compensation packages of each of our named executive
officers in order to identify long-term incentive alternatives to motivate and
retain each of our named executive officers and to increase their salaries to
competitive levels. A major reason for these recommendations was that
the substantial decline in our stock price in late 2008 through mid 2009 due to
macro-economic conditions and the processing system intrusion, had the effect of
reducing and/or eliminating the value of our named executive officers’ equity
awards.
Historically,
the high value of existing equity ownership of our named executive officers was
the primary reason that their cash compensation was set below the median of
their counterparts of our peer group, but in consultation with FW Cook, we
decided to change the compensation philosophy to reflect a more balanced and
market-driven approach. This change required higher salaries and
bonus opportunities due to pre-existing shortfalls. Concurrent with
this change in approach was a desire to provide sufficient equity awards to
retain and incentivize the named executive officers, who were and are viewed as
critical to our turnaround. The Compensation Committee considered FW
Cook’s suggestions for each of the named executive officers and (other than with
respect to our Chief Executive Officer) discussed them with our Chief Executive
Officer. The recommendations for the Chief Executive Officer were
developed by the Compensation Committee during executive sessions with FW
Cook. Following these changes to the compensation of our named
executive officers resulting from these discussions, based on data prepared by
FW Cook, our named executive officers’ total cash compensation, generally fell
around the median, but no higher
than the
75th
percentile compared to executive officers of our peer group companies with
similar job titles and/or job responsibilities.
Heartland
Payment Systems
|
|
Peer
Group
|
|
Percentage
|
Executive
|
2009
Actual
Wages
|
2009
Target
Bonus
|
2009
Target
Cash
Compens-
ation
|
|
Median
Salary
|
Median
Target
Bonus
|
Target
Cash
Compen-
sation
|
|
Heartland
Payment
Systems
Executives’
2009
Target
Compensation
Above/(Below)
the
Median
|
Robert
O. Carr
|
$715,000
|
$715,000
|
$1,430,000
|
|
$646,000
|
100%
|
$1,254,000
|
|
12.3%
|
Robert
H.B. Baldwin, Jr.
|
$429,982
|
$214,991
|
$644,973
|
|
$428,000
|
66%
|
$707,000
|
|
(9.6%)%
|
Charles
H.N. Kallenbach
|
$350,000
|
$175,000
|
$525,000
|
|
$325,000
|
54%
|
$518,000
|
|
1.3%
|
Sanford
C. Brown
|
$368,960
|
(a)
|
$368,960
|
|
$342,000
|
58%
|
$571,000
|
|
(54.8)%
|
Steven
M. Elefant
|
$195,785
|
$195,785
|
$391,570
|
|
(b)
|
(b)
|
(b)
|
|
(b)
|
(a) Mr.
Brown was not eligible for a bonus as his entire compensation consisted of wages
in 2009.
(b) Not
included in 2009 study.
The
following are the elements of 2009 compensation as set by the Compensation
Committee:
Wages: Wages for
our named executive officers are generally based on the executive’s specific
areas of accountability as well as market competitiveness and budget
considerations. Robert O. Carr, our Chairman and Chief Executive
Officer, and Robert H.B. Baldwin, Jr., our President and Chief Financial
Officer, are each accountable for the financial performance of our entire
Company. Charles H.N. Kallenbach, our General Counsel, Chief Legal
Officer and Secretary, is accountable for our compliance with regulatory
requirements and legal affairs. Sanford C. Brown, our Chief Sales
Officer, is accountable for our sales and sales force. Steven M.
Elefant, our Chief Information Officer, is accountable for our product
offerings, in particular, the development of E3.
In
2009, we elected to convert Mr. Brown from a commissions-based compensation
structure to a wage-based compensation structure. This change was made in part,
to incent Mr. Brown in the face of negative macroeconomic and intrusion-related
impacts on the sales-related measures that had previously been used to establish
his commission-based compensation. If these factors improve, we may
consider returning Mr. Brown to a commission-based compensation structure,
however, no such determinations have been made at this time.
Executive
officer wages are set at levels that are proportionately higher than our other
managers to recognize their greater role in our success and additional roles and
managerial responsibilities. Our Chief Executive Officer, Robert O.
Carr, annually reviews the responsibility and performance of our named executive
officers and also recommends the wages and annual cash bonuses for our named
executive officers, except for himself, to the Compensation
Committee. The Compensation Committee reviews those recommendations
and, with any modifications it considers appropriate, approves the wages and
annual cash bonuses. The Compensation Committee independently
assesses the responsibility and performance of our Chief Executive Officer and
sets his wages and annual cash bonus. With the forced sale of all of Mr. Carr’s
equity holdings in our Company and as noted above, given the change in
philosophy to provide a more market-driven and balanced cash compensation
program to executives, Mr. Carr’s compensation was changed to provide an
additional cash opportunity between the median and the 75th
percentile.
As part
of the shift in compensation philosophy to provide our officers with a
market-driven mix of cash compensation, in 2009 we continued the process, which
began in 2008, of raising wages for certain of our named executive officers in
order to bring their cash compensation in line with the median of cash
compensation of executive officers of our peer group companies with similar
titles and job responsibilities. The actual amount of the increase
for our other named executive officers was determined in the discretion of the
Compensation Committee, considering various other factors, including
affordability within our budgets and business plans, an executive’s experience
and responsibilities, individual performance evaluations, and our Chief
Executive Officer’s recommendations (except for his own base salary which was
determined in closed sessions between the Compensation Committee and the
Compensation Committee’s advisors, FW Cook). For the 2009 fiscal
year, the Compensation Committee approved wage increases for our named executive
officers as set forth in the table below:
Annual
Wages
Executive
|
2008
Actual
Wages
|
2009
Actual
Wages
|
2009
Percent
Increase
|
Robert
O. Carr
|
$450,000
|
$715,000
|
58.9%
|
Robert
H.B. Baldwin, Jr.
|
$350,000
|
$429,982
|
22.9%
|
Charles
H.N. Kallenbach
|
$250,000
|
$350,000
|
40.0%
|
Sanford
C. Brown
|
$346,405
|
$368,960
|
6.5%
|
Steven
M. Elefant
|
(a)
|
$195,785
|
----
|
(a)
Mr. Elefant became our Chief Information Officer in January,
2009. His annualized base salary is $200,000.
Annual Incentive Cash
Compensation: We believe that some portion of annual cash
compensation for our named executive officers should be “at risk,” i.e.
contingent upon successful company and/or individual
performance. Therefore, annual incentive cash compensation for named
executive officers is tied to overall company performance, extraordinary
individual performance, or both. For Messrs. Baldwin and Kallenbach,
the target bonus is set at 50% of their annual wages, and the actual pay-out is
determined in the discretion of our Chief Executive Officer and the Compensation
Committee based on our financial operating performance and/or the executive’s
individual results. Our Chief Executive Officer’s target bonus is set
at 100% of his annual wages and the payout is determined by the Compensation
Committee based on our financial operating performance and/or our Chief
Executive Officer’s individual results.
Mr.
Elefant’s bonus for 2009 was set at approximately 100% of his annual wages
pursuant to a contractual agreement between Mr. Elefant and us entered into at
the time Mr. Elefant’s employment commenced. In connection with his
shift from commission-based wage-based compensation, Mr. Brown only received
wages and was not eligible for annual incentive cash compensation in
2009.
In
determining bonus awards for our executives, our Chief Executive Officer and the
Compensation Committee will typically review various financial performance
measurements in relation to the applicable annual budget for such
measurements. Specific measurements used to examine performance may
include (i) revenues, (ii) expenses, (iii) operating income and (iv) net
income. This review is performed with reference to the applicable
budget or budgets for each executive – i.e., the executive’s
individual budget, the budget for the executive’s particular business unit, the
budget for the business unit or units that report to the executive and/or our
Company-wide budget. While specific targets are not set for these
performance measures, the Chief Executive Officer and the Compensation Committee
will typically require actual performance for a fiscal year to meet budget for
the measurements listed above in order to pay bonuses at target
levels.
Additionally,
when determining executive bonuses, our Chief Executive Officer and the
Compensation Committee also consider individual factors, such as an executive’s
performance reviews, sales results, individual contributions towards meeting
collective performance goals, as well as more subjective factors such as
exhibited leadership, client relationship development, internal development,
effectiveness at mitigating adverse developments and macro-economic and
prevailing market factors. Ultimately, the amount of an executive’s
bonus (and whether the executive receives a bonus for a particular fiscal year)
is determined in the discretion of the Chief Executive Officer, subject to final
determination by the Compensation Committee, and, with respect to the Chief
Executive Officer’s bonus, is determined in the discretion of the Compensation
Committee. Exceptional performance may result in payment of an annual
bonus to an executive that exceeds the executive’s target.
Historically,
the Board of Directors has tried to use compensation to recognize the critical
role that the operating budget, and our performance relative to that budget,
plays. Prior to 2009, the Board of Directors, in its review of the
annual expense budget, expected to have good visibility as to our profitability
during each coming year, and analyzed those results against its own, and the
equity market’s, expectations for that profit performance. Then,
after a year was completed, if results fell short of those budgeted levels,
generally, the variable cash compensation element would likely have been
relatively modest, because a significant bonus would have been paid only if
quantifiably superior cost management allowed us to exceed our budgeted
results.
However,
at the beginning of 2009, when the bonus plan budgets were set, the then current
macro-economic conditions and the expenses incurred in connection with, and the
costs surrounding, the processing system intrusion
introduced
exogenous factors that had and were expected to have a significant impact on our
profitability. We did not believe that it was possible to pay annual
incentive cash compensation using predominantly an objective goal setting
structure as in years past. Therefore, while the Chief Executive
Officer and the Compensation Committee (as appropriate) set out to base 2009
incentive compensation payments in part, on relevant performance within budget
and profitability factors and performance measurements, the Chief Executive
Officer and the Compensation Committee also decided to place more emphasis on
subjective criteria such as exhibited leadership, client relationship
development, internal development, and effectiveness at mitigating adverse
developments, macro-economic conditions and prevailing market
factors. Some of these factors are more difficult to quantify, but
all were deemed critical to our turnaround and future success.
The
Compensation Committee also reviewed Mr. Carr’s and Mr. Baldwin’s 2009 incentive
compensation in light of our Company-wide budgets and performance measures
including Company-wide revenues, expenses, operating income and net-income, and
reviewed Mr. Kallenbach’s 2009 incentive compensation in light of the budget for
our legal department, including litigation and transaction expenses and outcomes
(including intrusion related litigation management and outcomes) for the
year. As explained above, Mr. Brown was not eligible for an incentive
bonus award for 2009 and Mr. Elefant’s bonus was negotiated and contractually
established for 2009 at the time of his hire because it was necessary have Mr.
Elefant commence employment with us as soon as possible in light of his critical
role and the number of uncertainties at the time.
When the
2009 goals were envisioned, they were considered to be ambitious, but attainable
and designed to potentially result in bonus payments that would reflect the
achievement of meaningful performance requirements. In 2009, actual
performance results did not meet budgeted expectations. Our shortfall
relative to the targeted performance levels described was approximately (8.5)%
for net revenue, (39)% for operating income and (40)% for net income. The Compensation
Committee, however, determined that these results were primarily due to factors
and circumstances outside of our executive officers’ control and, as described
above, that such performance results would only be one factor in determining
executive officer incentive compensation for 2009. Particularly,
difficult macro-economic and prevailing market conditions had an adverse effect
on our performance for 2009. Furthermore, in 2009, the intrusion of
our processing system had been discovered and publicly announced and the costs
of defending our Company in various intrusion-related matters negatively
impacted our 2009 financial performance. Due to such factors, each of
our executive officers (in addition to their regular duties to us) had to devote
substantial portions of their time, effort and abilities to minimizing the
damage suffered by us, and to develop plans to overcome the challenges we
faced. The intrusion added to the uncertainty regarding our future
performance and financial condition caused by the ongoing negative economic
conditions. When determining the bonuses of our executive officers,
the Compensation Committee weighed these subjective factors heavily, and
determined that our executives put forth extraordinary efforts during 2009 and
that continued extraordinary commitment would be required from our executives to
deal with the issues raised by the processing system intrusion, and to steer us
through these negative conditions. The Compensation Committee also
believed that it was important to incentivize our executive officers to restore
our financial performance to pre-intrusion levels and to continue guiding our
development. Specifically, during 2009, as noted above, (i) our named
executive officers contributed substantially to the accelerated development of
E3 (which was a primary initiative for us in 2009 and we view it as the next,
critical step in ensuring the security of cardholders’ data), (ii) our named
executive officers made significant strides in resolving claims and litigation
associated with the intrusion (including entering into settlements on terms
deemed acceptable and attractive to us with American Express and with respect to
cardholder class action claims, and securing the dismissal of the securities
class action claim that had been asserted against us), (iii) our named executive
officers launched and guided our aggressive communication effort with our
merchant clients to mitigate the impact of intrusion-related attrition (which we
believe minimized potential intrusion-related attrition from merchant
customers), (iv) our named executive officers oversaw the successful
reaffirmation of our processing system as PCI DSS compliant, (v) our named
executive officers spearheaded the formation and growth of the Payments
Processing Information Sharing Council (which fosters information sharing on
data security within the payments processing community) and (vi) the price of
our common stock recovered from a low of $3.78 per share on March 9, 2009 to
$13.13 per share by the close of 2009 (the closing price of the stock was $18.68
on April 19, 2010).
In light
of these circumstances, and in order to reward our executives for their
continued commitment to us in uncertain conditions, to incentivize future
performance and to help retain valuable executives at a time when we placed an
emphasis on consistency and institutional stability, the Compensation Committee
determined to pay bonuses to Messrs. Carr, Baldwin and Kallenbach at 75 percent
of target levels, notwithstanding our performance for 2009. The
Compensation Committee determined that payment of this percentage of the
executives’ target bonus represented a balance between these executives’ strong
individual performance in most regards, offset by our weaker financial
results.
The table
below sets forth the target bonus and 2009 annual incentive cash compensation
earned by each named executive officer. Annual bonuses were paid in
the form of cash in February, 2010.
Annual
Incentive Cash Information as of December 31, 2009
Executive
|
2008
Target Bonus
|
2008
Bonus
|
2009
Target Bonus
|
2009
Bonus
|
Robert
O. Carr
|
$225,000
|
$225,000
|
$715,000
|
$536,250
|
Robert
H.B. Baldwin, Jr.
|
$175,000
|
$175,000
|
$214,991
|
$161,250
|
Charles
H.N. Kallenbach
|
$125,000
|
$125,000
|
$175,000
|
$131,250
|
Sanford
C. Brown
|
(a)
|
(a)
|
(a)
|
(a)
|
Steven
M. Elefant
|
(b)
|
(b)
|
(b)
|
$183,128
|
|
|
|
|
|
|
(a)
|
Mr.
Brown’s
compensation was commission based in 2008 and is now wage based only,
therefore, he was not eligible for annual incentive cash compensation in
2008 or 2009.
|
|
(b)
|
Mr.
Elefant was named our Chief Information Officer in 2009. Under
his offer letter with the Company, Mr. Elefant was guaranteed a bonus
equal to approximately 100% of his pro-rated base salary for
2009.
|
Stock Incentive
Programs: Equity based compensation is an integral part of our
overall compensation program. We believe that stock options and
restricted stock units effectively focus our executives on increasing long-term
value to our stockholders, help to build ownership, and provide employment
retention. These stock-based incentives, which in recent years have
consisted solely of stock option and restricted stock unit grants, are based on
various factors primarily relating to the responsibilities of the individual
officer or employee, his or her past performance, anticipated future
contributions and prior option grants. In general, the Compensation
Committee bases its decisions to grant stock-based incentives on recommendations
of our Chief Executive Officer (except with respect to grants made to our Chief
Executive Officer) and the Compensation Committee’s analysis of relevant
compensation information, with the intention of keeping the executives’ overall
compensation, including the equity component of that compensation, at a
competitive level in line with our budgets for the executive’s position and
reflective of the executive’s contribution to our performance. The
Compensation Committee also considers the number of shares of common stock
outstanding, the number of shares of common stock authorized for issuance under
its equity compensation plans, the number and value at various stock prices of
options and shares held by the executive officer for whom an award is being
considered and the other elements of the officer’s compensation, as well as our
compensation objectives and policies described above. As with the
determination of base salaries and annual incentive cash compensation, the
Compensation Committee exercises subjective judgment and discretion after taking
into account the above criteria. We do not have a policy requiring
our named executive officers to hold equity awards beyond their vesting
date.
Awards to
named executive officers pursuant to the 2008 Equity Incentive Plan are
generally made annually. Equity awards granted to our named executive
officers in 2009 are described below: We do not have a policy
requiring executives to hold shares acquired upon option exercise or upon RSU
vesting.
2009
Equity Grants to Named Executive Officers
In light
of the difficult macro-economic and prevailing market conditions we faced at the
start of 2009, together with the challenges resulting from the intrusion of our
processing system, we focused heavily on incentivizing and retaining our named
executive officers. The Compensation Committee desired to financially
reward the named executive officers for ensuring that our Company made the
appropriate long-term capital investments in our infrastructure. The
Compensation Committee recognized that in the long-term, our stock will not
perform unless those ongoing infrastructure investments are made, and that stock
ownership represents one of the named executive officers’ most significant
wealth opportunities.
CEO Equity
Award: As part of its review, FW Cook examined the overall
compensation package of our Chief Executive Officer, Robert O. Carr, in order to
identify long-term incentive alternatives to motivate and retain
him. FW Cook analyzed chief executive officer compensation practices
among our peers. As a supplement to the peer group data, in order to
get a sense of the range of practice in similarly sized companies, FW Cook also
provided data on
extraordinary
equity awards to chief executive officers of mid-cap companies granted within
the past two years. The secondary peer group reviewed for this
purpose consisted of 20 companies with a fair value of awards made to their
chief executive officers equal to or greater than 1.5 percent of their market
cap at the time of grant and with a market cap of $1.5 billion or less at the
time of grant. The 20 companies that made up this secondary peer
group were: Blockbuster, Clinical Data, Cornell Companies, Enzon
Pharmaceuticals, Hawaiian Holdings, Integral Systems, Kratos Defense, Loral
Space & Communication, Marchex, Middleby Corp., Northstar Realty, Outdoor
Channel Hldgs, Pep Boys, Perini Corp., Princeton Review, Rackable Systems,
Savvis, Tier Technologies, United Online, and WebSense. Based on the
review of these market data, on May 11, 2009, the Compensation Committee
approved the equity awards to our Chief Executive Officer summarized
below.
As noted
above, equity compensation is an integral element of our overall executive
compensation program. We believe that equity ownership by our
executives will strongly align the interests of our executives with the
long-term interests of our stockholders. However, as previously
disclosed, Mr. Carr, was forced to dispose of all of his shares of our common
stock in 2009, impairing this desired alignment. Even with an
increase in Mr. Carr’s cash compensation in 2008, FW Cook’s analysis indicated
that Mr. Carr’s cash-based compensation at the start of 2009 was approximately
45% below the median cash compensation received by chief executive officers of
our industry peer group in 2009.
The
Compensation Committee determined that it was in the best interest of our
stockholders to re-align the Chief Executive Officer’s incentives with theirs
and to retain his services and to provide an incentive to rebuild the value lost
by us as a result of the intrusion of our processing system. Our
Board of Directors believes that Mr. Carr’s deep understanding of our business
and industry, his demonstrated leadership and drive and his strong relationship
with our commission-only sales force makes him uniquely qualified for the
position of our Chief Executive Officer, and that he has contributed
significantly to our historically high growth and price-to-earnings multiples
and should continue to make such contributions in the future. Under
the circumstances, the Board of Directors and Mr. Carr agreed that providing a
significant equity component to Mr. Carr would provide Mr. Carr with incentives
to achieve strategic corporate goals and drive our long-term performance, with a
subsequent increase in our stock price. This award will also provide
an important tool to retain Mr. Carr, who the Board of Directors deems extremely
important to our future success.
The
equity awards granted to Mr. Carr were also granted, in part, in consideration
of his agreement to extend his covenant not to compete with us and his covenant
not to solicit any of our customers or suppliers following termination of his
employment for any reason set forth in his Amended and Restated Employee
Confidential Information and Noncompetition Agreement dated May 4, 2007 with us
from 12 months to 24 months, except upon a change of control of our
Company.
The
Compensation Committee determined that the best way to accomplish the goals
described above was by focusing the majority of equity awards on performance
based stock price hurdles. Specifically, as explained in greater
detail below, the majority of shares underlying the equity grant approved by our
Compensation Committee was intended as a benefit for Mr. Carr only through
extraordinary corporate performance, as measured by the price of our common
stock. The Compensation Committee believed that by directly linking
the vesting of Mr. Carr’s award to increases in the price of our common stock,
it will provide Mr. Carr with a reward that is commensurate with the results
experienced by our stockholders. Mr. Carr and the Board of Directors
believe this equity award will better align Mr. Carr’s interests with the
long-term interests of our stockholders as compared to any additional cash
compensation.
On May
11, 2009, Mr. Carr was granted: (i) an option to purchase up to
1,395,000 shares of our common stock and (ii) 265,000 restricted stock units,
under our 2008 Equity Incentive Plan. The exercise price of all of
the options is $8.88, which was the fair market value of our common stock (as
determined pursuant to our 2008 Equity Plan) on the date of
grant. 465,000 of such options and all of the restricted stock units
vest in four equal annual installments beginning on the first anniversary of the
grant date, provided that Mr. Carr remains an employee of our Company as of the
relevant vesting date. 465,000 of such options will begin to vest
only after the closing price of our common stock is $17.76 per share or more and
the remaining 465,000 of such options will begin to vest only after the closing
price of our common stock is $26.64 per share or more. These
performance-contingent portions of the award require that the price hurdle
listed above be achieved for 30 consecutive trading days at any time on or
before May 11, 2013 (the final vesting date for such options) for such portions
of the award to be eligible for vesting. Once a price per share
target is met, the tranche of the performance-contingent options tied to such
price target will vest in four equal annual installments, retroactive to the
date of grant, provided that Mr. Carr remains an employee of our Company as
of
the
relevant vesting date. We believe that these price per share targets,
which were determined in consultation FW Cook as part of their analysis,
represent goals that are both reasonable for which to strive, but difficult to
attain since they were two times and three times the fair market value of our
common stock on the date of grant, respectively.
The
majority of the CEO’s equity awards were performance-based, requiring stock
price improvement of 100% and 200% to be earned:
|
|
|
|
Total
|
|
Performance-
|
|
Total
|
Time
Vested Equity
|
|
Time
|
|
Based
Options
|
|
Performance-
|
RSUs
|
|
Options
|
|
Vested
|
|
$17.76
Hurdle
|
|
$26.64
Hurdle
|
|
Based
|
265,000
|
|
465,000
|
|
730,000
|
|
465,000
|
|
465,000
|
|
930,000
|
|
|
|
|
|
|
|
|
|
|
|
%
Total No. Awards Granted:
|
|
44%
|
|
%
Total No. Awards Granted:
|
|
56%
|
In the
event of a “change of control” of our Company (as defined in our 2008 Equity
Plan), 100 percent of the unvested time-based portion of the award will
vest. The unvested
portion of the performance-contingent options will vest upon a change of control
only to the extent that applicable price per share goals have previously been
met or the price is achieved in connection with the transaction. We
believe these change of control price targets encourage Mr. Carr to maximize
value to our stockholders in connection with a transaction.
According
to FW Cook’s analysis, the terms of the equity awards to Mr. Carr discussed
above fall within the median to the 75th
percentile of the secondary peer group with extraordinary chief executive
officer equity awards (including new-hire awards and special one-time awards) if
the fair value of their award is measured as a percentage of market cap to
normalize size differences.
Equity Awards to
Other Named Executive Officers: As discussed above, due to the
impacts of the intrusion into our processing system and the challenging
macroeconomic environment, the Compensation Committee believed that
extraordinary measures would be required of our named executive officers in
order to maximize stockholder value. At the same time, given the
stock price declines of the first quarter, a number of such officers’
outstanding stock options were entirely or substantially “out of the money,” and
often by significant amounts, and therefore such stock options were no longer
providing the desired incentives and motivational impact to these
executives. Further, while it was our objective and belief that we
could be a viable going concern in the future, the potential existed that
exogenous factors such as actions by one or more card brands (i.e., Visa,
MasterCard, American Express, and Discover), or adverse legal actions, could be
such that the stock might not appreciate above the levels seen in early 2009,
notwithstanding the efforts and leadership of the named executive
officers. In light of the foregoing, it was determined that a
combination of options and restricted stock units would appropriately incent the
officers who were most directly involved in neutralizing and guiding us through
those exogenous factors, and on May 11, 2009, the Compensation Committee
approved the equity compensation to our named executive officers summarized
below:
Robert
H.B. Baldwin, Jr., President and Chief Financial Officer, was
granted: (i) an option to purchase up to 95,300 shares of our common
stock at an exercise price of $8.88 per share, which vests in four equal annual
installments beginning on May 11, 2010 and expires on May 11, 2014; and (ii)
26,000 restricted stock units with each restricted stock unit representing a
contingent right to receive one share of our common stock and which vests in
four equal annual installments beginning on May 11, 2010.
Sanford
C. Brown, Chief Sales Officer, was granted: (i) an option to purchase up to
65,000 shares of our common stock at an exercise price of $8.88 per share, which
vests in four equal annual installments beginning on May 11, 2010 and expires on
May 11, 2014; and (ii) 15,000 restricted stock units with each restricted stock
unit representing a contingent right to receive one share of our common stock
and which vests in four equal annual installments beginning on May 11,
2010.
Charles
H.N. Kallenbach, General Counsel, Chief Legal Officer and Secretary, was
granted: (i) an option to purchase up to 40,000 shares of our common stock at an
exercise price of $8.88 per share, which vests in four equal annual installments
beginning on May 11, 2010 and expires on May 11, 2014; and (ii) 15,000
restricted stock units with each restricted stock unit representing a contingent
right to receive one share of our common stock and which vests in four equal
annual installments beginning on May 11, 2010.
Steven M.
Elefant, Chief Information Officer, was granted an option to purchase up to
45,000 shares of our common stock at an exercise price of $8.88 per share, which
vests in four equal annual installments beginning on May 11, 2010 and expires on
May 11, 2014. In addition to this May 11, 2009 grant, on November 6,
2009, in recognition of his having taken on the added role of leading our
product development efforts (in addition to the E3 initiative), Mr. Elefant was
granted an option to purchase up to 25,000 shares of our common stock at an
exercise price of $12.16, which vests in four equal installments beginning on
November 6, 2010, and expires on November 6, 2014.
In each
case, if the named executive officer is not employed by us at the relevant
vesting date of the options and the restricted stock units granted, the unvested
portion of such options and restricted stock units will
terminate. All of such options and restricted stock units were
granted under our 2008 Equity Incentive Plan. The exercise price of
options awarded under our 2008 Plan equal the fair market value of our common
stock on the date of grant.
By means
of our insider trading policy, we prohibit named executive officers and
directors from entering into margin loans using our common stock or pledging
shares of our common stock as collateral for loans; however exceptions may be
made in certain circumstances. We believe that none of our named
executive officers or directors currently uses our common stock to trade on
margin or as pledged collateral for loans.
The
Compensation Committee is reviewing and analyzing potential equity awards to the
named executive officers for 2010.
2009 Chairman and CEO Total
Compensation: The Compensation Committee made an effort to
provide our Chairman and Chief Executive Officer with total compensation value
in 2009 that was lower than he was provided in 2008. The purpose was to
recognize the loss of stockholder value that occurred following the discovery
and announcement of the processing system intrusion in early 2009 and the costs
related to the intrusion as well as macro-economic conditions. In order to
do this it was necessary to make assumptions related to the valuation of stock
options, in particular of the price-contingent options granted to reward
rebuilding stockholder value. For the purposes of determining our Chief
Executive Officer’s 2009 total compensation, the grant date fair value of
time-vested options and restricted stock units was estimated using the
methodology published by Equilar for their analyses, which is explained on
Equilar’s website and broadly available for purchase. The grant date fair
value of our Chief Executive Officer’s price-contingent options, which we did
not feel could be properly estimated using Equilar’s standard binomial or Black
Scholes model as a result of the much higher risk that options with intrinsic in
the money value would not vest because the price goal was not achieved within
the requisite four years, was estimated using a special Monte Carlo valuation
model. The result of the Monte Carlo valuation is consistent with the
amounts shown for these price-contingent options in the Grants of Plan Based
Awards Table below. As a result of this process, the Compensation
Committee views our Chief Executive Officer’s 2009 total compensation as being
$7,540,464 as follows (and had viewed our Chief Executive Officer’s 2008 total
compensation as being approximately $7,913,000):
|
|
Chairman
and CEO
|
|
|
|
|
Total
Compensation
|
|
|
|
|
Estimate
for 2009
|
|
Notes
|
Salary
|
|
$715,000
|
|
|
Actual
Cash Incentive
|
|
$536,250
|
|
|
2009
Total Annual Cash Compensation
|
|
$1,251,250
|
|
|
Restricted
Stock Units
|
|
$2,353,200
|
|
265,000
Time Vesting Restricted Stock Units at $8.88 on date of
grant
|
Time-Vested
Options at $8.88
|
|
$1,982,016
|
|
465,000
Time Vesting Options at $8.88 on date of grant
|
Performance
Options with $17.76 Price Hurdle to Vest
|
|
$1,195,050
|
|
465,000
Price-Contingent Options at $8.88 on date of grant
|
Performance
Options with $26.64 Price Hurdle to Vest
|
|
$753,300
|
|
465,000
Price-Contingent Options at $8.88 on date of grant
|
Other
Compensation
|
|
$5,648
|
|
|
Total
2009 Chairman and CEO Pay
|
|
$7,540,464
|
|
|
Severance: For all of our
named executive officers other than Mr. Carr and Mr. Elefant, we have set
potential severance payments at one year’s continued payment of wages plus a pro
rated bonus in order to run concurrently with our named executive officers’
covenants not to compete with us for 12 months following termination of their
employment. The Compensation Committee believes that severance
arrangements are important because they provide our executive officers with
security in case of an involuntary termination other than for
cause. As of December 31, 2008, Mr. Carr’s severance payments were
based on the same formula as the other named executive
officers. However, in connection with the equity awards granted to
Mr. Carr in 2009, Mr. Carr extended his covenant not to compete and his covenant
not to solicit customers or suppliers from 12 months after termination of his
employment to 24 months after termination of his employment and his potential
severance payment was amended to two year’s continued payment of wages plus a
pro rated bonus in order to run concurrently with his covenant not to
compete. The Compensation Committee negotiated these changes with Mr.
Carr in 2009. A condition to our providing such severance payments is
our receipt from the executive officer of a release from future claims against
us. These severance arrangements provide incentive for our executives
to comply with their post-employment covenants and grant us the ability to
suspend payment if an executive has breached these
covenants. Potential severance payments under these agreements are
set forth and described below under the heading “Potential Payments Upon
Termination or Change in Control.”
Accounting
Considerations
For our
financial statements, cash compensation is expensed and for our income tax
returns, cash compensation is deductible. From the perspective of the
named executive officers, such cash compensation is taxable as appropriate for
that individual. For equity-based compensation, we do not provide
named executive officers with immediately vesting options in order to focus them
on their long-term contributions to us and on the long-term appreciation in the
value of our stock – although we do provide our Directors with immediately
vesting options – and because such immediately vesting options would be expensed
entirely on our financial statements when granted. For future vesting
options granted to named executive officers, the fair value of such grants is
expensed over the vesting period. We provide non-qualified stock
options in our grants to named executive officers. Non-qualified
stock options provide us with an accounting tax benefit as the fair value of the
options are deductible by the Company. Non-qualified stock options
provide us with a tax return benefit when the named executive officer exercises
such non-qualified stock options. For the named executive officers,
non-qualified stock options are generally not taxable until the exercise of such
option. The tax impacts of exercises by named executive officers
match the tax benefit to us of the exercise. The accounting and tax
treatment of compensation pursuant to Internal Revenue Code Section 162(m), FAS
123R, and other applicable rules, is a factor in determining the amounts of
compensation for named executive officers.
Summary
Compensation Table
The
following table shows the compensation paid or to be paid by us, and certain
other compensation paid or accrued, during the fiscal years ended December 31,
2009, 2008 and 2007 to our Chief Executive Officer, Chief Financial Officer and
each of our three other most highly compensated executive officers, together the
“Named Executive Officers.”
Name
and Principal
Position
|
Year
|
Wages
|
Bonus
(3)
|
Stock
Awards
(4)
|
Option
Awards
(5)
|
All
Other
Compensation
|
Total
Compensation
|
Robert
O. Carr
|
2009
|
$715,000
|
$536,250
|
$2,353,200
|
$3,561,900
|
$5,648
|
$7,171,998
|
Chairman
and Chief
|
2008
|
$450,000
|
$225,000
|
―
|
―
|
$4,718
|
$ 679,718
|
Executive
Officer(1)
|
2007
|
$350,000
|
$109,197
|
―
|
―
|
$2,250
|
$ 461,447
|
Robert
H.B. Baldwin, Jr.
|
2009
|
$429,982
|
$161,250
|
$
230,880
|
$ 330,691
|
$3,750
|
$1,156,553
|
President
and Chief
|
2008
|
$350,000
|
$175,000
|
―
|
―
|
$4,402
|
$ 529,402
|
Financial
Officer(1)
|
2007
|
$276,056
|
$ 81,117
|
―
|
$ 71,974
|
$2,250
|
$ 431,397
|
Charles
H.N. Kallenbach
|
2009
|
$350,000
|
$131,250
|
$
133,200
|
$ 138,800
|
$3,750
|
$ 757,000
|
General
Counsel and
|
2008
|
$250,000
|
$125,000
|
―
|
―
|
$3,750
|
$ 378,750
|
Chief
Legal Officer(1)
|
2007
|
$190,000
|
$ 95,000
|
―
|
$ 421,500
|
$1,227
|
$ 707,727
|
Sanford
C. Brown
|
2009
|
$368,960
|
―
|
$
133,200
|
$ 225,550
|
$ 983
|
$ 728,693
|
Chief
Sales Officer
|
2008
|
$346,405
|
―
|
―
|
$ 35,060
|
―
|
$ 381,465
|
|
2007
|
$476,425
|
―
|
―
|
$ 57,505
|
―
|
$ 533,930
|
Steven
M. Elefant
|
2009
|
$195,785
|
$183,128
|
―
|
$ 278,150
|
$3,750
|
$ 660,813
|
Chief
Information
|
―
|
―
|
―
|
―
|
―
|
―
|
―
|
Officer(1)(2)
|
―
|
―
|
―
|
―
|
―
|
―
|
―
|
|
(1)
|
Mr.
Carr, Mr. Baldwin, Mr. Elefant and Mr. Kallenbach each received $3,750 in
2009 as a 401(K) Plan matching contribution, which is included in the
column, entitled “All Other Compensation”
above.
|
|
(2)
|
Mr.
Elefant was named our Chief Information Officer in
2009.
|
|
(3)
|
Represents
annual cash bonus with respect to 2009. See – “Annual Incentive
Cash Compensation” for an explanation of these
payments.
|
|
(4)
|
In
accordance with SFAS No. 123R (ASC 718), the closing price of the
Company’s common stock on the grant date equals the grant date fair value
of these nonvested share awards and will be recognized as compensation
expense over their four-year service periods. See – “Stock Incentive
Programs” for an explanation of these
awards.
|
|
(5)
|
Amounts
represents the aggregate grant date fair value of stock options granted in
2009 as determined under SFAS No. 123R (ASC
718).
|
Grants
of Plan-Based Awards
The
following table lists grants of plan-based awards made to our Named Executive
Officers during 2009 and the related total fair value of these awards. Named
Executive Officers did not provide cash consideration for the listed
awards.
|
Option
Awards
|
Stock
Awards
|
Name
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
Number
of Securities Underlying Unexercised Options
(#)
Unexercisable
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number
of Shares or Units of Stock that have not Vested
(#)(3)
|
Market
Value
of
Shares or
Units
of Stock
That
Have Not
Vested
($)(22)
|
Robert
O. Carr
|
125,000
|
―
|
$ 6.25
|
October
29, 2013
|
265,000(7)
|
$3,479,450
|
|
―
|
1,000,000 (1)(4)
|
$
22.00
|
August
6, 2013
|
―
|
―
|
|
―
|
930,000 (2)(5)
|
$ 8.88
|
May
11, 2014
|
―
|
―
|
|
―
|
465,000 (6)
|
$ 8.88
|
May
11, 2014
|
―
|
―
|
Robert
H.B. Baldwin, Jr.
|
302,636
|
―
|
$ 5.00
|
February
12, 2012
|
26,000(11)
|
$ 341,380
|
|
90,000
|
―
|
$ 9.80
|
February
15, 2010
|
―
|
―
|
|
4,850
|
4,850 (8)
|
$
25.64
|
February
16, 2012
|
―
|
―
|
|
―
|
350,000 (1)(9)
|
$
22.00
|
August
6, 2013
|
―
|
―
|
|
―
|
95,300 (10)
|
$ 8.88
|
May
11, 2014
|
―
|
―
|
Charles
H.N. Kallenbach
|
25,000
|
25,000 (12)
|
$
28.25
|
January
2, 2012
|
15,000(15)
|
$ 196,950
|
|
―
|
25,000(1)(13)
|
$
22.00
|
August
6, 2013
|
―
|
―
|
|
―
|
40,000 (14)
|
$ 8.88
|
May
11, 2014
|
―
|
―
|
Sanford
C. Brown
|
4,000
|
―
|
$ 5.00
|
August
18, 2013
|
15,000(19)
|
$ 196,950
|
|
25,848
|
―
|
$ 9.28
|
August
10, 2014
|
―
|
―
|
|
34,014
|
―
|
$ 9.80
|
April
1, 2010
|
―
|
―
|
|
3,498
|
―
|
$
11.00
|
July
14, 2010
|
―
|
―
|
|
16,910
|
―
|
$
21.55
|
December
23, 2010
|
―
|
―
|
|
7,500
|
2,500 (16)
|
$
25.50
|
August
4, 2011
|
―
|
―
|
|
3,875
|
3,875 (17)
|
$
25.64
|
February
16, 2012
|
―
|
―
|
|
3,042
|
―
|
$
26.66
|
September
12, 2010
|
―
|
―
|
|
4,156
|
―
|
$
25.00
|
May
7, 2013
|
―
|
―
|
|
1,766
|
―
|
$
22.00
|
August
6, 2013
|
―
|
―
|
|
―
|
65,000 (18)
|
$ 8.88
|
May
11, 2014
|
―
|
―
|
Steven
Elefant
|
―
|
45,000 (20)
|
$ 8.88
|
May
11, 2014
|
―
|
―
|
|
―
|
25,000 (21)
|
$12.16
|
November
6, 2014
|
―
|
―
|
|
(1)
|
Amount
represents the total grant date fair value of stock options granted in
2009 as determined under SFAS No. 123R (ASC 718). Under SFAS
No. 123R (ASC 718), we estimate the grant date fair value of the stock
options we issue using a Black-Scholes valuation model for “plain-vanilla”
stock options and performance-based stock options, and we use a lattice
valuation model to measure grant date fair value for stock options
containing market vesting conditions. Our assumption for expected
volatility is based on our historical volatility for those option grants
whose expected life fall within a period we have sufficient historical
volatility data related to market trading of our own Common Stock. For
those option grants whose expected life is longer than we have sufficient
historical volatility data related to market trading of our own Common
Stock, we determine an expected volatility assumption by referencing the
average volatility experienced by a group of our public company
peers. For plain-vanilla stock options, we estimate the
expected life of a stock option based on the simplified method as provided
by the staff of the SEC in Staff Accounting Bulletins 107 and 110 (ASC
718-10-S99). The simplified method is used because, at this point, we do
not have sufficient historical information to develop reasonable
expectations about future exercise patterns. For the
performance-based options, the expected life is estimated based on the
average of three possible performance condition outcomes. Our
dividend yield assumption is based on dividends expected to be paid over
the expected life of the stock option. Our risk-free interest rate
assumption for stock options granted is determined by using U.S. treasury
rates of the same period as the expected option term of each stock
option
|
|
(2)
|
The
fair value of options granted shown below was estimated at the grant date
using the following weighted average
assumptions:
|
|
(a)
|
(b)
|
(c)
|
(d)
|
Fair
Value of Each Option
|
$3.47
|
$2.57
|
$1.62
|
$4.88
|
Expected
volatility
|
52%
|
39%
|
39%
|
53%
|
Expected
life
|
3.75
years
|
4
years
|
4
years
|
3.75
years
|
Expected
dividends
|
0.50%
|
0.45%
|
0.45%
|
0.40%
|
Risk-free
interest rate
|
1.60%
|
2.04%
|
2.04%
|
1.74%
|
Market
Price Condition
|
N/A
|
2X
|
3X
|
N/A
|
|
(3)
|
In
the second quarter of 2009, our Board of Directors approved grants of
930,000 stock options subject to multiple vesting conditions. Under these
stock options, the employee must provide continuous service over four
years and a market price condition must be satisfied within those four
years. These stock options have a five-year term and could vest in equal
amounts in 2010, 2011, 2012 and 2013 only if during the four-year service
period, the price of our common stock as reported by the New York Stock
Exchange exceeds two or three
|
times the
exercise price for 30 consecutive trading days. The grant date fair values of
these multiple vesting condition options are recognized as compensation expense
over their four-year service periods.
|
(4)
|
These
Restricted Share Units are nonvested share awards which will vest over a
four-year service period as employees perform service. The closing price
of the Company’s common stock on the grant date equals the grant date fair
value of these nonvested share awards and will be recognized as
compensation expense over their four-year service
periods.
|
|
(5)
|
See
– “Stock Incentive Programs” for an explanation of these
awards.
|
Outstanding
Equity Awards
The following tables set forth
information regarding outstanding equity awards held by Named Executive Officers
as of December 31, 2009. In the Outstanding Equity Awards table, each
outstanding stock option award is listed individually along with the breakout of
the number of stock options, which are exercisable and
unexercisable.
|
Option
Awards
|
Stock
Awards
|
Name
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number
of
Shares
or
Units
of Stock
that
have not
Vested
(#)(3)
|
Market
Value
of
Shares or
Units
of Stock
That
Have Not
Vested
($)(22)
|
Robert
O. Carr
|
125,000
|
―
|
$ 6.25
|
October
29, 2013
|
265,000(7)
|
$3,479,450
|
|
―
|
1,000,000 (1)(4)
|
$
22.00
|
August
6, 2013
|
―
|
―
|
|
―
|
930,000 (2)(5)
|
$ 8.88
|
May
11, 2014
|
―
|
―
|
|
―
|
465,000 (6)
|
$ 8.88
|
May
11, 2014
|
―
|
―
|
Robert
H.B. Baldwin, Jr.
|
302,636
|
―
|
$ 5.00
|
February
12, 2012
|
26,000(11)
|
$ 341,380
|
|
90,000
|
―
|
$ 9.80
|
February
15, 2010
|
―
|
―
|
|
4,850
|
4,850 (8)
|
$
25.64
|
February
16, 2012
|
―
|
―
|
|
―
|
350,000 (1)(9)
|
$
22.00
|
August
6, 2013
|
―
|
―
|
|
―
|
95,300 (10)
|
$ 8.88
|
May
11, 2014
|
―
|
―
|
Charles
H.N. Kallenbach
|
25,000
|
25,000 (12)
|
$
28.25
|
January
2, 2012
|
15,000(15)
|
$ 196,950
|
|
―
|
25,000(1)(13)
|
$
22.00
|
August
6, 2013
|
―
|
―
|
|
―
|
40,000 (14)
|
$ 8.88
|
May
11, 2014
|
―
|
―
|
Sanford
C. Brown
|
4,000
|
―
|
$ 5.00
|
August
18, 2013
|
15,000(19)
|
$ 196,950
|
|
25,848
|
―
|
$ 9.28
|
August
10, 2014
|
―
|
―
|
|
34,014
|
―
|
$ 9.80
|
April
1, 2010
|
―
|
―
|
|
3,498
|
―
|
$
11.00
|
July
14, 2010
|
―
|
―
|
|
16,910
|
―
|
$
21.55
|
December
23, 2010
|
―
|
―
|
|
7,500
|
2,500 (16)
|
$
25.50
|
August
4, 2011
|
―
|
―
|
|
3,875
|
3,875 (17)
|
$
25.64
|
February
16, 2012
|
―
|
―
|
|
3,042
|
―
|
$
26.66
|
September
12, 2010
|
―
|
―
|
|
4,156
|
―
|
$
25.00
|
May
7, 2013
|
―
|
―
|
|
1,766
|
―
|
$
22.00
|
August
6, 2013
|
―
|
―
|
|
―
|
65,000 (18)
|
$ 8.88
|
May
11, 2014
|
―
|
―
|
Steven
Elefant
|
―
|
45,000 (20)
|
$ 8.88
|
May
11, 2014
|
―
|
―
|
|
―
|
25,000 (21)
|
$
12.16
|
November
6, 2014
|
―
|
―
|
|
(1)
|
In
the third quarter of 2008, our Board of Directors approved a
performance-based stock option program. Under this program, we granted 2.5
million performance-based stock options to our employees including those
grants to Named Executives dated August 6, 2008 listed in the above
table. These are performance-based stock options which
were granted to those employees who the Board of Directors determined
could have significant impact on successfully integrating the Network
Services business, which we acquired in May 2008 and effectively executing
our growth plan. These stock options have a five-year term and will vest
in equal amounts in 2011, 2012 and 2013 only if over the term of the stock
options, both of the following performance conditions are
achieved:
|
|
·
|
Consolidated
net revenue grows at a compound annual rate of at least 15%;
and
|
|
·
|
fully
diluted EPS grows at a compound annual rate of at least
25%.
|
We
believe that achieving these performance conditions is not “more likely than
not” to occur therefore, no share-based compensation expense has been recorded
for these stock options in 2008. The evaluation of the likelihood of
achieving these performance conditions will be repeated quarterly, and at such
point that vesting of some or all of the options becomes more likely than
not, share-based compensation expense will be
recorded.
|
(2)
|
In
the second quarter of 2009, the Company’s Board of Directors approved
grants of stock options subject to multiple vesting conditions. Under
these stock options, the employee must provide continuous service over
four years and a market price condition must be
satisfied
|
within
those four years. These stock options have a five-year term and could vest in
equal amounts in 2010, 2011, 2012 and 2013 only if during the four-year service
period, the price of the Company’s common stock as reported by the New York
Stock Exchange exceeds two or three times the exercise price for 30 consecutive
trading days. The grant date fair values of these multiple vesting condition
options are recognized as compensation expense over their four-year service
periods.
|
(3)
|
In
the second quarter of 2009, the Company’s Board of Directors approved
grants of 336,000 Restricted Share Units. These Restricted Share Units are
nonvested share awards which will vest over a four-year service period as
employees perform service. The closing price of the Company’s common stock
on the grant date equals the grant date fair value of these nonvested
share awards and will be recognized as compensation expense over their
four-year service periods.
|
|
(4)
|
If
and only if the performance conditions identified in (1) above are
achieved, 333,330 stock options will become exercisable on May 5, 2011,
333,330 stock options will become exercisable on May 5, 2012, and 333,340
stock options will become exercisable on May 5,
2013.
|
|
(5)
|
If
and only if the performance conditions identified in (2) above are
achieved, 232,500 stock options will become exercisable on May 11, 2010,
232,500 stock options will become exercisable on May 11, 2011, 232,500
stock options will become exercisable on May 11, 2012 and 232,500 stock
options will become exercisable on May 11,
2013.
|
|
(6)
|
116,250
stock options will become exercisable on May 11, 2010, 116,250 stock
options will become exercisable on May 11, 2011, 116,250 stock options
will become exercisable on May 11, 2012 and 116,250 stock options will
become exercisable on May 11, 2013.
|
|
(7)
|
66,250
Restricted Share Units will vest on May 11, 2010, 66,250 Restricted Share
Units will vest on May 11, 2011, 66,250 Restricted Share Units will vest
on May 11, 2012 and 66,250 Restricted Share Units will vest on May 11,
2013
|
|
(8)
|
2,425
stock options became exercisable on February 16, 2009, 2,425 stock options
will become exercisable on February 16, 2010, and 2,425 stock options will
become exercisable on February 16,
2011.
|
|
(9)
|
If
and only if the performance conditions identified in (1) above are
achieved, 116,665 stock options will become exercisable on May 5, 2011,
116,665 stock options will become exercisable on May 5, 2012, and 116,670
stock options will become exercisable on May 5,
2013.
|
|
(10)
|
23,825
stock options will become exercisable on May 11, 2010, 23,825 stock
options will become exercisable on May 11, 2011, 23,825 stock options will
become exercisable on May 11, 2012 and 23,825 stock options will become
exercisable on May 11, 2013.
|
|
(11)
|
6,500
Restricted Share Units will vest on May 11, 2010, 6,500 Restricted Share
Units will vest on May 11, 2011, 6,500 Restricted Share Units will vest on
May 11, 2012 and 6,500 Restricted Share Units will vest on May 11,
2013.
|
|
(12)
|
12,500
stock options became exercisable on January 2, 2009, 12,500 stock options
will become exercisable on January 2, 2010, and 12,500 stock options will
become exercisable on January 2,
2011.
|
|
(13)
|
If
and only if the performance conditions identified in (1) above are
achieved, 8,333 stock options will become exercisable on May 5, 2011,
8,333 stock options will become exercisable on May 5, 2012, and 8,334
stock options will become exercisable on May 5,
2013.
|
|
(14)
|
10,000
stock options will become exercisable on May 11, 2010, 10,000 stock
options will become exercisable on May 11, 2011, 10,000 stock options will
become exercisable on May 11, 2012 and 10,000 stock options will become
exercisable on May 11, 2013.
|
|
(15)
|
3,750
Restricted Share Units will vest on May 11, 2010, 3,750 Restricted Share
Units will vest on May 11, 2011, 3,750 Restricted Share Units will vest on
May 11, 2012 and 3,750 Restricted Share Units will vest on May 11,
2013.
|
|
(16)
|
2,500
stock options became exercisable on August 4, 2009, and 2,500 stock
options will become exercisable on August 4,
2010.
|
|
(17)
|
1,938
stock options became exercisable on February 16, 2009, 1,937 stock options
will become exercisable on February 16, 2010, and 1,938 stock options will
become exercisable on February 16,
2011.
|
|
(18)
|
16,250
stock options will become exercisable on May 11, 2010, 16,250 stock
options will become exercisable on May 11, 2011, 16,250 stock options will
become exercisable on May 11, 2012 and 16,250 stock options will become
exercisable on May 11, 2013.
|
|
(19)
|
3,750
Restricted Share Units will vest on May 11, 2010, 3,750 Restricted Share
Units will vest on May 11, 2011, 3,750 Restricted Share Units will vest on
May 11, 2012 and 3,750 Restricted Share Units will vest on May 11,
2013.
|
|
(20)
|
11,250
stock options will become exercisable on May 11, 2010, 11,250 stock
options will become exercisable on May 11, 2011, 11,250 stock options will
become exercisable on May 11, 2012 and 11,250 stock options will become
exercisable on May 11, 2013.
|
|
(21)
|
6,250
stock options will become exercisable on November 6, 2010, 6,250 stock
options will become exercisable on November 6, 2011, 6,250 stock options
will become exercisable on November 6, 2012, and 6,250 stock options will
become exercisable on November 6,
2013.
|
|
(22)
|
Market
values for the units of stock that have not vested are based on the $13.13
per share closing price of company’s stock as of December 31,
2009.
|
Option
Exercises and Stock Vested for Fiscal Year Ended December 31, 2009
The
following table sets forth the number of stock options exercised during 2009 by
the Named Executive Officers and the value realized on exercise.
|
Option
Awards
|
|
Name
|
Number
of
Shares
Acquired
on
Exercise
(#)
|
|
Value
Realized on Exercise
($)
|
|
Robert
O. Carr
|
―
|
|
―
|
|
Robert
H.B. Baldwin, Jr.
|
26,000
|
|
$263,380
|
|
Charles
H.N. Kallenbach
|
―
|
|
―
|
|
Sanford
C. Brown
|
1,250
|
|
$12,550
|
|
Steven
M. Elefant
|
―
|
|
―
|
|
Pension
Benefits
None of
our named executive officers participate in or have account balances in
qualified or non-qualified defined benefit plans sponsored by us.
Nonqualified
Deferred Compensation
None of
our named executive officers participate in or have account balances in
non-qualified defined contribution plans or other deferred compensation plans
maintained by us.
Potential
Payments Upon Termination or Change in Control
In
November 2001, Robert O. Carr entered into an employee confidential information
and non-competition agreement with us, which was amended and restated on May 4,
2007 and again on May 11, 2009. Subject to Mr. Carr’s compliance with
the non-competition, non-solicitation and other covenants to be set forth in the
anticipated amendment, his agreement will provide that in the event Mr. Carr is
terminated by us for other than cause (as defined in his agreement) or
disability (as defined in his agreement), he will be entitled to receive
severance pay in an amount equal to the wages that would have been paid to him
during a 24 month period plus medical benefits for 24 months. In the
event of a change in control (as defined in his agreement), the amended
covenants set forth therein will revert back to twelve months and so does Mr.
Carr’s severance. In addition, if Mr. Carr’s employment is terminated
by us other than for cause or his employment with us is terminated due to his
death, he shall also be entitled to receive a pro rata portion of any
annual bonus that he would have been entitled to receive based on the number of
days he was employed by us during such year. In the event of a change
of control of our Company (as defined in our 2008 Equity Incentive Plan), Mr.
Carr’s time vested options that he received on May 11, 2009, which are described
above, will immediately vest and become exercisable and the restricted stock
units he received on May 11, 2009, which are also described above, will
immediately vest and the shares of our common stock underlying such restricted
stock units will be paid to Mr. Carr. Additionally, in the event of a
change of control of our Company, the performance based options Mr. Carr
received on May 11, 2009, which are described above, will immediately vest and
become exercisable so long as the above described price per share goal has been
previously achieved in accordance with the vesting schedule of such options or
the transaction price is at least the equivalent of such per share
goal.
In
October 2000, Sanford C. Brown entered into an employee confidential information
and non-competition agreement with us, which was also amended and restated on
May 4, 2007, and on April 4, 2007, Charles H.N. Kallenbach entered into an
employee confidential information and non-competition agreement with
us. On March 16, 2007, Robert H.B. Baldwin entered into revised
confidential information and non-competition agreements with
us. Subject to the executive’s compliance with the non-competition,
non-solicitation and other covenants set forth therein, all of these agreements
provide that in the event these executives are terminated by us for other than
cause (as defined in the agreements) or disability (as defined in the
agreements), they will be entitled to receive severance pay in an amount equal
to the wages that would have been paid to them during a 12 month period plus
medical benefits for 12 months. In addition, if the employment of the
executives is terminated by us other than for cause or their employment with us
is
terminated
due to their death, they shall also be entitled to receive a pro rata portion of any
annual bonus that they would have been entitled to receive based on the number
of days they were employed by us during such year or, if their bonus was payable
on a quarterly rather than an annual basis, then they shall be entitled to
receive a pro rata
portion of any bonus that they would have been entitled to receive for the
fiscal quarter in which they were terminated.
In
addition, pursuant to the terms of our 2008 Equity Incentive Plan, vesting of
certain stock options granted to our named executive officers may accelerate
upon a change in control of our Company and/or upon termination of our named
executive officers’ employment without cause at the discretion of the
Compensation Committee.
The
following table provides a quantitative description of the payments and benefits
payable upon termination of employment and/or change in control of our company,
assuming a termination date as of December 31, 2009 and payment of a bonus under the
agreements at target levels. Estimated stock and option values were
calculated assuming the closing price of our common stock on December 31,
2009 of $13.13:
Named Executive
Officer
|
Severance
Payment
|
Estimated
Value
of
Benefits
|
Bonus
|
Estimated
Value
of
Acceleration
of
Vesting
of
Stock
Options
and
Restricted
Stock
Units
|
Total
|
Robert
O. Carr
|
|
|
|
|
|
Termination
of Employment without Cause
|
$1,430,000
|
$11,337
|
$715,000(a)
|
NA
|
$2,156,337
|
Termination
of Employment due to Death
|
NA
|
NA
|
$715,000(a)
|
NA
|
$715,000
|
Change
in Control
|
$715,000
|
NA
|
NA
|
$5,928,750
|
$6,643,750
|
Robert
H.B. Baldwin, Jr.
|
|
|
|
|
|
Termination
of Employment without Cause
|
$429,982
|
$11,337
|
$214,991(a)
|
NA
|
$656,310
|
Termination
of Employment due to Death
|
NA
|
NA
|
$214,991(a)
|
NA
|
$214,991
|
Change
in Control
|
NA
|
NA
|
NA
|
NA
|
$-0-
|
Charles
H.N. Kallenbach
|
|
|
|
|
|
Termination
of Employment without Cause
|
$350,000
|
$11,337
|
$175,000(a)
|
NA
|
$536,337
|
Termination
of Employment due to Death
|
NA
|
NA
|
$175,000(a)
|
NA
|
$175,000
|
Change
in Control
|
NA
|
NA
|
NA
|
NA
|
$-0-
|
Sanford
C. Brown
|
|
|
|
|
|
Termination
of Employment without Cause
|
$368,960
|
$11,337
|
NA
|
NA
|
$380,297
|
Termination
of Employment due to Death
|
NA
|
NA
|
NA
|
NA
|
$
-0-
|
Change
in Control
|
NA
|
NA
|
NA
|
NA
|
$-0-
|
Steven
M. Elefant
|
|
|
|
|
|
Termination
of Employment without Cause
|
NA
|
NA
|
NA
|
NA
|
$-0-
|
Termination
of Employment due to Death
|
NA
|
NA
|
NA
|
NA
|
$-0-
|
Change
in Control
|
NA
|
NA
|
NA
|
NA
|
$-0-
|
|
a)
|
In
the event of termination other than for cause or termination due to death,
annual bonus would be paid on a pro rata computation based on the number
of days the executive was employed by us during such
year.
|
For
additional information on termination payments, see the discussion of
“Severance” in the Compensation Disclosure and Analysis section
above. Other than as noted, the Company does not provide change of
control benefits to its named executive officers.
Equity
Compensation Plan Information as of December 31, 2009
Plan
category
|
|
Number of securities to
be
issued upon
exercise
of
outstanding
options,
warrants and
rights
|
|
Weighted-
average
exercise
price of outstanding
options,
warrants
and
rights
|
|
Number
of securities
remaining
available for
future
issuance under
equity compensation plans
(excluding
securities
reflected
in the first column)
|
Equity
compensation plans approved by security holders
|
|
7,872,424
|
|
$14.53
|
|
1,726,543
|
Equity
compensation plans not approved by security holders
|
|
None
|
|
N/A
|
|
None
|
Total
|
|
7,872,424
|
|
$14.53
|
|
1,726,543
|
Valuation
of Our Common Stock
On
April 19, 2010, the closing price of our Common Stock, as reported on the New
York Stock Exchange, was $18.68 per share.
Indemnification
Arrangements
Our
Bylaws provide that our Directors, and subject to the Board’s discretion, our
officers, shall be indemnified and provide for the advancement to them of
expenses in connection with actual or threatened proceedings and claims arising
out of their status as such to the fullest extent permitted by the Delaware
General Corporation Law. We have entered into indemnification
agreements with each of our Directors and executive officers that provide them
with rights to indemnification and expense advancement to the fullest extent
permitted under the Delaware General Corporation Law.
COMPENSATION
COMMITTEE REPORT
The
Compensation Committee has reviewed and discussed the Compensation Discussion
and Analysis required by Item 402(b) of Regulation S-K with management, and
based on these reviews and discussions, the Compensation Committee recommended
to the Company’s Board of Directors that the Compensation Discussion and
Analysis be included in this Proxy Statement on Schedule 14A for the Company’s
2010 Annual Meeting of Stockholders.
THE
COMPENSATION COMMITTEE
Robert H.
Niehaus, Chairman
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth
below is information relating to the beneficial ownership of our common stock as
of March 31, 2010, by each person known by us to beneficially own more than 5%
of our outstanding shares of common stock, each of our Directors and our Named
Executive Officers, and all of our Directors and executive officers as a
group.
Each
stockholder’s percentage ownership in the following table is based on 37,769,616
shares of common stock outstanding as of March 31, 2010, except as otherwise
noted in the footnotes below.
Except as
otherwise indicated, and subject to applicable community property laws, the
persons named in the table have sole voting and investment power with respect to
all shares of common stock held by them. The address of the executive officers
and Directors is c/o Heartland Payment Systems, Inc., 90 Nassau Street,
Princeton, New Jersey 08542.
Name
of Beneficial Owner
|
|
Amount and Nature of
Beneficial Ownership
|
|
Percentage of
Common
Shares
Outstanding
|
5%
Holders:
|
|
|
|
|
|
|
Capital
Research and Management Company
333
South Hope Street
Los
Angeles, California 90071
|
|
4,176,600
|
|
(1)
|
|
11.1%
|
FMR
LLC
82
Devonshire Street
Boston,
Massachusetts 02109
|
|
4,050,817
|
|
(2)
|
|
10.7%
|
Nierenberg
Investment Management Company, Inc.
19605
NE 8th
Street
Camas,
Washington 98607
|
|
2,882,147
|
|
(3)
|
|
7.6%
|
BlackRock
Inc.
40
East 52nd
Street
New
York, NY 10022
|
|
2,562,845
|
|
(4)
|
|
6.8%
|
Robeco
Investment Management, Inc.
909
Third Ave
New
York, NY 10022
|
|
2,218,803
|
|
(5)
|
|
5.9%
|
|
|
|
|
|
|
|
Directors
and Executive Officers:
|
|
|
|
|
|
|
Robert
O. Carr
|
|
1,158,891
|
|
(6)
|
|
3.0%
|
Robert
H.B. Baldwin, Jr.
|
|
905,382
|
|
(7)
|
|
2.4%
|
Sanford
C. Brown
|
|
117,987
|
|
(8)
|
|
*
|
Charles
H.N. Kallenbach
|
|
52,750
|
|
(9)
|
|
*
|
Steven
Elefant
|
|
11,250
|
|
(10)
|
|
*
|
Mitchell
L. Hollin
|
|
81,846
|
|
(11)
|
|
*
|
Robert
H. Niehaus
|
|
271,874
|
|
(12)
|
|
*
|
Marc
J. Ostro, Ph.D.
|
|
319,005
|
|
(13)
|
|
*
|
Jonathan
J. Palmer
|
|
65,571
|
|
(14)
|
|
*
|
George
F. Raymond
|
|
32,250
|
|
(15)
|
|
*
|
Richard
W. Vague
|
|
21,250
|
|
(16)
|
|
*
|
|
|
|
|
|
|
|
All
Directors and Executive Officers as a group (11 persons)
|
|
3,038,056
|
|
(17)
|
|
7.9%
|
____________________________________________________________
*
|
Represents
less than one percent of the outstanding shares of common
stock.
|
(1)
|
Information
regarding these shares is based on a Schedule 13G/A filed by Capital
Research Global Investors with the SEC on February 11, 2010 and a Schedule
13G/A filed by Capital World Investors on February 11,
2010. Capital World Investors is deemed to be the beneficial
owner of 4,176,600 shares of common stock as a result of Capital Research
and Management Company acting as investment advisor to various investment
companies registered under Section 8 of the Investment Company Act of
1940.
|
(2)
|
Information
regarding these shares is based on a Schedule 13G filed by FMR LLC, a
parent holding company, with the SEC on March 10, 2010. FMR is
deemed to be the beneficial owner of 4,050,817 shares of common stock as a
result of Fidelity Management and Research Company, a wholly owned
subsidiary of FMR, acting as investment advisor to various investment
companies registered under Section 8 of the Investment Company Act of
1940.
|
(3)
|
Information
regarding these shares is based on a joint Schedule 13G/A filed by
Nierenberg Investment Management Company, Inc. for all reporting persons
as a group with the SEC on February 12, 2010. Beneficial
ownerships consists of 452,500 shares of common stock held by The D3
Family Fund, L.P., 1,810,100 shares of common stock held by The D3 Family
Bulldog Fund, L.P., 200,745 shares of common stock held by The D3 Family
Canadian Fund, L.P. and 418,802 shares of common stock by The DIII
Offshore Fund, L.P.
|
(4)
|
Information
regarding these shares is based on a Schedule 13G filed by BlackRock, Inc.
with the SEC on January 29, 2010. BlackRock, Inc. is deemed to
be the beneficial owner of 2,562,845 shares of common stock as a result of
its completed acquisition of Barclays Global Investors from Barclays Bank
PLC.
|
(5)
|
Information
regarding these shares is based on a Schedule 13G filed by Robeco
Investment Management, Inc. with the SEC on February 9, 2010 and is deemed
to be the beneficial owner of 2,218,803 shares of common stock for the
discretionary account of certain clients.
|
(6)
|
Beneficial
ownership consists of 400,000 shares of common stock held by The
Robert O. Carr 2001 Charitable Remainder Unitrust, 217,691 shares of
common stock held by The Robert O. Carr 2000 Irrevocable Trust for Emily
Carr, options to purchase 241,250 shares of common stock under our 2000
Equity Incentive Plan which are exercisable within 60 days of March 31,
2010, and 66,250 Restricted Stock Units which will vest within 60 days of
March 31, 2010. Mr. Carr disclaims beneficial ownership of The
Robert O. Carr 2001 Charitable Remainder Unitrust, and The Robert O.
Carr 2000 Irrevocable Trust for Emily Carr. On February 12, 2010, Robert
O. Carr and Jill A. Carr jointly filed a Schedule 13G/A regarding purchase
of 125,000 shares of common stock each.
|
(7)
|
Beneficial
ownership consists of 473,681 shares of common stock held directly by
Mr. Baldwin, 140 shares of common stock held in the Heartland Payment
Systems, Inc. 401(K) Plan, 91,325 shares of common stock held by Margaret
J. Sieck and Whitney H. Baldwin as Trustees for an Indenture created
June 30, 2004, options to purchase 333,736 shares of common stock
under 2000 Equity Incentive Plan which are exercisable within 60 days of
March 31, 2010 and 6,500 Restricted Stock Units which will vest within 60
days of March 31,2010.
|
(8)
|
Beneficial
ownership consists of 25,454 shares of common stock held by
Mr. Brown, and options to purchase 88,783 shares of common stock
under our 2000 Equity Incentive Plan and 2008 Equity Incentive Plan which
are exercisable within 60 days of March 31, 2010 and 3,750 Restricted
Stock Units which will vest within 60 days of March 31,
2010.
|
(9)
|
Beneficial
ownership consists of 1,500 shares of common stock held by Mr. Kallenbach,
and options issued to Mr. Kallenbach to purchase 47,500 shares of
common stock under our 2000 Equity Incentive Plan which are exercisable
within 60 days of March 31, 2010 and 3,750 Restricted Stock Units which
will vest within 60 days of March 31, 2010.
|
(10)
|
Beneficial
ownership consists of options issued to Mr. Elefant to
purchase 11,250 shares of common stock under our 2008 Equity Incentive
Plan which are exercisable within 60 days of March 31,
2010
|
(11)
|
Beneficial
ownership consists of 55,596 shares of common stock held by
Mr. Hollin, and options to purchase 26,250 shares of common stock
under our 2008 Equity Incentive Plan and 2000 Equity Incentive Plan which
are exercisable within 60 days of March 31, 2010.
|
(12)
|
Beneficial
ownership consists of 224,215 shares of common stock held by
Mr. Niehaus; 8,385 shares held by The Niehaus Family Limited Trust;
4,024 shares held by The Robert and Kate Niehaus Foundation; 3,000 shares
held by The John Robert Niehaus 1994 Trust; 3,000 shares held by The Peter
Southworth Niehaus 1994 Trust; 3,000 shares held by The Ann Southworth
Niehaus 1994 Trust; and options to purchase 26,250 shares of common stock
under our 2008 Equity Incentive Plan and 2000 Equity Incentive Plan, which
are exercisable within 60 days of March 31, 2010.
|
(13)
|
Beneficial
ownership consists of 15,000 shares of common stock held by Dr. Ostro and
options to purchase 56,250 shares of common stock under our 2008 Equity
Incentive Plan and 2000 Equity Incentive Plan which are exercisable within
60 days of March 31, 2010. Dr. Ostro serves as the trustee of
The Jill A Carr 2000 Irrevocable Trust for Hilary Holland Carr and has
voting and dispositive power over the 247,755 shares of common stock held
by The Jill A Carr 2000 Irrevocable Trust for Hilary Holland
Carr. Dr. Ostro does not have a pecuniary interest in any of
the shares of common stock owned by The Jill A Carr 2000 Irrevocable Trust
for Hilary Holland Carr.
|
(14)
|
Beneficial
ownership consists of 39,321 shares of common stock held by
Mr. Palmer, and options to purchase 26,250 shares of common stock
under our 2008 Equity Incentive Plan and 2000 Equity Incentive Plan, which
are exercisable within 60 days of March 31, 2010.
|
(15)
|
Beneficial
ownership consists of 6,000 shares of common stock held by
Mr. Raymond, and options to purchase 26,250 shares of common stock
under our 2008 Equity Incentive Plan and 2000 Equity Incentive Plan, which
are exercisable within 60 days of March 31, 2010.
|
(16)
|
Beneficial
ownership consists of options held by Mr. Vague to purchase 21,250
shares of common stock under our 2008 Equity Incentive Plan and 2000
Equity Incentive Plan which are exercisable within 60 days of March 31,
2010.
|
(17)
|
Includes
options to purchase an aggregate of 905,019 shares of common stock under
our 2008 Equity Incentive Plan and 2000 Equity Incentive Plan which are
exercisable within 60 days of March 31, 2010 and 80,250 Restricted Stock
Units which will vest within 60 days of March 31,
2010.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Other
than the transactions described below, there has not been, nor is there
currently planned, any related party transaction or series of similar
transactions to which we were or are a party in which the amount involved
exceeds $120,000 and in which any related party had or will have a direct or
indirect material interest. The term “related party transaction”
shall refer to transactions required to be disclosed by us pursuant to Item 404
of Regulation S-K promulgated by the SEC.
We have
granted options under our stock option plans to some of our executive
officers. We have also entered into indemnification agreements with
each of our executive officers and Directors. See sections entitled, “Potential
Payments Upon Termination or Change in Control” and “Indemnification
Arrangements,” above.
All
future related party transactions, including sales of stock, options or
warrants, loans of any kind, or similar transactions, if any, will be approved
by a majority of the Board of Directors, including a majority of the independent
and disinterested outside Directors, and will be on terms no less favorable to
us than could be obtained from unaffiliated third parties. Our
policies on these types of related party transactions are contained in our
Corporate Governance Guidelines and can be accessed at www.heartlandpaymentsystems.com.
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
Independent
Public Accountants
Deloitte & Touche LLP
(“Deloitte”) served as our independent registered public accounting firm for the
years ending December 31, 2009 and 2008.
Audit
Fees
The
aggregate fees billed by Deloitte for professional services rendered for the
audit of our annual financial statements, the reviews of the financial
statements included in our quarterly reports on Form 10-Q, and services that are
normally provided by the independent registered public accounting firm in
connection with statutory and regulatory filings or engagements were $1,227,279
for 2009 and $1,290,062 for 2008.
Audit-Related
Fees
The
aggregate fees billed by Deloitte for professional services rendered for
assurance and related services that are related to the performance of the audit
or review of our financial statements were $253,141 for 2008.
Audit-related fees paid in 2008 related to services associated with the 2008
acquisition of Network Services and the 2007 acquisition of General
Meters. No fees were billed by Deloitte for professional services under
this category for 2009.
Tax
Fees
The
aggregate fees billed by Deloitte for professional services rendered for tax
compliance, tax advice, and tax planning were $91,367 for 2009 and $327,400 for
2008. The fees primarily related to services provided in connection with our tax
return preparation and compliance and sales tax return preparation and
compliance.
All
Other Fees
No other
fees were billed by Deloitte in 2009 or 2008.
Audit
Committee Pre-Approval Policies
Our Audit Committee pre-approves any
audit and audit-related services and any permissible non-audit services provided
by Deloitte prior to the commencement of the services. In determining
whether to pre-approve a non-audit service, the Audit Committee considers
whether providing the non-audit services is compatible with maintaining the
auditor’s independence. To minimize potential impairments to the
objectivity of the independent auditor, it has been the Audit Committee’s
practice to limit the non-audit services that may be provided by our independent
registered accounting firm to tax return, compliance and planning services.
All of
the services described under the captions Audit Fees, Audit-Related Fees, Tax
Fees, and All Other Fees were approved by the Audit Committee in accordance with
the foregoing policy.
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The
members of the Compensation Committee during 2009 included Messrs. Hollin,
Niehaus and Palmer. None of our executive officers serves on the
board of directors or compensation committee of a company that has an executive
officer that serves on our board of directors or the Compensation Committee. No
member of our Compensation Committee has ever been an officer or employee of
ours. There are no family relationships among any of our Directors or
executive officers.
CODE
OF ETHICS
We have
adopted a Code of Ethics for Senior Financial Officers that applies to our Chief
Executive Officer (i.e., principal executive officer), Chief Financial Officer
(i.e., principal financial officer), principal accounting officer, controller
and any other person performing similar functions. We believe our
Code of Ethics complies with the requirements of Item 406 of Regulation S-K and
a copy of our Code of Ethics is available on the Corporate Governance page of
our website at www.heartlandpaymentsystems.com.
SECTION
16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under
Section 16(a) of the Exchange Act and SEC rules, our directors, executive
officers and beneficial owners of more than 10% of any class of equity security
are required to file reports of their ownership, and changes in that ownership,
with the SEC. Based solely on our review of copies of these reports and
representations of such reporting persons, we believe that during the
year ended December 31, 2009, such SEC filing requirements were satisfied,
except for late filings made by Robert H. Niehaus, Jonathan J. Palmer, and
Richard W. Vague who each inadvertently filed a late Form 4 on April 21, 2010
reporting a stock option grant received on May 11, 2009 and late filings made by
Mitchell L. Hollin, Marc J. Ostro, Ph.D., and George F. Raymond who each
inadvertently filed a late Form 4 on April 22, 2010 reporting a stock option
grant received on May 11, 2009.
STOCKHOLDER
PROPOSALS FOR 2011 ANNUAL MEETING
All
stockholder proposals intended to be presented at our 2011 annual meeting and
included in next year’s Proxy Statement must be submitted in writing to:
Nominating/Corporate Governance Committee, c/o Charles Kallenbach, Heartland
Payment Systems, Inc., 90 Nassau Street, Princeton, New Jersey
08542. In accordance with the Rule 14a-8 under the Exchange Act, to
be considered timely, these stockholder proposals must be received by us no
later than December 28, 2011, and must comply in all other respects with the
Company’s Bylaws and applicable rules and regulations of the Securities and
Exchange Commission relating to such inclusion. Under the Company’s Bylaws, any
such proposal submitted with respect to our 2011 annual meeting which is
submitted outside the requirements of Rule 14a-8 under the Exchange Act will be
considered untimely if we do not receive written notice of that proposal at
least one hundred twenty (120) days prior to the date of the 2011 annual
meeting.
In
addition, if the Company is not notified by January 25, 2011 of a proposal to be
brought before the 2011 annual meeting by a stockholder, then proxies held by
management may provide the discretion to vote against such proposal even though
it is not discussed in the Proxy Statement for such meeting.
In
accordance with notices previously sent to many stockholders who hold their
shares through a bank, broker or other holder of record (a “street-name
stockholder”) and share a single address, only one Annual Report and Proxy
Statement is being delivered to that address unless contrary instructions from
any stockholder at that address were received. This practice, known
as “householding,” is intended to reduce the Company’s printing and postage
costs. However, any such street-name stockholder residing at the same
address who wishes to receive a separate copy of this Proxy Statement or
accompanying Annual Report may request a copy by contacting the bank, broker or
other holder of record, or Charles Kallenbach at the Company by telephone at:
(609) 683-3831, extension 2224. The voting instruction sent to a
street-name stockholder should provide information on how to request (1)
householding of future Company materials or (2) separate materials if only one
set of documents is being sent to a household. If it does not, a stockholder who
would like to make one of these requests should contact the Company as indicated
above.
Important
Notice Regarding The Availability of Proxy Material for the Stockholder Meeting
To Be Held On May 14, 2010.
The
Proxy Statement is available under the “Proxy Materials” link on our investor
relations website at www.heartlandpaymentsystems.com/investor.aspx.
The
Annual Meeting will be held at the Nassau Inn, 10 Palmer Square, Princeton, New
Jersey 08540, on Friday, May 14, 2010 at 10:00 a.m. (local time), for the
following purposes:
|
1.
|
To
elect seven (7) Directors, nominated by the Board of Directors, to
our Board of Directors for terms expiring at the 2011 Annual
Meeting and until their successors are duly elected and qualified as
provided in our Bylaws;
|
|
|
|
|
2.
|
To
approve the amendment and restatement of our 2008 Equity Incentive
Plan;
|
|
|
|
|
3.
|
To
ratify the selection of Deloitte & Touche LLP as our independent
registered public accounting firm for the fiscal year ending December 31,
2010; and
|
|
|
|
|
4.
|
To
transact any other business that may properly come before the Annual
Meeting or any adjournments or postponements thereof.
|
The proxy
is being solicited on behalf of the Board of Directors and the Board of
Directors recommends that our stockholders vote for the approval of all
matters. The materials available at our website will include a copy
of this Proxy Statement, the Proxy Card and our 2009 Annual Report.
OTHER MATTERS
Expenses
of Solicitation
The
accompanying proxy is solicited by and on behalf of our Board of Directors, and
the entire cost of such solicitation will be borne by us. Proxies may
also be solicited by our Directors, officers and employees, without additional
compensation, by personal interview, telephone and
facsimile. Additionally, we have retained MacKenzie Partners, Inc. to
assist in the solicitation of proxies by mail, telephone or other electronic
means, or in person, for a fee of $15,000, plus reasonable out-of-pocket
expenses relating to the solicitation. Arrangements will be made with
brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation material and annual reports to the beneficial owners
of stock held of record by such persons, and we will reimburse them for
reasonable out-of-pocket and clerical expenses incurred by them in connection
therewith.
Discretionary
Authority
The
Annual Meeting is called for the specific purposes set forth in the Notice of
Meeting and discussed above, and also for the purpose of transacting such other
business as may properly come before the Annual Meeting. At the date
of this Proxy Statement, we do not expect that any other matters will be
submitted for consideration at the Annual Meeting other than those specifically
referred to above. If any other matters properly come before the
Annual Meeting, the proxy holders will be entitled to exercise discretionary
authority to the extent permitted by applicable law.
By
Order of the Board of Directors,
|
|
/s/ Charles H.N.
Kallenbach
|
General
Counsel, Chief Legal Officer and Corporate Secretary
|
Date:
April 23, 2010
|
2008
EQUITY INCENTIVE PLAN
(As
Amended and Restated Effective as of May 14, 2010)
1.1 General
Purpose. The purpose of the Plan is to promote the success of
Heartland Payment Systems, Inc. (the “Company”) by creating an
incentive compensation arrangement that will assist the Company and its
Affiliates in (i) encouraging ownership in the Company by service
personnel, and thereby encouraging such persons to act in the stockholders’
interest, and (ii) attracting and retaining service personnel with
exceptional abilities.
1.2 Eligible Award
Recipients. The persons eligible to receive Awards are the
Employees, Directors, and Consultants of the Company and its
Affiliates.
1.3 Available
Awards. The types of Awards that may be granted under the Plan
include, but are not limited to: (i) Incentive Stock Options,
(ii) Nonstatutory Stock Options, (iii) Restricted Stock Bonuses,
(iv) Stock Appreciation Rights, (v) Phantom Stock Units,
(vi) Restricted Stock Units, (vii) Performance Share Bonuses,
(viii) Performance Share Units and (ix) Performance Cash
Bonuses.
2.1 “Administrator” means
the Board, any Committee or such delegates as shall be administering the Plan in
accordance with Section 3 of the Plan.
2.2 “Affiliate” means
an entity that is directly or indirectly controlled by the Company or any entity
in which the Company has significant ownership interest as determined by the
Administrator.
2.3 “Applicable
Laws” means the requirements relating to the administration of
stock option and stock award plans under U.S. federal and state laws, any stock
exchange or quotation system on which the Company has listed or submitted for
quotation the Common Stock to the extent provided under the terms of the
Company’s agreement with such exchange or quotation system and, with respect to
Awards subject to the laws of any foreign jurisdiction where Awards are, or will
be, granted under the Plan, the laws of such jurisdiction.
2.4 “Award” means an Option, Stock
Award or Performance Cash Bonus granted in accordance with the terms of the
Plan.
2.5 “Awardee” means an
Employee, Consultant or Director of the Company or any Affiliate who has been
granted an Award under the Plan.
2.6 “Award
Agreement” means a Cash Award Agreement, Stock Award Agreement
and/or Option Agreement, which may be in written or electronic format, in such
form and with such terms and conditions as may be specified by the
Administrator, evidencing the terms and conditions of an individual
Award. Each Award Agreement is subject to the terms and conditions of
the Plan.
2.7 “Beneficial
Owner” shall have the meaning ascribed to such term in Rule
13d-3 promulgated under the Exchange Act.
2.8 “Board” means the
board of directors of the Company.
2.9 “Cause” shall have
the meaning ascribed in any individual written agreement between the Company or
any of its Affiliates and the Awardee with respect to Awards subject to such
individual agreement. If no definition of the term Cause is set forth in such an
individual written agreement, “Cause” shall include but not be
limited to, insubordination, dishonesty, other significant misconduct of any
kind and the refusal to perform Awardee’s duties and responsibilities for any
reason other than illness or incapacity.
2.10 “Change of
Control” means the occurrence of any of the following
events:
(a) The
sale, exchange, lease or other disposition, in one or a series of related
transactions, of all or substantially all of the assets of the Company to a
“person” or “group” (as such terms are defined or described in Sections 3(a)(9),
13(d)(3) or 14(d)(2) of the Exchange Act);
(b) Any
person or group is or becomes the Beneficial Owner, directly or indirectly, of
more than 50% of the total voting power of the voting stock of the Company (or
any successor to all or substantially all of the assets of the Company or any
entity which controls the Company), including by way of merger, consolidation or
otherwise;
(c) Either
a merger or consolidation of the Company with or into another person (as defined
by Section 13(d) or 14(d) of the Exchange Act) if the
stockholders of the Common Stock of the Company immediately prior to such
transaction are not the Beneficial Owners of a majority of the outstanding
common stock of the surviving company or its parent immediately after the
transaction;
(d) During
any period of two (2) consecutive years, individuals who at the beginning
of such period constituted the Board (together with any new Directors whose
election by such Board or whose nomination for election by the stockholders of
the Company was approved by a vote of at least two-thirds of the Directors of
the Company then still in office, who were either Directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board then
in office; or
(e) A
dissolution or liquidation of the Company.
2.11 “Code” means the
Internal Revenue Code of 1986, as amended.
2.12 “Committee” means a
committee of one or more members of the Board (or other individuals who are not
members of the Board to the extent allowed by Applicable Law) appointed by
the Board in accordance with Section 3.1 of the Plan.
2.13 “Common
Stock” means the common stock of the Company, par value $0.001
per share.
2.14 “Company” means
Heartland Payment Systems, Inc., a Delaware corporation.
2.15 “Consultant” means
any person, including an advisor, (i) engaged by the Company or an
Affiliate to render consulting or advisory services and who is compensated for
such services or (ii) who is a member of the board of directors of the
Company whether compensated for such services or not.
2.16 “Continuous
Service” means that the Awardee’s service with the Company or
an Affiliate, whether as an Employee, Director, or Consultant, is not
interrupted or terminated, as determined in the sole discretion of the
Administrator. The Awardee’s Continuous Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Awardee
renders service to the Company or an Affiliate as an Employee, Consultant, or
Director, or a change in the entity for which the Awardee renders such service,
provided that there is no interruption or termination of the Awardee’s
Continuous Service. For example, a change in status from an Employee of the
Company to a Consultant of an Affiliate or a Director will not constitute an
interruption of Continuous Service. The Administrator may determine
whether Continuous Service shall be considered interrupted in the case of any
given leave of absence; provided, however, that for purposes of the Plan
(i) a leave of absence, duly authorized in writing by the Company for
military leave or sickness, or for any other purpose approved by the Company if
the period does not exceed ninety (90) days, and (ii) in the case of
an Employee, a leave of absence in excess of ninety (90) days, duly
authorized in writing by the Company, provided the Employee’s right to
employment is guaranteed either by statute or contract, shall not be considered
an interruption of Continuous Service. For Incentive Stock Option
purposes, an Awardee’s Continuous Service will be deemed to have been
interrupted when the Awardee ceases to be an employee of the Company or a
Subsidiary as determined in accordance with Section 3401(c) of the Code and
the regulations promulgated thereunder.
2.17 “Conversion
Award” shall mean an Award issued by the Company in assumption
of, or in substitution or exchange for, awards previously granted by an entity
acquired by the Company or any Subsidiary.
2.18 “Covered
Employee” means an officer of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code, as such
determination may be amended from time to time.
2.19 “Director” means a
member of the Board of Directors of the Company.
2.20 ”Disability” means
the permanent and total disability of a person within the meaning of Section
22(e)(3) of the Code for all Incentive Stock Options. For all other Awards,
“Disability” means the Awardee (a) is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or can be expected to last
for a continuous period of not less than twelve (12) months or
(b) is qualified to receive long-term disability benefits under an
applicable accident and health plan of the Company or an Affiliate.
2.21 “Dividend
Equivalent” means a credit, made at the discretion of the
Administrator, to the account of a Participant in an amount equal to the cash
dividends paid on one (1) share of Common Stock for each share of
Common Stock represented by a Full-Value Stock Award held by such
Participant.
2.22 “Employee” means
any person employed by the Company or an Affiliate. Service as a Director or
compensation by the Company or an Affiliate solely for services as a Director
shall not be sufficient to constitute “employment” by the Company or an
Affiliate. The Administrator shall determine whether or not the
chairman of the Board qualifies as an “Employee.” Within the limitations of
Applicable Law, the Administrator shall have the discretion to determine the
effect upon an Award and upon an individual’s status as an Employee in the case
of (i) any individual who is classified by the Company or its Affiliate as
leased from or otherwise employed by a third party or as intermittent or
temporary, even if any such classification is changed retroactively as a result
of an audit, litigation or otherwise, and (ii) at the request of the
Company or an Affiliate an Employee becomes employed by any partnership, joint
venture or corporation not meeting the requirements of an Affiliate in which the
Company or an Affiliate is a party.
2.23 “Exchange
Act” means the Securities Exchange Act of 1934, as
amended.
2.24 “Fair Market
Value” means, as of any date, the value of a Share of Common
Stock or other property as determined by the Administrator, in its discretion,
or by the Company, in its discretion, if such determination is expressly
allocated to the Company herein, subject to the following:
(a) If
the Common Stock is listed on a national or regional securities exchange or
market system, including without limitation the NASDAQ Stock Market or the New
York Stock Exchange, the Fair Market Value of a Share of Common Stock shall be
the closing sales price for such stock, as quoted on such exchange or market
constituting the primary market for the Common Stock on the date of
determination, as reported in The Wall Street Journal or
such other source as the Administrator deems reliable. If the
relevant date does not fall on a day on which the Common Stock has traded on
such securities exchange or market system, the date on which the Fair Market
Value shall be established shall be the closing sales price on the last day on
which the Common Stock was so traded prior to the relevant date, or such other
appropriate day as shall be determined by the Administrator, in its
discretion.
(b) If
the Common Stock is regularly quoted by a recognized securities dealer but
selling prices are not reported, the Fair Market Value of a Share of Common
Stock shall be the mean between the high bid and low asked prices for the Common
Stock on the day of determination, as reported in The Wall Street Journal or
such other source as the Administrator deems reliable.
(c) In
the absence of such markets for the Common Stock, the Fair Market Value shall be
determined in good faith by the Administrator.
(d) Notwithstanding
the foregoing, the Fair Market Value of the Common Stock shall at all times be
determined in a manner consistent with the regulations under Section 409A of the
Code, as they may be amended from time to time.
2.25 “Full-Value Stock
Award” shall mean any of a Restricted Stock Bonus award,
Restricted Stock Unit award, Phantom Stock Unit award, Performance Share Bonus
award, or Performance Share Unit award.
2.26 “Grant Date” means,
for all purposes, the date on which the Administrator approves the grant of an
Award, or such later date as is determined by the Administrator, provided that
in the case of any Incentive Stock Option, the grant date shall be the later of
the date on which the Administrator makes the determination granting such
Incentive Stock Option or the date of commencement of the Awardee’s employment
relationship with the Company.
2.27 “Harmful
Conduct” means a breach in any material respect of an
agreement not to reveal confidential information regarding the business
operations of the Company or any Affiliate, or to refrain from solicitation of
customers, suppliers or employees of the Company or any Affiliate.
2.28 “Incentive Stock
Option” means an Option intended to qualify as an incentive
stock option within the meaning of Section 422 of the Code and the regulations
promulgated thereunder.
2.29 “Non-Employee
Director” means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or a subsidiary, does
not receive compensation (directly or indirectly) from the Company or its
parent or a subsidiary for services rendered as a consultant or in any capacity
other than as a Director (except for an amount as to which disclosure would not
be required under Item 404 of Regulation S-K promulgated pursuant to the
Securities Act (“Regulation
S-K”)), does not possess an interest in any other transaction as to which
disclosure would be required under Item 404 of Regulation S-K and is not engaged
in a business relationship as to which disclosure would be required under Item
404 of Regulation S-K; or (ii) is otherwise considered a “non-employee
director” for purposes of Rule 16b-3.
2.30 “Nonstatutory Stock
Option” means an Option not intended to qualify as an
Incentive Stock Option.
2.31 “Officer” means a
person who is an officer of the Company within the meaning of Section 16 of the
Exchange Act and the rules and regulations promulgated thereunder.
2.32 “Option” means a
right granted under Section 6 to purchase a number of Shares at such
exercise price, at such times, and on such other terms and conditions as are
specified in the agreement or other documents evidencing the Option (the “Option
Agreement”). Both Options intended to qualify as Incentive
Stock Options and Nonstatutory Stock Options may be granted under the
Plan.
2.33 “Outside
Director” means a Director who either (i) is not a
current employee of the Company or an “affiliated corporation” (within the
meaning of Treasury Regulations promulgated under Section 162(m) of the
Code), is not a former employee of the Company or an “affiliated corporation”
receiving compensation for prior services (other than benefits under a tax
qualified pension plan), was not an officer of the Company or an “affiliated
corporation” at any time and is not currently receiving direct or indirect
remuneration from the Company or an “affiliated corporation” for services in any
capacity other than as a Director; or (ii) is otherwise considered an
“outside director” for purposes of Section 162(m) of the Code.
2.34 “Participant” means
the Awardee or any person (including any estate) to whom an Award has been
assigned or transferred as permitted hereunder.
2.35 “Performance Cash
Bonus” means a bonus opportunity awarded under Section 7
pursuant to which a Participant may become entitled to receive an amount based
on the
satisfaction
of such performance criteria as are specified in the agreement or other
documents evidencing the Award (the “Cash Award
Agreement”).
2.36 “Performance Share
Bonus” means a grant of Shares of the Company’s Common Stock
not requiring a Participant to pay any amount of monetary consideration, and
subject to the provisions of Section 8.6 of the Plan.
2.37 “Performance Share
Unit” means the right to receive one (1) Share of the
Company’s Common Stock at the time the Performance Share Unit vests, subject to
the provisions of Section 8.7 of the Plan.
2.38 “Phantom Stock
Unit” means the right to receive the value of one
(1) Share of the Company’s Common Stock, subject to the provisions of
Section 8.4 of the Plan.
2.39 “Plan” means this
Heartland Payment Systems, Inc. 2008 Equity Incentive Plan, as amended and
restated.
2.40 “Qualifying Performance
Criteria” shall have the meaning set forth in
Section 12.2(a) of the Plan.
2.41 “Restricted Stock Bonus” means
a grant of Shares of the Company’s Common Stock not requiring a Participant to
pay any amount of monetary consideration, subject to the provisions of
Section 8.2 of the Plan.
2.42 ”Restricted Stock Unit” means
the right to receive one (1) Share of the Company’s Common Stock at the
time the Restricted Stock Unit vests, subject to the provisions of
Section 8.5 of the Plan.
2.43 “Rule 16b-3” means Rule 16b-3
promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect
from time to time.
2.44 “Securities Act” means the
Securities Act of 1933, as amended.
2.45 “Share” means one
(1) share of the Common Stock, as adjusted in accordance with
Section 13 of the Plan.
2.46 “Stock Appreciation
Right” means the right to receive an amount equal to the Fair
Market Value of one (1) Share of the Company’s Common Stock on the day the
Stock Appreciation Right is exercised and redeemed, reduced by the deemed
exercise price or base price of such right, subject to the provisions of
Section 8.3 of the Plan.
2.47 “Stock Award” means
an award or issuance of Shares, Restricted Stock Bonus award, Stock Appreciation
Right award, Phantom Stock Unit award, Restricted Stock Unit award, Performance
Share Bonus award, Performance Share Unit award, or other stock-based award made
under Section 8 of the Plan, the grant, issuance, retention, vesting,
settlement, and/or transferability of which is subject during specified periods
of time to such conditions (including continued employment or performance
conditions) and terms as are expressed in the agreement or other documents
evidencing the Award (the “Stock Award
Agreement”).
2.48 “Subsidiary” means
any subsidiary corporation of the Company, whether now or hereafter existing, as
such term is defined in Section 424(f) of the Code.
2.49 “Ten Percent
Stockholder” means a person who owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of
the Company or of any of its Affiliates.
3.1 Procedure.
(a) Multiple Administrative
Bodies. The Plan shall be administered by the Board, a
Committee and/or their delegates.
(b) Section 162(m). To
the extent that the Administrator determines it to be desirable to qualify
Awards granted hereunder as “performance-based compensation” within the meaning
of Section 162(m) of the Code, Awards to Covered Employees or
Employees that the Administrator determines may be Covered Employees in the
future shall be made by a Committee of two or more Outside
Directors.
(c) Rule 16b-3. To
the extent desirable to qualify transactions hereunder as exempt under
Rule 16b-3, Awards to Officers and Directors shall be made by the entire
Board or a Committee of two or more Non-Employee Directors.
(d) Delegation of
Authority. The Board or a Committee may delegate to an
authorized officer or officers of the Company the power to approve Awards to
persons eligible to receive Awards under the Plan who are not (i) subject
to Section 16 of the Exchange Act or (ii) at the time of such
approval, Covered Employees or (iii) any other executive
officer. Except to the extent prohibited by Applicable Law, the
Administrator may delegate to one or more individuals the day-to-day
administration of the Plan and any of the functions assigned to it in this
Plan. Such delegation may be revoked at any time.
(e) Compliance with Listing
Requirements. The Plan will be administered in a manner
that complies with any applicable stock exchange listing
requirements.
3.2 Powers of the
Administrator. Subject to the provisions of the Plan
and, in the case of a Committee or delegates acting as the Administrator,
subject to the specific duties delegated to such Committee or delegates, the
Administrator shall have the authority, in its discretion:
(a) To
determine from time to time which of the persons eligible under the Plan shall
be granted Awards; when and how each Award shall be granted; what type or
combination of types of Awards shall be granted; the provisions of each Award
granted (which need not be identical), including the number of Shares of Common
Stock or amount of cash to be covered by each Award granted hereunder, the
exercise and/or purchase price (if applicable), the vesting schedule, any
vesting and/or exercisability acceleration or waiver of forfeiture restrictions,
the acceptable forms of consideration, the time or times when a person shall be
permitted to receive cash and/or Common Stock pursuant to an Award (which may or
may not be based on performance criteria), the term, and any restriction or
limitation regarding any Award or the Shares relating thereto, based in each
case on such factors as the Administrator, in its sole discretion, shall
determine and may be established at the time an Award is granted or
thereafter.
(b) To
construe and interpret the Plan and Awards granted under it, and to establish,
amend and revoke rules and procedures for its administration, including rules
and procedures relating to sub-plans, Plan addenda and Conversion Awards. The
Administrator, in the exercise of this power, may correct any defect, omission
or inconsistency in the Plan or in any Award Agreement, in a manner and to the
extent it shall deem necessary or expedient to make the Plan fully
effective.
(c) To
amend the Plan or an Award as provided in Section 14 of the Plan.
(d) To
adopt rules and procedures (including sub-plans and/or special
provisions) relating to the operation and administration of the Plan to
accommodate the specific requirements of local laws and procedures of a
jurisdiction other than and outside of the United States, including without
limitation determining: (i) the exercise or redemption price of Awards,
(ii) the definition of “Fair Market Value” for purposes of the Plan,
(iii) the applicable vesting schedule, (iv) the permissible methods of
exercise, (v) the conversion of local currency, withholding procedures and
handling of stock certificates which vary with local requirements, (vi) the
procedure for designating a beneficiary in the event of a Participant’s death,
if such designation is to be permitted, (vii) the term of an Award, and
(viii) the terms and conditions of the applicable Award
Agreement. Such rules and procedures may take precedence over other
provisions of the Plan, with the exception of Section 4 and Section 11 of the
Plan; however, unless otherwise superseded by the terms of such rules and
procedures, the provisions of the Plan shall govern.
(e) To
authorize any person to execute on behalf of the Company any instrument required
to effectuate the grant of an Award previously granted by the
Administrator.
(f) To
determine whether Awards will be settled in shares of Common Stock, cash or in
any combination thereof.
(g) To
determine whether Full-Value Stock Awards, but not Options or Stock Appreciation
Rights, will be adjusted for Dividend Equivalents.
(h) To
impose such restrictions, conditions or limitations as it determines appropriate
as to the timing and manner of any resales by a Participant or other subsequent
transfers by the Participant of any shares of Common Stock issued as a result of
or under an Award, including, without limitation, (i) restrictions under an
insider trading policy or under any other Company policy relating to Company
stock and stock ownership and (ii) restrictions as to the use of a
specified brokerage firm for such resales or other transfers.
(i) To
provide, either at the time an Award is granted or by subsequent action, that an
Award shall contain as a term thereof, a right, either in tandem with the other
rights under the Award or as an alternative thereto, of the Participant to
receive, without payment to the Company, a number of shares of Common Stock,
cash or a combination thereof, the amount of which is determined by reference to
the value of the Award.
(j) To
allow Participants to satisfy any U.S. federal, state, local, or foreign tax
withholding obligation relating to the grant, issuance, vesting, exercise or
settlement of an Award by any of the following means (in addition to the
Company’s right to withhold
from any
compensation paid to the Participant by the Company) or by a combination of
such means: (i) tendering a cash payment; (ii) authorizing the Company
to withhold Shares of Common Stock from the Shares of Common Stock otherwise
issuable to the Participant, provided, however, that no Shares of Common Stock
are withheld with a value exceeding the minimum amount of tax required to be
withheld by law; or (iii) subject to the provisions of Section 12.6(d)
below, delivering to the Company Shares of Common Stock owned by such
Participant and unencumbered.
(k) Generally,
to exercise such powers and to perform such acts as the Administrator deems
necessary, desirable, convenient or expedient to promote the best interests of
the Company that are not in conflict with the provisions of the
Plan.
3.3 Effect of Administrator’s
Decision. All decisions, determinations and
interpretations by the Administrator regarding the Plan, any rules and
regulations under the Plan and the terms and conditions of any Award granted
hereunder, shall be final and binding on all Participants and on all other
persons. The Administrator shall consider such factors as it deems
relevant, in its sole and absolute discretion, to making such decisions,
determinations and interpretations including, without limitation, the
recommendations or advice of any officer or other employee of the Company and
such attorneys, consultants and accountants as it may select.
4.
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SHARES
SUBJECT TO THE PLAN
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4.1 Share
Reserve.
(a) Subject
to the provisions of Section 13 of the Plan relating to adjustments upon
changes in Common Stock, effective as of January 1, 2010 the maximum aggregate
number of Shares of Common Stock that may be issued pursuant to Awards shall not
exceed 7,700,000 Shares (the “Share Reserve”). Notwithstanding any other
provision of the Plan to the contrary, the maximum aggregate number of Shares of
Common Stock that may be issued under the Plan pursuant to Incentive Stock
Options effective as of January 1, 2010 is 6,700,000 Shares of Common Stock
(“ISO Limit”), subject
to the adjustments provided for in Section 13 of the Plan.
(b) Each
Share of Common Stock subject to an Option granted after December 31, 2009 shall
reduce the Share Reserve by one (1) Share; each Share of Common Stock
subject to a Stock Appreciation Right granted after December 31, 2009 shall
reduce the Share Reserve by one (1) Share; and each Share of Common Stock
subject to a Full-Value Stock Award granted after December 31, 2009 shall reduce
the Share Reserve by one and nine tenths (1.9) Shares (for each such
Option, Stock Appreciation Right or Full-Value Award, as applicable, the “Reserve Deduction Rate”).
(c) Notwithstanding
the foregoing, the Share Reserve shall not be reduced in the case of issuance of
Conversion Awards. Additionally, in the event that an entity acquired by the
Company or any Subsidiary or with which the Company or any Subsidiary combines
has shares available under a pre-existing plan approved by the stockholders of
such entity and not adopted in contemplation of such transaction, the shares
available for grant pursuant to the terms of such pre-existing plan (as
adjusted, to the extent appropriate, using the exchange ratio or other
adjustment or valuation ratio or formula used in such transaction to determine
the consideration payable to the holders of common stock of the entities party
to such transaction) may be used for Awards under the Plan and
shall not
reduce the Share Reserve; provided that the issuance of such Awards shall comply
in all cases with any applicable stock exchange listing
requirements.
4.2 Reversion of Shares to the
Share Reserve. If any Award granted under the Plan or
the Company’s Amended and Restated 2000 Equity Incentive Plan (the “2000 Plan”)
shall for any reason after December 31, 2009 (i) expire, be cancelled, be
settled in cash (in whole or in part), or otherwise terminate, in whole or in
part, without having been exercised or redeemed in full, (ii) be reacquired
by the Company prior to vesting, or (iii) be repurchased at cost by the
Company prior to vesting, the Shares of Common Stock that are terminated or
acquired under such Award shall revert or be added to the Share Reserve using
the same Reserve Deduction Rate as set forth in Section 4.1(b) above, and
thereafter, become available for issuance under the Plan. Notwithstanding the
foregoing, Shares of Common Stock (whether awarded under the Plan or the 2000
Plan) shall not revert nor be added back to the Share Reserve, and such Shares
shall not thereafter become available for issuance under the Plan upon or in
respect of: (a) Shares tendered in payment, in whole or in part, of the
exercise price of Options, (b) Shares withheld by the Company to satisfy
any tax withholding obligation, (c) Shares subject to a Stock Appreciation Right
that are not issued in connection with its stock settlement on exercise thereof
and (d) Shares repurchased by the Company on the open market using option
exercise proceeds.
4.3 Source of
Shares. The Shares of Common Stock subject to the Plan
may be unissued Shares or reacquired Shares, bought on the market or otherwise,
subject to the limitations set forth in Section 4.2 of the
Plan.
4.4 Annual
Section 162(m) Limitation. Subject to the
provisions of Section 13 of the Plan relating to adjustments upon changes
in the Shares of Common Stock, solely for purposes of Awards intended to comply
with Code Section 162(m), no Participant shall be eligible to be granted
Incentive Stock Options, Nonstatutory Stock Options or Stock Appreciation Rights
covering more than 1,812,500 Shares of Common Stock during any fiscal year, and
no Participant shall be eligible to receive Restricted Stock Bonus awards,
Restricted Stock Unit awards, Phantom Stock Unit awards, Performance Share Bonus
awards or Performance Share Unit awards covering more than 671,296 Shares of
Common Stock during any fiscal year; provided that in connection with his or her
first commencing service with the Company or an Affiliate, an Awardee may be
granted Options or Stock Appreciation Rights covering not more than an
additional 1,812,500 Shares of Common Stock, and Restricted Stock Bonus awards,
Restricted Stock Unit awards, Phantom Stock Unit awards, Performance Share Bonus
awards or Performance Share Unit awards covering not more than an additional
671,296 Shares of Common Stock, during the year in which such service commences,
which shall not count against the limit set forth in the preceding
sentence. Notwithstanding anything to the contrary in the Plan, the
limitations set forth in this Section 4.4 shall be subject to adjustment
under Section 13 of the Plan only to the extent that such adjustment will
not affect the status of any Award intended to qualify as “performance based
compensation” under Code Section 162(m).
5.1 Eligibility for Specific
Awards. Incentive Stock Options may be granted only to
Employees of the Company or a Subsidiary of the Company. Awards other
than Incentive Stock Options may be granted to Employees, Directors, and
Consultants.
5.2 Ten Percent
Stockholders. A Ten Percent Stockholder shall not be
granted an Incentive Stock Option unless the exercise price of such Option is at
least one hundred ten percent
(110%) of
the Fair Market Value of the Common Stock at the Grant Date and the Option is
not exercisable after the expiration of five (5) years from the Grant
Date.
5.3 Consultants. A
Consultant shall not be eligible for the grant of an Award if, at the time of
grant, a Form S-8 Registration Statement under the Securities Act (“Form S-8”) is not
available to register either the offer or the sale of the Company’s securities
to such Consultant because of the nature of the services that the Consultant is
providing to the Company, or because the Consultant is not a natural person, or
as otherwise provided by the rules governing the use of Form S-8, unless the
Company determines both (1) that such grant (A) shall be registered in
another manner under the Securities Act (e.g., on a Form S-3 Registration
Statement) or (B) does not require registration under the Securities
Act in order to comply with the requirements of the Securities Act, if
applicable, and (2) that such grant complies with the securities laws of
all other relevant jurisdictions. (Form S-8 generally is available to
consultants and advisors only if (A) they are natural persons;
(B) they provide bona fide services to the issuer, its parent or its
majority owned subsidiaries; and (C) the services are not in connection
with the offer or sale of securities in a capital-raising
transaction, and do not directly or indirectly promote or maintain a market for
the issuer’s securities.)
6.1 Option
Agreement. Each Option shall be in such form and shall
contain such terms and conditions as the Administrator shall deem appropriate.
All Options shall be separately designated Incentive Stock Options or
Nonstatutory Stock Options at the time of grant, and, if certificates are
issued, a separate certificate or certificates will be issued for Shares of
Common Stock purchased on exercise of each type of Option. The provisions of
separate Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or
otherwise) the substance of each of the following provisions:
6.2 Term. Subject
to the provisions of Section 5.2 of the Plan regarding grants of Incentive
Stock Options to Ten Percent Stockholders, no Option shall be exercisable after
the expiration of five (5) years from the Grant Date or such shorter
term as may be provided in the Award Agreement. In the absence of a provision to
the contrary in the individual Awardee’s Option Agreement, the term of the
Option shall be five (5) years from the Grant Date.
6.3 Exercise Price of an
Option. Subject to the provisions of Section 5.2 of
the Plan regarding Ten Percent Stockholders and the provisions of
Section 3.2(d) of the Plan regarding terms applicable to non-U.S.
Participants, the exercise price of each Option shall be not less than one
hundred percent (100%) of the Fair Market Value of the Common Stock subject
to the Option on the date the Option is granted. Notwithstanding the foregoing,
an Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to a Conversion Award or
otherwise in a manner satisfying the provisions of Section 424 of the
Code.
6.4 Consideration. The
purchase price of Common Stock acquired pursuant to an Option shall be payable,
to the extent permitted by Applicable Law, by any of the following methods, as
determined at the discretion of the Administrator and set forth in an Option
Agreement:
(a) in
cash or by check or wire transfer at the time the Option is exercised
(denominated in U.S. dollars);
(b) subject
to the Company’s discretion to refuse for any reason and at any time to accept
such consideration and subject to any conditions or limitations established by
the Administrator, other Shares held by the Participant which have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised;
(c) consideration
received by the Company under a broker-assisted sale and remittance program
acceptable to the Administrator;
(d) cashless
“net exercise” arrangement pursuant to which the Company will reduce the number
of Shares issued upon exercise by the largest whole number of Shares having an
aggregate Fair Market Value that does not exceed the aggregate exercise price;
provided that the Company shall accept a cash or other payment from the
Participant to the extent of any remaining balance of the exercise price not
satisfied by such reduction in the number of whole Shares to be
issued;
(e) any
other form of consideration or method of payment permitted by Applicable Law;
or
(f) by
some combination of the foregoing.
6.5 Transferability of an
Incentive Stock Option. An Incentive Stock Option shall
not be transferable except by will or by the laws of descent and distribution
and shall be exercisable during the lifetime of the Awardee only by the
Awardee.
6.6 Transferability of a
Nonstatutory Stock Option. A Nonstatutory Stock Option
issued under this Plan shall be transferable only to the extent the
Administrator, in its sole discretion, permits such Nonstatutory Stock Option to
be assigned or transferred for estate planning purposes (i) to the Participant’s
spouse, children or grandchildren (including any adopted and step children or
grandchildren), parents, grandparents or siblings, (ii) to a trust for the
benefit of one or more of the Participant or the persons referred to in clause
(i), or (iii) to a partnership, limited liability company or corporation in
which the Participant or the persons referred to in clause (i) are the only
partners, members or shareholders, subject to the applicable limitations set
forth in the General Instructions to Form S-8 Registration Statement under
the Securities Act and any other requirements of Applicable Law. Any such
permitted transfers shall require the transferee to become subject to all of the
terms and conditions applicable to the Awardee, including, but not limited to,
the terms and conditions set forth in this Plan and the applicable Option
Agreement. If the Nonstatutory Stock Option does not provide for
transferability, then the Nonstatutory Stock Option shall not be transferable
except by will or by the laws of descent and distribution and shall be
exercisable during the lifetime of the Awardee only by the Awardee.
6.7 Vesting
Generally. Options granted under the Plan shall be
exercisable at such time and upon such terms and conditions as may be determined
by the Administrator. The vesting provisions of individual Options may vary. The
provisions of this Section 6.7 are subject to any Option provisions
governing the minimum number of Shares of Common Stock as to which an Option may
be exercised.
6.8 Termination of Continuous
Service. In the event an Awardee’s Continuous Service
terminates (other than upon the Awardee’s death or Disability), the Awardee may
exercise his or her Option (to the extent that the Awardee was entitled to
exercise such Option as of the date of termination) but only within such
period of time as is specified in the Option Agreement (and in
no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). If, after termination, the Awardee does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate. In the absence of a provision to the contrary in the individual
Awardee’s Option Agreement, the Option shall remain exercisable for a period of
(i) one (1) month in the case of a voluntary termination, and
(ii) three (3) months in the case of an involuntary dismissal other
than for Cause, following the termination of the Awardee’s Continuous Service,
subject to the provisions of Section 12.9.
6.9 Extension of Termination
Date. An Awardee’s Option Agreement may also provide
that if the exercise of the Option following the termination of the Awardee’s
Continuous Service (other than upon the Awardee’s death or Disability or
termination for Cause) would be prohibited at any time solely because the
issuance of Shares of Common Stock would violate the registration requirements
under the Securities Act or other applicable securities laws, then the Option
shall terminate on the earlier of (i) the expiration of the term of the
Option set forth in the Option Agreement and (ii) the expiration of a
period of three (3) months after the termination of the Awardee’s
Continuous Service during which the exercise of the Option would not be in
violation of such registration requirements or other applicable securities law.
The provisions of this Section 6.9 notwithstanding, in the event that a
sale of the Shares of Common Stock received upon exercise of his or her Option
would subject the Awardee to liability under Section 16(b) or Rule 10b-5 of
the Exchange Act, then the Option will terminate on the earlier of (A) the
fifteenth (15th) day after the last date upon
which such sale would result in liability, or (B) two hundred ten
(210) days following the date of termination of the Awardee’s Continuous
Service (and in no event later than the expiration of the term of the
Option).
6.10 Disability of
Awardee. In the event that an Awardee’s Continuous
Service terminates as a result of the Awardee’s Disability, the Awardee may
exercise his or her Option to the extent that the Awardee was entitled to
exercise such Option as of the date of termination, but only within such period
of time as is specified in the Option Agreement (and in no event later than the
expiration of the term of such Option as set forth in the Option Agreement). If,
after termination, the Awardee does not exercise his or her Option within the
time specified in the Option Agreement, the Option shall terminate. In the
absence of a provision to the contrary in the individual Awardee’s Option
Agreement, the Option shall remain exercisable until the earlier of (A) six
(6) months following termination of Awardee’s Continuous Service as a
result of the Awardee’s Disability, or (B) the expiration of the term of
such Option.
6.11 Death of
Awardee. In the event (i) an Awardee’s Continuous
Service terminates as a result of the Awardee’s death or (ii) the Awardee
dies within the post-termination exercise period (if any) specified in the
Option Agreement after the termination of the Awardee’s Continuous Service for a
reason other than death, then, subject to the terms of the applicable Option
Agreement, the Option may be exercised (to the extent the Awardee was entitled
to exercise such Option as of the date of death) by the Awardee’s estate,
by a person who acquired the right to exercise the Option by bequest or
inheritance or by a person designated to exercise the Option upon the Awardee’s
death pursuant to Section 12.10 of the Plan, but only within such period of
time as is specified in the Option Agreement (and in no event later than the
expiration of the term of such Option as set forth in the Option Agreement). If,
after death, the Option is not exercised within the time specified in the Option
Agreement, the Option shall terminate. In the absence of a provision to the
contrary in the individual Awardee’s Option Agreement, the Option shall remain
exercisable until the earlier of (A) twelve (12) months following
termination of Awardee’s Continuous Service as a result of the Awardee’s death,
or (B) the expiration of the term of such Option.
6.12 Termination of Unvested
Options. Unless otherwise specified in the applicable
Option Agreement, and subject to Sections 6.10, 6.11 and 12.1 of the Plan,
any Option or portion thereof that is not vested at the time of termination of
Continuous Service shall lapse and terminate, and shall not be exercisable by
the Optionee or any other person.
6.13 Early Exercise Generally Not
Permitted. The Company’s general policy is not to allow
the Awardee to exercise the Option as to any part or all of the Shares of Common
Stock subject to the Option prior to the vesting of the Option. If, however, an
Option Agreement does permit such early exercise, any unvested Shares of Common
Stock so purchased may be subject to a repurchase option in favor of the Company
or to any other restriction the Administrator determines to be
appropriate.
6.14 Incentive Stock Option
$100,000 Limitation. To the extent that the aggregate
Fair Market Value (determined at the time of grant) of Common Stock with
respect to which Incentive Stock Options are exercisable for the first time by
any Awardee during any calendar year (under all plans of the Company and its
Affiliates) exceeds one hundred thousand dollars ($100,000), or such other
limit as may be set by law, the Options or portions thereof which exceed such
limit (according to the order in
which they were granted) shall be treated as Nonstatutory Stock
Options.
6.15 Rights as a
Stockholder. The Company shall issue (or cause to be
issued) such Shares as soon as administratively practicable after the
Option is exercised. Shares issued upon exercise of an Option shall
be issued in the name of the Participant or, if requested by the Participant, in
the name of the Participant and his or her spouse. Unless provided
otherwise by the Administrator or pursuant to this Plan, until the Shares are
issued (as evidenced by the appropriate entry on the books of the Company or of
a duly authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to the
Shares subject to an Option, notwithstanding the exercise of the
Option.
7.
|
PERFORMANCE
CASH BONUS PROVISIONS
|
7.1 Performance Cash Bonus
Terms. Each Performance Cash Bonus shall contain
provisions regarding (i) the target, minimum and maximum amount payable to
the Awardee as a Performance Cash Bonus, (ii) the performance criteria
(including Qualifying Performance Criteria) and level of achievement versus
these criteria which shall determine the amount of such payment, (iii) the
period as to which performance shall be measured for establishing the amount of
any payment, (iv) the timing of any payment earned by virtue of
performance, (v) restrictions on the alienation or transfer of the
Performance Cash Bonus prior to actual payment, (vi) forfeiture provisions,
and (vii) such further terms and conditions, in each case not inconsistent
with the Plan, as may be determined from time to time by the
Administrator.
7.2 Maximum Cash Bonus
Amount. The maximum amount payable as a Performance Cash
Bonus may be a multiple of the target amount payable, but in all cases the
maximum amount payable pursuant to that portion of a Performance Cash Bonus
granted under this Plan for any fiscal year to any Awardee that is intended to
satisfy the requirements for “performance based compensation” under Section
162(m) of the Code shall not exceed U.S. $9,000,000.
7.3 Performance
Criteria. The Administrator shall establish the
performance criteria and level of achievement versus these criteria which shall
determine the target and the minimum and maximum amount payable under a
Performance Cash Bonus, which criteria may be based on financial performance
and/or personal performance evaluations. The Committee may specify
the
percentage
of the target Performance Cash Bonus that is intended to satisfy the
requirements for “performance-based compensation” under Section 162(m) of
the Code. Notwithstanding anything to the contrary herein, the
performance criteria for any portion of a Performance Cash Bonus that is
intended to satisfy the requirements for “performance-based compensation” under
Section 162(m) of the Code shall comply with the provisions of Section 12.2
of the Plan.
7.4 Timing and Form of
Payment. The Administrator shall determine the timing of
payment of any Performance Cash Bonus. The Administrator may provide
for or, subject to such terms and conditions as the Administrator may specify,
may permit an Awardee to elect for the payment of any Performance Cash Bonus to
be deferred to a specified date or event, subject to the provisions contained in
Section 12.8 of the Plan. The Administrator may specify the form
of payment of Performance Cash Bonus, which may be cash or other property, or
may provide for an Awardee to have the option for his or her Performance Cash
Bonus, or such portion thereof as the Administrator may specify, to be paid in
whole or in part in cash or other property.
7.5 Termination of Participant’s
Continuous Service. In the event a Participant’s
Continuous Service terminates, the Administrator shall have the discretion to
determine the effect such termination due to Disability or death shall have on
any Performance Cash Bonus.
8.
|
STOCK
AWARD PROVISIONS
|
8.1 Stock Award
Agreement. Each Stock Award Agreement shall be in such
form and shall contain such terms and conditions as the Administrator shall deem
appropriate. The provisions of each category of Stock Award may change from time
to time, and the terms and conditions of separate individual Stock Award
Agreements within a particular category of Stock Award need not be identical,
but each Stock Award Agreement shall include (through incorporation of
provisions hereof by reference in the Stock Award or otherwise) the
substance of each of the following provisions:
(a) Transferability.
Rights to acquire Shares of Common Stock under the Stock Award Agreement shall
be transferable by the Participant only upon such terms and conditions as are
set forth in the Stock Award Agreement, as the Administrator shall determine in
its discretion, so long as Common Stock awarded under the Stock Award remains
subject to the terms of the Stock Award Agreement.
(b) Rights as a
Stockholder. Unless otherwise provided by the
Administrator in the Award Agreement, the Participant shall have the rights
equivalent to those of a stockholder and shall be a stockholder only after
Shares are issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) to the
Participant. Dividends and Dividend Equivalents on any Stock Award that vests
based on the achievement of performance criteria shall not be paid prior to the
date the Stock Award is earned and shall be subject to the same vesting schedule
applicable to the Stock Award (including continued employment and performance
conditions).
(c) Extension of Stock
Award. A Participant’s Award Agreement may provide
that if the issuance of Shares of Common Stock would be prohibited at any time
solely because such issuance would violate the registration requirements under
the Securities Act or other applicable securities laws, then the Participant
shall be entitled to exercise, redeem or receive the Shares of Common Stock
underlying such Stock Award, as applicable, on the date that is the earlier of
(i) the expiration of the term of the Award, if
applicable,
and (ii) a period of three (3) months after the date on which such
exercise, redemption or delivery of Shares of Common Stock would not be in
violation of such registration requirement or other applicable securities laws.
The provisions of this Section 8.1 notwithstanding, in the event that a
sale of the Shares of Common Stock received pursuant to the Award would subject
the Participant to liability under Section 16(b) or Rule 10b-5 of the
Exchange Act, then, if applicable, the Award will terminate on the fifteenth
(15th) day
after the last date upon which such sale would result in liability, but in no
event later than the expiration of the term of the Award.
8.2 Restricted Stock Bonus
Awards. Restricted Stock Bonuses shall be paid by the
Company in Shares of the Common Stock of the Company. Each Restricted Stock
Bonus agreement shall include (through incorporation of provisions hereof by
reference in the agreement or otherwise) the substance of each of the
following provisions:
(a) Consideration. At the
discretion of the Administrator, a Restricted Stock Bonus may be awarded in
consideration for past services actually rendered to the Company or an Affiliate
for its benefit; provided, however, that in the case of a Restricted Stock Bonus
to be made to a new Employee, Director, or Consultant who has not performed
prior services for the Company, the Company will require payment of the par
value of the Common Stock by cash
or check to the extent required by Delaware General Corporation
Law.
(b) Vesting. Vesting
shall generally be based on the Participant’s Continuous Service. The
Administrator shall determine the vesting schedule applicable to any Restricted
Stock Bonus award. Shares of Common Stock awarded under the Restricted Stock
Bonus agreement shall be subject to a Share reacquisition right in favor of the
Company in accordance with a vesting schedule to be determined by the
Administrator.
(c) Termination of Participant’s
Continuous Service. In the event a Participant’s Continuous Service
terminates, the Company shall automatically reacquire without cost any or all of
the Shares of Common Stock held by the Participant that have not vested as of
the date of termination under the terms of the Restricted Stock Bonus
agreement.
8.3 Stock Appreciation
Rights. Two types of Stock Appreciation Rights (“SARs”) shall be
authorized for issuance under the Plan: (1) stand-alone SARs and
(2) stapled SARs.
(a) Generally.
i. The
number of Shares of Common Stock underlying each SAR and the exercise price in
effect for those Shares shall be determined by the Administrator in its sole
discretion at the time the SAR is granted. In no event, however, may the
exercise price per Share be less than one hundred percent (100%) of the
Fair Market Value per underlying Share of Common Stock on the grant date.
Notwithstanding the foregoing, a SAR may be granted with an exercise price lower
than that set forth in the preceding sentence if such SAR is granted pursuant to
a Conversion Award or otherwise in a manner satisfying the provisions of Section
424 of the Code.
ii. No
SAR shall be exercisable or redeemable after the expiration of
five (5) years after the date it was granted. In the absence of a
provision to the
contrary
in the individual’s Award Agreement, the term of the SAR shall be
five (5) years from the Grant Date.
iii. A
SAR issued under this Plan shall be transferable only to the extent the
Administrator, in its sole discretion, permits such SAR to be assigned or
transferred for estate planning purposes (i) to the Participant’s spouse,
children or grandchildren (including any adopted and step children or
grandchildren), parents, grandparents or siblings, (ii) to a trust for the
benefit of one or more of the Participant or the persons referred to in clause
(i), or (iii) to a partnership, limited liability company or corporation in
which the Participant or the persons referred to in clause (i) are the only
partners, members or shareholders, subject to the applicable limitations set
forth in the General Instructions to Form S-8 Registration Statement under
the Securities Act and any other requirements of Applicable Law. Any such
permitted transfers shall require the transferee to become subject to all of the
terms and conditions applicable to the Awardee, including, but not limited to,
the terms and conditions set forth in this Plan and the applicable Award
Agreement. If the SAR does not provide for transferability, then the SAR shall
not be transferable except by will or by the laws of descent and distribution
and shall be exercisable or redeemable during the lifetime of the Awardee only
by the Awardee.
(b) Stand-Alone SARs. The
following terms and conditions shall govern the grant and redeemability of
stand-alone SARs:
i. The
stand-alone SAR shall cover a specified number of underlying Shares of Common
Stock and shall be exercisable and redeemable upon such terms and conditions as
the Administrator may establish. Upon the exercise and redemption of the
stand-alone SAR, the holder shall be entitled to receive a distribution from the
Company in an amount equal to the excess of (i) the aggregate Fair Market
Value (on the exercise and redemption date) of the Shares of Common Stock
underlying the redeemed right over (ii) the aggregate exercise price in
effect for those Shares.
ii. The
distribution with respect to any exercised and redeemed stand-alone SAR may be
made in Shares of Common Stock valued at Fair Market Value on the exercise and
redemption date, in cash, or partly in Shares and partly in cash, as the
Administrator shall in its sole discretion deem appropriate.
(c) Stapled SARs. The
following terms and conditions shall govern the grant and redemption of stapled
SARs:
i. Stapled
SARs may only be granted concurrently with an Option to acquire the same number
of Shares of Common Stock as the number of such Shares underlying the stapled
SARs.
ii. Stapled
SARs shall be exercisable and redeemable upon such terms and conditions as the
Administrator may establish and shall grant a holder the right to elect among
(A) the exercise of the concurrently granted Option for Shares of Common
Stock, whereupon the number of Shares of Common Stock subject to the stapled
SARs shall be reduced by an equivalent number, (B) the exercise and
redemption of such stapled SARs in exchange for a distribution from
the
Company
in an amount equal to the excess of the Fair Market Value (on the exercise and
redemption date) of the number of vested Shares which the holder redeems
over the aggregate exercise price for such vested Shares, whereupon the number
of Shares of Common Stock subject to the concurrently granted Option shall be
reduced by any equivalent number, or (C) a combination of
(A) and (B).
iii. The
distribution to which the holder of stapled SARs shall become entitled under
this Section 8 upon the redemption of stapled SARs as described in
Section 8.3(c)ii)(B) above may be made in Shares of Common Stock
valued at Fair Market Value on the exercise and redemption date, in cash, or
partly in Shares and partly in cash, as the Administrator shall in its sole
discretion deem appropriate.
8.4 Phantom Stock
Units. The following terms and conditions shall govern
the grant and redeemability of Phantom Stock Units:
(a) Phantom
Stock Unit awards shall be exercisable and redeemable by the Participant to the
Company upon such terms and conditions as the Administrator may establish. The
value of a single Phantom Stock Unit shall be equal to the Fair Market Value of
a Share of Common Stock, unless the Administrator otherwise provides in the
terms of the Award Agreement.
(b) The
distribution with respect to any exercised Phantom Stock Unit award may be made
in Shares of Common Stock valued at Fair Market Value on the exercise and
redemption date, in cash, or partly in Shares and partly in cash, as the
Administrator shall in its sole discretion deem appropriate.
8.5 Restricted Stock
Units. A Restricted Stock Unit is the right to receive
one (1) Share of the Company’s Common Stock at the time the Restricted
Stock Unit vests. Restricted Stock Units shall be settled as soon as
administratively practicable following the vesting of the Restricted Stock
Unit. Each Restricted Stock Unit agreement shall include (through
incorporation of provisions hereof by reference in the agreement or
otherwise) the substance of each of the following provisions:
(a) Vesting. Vesting
shall generally be based on the Participant’s Continuous Service. The
Administrator shall determine the vesting schedule applicable to any such
Restricted Stock Unit award. Shares of Common Stock awarded under the Restricted
Stock Unit agreement may be subject to a Share reacquisition right in favor of
the Company in accordance with a vesting schedule to be determined by the
Administrator.
(b) Termination of Participant’s
Continuous Service. In the event an Participant’s
Continuous Service terminates, the Participant shall automatically forfeit any
or all of the Shares of Common Stock that have not vested as of the date of
termination under the terms of the Restricted Stock Unit agreement.
8.6 Performance Share Bonus
Awards. Performance Share Bonuses shall be paid by the
Company in Shares of the Common Stock of the Company. Each Performance Share
Bonus agreement shall include (through incorporation of provisions hereof by
reference in the agreement or otherwise) the substance of each of the
following provisions:
(a) Consideration. At the
discretion of the Administrator, a Performance Share Bonus may be awarded in
consideration for past services actually rendered to the Company or an Affiliate
for its benefit. In the event that a Performance Share Bonus is granted to a new
Employee, Director, or Consultant who has not performed prior services for the
Company, the Company will require payment of the par value of the Common Stock
by cash or check to the extent required by Delaware General Corporation
Law.
(b) Vesting. Vesting
shall be based on the achievement of certain performance criteria, whether
financial, transactional or otherwise, as determined by the Administrator.
Vesting shall be subject to the terms and conditions of the Performance Share
Bonus agreement. Upon failure to meet performance criteria, Shares of Common
Stock awarded under the Performance Share Bonus agreement shall be subject to a
Share reacquisition right in favor of the Company in accordance with a vesting
schedule to be determined by the Administrator.
(c) Termination of Participant’s
Continuous Service. In the event a Participant’s Continuous Service
terminates, the Company shall automatically reacquire without
cost any or all of the Shares of Common Stock held by the Participant
that have not vested as of the date of termination under the terms of the
Performance Share Bonus agreement.
8.7 Performance Share
Units. A Performance Share Unit is the right to receive
one (1) Share of the Company’s Common Stock at the time the
Performance Share Unit vests. Performance Share Units shall be settled as soon
as administratively practicable following the vesting of the Performance Share
Unit. Each Performance Share Unit agreement shall include (through incorporation of provisions
hereof by reference in the agreement or otherwise) the substance of each of
the following provisions:
(a) Vesting. Vesting
shall be based on the achievement of certain performance criteria, whether
financial, transactional or otherwise, as determined by the Administrator.
Vesting shall be subject to the terms and conditions of the Performance Share
Unit agreement. Upon failure to meet performance criteria, Shares of Common
Stock awarded under the Performance Share Unit agreement may be subject to a
Share reacquisition right in favor of the Company in accordance with a vesting
schedule to be determined by the Administrator.
(b) Termination of Participant’s
Continuous Service. In the event a Participant’s Continuous Service
terminates, the Participant shall automatically forfeit any or all of the Shares
of Common Stock that have not vested as of the date of termination under the
terms of the Performance Share Unit agreement.
9.
|
COVENANTS
OF THE COMPANY
|
9.1 Availability of
Shares. During the terms of the Awards, the Company
shall keep available at all times the number of Shares of Common Stock required
to satisfy such Awards.
9.2 Securities Law
Compliance. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to grant Awards and to issue and sell Shares of Common Stock
upon exercise, redemption or satisfaction of the Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act,
or under any foreign law of similar effect, the Plan, any Award or any Common
Stock issued or issuable pursuant to any such Award nor shall it
require
the Company to comply with any applicable securities laws or regulations if such
compliance would be unduly burdensome or costly, as determined by the
Administrator in its sole discretion. If, after reasonable efforts, the Company
is unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of Common Stock under the Plan, the Company shall be relieved from any liability
for failure to issue and sell Common Stock related to such Awards unless and
until such authority is obtained.
10.
|
USE
OF PROCEEDS FROM STOCK
|
Proceeds
from the sale of Common Stock pursuant to Awards shall constitute general funds
of the Company.
11.
|
CANCELLATION
AND RE-GRANT OF OPTIONS AND SARS
|
The
Administrator shall not have the authority to effect, at any time, (i) the
repricing of any outstanding Options or SARs under the Plan, which includes
reduction in exercise price, base price, or replacement of underwater Options or
SARs with any other form of equity award or with cash, (ii) the
cancellation of any outstanding Options or SARs under the Plan that are
underwater and the grant in substitution therefor of new Options or SARs under
the Plan covering the same or different number of Shares of Common Stock, and/or
(iii) cancellation of underwater Options or SARs and replacement with Full
Value Awards or cash. Notwithstanding the foregoing, the Administrator may grant
an Option or SAR with an exercise or redemption price lower than that set forth
above if such Option or SAR is granted as part of a transaction to which Section
424 or Section 409A of the Code applies.
12. OTHER
PROVISIONS APPLICABLE TO AWARDS
12.1 Acceleration of
Exercisability and Vesting; Treatment Upon Death or
Disability. The Administrator shall have the power to
accelerate exercisability and/or vesting when it deems fit, such as upon a
Change of Control. The Administrator shall have the power to accelerate the time
at which an Option or Stock Award may first be exercised or the time during
which an Option or Stock Award or any part thereof will vest in accordance with
the Plan, notwithstanding the provisions in such Award stating the time at which
it may first be exercised or the time during which it will vest. If
an Awardee who is an Employee or a Director of the Company ceases to be an
Employee or Director of the Company (i) by reason of his or her death, or
(ii) solely in the case of an Employee, because of his or her Disability,
then notwithstanding any contrary exercisability or vesting provisions in an
Option or Stock Award (as applicable), each such outstanding Award shall
immediately become vested and exercisable (as applicable) in full in
respect of the aggregate number of shares covered by each such Award, provided that
Performance-Based Awards, including Performance Cash Awards, shall not be
eligible for such automatic acceleration.
12.2 Performance-Based
Awards. Notwithstanding anything to the contrary herein,
any Awards granted under this Plan may be granted in a manner which may be
deductible by the Company under Section 162(m) of the Code (or any
successor section thereto) and/or compliant with the requirements of
Section 409A of the Code for performance-based compensation (“Performance-Based Awards”). To
the extent required by Section 162(m) of the Code, a Participant’s
Performance-Based Award shall be determined based on the attainment of
Qualifying Performance Criteria approved by the Administrator and established in
writing for a performance period established by the Administrator (i) while
the outcome for that performance period is substantially uncertain and
(ii) no more than ninety (90) days after the commencement
of the
performance period to which the performance goal relates or, if less, the number
of days which is equal to twenty-five percent (25%) of the relevant
performance period.
(a) Qualifying Performance
Criteria. For purposes of this Plan, the term
“Qualifying Performance Criteria” shall mean any one or more of the following
objective business criteria and measured against past Company performance, as
the Committee determines: (a) pre-tax income; (b) revenue or sales;
(c) operating income; (d) operating profit; (e) net earnings;
(f) net income; (g) cash flow; (h) earnings per Share or book
value per Share; (i) return on equity; (j) return on invested capital
or assets; (k) cost reductions or savings or expense management;
(l) funds from operations; (m) improvements in capital structure;
(n) maintenance or improvement of profit margins; (o) market share;
(p) working capital; (q) stock price; (r) consolidated earnings
before any one or more of the following items: interest, taxes, depreciation or
amortization; (s) implementation of the Company’s targets, critical
processes and/or projects; (t) gross margins, (u) specified product
sales, (v) inventory turns; (w) distributor, executive distributor,
and/or preferred customer numbers, (x) product subscription numbers; or
(y) distributor and customer retention rates.
The
foregoing criteria may relate to the Company, one or more of its Affiliates, or
one or more of its markets, divisions, units or product lines, or any
combination of the foregoing, and may be applied on an absolute basis and/or be
relative to one or more peer group companies or indices, or any combination
thereof, all as the Committee shall determine. In addition, to the degree
consistent with Section 162(m) of the Code and/or Section 409A of the Code,
the performance goals may be calculated without regard to extraordinary items.
Without limiting the generality of the foregoing, the Committee may appropriately adjust any evaluation of
performance under a performance target to exclude any of the following events
that occurs during an Incentive Period: (A) the effects of currency
fluctuations, (B) any or all items that are excluded from the calculation
of non-GAAP earnings, (C) asset write-downs, (D) litigation or claim
judgments or settlements, (D) the effect of changes in tax law, accounting
principles or other such laws or provisions affecting reported results,
(F) accruals for recapitalization, reorganization and restructuring
programs, (G) the discontinuation, disposal or acquisition of a business or
division, and (H) any other extraordinary, infrequent or non-operational
items or events thereof, all as the Administrator shall
determine.
(b) Award Limits and
Requirements for Performance-Based Awards. The maximum
amounts of a Performance-Based Awards payable during a fiscal year to any
Participant is set forth in Section 4.4 and Section 7.2 of the Plan.
To the extent required by Section 162(m) of the Code, the Administrator
shall determine whether, with respect to a performance period, the applicable
performance goals have been met with respect to a given Participant and, if they
have, to so certify and ascertain the amount of the applicable
Performance-Based Award. No Performance-Based Awards will be paid for such
performance period until such certification is made by the Administrator in
writing. The amount of the Performance-Based Award actually paid to a given
Participant may be less than the amount determined by the applicable performance
goal formula, at the discretion of the Administrator. The amount of the
Performance-Based Award determined by the Administrator for a performance period
shall be paid to the Participant at such time as determined by the Administrator
in its sole discretion after the end of such performance period; provided,
however, that such payment or delivery shall be made in compliance with Section
409A of the Code and the regulations thereunder.
(c) Other. The grant of a
Performance-Based Award may be made solely under this Plan or may be made
pursuant to such other plan or program as the Committee shall determine in its
sole discretion.
12.3 No Employment or Other
Service Rights. Nothing in the Plan or any instrument
executed or Award granted pursuant thereto shall confer upon any Participant any
right to continue to serve the Company or an Affiliate in the capacity in effect
at the time the Award was granted or shall affect the right of the Company or an
Affiliate to terminate (i) the employment of an Employee with or without
notice and with or without cause, (ii) the service of a Consultant pursuant
to the terms of such Consultant’s agreement with the Company or an Affiliate; or
(iii) the service of a Director pursuant to the Bylaws of the Company, and
any applicable provisions of the corporate law of the state or other
jurisdiction in which the Company is domiciled, as the case may be.
12.4 Investment
Assurances. The Company may require a Participant, as a
condition of exercising or redeeming an Award or acquiring Common Stock under
any Award, (i) to give written assurances satisfactory to the Company as to
the Participant’s knowledge and experience in financial and business matters
and/or to employ a purchaser representative reasonably satisfactory to the
Company who is knowledgeable and experienced in financial and business matters
and that he or she is capable of evaluating, alone or together with the
purchaser representative, the merits and risks of acquiring the Common Stock;
(ii) to give written assurances satisfactory to the Company stating that
the Participant is acquiring Common Stock subject to the Award for the
Participant’s own account and not with any present intention of selling or
otherwise distributing the Common Stock; and (iii) to give such other
written assurances as the Company may determine are reasonable in order to
comply with Applicable Law. The
foregoing requirements, and any assurances given pursuant to such requirements,
shall be inoperative if (1) the issuance of the Shares of Common Stock
under the Award has been registered under a then currently effective
registration statement under the Securities Act or (2) as to any particular
requirement, a determination is made by counsel for the Company that such
requirement need not be met in the circumstances under the then applicable
securities laws, and in either case otherwise complies with Applicable
Law.
12.5 Legends. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with Applicable Laws, including, but not limited
to, legends restricting the transfer of the Common Stock.
12.6 Tax Withholding
Obligations.
(a) As
a condition of the grant, issuance, vesting, exercise or settlement of an Award
granted under the Plan, the Participant shall make such arrangements as the
Administrator may require for the satisfaction of any applicable U.S. federal,
state, local or foreign withholding tax obligations that may arise in connection
with such grant, issuance, vesting, exercise or settlement of the
Award. The Company shall not be required to issue any Shares under
the Plan until such obligations are satisfied.
(b) In
the case of an Employee and in the absence of any other arrangement, the
Employee shall be deemed to have directed the Company to withhold or collect
from his or her compensation an amount sufficient to satisfy such tax
obligations from the next payroll payment otherwise payable after the date of an
exercise of an Option or Stock Award.
(c) In
the case of Participant other than an Employee (or in the case of an Employee
where the next payroll payment is not sufficient to satisfy such tax
obligations, with respect to any remaining tax obligations), in the absence of
any other arrangement and to the extent permitted under the Applicable Laws, the
Participant shall be deemed to have elected to have the Company withhold from
the Shares to be issued upon exercise of the Option or Stock Purchase Right that
number of Shares having a Fair Market Value determined as of the applicable Tax
Date (as defined below) equal to the amount required to be
withheld. For purposes of this Section 12.6, the Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined under the Applicable Laws (the
“Tax
Date”).
(d) If
permitted by the Administrator, in its discretion, a Participant may satisfy his
or her tax withholding obligations upon exercise of an Option or Stock Award by
surrendering to the Company Shares that have a Fair Market Value determined as
of the applicable Tax Date equal to the amount required to be
withheld. In the case of shares previously acquired from the Company
that are surrendered under this Section 12.6(d), such Shares must have been
owned by the Participant for such period of time as is required for the Company
to avoid adverse accounting charges.
(e) Any
election or deemed election by a Participant to have Shares withheld to satisfy
tax withholding obligations under
Section 12.6(c) or (d) above shall be irrevocable as to the
particular Shares as to which the election is made and shall be subject to the
consent or disapproval of the Administrator. Any election by a
Participant under Section 12.6(d) above must be made on or prior to the
applicable Tax Date.
(f) In
the event an election to have Shares withheld is made by a Participant and the
Tax Date is deferred under Section 83 of the Code because no election is filed
under Section 83(b) of the Code, the Participant shall receive the full
number of Shares with respect to which the Option or Stock Purchase Right is
exercised but such Participant shall be unconditionally obligated to tender back
to the Company the proper number of Shares on the Tax Date.
12.7 Section
409A. Notwithstanding anything in the Plan to the
contrary, it is the intent of the Company that the administration of the Plan,
and the granting of all Awards under this Plan, shall be done in accordance with
Section 409A of the Code and the Department of Treasury regulations and other
interpretive guidance issued thereunder, including any guidance or regulations
that may be issued after the effective date of this Plan, and shall not cause
the acceleration of, or the imposition of the additional, taxes provided for in
Section 409A of the Code. Any Award shall be granted, deferred, paid out or
modified under this Plan in a manner that shall be intended to avoid resulting
in the acceleration of taxation, or the imposition of penalty taxation, under
Section 409A upon a Participant. In the event that it is reasonably determined
by the Administrator that any amounts payable in respect of any Award under the
Plan will be taxable to a Participant under Section 409A of the Code prior to
the payment and/or delivery to such Participant of such amounts or will be
subject to the acceleration of taxation or the imposition of penalty taxation
under Section 409A of the Code, the Company may either (i) adopt such
amendments to the Plan and related Award, and appropriate policies and
procedures, including amendments and policies with retroactive effect, that the
Administrator determines necessary or appropriate to preserve the intended tax
treatment of the benefits provided by the Plan and Awards hereunder, and/or
(ii) take such other actions as the Administrator determines necessary or
appropriate to comply with the requirements of Section 409A of the
Code.
12.8 Deferral of Award
Benefits. The Administrator may in its discretion and
upon such terms and conditions as it determines appropriate permit one or more
Participants whom it selects to defer compensation payable pursuant to the terms
of an Award. Any such deferral arrangement shall be evidenced by an
Award Agreement in such form as the Administrator shall from time to time
establish, and no such deferral arrangement shall be a valid and binding
obligation unless evidenced by a fully executed Award Agreement, the form of
which the Administrator has approved, including through the Administrator’s
establishing a written program (the “Deferral Program”) under
this Plan to govern the form of Award Agreements participating in such
Program. Any such Award Agreement or Deferral Program shall specify
the treatment of dividends or Dividend Equivalents (if any) that apply to
Awards governed thereby, and shall further provide that any elections governing
payment of amounts pursuant to such Deferral Program shall be in writing, shall
be delivered to the Company or its agent in a form and manner that complies with
Code Section 409A, and shall specify the amount to be distributed in settlement
of the deferral arrangement, as well as the time and form of such distribution
in a manner that complies with Code Section 409A.
12.9 Forfeiture of
Awards. To the extent set forth in an Award Agreement,
if an Awardee is terminated for Cause, or an Awardee has engaged in Harmful
Conduct at any time during or following the termination of the Awardee’s
Continuous Service, then the Administrator may, in its sole discretion, direct
that:
(a) all
outstanding Awards held by such Awardee shall terminate in full;
(b) the
Awardee shall pay to the Company an amount equal to the taxable income realized
upon the exercise or redemption of any Options, Stock Appreciation Rights and
Phantom Stock Units or any sale of the underlying Shares obtained from such
Awards (x) during the twelve (12) months immediately preceding Awardee’s
termination of Continuous Service and, (y) in the case where Participant
has engaged in Harmful Conduct following such termination of Continuous Service,
during the three (3) month period following Awardee’s termination of Continuous
Service; and
(c) the
Awardee shall forfeit and return to the Company, as applicable, any unvested
Shares pursuant to all outstanding Awards (other than Options, Stock
Appreciation Rights and Phantom Stock Units) and/or pay to the Company the
taxable income realized from the grant, vesting or sale of any Shares obtained
pursuant to such Awards (x) during the twelve (12) months immediately
preceding Awardee’s termination of Continuous Service and, (y) in the case
where Participant has engaged in Harmful Conduct following such termination of
Continuous Service, during the three (3) month period following Awardee’s
termination of Continuous Service.
(d) The
Administrator shall determine the manner of the recovery of any such amounts
which may be due to the Company and which may include, without limitation,
set-off against any amounts which may be owed by the Company to the Awardee
subject, in all cases, to Applicable Law and the terms and conditions of the
applicable plan, arrangement or agreement.
(e) If
any provision contained in this Section shall for any reason, whether by
application of existing Applicable Law or law which may develop after the
Awardee’s acceptance of the grant of Awards hereunder be determined by a court
of competent jurisdiction to be overly broad, the Awardee agrees to join the
Company or any of its
Affiliates
in requesting such court to construe such provision by limiting or reducing it
so as to be enforceable to the extent compatible with then Applicable
Law.
12.10 Designation of
Beneficiary.
(a) An
Awardee may file a written designation of a beneficiary who is to receive
the Awardee’s rights pursuant to Awardee’s Award or the Awardee may include his
or her Awards in an omnibus beneficiary designation for all benefits under the
Plan. To the extent that Awardee has completed a designation of
beneficiary while employed with the Company, such beneficiary designation shall
remain in effect with respect to any Award hereunder until changed by the
Awardee to the extent enforceable under Applicable Law.
(b) Such
designation of beneficiary may be changed by the Awardee at any time by written
notice. In the event of the death of an Awardee and in the absence of
a beneficiary validly designated under the Plan who is living at the time of
such Awardee’s death, the Company shall allow the executor or administrator of
the estate of the Awardee to exercise the Award, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may allow the spouse or one or more dependents or relatives
of the Awardee to exercise the Award to the extent permissible under Applicable
Law or if no spouse, dependent or relative is known to the Company, then to such
other person as the Company may designate.
13.
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ADJUSTMENTS
UPON CHANGES IN STOCK
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13.1 Capitalization
Adjustments. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Award, the number of shares of Common Stock which have been
authorized for issuance under the Plan, but as to which no Awards have yet been
granted or which have been returned to the Plan upon cancellation, forfeiture or
expiration of an Award, the price per Share subject to each such outstanding
Award and each of the share limits set forth in Section 4.1 (including the
ISO Limit) and Section 4.4, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, payment of a dividend or distribution in a
form other than stock (excepting normal cash dividends) that has a material
effect on the Fair Market Value of the shares of Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been “effected without receipt of consideration.” Such adjustment shall be
made by the Administrator, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Award.
13.2 Adjustments Upon a Change of
Control. In the event of a Change of Control, as defined
in Sections 2.10(a) through 2.10(d), such as an asset sale, merger, or
change in Board composition, then the Administrator or the board of directors of
any surviving entity or acquiring entity may provide or require that the
surviving or acquiring entity shall: (i) assume or continue all or any part
of the Awards outstanding under the Plan; (ii) substitute substantially
equivalent stock awards (including an award to acquire substantially the same
consideration paid to the stockholders in the transaction by which the Change of
Control occurs) for those outstanding
under the
Plan; (iii) redeem or purchase such Awards for consideration determined in
a manner consistent with the per Share consideration being paid to the other
stockholders of the Company; or (iv) any combination of the foregoing. In
the event any surviving entity or acquiring entity refuses to take such actions,
then with respect to Awards held by Participants whose Continuous Service has
not terminated, the Administrator in its sole discretion and without liability
to any person may: (1) provide for the payment of a cash amount in exchange
for the cancellation of an Award equal to the product of (x) the excess, if
any, of the Fair Market Value per Share of Common Stock at such time over the
exercise, redemption or purchase price, if any, times (y) the
total number of Shares then subject to such Award; (2) continue the Awards
upon such terms as the Administrator determines in its sole discretion;
(3) provide for issuance of substitute awards that will substantially
preserve the otherwise applicable terms of any affected Awards (including any
unrealized value immediately prior to the Change of Control) previously
granted hereunder, as determined by the Administrator in its sole discretion; or
(4) notify Participants holding an Option, Stock Appreciation Right,
Phantom Stock Unit, Restricted Stock Unit, or Performance Share Unit that they
must exercise or redeem any portion of such Award (including, at the discretion
of the Administrator, any unvested portion of such Award) at or prior to
the closing of the transaction by which the Change of Control occurs and that
the Awards shall terminate if not so exercised or redeemed at or prior to the
closing of the transaction by which the Change of Control occurs. With respect
to any other Awards outstanding under the Plan, such Awards shall terminate if
not exercised or redeemed prior to the closing of the transaction by which the
Change of Control occurs. The Administrator shall not be obligated to treat all
Awards, even those that are of the same type, in the same manner.
13.3 Adjustments Upon a
Dissolution or Liquidation. In the event of a Change of
Control as defined in Section 2.10(e), such as a dissolution or liquidation
of the Company, the Administrator shall notify each Participant as soon as
practicable prior to the effective date of such proposed
transaction. To the extent it has not been previously exercised or
the Shares subject thereto issued to the Awardee and unless otherwise determined
by the Administrator, an Award will terminate immediately prior to the
consummation of such event.
14.
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AMENDMENT
OF THE PLAN AND AWARDS
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14.1 Amendment of
Plan. The Administrator at any time, and from time to
time, may amend the Plan. However, except as provided in Section 13.1 of
the Plan relating to adjustments upon changes in Common Stock, no amendment
shall be effective unless approved by the stockholders of the Company:
(i) to the extent stockholder approval is necessary to satisfy the
requirements of Section 422 of the Code, any New York Stock Exchange, NASDAQ or
other securities exchange listing requirements, or other Applicable Law or
regulation; (ii) in respect of any proposed amendment to Sections 6.5,
6.6 or 8.3(a)ii) hereof; or (iii) in respect of any proposed amendment to
Section 11 hereof that would permit the repricing or cancellation and
regrant of Options or Stock Appreciation Rights.
14.2 Stockholder
Approval. The Administrator may, in its sole discretion,
submit any other amendment to the Plan for stockholder approval or may resubmit
the Plan for reapproval by stockholders, including, but not limited to,
amendments to or reapproval of the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
14.3 Contemplated
Amendments. It is expressly contemplated that the
Administrator may amend the Plan in any respect the Administrator deems
necessary or advisable to provide eligible
Employees
with the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to Incentive Stock
Options and/or to bring the Plan and/or Incentive Stock Options granted under it
into compliance therewith.
14.4 No Material Impairment of
Rights. Rights under any Award granted before amendment
of the Plan shall not be materially impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the
Participant consents in writing.
14.5 Amendment of
Awards. The Administrator at any time, and from time to
time, may amend the terms of any one or more Awards; provided, however, that the
rights under any Award shall not be materially impaired by any such amendment
unless: (i) the Company requests the consent of the Participant and the
Participant consents in writing, (ii) such amendment is necessary pursuant
to Section 12.7 hereof or otherwise to meet the minimum requirements of the
Code or Applicable Law.
15.
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TERMINATION
OR SUSPENSION OF THE PLAN
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15.1 Plan
Term. The Administrator may suspend or terminate the
Plan at any time. Unless sooner terminated, the Plan shall terminate on the day
before the tenth (10th) anniversary
of the later of the date that the amendment and restatement of the Plan is
approved by the stockholders of the Company at the 2010 annual meeting, or the
date any subsequent amendment to add shares to the Plan is approved by the
stockholders of the Company. No Awards may be granted under the Plan while the
Plan is suspended or after it is terminated.
15.2 No Material Impairment of
Rights. Suspension or termination of the Plan shall not
materially impair rights and obligations under any Award granted while the Plan
is in effect except with the written consent of the
Participant. Suspension or termination of the Plan shall not affect
the Administrator’s ability to exercise the powers granted to it hereunder with
respect to Awards granted under the Plan prior to the date of such
termination.
16.1 Effective Date of
Plan. The Plan, as amended and restated, shall become
effective immediately upon its approval by the stockholders of the Company (the
“Effective
Date”). If the amended and restated Plan is not approved by
the stockholders, all provisions of the Plan, as approved by the stockholders of
the Company on May 2, 2008 shall remain effective.
16.2 Governing Law;
Interpretation of Plan and Awards.
(a) This
Plan and all determinations made and actions taken pursuant hereto shall be
governed by the substantive laws, but not the choice of law rules, of the state
of New Jersey.
(b) In
the event that any provision of the Plan or any Award granted under the Plan is
declared to be illegal, invalid or otherwise unenforceable by a court of
competent jurisdiction, such provision shall be reformed, if possible, to the
extent necessary to render it legal, valid and enforceable, or otherwise
deleted, and the remainder of the terms of the Plan and/or Award shall not be
affected except to the extent necessary to reform or delete such illegal,
invalid or unenforceable provision.
(c) The
headings preceding the text of the sections hereof are inserted solely for
convenience of reference, and shall not constitute a part of the Plan, nor shall
they affect its meaning, construction or effect.
(d) The
terms of the Plan and any Award shall inure to the benefit of and be binding
upon the parties hereto and their respective permitted heirs, beneficiaries,
successors and assigns.
16.3 Limitation on
Liability. The Company and any Affiliate which is in
existence or hereafter comes into existence shall not be liable to a
Participant, an Employee, an Awardee or any other persons as to:
(a) The Non-Issuance of
Shares. The non-issuance or sale of Shares (including
under Section 9.2 above) as to which the Company has been unable, or
the Arbitration deems it infeasible, to obtain from any regulatory body having
jurisdiction the authority deemed by the Company’s counsel to be necessary to
the lawful issuance and sale of any shares hereunder.
(b) Tax
Consequences. Any tax consequence realized by any
Participant, Employee, Awardee or other person due to the receipt, vesting,
exercise or settlement of any Option or other Award granted hereunder or due to
the transfer of any Shares issued hereunder. The Participant is
responsible for, and by accepting an Award under the Plan agrees to bear, all
taxes of any nature that are legally imposed upon the Participant in connection
with an Award, and the Company does not assume, and will not be liable to any
party for, any cost or liability arising in connection with such tax liability
legally imposed on the Participant. In particular, Awards issued
under the Plan may be characterized by the Internal Revenue Service (the “IRS”) as “deferred
compensation” under the Code resulting in additional taxes, including in some
cases interest and penalties. In the event the IRS determines that an
Award constitutes deferred compensation under the Code or challenges any good
faith characterization made by the Company or any other party of the tax
treatment applicable to an Award, the Participant will be responsible for the
additional taxes, and interest and penalties, if any, that are determined to
apply if such challenge succeeds, and the Company will not reimburse the
Participant for the amount of any additional taxes, penalties or interest that
result.
(c) Forfeiture. The
requirement that Participant forfeit an Award, or the benefits received or to be
received under an Award, pursuant to any Applicable Law.
16.4 Indemnification. In
addition to such other rights of indemnification as they may have as members of
the Board or officers or employees of the Company or an Affiliate, members of
the Board and any officers or employees of the Company or an Affiliate to whom
authority to act for the Board or the Company is delegated shall be indemnified
by the Company against all reasonable expenses, including attorneys’ fees,
actually and necessarily incurred in connection with the defense of any action,
suit or proceeding, or in connection with any appeal therein, to which they or
any of them may be a party by reason of any action taken or failure to act under
or in connection with the Plan, or any right granted hereunder, and against all
amounts paid by them in settlement thereof or paid by them in satisfaction of a
judgment in any such action, suit or proceeding, except in relation to matters
as to which it shall be adjudged in any such action, suit or proceeding that
such person is liable for gross negligence, bad faith or intentional misconduct
in duties.
16.5 Unfunded
Plan. Insofar as it provides for Awards, the Plan shall
be unfunded. Although bookkeeping accounts may be established with
respect to Awardees who are granted Stock Awards under this Plan, any such
accounts will be used merely as a bookkeeping convenience. The
Company shall not be required to segregate any assets which may at any time be
represented by Awards, nor shall this Plan be construed as providing for such
segregation, nor shall the Company or the Administrator be deemed to be a
trustee of stock or cash to be awarded under the Plan. Any liability
of the Company to any Participant with respect to an Award shall be based solely
upon any contractual obligations which may be created by the Plan; no such
obligation of the Company shall be deemed to be secured by any pledge or other
encumbrance on any property of the Company. Neither the Company nor
the Administrator shall be required to give any security or bond for the
performance of any obligation which may be created by this Plan.
PROXY
HEARTLAND
PAYMENT SYSTEMS, INC.
90
NASSAU STREET
PRINCETON,
NEW JERSEY 08542
The
undersigned holder of Common Stock of Heartland Payment Systems, Inc. (the
“Company”) hereby constitutes and appoints Robert O. Carr and Robert H.B.
Baldwin, Jr. and each of them, attorneys and proxies with full power of
substitution to each, for and in the name of the undersigned to vote the shares
of Common Stock of 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 The Nassau Inn, 10 Palmer Square, Princeton, New Jersey 08540, on
Friday, May 14, 2010 at 10:00 a.m., local time, or at any and all adjournments
thereof, on all matters as may properly come before the meeting. The
undersigned hereby revokes any and all proxies heretofore given with respect to
such meetings.
Each of
such attorneys and proxies present at the meeting shall and may exercise the
powers granted hereunder.
Said
attorneys and proxies are hereby instructed to vote as specified below. IF NO
SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR ITEMS 1-3
BELOW.
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1.
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Election
of the following seven (7) nominees to serve as directors until the next
Annual Meeting of Shareholders and until their successors are elected and
qualified.
|
Nominees:
|
Robert
O. Carr
Mitchell
L. Hollin
Robert
H. Niehaus
|
Marc
J. Ostro, Ph.D.
Jonathan
J. Palmer
|
George
F. Raymond
Richard
W. Vague
|
______
FOR ALL NOMINEES
|
|
______
WITHHOLD AUTHORITY FOR ALL NOMINEES
|
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_______________________________________________________
TO
WITHHOLD AUTHORITY FOR ANY INDIVIDUAL NOMINEE, WRITE THAT NOMINEE’S NAME
IN THE SPACE PROVIDED
ABOVE.
|
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2.
|
Approval
of the amendment and restatement of Heartland Payment System, Inc.’s 2008
Equity Incentive Plan.
|
___FOR
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|
___AGAINST
|
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___ABSTAIN
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3.
|
Ratification
of the selection of Deloitte & Touche LLP as our independent
registered public accounting firm for the fiscal year ending December 31,
2010.
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___FOR
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___AGAINST
|
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___ABSTAIN
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4.
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In
their discretion, to vote upon such other matters as may properly come
before the meeting.
|
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
|
Dated: _________________,
2010
|
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Signature
|
|
|
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Signature(s)
if held jointly
|
Please
sign your name as it appears hereon. In the case of joint owners or
tenants in common, each should sign. If signing as a trustee,
guardian or in any other representative capacity or on behalf of a corporation
or partnership, please indicate your title.