UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
PROXY
STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE
ACT OF 1934
Filed by
the Registrant [X]
Filed by
a Party other than the Registrant [ ]
Check 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 §240.14a-12
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COSTAR GROUP, INC.
(Name of
Registrant as Specified in Its Charter)
(Name of
Person(s) Filing Proxy Statement if other than the Registrant)
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of Filing Fee (Check the appropriate box):
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fee required.
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[ ]
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(1)
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Title
of each class of securities to which transaction
applies:
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(2)
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Aggregate
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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
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(4)
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Proposed
maximum aggregate value of
transaction:
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0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its
filing.
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(1)
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Amount
previously paid:
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schedule or registration statement
no.:
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April 30,
2010
Dear
Stockholder:
You are
cordially invited to attend the 2010 Annual Meeting of Stockholders of CoStar
Group, Inc., to be held at 10:00 a.m., local time, on Wednesday,
June 2, 2010 at 2 Bethesda Metro Center, Bethesda, Maryland
20814.
At the
Annual Meeting, you will be asked (1) to elect the seven directors named in
the Proxy Statement, (2) to ratify the appointment of Ernst &
Young LLP as our independent registered public accounting firm for 2010, and (3)
to approve an amendment to the CoStar Group, Inc. 2007 Stock Incentive Plan to
increase the number of authorized shares of common stock issuable under the plan
by 1,300,000 shares. The accompanying Notice of 2010 Annual Meeting of
Stockholders and Proxy Statement describe these matters.
The Board
of Directors recommends that stockholders vote in favor of each of these
proposals.
Whether
or not you plan to attend the Annual Meeting in person, please return your
executed proxy card in the enclosed postage- prepaid and addressed envelope and
your shares will be voted in accordance with the instructions you have given in
your proxy card.
Sincerely,
Andrew
C. Florance
Chief
Executive Officer and President
COSTAR
GROUP, INC.
April
30, 2010
NOTICE
OF 2010 ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD WEDNESDAY, JUNE 2, 2010
The 2010
Annual Meeting of Stockholders (the “Annual Meeting”) of CoStar Group, Inc.
(“CoStar”, “we” or the “Company”) will be held at 2 Bethesda Metro Center,
Bethesda, Maryland 20814, at 10:00 a.m., local time, on Wednesday,
June 2, 2010, for the following purposes:
1. To
elect the seven directors named in the Proxy Statement to hold office until the
next Annual Meeting of Stockholders, or until their respective successors are
elected and qualified;
2. To
ratify the appointment of Ernst & Young LLP as the Company’s
independent registered public accounting firm for 2010;
3.
To approve an amendment to the CoStar Group, Inc. 2007 Stock Incentive Plan to
increase the number of authorized shares of common stock issuable under the plan
by 1,300,000 shares; and
4. To
transact any other business properly presented before the Annual
Meeting.
The Board
of Directors has fixed Monday, April 5, 2010 as the record date for
determining stockholders entitled to receive notice of and to vote at the Annual
Meeting (or any adjournment or postponement of it). Only stockholders of record
at the close of business on that date are entitled to notice of and to vote at
the Annual Meeting.
WE INVITE YOU TO ATTEND THE ANNUAL
MEETING IN PERSON, BUT WHETHER OR NOT YOU EXPECT TO ATTEND, PLEASE MARK, SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD IN THE POSTAGE-PREPAID ENVELOPE PROVIDED AS
PROMPTLY AS POSSIBLE.
By Order
of the Board of Directors,
Jonathan
Coleman
Secretary
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NOTICE:
This is the first year that brokers are not permitted to vote on
the election of directors without instructions from the beneficial owner,
as discussed in more detail in the Proxy Statement. Therefore, if
your shares are held through a brokerage firm, bank or other nominee, they
will not be voted in the election of directors unless you affirmatively
vote your shares in one of the ways described in the Proxy
Statement.
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Item 1 -
ELECTION OF DIRECTORS
COSTAR
GROUP, INC.
ANNUAL
MEETING OF STOCKHOLDERS
TO
BE HELD ON WEDNESDAY, JUNE 2, 2010
The Board
of Directors (the “Board”) of CoStar Group, Inc. (“CoStar”, “we” or the
“Company”) solicits your proxy for use at the Annual Meeting of Stockholders
(the “Annual Meeting”) to be held at 10:00 a.m., local time, on Wednesday,
June 2, 2010, at 2 Bethesda Metro Center, Bethesda, Maryland
20814, and at any adjournment or postponement of the Annual
Meeting.
Our
headquarters are located at 2 Bethesda Metro Center, Tenth Floor, Bethesda,
Maryland 20814. We are mailing this proxy statement and the accompanying proxy
card to our stockholders eligible to vote at the Annual Meeting on or about
April 30, 2010.
The
Notice of Meeting and this proxy statement are available on our corporate
website at www.CoStar.com/Investors/SECFilings.aspx
and our 2009 annual report to stockholders is available on our corporate website
at www.CoStar.com/Investors/Reports.aspx.
At the
close of business on the record date, Monday, April 5, 2010, there were
20,605,335 shares of common stock outstanding and entitled to vote at the
Annual Meeting. Each outstanding share of common stock is entitled to one vote
on each of the seven director nominees and on each of the other
proposals.
The
presence at the Annual Meeting, in person or by proxy, of a majority of the
outstanding shares as of the record date constitutes a quorum (the minimum
number of shares required to take action) for the Annual Meeting. Both
abstentions and broker non-votes will be counted as shares present for purposes
of obtaining a quorum.
The
required vote and the calculation method for each of the matters scheduled for
consideration at the Annual Meeting are as follows:
Item 1 — Election of
Directors. Directors are elected by a plurality of votes
cast, which means that the seven nominees who receive the most votes will be
elected as directors.
Item 2 — Ratification of the Appointment of
Independent Registered
Public Accounting Firm. Approval of this proposal requires a
majority of votes cast, which means that the number of votes cast in favor must
exceed the number of votes cast against this proposal.
Item 3 — Approval of the Amendment to the
CoStar Group, Inc. 2007 Stock Incentive Plan. Approval of this
proposal requires a majority of votes cast, which means that the number of votes
cast in favor must exceed the number of votes cast against this
proposal.
Treatment
of Abstentions
With
respect to the election of directors, votes may be cast for or withheld from the
nominees. Votes that are withheld from a nominee will not be voted with respect
to the election of that nominee. Therefore, they do not affect whether a nominee
has received sufficient votes to be elected. With respect to the other
proposals, stockholders may vote for or against the proposals or abstain from
voting, and abstentions will not affect the outcome of the vote because they are
disregarded in calculating the total number of votes cast on the
proposals.
Treatment
of Broker Non-Votes
If your
shares are held in street name through a broker, bank or other nominee, you are
considered the beneficial owner of shares held in street name. As the beneficial
owner, you have the right to direct your broker, bank or other nominee on how to
vote your shares. Your broker, bank or other nominee has the discretion to vote
on routine corporate matters (routine matters include ratification of the
appointment of the Company’s independent registered public accounting firm)
presented in the proxy materials without your specific voting instructions. For
non-routine matters (non-routine matters include election of directors and
approval of the amendment to the CoStar Group, Inc. 2007 Stock Incentive Plan),
your shares will not be voted without your specific voting instructions,
resulting in a “broker non-vote.”
Under
recent amendments to New York Stock Exchange rules, the election of directors is
no longer a routine matter as to which brokerage firms may vote in their
discretion on behalf of clients who have not furnished voting instructions with
respect to an uncontested director election. Because CoStar has a plurality
voting standard, however, broker non-votes will not affect the outcome of the
vote on director elections. Broker non-votes will not affect the outcome of the
vote on the approval of the amendment to the CoStar Group, Inc. 2007 Stock
Incentive Plan because they are disregarded in calculating the total number of
votes cast on the proposal.
You may
vote by signing your proxy card, or if your shares are held in street name, by
signing the voting instruction card included by your broker or nominee, and
mailing it in the enclosed, postage prepaid and addressed envelope. If you
properly complete and execute your proxy card and return it before the Annual
Meeting:
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Your
shares will be voted in accordance with your
instructions.
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If
there are any items for which you do not provide instructions, your shares
will be voted “FOR” that item, as recommended by the
Board.
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You may
revoke your proxy at any time before it is voted by:
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delivering
to the Corporate Secretary written notice that you are revoking your
proxy;
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submitting
a properly-executed proxy bearing a later
date; or
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attending
the Annual Meeting and voting in person. If you are not the owner of
record, but rather hold your shares through a broker or bank, you should
take appropriate steps to obtain a legal proxy from the owner of record if
you wish to attend and vote at the Annual
Meeting.
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Simply
attending the Annual Meeting will not revoke your proxy. If you instructed a
broker to vote your shares, you must follow your broker’s directions for
changing those instructions.
Only
stockholders as of the record date, their proxy holders and our invited guests
may attend the Annual Meeting. If you intend to attend the Annual Meeting,
please mark your proxy card accordingly. Beneficial owners whose ownership is
registered under another party’s name and who plan to attend the Annual Meeting
in person should obtain an admission ticket in advance by sending written
requests, along with proof of beneficial ownership, such as a bank or brokerage
firm account statement, to: Tim Trainor, Communications Director, CoStar Group,
Inc., 2 Bethesda Metro Center, Tenth Floor, Bethesda, Maryland 20814.
Beneficial owners who do not present valid admission tickets at the registration
counter at the Annual Meeting will be admitted at CoStar’s sole discretion and
may be required to verify share ownership, which may be established by providing
a bank or brokerage firm account statement and photo identification, at the
registration counter at the Annual Meeting. Stockholders as of the record date
or their proxy holders who plan to attend the Annual Meeting may also be asked
to present photo identification at the registration counter at the Annual
Meeting to gain admittance to the Annual Meeting.
2
ELECTION
OF DIRECTORS
The Board
has fixed the number of directors constituting the Board at seven. The Board has
nominated each of the current directors for reelection, each of whom was elected
at the 2009 Annual Meeting of Stockholders. The persons named as proxy holders
on the proxy card will vote your shares for each of the seven nominees unless
you instruct otherwise on your proxy card.
Each of
our directors elected at the Annual Meeting will serve until the next Annual
Meeting of Stockholders or until his successor is elected and qualified. We know
of no reason why any nominee would be unable to serve. However, if
any of the nominees should become unable to serve prior to the Annual Meeting,
proxies that do not withhold authority to vote for directors may be voted for
any other nominee or nominees selected by the Board unless the Board votes to
reduce the size of the Board to match the actual number of
nominees. In no event may proxies be voted for a greater number of
persons than the number of nominees named.
Board
Composition
Our
Nominating & Corporate Governance Committee is responsible for reviewing and
assessing with the Board the Board’s membership criteria. The
criteria include independence; judgment; integrity; ability to commit sufficient
time and attention to the activities of the Board; absence of potential
conflicts with the Company’s interests; an individual's business experience,
skills and background, including an understanding of and experience with
commercial real estate, information services, and technology industries; and
finance and marketing expertise. The Nominating and Corporate
Governance Committee seeks a diversity of occupational and personal backgrounds
on the Board in order to obtain a range of viewpoints and
perspectives. In addition, the Nominating and Corporate Governance
Committee evaluates the composition of the Board to assess the skills and
experience that are currently represented on the Board, as well as the skills
and experience that the Board will find valuable in the future, given the
Company’s current situation and strategic plans. This evaluation
enables the Nominating and Corporate Governance Committee to assess its
effectiveness at achieving these Board membership objectives.
We do not
expect or intend that each director will have the same skills, experience and
background. We expect that our Board members will have a diverse
portfolio of skills, experiences and backgrounds and that each will contribute
to the composition of the Board so that collectively the Board will possess the
necessary skills, experience and background to oversee the business and affairs
of the Company. Below is a list of key skills and experience that our
directors bring to our Board that we consider important in light of our current
business and structure. The directors’ individual biographies below
describe each director’s most relevant experience, qualifications and
skills.
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Industry
Expertise. We seek directors with experience in the
commercial real estate, data provider and technology
industries. Experience in those areas is valuable in
understanding our growth and development efforts, as well as the market
segments in which we compete.
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Financial
Expertise. We believe that an understanding of
accounting and financial reporting processes is important because it
assists our directors in understanding, advising and overseeing our
investing activities, financial reporting and internal
controls. We measure our operating performance by reference to
financial targets. We expect all of our directors to be
financially knowledgeable.
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Mergers & Acquisitions
Experience. We have grown over the years as a result of
mergers & acquisitions activity and believe directors who have a
background in mergers & acquisitions transactions can provide insight
into developing and implementing strategies for growing our operations
through business combinations and also provide relevant input regarding
our business strategy. Relevant experience in this area
includes experience valuing proposed transactions, analyzing the ‘fit’ of
a proposed acquisition target with the Company’s strategy, and integrating
acquired companies with our existing
operations.
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Business
Development. We continue to seek to grow organically by
identifying and developing new services and new markets for our
services. Directors who have expertise in business development
can provide insight into developing and implementing strategies for
growing our business organically.
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Public Company Board and
Management Experience. Directors who have served on
other public company boards or as executives of a public company can offer
advice and insight with regard to the dynamics and operation of a board of
directors, the relationship between a board and the CEO and other
management personnel, and an understanding of risk
management.
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Leadership
Experience. Directors who have served in a leadership
capacity or as executives at other companies provide valuable operational
insight and can help the Board operate efficiently and
effectively.
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3
Nominees
for the Board of Directors
The
following table lists the seven director nominees and their current committee
memberships:
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Name
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Employment
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Years
as a
Director
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Committee Membership
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Michael
R. Klein
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Chairman,
CoStar Group, Inc.; Chairman, The Sunlight Foundation
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23
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Compensation;
Nominating & Corporate Governance
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Andrew
C. Florance*
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CEO &
President, CoStar Group, Inc.
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23
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None
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David
Bonderman
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Founding
Partner, TPG Capital, L.P.
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15
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Compensation
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Michael
J. Glosserman
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Managing
Partner, The JBG Companies
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2
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Audit
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Warren
H. Haber
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Chairman
of the Board & CEO, Founders Equity Inc.
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15
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Audit;
Compensation
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Josiah
O. Low, III
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Senior
Advisor, Catterton Partners L.P.
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11
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Audit;
Nominating & Corporate Governance
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Christopher
J. Nassetta
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CEO &
President, Hilton Worldwide
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8
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Compensation;
Nominating & Corporate
Governance
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____________
* Executive
Officer
Nominees’
Business Experience, Qualifications and Directorships
Michael R. Klein has been the
Chairman of our Board of Directors since he and Mr. Florance started the Company
in 1987. Mr. Klein currently serves as Chairman of the board of
directors and Chief Executive Officer of The Sunlight Foundation, a non-profit
public education organization which he founded in 2005, as Vice Chairman of the
board of directors and Lead Director of Tutor Perini Corporation, a
publicly-held construction company and as Lead Director of SRA International,
Inc., a publicly-held systems integrator. He also serves as Chairman
of the board of directors of The Shakespeare Theatre Company, as a director of
the American Himalayan Foundation, as a trustee of the NAACP Legal Defense and
Education Fund and as a trustee of the Aspen Music Festival and
School. From 1974 through 2005, he was a partner of the law firm now
known as Wilmer Cutler Pickering Hale & Dorr, LLP. Mr. Klein
received a B.B.A. and a J.D. from the University of Miami and an L.L.M. from
Harvard University. Mr. Klein is 68 years old.
As a
result of his service on our Board of Directors since the Company’s inception,
Mr. Klein has extensive knowledge of the commercial real estate, data provider
and technology industries, as well as the Company’s products, services and
business strategies. In addition to his role and tenure on our Board,
Mr. Klein brings to the Board of Directors extensive experience through his
service over the past 25 years on the boards of directors of the foregoing and
other publicly-held companies, as well as several privately held businesses and
non-profit organizations. Mr. Klein’s experience gained as a result
of his involvement as a founder, director and/or investor in those entities over
the past 25 years, including active participation in their business development
and management, enables him to contribute significantly to the oversight and
governance of the Company. Mr. Klein has three decades of service as
a corporate and securities lawyer with significant participation in corporate
financings and mergers & acquisitions allowing him to provide valuable
insight when evaluating or overseeing the Company’s business and growth
strategies.
Andrew C. Florance founded
the Company in 1987. As President and CEO of CoStar, Mr. Florance has
directed CoStar’s successful expansion from start-up, to its IPO in July 1998,
to its market-leading position today with approximately 1,400 people working for
the Company worldwide, a client base that includes the commercial real estate
industry’s leading brokerage firms and property owners and an international
service platform that includes the
4
entire
United States, London, England, other parts of the United Kingdom and Paris,
France. Mr. Florance is actively involved in building awareness of
energy efficiency and sustainability within the commercial property sector, and
he is a frequent speaker on this topic at industry events. He
co-authored the first comprehensive, nationwide analysis of leasing and sales
activity in energy-efficient office buildings with Dr. Norm Miller, professor
and director of academic programs at the Burnham-Moores Center for Real
Estate. The study, which was published in the Journal of Real Estate
Portfolio Management (“JREPM”), was selected by the American Real Estate Society
as the Best Paper published in the JREPM for 2008. The groundbreaking
study was also a critical factor in the Company being selected as the only
commercial real estate-related company to win an ENERGY STAR award for
excellence from the U.S. Environmental Protection Agency. In
addition, Mr. Florance is the recipient of numerous other awards recognizing his
accomplishments as an entrepreneur and corporate leader, including: Cornell Real
Estate Review’s Real Estate Industry Executive of the Year for 2009;
Transwestern’s 2007 Public Company Trendsetter of the Year for revolutionizing
the way the commercial real estate industry gathers, analyzes and uses
information on commercial property and markets; Ernst & Young’s Entrepreneur
of the Year award in 2000 for his pioneering work in real estate information
services; and Commercial Real Estate Women’s (CREW’s) 15th anniversary award for
industry innovation. He serves on the Board of Directors of the
American Real Estate Society, an association of real estate thought leaders, and
as a Trustee of the National Building Museum. He also serves on the
Governing Board for Beauvoir, the National Cathedral Elementary School.
Mr. Florance received a B.A. in economics from Princeton
University. He is 46 years old.
As the
founder of the Company and the only member of the Company’s senior management
team who serves on our Board, Mr. Florance brings to the Board significant
knowledge and understanding of the commercial real estate and information
services industries, unique expertise on the Company’s products and services,
and extensive leadership experience. Over his 23-year tenure with the
Company, Mr. Florance has served as the Chief Executive Officer and has been
actively involved in all facets of the Company’s business, including developing
the Company’s products and services, identifying and developing markets for the
Company’s products and services and identifying and integrating acquisition
targets. This experience enables Mr. Florance to make significant
contributions to the Company’s business development and strategy.
David Bonderman is a Founding
Partner of TPG Capital, LP (“TPG”), one of the world’s largest private equity
investment firms, which was established in 1992. Through its global
buyout platform, TPG generally makes significant investments in operating
companies through acquisitions and restructurings across a broad range of
industries throughout the United States, Europe and Asia. Mr.
Bonderman currently serves on the boards of directors of the following
companies: Armstrong World Industries, Inc.; Energy Future Holdings Corp.;
General Motors Company; Harrah’s Entertainment, Inc.; RyanAir Holdings, plc, of
which he is Chairman; and Univision Communications, Inc. Mr.
Bonderman previously served on the boards of directors of Burger King Holdings,
Inc.; Ducati Motor Holdings S.p.A.; Gemplus International S.A.; IASIS
Healthcare, LLC; Korea First Bank; Mobilcom AG; and Washington Mutual,
Inc. Prior to forming TPG in 1992, Mr. Bonderman was Chief Operating
Officer of the Robert M. Bass Group, Inc. (now doing business as Keystone Group,
L.P.) in Fort Worth, Texas. Prior to joining RMBG in 1983, Mr.
Bonderman was a partner in the law firm of Arnold & Porter in Washington,
D.C., where he specialized in corporate, securities, bankruptcy and antitrust
litigation. From 1969 to 1970, Mr. Bonderman was a Fellow in Foreign
and Comparative Law in conjunction with Harvard University, and from 1968 to
1969, he was Special Assistant to the U.S. Attorney General in the Civil Rights
Division. From 1967 to 1968, Mr. Bonderman was Assistant Professor at
Tulane University School of Law in New Orleans. Mr. Bonderman
graduated Magna Cum Laude from Harvard Law School in 1966. He was a
member of the Harvard Law Review and a Sheldon Fellow. He is a 1963
graduate of the University of Washington in Seattle. Mr. Bonderman is
67 years old.
Mr.
Bonderman has had an extensive career in private equity investments and finance,
and as a result brings to the Board significant business development, mergers
& acquisitions and financial expertise. Mr. Bonderman has served
and continues to serve on several public company boards, enabling the Board to
benefit from his considerable public company board experience. In
addition, Mr. Bonderman has served on the Company’s Board for 15 years and has
extensive knowledge of the commercial real estate and information services
industries as well as the Company’s products, services and business
strategies.
5
Michael J. Glosserman has
served as a Managing Partner of The JBG Companies, a real estate investment and
development firm, since 1998. He began his career as a staff attorney
with the U.S. Department of Justice, shortly thereafter moving into commercial
real estate investment and development with the Rouse Company in 1972 and then
joining JBG in 1979. His non-professional affiliations include:
Chairman of the Board, National Building Museum; Executive Board Trustee,
Federal City Council; Board Member of the University of Pennsylvania Institute
for Urban Research and the Shakespeare Theatre Company. He received
his undergraduate degree from the Wharton School at the University of
Pennsylvania and received his Juris Doctor from the University of Texas Law
School. He is 64 years old.
Mr.
Glosserman has over 35 years of experience investing in, developing and owning
commercial real estate. As a result of his experience, Mr. Glosserman
brings to the Board significant business development, financial and commercial
real estate industry expertise. As a user of commercial real estate
information, Mr. Glosserman also provides the Board with a client’s perspective
on the Company’s business development and mergers & acquisitions strategies,
including valuable insight into the potential ‘fit’ of acquisition targets and
the development and marketing of products and services.
Warren H. Haber has been, for
more than thirty-five years, Chairman of the Board and Chief Executive Officer
of Founders Equity, Inc. and its affiliates, private investment
concerns. Mr. Haber is also Managing General Partner of FEF
Management Services, LLC, which manages Founders Equity SBIC I, L.P. and
Founders Equity NY L.P. Mr. Haber serves on the Boards of Directors
of several privately-held companies, including Advantage Healthcare Systems,
Inc.; Core BTS (formerly known as Core Business Solutions); and Richardson
Foods, Inc. Mr. Haber holds a BBA in Finance from Baruch
College. He is 69 years old.
Through
his more than 35 years of investment banking experience, Mr. Haber has served as
an executive officer and/or director of a number of portfolio
companies. As a result of his experience, he brings financial and
business development expertise to the Company’s Board, leadership experience, as
well as public company board and management experience. The Board
also draws upon Mr. Haber’s mergers & acquisitions experience when
developing strategies for business combinations and integrating acquired
companies. Through his 15 years of service on the Board, Mr. Haber
has also developed extensive knowledge of the commercial real estate and
information services industries and the Company’s products, services and
business strategies.
Josiah O. Low, III is a
Senior Advisor to Catterton Partners L.P., a private equity firm, where he
previously served as a venture partner from 2001 to 2007. Prior to
that, Mr. Low worked for 16 years at the investment banking firm of Credit
Suisse First Boston (formerly Donaldson, Lufkin & Jenrette), where he most
recently served as Managing Director/Senior Advisor. Prior to joining
Credit Suisse First Boston in 1985, Mr. Low worked at Merrill Lynch, Pierce,
Fenner & Smith and was a founding Managing Director of the Merrill Lynch
Capital Markets Group in 1977. Mr. Low serves on the board of
directors of Rosetta Resources, Inc. Mr. Low is a graduate of
Williams College. Mr. Low is 70 years old.
Through
his significant investment banking experience, Mr. Low brings financial,
business development and mergers & acquisitions expertise to the
Board. Mr. Low has public company board experience through his
service on the board of Rosetta Resources, Inc. since 2006. Through
his 11 years of service on our Board, Mr. Low has also developed extensive
knowledge of the commercial real estate and information services industries and
the Company’s products, services and business strategies.
Christopher J. Nassetta has
been the President and Chief Executive Officer of Hilton Worldwide (fka Hilton
Hotels corporation), a global hospitality company, since December
2007. Prior to joining Hilton Worldwide, Mr. Nassetta served as the
President and Chief Executive Officer of Host Hotels & Resorts (fka Host
Marriott Corporation), a lodging real estate investment trust and owner of
luxury and upper upscale hotels, from May 2000 to December 2007. Mr.
Nassetta joined Host Hotels & Resorts in 1995 as Executive Vice President
and was elected the Chief Operating Officer in 1997. Prior to joining
Host Hotels & Resorts, Mr. Nassetta served as President of Bailey Realty
Corporation from 1991 until 1995, and he had previously served as Chief
Development Officer and in various other positions with the Oliver Carr Company
from 1984 through 1991. Mr. Nassetta serves on the board of directors
of the Real Estate Roundtable. He is also a member of the McIntire
School of Commerce Advisory Board for the University of Virginia. Mr.
Nassetta previously served on the boards of directors of Prime Group Realty
Trust and Host Hotels & Resorts. Mr. Nassetta received a degree
in finance from the University of Virginia McIntire School of
Commerce. Mr. Nassetta is 47 years old.
6
Through
his current and previous positions, Mr. Nassetta brings to the Board significant
operational and business development experience, mergers & acquisitions
experience, public company board and management experience, leadership
experience, as well as commercial real estate industry expertise. As
a user of commercial real estate information, Mr. Nassetta also provides the
Board with a client’s perspective on the Company’s business development and
mergers & acquisitions strategies, including valuable insight into the
potential ‘fit’ of acquisition targets and the development and marketing of
products and services.
THE
BOARD RECOMMENDS A VOTE FOR EACH OF THESE NOMINEES.
Continued
on next page.
7
RATIFICATION
OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Audit
Committee has recommended and the Board has approved the appointment of
Ernst & Young LLP as the independent registered public accounting firm
for the Company for 2010. As a matter of good corporate governance, the Board
would like stockholders to ratify this appointment, even though ratification is
not legally necessary. If stockholders do not ratify this appointment, the Board
may, but is not required to, reconsider such appointment. Even if
stockholders ratify this appointment, the Board may direct the appointment of a
different independent auditor at any time during 2010 if, in its discretion, it
determines that such a change would be in the Company’s best
interests.
Ernst &
Young LLP has served as the independent registered public accounting firm for
the Company, its subsidiaries, and its predecessors since 1994. A
representative from Ernst & Young LLP is expected to attend the Annual
Meeting, will have the opportunity to make a statement if he or she desires to
do so and will be available to respond to appropriate questions.
For the
years ended December 31, 2008 and 2009, Ernst & Young LLP billed
CoStar the fees set forth below, including expenses, in connection with services
rendered to CoStar:
|
Year Ended December 31, 2008
|
Year Ended December 31, 2009
|
|||||||
|
Audit
Fees
|
$ | 806,593 | $ | 864,022 | ||||
|
Audit
Related Fees
|
$ | 0 | $ | 0 | ||||
|
Tax
Fees
|
$ | 20,000 | $ | 107,900 | ||||
|
All
Other Fees
|
$ | 0 | $ | 0 | ||||
|
Total
|
$ | 826,593 | $ | 971,922 | ||||
Audit
Fees include fees for services performed for the audit of CoStar’s annual
financial statements, review of financial statements included in CoStar’s
periodic filings with the Securities and Exchange Commission (the “SEC”), audit
of CoStar’s internal control over financial reporting and statutory audits
required internationally. This category also includes fees for statutory audits,
consents and assistance with and review of documents filed with the
SEC.
Audit
Related Fees include fees associated with assurance and related services that
are reasonably related to the performance of the audit or review of CoStar’s
financial statements. There were no audit related fees for 2008 or
2009.
Tax Fees
primarily include fees associated with tax return preparation, tax compliance,
tax advice and tax planning. This category also includes fees associated with
tax planning for mergers & acquisitions and restructurings.
Audit
Committee Pre-Approval Policy
The Audit
Committee’s policy is that all audit and non-audit services provided by CoStar’s
independent registered public accounting firm shall either be approved before
the independent registered public accounting firm is engaged for the particular
services or shall be rendered pursuant to pre-approval procedures established by
the Audit Committee. These services may include audit services and permissible
audit-related services, tax services and other services. Pre-approval spending
limits for services to be performed by CoStar’s independent registered public
accounting firm are established on an annual (for audit services) or periodic
(for permissible non-audit services) basis, detailed as to a particular service
or category of services to be performed and implemented by CoStar’s financial
officers. Any audit or non-audit service fees that may be incurred by CoStar
that fall outside the limits pre-approved by the Audit Committee for a
particular service or category of services must be reviewed and approved by the
Chairperson of the Audit Committee prior to the performance of services.
CoStar’s Chief Financial Officer reports to the Audit Committee on a quarterly
basis on all services rendered by the independent registered public accounting
firm for which pre-approval has been granted and all fees paid to the
independent registered public accounting firm for such services during the
previous quarter. The Audit Committee may revise its pre-approval spending
limits and policies at any time.
8
All fees
paid to the independent registered public accounting firm in 2009 were
pre-approved by the Audit Committee, and therefore no services were approved
after the services were rendered pursuant to the “de minimus” exception
established by the SEC for the provision of non-audit services.
THE BOARD RECOMMENDS THAT YOU VOTE
FOR RATIFYING THE APPOINTMENT OF ERNST & YOUNG LLP AS
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE COMPANY FOR
2010.
Continued
on next page.
9
APPROVAL
OF THE AMENDMENT TO THE 2007 STOCK INCENTIVE PLAN
At the
Annual Meeting, stockholders will be asked to approve an amendment to the CoStar
Group, Inc. 2007 Stock Incentive Plan, as amended (the “2007 Plan”) to increase
the maximum number of shares of our common stock that may be issued under the
2007 Plan by 1,300,000 shares.
In April
2007, the Compensation Committee of the Board of Directors approved and
recommended to the Board, and the Board of Directors adopted, subject to
stockholder approval, the 2007 Plan. The 2007 Plan was approved by stockholders
in June 2007. Stock incentive plans allow companies to provide equity
compensation under a stockholder-approved plan in order to attract, motivate and
retain key personnel, encourage equity ownership among this group, and enhance a
mutuality of interest with stockholders in improving the long-term performance
of the Company and the value of the Company’s common stock. There are
approximately 6 non-employee directors, 15 executives and 1,500 employees who
are currently eligible to receive awards under the 2007 Plan.
In April
2010, the Compensation Committee approved and recommended to the Board, and the
Board of Directors adopted, subject to stockholder approval, an amendment to the
2007 Plan to increase the maximum number of shares of our common stock that may
be issued under the 2007 Plan by 1,300,000 shares. Stockholders have
previously authorized us to issue under the 2007 Plan up to a total of 1,000,000
shares of common stock, plus 121,875 shares that remained available under the
Company’s 1998 stock incentive plan (the “1998 Plan”), shares received upon
cancellation, expiration or forfeiture of awards under the 2007 Plan or the 1998
Plan and shares received by the Company as the result of the exchange of shares
by a participant in the 2007 Plan as full or partial payment of the exercise
price or tax withholding with respect to awards issued under the 2007 Plan, in
each case subject to adjustment upon certain changes in our capital
structure.
Since our
stockholders approved the 2007 Plan in June 2007, we have acquired three
companies and have made additions to our management team. To permit
us to continue to grow organically and through acquisitions and to continue to
have the ability to grant stock options and restricted stock to our new and
existing employees and directors, the Board of Directors has amended the 2007
Plan to increase the number of shares available for issuance under the 2007 Plan
by 1,300,000 shares. This increase is important so we can continue to
grant stock options and restricted stock that are vital to our ability to
attract and retain outstanding and highly skilled individuals in the extremely
competitive labor markets in which we operate. Our employees are one
of our most valuable assets and attracting and retaining them is crucial to our
business. In addition, we believe that stock awards align the
interests of our employees with the interests of our stockholders.
The
increase in the number of shares available for issuance under the 2007 Plan will
allow us to continue to grant stock awards to our new and existing employees and
directors, as well as receive a federal income tax deduction for “qualifying
performance-based” compensation paid under the 2007 Plan. Should the amendment
not be approved, the original 2007 Plan will remain in full force and
effect. Granting stock awards under the 2007 Plan has certain
benefits for both the Company and the holder. For example, in order for an
option to qualify as an "incentive stock option" under the Internal Revenue
Code, the option must be granted under a plan approved by the issuer's
stockholders. Individuals who receive incentive stock options and
comply with certain holding period requirements will receive favorable tax
treatment with respect to any gains realized on the sale of shares acquired on
exercise of the options. In addition, the Company may receive a federal income
tax deduction for performance-based compensation in excess of $1 million, if
any, granted under the 2007 Plan to the Chief Executive Officer and the three
other most highly compensated executive officers (other than the Chief Financial
Officer) if, among other things, the 2007 Plan has been approved by the
Company's stockholders.
The
Compensation Committee and the Board of Directors believe that in order for us
to successfully attract and retain the best possible candidates, we must
continue to offer a competitive equity compensation program. As of March 31,
2010, 262,818 shares of common stock remained available for future grants of
awards under the 2007 Plan, an amount that the Compensation Committee and the
Board of Directors believe is not adequate to meet our anticipated needs.
Therefore, the Compensation Committee approved and recommended to the Board, and
the Board of Directors adopted, subject to stockholder approval, an amendment to
the 2007 Plan to increase the maximum number of shares of our common stock that
may be issued under the 2007 Plan by 1,300,000 shares to a total of 2,421,875
shares, plus shares received upon cancellation, expiration or forfeiture of
awards under the 2007 Plan or the 1998 Plan and shares received by the Company
as the result of the exchange of shares by a participant in the 2007 Plan as
full or partial payment of the exercise price or tax withholding with respect to
awards issued under the 2007 Plan, in each case subject to adjustment upon
certain changes in our capital structure.
10
Summary of the 2007 Plan
The
following summary of the 2007 Plan is qualified in its entirety by the specific
language of the 2007 Plan, as proposed to be amended, which is included in this
Proxy Statement as Appendix
A.
Plan
Administration. The 2007 Plan is administered by the
Compensation Committee, which is composed of individuals who are “non-employee
directors” (as that term is defined under Rule 16b-3 of the Securities Exchange
Act of 1934, as amended) and “outside directors” (within the meaning of Section
162(m) of the Internal Revenue Code of 1986, as amended (the “Code”)). All of
the members of the Compensation Committee are independent as defined under Rule
5605(a)(2) of the Nasdaq listing rules. The Compensation Committee has authority
to, among other things:
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•
|
Interpret
and administer the 2007 Plan;
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•
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Make
rules and regulations relating to the administration of the 2007 Plan;
and
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•
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Make
any other determinations and take any other action that it deems necessary
or desirable for the administration of the 2007
Plan.
|
Decisions
of the Committee or another person delegated responsibilities under the 2007
Plan shall be final, conclusive and binding on all persons.
Stock Subject to the
Plan. Assuming stockholders approve this proposal, a total of
2,421,875 shares of common stock will have been reserved for issuance pursuant
to the 2007 Plan. On March 31, 2010, options to purchase a total of 1,047,579
shares and 434,402 unvested shares of restricted stock were outstanding under
the 2007 Plan and 1998 Plan. The outstanding stock options had a
weighted-average exercise price of $34.71 per share and a weighted-average
remaining contractual life of 5.95 years. On March 31, 2010, 262,818
shares of common stock remained available for future grants of awards under the
2007 Plan. If any shares that are subject to an award under the 2007 Plan are
forfeited, are cancelled, expire, lapse or otherwise terminate without the
issuance of such shares, those shares will again be available for grant under
the 2007 Plan. The shares issued under the 2007 Plan may consist, in whole or in
part, of authorized but unissued shares or treasury shares or shares held in
trust for issuance under the 2007 Plan.
Limitations. Subject
to adjustment as provided in the 2007 Plan, no participant shall be eligible to
receive in any one calendar year awards relating to more than 200,000 shares of
our common stock.
Eligibility. The
2007 Plan permits awards to employees, officers, consultants and directors of
the Company and its subsidiaries.
Awards. The 2007
Plan provides for the grant of options (including nonqualified options), stock
appreciation rights, restricted stock, and restricted stock units.
Options. Incentive
stock options and nonqualified stock options may be granted under the 2007 Plan,
either alone or in combination with other awards. The terms of any option grant
generally are determined by the Compensation Committee. The price at which a
share may be purchased under an option may not be less than the fair market
value of a share on the date the option is granted. Fair market value generally
means the closing price for the Company’s common stock on the Nasdaq Global
Select Market on the date of grant. The 2007 Plan provides that the Compensation
Committee shall establish the term of each option, which in no case shall exceed
a period of ten years from the date of grant.
11
Stock Appreciation
Rights. Stock appreciation rights entitle a participant to
receive payment from the Company in an amount determined by multiplying the
difference between the fair market value of the shares on the date of exercise
and the fair market value on the date of grant by the number of shares subject
to the award. The terms of any grant of stock appreciation rights generally are
determined by the Compensation Committee. Stock appreciation rights may be
granted in tandem with an option or alone. The grant price of a tandem stock
appreciation right is equal to the exercise price of the related option, and the
grant price of a freestanding stock appreciation right is equal to the fair
market value of the common stock on the grant date. The 2007 Plan provides that
the Compensation Committee shall establish the term of each grant of stock
appreciation rights, which in no case shall exceed a period of ten years from
the date of grant.
Restricted Stock and Stock
Units. Restricted stock and stock units reflect a right to
receive shares of stock upon the satisfaction of certain terms, conditions and
restrictions. Both may be issued under the 2007 Plan on such terms and
conditions as the 2007 Plan permits and generally are subject to terms
determined by the Compensation Committee. Stock unit awards may be paid in cash,
stock or a combination of cash and stock. Except as set forth below,
participants holding restricted stock or stock units may be permitted to receive
dividends paid with respect to underlying shares or dividend equivalents,
subject to such terms and conditions as may be established by the Compensation
committee. Participants holding restricted stock or stock units that
are subject to qualifying performance criteria under the 2007 Plan are not
entitled to dividends or dividend equivalents unless and until the applicable
qualifying performance criteria have been met.
No Repricing. The
repricing of stock options or stock appreciation rights is
prohibited. The terms of outstanding stock options and stock
appreciation rights may not be amended to reduce the exercise price or cancel,
exchange, substitute, buyout or surrender an outstanding stock option or stock
appreciation right in exchange for cash or other awards with an exercise price
that is less than the exercise price of the original award without stockholder
approval.
Minimum Vesting
Period. Except upon a change of control of the Company, the
death or disability of the participant or awards granted to employees of the
Company or its subsidiaries in appreciation of past service to the Company or a
subsidiary pursuant to a Company program or policy that applies to all such
employees on an equal basis, no award of restricted stock or stock units payable
in shares shall vest earlier than one year from the date of grant, except that
an award of restricted stock or stock units that vests based solely on continued
service (as opposed to attainment of performance goals) shall not vest earlier
than three years from the date of grant.
Performance
Goals. Awards under the 2007 Plan may be made subject to the
attainment of performance goals relating to one or more of the following
business criteria: (1) cash flow (before or after dividends), (2) earnings or
earnings per share (including earnings before interest, taxes, depreciation and
amortization), (3) stock price, (4) return on equity, (5) total stockholder
return, (6) return on capital or investment (including return on total capital,
return on invested capital, or return on investment), (7) return on assets or
net assets, (8) market capitalization, (9) economic value added, (10) debt
leverage (debt to capital), (11) revenue, (12) income or net income, (13)
operating income, (14) operating profit or net operating profit, (15) operating
margin or profit margin, (16) return on operating revenue, (17) cash from
operations, (18) operating ratio, (19) operating revenue, or (20) customer
service (collectively, the “Performance Criteria”).
The
Performance Criteria may be used to measure the performance of the Company as a
whole or with respect to any business unit, subsidiary or business segment of
the Company, either individually, alternatively or in any combination, and may
be measured either annually or cumulatively over a period of years, on an
absolute basis or relative to a pre-established target, to previous period
results or to a designated comparison group, in each case as specified by the
Compensation Committee. The Compensation Committee shall appropriately adjust
any evaluation of performance under the Performance Criteria to exclude any of
the following extraordinary items: the effects of charges for restructurings,
discontinued operations, extraordinary items and all items of gain, loss or
expense determined to be extraordinary or unusual in nature or related to the
acquisition or disposal of a segment of a business or related to a change in
accounting principle all as determined in accordance with standards established
by Accounting Standards Codification (ASC) 225-20 Extraordinary and Unusual
Items or other applicable or successor accounting provisions, as well as the
cumulative effect of accounting changes, in each case as determined in
accordance with generally accepted accounting principles or identified in the
Company’s financial statements or notes to the financial statements. The
Compensation Committee may appropriately adjust any evaluation of performance
under the Performance Criteria to exclude any of the following events that
occurs during a performance period: (1) asset write-downs, (2) litigation,
claims, judgments or settlements, (3) the effect of changes in tax law or other
such laws or provisions affecting reported results, (4) accruals for
reorganization and restructuring programs and (5) accruals of any amounts for
payment under the 2007 Plan or any other compensation arrangement maintained by
the Company.
12
Tax
Withholding. The Company may specify the terms and conditions
on which any award recipient must satisfy any tax obligations occurring under
federal, state, local or foreign law, and may withhold issuance of any shares of
common stock until such terms and conditions are met.
Assignability. Awards
granted under the 2007 Plan are generally not transferable or assignable, except
by will or the laws of descent and distribution. However, participants may be
permitted to assign or transfer an award to the extent allowed by the
Compensation Committee in its discretion and subject to Section 422 of the
Code.
Adjustments. The
number and kind of securities available for issuance under the 2007 Plan
(including under any awards then outstanding), and the number and kind of
securities subject to the limits set forth in Section 5 of the 2007 Plan, shall
be equitably adjusted by the Compensation Committee to reflect any
reorganization, reclassification, combination of shares, stock split, reverse
stock split, spin-off, dividend or distribution of securities, property or cash
(other than regular, quarterly cash dividends), or any other equity
restructuring transaction, as that term is defined in ASC 718 Stock
Compensation. Such adjustment may be designed to comply with Section 424 of the
Code or, except as otherwise expressly provided in Section 5(c) of the 2007
Plan, may be designed to treat the securities available under the 2007 Plan and
subject to awards as if they were all outstanding on the record date for such
event or transaction or to increase the number of such securities to reflect a
deemed reinvestment in securities of the amount distributed to the Company’s
stockholders. The terms of any outstanding award under the 2007 Plan shall also
be equitably adjusted by the Compensation Committee as to price, number or kind
of securities subject to such award, vesting, and other terms to reflect the
foregoing events, which adjustments need not be uniform as between different
awards or different types of awards.
In the
event there are any other changes in the Company’s common stock, by reason of a
change of control, other merger, consolidation or otherwise in circumstances
that do not involve an equity restructuring transaction, as that term is defined
in ASC 718 Stock Compensation, then the Compensation Committee shall determine
the appropriate adjustment, if any, to be effected. In addition, in the event of
a change described in this paragraph, the Compensation Committee may accelerate
the time or times at which any award under the 2007 Plan may be exercised and
may provide for cancellation of such accelerated awards that are not exercised
within a time prescribed by the Compensation Committee in its sole
discretion.
There is
no right to purchase fractional shares that result from any adjustment in awards
under the 2007 Plan. In case of any such adjustment, the shares of common stock
subject to the award shall be rounded down to the nearest whole
share.
Change in
Control. The Compensation Committee shall have the discretion,
exercisable at any time before a sale, merger, consolidation, reorganization,
liquidation, dissolution or change in control of the Company, to take such
action as it determines to be necessary or advisable with respect to awards
under the 2007 Plan.
Amendment and
Termination. The Board may amend, alter or discontinue the
2007 Plan and the Compensation Committee may amend, or alter any agreement or
other document evidencing an award made under the 2007 Plan but, except as
specifically provided for in the 2007 Plan, no such amendment shall, without the
approval of the stockholders of the Company (a) reduce the exercise price of
outstanding options or stock appreciation rights, (b) reduce the price at which
options may be granted below the price provided for in the 2007 Plan or (c)
otherwise amend the 2007 Plan in any manner requiring stockholder approval by
law or under the Nasdaq listing rules. No amendment or alteration to the 2007
Plan or an award or award agreement shall be made which would impair the rights
of the holder of an award, without such holder’s consent, provided that no such
consent shall be required if the Compensation Committee determines in its sole
discretion and prior to the date of any change in control that such amendment or
alteration either is required or advisable in order for the Company, the 2007
Plan or the award to satisfy any law or regulation or to meet the requirements
of or avoid adverse financial accounting consequences under any accounting
standard.
Unless
sooner terminated as provided in the 2007 Plan, the 2007 Plan shall terminate
ten years after approval by the stockholders. Termination would not affect
grants and awards then outstanding.
13
Deferral. The
Compensation Committee may permit or require a participant to defer receipt of
the payment of any award of restricted stock or restricted stock units to the
extent permitted by Section 409A of the Code.
Federal
Income Tax Consequences.
The
following discussion summarizes certain federal income tax consequences of the
issuance and receipt of options and other awards under the 2007 Plan under the
law as in effect on the date of this Proxy Statement. The summary does not
purport to cover all federal employment tax or other federal tax consequences
that may be associated with the 2007 Plan, nor does it cover state, local, or
non-U.S. taxes.
Non-Qualified Options
(“NSOs”). A participant will not have taxable income upon the
grant of a NSO. Upon the exercise of a NSO, the participant will recognize
ordinary income equal to the difference between (i) one share of stock valued at
the closing price on the day the option is exercised and (ii) the exercise price
of one share, times the number of shares exercised.
The
participant will be subject to income tax withholding at the time when the
ordinary income is recognized. The Company will be entitled to a tax deduction
at the same time and in the same amount.
The
subsequent sale of the shares by a participant generally will give rise to
capital gain or loss equal to the difference between the sale price and the sum
of the exercise price paid for the shares plus the ordinary income recognized
with respect to the shares, and the capital gains will be taxable as long-term
capital gains if the participant held the shares for more than one
year.
Incentive Stock Options
(“ISOs”). There generally are no tax consequences upon the
grant or vesting of an ISO, provided that an option that is otherwise intended
to be an ISO will no longer qualify for ISO tax treatment (and instead will be
taxed as an NSO) if the option is not exercised while the participant is an
employee of the Company or within three months following termination of
employment (one year in the case of termination due to total and permanent
disability as defined in the Code). If a participant sells or otherwise disposes
of the shares acquired upon the exercise of an ISO at any time within one year
after the date shares are transferred to the participant or two years after the
date the ISO is granted to the participant, then:
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•
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if
the sales price exceeds the exercise price of the ISO, the participant
will recognize capital gain equal to the excess, if any, of the sales
price over the fair market value of the shares on the date of exercise,
and the participant will recognize ordinary income equal to the excess, if
any, of the lesser of the sales price or the fair market value of the
shares on the date of exercise over the exercise price of the ISO;
or
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•
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if
the participant’s sales price is less than the exercise price of the ISO,
the participant will recognize a capital loss equal to the excess of the
exercise price of the ISO over the sales price of the
shares.
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In this
event, the Company will generally be entitled to a tax deduction equal to the
ordinary income the participant recognizes.
If the
participant sells or otherwise disposes of shares acquired upon exercise of an
ISO at any time after the participant has held the shares for at least one year
after the date the Company transfers the shares to the participant pursuant to
the participant’s exercise of the ISO and at least two years after the date the
Company grants the ISO to the participant, then the participant will recognize
long-term capital gain or loss equal to the difference between the sales price
and the exercise price of the ISO, and the Company will not be entitled to any
deduction.
The
amount by which the fair market value of the shares the participant acquires
upon exercise of an ISO exceeds the exercise price on the date of exercise will
be included as a positive adjustment in the calculation of the participant’s
“alternative minimum taxable income” in the year of exercise. Before
exercising an ISO, a participant should determine whether and to what extent
exercise of an ISO will result in alternative minimum tax in the year of
exercise.
14
Stock Appreciation Rights
(“SARs”). The grant of a SAR is generally not a taxable event
for a participant. Upon exercise of the SAR, the participant will generally
recognize ordinary income equal to the amount of cash and/or the fair market
value of any shares received. The participant will be subject to income tax
withholding at the time when the ordinary income is recognized. The Company will
be entitled to a tax deduction at the same time for the same amount. If the SAR
is settled in shares, the participant’s subsequent sale of the shares generally
will give rise to capital gain or loss equal to the difference between the sale
price and the ordinary income recognized when the participant received the
shares, and these capital gains will be taxable as long-term capital gains if
the participant held the shares for more than one year.
Restricted
Stock. The tax consequences of a grant of restricted stock
depends upon whether or not a participant elects under Section 83(b) of the Code
to be taxed at the time of the grant.
If no
election is made, the participant will not recognize taxable income at the time
of the grant of the restricted stock. When the restrictions on the restricted
stock lapse, the participant will recognize ordinary income equal to the value
(determined on the lapse date) of the restricted stock.
If the
election is made, the participant will recognize ordinary income at the time of
the grant of the restricted stock equal to the value of the stock at that time,
determined without regard to any of the restrictions. If the restricted stock is
forfeited before the restrictions lapse, the participant will generally not be
entitled to a deduction on account thereof.
The
participant will be subject to income tax withholding at the time when the
ordinary income (including any dividends taxed as ordinary income) is
recognized. Subject to the Section 162(m) restrictions discussed below, the
Company will be entitled to a tax deduction at the same time and for the same
amount.
A
subsequent sale of restricted stock generally will give rise to capital gain or
loss equal to the difference between the sale price and the ordinary income the
participant recognized with respect to the stock. The capital gains will be
taxable as long-term capital gains if the participant held the stock for more
than one year. The holding period to determine whether a participant has
long-term or short-term capital gain or loss on a subsequent sale generally
begins when the stock restrictions lapse, or on the date of grant if the
participant made a valid Section 83(b) election.
Stock Units. A
participant will not have taxable income upon the grant of a stock unit. Rather,
taxation will be postponed until the stock becomes payable, which will be either
immediately following the lapse of the restrictions on the stock units, or, if
the participant has elected deferral to a later date, such later date. At that
time, the participant will recognize ordinary income equal to the value of the
amount then payable.
The
participant will be subject to income tax withholding at the time when the
ordinary income (including any dividend equivalents taxed as ordinary income) is
recognized. Subject to the Section 162(m) restrictions discussed below, the
Company will be entitled to a tax deduction at the same time and for the same
amount.
If a
stock unit is settled in shares, subsequent sale of the shares generally will
give rise to capital gain or loss equal to the difference between the sale price
and the ordinary income recognized when the participant received the shares, and
these capital gains will be taxable as long-term capital gains if the
participant held the shares for more than one year.
Other. In general,
under Section 162(m) of the Code, remuneration paid by a public corporation to
its chief executive officer or any of its other top three named executive
officers other than the chief financial officer, ranked by pay, is not
deductible to the extent it exceeds one million dollars ($1,000,000) for any
year. Taxable payments or benefits under the 2007 Plan may be subject to this
deduction limit. However, under Section 162(m) of the Code, qualifying
performance-based compensation, including income from stock options and other
performance-based awards that are made under stockholder-approved plans and that
meets certain other requirements, is exempt from the deduction limitation. The
2007 Plan has been designed so that the Compensation Committee in its discretion
may grant qualifying exempt performance-based awards under the 2007 Plan, and
stockholder approval of the amendment to the 2007 Plan will be deemed
stockholder approval of the 2007 Plan for Section 162(m) purposes.
15
Under the
so-called “golden parachute” provisions of the Code, the accelerated vesting of
stock options and benefits paid under other awards in connection with a change
in control of a corporation may be required to be valued and taken into account
in determining whether participants have received compensatory payments,
contingent on the change in control, in excess of certain limits. If these
limits are exceeded, a portion of the amounts payable to the participant may be
subject to an additional twenty percent (20%) federal tax and may be
nondeductible to the Company.
Plan
Benefits
The
amount and timing of future awards granted under the 2007 Plan are determined in
the sole discretion of the Compensation Committee and therefore cannot be
determined in advance. The future benefits or amounts that would be
received under the 2007 Plan by executive officers, non-executive directors and
non-executive officer employees are discretionary and are therefore not
determinable at this time. As of April 15, 2010, the closing price of
a share of the Company’s common stock on the Nasdaq Global Select Market was
$45.02. The following table shows the number of shares underlying
grants of all types of awards under the 2007 Plan that have been granted since
the 2007 Plan was adopted to (a) each executive officer named in the Summary
Compensation Table, (b) all executive officers as a group, (c) all employees,
including all current officers who are not executive officers, as a group, (d)
all non-employee directors as a group, and (e) each person who has received 5%
of the outstanding grants to current officers, directors and
employees.
|
Name and
Position
|
Total Number of Shares Underlying Award
Grants(1)
|
|
|
Andrew
C. Florance, President
& Chief Executive Officer
|
203,439
|
|
|
Brian
J. Radecki, Chief
Financial Officer & Treasurer
|
66,521
|
|
|
John
Stanfill, Senior Vice
President, Sales & Customer Service
|
81,700
|
|
|
Jennifer
L. Kitchen, Senior Vice
President, Research
|
31,039
|
|
|
Paul
Marples, Managing
Director, CoStar UK Limited
|
29,600
|
|
|
Executive
Officer Group (executive officers named above)
|
412,299
|
|
|
Non-Executive
Officer Employee Group
|
516,035
|
|
|
Non-Employee
Director Group
|
31,946
|
____________
(1) Includes
stock options and restricted stock as of April 1, 2010.
Miscellaneous
The 2007
Plan is not exclusive and does not limit the authority of the Board or its
committees to grant awards or authorize any other compensation, with or without
reference to shares, under any other plan or authority.
Required
Vote
Approval
of the proposed amendment to the 2007 Plan requires the affirmative “FOR” vote
of a majority of the votes cast on the proposal. Unless marked to the contrary,
proxies received will be voted “FOR” approval of the amendment to increase the
number of shares issuable under the 2007 Plan by 1,300,000 shares.
Recommendation
We
strongly believe that approval of the amendment to the 2007 Plan is essential to
our continued success. Our employees are one of our most valuable assets. Stock
options and other incentive awards, such as those available under the 2007 Plan,
are critical for attracting and retaining outstanding and highly skilled
individuals. These awards also are vital to our ability to motivate employees to
achieve our goals. For the reasons stated above, stockholders are being asked to
approve the amendment to the 2007 Plan.
THE
BOARD RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF AN AMENDMENT TO INCREASE THE
NUMBER OF SHARES ISSUABLE UNDER THE 2007 PLAN BY 1,300,000 SHARES.
16
We do not
know of any other matter that will be presented for consideration at the Annual
Meeting. If any other matter does properly come before the Annual Meeting, the
proxy holders will, unless otherwise specified in the proxy, vote on it as they
think best in their discretion.
A
stockholder who intends to introduce a proposal for consideration at our 2011
Annual Meeting of Stockholders may seek to have that proposal and a statement in
support of the proposal included in our proxy statement if the proposal relates
to a subject that is permitted under Rule 14a-8 under the Securities
Exchange Act of 1934 (the “Exchange Act”). Additionally, in order to be eligible
for inclusion in our proxy statement, the stockholder must submit the proposal
and supporting statement to our Corporate Secretary in writing not later than
Friday, December 31, 2010, and must satisfy the other requirements of
Rule 14a-8. Stockholders interested in submitting such a proposal are
advised to contact knowledgeable counsel with regard to the detailed
requirements of applicable securities laws. The submission of a stockholder
proposal does not guarantee that it will be included in our proxy
statement.
A
stockholder may otherwise propose business for consideration or nominate persons
for election to the Board, in compliance with federal proxy rules, applicable
state law and other legal requirements and without seeking to have the proposal
included in our proxy statement pursuant to Rule 14a-8. Our Amended and
Restated Bylaws provide that any such proposals or nominations must be submitted
to us not later than the close of business on the 75th day
and not earlier than the close of business on the 105th day
before the first anniversary date of the preceding year’s annual meeting. In the
event that the date of the Company’s annual meeting is more than 30 days before
or more than 70 days after the first anniversary of the preceding year’s annual
meeting (other than as a result of adjournment or postponement), then, to be
timely, such stockholder’s notice must be submitted in writing not earlier than
the close of business on the 105th day
prior to such annual meeting and not later than the close of business on the
later of the 75th day
prior to such annual meeting or the 10th day
following the date on which the public announcement of the date of such meeting
is first made by the Company. Accordingly, stockholders who wish to
nominate persons for election as directors or bring forth other proposals
outside of Rule 14a-8 at the 2011 Annual Meeting must give notice of their
intention to do so in writing to our Corporate Secretary on or
before Saturday, March 19, 2011, but no sooner than Thursday,
February 17, 2011, to be considered “timely” within the meaning of
Rule 14a-4 under the Exchange Act. The stockholder’s submission must
include certain specified information concerning the proposal or nominee, as the
case may be, and information as to the stockholder’s ownership of common stock
as required by the Company’s Amended and Restated Bylaws. Proposals or
nominations not meeting these requirements will not be entertained at the 2011
Annual Meeting.
Identifying
and Evaluating Nominees
The
Nominating & Corporate Governance Committee identifies nominees for
director on its own as well as by considering recommendations from other members
of the Board, officers and employees of CoStar, and other sources that the
Nominating & Corporate Governance Committee deems appropriate. The
Nominating & Corporate Governance Committee will also consider Board
nominees suggested by stockholders, subject to such recommendations being
submitted during the period and including the required information specified in
CoStar’s Amended and Restated Bylaws for stockholders to nominate directors, as
described under “Stockholder Proposals and Nominations for Directors for the
2011 Annual Meeting” above. The Company may require any proposed nominee to
furnish other information as reasonably required to determine eligibility to
serve as a director of the Company, including information regarding the proposed
nominee’s independence.
17
When
evaluating nominees for director, the Nominating & Corporate Governance
Committee considers, among other things, an individual’s business experience and
skills, background, independence, judgment, integrity and ability to commit
sufficient time and attention to the activities of the Board, as well as the
absence of any potential conflicts with the Company’s interests. When
considering a director standing for reelection as a nominee, in addition to the
attributes described above, the Nominating & Corporate Governance
Committee also considers that individual’s past contribution and future
commitment to CoStar. The Nominating & Corporate Governance Committee
evaluates the totality of the merits of each prospective nominee that it
considers and does not restrict itself by establishing minimum qualifications or
attributes. The Nominating & Corporate Governance Committee
evaluates candidates within the context of the perceived needs of the Board as a
whole, so that the members of the Board collectively will possess the necessary
skills, experience and background. There is no difference in the
manner by which the Nominating & Corporate Governance Committee
evaluates prospective nominees for director based on the source from which the
individual was first identified.
Board
Leadership Structure
Currently,
an independent director, Mr. Klein, serves as Chairman of the Board and a
separate director, Mr. Florance, serves as Chief Executive
Officer. Mr. Klein has served on the Company’s board of directors
since inception and is well positioned to serve as Chairman of the
Board. The Board does not have a policy regarding the separation of
the roles of Chief Executive Officer and Chairman of the Board as the Board
believes it is in the best interests of the Company to make that determination
based on the position and direction of the Company and the membership of the
Board at the particular time. The Board has determined that this
leadership structure, under which the roles of Chairman and CEO are separate and
an independent director serves as Chairman, currently is in the best interest of
the Company’s stockholders. This structure provides a greater role
for the independent directors in the oversight of the Company and in setting
agendas and establishing Board priorities and procedures. In
addition, this structure permits the Chief Executive Officer to focus on the
management of the Company’s day-to-day operations.
Independent
Directors and Executive Sessions
CoStar’s
Board has determined that Messrs. Klein, Bonderman, Glosserman, Haber, Low
and Nassetta are each independent as defined under Rule 5605(a)(2) of the
Nasdaq listing rules. In making these independence determinations,
the Board determined that none of the independent directors has any direct or
indirect relationship with the Company other than his relationship as a
director.
The
independent directors of the Board of Directors meet in regularly scheduled
executive sessions, which are typically run by the Chairman of the Board, Mr.
Klein. In 2009, the independent directors met in executive session
two times.
The
Board’s Role in Risk Oversight
One of
the Board’s functions is oversight of risk management at CoStar. This risk
oversight function is administered both through the full Board and through
individual Board Committees that are tasked by the Board with oversight of
specific risks, as described below.
Companies
face a variety of risks, including macro-economic risks, such as inflation,
economic downturns, or recession; business-specific risks related to strategic
position, operations, financial structure, legal and regulatory compliance and
corporate governance; and event-specific risks, such as natural disasters or
wars. The Company believes that an effective risk management system
will:
|
·
|
timely
identify the material risks that the Company
faces,
|
|
·
|
communicate
necessary information with respect to material risks to senior executives
and, as appropriate, to the Board or relevant Board
Committee,
|
|
·
|
implement
appropriate and responsive risk management strategies consistent with the
Company’s risk profile, and
|
|
·
|
integrate
risk management into Company
decision-making.
|
18
The Board
encourages management to promote a corporate culture that incorporates risk
management into the Company’s corporate strategy and day-to-day business
operations. Management is responsible for identifying risk and risk
controls related to significant business activities and developing programs and
recommendations to determine the sufficiency of risk identification, the balance
of potential risk to potential reward, and the appropriate manner in which to
control risk.
The Board
implements its risk oversight responsibilities by having management, typically
the Chief Financial Officer or General Counsel, provide periodic briefing and
informational sessions on the significant voluntary and involuntary risks that
the Company faces and how the Company is seeking to control risk if and when
appropriate. In some cases, as with risks related to product or
service acceptance, risk oversight is addressed as part of the full Board’s
engagement with the Chief Executive Officer and management. In other
cases, a Board Committee is responsible for oversight of specific risk topics in
which case, management meets directly with the Board Committee. For
example, the Audit Committee oversees issues related to internal control over
financial reporting and issues related to the Company’s risk tolerance in
cash-management investments, and the Compensation Committee oversees risks
related to compensation plans and programs, as discussed in greater detail
below. Board Committees meet regularly and report back to the full
Board. The Board also works with the Company’s management to assess,
analyze and address the most likely areas of future risk for the
Company.
Risk Assessment in Compensation
Programs.
We have
assessed the Company’s compensation programs. Management assessed the
Company’s executive and broad-based compensation and benefits programs to
determine if the programs’ provisions and operations encourage or create
undesired or unintentional risk of a material nature. This risk assessment
process included:
|
·
|
a
review of program policies and
practices;
|
|
·
|
program
analysis to identify risk and risk control related to the programs;
and
|
|
·
|
determinations
as to the sufficiency of risk identification, the balance of potential
risk to potential reward and risk
control.
|
Although
we reviewed all compensation programs, we focused on the programs with
variability of payout, with the ability of a participant to directly affect
payout and the controls on participant action and payout. The Company
supports the use of base salary, performance-based compensation, and retirement
plans that are generally uniform in design and operation throughout the
Company. In most cases, the compensation policies and practices are
centrally designed and administered, and are substantially identical at each
business unit, except that sales personnel are also eligible to receive sales
commissions depending upon performance. Programs may differ by
country due to variations in local laws and customs.
Based on
the foregoing, we believe that our compensation policies and practices do not
create inappropriate or unintended significant risk to the Company as a whole.
We also believe that our incentive compensation arrangements provide incentives
that do not encourage risk-taking beyond the organization’s ability to
effectively identify and manage significant risks; are compatible with effective
internal controls and the risk management practices of the Company; and are
supported by the oversight and administration of the Compensation Committee with
regard to executive compensation programs.
Stockholder
Communications with the Board
Stockholders
may communicate with our Board by sending written correspondence to
CoStar Group, Inc., Attention: Corporate Secretary, 2 Bethesda Metro
Center, Bethesda MD 20814. Such communications will be opened by the Corporate
Secretary. A copy of the contents will be made and retained by the Corporate
Secretary and the contents will be promptly forwarded to the Chairman of the
Nominating & Corporate Governance Committee. The Corporate Secretary
together with the Chairman of the Nominating & Corporate Governance
Committee and his duly authorized agents are responsible for collecting and
organizing stockholder communications. Absent a conflict of interest, the
Chairman of the Nominating & Corporate Governance Committee is
responsible for evaluating the materiality of each stockholder communication and
determining which stockholder communications are to be presented to the full
Board, individual directors or other appropriate body.
19
Policy
Regarding Attendance at Annual Meetings
CoStar
encourages, but does not require, directors to attend the Annual Meetings of
Stockholders. In 2009, Mr. Florance and Mr. Klein attended the Annual
Meeting of Stockholders.
Codes
of Conduct
CoStar
has adopted a Code of Conduct for its directors. In addition, CoStar has adopted
a separate Code of Conduct for its officers and employees, including its
principal executive officer and principal financial officer. Copies of each of
these codes may be found in the “Investors” section of the Company’s website at
www.CoStar.com/Investors/Corpgovernance.aspx.
In
accordance with applicable Delaware law and the Company’s Amended and Restated
Bylaws, the business and affairs of the Company are managed under the direction
of its Board. The Board, which is elected by the Company’s stockholders, is the
ultimate decision-making body of the Company except with respect to those
matters reserved to the stockholders. The Board selects, advises and monitors
the performance of the Company’s senior management team, which is charged with
the conduct of the Company’s business. The Board has established certain
standing committees to assist it in fulfilling its responsibilities as described
below.
During
2009, the Board of Directors held six meetings. The Board has Audit,
Compensation and Nominating & Corporate Governance committees. All
directors attended at least 75% of the meetings of the Board and the committees
of which they were members, which were held during the period in which each such
director served in that capacity, except that David Bonderman participated in
71% of the meetings of the Board and the committees of which he was a
member.
Board
Committees
The
following table sets forth the composition of each of our Board committees as of
the date of this proxy statement.
|
Audit Committee
|
Compensation Committee
|
Nominating & Corporate Governance
Committee
|
||
|
Warren
H. Haber (Chairman)
|
Christopher
J. Nassetta (Chairman)
|
Josiah
O. Low, III (Chairman)
|
||
|
Michael
J. Glosserman
|
David
Bonderman
|
Michael
R. Klein
|
||
|
Josiah
O. Low, III
|
Warren
H. Haber
|
Christopher
J. Nassetta
|
||
|
Michael
R. Klein
|
Audit Committee.
The Board has determined that each of the members of our Audit Committee is
independent as defined under Rule 5605(a)(2) of the Nasdaq listing rules.
In addition, the Board has determined that Committee members Haber, Glosserman
and Low are “audit committee financial experts,” as defined by regulations
promulgated by the SEC. During 2009, the Audit Committee met four
times. The Audit Committee’s responsibility is to assist the Board in fulfilling
its oversight responsibilities as to accounting policies, internal controls,
audit activities and reporting practices of the Company. The Audit Committee is
also responsible for producing the report of the Audit Committee for inclusion
in the Company’s proxy statement. The Audit Committee operates under a written
charter adopted by the Board and reviewed annually by the Audit
Committee.
Compensation
Committee. The Board has determined that each of the members
of our Compensation Committee is independent as defined under
Rule 5605(a)(2) of the Nasdaq listing rules. In 2009, the Compensation
Committee met one time. The Compensation Committee operates under a
written charter adopted by the Board and reviewed annually by the Compensation
Committee.
The
purpose of the Compensation Committee is to discharge the responsibilities of
the Board relating to compensation of the Company’s executive officers and
directors, as well as to produce the Compensation Committee report on executive
compensation for inclusion in the Company’s proxy statement. The
Compensation Committee’s authority and responsibilities include:
20
|
·
|
overseeing
the Company’s compensation structure, policies and programs for executive
officers and assessing whether the compensation structure establishes
appropriate incentives for the executive
officers;
|
|
·
|
reviewing
and approving corporate goals and objectives relevant to the compensation
of the Chief Executive Officer and other executive officers of the
Company, evaluating those executive officers’ performance in light of
their goals and setting their compensation levels based on the
Compensation Committee’s evaluation and the recommendations of the
CEO;
|
|
·
|
approving
stock options and other stock incentive awards for executive
officers;
|
|
·
|
reviewing
and approving the design of benefit plans pertaining to executive
officers;
|
|
·
|
reviewing
and recommending employment agreements for executive
officers;
|
|
·
|
approving,
amending or modifying the terms of any compensation or benefit plan that
does not require stockholder approval;
and
|
|
·
|
reviewing
the compensation of directors for service on the Board and its committees
and recommending changes in compensation to the
Board.
|
In
addition, the Board has designated the Compensation Committee as the
Administrator of both the Company’s 1998 Stock Incentive Plan, as amended (the
“1998 Plan”), and the Company’s 2007 Stock Incentive Plan, as amended (the “2007
Plan”). The Compensation Committee may delegate its duties or
responsibilities to a subcommittee of the Compensation Committee, and it has
authority to retain and to direct management to retain outside advisors and
experts that it determines appropriate to assist with performance of its
functions.
Our Chief
Executive Officer and Chief Financial Officer make recommendations to the
Compensation Committee for each element of compensation awarded to executives,
but the Compensation Committee must approve each element of (and any changes to)
executive compensation. Periodically, the Compensation Committee also
retains independent compensation consulting firms to assist it in gathering
market data and to provide it with information about trends in compensation
among comparable companies, determined based on factors such as market
capitalization, annual revenues, service offerings, and potential competition
for talent or business. Most recently, the Compensation Committee
retained Towers Perrin in each of 2008 and 2006 and made several changes to the
Company’s executive compensation structure based in part on Towers Perrin’s
recommendations, as described below in the section titled “Compensation
Discussion and Analysis” beginning on page 29 of this proxy statement. Towers
Perrin reported directly to the Compensation Committee through its chair, and,
at the direction of the Compensation Committee chair, also worked directly with
the Company’s management to develop materials and proposals with respect to
executive officer compensation. In future years, the Compensation
Committee plans at its discretion to retain Towers Watson, the successor to
Towers Perrin (or another consulting firm), to update or perform new studies to
be used in connection with its executive compensation decisions.
Nominating & Corporate
Governance Committee. The Board has determined that each of
the members of our Nominating & Corporate Governance Committee is
independent as defined under Rule 5605(a)(2) of the Nasdaq listing rules.
The purpose of the Nominating & Corporate Governance Committee is to
identify individuals qualified to become Board members, recommend to the Board
director candidates to be nominated at the Annual Meeting of Stockholders and
perform a leadership role in shaping the Company’s corporate governance. In
2009, the Nominating & Corporate Governance Committee met one
time. The Nominating & Corporate Governance Committee
operates under a written charter adopted by the Board and reviewed annually by
the Nominating & Corporate Governance Committee.
All of
the charters for the Company’s Board committees are available in the “Investors”
section of the Company’s website at www.CoStar.com/Investors/Corpgovernance.aspx.
The Audit
Committee reviews the Company’s financial reporting process on behalf of the
Board. Management has the primary responsibility for the financial statements
and the reporting process. The Company’s independent registered public
accounting firm is responsible for expressing an opinion on the conformity of
the Company’s audited consolidated financial statements to generally accepted
accounting principles.
21
In this
context, the Audit Committee has reviewed and discussed with management and the
independent registered public accounting firm the Company’s audited consolidated
financial statements for 2009. The Audit Committee has discussed with the
independent registered public accounting firm the matters required to be
discussed by Statement on Auditing Standards No. 61, as amended and adopted
by the Public Company Accounting Oversight Board (PCAOB). In
addition, the Audit Committee has received from the independent registered
public accounting firm the written disclosures and the letter required by
applicable requirements of the PCAOB regarding the independent registered public
accounting firm’s communications with the Audit Committee concerning
independence, and the Audit Committee has discussed with the independent
registered public accounting firm its independence from the Company and
management. The Audit Committee has also considered whether the independent
registered public accounting firm’s provision of non-audit services to the
Company is compatible with the auditors’ independence.
In
reliance on the reviews and discussions referred to above, the Audit Committee
recommended to the Board that the audited consolidated financial statements be
included in the Company’s annual report on Form 10-K for the year ended
December 31, 2009, for filing with the SEC.
By the
Audit Committee
of the
Board of Directors
April 20,
2010
Warren H.
Haber, Chairman
Michael
J. Glosserman
Josiah O.
Low, III
The
Compensation Committee of the Board annually reviews director compensation for
service on the Board and for service on any Board committees and recommends
director compensation and any changes to such compensation to the Board for
approval. The Board annually reviews and approves director
compensation for Board and committee service based on the recommendations of the
Compensation Committee. Current non-employee director compensation is
set out below. Directors who are also employees of the Company do not
receive any compensation for service on the Board in addition to their regular
employee compensation.
Board Fees. Each
non-employee director, other than the Chairman of the Board, receives $20,000
annually as compensation for serving on the Company’s Board.
Attendance
Fees. Each non-employee director, other than the Chairman of
the Board, receives $2,000 for each regular meeting of the Board attended in
person or by telephone.
Chairman. The
Chairman of the Board receives $120,000 annually as compensation for services
that he is required to perform in his role as Chairman.
Stock
Grants. Annually on the date of the first regular Board
meeting following the annual meeting of stockholders: (a) each non-employee
Board member is entitled to receive a restricted stock grant valued at least
$72,000 on the date of grant; (b) the Chairperson of the Audit Committee
also is entitled to receive a restricted stock grant valued at least $30,000 on
the date of grant; (c) each member of the Audit Committee (other than the
Chairperson) also is entitled to receive a restricted stock grant valued at
least $15,000 on the date of grant; and (d) the Chairperson of each of the
Compensation and Nominating & Corporate Governance Committees also is
entitled to receive a restricted stock grant valued at least $15,000 on the date
of grant. The number of shares of restricted stock granted pursuant
to each such restricted stock grant to the directors is determined by dividing
the total dollar amount awarded by the closing price of the Company’s common
stock on the date of grant. Each award vests in equal installments on
the first four anniversaries of the date of grant, as long as the director is
still serving on our Board on the respective vesting date.
22
Pursuant
to the Company’s 2007 Plan and related award agreements, upon a change of
control, all restrictions on stock grants will lapse. For more
detailed information, see “Change of Control Provisions under the Company’s 1998
and 2007 Plans” on pages 53-54. In addition, under the 2007 Plan,
recipients of restricted stock are entitled to receive all dividends and other
distributions, if any, paid with respect to the common stock. The
Compensation Committee will determine if any such dividends or distributions
will be automatically reinvested in additional shares of restricted stock and
subject to the same restrictions as the restricted stock or whether the dividend
or distribution will be paid in cash.
Expenses. Each
non-employee director is entitled to reimbursement of his expenses for serving
as a member of our Board, including expenses in connection with attending each
meeting of the Board and each meeting of any committee.
Director
Compensation Table for Fiscal Year 2009
The
following Director Compensation table shows the compensation we paid in 2009 to
our non-employee directors.
|
Name
|
Fees
Earned or
Paid
in Cash(1)
($)
|
Stock
Awards(2)
($)
|
Total
($)
|
|||||||||
|
Michael
R. Klein, Chairman
|
$ | 120,000 | $ | 72,028 | $ | 192,028 | ||||||
|
David
Bonderman
|
$ | 24,000 | $ | 72,028 | $ | 96,028 | ||||||
|
Michael
J. Glosserman
|
$ | 28,000 | $ | 87,013 | $ | 115,013 | ||||||
|
Warren
H. Haber
|
$ | 28,000 | $ | 102,036 | $ | 130,036 | ||||||
|
Josiah
O. Low, III
|
$ | 28,000 | $ | 102,036 | $ | 130,036 | ||||||
|
Christopher
J. Nassetta
|
$ | 28,000 | $ | 87,013 | $ | 115,013 | ||||||
__________
|
|
(1)
|
This
column shows the amount of cash compensation earned in 2009 for Board and
Committee service.
|
|
|
(2)
|
This
column shows the aggregate grant date fair value of shares of restricted
stock granted in 2009 to each non-employee director, computed in
accordance with SEC rules. Each non-employee director received
one grant of restricted stock on September 3, 2009 for his service on the
Board and any committees, as applicable. Generally, the grant
date fair value is the amount the Company expenses in its financial
statements over the awards’ vesting period and is based on the closing
price of our common stock on the date of grant, which was $36.73 on
September 3, 2009.
|
|
|
The
following table shows the number of shares of restricted stock
granted to each non-employee director during 2009, as well as the
aggregate number of shares of restricted stock and stock options held by
each non-employee director as of December 31,
2009.
|
|
Name
|
Number
of Shares of Restricted Stock
Granted 9/3/09
|
Aggregate
Shares of Unvested Restricted Stock Held
as of 12/31/09
|
Aggregate
Stock Options Held
as of 12/31/09
|
|||
|
Michael
R. Klein, Chairman
|
1,961
|
4,082
|
19,000
|
|||
|
David
Bonderman
|
1,961
|
4,082
|
19,000
|
|||
|
Michael
J. Glosserman
|
2,369
|
3,554
|
0
|
|||
|
Warren
H. Haber
|
2,778
|
5,783
|
27,000
|
|||
|
Josiah
O. Low, III
|
2,778
|
5,783
|
21,000
|
|||
|
Christopher
J. Nassetta
|
2,369
|
4,932
|
15,000
|
23
The
following table lists our current executive officers and key
employees:
|
Name
|
Age(1)
|
Years of Service(2)
|
Position
|
|||
|
Andrew
C. Florance*
|
46
|
23
|
Chief
Executive Officer, President and Director
|
|||
|
Brian
J. Radecki*
|
39
|
13
|
Chief
Financial Officer and Treasurer
|
|||
|
John
Stanfill*
|
42
|
15
|
Sr.
Vice President of Sales and Customer Service
|
|||
|
Jennifer
L. Kitchen*
|
37
|
16
|
Sr.
Vice President of Research
|
|||
|
Paul
Marples*
|
48
|
9(3)
|
Managing
Director, CoStar UK Limited
|
|||
|
Jonathan
Coleman
|
45
|
10
|
General
Counsel and Secretary
|
|||
|
Frank
Simuro
|
43
|
11
|
Chief
Information Officer
|
|||
|
Craig
F. Gomez
|
49
|
1
|
Chief
Human Resources Officer
|
|||
|
Daniel
Kimball
|
35
|
4
|
Vice
President of Marketing
|
|||
|
Craig
Farrington
|
52
|
27(3)
|
Vice
President of Research
|
|||
|
Dean
Violagis
|
43
|
21
|
Vice
President of Research
|
____________
* Executive
Officer.
|
(1)
|
Age
determined as of June 1, 2010.
|
|
(2)
|
Years
of service include the current year of
service.
|
|
(3)
|
Includes
years of service with acquired
companies.
|
Information
about Mr. Florance appears above under “Item 1 — Election of
Directors.” Information about each of the other individuals in the table appears
below.
Brian J. Radecki, our Chief
Financial Officer and Treasurer, joined the Company in 1997 as our Corporate
Controller. Prior to his appointment as Chief Financial Officer in
2007, Mr. Radecki served as Vice President of Research Operations, the Company’s
largest operating area, and before that he was Director of Accounting and
Finance where he was involved in every aspect of the Company's accounting and
finance functions in the United States and United Kingdom. From
February 2000 until February 2001, Mr. Radecki was Chief Financial Officer of
Comps, Inc. (formerly a wholly owned subsidiary of the Company). Before joining
CoStar, Mr. Radecki was the Accounting Manager at Axent Technologies, Inc.
(“Axent”), a publicly-held international security software company. Prior to
Axent, Mr. Radecki worked at Azerty, Inc. and the public accounting firm,
Lumsden & McCormick, LLP, in Buffalo, NY. Mr. Radecki received a B.S. in
business administration and a dual degree in both accounting and finance from
the State University of New York at Buffalo.
John Stanfill, our Senior
Vice President of Sales & Customer Service, joined us in June 1995 as an
Account Executive for the New York City market. Since then, he has
held positions of increasing responsibility at CoStar, ranging from positions in
business development and national market expansion to management of the
Company’s Inside Sales Division. Before being appointed Senior Vice
President of Sales & Customer Service in June 2008, Mr. Stanfill held the
positions of Senior Vice President of Marketing & Product Management from
January 2008 to June 2008, Vice President of Product Management from December
2006 to December 2007, and Vice President of Outbound Sales from March 2004 to
November 2006. Mr. Stanfill received a B.A. from Boston
University.
Jennifer L. Kitchen, our
Senior Vice President of Research, joined CoStar in 1994 as a research analyst
for the Company’s first New York City research team. Prior to her
appointment as Senior Vice President of Research in 2006, Ms. Kitchen held
management positions with increasing responsibility. Between 1995 and
1997, she led CoStar’s research expansion into the Los Angeles market and
managed its research operations on the West Coast. In 1998, Ms. Kitchen
established CoStar’s first field research and photography operations and was
subsequently promoted to Director of Field Research and Photography. She was
appointed Vice President of Field Research in 2004, where she led the Company’s
overall field operations for collecting building-level data and photographing
properties throughout the United States. Ms. Kitchen is currently
responsible for our entire research operations. Ms. Kitchen holds a B.A. in
history from Wellesley College.
24
Paul Marples, the Managing
Director of our U.K. subsidiary, CoStar UK Limited, is in charge of our CoStar
FOCUS service and our European operations. Mr. Marples joined us upon
the acquisition of Property Investment Exchange Limited (“Propex”) in February
2007. Mr. Marples previously served as Managing Director of Propex
from 2001 to 2007. Mr. Marples began his career in the commercial property
industry in 1984, as a Chartered Surveyor for Weatherall Green and Smith
(Atisreal) in London and Spain. From 1984 to 1996, Mr. Marples rose from
Chartered Surveyor to Partner (London) to Managing Director (Spain) of
Weatherall Green and Smith. In 1996, he established Brown Cooper Marples (BCM),
a London-based investment brokerage firm where he served as Managing Director,
before helping launch Propex beginning in 2001 through the consolidation of a
number of property-related, Internet-based businesses. Mr. Marples received a
M.A. in geography from Oxford University.
Jonathan Coleman, our General
Counsel and Secretary, joined us in May 2000 as Deputy General Counsel. He has
served as General Counsel and Secretary since July 2005. From October 1996 to
May 2000, Mr. Coleman was a Trial Attorney with the U.S. Department of
Justice’s Civil Division. Prior to that, Mr. Coleman was an associate at
Fried, Frank, Harris, Shriver & Jacobson, where he practiced commercial
litigation. Mr. Coleman received a B.A. in economics and public policy
studies from Dickinson College and his J.D. from George Washington
University.
Frank Simuro, our Chief
Information Officer, joined the Company in December 1999 as Director of
Information Systems. He served as Senior Vice President of Information Systems
from May 2005 to January 2008. Prior to joining CoStar, Mr. Simuro was
Director of Data Warehousing at GRC International (“GRC”). Prior to GRC,
Mr. Simuro was a technology consultant specializing in operational
efficiency and database technologies. Mr. Simuro received a M.S. in
information systems from George Washington University and a B.A. in computer
science from State University of New York — Geneseo.
Craig F. Gomez, our Chief
Human Resources Officer, joined the Company in February 2010. Mr. Gomez
has more than 27 years of experience in managing, assessing and developing human
capital as a senior-level human resources executive. Prior to joining the
Company, Mr. Gomez was Co-Founder and Vice President of Operations of HRjoe, a
human resources solution for businesses, from January 2008 to January 2010.
From 2006 to 2007, Mr. Gomez was Vice President of Human Resources and New
Business Development at Tertia, a start up media firm that synchronized digital
voice, video and text into a single media. Prior to that, Mr. Gomez served
in multiple director roles at Cisco Systems, a provider of networking and other
products related to communications and information technology. Mr. Gomez
received a B.A. in communications and an M.B.A. from the University of North
Carolina at Chapel Hill.
Daniel Kimball, our Vice
President of Marketing, joined us in January 2007 as Senior Director of
Ecommerce. He has served as Vice President of Marketing since January 2008. From
December 2005 to January 2007, Mr. Kimball was Director of Interactive
Marketing at Educap, a student lending firm. Prior to that, Mr. Kimball was
a Marketing Director at Capital One Financial, where he was tasked with driving
new business for the company’s auto insurance business. Mr. Kimball
received a B.A. in philosophy from Colgate University.
Craig S. Farrington, our Vice
President of Research, joined the Company as a result of the merger of COMPS.COM
and CoStar Group, Inc. in February 2000. Mr. Farrington is responsible for
our San Diego, California research center operations and research for the
western United States. Mr. Farrington joined COMPS.COM in 1983, where
he served in various senior management roles throughout the company, including
Vice President of Marketing and Product Development. Mr. Farrington
received a B.A. in business and economics from Westmont College.
Dean L. Violagis, our Vice
President of Research, joined us in 1989 as a research analyst. He has served as
Vice President of Research since May 1996. Over the years, he has been
involved in the Company’s geographic market expansion. Mr. Violagis is
responsible for data collection on institutional sales
comparables nationwide. Mr. Violagis received a B.A. in
real estate finance from American University.
25
The
following table provides certain information regarding the beneficial ownership
of our common stock as of April 1, 2010, unless otherwise noted,
by:
|
|
•
|
our
Chief Executive Officer and President, our Chief Financial Officer, the
three most highly compensated executive officers of the Company (other
than the CEO and CFO) who were serving as executive officers on
December 31, 2009, consisting of our three other executive officers
(whom we refer to collectively in this proxy statement as the “named
executive officers”);
|
|
|
•
|
each
of our directors;
|
|
|
•
|
each
person we know to be the beneficial owner of more than 5% of our
outstanding common stock (based upon Schedule 13D and
Schedule 13G filings with the Securities and Exchange Commission,
which can be reviewed for further information on each such beneficial
owner’s holdings); and
|
|
|
•
|
all
of our executive officers and our directors as a
group.
|
|
Name and Address (1)
|
Shares
Beneficially Owned(1)
|
Percentage
of
Outstanding Shares(1)
|
|||||
|
Michael
R. Klein(2)
|
928,016 | 4.50 | % | ||||
|
Andrew
C. Florance(3)
|
473,480 | 2.27 | % | ||||
|
Brian
J. Radecki(4)
|
59,908 | * | |||||
|
John
Stanfill(5)
|
66,486 | * | |||||
|
Jennifer
L. Kitchen(6)
|
36,582 | * | |||||
|
Paul
Marples(7)
|
30,951 | * | |||||
|
David
Bonderman(8)
|
288,008 | 1.40 | % | ||||
|
Michael
J. Glosserman(9)
|
3,949 | * | |||||
|
Warren
H. Haber(10)
|
121,665 | * | |||||
|
Josiah
O. Low, III(11)
|
39,355 | * | |||||
|
Christopher
J. Nassetta(12)
|
24,685 | * | |||||
|
Baron
Capital Group, Inc and related entities and person(13)
|
1,781,091 | 8.65 | % | ||||
|
Daruma
Asset Management, Inc. and related person(14)
|
1,035,000 | 5.02 | % | ||||
|
Janus
Capital Management LLC(15)
|
1,539,548 | 7.47 | % | ||||
|
Morgan
Stanley and related entity(16)
|
2,102,872 | 10.21 | % | ||||
|
TimesSquare
Capital Management, LLC(17)
|
1,584,908 | 7.69 | % | ||||
|
All
directors and executive officers as a group (11 persons)(18)
|
2,073,085 | 9.86 | % | ||||
____________
|
|
(1)
|
Unless
otherwise noted, each listed person’s address is c/o CoStar Group,
Inc., 2 Bethesda Metro Center, Tenth Floor, Bethesda, Maryland 20814.
Beneficial ownership, as determined in accordance with Rule 13d-3
under the Exchange Act, includes sole or shared power to vote or direct
the voting of, or to dispose or direct the disposition of shares, as well
as the right to acquire beneficial ownership within 60 days of
April 1, 2010, through the exercise of an option or otherwise. Except
as indicated in the footnotes to the table, we believe that the persons
named in the table have sole voting and dispositive power with respect to
their reported shares of common stock. The use of * indicates ownership of
less than 1%. As of April 1, 2010, the Company had
20,599,841 shares of common stock
outstanding.
|
|
|
(2)
|
Includes
19,000 shares issuable upon options exercisable within 60 days
of April 1, 2010, as well as 4,082 shares of restricted stock
that are subject to vesting
restrictions.
|
|
|
(3)
|
Includes
248,951 shares issuable upon options exercisable within 60 days
of April 1, 2010, as well as 92,125 shares of restricted stock that
are subject to vesting
restrictions.
|
|
|
(4)
|
Includes
27,375 shares issuable upon options exercisable within 60 days
of April 1, 2010, as well as 24,404 shares of restricted stock
that are subject to vesting
restrictions.
|
|
|
(5)
|
Includes
14,350 shares issuable upon options exercisable within 60 days of
April 1, 2010, as well as 46,242 shares of restricted stock that
are subject to vesting
restrictions.
|
|
|
(6)
|
Includes
22,766 shares issuable upon options exercisable within 60 days of
April 1, 2010, as well as 10,843 shares of restricted stock that
are subject to vesting
restrictions.
|
26
|
|
(7)
|
Includes
6,133 shares issuable upon options exercisable within 60 days of
April 1, 2010, as well as 8,834 shares of restricted stock that
are subject to vesting
restrictions.
|
|
|
(8)
|
Includes
18,000 shares issuable upon options exercisable within 60 days
of April 1, 2010, as well as 4,082 shares of restricted stock
that are subject to vesting
restrictions.
|
|
|
(9)
|
Includes
3,554 shares of restricted stock that are subject to vesting
restrictions.
|
|
|
(10)
|
Includes
6,000 shares held by Mr. Haber’s spouse and excludes
20,000 shares held by Mr. Haber’s adult son for which
Mr. Haber disclaims beneficial ownership. Also includes
26,000 shares issuable upon options exercisable within 60 days
of April 1, 2010, as well as 5,783 shares of restricted stock
that are subject to vesting
restrictions.
|
|
|
(11)
|
Includes
1,000 shares held by Mr. Low’s spouse for which Mr. Low
disclaims beneficial ownership. Also includes 21,000 shares issuable
upon options exercisable within 60 days of April 1, 2010, as
well as 5,783 shares of restricted stock that are subject to vesting
restrictions.
|
|
|
(12)
|
Includes
15,000 shares issuable upon options exercisable within 60 days
of April 1, 2010, as well as 4,932 shares of restricted stock
that are subject to vesting
restrictions.
|
|
|
(13)
|
Number
of shares beneficially owned is as of December 31, 2009 and is based on a
Schedule 13G/A filed by Baron Capital Group, Inc. (“BCG”), BAMCO,
Inc. (“BAMCO”), Baron Capital Management, Inc. (“BCM”) and Ronald Baron on
February 4, 2010. BCG and Ronald Baron both had sole voting and sole
dispositive power with respect to no shares, shared voting power with
respect to 1,656,591 shares, and shared dispositive power with
respect to 1,781,091 shares. BAMCO had sole voting and sole
dispositive power with respect to no shares, shared voting power with
respect to 1,563,000 shares, and shared dispositive power with
respect to 1,683,000 shares. BCM had sole voting and sole dispositive
power with respect to no shares, shared voting power with respect to
93,591 shares, and shared dispositive power with respect to
98,091 shares. The address of the reporting person is 767 Fifth
Avenue, 49th
Floor, New York, NY 10153.
|
|
|
(14)
|
Number
of shares beneficially owned is as of December 31, 2009 and is based on a
Schedule 13G filed by Daruma Asset Management, Inc. (“Daruma”) and Mariko
O. Gordon (“Gordon”) on February 16, 2010. The reporting
persons had shared voting and shared dispositive power with respect to no
shares, sole voting power with respect to 383,500 shares and sole
dispositive power with respect to 1,035,000 shares. Gordon owns
in excess of 50% of the outstanding voting stock and is president of
Daruma. Daruma and Gordon each disclaim beneficial ownership in
any of the shares reported. The address of the reporting
persons is 80 West 40th
Street, 9th
Floor, New York,
NY 10018.
|
|
|
(15)
|
Number
of shares beneficially owned is as of December 31, 2009 and is based on a
Schedule 13G/A filed by Janus Capital Management LLC (“Janus
Capital”) on February 16, 2010. The reporting person had sole voting
and sole dispositive power with respect to 1,539,548 shares, and
shared voting and shared dispositive power with respect to no shares. The
address of the reporting person is 151 Detroit Street, Denver, CO
80206. Janus Capital has a direct 91.8% ownership stake in
INTECH Investment Management (“INTECH”) and a direct 77.8% ownership stake
in Perkins Investment Management LLC (“Perkins”). Due to this
ownership structure, holdings for Janus Capital, Perkins and INTECH are
aggregated in their Schedule 13G/A.
|
|
|
(16)
|
Number
of shares beneficially owned is as of December 31, 2009 and is based on a
Schedule 13G/A filed by Morgan Stanley and Morgan Stanley Investment
Management Inc. on February 12, 2010. Morgan Stanley had sole voting
power with respect to 1,959,955 shares, shared voting and shared
dispositive power with respect to no shares, and sole dispositive power
with respect to 2,102,872 shares. Morgan Stanley
Investment Management Inc. had sole voting power with respect to 1,559,578
shares, shared voting and shared dispositive power with respect to no
shares, and sole dispositive power with respect to 1,702,495
shares. The securities being reported on by Morgan Stanley as a
parent holding company are owned, or may be deemed to be beneficially
owned, by Morgan Stanley Investment Management Inc., an investment adviser
in accordance with Rule 13d-1(b)(1)(ii)(E), as amended. Morgan
Stanley Investment Management Inc. is a wholly owned subsidiary of Morgan
Stanley. The address of the reporting person is 1585 Broadway,
New York, NY 10036, and the address of Morgan Stanley Investment
Management Inc. is 522 Fifth Avenue, New York,
NY 10036.
|
|
|
(17)
|
Number
of shares beneficially owned is as of December 31, 2009 and is based on a
Schedule 13G/A filed by TimesSquare Capital Management, LLC on
February 9, 2010. The reporting person had sole voting power with respect
to 1,392,708 shares, shared voting and shared dispositive power with
respect to no shares, and sole dispositive power with respect to
1,584,908 shares. The address of the reporting person is 1177 Avenue
of the Americas, 39th
Floor, New York, NY 10036.
|
27
|
|
(18)
|
Includes
418,575 shares issuable upon options exercisable within 60 days
of April 1, 2009, as well as 210,664 shares of restricted stock
that are subject to vesting
restrictions.
|
The
following table sets forth information with respect to the Company’s equity
compensation plans approved by security holders. The Company does not have any
equity compensation plans not approved by security holders. The information in
this table is 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 (1)
|
953,296
|
$33.60
|
432,176
|
|||
|
Equity
compensation plans not approved by security holders
|
0
|
N/A
|
0
|
__________
|
|
(1)
|
The
Company’s 1998 Plan and the Company’s 2007 Plan provide for various types
of awards, including options and restricted stock grants. In
April 2007, the Company’s Board of Directors adopted the 2007 Plan,
subject to stockholder approval, which was obtained on June 7,
2007. All shares of common stock that were authorized for
issuance under the 1998 Plan that, as of June 7, 2007, remained available
for issuance under the 1998 Plan (excluding shares subject to outstanding
awards) were rolled into the 2007 Plan and, as of that date, no shares of
common stock remained available for issuance pursuant to new awards under
the 1998 Plan. The 1998 Plan continues to govern unexercised
and unexpired awards issued under the 1998 Plan prior to June 7,
2007.
|
Messrs. Nassetta,
Bonderman, Haber and Klein, the current members of the Compensation Committee,
are each non-employee directors. Mr. Klein serves as the Chairman of the
Board of the Company. During 2009, none of the members of the Compensation
Committee were officers or employees of the Company or any of its subsidiaries.
During 2009, none of the Company’s executive officers served as a director or
compensation committee member of any entity with an executive officer or
director who served as a director or Compensation Committee member of the
Company.
The
Compensation Committee has reviewed and discussed with management the following
Compensation Discussion and Analysis section of the Company’s 2010 proxy
statement. Based on its review and discussions with management, the Compensation
Committee recommended to the Board of Directors that the Compensation Discussion
and Analysis be included in the Company’s Annual Report on Form 10-K and this
proxy statement.
By the
Compensation Committee
of the
Board of Directors
Christopher
J. Nassetta, Chairman
Warren H.
Haber
David
Bonderman
Michael
R. Klein
28
Compensation
Philosophy and Objectives
The
Company’s Compensation Committee (the “Committee”) is responsible for designing
and maintaining the Company’s executive compensation program consistent with the
objectives below. The Committee operates under a written charter approved by the
Board. For additional information about the Committee’s authority and
its ability to delegate its authority, see the section of this proxy statement
titled “Additional Information—Board Meetings and Committees—Compensation
Committee” on pages 20-21. The Committee annually establishes and
reviews all forms of direct compensation, including base salaries, annual
incentive bonuses, and both the terms and types of equity awards, for the
Company’s named executive officers as well as other officers of the
Company.
The
Company’s executive compensation program seeks to
|
·
|
link
executive compensation with the achievement of overall corporate
goals,
|
|
·
|
encourage
and reward superior performance,
and
|
|
·
|
assist
the Company in attracting, motivating and retaining talented
executives.
|
Accordingly,
executive compensation is structured so that a significant portion of
compensation paid to named executive officers is directly related to the
Company’s short-term and long-term performance, thereby aligning the interests
of named executive officers with those of the Company’s
stockholders. For example, as discussed below, a significant portion
of the named executive officers’ opportunities under the Company’s cash
incentive and equity compensation programs is tied to the Company’s achievement
of revenue growth and earnings objectives. The Committee also recognizes that
the market for executives in the commercial real estate information services
industry is highly competitive, and therefore seeks to provide a competitive
total compensation package so that the Company may maintain its leadership
position in this industry by attracting, retaining, and motivating executives
capable of enhancing stockholder value.
Determination
of Executive Compensation
As part
of the compensation review process, the Committee annually reviews and approves
each element and the mix of compensation that comprises each named executive
officer’s total compensation package. Our Chief Executive Officer and
Chief Financial Officer make recommendations to the Committee for each element
of compensation awarded to named executive officers (including establishment of
individual and corporate financial goals), but the Committee must approve each
element of (and any changes to) a named executive officer’s
compensation. The Committee may consider a number of factors in
establishing or revising each named executive officer’s total compensation,
including individual performance, the Company’s financial performance, external
market and peer group practices, current compensation arrangements, certain
internal pay equity considerations and long-term potential to enhance
stockholder value. Particular factors considered by the Committee
with respect to each element of executive compensation are discussed
below.
Periodically
the Committee also retains independent compensation consulting firms to assist
it in gathering benchmarking data and to provide it with information about
trends in compensation among comparable companies based on factors such as
market capitalization, annual revenues, service offerings and potential
competition for talent or business. The Committee believes that comparing the
compensation of each of the Company’s named executive officers with executives
in comparable positions at these peer companies helps to ensure that the total
compensation provided to the Company’s named executive officers is set at an
appropriate level to reward, attract and retain top performers over the long
term. In general, the Committee believes that compensation is
competitive if it falls within +/- 15% of the median levels of the peer company
and/or survey data provided by its compensation consultant, as discussed
below.
The
Committee engaged an independent compensation consultant, Towers Perrin, in 2006
and again in 2008 to provide peer data, assess the competitiveness of the
Company’s executive compensation program and identify potential modifications
based on market practices and trends, the Company’s business priorities,
structure and growth expectations, and view of management and the
Committee. The Committee’s decisions regarding executive compensation
for 2009 were based in part on Towers Perrin’s recommendations resulting from
its May 2006 engagement and in part from its 2008 engagement. The
details of the Company’s executive compensation structure for 2009 are discussed
below. The Committee made several additional changes to the Company’s
executive compensation program beginning in 2009 based on Towers Perrin’s
recommendations in 2008, which are also summarized below. The
Committee did not engage Towers Perrin or any other compensation consultant in
2009.
29
In its
2006 and 2008 engagements, Towers Perrin reported directly to the Committee
through its chair, and, at the direction of the Committee chair, also worked
directly with the Company’s management to develop materials and proposals with
respect to named executive officer compensation. In the future, the
Committee plans at its discretion to retain Towers Watson, the successor to
Towers Perrin, or another consulting firm from time to time to update or perform
new studies to be used in connection with its executive compensation
decisions.
The
following is the list of peer companies selected and approved by the Committee
in 2006, based upon the recommendation of Towers Perrin, as comparable to the
Company in terms of market capitalization and annual revenues, and in terms of
service offerings and potential competition for talent or business:
|
· Advent
Software, Inc.
|
· The
Medicines Company
|
|
· Advisory
Board Company
|
· Myogen
Inc.
|
|
· ANSYS
Inc.
|
· Onyx
Pharmaceuticals Inc.
|
|
· Atwood
Oceanics Inc.
|
· Quality
Systems Inc.
|
|
· Brookline
Bancorp Inc.
|
· Shuffle
Master Inc.
|
|
· Commercial
Net Lease Realty
|
· Sycamore
Networks Inc.
|
|
· Cyberonics
Inc.
|
· TALX
Corp.
|
|
· Entertainment
Properties Trust
|
· Theravance
Inc.
|
|
· Idenix
Pharmaceuticals Inc.
|
· TrustCo
Bank Corp NY
|
|
· Immucor
Inc.
|
· CSG
Systems International Inc.
|
|
· IXIA
|
· Infocrossing
Inc.
|
|
· LCA-Vision
Inc
|
· LoopNet
Inc.
|
|
· Matria
Healthcare Inc
|
· Move
Inc.
|
The 2006
Towers Perrin study also considered general industry pay data (based on a survey
prepared by Towers Perrin) for comparably sized companies based on annual
revenues, as well as data processing and information services industry pay
data. The Committee was not made aware of the names of the companies
who participated in Towers Perrin’s surveys of general industry pay data and
data processing and information services industry pay data.
Named
executive officers’ base salaries and cash incentive awards for 2008 and 2009
were based on metrics that were put in place in 2007, which were based on the
2006 Towers Perrin study. Accordingly, the Committee did not use data
from the 2008 Towers Perrin study (described below) in setting named executive
officers’ base salaries and cash incentive award targets for 2009.
In
connection with its engagement in 2008, Towers Perrin recommended a revised list
of peer companies. The following is the list of peer companies
selected and approved, based upon the recommendation of Towers Perrin, as
comparable to the Company in terms of market capitalization and annual revenues,
and in terms of business model and financial performance.
|
· Advent
Software, Inc.
|
· Liquidity
Services Inc.
|
|
· Advisory
Board Company
|
· LoopNet
Inc.
|
|
· Arbitron
Inc.
|
· Morningstar
Inc.
|
|
· Allscripts-Misys
Healthcare Solutions Inc.
|
· Move
Inc.
|
|
· Bankrate
Inc.
|
· MSCI
Inc.
|
|
· comScore
Inc.
|
· NeuStar
Inc.
|
|
· Corporate
Executive Board Company
|
· Omniture
Inc.
|
|
· DealerTrack
Holdings Inc.
|
· Riskmetrics
Group Inc.
|
|
· Digital
River Inc.
|
· Salary.com
Inc.
|
|
· ExlService
Holdings Inc.
|
· Solera
Holdings Inc.
|
|
· FactSet
Research Systems Inc.
|
· TradeStation
Group Inc.
|
|
· Forrester
Research Inc.
|
· Travelzoo
Inc.
|
|
· Global
Traffic Network Inc.
· Harris
Interactive Inc.
· Lionbridge
Technologies Inc.
|
· Ultimate
Software Group Inc.
· WebMD
Health Corp.
· Wright
Express Corp.
|
30
The 2008
Towers Perrin study also considered general industry executive compensation data
from a survey prepared by Towers Perrin, size-adjusted based on CoStar’s annual
revenues. Where size-adjusted data was not available in the Towers
Perrin survey data, Towers Perrin referred to data compiled from general
compensation surveys conducted and published by Watson Wyatt and
Mercer. The Committee was not made aware of the names of the
companies that participated in Towers Perrin’s survey of general industry
executive compensation data or that were considered in the Watson Wyatt and
Mercer surveys.
Where
available, the Committee utilized peer company data from the 2008 Towers Perrin
study as the primary competitive benchmark when evaluating the executives’
long-term incentive awards for 2009 performance, as discussed in more detail
below. In those cases where peer data was unavailable, the Committee
took into account previous equity awards to the respective named executive
officers as well as internal pay equity considerations. Towers
Perrin’s preliminary findings and recommendations from its engagement in 2008
were presented to Mr. Nassetta in late 2008 and final findings and
recommendations were presented to the full Committee in February
2009.
As
discussed in more detail on page 41 of this proxy statement under “Target Equity
Incentive Awards Granted in 2010,” on March 12, 2010, after reviewing again and
discussing the 2008 Towers Perrin study and its recommendations, including
information regarding external market and peer group practices, as well as
current compensation arrangements and internal pay equity considerations, the
Committee increased the long-term incentive target award values for 2009
performance for all named executive officers except the Chief Executive
Officer.
The
Committee has designed the executive compensation program to align executives’
compensation with the Company’s performance and to enable the Company to
attract, motivate and retain talented executives and reward superior
performance. The Committee reevaluates and approves executive
compensation each year and, as indicated above, may retain consulting firms in
the future to assist with updating or performing studies to be used to assist
with executive compensation decisions.
Elements
of the Compensation Program
The
Company’s executive compensation program consists primarily of base salary,
annual cash bonuses and an annual award of restricted stock and stock
options. Additionally, our U.S. named executive officers are eligible
to receive Company-paid matching contributions to their 401(k) plan accounts, as
well as health insurance and other welfare benefits that are generally available
to the Company’s U.S. employees. Our U.K. named executive officer is
eligible to receive compensation in the form of a pension scheme contribution to
a defined contribution plan and Company-paid private medical insurance as
required by law. As discussed more fully below, our Senior Vice President of
Sales and Customer Service, John Stanfill, also is eligible to receive
commission payments based on monthly production of our U.S. sales force as
a component of his total compensation.
Each
year, the Committee approves an employment arrangement for each of its named
executive officers that specifies a named executive officer’s base salary,
annual cash bonus based on a percentage of base compensation subject to
achievement of individual and corporate goals, and equity awards, including
restricted stock that is granted based on achievement of corporate goals and
stock options both of which vest over time and/or in full after a specified
period of time. Each of these components is discussed in further detail below.
Overall, the Company strives to motivate its executives with straightforward,
transparent and competitive compensation arrangements intended to reward
excellent individual and corporate performance and enhance stockholder
value.
31
Base
Salaries
Base
salaries provide a minimum, fixed level of cash compensation for the named
executive officers. Salary levels are reviewed annually by the
Committee. In establishing salary levels, the Committee considers
each executive’s individual responsibilities and performance, prior base salary
and total compensation, the pay levels of similarly situated executives within
the Company, market data on base salary and total compensation levels (including
Towers Perrin peer group and survey data) and current market
conditions. For 2009, due to the weakened global economic
environment, the Company and the Committee decided to temporarily suspend pay
increases for all employees at the Company in order to stabilize costs and
minimize new spending. Accordingly, the Committee did not award base
salary increases to the named executive officers for 2009, and their 2009 base
salaries were the same as they were for 2008. Named executive
officers’ base salaries for 2009 are within +/- 15% of the median presented in
the 2006 Towers Perrin market data for base salaries, except for Mr. Marples for
whom market data was not available. Mr. Marples base salary was
originally established when he joined the Company as part of the Company’s
acquisition of Property Investment Exchange Limited (Propex) in February 2007.
Subsequently, as indicated above, the Committee has reviewed and approved Mr.
Marples annual salary based upon his individual responsibility and performance,
prior base salary, external market and competitive practices and certain
internal pay equity considerations. The annual base salaries of our
named executive officers effective as of January 1, 2009 were as
follows:
|
Name
|
Title
|
Annual
Base Salary
|
||
|
Andrew
C. Florance
|
President &
CEO
|
$ 456,560
|
||
|
Brian
J. Radecki
|
CFO &
Treasurer
|
$ 249,600
|
||
|
John
Stanfill
|
Sr.
Vice President, Sales & Customer Service
|
$ 250,000
|
||
|
Jennifer
L. Kitchen
|
Sr.
Vice President, Research
|
$ 197,600
|
||
|
Paul
Marples
|
Managing
Director, CoStar UK Limited
|
$ 227,999(1)
|
|
(1)
|
All
dollar amounts listed for Mr. Marples have been converted from British
pounds using a conversion rate of 1.57,
which is the average exchange rate for the
period from January 1, 2009 to December 31,
2009.
|
In light
of continued weakness in global economic conditions, the Company has not yet
lifted its temporary suspension of pay increases for all Company employees in
order to continue to stabilize costs and minimize new
spending. Accordingly, the Committee did not award base salary
increases to the named executive officers for 2010, and their 2010 base salaries
are the same as those for 2008 and 2009.
Annual
Cash Incentive Plan
The
Committee administers an annual cash incentive plan under which the Company’s
named executive officers may earn a cash incentive bonus based on a fixed target
percentage of base salary during the fiscal year, if individual and corporate
performance objectives for the fiscal year are achieved. At the beginning of
each year, the Committee establishes individual goals for each named executive
officer based upon recommendations from our Chief Executive Officer, as well as
Company financial goals that apply to all named executive officers that are
based upon recommendations from our Chief Executive Officer and our Chief
Financial Officer. The Committee determines the target percentages of base pay
for each named executive officer based on market and competitive conditions,
peer company practices, and internal pay equity considerations. The
Committee also determines the weighting of the various individual and Company
financial goals, based upon position and functional accountability and
responsibility, as well as recommendations from our Chief Executive
Officer. The target percentages and weighting of the various
individual and Company financial goals may vary among the named executive
officers and are subject to change from year to year. The Committee
seeks to establish performance goals that are challenging but realistic given
the expected operating environment at the time they are
established. These performance goals are intended to focus named
executive officers on achieving the Company’s financial and operating
goals. After the completion of each year, the Committee reviews
individual and Company performance to determine the extent to which the goals
were achieved and the actual cash bonuses to be paid to the named executive
officers.
In the
Committee’s view, the use of annual performance-based cash incentive bonuses
creates a direct link between executive compensation and individual and
corporate performance. The following table shows each named executive
officer’s fiscal 2009 minimum, target, and maximum awards, which are expressed
as a percentage of his or her base salary:
32
|
Name
|
Title
|
Minimum
|
Target
|
Maximum
|
||||||||||
|
Andrew
C. Florance
|
President &
CEO
|
0 | % | 75 | % | 150 | % | |||||||
|
Brian
J. Radecki
|
CFO &
Treasurer
|
0 | % | 40 | % | 80 | % | |||||||
|
John
Stanfill(1)
|
Sr.
Vice President, Sales & Customer Service
|
0 | % | 25 | % | 50 | % | |||||||
|
Jennifer
L. Kitchen
|
Sr.
Vice President, Research
|
0 | % | 55 | % | 110 | % | |||||||
|
Paul
Marples
|
Managing
Director, CoStar UK Limited
|
0 | % | 40 | % | 80 | % | |||||||
|
(1)
|
Mr.
Stanfill’s target percentage is currently lower relative to other named
executive officers because he also is eligible to receive commission
payments based on achievement of Company-based performance objectives
described below.
|
These
targets generally represent compensation in the 50th to
75th percentile
of the 2006 Towers Perrin market data for annual cash bonuses and were
determined based primarily on peer group and survey data, previous cash
incentive awards granted (if applicable) and internal pay equity
considerations. As a result of weak market conditions and in an
effort to stabilize costs and minimize new spending, the target amounts for the
2009 cash incentive awards were not increased from 2008 target
amounts. The annual cash incentive plan provides each named executive
officer with the potential to earn awards up to two times the amount of their
target for exceptional performance as measured against pre-established metrics
and goals, each of which is discussed below.
Each
named executive officer may earn an incentive bonus equal to, greater than or
less than the target percentage of his or her base salary depending on whether
the individual and the Company achieve the specified performance objectives.
These objectives include individual qualitative performance goals (except for
our Chief Executive Officer), as well as Company-wide financial goals. For 2009,
the Committee selected Company-wide financial goals based on the Company’s
achievement of: (1) annual revenue targets included in the
Company’s 2009 operating plan approved by the Company’s Board at the beginning
of 2009 (the “2009 Operating Plan”); and (2) net income (loss) before
interest, income taxes, depreciation and amortization (“EBITDA”) targets
included in the 2009 Operating Plan. EBITDA is our GAAP-basis net
income (loss) before interest, income taxes, depreciation and
amortization. These financial goals were selected by the Committee
because it believes that revenue and EBITDA are good measures of stockholder
value.
The
individual performance goals established for the named executive officers at the
beginning of 2009 are strategic and leadership goals tailored to the
individual’s position and focused on the Company’s strategic initiatives. The
individual goals assist the Committee in assessing the named executive officer’s
individual performance in key areas that help drive the Company’s operating and
financial results. The use of both individual and corporate goals advances the
Company’s executive compensation philosophy that individual executives be held
accountable for both their own individual performance as well as the Company’s
performance. Based on peer data from the 2008 Towers Perrin study,
which indicates that more commonly the chief executive officer’s annual
incentive is tied solely to corporate results, and the Committee’s determination
that it is in the best interests of the Company to have our Chief Executive
Officer’s annual incentive award based exclusively on the financial performance
of the Company, Mr. Florance’s incentive cash award is not based on achievement
of individual performance goals.
Performance
goals and the weighting given to each may change in the Committee’s discretion
from year to year. The measures and the relative weighting of
individual and corporate financial performance goals for each of the named
executive officers is reviewed by the Committee annually at the beginning of the
year. The Chief Executive Officer proposes to the Committee for its
consideration changes to the measures and the weighting of the performance goals
based on the Company’s current strategic initiatives and goals. The
weighting of the individual and corporate objectives for the named executive
officers for 2009 is shown in the table below.
2009
Performance Against Corporate and Individual Objectives
In March
2010, the Committee assessed the Company’s and each named executive officer’s
achievement of the goals and targets for 2009 that had been established at the
beginning of 2009. Information regarding the target percentages of base salary
for each named executive officer’s 2009 cash incentive award, percentage of
target achieved and actual 2009 cash incentive awards paid to each named
executive officer, as well as the weighting of individual and financial
performance goals for 2009, are shown in the table below. A
description of 2009 performance compared to the corporate and individual goals
follows the table.
33
2009
Annual Cash Incentive Awards
|
Name
|
Title
|
Target
as a
%
of Salary
|
Percentage
of Target Achieved
|
Actual
Award
as a
%
of Salary
|
Actual
Cash
Award ($)
|
Individual
Goals as a %
of
Target
Award
|
Revenue
Target as a % of
Target
Award
|
EBITDA
Target as a % of
Target
Award
|
||||||||||||||||||||||
|
Andrew
C. Florance(1)
|
President &
CEO
|
75 | % | 112.5 | % | 84.4 | % | $ | 385,379 | 0 | % | 50 | % | 50 | % | |||||||||||||||
|
Brian
J. Radecki
|
CFO &
Treasurer
|
40 | % | 104.3 | % | 41.7 | % | $ | 104,115 | 30 | % | 35 | % | 35 | % | |||||||||||||||
|
John
Stanfill(2)
|
Sr.
Vice President, Sales & Customer Service
|
25 | % | 40.0 | % | 10.0 | % | $ | 25,000 | 100 | % | 0 | % | 0 | % | |||||||||||||||
|
Jennifer
L. Kitchen(3)
|
Sr.
Vice President, Research
|
55 | % | 103.8 | % | 57.1 | % | $ | 112,780 | 50 | % | 25 | % | 25 | % | |||||||||||||||
|
Paul
Marples(4)
|
Managing
Director, CoStar UK Limited
|
40 | % | 50.9 | % | 20.4 | % | $ | 46,439 | 30 | % | 35 | % | 35 | % | |||||||||||||||
|
(1)
|
As
discussed above, Mr. Florance’s 2009 annual cash incentive award is based
solely on corporate performance
goals.
|
|
(2)
|
Mr.
Stanfill’s cash incentive award is based solely on his achievement of
individual goals because a different element of his incentive compensation
is based on the achievement of Company-wide goals: he is entitled to
receive commission payments based on a percentage of the Company’s U.S.
monthly net new contract amounts.
|
|
(3)
|
Ms.
Kitchen’s individual goals consist of strategic, operational goals that
the Committee deems important in connection with the Company’s growth and
development, but which may not result in immediate financial
results. Therefore, the Committee determined to put more
emphasis on achievement of her individual goals compared to the corporate
performance goals. As a result, the weighting of Ms. Kitchen’s
goals differs from the weighting of Mr. Radecki’s and Mr. Marples’
goals.
|
|
(4)
|
Mr.
Marples’ financial goals for 2009 are based on CoStar UK Limited’s, a
wholly owned subsidiary of the Company, achievement of annual revenue and
EBITDA targets included in the Company’s 2009 Operating Plan approved by
the Company’s Board at the beginning of 2009. All dollar
amounts used in the discussion of Mr. Marples’ compensation have been
converted from British pounds using a conversion rate of 1.57,
which is the average exchange rate for the
period from January 1, 2009 to December 31,
2009.
|
Individual
Performance Goals for 2009 Annual Cash Incentive Awards
Individual
performance goals vary by position, functional accountability and
responsibility, and may include, among other goals, department-specific
financial goals, the development and release of new services, the implementation
of geographic and/or service expansion plans, the implementation of customer
service and quality control measures and database growth
objectives. For example, as Chief Financial Officer, Mr. Radecki’s
individual performance goals include reducing the Company’s costs, facilitating
the Company’s mergers and acquisitions activity and effectively communicating
with the Company’s investor base and analysts, among others. As
Senior Vice President of Sales and Customer Service, Mr. Stanfill’s individual
performance goals include reducing costs and improving sales personnel
recruiting and training methods, among others. As Senior Vice
President of Research and Managing Director of CoStar UK Limited, Ms. Kitchen’s
and Mr. Marples’ respective individual performance goals include reducing costs,
developing and releasing new services, and data quality and accuracy controls,
among others. As indicated below, the Chief Executive Officer’s
annual cash incentive award is based solely on corporate
performance. The goals described above are representative of the
types of goals implemented annually for the named executive
officers. The Company is not disclosing the named executive officers’
specific individual performance goals because they are based on key short-term
operational objectives that would signal the Company’s strategic direction and
could be used by competitors to gain insight into market
dynamics. Individual goals could also be used by competitors to
target recruitment of key personnel.
34
The
Committee sets aggressive individual performance criteria for annual cash
incentive awards that are challenging but realistic to achieve in order to
motivate named executive officers to excel and perform at a high level and to
focus on overall corporate objectives. Named executive officers could
receive between 0% and 200% credit for the individual performance component of
their annual cash incentive depending upon achievement of established goals for
2009. This percentage credit is then multiplied by the weighting
applicable to the individual performance component of the cash incentive
award. The Committee determines the credit earned for achievement of
the individual performance criteria based upon recommendations from our Chief
Executive Officer. The Committee intends to set the individual
performance criteria for the annual cash incentive awards such that the relative
difficulty of achieving the target level is consistent from year to
year. With respect to awards for fiscal years 2007 through 2009, the
named executive officers earned between 40% and 150% credit for their individual
goals. The table below sets forth the percentage of individual
performance goals achieved by each of the named executive officers for the 2009
annual cash incentive award, as determined by the Committee in early
2010.
|
Name
|
Title
|
Percentage
of Individual Performance Goals Achieved
|
||
|
Andrew
C. Florance(1)
|
President &
CEO
|
—
|
||
|
Brian
J. Radecki
|
CFO &
Treasurer
|
85%
|
||
|
John
Stanfill
|
Sr.
Vice President, Sales & Customer Service
|
40%
|
||
|
Jennifer
L. Kitchen
|
Sr.
Vice President, Research
|
95%
|
||
|
Paul
Marples
|
Managing
Director, CoStar UK Limited
|
100%
|
|
(1)
|
Mr.
Florance’s 2009 cash incentive award was based solely on corporate revenue
and EBITDA targets.
|
Revenue
Target for 2009 Annual Cash Incentive Awards
The 2009
revenue target for the named executive officers other than Mr. Marples was
$204.6 million in revenue earned by the Company, while Mr. Marples’ revenue
target was £12.1 million in revenue earned by CoStar UK
Limited. Named executive officers could receive between 0% and
200% credit for the revenue component of their annual cash incentive,
depending upon actual revenue earned in 2009. If the revenue earned
was equal to the target, the named executive officers would receive 100% credit
for the revenue component of the goals. If the revenue earned was
equal to 95% of the target, the named executive officers would receive 50%
credit for the revenue component of the goals, while the named executive
officers would not receive any credit towards the revenue component of the goals
if the revenue earned was below 95% of the target. If the revenue
earned was equal to 105% of the target, the named executive officers would
receive 200% credit for the revenue component of the goals, while revenue above
105% of the target would not increase the percentage credited for that
component of the award above 200%. If actual annual revenue falls
between 95% and 105% (or more) of the revenue target, the named executive
officers would receive a percentage (between 50% and 200%) of credit for
the revenue component of the goals. The percent credited for the
revenue component of the goals is then multiplied by the weighting applicable to
the revenue component of the cash incentive award. The Company’s
revenue for 2009 was $209.7 million, and the named executive officers (other
than Mr. Marples) received credit for 102.5% achievement of the 2009 revenue
target ($204.6 million). CoStar UK Limited’s revenue for 2009 was £11.6
million, and Mr. Marples received credit for 96.0% achievement of his 2009
revenue target (£12.1 million).
EBITDA
Target for 2009 Annual Cash Incentive Awards
The 2009
EBITDA target for the named executive officers other than Mr. Marples was $51.6
million in EBITDA earned by the Company, while Mr. Marples’ EBITDA target was
£103,000 in EBITDA earned by CoStar UK Limited. Named executive
officers could receive between 0% and 200% credit for the EBITDA component of
their annual cash incentive, depending upon actual EBITDA achieved for
2009. If the EBITDA earned was equal to the target, the named
executive officers would receive 100% credit for the EBITDA component of the
goals. If the EBITDA earned was equal to 80% of the target, the named
executive officers would receive 50% credit for the EBITDA component of the
goals, while the named executive officers would not receive any credit towards
the EBITDA component of the goals if the EBITDA earned was below 80% of the
target. If the EBITDA earned was equal to 120% of the target, the
named executive officers would receive 200% credit for the EBITDA component of
the goals, while EBITDA above 120% of the target would not increase
the percentage credited for that component of the award above
200%. If actual annual EBITDA falls between 80% and 120% (or
more) of the EBITDA target, the named executive officers would receive a
percentage (between 50% and 200%) of credit for the EBITDA component of the
goals. The percent credited for the EBITDA component of the goals is
then multiplied by the weighting applicable to the EBITDA component of the cash
incentive award. The Company’s EBITDA for 2009 was $46.5 million, and
the named executive officers (other than Mr. Marples) received credit for 90.2%
achievement of the 2009 EBITDA target ($51.6 million). CoStar UK
Limited’s EBITDA for 2009 was negative, and Mr. Marples received no credit for
this component of his award.
35
2010
Annual Cash Incentive Awards Goals
In March
2010, the Committee approved the named executive officers’ individual goals and
determined the relative weighting of individual and corporate financial
performance goals for the 2010 cash incentive awards to be paid in early
2011. As indicated above, individual performance goals vary by
position, functional accountability and responsibility, and may include
department-specific financial goals, the development and release of new
services, the implementation of geographic and/or service expansion plans, the
implementation of customer service and quality control measures and database
growth objectives, among others. The named executive officers
individual and corporate goals for 2010 include goals similar to those described
for the 2009 annual cash incentive awards. As indicated below, the
Chief Executive Officer’s 2010 annual cash incentive award is based solely on
corporate performance.
In an
effort to ensure that the weightings of the goals used for the annual cash
incentive awards best support the Company’s current business and strategic
objectives, in early 2010, the Committee revised the weightings from those in
place for 2009 awards for all named executive officers except Messrs. Florance
and Stanfill. The weighting for the individual goals remained
unchanged for all named executive officers except Mr. Radecki, the Company’s
Chief Financial Officer. The Committee increased the weighting of Mr.
Radecki’s individual goals for 2010 in order to emphasize his leadership and
operational goals, such as integration of recent and potential acquisitions,
future growth, and creating efficiency in Company operations. In
addition, because of the Company’s increased focus on earnings, the Committee
decided to place more weight on the EBITDA target as compared to the revenue
target for all named executive officers except Messrs. Florance and
Stanfill. The Committee continues to believe that it is in the best
interest of the Company to have Mr. Florance’s cash incentive award based
exclusively on the financial performance of the Company and that Mr. Stanfill’s
cash incentive award should be based solely on his achievement of individual
goals because of his ability to earn commission payments upon achievement of
U.S. monthly net new contract amount targets. The relative weighting
of individual and financial performance goals for each of the current named
executive officers for 2010 are set forth in the table below:
|
Name
|
Title
|
Individual
Goals
as
a % of
Target Award
|
Revenue
Target
as
a % of
Target Award
|
EBITDA
Target
as
a % of
Target Award
|
||||||||||
|
Andrew
C. Florance(1)
|
President &
CEO
|
0 | % | 50 | % | 50 | % | |||||||
|
Brian
J. Radecki
|
CFO &
Treasurer
|
45 | % | 25 | % | 30 | % | |||||||
|
John
Stanfill(2)
|
Sr.
Vice President, Sales & Customer Service
|
100 | % | 0 | % | 0 | % | |||||||
|
Jennifer
L. Kitchen(3)
|
Sr.
Vice President, Research
|
50 | % | 20 | % | 30 | % | |||||||
|
Paul
Marples(4)
|
Managing
Director, CoStar UK Limited
|
30 | % | 30 | % | 40 | % | |||||||
_____________
|
(1)
|
Similar
to his 2009 annual cash incentive award, Mr. Florance’s 2010 annual cash
incentive award is based solely on achievement of corporate performance
goals.
|
|
(2)
|
Mr.
Stanfill’s cash incentive award is based solely on his achievement of
individual goals because a different element of his incentive compensation
is based on the achievement of Company-wide goals: he is entitled to
receive commission payments based on a percentage of the Company’s U.S.
monthly net new contract amounts.
|
|
(3)
|
Ms.
Kitchen’s individual goals consist of strategic, operational goals that
the Committee deems important in connection with the Company’s growth and
development, but which may not result in immediate financial
results. Therefore, the Committee determined to continue to put
more emphasis on achievement of her individual goals compared to the
corporate performance goals. As a result, the weighting of Ms.
Kitchen’s goals differs from the weighting of Mr. Radecki’s and Mr.
Marples’ goals.
|
|
(4)
|
Mr.
Marples’ financial goals for 2010 are based on CoStar UK Limited’s, a
wholly owned subsidiary of the Company, achievement of annual revenue
and EBITDA targets included in the Company’s 2010 operating plan approved
by the Company’s Board at the beginning of
2010.
|
36
In light
of continued weak global economic conditions and in an effort to continue to
stabilize costs and minimize new spending, the Committee did not increase the
2010 target and maximum award values for the named executive officers from 2009
levels. Executives will continue to have the opportunity to earn
between 0% and 200% credit for each component of the award.
Commission
Payments
In
addition to an annual cash incentive award, Mr. Stanfill is entitled to
receive monthly commissions based on a percentage of the Company’s U.S. monthly
net new contract amounts. Mr. Stanfill’s annual cash incentive award target
described above is less than other named executive officers because he is
entitled to receive these commission payments. The commission payments provide
incentive for Mr. Stanfill to continue to grow the Company’s business and
generate revenues, and the rates of payment are set to provide challenging but
achievable goals to motivate Mr. Stanfill to maintain his focus on sales of the
Company’s subscription-based services, the Company’s primary source of
revenue. The Company is not disclosing the specific commission rates
because they are based on key operational objectives that would signal the
Company’s strategic direction and also could be used by competitors to target
recruitment of Mr. Stanfill. Mr. Stanfill did not earn any commission
payments for 2009 because U.S. monthly net new contract amounts did not reach
the targets.
Equity
Incentive Plan
The
Committee has designed the executive equity incentive compensation program to
achieve its goal of aligning executive incentives with long-term stockholder
value. The Committee believes that equity-based compensation and executive
ownership ensures that the Company’s named executive officers have a continuing
stake in the long-term success of the Company.
Each
named executive officer is eligible to receive equity awards under the Company’s
2007 Stock Incentive Plan, as amended (the “2007 Plan”). The Committee generally
grants time-based restricted stock and/or stock options to each executive when
he or she joins the Company or upon promotion to an executive position as an
incentive to accept employment and become a member of the Company’s executive
team. As set forth in more detail below, the Committee currently also
makes annual grants of equity awards as part of the executive compensation
program, including performance-based restricted stock and stock
options. The amount of performance-based restricted stock granted
each year is based on the Company’s performance during the prior year, and both
of these awards are subject to a three-year vesting period from the date of
grant.
The
Committee decided to grant a mix of equity awards because each type of award
helps achieve some of the objectives of the executive compensation program.
Stock options provide value to the holder only if the price of the Company’s
common stock has increased from the grant date at the time the option is
exercised. In contrast, restricted stock awards have economic value when they
vest, so they have some retention value even if the Company’s common stock price
declines or stays flat. Stock options motivate executive officers by providing
greater potential upside while restricted stock awards promote
executive retention, focus executives’ attention on total stockholder return and
balance the Company’s compensation program. The Committee believes that the use
of multi-year vesting periods for equity awards (for both stock options and
restricted stock) emphasizes a longer-term perspective and therefore encourages
executive retention.
In 2006,
the Committee adopted a long-term equity incentive plan (the “2006 Plan”)
designed to measure incremental growth for certain performance targets over the
base year of 2006 for each year during a four-year period (i.e.,
2007-2010). The performance measures selected were revenue, EBITDA
and stock price and each was weighted equally. The Committee chose
these metrics for the plan because of its belief that they were the most
relevant measures of the Company’s financial performance and were a good measure
of stockholder value. Under the 2006 Plan, each year through 2010 the
targets for each component were to increase by a set percentage measured against
the base year, as determined by the Committee. In this manner, annual
incremental growth was measured for each financial performance criteria and
provided the basis for determining the value of performance-based restricted
stock granted to a named executive officer for performance in the preceding
year. Any shares not awarded for any given year could have been
earned by the named executive officers at the end of the fourth year based on
performance over the four-year period. Any awards granted were not
subject to forfeiture in the event that the named executive officers did not
achieve targets in a subsequent year.
37
The
Company’s executive compensation program, including the long-term equity
incentive plan, is subject to change at the Committee’s
discretion. The 2006 Plan was in place for grants made in 2009 for
2008 performance. Based in part on the 2008 Towers Perrin study
presented to the Committee in early 2009, the Committee decided to revise the
long-term equity incentive plan commencing with grants in 2010 for 2009
performance. Specifically, the Committee decided to simplify the
program by making the mechanics of the program more transparent and easier to
understand and better aligning the program with market
practices. Commencing with 2009 performance-based awards granted in
2010, the revenue and EBITDA goals were aligned with those for the annual cash
incentive plan; the stock price goal was eliminated; the catch up provision was
eliminated (i.e., shares not awarded in previous years can no longer be earned
by the named executive officers); and, similar to the annual incentive awards,
the minimum award was adjusted from 0% to 50% of target once the Company
achieves the set threshold performance level. The Committee believes
that these changes simplify the long-term equity incentive program while
allowing it to retain its focus on long-term retention because one half of the
awards are stock options which provide value to the named executive officers
only if the Company’s stock price increases over time, and all stock option and
restricted stock awards vest over three years from the date of
grant.
The
Committee will determine the actual terms of any future grant of options or
restricted stock. The details of the Company’s current long-term
incentive program may change in the future to reflect the impact of changes in
the Company’s business, executives’ individual performance or new information
about trends in compensation among the Company’s peer group. For
example, the Committee may modify the financial goals that form the basis for
the annual performance-based stock grants (e.g. as a result of acquisition
activity or unusual or non-recurring accounting transactions).
The
performance criteria established by the Committee for performance-based
restricted stock awards granted in early 2009 are described further below under
the caption “2008 Performance-Based Stock Awards.” The performance
criteria established by the Committee for performance-based restricted stock
awards granted in early 2010 are described further below under the caption “2009
Performance-Based Stock Awards.”
The
values of the annual performance-based restricted stock awards granted to our
named executive officers are based on a target award dollar amount, and vary
among named executive officers by position depending upon individual
responsibility and performance, external market and peer group practices and
certain internal pay equity considerations, as well as achievement of the
performance criteria as described below. Once the achievement level
of each performance target and the total amount of the award for each named
executive officer has been determined by the Committee, the number of shares of
restricted stock actually granted to a named executive officer is determined
using the fourth quarter average daily closing price of the Company’s common
stock and approved by the Committee. The grant date of the annual
performance-based restricted stock awards is the date that the Committee
approves the grants. These awards are granted under our 2007 Plan and
they vest in equal installments on the first three anniversaries of the date of
grant. Grants of performance-based restricted stock are accounted for
using the fair market value of such stock on the date of grant.
The
Committee supplements the named executive officers’ annual performance-based
restricted stock award with an annual award of stock options. Annual
option grants are also based on target award values and vest pro rata over three
years. The value actually awarded to each named executive officer is converted
to the number of options based on Towers Perrin’s recommended value per option,
which may be updated from time to time. The exercise price for each
option is equal to the closing price of the Company’s common stock on the date
of grant, which is the date of approval by the Committee.
Although
the Company does not currently have security ownership requirements or
guidelines for its executive officers or directors, the Committee may adopt such
ownership requirements in the future. As of April 1, 2010, each of
the named executive officers, other than the Chief Executive Officer, held
Company common stock, including restricted stock but excluding options, with a
value calculated using the closing price on that date that exceeded two times
his or her base salary. In addition, as of April 1, 2010, the Chief
Executive Officer held Company common stock, including restricted stock but
excluding options, with a value calculated using the closing price on that date
that exceeded five times his base salary. Pursuant to the Company’s
insider trading policy, the Company does not permit directors, officers or other
employees to engage in speculative or short-term financial activities involving
the Company’s stock or derivatives based on the Company’s securities without the
consent of the Company’s compliance officer. In addition, the Company
does not generally allow any such activities or other hedging activities by its
executive officers or directors absent an extraordinary
circumstance.
38
The
Company does not have any program, plan or practice to time equity awards in
coordination with the release of material non-public information, nor does the
Company time the release of material nonpublic information for the purpose of
affecting the value of executive compensation.
Target
Equity Incentive Awards Granted in 2009
The chart
below sets forth the target award values for the annual performance-based
restricted stock awards granted in 2009 for 2008 performance and the annual
stock option awards granted in 2009. The long-term equity incentive target award
values set by the Committee for 2008 performance (and noted in the chart below)
take into account 2008 Towers Perrin peer data where available, as well as
previous equity awards to the respective named executive officers and internal
pay equity considerations. The target award value set by the
Committee for the Chief Executive Officer falls within 15 percent of the 50th
percentile of the 2008 Towers Perrin peer data. The target award
value for the Chief Financial Officer was increased 25 percent over his target
award value for annual equity awards granted in 2008 in order to make it more
competitive based on the peer data and now falls within 15 percent of the
50th
percentile of the 2008 Towers Perrin peer data. The target award
value set by the Committee for the Senior Vice President of Sales and Customer
Service falls below 15 percent of the 50th
percentile of the 2008 Towers Perrin peer data because he had received a grant
of restricted stock and stock options when he was promoted to his current
position in 2008. The target award values set by the Committee for
both the Senior Vice President of Research and Managing Director of CoStar UK
Limited were based upon internal pay equity considerations taking into account
their positions and level of responsibility within the Company because no peer
data was available with respect to long term equity incentive compensation for
these positions. As a result, the target award value set by the
Committee for the Senior Vice President of Research was increased 12.5 percent
over her target award value for annual equity awards granted in 2008, and the
target award value for the Managing Director of CoStar UK Limited was not
changed. The value of performance-based restricted stock ultimately
awarded to our named executive officers in early 2009 for 2008 performance was
determined based upon achievement of financial performance criteria described
below. Each named executive officer had the potential to earn up to
two times his or her annual performance-based restricted stock target award
value for exceptional performance as measured against pre-established metrics
and goals.
|
Name
|
Title
|
Annual
Stock
Target Award Values
|
Annual
Option
Target Award Values
|
|||
|
Andrew
C. Florance
|
President &
CEO
|
$ 750,000
|
$ 750,000
|
|||
|
Brian
J. Radecki
|
CFO &
Treasurer
|
$ 250,000
|
$ 250,000
|
|||
|
John
Stanfill
|
Sr.
Vice President, Sales & Customer Service
|
$ 100,000
|
$ 100,000
|
|||
|
Jennifer
L. Kitchen
|
Sr.
Vice President, Research
|
$ 112,500
|
$ 112,500
|
|||
|
Paul
Marples
|
Managing
Director, CoStar UK Limited
|
$ 100,000
|
$ 100,000
|
2008
Performance-Based Stock Awards
On March
2, 2009, the Committee approved and awarded each named executive officer a grant
of restricted stock, the size of which was based on the target award values set
forth above and achievement of specified Company financial goals for 2008 (the
“2008 Performance-Based Stock Awards”). As stated above, the
Committee initially established three equally-weighted financial goals in
December 2006, which were to be used to determine the actual value of the annual
restricted stock awards granted each year over a four-year period (2007 –
2010). The three performance metrics selected by the Committee were
revenue growth, EBITDA growth and share price growth. These financial
goals reflected a significant level of growth each year over the four-year
period and were designed to be challenging for the executives given the
Company’s dynamic business environment. These three goals were
equally weighted and the value of a named executive officer’s 2008
performance-based stock award was determined based on the attainment of each
goal.
39
Revenue
Target for 2008 Performance-Based Stock Awards
The
annual revenue target for the 2008 Performance-Based Stock Awards was $213.8
million. Named executive officers could receive between 0% and 200%
credit for achievement of the revenue component of their annual
performance-based stock awards, depending upon earned in 2008. If the
revenue earned was equal to the target, the named executive officers would
receive 100% credit for the revenue component of the goals. If the
revenue earned was below 95% of the target, the named executive officers would
not receive any credit for the revenue component of the goals. If the
revenue earned was equal to 105% of the target, the named executive officers
would receive 200% credit for the revenue component of the goals, while revenue
above 105% of the target would not increase the percentage credited for that
component of the award above 200%. If actual annual revenue falls
between 95% and 105% (or more) of the revenue target, the named executive
officers would receive a percentage (between 0% and 200%) of credit for the
revenue component of the goals. The percent credited for the revenue
portion of the goals is then multiplied by the weighting (33%) applicable to the
revenue component of the performance-based stock award. The Company’s
revenue for 2008 was $212.4 million, and the named executive officers received
credit for 99.4% achievement of the 2008 revenue target ($213.8
million).
EBITDA
Target for 2008 Performance-Based Stock Awards
The
EBITDA target for the 2008 Performance-Based Stock Awards was $37.3
million. Named executive officers could receive between 0% and 200%
credit for the EBITDA component of their annual performance-based stock awards,
depending upon actual EBITDA earned in 2008. If the EBITDA earned was
equal to the target, the named executive officers would receive 100% credit for
the EBITDA component of the goals. If the EBITDA earned was below 80%
of the target, the named executive officers would not receive any credit for the
EBITDA component of the goals. If the EBITDA earned was equal to 120%
of the target, the named executive officers would receive 200% credit for the
EBITDA component of the goals, while EBITDA above 120% of the target would not
increase the percentage credited for that component of the award above
200%. If actual EBITDA falls between 80% and 120% (or more) of the
EBITDA target, the named executive officers would receive a percentage (between
0% and 200%) of credit for the EBITDA component of the goals. The
percent credited for the EBITDA portion of the goals is then multiplied by the
weighting (33%) applied for the EBITDA component of the annual performance-based
stock award. The Company’s EBITDA was $56.6 million for 2008, and the
named executive officers received credit for 151.7% achievement of the 2008
EBITDA target ($37.3 million).
Stock
Price Targets for 2008 Performance-Based Stock Awards
The stock
price target for the 2008 Performance-Based Stock Awards is a 15% annual
compounded increase over the 2006 base year price of $48.59. Named executive
officers could receive to between 0% and 200% credit for the stock price growth
component of their annual performance-based stock award, depending upon actual
stock price growth achieved in 2008 (measured as the fourth quarter average
price of the Company’s common stock). Compounded stock price growth
at target would result in 100% credit for the stock price component of the
goals. Compounded stock price growth less than 5% over the base year
(2007 for 2008 awards) would result in no credit for the stock price component
of the goals. Compounded stock price growth greater than 25% over the base year
would not increase the percentage credited for that component of the award above
200%. If compounded stock price growth falls between 5% and 25% (or
more) over the base year, the named executive officers would receive a
percentage (between 0% and 200%) of credit for the stock price component of the
goals. The percent credited for the stock price component of the
goals is then multiplied by the weighting (33%) applied for the stock price
component of the annual performance-based stock award. The Company’s
2008 fourth quarter average stock price was $33.61, and the named executive
officers did not receive credit for this component of the award.
2008
Performance-Based Stock Awards Granted in 2009
Based on
the performance achieved in 2008, each named executive officer received 95.7% of
his or her target award value. The 2008 Performance-Based
Stock Awards were granted on March 2, 2009, and the aggregate stock award value
earned by each named executive officer is shown in the table
below. For additional information, see the “Grants of Plan-Based
Awards” table on page 47 of this proxy statement.
40
|
Name
|
Title
|
Award
Earned
Value ($)
|
Actual
Award
of Shares (#)(1)
|
|||
|
Andrew
C. Florance
|
President &
CEO
|
$717,535
|
21,400
|
|||
|
Brian
J. Radecki
|
CFO &
Treasurer
|
$239,178
|
7,200
|
|||
|
John
Stanfill
|
Sr.
Vice President, Sales & Customer Service
|
$ 95,671
|
2,900
|
|||
|
Jennifer
L. Kitchen
|
Sr.
Vice President, Research
|
$107,630
|
3,300
|
|||
|
Paul
Marples
|
Managing
Director, CoStar UK Limited
|
$ 95,671
|
2,900
|
|
(1)
|
The
number of shares granted is determined by dividing the earned award value
by the fourth quarter average daily price ($33.61), rounded up to the
nearest 100 shares. As a result, the amounts reported in this
table under “Award Earned Value” differ from the grant date fair values
for these awards reported in the “Grants of Plan-Based Awards” table on
page 47 of this proxy statement.
|
2009
Stock Option Awards
In 2009,
the Committee awarded the named executive officers stock options. The
number of shares of common stock underlying the option awards granted to named
executive officers was based on the target award values described
above. The table below sets forth the option award values and the
number of shares of common stock underlying each option award for the option
grants to the named executive officers granted in 2009.
|
Name
|
Title
|
Option Award Values
|
Shares
Underlying
Option Awards(1)
|
|||
|
Andrew
C. Florance
|
President &
CEO
|
$ 750,000
|
58,400
|
|||
|
Brian
J. Radecki
|
CFO &
Treasurer
|
$ 250,000
|
19,500
|
|||
|
John
Stanfill
|
Sr.
Vice President, Sales & Customer Service
|
$ 100,000
|
7,800
|
|||
|
Jennifer
L. Kitchen
|
Sr.
Vice President, Research
|
$ 112,500
|
8,800
|
|||
|
Paul
Marples
|
Managing
Director, CoStar UK Limited
|
$ 100,000
|
7,800
|
|||
_____________
|
(1)
|
The
number of shares granted is determined by dividing the option award value
by Towers Perrin’s recommended value per option, rounded up to the nearest
100 shares. The amounts reported in this table under “Option
Award Values” differ from the grant date fair values for these awards
reported in the “Grants of Plan-Based Awards” table on page 47 of this
proxy statement.
|
Target
Equity Incentive Awards Granted in 2010
The chart
below sets forth the target award values for the annual performance-based
restricted stock awards granted in 2010 for 2009 performance and the annual
stock option awards granted in 2010. The long-term equity incentive target award
values for all named executive officers, except the Chief Executive Officer,
were revised upward for 2009 performance after review of the 2008 Towers Perrin
peer data where available, previous equity awards to the respective named
executive officers, and internal pay equity and competitive
considerations.
The
target award value set by the Committee for the Chief Executive Officer was not
changed for 2009 because it falls within 15 percent of the 50th
percentile of the 2008 Towers Perrin peer data. The target award
value for the Chief Financial Officer was increased 10 percent over his target
award value for annual equity awards granted in 2009 in order to make it more
competitive based on the peer data and continues to fall within 15 percent of
the 50th
percentile of the 2008 Towers Perrin peer data. The target award
value for the Senior Vice President of Sales and Customer Service was increased
12.5 percent over his target award value for annual equity awards granted in
2009 to bring it closer to the 50th
percentile of the 2008 Towers Perrin peer data. His target award
value falls below 15 percent of the 50th
percentile of the 2008 Towers Perrin peer data because he had received a grant
of restricted stock and stock options when he was promoted to his current
position in 2008. The target award values set by the Committee for
both the Senior Vice President of Research and Managing Director of CoStar UK
Limited were based upon internal pay equity considerations taking into account
their positions and level of responsibility within the Company because no peer
data was available with respect to long-term equity incentive compensation for
these positions. As a result, the target award value set by the
Committee for the Senior Vice President of Research was increased 11 percent
over her target award value for annual equity awards granted in 2009, and the
target award value for the Managing Director of CoStar UK Limited was increased
25 percent over his target award value for annual equity awards granted in
2009.
41
The value
of performance-based restricted stock ultimately awarded to our named executive
officers in early 2010 for 2009 performance was determined based upon
achievement of financial performance criteria described below. Each
named executive officer had the potential to earn up to two times his or her
annual performance-based restricted stock target award value for exceptional
performance as measured against pre-established metrics and goals.
|
Name
|
Title
|
Annual
Stock
Target Award Values
|
Annual
Option
Target Award Values
|
|||
|
Andrew
C. Florance
|
President &
CEO
|
$ 750,000
|
$ 750,000
|
|||
|
Brian
J. Radecki
|
CFO &
Treasurer
|
$ 275,000
|
$ 275,000
|
|||
|
John
Stanfill
|
Sr.
Vice President, Sales & Customer Service
|
$ 112,500
|
$ 112,500
|
|||
|
Jennifer
L. Kitchen
|
Sr.
Vice President, Research
|
$ 125,000
|
$ 125,000
|
|||
|
Paul
Marples
|
Managing
Director, CoStar UK Limited
|
$ 125,000
|
$ 125,000
|
2009
Performance-Based Stock Awards
On March
12, 2010, the Committee approved and awarded each named executive officer a
grant of restricted stock, the size of which was based on the target award
values set forth above and achievement of specified Company financial goals for
2009 performance (the “2009 Performance-Based Stock Awards”). As
stated above, the Committee revised the long-term equity incentive plan
commencing with awards for 2009 performance. As revised, the revenue
and EBITDA goals are now aligned with the goals used in the annual cash
incentive plan; the stock price goal was eliminated; the catch up provision was
eliminated (i.e., the ability for named executive officers to earn shares not
awarded in previous years); and, similar to the annual cash incentive awards,
the minimum award was adjusted from 0% to 50% of target once the Company
achieves the threshold performance level. Under the revised long-term
equity incentive plan, the revenue and EBITDA goals established by the Committee
are equally-weighted and the actual value of the 2009 performance-based stock
awards granted to named executive officers is based on the Company’s achievement
of these goals.
Revenue
Target for 2009 Performance-Based Stock Awards
The
annual revenue target for the 2009 Performance-Based Stock Awards was $204.6
million. Named executive officers could receive between 0% and 200%
credit for the revenue component of their annual performance-based stock awards,
depending upon actual revenue earned in 2009. The percent of credit
received for different levels of achievement of the revenue component of the
performance-based stock award is the same as described above in “Revenue Target
for 2009 Annual Cash Incentive Awards.” The percent credited for the
revenue component of the goals is multiplied by the weighting (50%) applicable
to the revenue component of the performance-based stock award. The
Company’s revenue for 2009 was $209.7 million, and the named executive officers
received credit for 102.5% achievement of the 2009 revenue target ($204.6
million).
EBITDA
Target for 2009 Performance-Based Stock Awards
The
EBITDA target for the 2009 Performance-Based Stock Awards was $51.6
million. Named executive officers could receive between 0% and 200%
credit for the EBITDA component of their annual performance-based stock awards,
depending upon actual EBITDA earned in 2009. The percent of credit
received for different levels of achievement of the EBITDA component of the
performance-based stock award is the same as described above in “EBITDA Target
for 2009 Annual Cash Incentive Awards.” The percent credited for the
EBITDA component of the goals is multiplied by the weighting (50%) applicable to
the EBITDA component of the annual performance-based stock award. The
Company’s EBITDA for 2009 was $46.5 million, and the named executive officers
received credit for 90.2% achievement of the EBITDA target ($51.6
million).
42
2009
Performance-Based Stock Awards Granted in 2010
For 2009
performance, each named executive officer received 112.5% of his or her target
award value. The 2009
Performance-Based Stock Awards were granted on March 12, 2010, and the stock
award value earned by each named executive officer is shown in the table
below. As these awards were granted in early 2010, the grant date
fair values of these awards are not included in the Summary Compensation Table
below, but will be reflected in next year’s proxy statement.
|
Name
|
Title
|
Award
Earned
Value ($)
|
Actual
Award
of Shares (#)(1)
|
|||
|
Andrew
C. Florance
|
President &
CEO
|
$844,094
|
20,600
|
|||
|
Brian
J. Radecki
|
CFO &
Treasurer
|
$309,501
|
7,600
|
|||
|
John
Stanfill
|
Sr.
Vice President, Sales & Customer Service
|
$126,614
|
3,100
|
|||
|
Jennifer
L. Kitchen
|
Sr.
Vice President, Research
|
$140,682
|
3,500
|
|||
|
Paul
Marples
|
Managing
Director, CoStar UK Limited
|
$140,682
|
3,500
|
____________
|
(1)
|
The
number of shares granted is determined by dividing the earned award value
by the fourth quarter average daily price ($41.07), rounded up to the
nearest 100 shares.
|
2010
Stock Option Awards
In 2010,
the Committee awarded the named executive officers stock options. The
number of shares of common stock underlying the option awards granted to named
executive officers was based on the target award values described
above. The table below sets forth the option award values and the
number of shares of common stock underlying each option award for the option
grants to the named executive officers granted in 2010.
|
Name
|
Title
|
Option Award Values
|
Shares
Underlying
Option Awards(1)
|
|||
|
Andrew
C. Florance
|
President &
CEO
|
$ 750,000
|
45,900
|
|||
|
Brian
J. Radecki
|
CFO &
Treasurer
|
$ 275,000
|
16,900
|
|||
|
John
Stanfill
|
Sr.
Vice President, Sales & Customer Service
|
$ 112,500
|
6,900
|
|||
|
Jennifer
L. Kitchen
|
Sr.
Vice President, Research
|
$ 125,000
|
7,700
|
|||
|
Paul
Marples
|
Managing
Director, CoStar UK Limited
|
$ 125,000
|
7,700
|
|||
_____________
|
(1)
|
The
number of shares granted is determined by dividing the option award value
by Towers Perrin’s recommended value per option, rounded up to the nearest
100 shares. As these awards were granted in early 2010, they
will not appear in the “Grants of Plan-Based Awards” table on page 47 of
this proxy statement, but will be reflected in next year’s proxy
statement.
|
Termination
and Change of Control Payments
Except
for Messrs. Florance and Marples, each of whom has termination provisions in his
respective employment agreement, the Company is not obligated to provide
significant severance or termination payments to named executive
officers. In 2008, the Company adopted a company-wide severance plan
that provides payments that do not discriminate in scope, terms or operation in
favor of executive officers of the Company and that are available generally to
all salaried employees, including the named executive
officers. Pursuant to the Company’s severance policy, full-time staff
who are part of a position reduction may receive severance pay equal to two
weeks current base pay for the first year or less of employment, plus one week
current base pay for each completed additional year of continuous service (up to
a 16-week maximum payout) in exchange for a full release of
claims. All Company employees are employed at will and, unless
specified otherwise by an employment agreement, CoStar is not liable to pay
severance but has chosen to adopt this severance policy to apply only in limited
circumstances. The Company may choose to pay severance outside of the severance
policy in its sole discretion and may amend, alter or discontinue the severance
policy at any time.
43
Similarly,
except for Mr. Florance, who negotiated change of control provisions in his
employment agreement, the Company does not provide significant cash payments to
named executive officers upon a change of control or other similar significant
corporate event. However, the Company’s 1998 and 2007 stock incentive
plans provide for acceleration of vesting of stock and option grants and rights
to exercise stock options upon certain significant events. Those
rights do not discriminate in scope, terms or operation in favor of named
executive officers of the Company and are available generally to all employees
who participate in those plans, including the named executive
officers. Details of the potential termination payments for Messrs.
Florance and Marples, of the rights triggered under the 1998 and 2007 stock
incentive plans in the case of a significant corporate event and potential
payments under the Company-wide severance policy are set out below in the
section entitled “Other Post-Employment Compensation and Potential Payments Upon
a Change of Control” beginning on page 51 of this proxy statement.
Section 162(m)
of the Internal Revenue Code disallows the deduction of compensation paid by a
public company to its Chief Executive Officer and each of the other three most
highly compensated executive officers (not including the Company’s Chief
Financial Officer) that exceeds $1 million. Compensation that is considered
“performance-based” is excluded from the $1 million limit if, among other
requirements, the compensation is payable only upon attainment of
pre-established, objective performance goals under a plan approved by the
stockholders. While the Committee may consider tax deductibility as one of the
factors in determining executive compensation, to retain maximum flexibility in
designing compensation programs that meet the Committee’s stated objectives, the
Committee may not necessarily limit or structure compensation so that it is
deductible under Section 162(m). The Committee monitors total compensation
and, should compensation exceed the 162(m) limit, takes the measures that it
deems appropriate.
The
Company does not have a specific policy requiring the recovery of
awards.
Continued
on next page.
44
The
following table includes information concerning compensation paid to or earned
by the Company’s “named executive officers” listed in the table for 2007, 2008
and 2009.
SUMMARY
COMPENSATION TABLE
|
Name and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards(1)
($)
|
Option
Awards(1)
($)
|
Non-Equity
Incentive
Plan
Compensation(2)
($)
|
All
Other
Compensation
($)
|
Total
($)
|
||||||||||||||||||||||
|
Andrew
C. Florance
|
2009
|
$ | 456,560 | — | $ | 535,000 | $ | 584,326 | $ | 385,379 | $ | 10,942 | (3a) | $ | 1,972,207 | |||||||||||||||
|
Chief
Executive Officer
|
||||||||||||||||||||||||||||||
|
and
President
|
2008
|
$ | 456,154 | — | $ | 789,762 | $ | 1,050,657 | $ | 499,493 | $ | 29,575 | $ | 2,825,641 | ||||||||||||||||
|
2007
|
$ | 438,352 | — | $ | 399,055 | — | $ | 404,584 | $ | 16,612 | $ | 1,258,603 | ||||||||||||||||||
|
Brian
J. Radecki
|
2009
|
$ | 249,600 | — | $ | 180,000 | $ | 195,109 | $ | 104,115 | $ | 9,114 | (3b) | $ | 737,938 | |||||||||||||||
|
Chief
Financial Officer
|
||||||||||||||||||||||||||||||
|
and
Treasurer
|
2008
|
$ | 249,377 | — | $ | 213,174 | $ | 280,710 | $ | 153,059 | $ | 15,297 | $ | 911,617 | ||||||||||||||||
|
2007
|
$ | 206,215 | — | $ | 521,651 | $ | 228,931 | $ | 120,845 | $ | 12,373 | $ | 1,090,015 | |||||||||||||||||
|
John
Stanfill (4)
|
2009
|
$ | 250,000 | — | $ | 72,500 | $ | 78,043 | $ | 25,000 | $ | 9,115 | (3b) | $ | 434,658 | |||||||||||||||
|
Sr.
Vice President
|
||||||||||||||||||||||||||||||
|
Sales &
Customer Service
|
2008
|
$ | 236,443 | — | $ | 2,308,450 | $ | 502,020 | $ | 70,051 | $ | 12,613 | $ | 3,129,577 | ||||||||||||||||
|
Jennifer
L. Kitchen
|
2009
|
$ | 197,600 | — | $ | 84,039 | $ | 88,050 | $ | 112,780 | $ | 7,778 | (3b) | $ | 490,247 | |||||||||||||||
|
Sr.
Vice President
|
||||||||||||||||||||||||||||||
|
Research
|
2008
|
$ | 197,424 | — | $ | 106,587 | $ | 141,693 | $ | 132,331 | $ | 12,641 | $ | 590,676 | ||||||||||||||||
|
2007
|
$ | 190,000 | — | — | — | $ | 128,410 | $ | 13,556 | $ | 331,966 | |||||||||||||||||||
|
Paul
Marples(5)
|
2009
|
$ | 227,999 | — | $ | 72,500 | $ | 78,043 | $ | 46,439 | $ | 11,423 | (3c) | $ | 436,404 | |||||||||||||||
|
Managing
Director,
|
||||||||||||||||||||||||||||||
|
CoStarUK
Limited
|
2008
|
$ | 268,383 | $ | 40,517 | (6) | $ | 106,587 | $ | 141,693 | $ | 23,770 | $ | 20,314 | $ | 601,264 | ||||||||||||||
|
2007
|
$ | 246,485 | — | $ | 469,500 | — | $ | 140,562 | $ | 21,508 | $ | 878,055 | ||||||||||||||||||
|
|
(1)
|
This
column shows the aggregate grant date fair value of the awards granted in
the years shown, computed in accordance with SEC rules. These
amounts reflect the Company’s accounting expense and do not correspond to
the actual value that will be realized by the named executive
officers. Additional information regarding the size of the
awards is set forth in the notes to the “Grants of Plan Based Awards” and
“Outstanding Equity Awards” tables. Assumptions used in
calculating the fair value for awards granted in 2007 are described in
Note 13 to the audited financial statements in the Company’s Annual Report
on Form 10-K for the period ended December 31,
2007. Assumptions used in calculating the fair value for awards
granted in 2008 are described in Note 15 to the audited financial
statements in the Company’s Annual Report on Form 10-K for the period
ended December 31, 2008. Assumptions used in calculating
the fair value for awards granted in 2009 are described in Note 15 to the
audited financial statements in the Company’s Annual Report on
Form 10-K for the period ended December 31,
2009.
|
|
|
(2)
|
This
amount represents the annual cash incentive earned under the Company’s
annual incentive bonus plan based on the executive’s achievement of
pre-determined individual and Company financial goals. These
bonuses are awarded and paid in the following year after actual financial
results are determined for the year for which performance was
measured. For additional information regarding the annual cash
incentives paid for 2009 performance, see “Compensation Discussion and
Analysis” at pages 32-36 of this proxy
statement.
|
45
|
|
(3a)
|
Pursuant
to the CoStar Realty Information, Inc. 401(k) Plan (a defined contribution
plan available generally to employees of the Company) (the “401(k) Plan”),
for the 2009 plan year, Mr. Florance deferred a portion of his annual
compensation and CoStar made a matching contribution in the amount of
$9,830. In 2009, the employer contribution was capped at 50% of
the executive’s deferral amount on a maximum of six percent of the
executive’s gross pay. The Company paid $1,112 in annual
premiums to maintain a $1 million life insurance policy for the benefit of
Mr. Florance.
|
|
|
(3b)
|
Pursuant
to the 401(k) Plan, for the respective plan year, the named executive
officer deferred a portion of his or her annual compensation and the
Company made a matching contribution based on the amount deferred by each
executive officer. The amount shown is the Company’s matching
contribution. In 2009, the employer contribution was capped at
50% of the executive’s deferral amount on a maximum of six percent of the
executive’s gross pay.
|
|
|
(3c)
|
Pursuant
to a defined contribution scheme available generally to employees of the
Company’s wholly owned subsidiary, CoStar UK Limited, Mr. Marples defers a
portion of his annual compensation and CoStar UK Limited makes a
corresponding contribution in an amount tied to the amount deferred by Mr.
Marples, based on the Company’s contribution rules for defined
contribution schemes and Mr. Marples’ employment agreement. In
2009, the employer contribution was capped at 50% of the executive’s
deferral amount on a maximum of six percent of the executive’s gross
pay. CoStar UK Limited’s corresponding contribution for 2009
was $7,410. Executives are entitled to make contributions
either to the CoStar UK Limited pension scheme or their personal pension
scheme. Mr. Marples has elected to have his contributions made
to his personal pension scheme. In addition, the Company paid
$4,013 in health insurance premiums for the benefit of Mr.
Marples.
|
|
|
(4)
|
Mr.
Stanfill was appointed an executive officer of the Company in June
2008.
|
|
|
(5)
|
All
dollar amounts listed for Mr. Marples for 2009 have been converted from
British pounds using a conversion rate of 1.57, which is the average
exchange rate for the period from January 1, 2009 to December 31,
2009. All dollar amounts listed for Mr. Marples for 2008 have
been converted from British pounds using a conversion rate of 1.86, which
is the average exchange rate for the period from January 1, 2008 to
December 31, 2008, and all dollar amounts listed for Mr. Marples for 2007
have been converted from British pounds using a conversion rate of 2.01,
which is the average exchange rate for the
period from February 16, 2007 to December 31, 2007. Mr. Marples
joined the Company on February 16, 2007 as a result of the Company’s
acquisition of Propex.
|
|
|
(6)
|
Mr.
Marples was awarded a discretionary bonus based on CoStar UK Limited’s
achievement of positive EBITDA for the fourth quarter
2008.
|
Continued
on next page.
46
Grants
of Plan-Based Awards for Fiscal Year 2009
The
following Grants of Plan-Based Awards table provides additional information
about stock and option awards and non-equity incentive plan awards granted to
our named executive officers during the year ended December 31,
2009.
|
Estimated
Possible
|
All
Other
|
All
Other
|
|||||||||||||||||||||||||||
|
Payouts
|
Stock
Awards:
|
Option
Awards:
|
|||||||||||||||||||||||||||
|
Under
Non-Equity
|
Number
of
|
Number
of
|
Exercise
or
|
Grant
Date
|
|||||||||||||||||||||||||
|
Incentive
Plan
|
Shares
of
|
Securities
|
Base
Price
|
Fair
Value
|
|||||||||||||||||||||||||
|
Awards(1)
|
Stock
or
|
Underlying
|
of
Option
|
of
Stock and
|
|||||||||||||||||||||||||
|
Grant
|
Threshold
|
Target
|
Maximum
|
Units(2)
|
Options(3)
|
Awards(4)
|
Option
|
||||||||||||||||||||||
|
Name
|
Date
|
($)
|
($)
|
($)
|
(#) | (#) |
($/Sh)
|
Awards(5)
|
|||||||||||||||||||||
|
Andrew
C. Florance
|
$ | 171,210 | $ | 342,420 | $ | 684,840 | |||||||||||||||||||||||
|
3/2/09
|
21,400 | $ | 535,000 | ||||||||||||||||||||||||||
|
3/2/09
|
58,400 | $ | 25.00 | $ | 584,326 | ||||||||||||||||||||||||
|
Brian
J. Radecki
|
$ | 49,920 | $ | 99,840 | $ | 199,680 | |||||||||||||||||||||||
|
3/2/09
|
7,200 | $ | 180,000 | ||||||||||||||||||||||||||
|
3/2/09
|
19,500 | $ | 25.00 | $ | 195,109 | ||||||||||||||||||||||||
|
John
Stanfill
|
$ | 31,250 | $ | 62,500 | $ | 125,000 | |||||||||||||||||||||||
|
3/2/09
|
2,900 | $ | 72,500 | ||||||||||||||||||||||||||
|
3/2/09
|
7,800 | $ | 25.00 | $ | 78,043 | ||||||||||||||||||||||||
|
Jennifer
L. Kitchen
|
$ | 54,340 | $ | 108,680 | $ | 217,360 | |||||||||||||||||||||||
|
3/2/09
|
3,300 | $ | 82,500 | ||||||||||||||||||||||||||
|
3/2/09
|
8,800 | $ | 25.00 | $ | 88,050 | ||||||||||||||||||||||||
|
10/3/09
|
39 | (6) | $ | 1,539 | |||||||||||||||||||||||||
|
Paul
Marples
|
$ | 45,718 | $ | 91,437 | $ | 182,874 | |||||||||||||||||||||||
|
3/2/09
|
2,900 | $ | 72,500 | ||||||||||||||||||||||||||
|
3/2/09
|
7,800 | $ | 25.00 | $ | 78,043 | ||||||||||||||||||||||||
__________
|
|
(1)
|
Amounts
shown in these columns are possible amounts payable under the Company’s
cash incentive plan for 2009. The actual cash payments made in
2010 for 2009 performance under the Company’s cash incentive plan are
reported in the Summary Compensation table above. The Company’s
cash incentive plan in effect for 2009 is described more fully in the
section titled “Compensation Discussion and Analysis” at pages 32-36
of this proxy statement.
|
|
|
(2)
|
Amounts
shown in this column represent restricted stock awards granted to named
executive officers in 2009.
|
|
|
(3)
|
Amounts
shown in this column represent stock options granted to named executive
officers in 2009.
|
|
|
(4)
|
The
exercise price is the closing price of our common stock on the date of
grant, as reported on the Nasdaq Global Select
Market.
|
|
|
(5)
|
The
amounts shown in this column represent the grant date fair value of each
equity award computed in accordance with SEC rules. For a
discussion of the assumptions used in calculating the fair value of each
award see Note 15 to the audited financial statements in the Company’s
Annual Report on Form 10-K for the period ended
December 31, 2009.
|
|
|
(6)
|
Ms.
Kitchen received a stock grant of 39 shares of common stock in connection
with her 15th
anniversary of employment with the Company, pursuant to the Company’s
service award program which grants anniversary awards to all employees on
the same terms on every five-year anniversary. The date of
grant was Saturday, October 3, 2009. The closing price of our
common stock on the trading day immediately preceding the date of grant
was $39.45.
|
47
Employment
Agreements and Arrangements
We have
employment agreements with Messrs. Florance and Marples, and we have at
will employment terms with Mr. Radecki, Mr. Stanfill and
Ms. Kitchen. Our employment agreement with Mr. Florance
became effective as of January 1, 1998, and Mr. Marples’ employment
agreement became effective February 16, 2007. All employees,
including our named executive officers, are required to execute terms and
conditions of employment, which state that employment is at will and set forth
restrictive covenants, including duties of confidentiality, non-solicitation of
customers and employees and non-competition. Mr. Radecki’s current
employment terms became effective December 1, 1997. Mr. Stanfill’s
current employment terms became effective April 28,
2001. Ms. Kitchen’s current employment terms became effective
March 6, 2001.
Chief
Executive Officer Employment Agreement
Pursuant
to his employment agreement, Mr. Florance is entitled to receive base salary, an
annual cash bonus, six weeks of paid vacation per year, the same health
insurance, accident and disability insurance, life insurance, and other fringe
benefits provided to most senior executives of the Company, and additional term
life insurance coverage not to exceed one million dollars (at a cost to the
Company not to exceed $2,000 per year), payable as designated by Mr.
Florance. Mr. Florance’s employment agreement automatically renews
for successive one-year terms unless either the Company or Mr. Florance provides
the other with written notice of termination at least three months prior to the
end of the term.
The
Company is permitted to terminate Mr. Florance’s employment at any time without
“cause” upon 60 days written notice, and Mr. Florance may voluntarily terminate
his employment for “good reason” upon at least 60 days written notice, at which
time Mr. Florance is entitled to receive severance payments set out in more
detail below under “Other Post-Employment Compensation and Potential Payments
Upon a Change of Control.” The acquisition or change of control of
the Company is one of the events included within the meaning of the term “good
reason” if Mr. Florance terminates his employment within one year after such an
event. If the Company terminates Mr. Florance without cause or Mr.
Florance terminates his employment for good reason, all of Mr. Florance’s
unvested stock options would immediately vest and Mr. Florance would have 180
days post-termination to exercise all vested options. If all or any
portion of Mr. Florance’s stock options cannot be accelerated under the terms of
the applicable stock incentive plan, Mr. Florance is entitled to receive cash
consideration in lieu of acceleration for that portion that could not be
accelerated. Mr. Florance also has the right at any time to terminate
his employment without good reason upon 180 days written notice to the Company,
and the Company has the right at any time to terminate Mr. Florance for
cause. In either such event, Mr. Florance would not be entitled to
any base salary or fringe benefits for any period after termination, and he
would forfeit any unvested stock options and his right to participate in the
Company’s cash incentive program. In the event of a termination for
cause or by Mr. Florance without good reason, Mr. Florance would have 60 days
post-termination to exercise all vested options. “Cause” and “good
reason” in the context of Mr. Florance’s employment agreement are defined below
under “Other Post-Employment Compensation and Potential Payments Upon a Change
of Control.”
Mr. Florance’s
employment agreement also provides that in the event of his disability, the
Company has the right to terminate his employment. In the event of
termination of his employment due to disability or his death, Mr. Florance (or
his estate) would be entitled to receive (i) a prorated portion of his
unvested stock options due to vest during the calendar year of his disability or
death, and (ii) a prorated share of his bonus for the year of his
disability or death. In the event of termination due to disability or
his death, Mr. Florance (or his estate) would have one year to exercise all
vested options.
Pursuant
to his employment agreement, Mr. Florance is subject to confidentiality and
non-compete restrictive covenants. The non-compete restrictions apply
during the term of the agreement, any period of time during which he remains
employed with the Company “at will” and through the second anniversary of the
date of his termination.
48
Other
Executive Employment Agreements
Pursuant
to his executive service contract, Mr. Marples is entitled to receive base
salary, participate in the Company’s stock incentive plan, and receive health
and life insurance benefits, disability benefits, Company contributions in an
amount that corresponds to his individual contributions to an HMRC (Her
Majesty’s Revenue and Customs) approved pension scheme, and 25 days of paid
vacation per year. Mr. Marples’ service contract continues until
terminated pursuant to the terms of the agreement. Mr. Marples may
terminate his service contract on not less than three months’ prior written
notice. The Company may terminate Mr. Marples’ employment by
providing him with six months’ prior written notice or a payment in lieu thereof
as described below under “Other Post-Employment Compensation and Potential
Payments Upon a Change of Control.”
In
addition, the Company may terminate Mr. Marples’ service contract immediately
upon notice if one of the events listed under “Other Post-Employment
Compensation and Potential Payments Upon a Change of Control” below
occurs. In the event of termination by the Company as a result of one
of those events, Mr. Marples forfeits all unvested restricted stock and any
unpaid bonus. Pursuant to his employment agreement, Mr. Marples is
subject to confidentiality and non-compete restrictive covenants. The
non-compete restrictions apply for 12 months following termination of
employment.
Equity
Awards
All
grants of equity awards made in 2009 were made under the Company’s 2007
Plan. In April 2007, the Company’s Board adopted the 2007 Plan,
subject to stockholder approval, which was obtained on June 7,
2007. All shares of common stock that were authorized for issuance
under the 1998 Plan that, as of June 7, 2007, remained available for issuance
under the 1998 Plan (excluding shares subject to outstanding awards) were rolled
into the 2007 Plan and, as of that date, no shares of common stock remained
available for issuance pursuant to new awards under the 1998 Plan.
Stock
options and restricted stock granted to named executive officers in 2009 and
restricted stock granted in 2010 for performance in 2009 vest in equal
installments over the first three anniversaries following the date of
grant. For a description of the criteria applied in determining the
number of shares of restricted stock awarded in 2009 and 2010 for performance in
2008 and 2009, respectively, see “Compensation discussion and Analysis” at pages
37-43 of this proxy statement. For a discussion of the effect of a
change of control on outstanding restricted stock and option awards, see “Change
of Control Provisions under the Company’s 1998 and 2007 Plans” on pages 53-54 of
this proxy statement. For a discussion of the effect of Mr.
Florance’s termination on his outstanding equity awards, see “Termination and
Change of Control Provisions pursuant to Employment Agreements” on pages 52-53
of this proxy statement. Under the 2007 Plan, recipients of
restricted stock are entitled to receive all dividends and other distributions,
if any, paid with respect to the common stock. The Compensation
Committee will determine if any such dividends or distributions will be
automatically reinvested in additional shares of restricted stock and subject to
the same restrictions as the restricted stock or whether the dividend or
distribution will be paid in cash.
Continued
on next page.
49
Outstanding
Equity Awards at 2009 Fiscal Year-End
The following table summarizes
the equity awards we have made to our named executive officers that are
outstanding as of December 31, 2009.
|
Option Awards(1)
|
Stock Awards
|
||||||||||||||||||||||
|
Number
of
|
Number
of
|
Number
of
|
Market
Value of
|
||||||||||||||||||||
|
Securities
|
Securities
|
Shares
or
|
Shares
or
|
||||||||||||||||||||
|
Underlying
|
Underlying
|
Units
of
|
Units
of
|
||||||||||||||||||||
|
Unexercised
|
Unexercised
|
Option
|
Stock
That
|
Stock
That
|
|||||||||||||||||||
|
Options
|
Options
|
Exercise
|
Option
|
Have
Not
|
Have
Not
|
||||||||||||||||||
| (#) | (#) |
Price
|
Expiration
|
Vested
|
Vested(2)
|
||||||||||||||||||
|
Name
|
Grant Date(1)
|
Exercisable
|
Unexercisable
|
($)
|
Date
|
(#) |
($)
|
||||||||||||||||
|
Andrew
C. Florance
|
4/17/2001
|
22,463 | $ | 18.06 |
4/16/2011
|
||||||||||||||||||
|
6/4/2002
|
45,074 | $ | 20.30 |
6/3/2012
|
|||||||||||||||||||
|
9/23/2003
|
46,448 | $ | 28.15 |
9/22/2013
|
|||||||||||||||||||
|
3/1/2004
|
50,000 | $ | 39.00 |
2/28/2014
|
|||||||||||||||||||
|
12/12/2006
|
39,300 | $ | 51.92 |
12/11/2016
|
|||||||||||||||||||
|
2/27/2008
|
13,100 | 26,200 | $ | 43.99 |
2/26/2018
|
||||||||||||||||||
|
3/2/2009
|
58,400 | $ | 25.00 |
3/1/2019
|
|||||||||||||||||||
| 83,925 | (3a) | $ | 3,505,547 | ||||||||||||||||||||
|
Brian
J. Radecki
|
12/2/2002
|
1,875 | $ | 18.28 |
12/1/2012
|
||||||||||||||||||
|
2/6/2004
|
6,000 | $ | 39.81 |
2/5/2014
|
|||||||||||||||||||
|
1/29/2007
|
2,666 | 1,334 | $ | 48.25 |
1/28/2017
|
||||||||||||||||||
|
6/5/2007
|
2,000 | 1,000 | $ | 54.12 |
6/4/2017
|
||||||||||||||||||
|
2/27/2008
|
3,500 | 7,000 | $ | 43.99 |
2/26/2018
|
||||||||||||||||||
|
3/2/2009
|
19,500 | $ | 25.00 |
3/1/2019
|
|||||||||||||||||||
| 20,604 | (3b) | $ | 860,629 | ||||||||||||||||||||
|
John
Stanfill
|
8/6/2002
|
750 | $ | 19.71 |
8/5/2012
|
||||||||||||||||||
|
9/4/2003
|
1,000 | $ | 30.06 |
9/3/2013
|
|||||||||||||||||||
|
5/5/2004
|
5,000 | $ | 39.53 |
5/4/2014
|
|||||||||||||||||||
|
9/4/2008
|
5,000 | 10,000 | $ | 55.07 |
9/3/2018
|
||||||||||||||||||
|
3/2/2009
|
7,800 | $ | 25.00 |
3/1/2019
|
|||||||||||||||||||
| 46,608 | (3c) | $ | 1,946,816 | ||||||||||||||||||||
|
Jennifer
L. Kitchen
|
9/4/2003
|
1,000 | $ | 30.06 |
9/3/2013
|
||||||||||||||||||
|
9/9/2004
|
10,000 | $ | 44.86 |
9/8/2014
|
|||||||||||||||||||
|
12/12/2006
|
5,300 | $ | 51.92 |
12/11/2016
|
|||||||||||||||||||
|
2/27/2008
|
1,766 | 3,534 | $ | 43.99 |
2/26/2018
|
||||||||||||||||||
|
3/2/2009
|
8,800 | $ | 25.00 |
3/1/2019
|
|||||||||||||||||||
| 9,143 | (3d) | $ | 381,903 | ||||||||||||||||||||
|
Paul
Marples
|
2/27/2008
|
1,766 | 3,534 | $ | 43.99 |
2/26/2018
|
|||||||||||||||||
|
3/2/2009
|
7,800 | $ | 25.00 |
3/1/2019
|
|||||||||||||||||||
| 9,500 | (3e) | $ | 396,815 | ||||||||||||||||||||
|
|
(1)
|
The
dates of grant of each named executive officer’s stock option awards
outstanding as of December 31, 2009 are set forth in the table above,
and the vesting dates for each award can be determined based on the
vesting schedules described in this footnote. Except as noted below, the
awards of stock options become exercisable in installments of 25 percent
on the first four anniversaries of the date of grant, assuming continued
employment. Stock options granted on December 12, 2006, January 29, 2007,
June 5, 2007, February 27, 2008, September 4, 2008, and March 2, 2009
become exercisable in installments of one third on the first three
anniversaries of the date of grant, assuming continued
employment.
|
|
|
(2)
|
Market
value based on the closing price of the Company’s common stock as of
December 31, 2009 of $41.77 per
share.
|
|
|
(3a)
|
As
of December 31, 2009, Mr. Florance held (i) 3,157 shares of restricted
stock, which vest in their entirety on April 27, 2010; (ii) 43,400 shares
of restricted stock, which vest in their entirety on December 12, 2010;
(iii) 4,100 shares of restricted stock, which vest in equal installments
on April 17, 2010 and 2011; (iv) 10,534 shares of restricted stock, which
vest in equal installments on February 27, 2010 and 2011; (v) 1,334 shares
of restricted stock, which vest in equal installments on May 28, 2010 and
2011; and (vi) 21,400 shares of restricted stock, which vest in equal
installments on March 2, 2010, 2011 and
2012.
|
50
|
|
(3b)
|
As
of December 31, 2009, Mr. Radecki held (i) 313 shares of restricted stock,
which vest in their entirety on September 7, 2010; (ii) 2,500 shares of
restricted stock, which vest in their entirety on January 29, 2011; (iii)
7,391 shares of restricted stock, which vest in their entirety on June 5,
2011; (iv) 2,800 shares of restricted stock, which vest in equal
installments on February 27, 2010 and 2011; (v) 400 shares of restricted
stock, which vest in equal installments on May 28, 2010 and 2011; and (vi)
7,200 shares of restricted stock, which vest in equal installments on
March 2, 2010, 2011 and 2012.
|
|
(3c)
|
As
of December 31, 2009, Mr. Stanfill held (i) 208 shares of restricted
stock, which vest in their entirety on September 7, 2010; (ii) 500 shares
of restricted stock, which vest in their entirety on December 12, 2010;
(iii) 500 shares of restricted stock, which vest in equal installments on
December 6, 2010 and 2011; (iv) 7,500 shares of restricted stock, which
vest in equal installments on February 13, 2010, 2011 and 2012; (v) 35,000
shares of restricted stock, which vest in their entirety on September 4,
2012; and (vi) 2,900 shares of restricted stock, which vest in equal
installments on March 2, 2010, 2011 and
2012.
|
|
|
(3d)
|
As
of December 31, 2009, Ms. Kitchen held (i) 343 shares of restricted stock,
which vest in their entirety on September 7, 2010; (ii) 3,900 shares of
restricted stock, which vest in their entirety on December 12, 2010; (iii)
1,400 shares of restricted stock, which vest in equal installments on
February 27, 2010 and 2011; (iv) 200 shares of restricted stock, which
vest in equal installments on May 28, 2010 and 2011; and (v) 3,300 shares
of restricted stock, which vest in equal installments on March 2, 2010,
2011 and 2012.
|
|
|
(3e)
|
As
of December 31, 2009, Mr. Marples held (i) 5,000 shares of restricted
stock, which vest in equal installments on February 16, 2010 and 2011;
(ii) 1,400 shares of restricted stock, which vest in equal installments on
February 27, 2010 and 2011; (iii) 200 shares of restricted stock, which
vest in equal installments on May 28, 2010 and 2011; and (iv) 2,900 shares
of restricted stock, which vest in equal installments on March 2, 2010,
2011 and 2012.
|
Option
Exercises and Stock Vested for Fiscal-Year 2009
The
following Option Exercises and Stock Vested table provides information about the
value realized by the named executive officers on option award exercises and
stock award vesting during the year ended December 31, 2009.
|
|
Option Awards
|
Stock Awards
|
||||||||||||||
|
Name
|
Number
of Shares
Acquired
on
Exercise
(#)
|
Value
Realized
on
Exercise(1)
($)
|
Number
of Shares
Acquired
on
Vesting
(#)
|
Value
Realized
on
Vesting(2)
($)
|
||||||||||||
|
Andrew
C. Florance
|
34,940 | $ | 704,150 | 15,118 | $ | 442,659 | ||||||||||
|
Brian
J. Radecki
|
— | — | 2,153 | $ | 63,511 | |||||||||||
|
John
Stanfill
|
— | — | 3,637 | $ | 118,855 | |||||||||||
|
Jennifer
L. Kitchen
|
— | — | 1,411 | $ | 44,303 | |||||||||||
|
Paul
Marples
|
— | — | 3,300 | $ | 93,067 | |||||||||||
__________
|
(1)
|
With
respect to shares of common stock sold upon exercise (on the date
acquired), the value was calculated by multiplying the difference between
the sale price per share and the exercise price per share by the number of
shares sold and aggregating all such sales during 2009. With
respect to shares of common stock held upon exercise, the value was
calculated by multiplying the difference between the closing price of our
common stock on the date of exercise and the exercise price per share by
the number of shares acquired and aggregating all such exercises during
2009.
|
|
(2)
|
Calculated
by multiplying the number of shares acquired upon vesting by the closing
price of our common stock on the vesting
date.
|
This
section discusses the incremental compensation that would be payable by the
Company to each named executive officer in the event of a change of control of
the Company or a termination of the named executive officer’s employment with
the Company for various reasons described below, sometimes referred to herein as
a “triggering event.” In accordance with applicable SEC rules, the following
discussion assumes that the triggering event in question — the change of
control, termination of employment, death or disability — occurred on
December 31, 2009, the last business day of 2009.
51
Pursuant
to applicable SEC rules, the analysis contained in this section does not
consider or include payments made to a named executive officer with respect to
contracts, agreements, plans or arrangements to the extent they do not
discriminate in scope, terms or operation, in favor of executive officers of the
Company and that are available generally to all salaried employees.
The
actual amounts that would be paid upon a named executive officer’s termination
of employment or change of control can only be determined at the time of the
applicable event. Due to the number of factors that affect the nature and amount
of any benefits provided upon the events discussed below, any actual amounts
paid or distributed may be higher or lower than reported below. Factors that
could affect these amounts include the timing during the year of any such event
and the Company’s stock price.
Termination
and Change of Control Provisions pursuant to Employment Agreements
The
employment agreements for Messrs. Florance and Marples generally provide
that, if the Company terminates the executive’s employment without “cause” (as
defined in their agreements), the executive is entitled to certain severance
benefits as follows.
Mr.
Florance
The
Company is permitted to terminate Mr. Florance’s employment at any time, without
“cause”, upon 60 days written notice, and Mr. Florance may voluntarily terminate
his employment for “good reason” upon at least 60 days written
notice. “Cause” is defined as (a) a material failure by Mr. Florance
to perform his duties, which remains uncured for 60 days after written notice of
the failure is provided by the Company, (b) Mr. Florance being convicted of a
felony or pleading nolo contendre to a felony, or (c) any other willful act or
omission by Mr. Florance which materially harms the financial condition or
business reputation of the Company. “Good reason” is defined as
(a) requiring Mr. Florance to relocate more than 45 miles from his current
principal office, (b) Mr. Florance ceasing involuntarily to be Chief Executive
Officer of the Company or being required to perform duties that are materially
inconsistent with those normally performed by a chief executive officer, (c) the
Company materially reducing the nature of his authority and duties, (d)
requiring Mr. Florance to report to someone other than the Board, (e) the
Company materially breaching its obligations under his employment agreement,
which remain uncured for 90 days after written notice is provided by Mr.
Florance to the Company, or (f) an acquisition or change of control of the
Company occurring and Mr. Florance terminating his employment within one year
after such event. For these purposes, an acquisition or change of
control means (i) the acquisition of beneficial ownership of more than 50% of
the outstanding common stock of the Company, (ii) election or appointment as
directors comprising one-half or more of the Board of persons who were not
nominated, recommended or appointed by the Company’s incumbent Board, (iii) the
Company entering into a merger pursuant to which it is not the surviving entity,
or (iv) sale by the Company of all or substantially all of its
assets.
In the
event that the Company terminates Mr. Florance’s employment without cause or if
he terminates his employment for good reason, Mr. Florance is entitled to
receive his base salary for one year payable in installments in accordance with
the Company’s payroll practices, his bonus for the year in which the termination
occurred, the immediate vesting of all of his unvested stock options and a
gross-up payment, if any, to cover any taxes assessed under Section 4999 of
the Internal Revenue Code. Upon termination by the Company without
cause or by Mr. Florance for good reason, all of his unvested stock options will
become immediately exercisable and he will have 180 days to exercise all vested
options. If all or any portion of Mr. Florance’s stock options cannot
be accelerated under the terms of the applicable stock incentive plan, Mr.
Florance is entitled to receive cash consideration in lieu of acceleration for
each share underlying that portion of his stock options that cannot be so
accelerated equal to the excess (if any) of the highest closing price of the
Company’s common stock during the 180 days following the executive's date of
termination (or, if the Company is no longer publicly traded as of the date of
termination, the per-share price in connection with the transaction(s) that
resulted in the Company no longer being publicly traded) over the exercise price
of such option.
52
Mr. Florance’s
employment agreement also provides that in the event of his termination due to
his disability or death, he (or his estate) would be entitled to receive
(i) a prorated portion of his unvested stock options due to vest during the
calendar year of his disability or death, and (ii) a prorated share of his
bonus for the year of his disability or death. For the purposes of this
analysis, which assumes a triggering event on December 31, 2009, he (or his
estate) would be entitled to the full amount of his bonus for 2009.
Mr.
Marples
If the
Company terminates Mr. Marples’ employment without cause, he is entitled to
receive either six months’ prior written notice or six months’ base salary
payable over a period of six months in lieu of such notice. Any such
payment is subject to Mr. Marples’ execution of a release of all claims arising
from termination of his employment.
If Mr.
Marples (a) commits a serious breach or, after notice, any repeated or continued
material breach of his obligations to the Company, (b) fails to satisfactorily
performed his duties, (c) is guilty of an act of gross negligence, dishonesty or
serious misconduct, (d) is declared bankrupt, (e) is convicted of any criminal
offense, (f) is disqualified from holding any Company office or resigns from
such office without prior written approval, (g) is prevented by illness, injury
or other incapacity from performing his obligations to the Company for 130 days
in any 12-month period, (h) commits a breach of the Propex acquisition
agreement, (i) refuses to abide by or comply with the directives of the Board,
(j) materially violates the Company’s code of conduct or (k) abuses alcohol or
drugs, the Company may terminate his employment for cause immediately upon
notice. In such an event, Mr. Marples forfeits all unvested
restricted stock and any unpaid bonus.
Others
Except as
may be provided to all employees of the Company generally, Mr. Radecki, Mr.
Stanfill and Ms. Kitchen are not entitled to any post-employment
compensation if their employment is terminated without cause, other than as
provided pursuant to the Company’s stock incentive plans (as detailed
below).
Change
of Control Provisions under the Company’s 1998 and 2007 Plans
Pursuant
to the Company’s 1998 Plan and 2007 Plan and related award agreements, upon a
change of control, all options will immediately vest and all restrictions on
stock grants will lapse. For purposes of the stock incentive plans, a
“change of control” means: (a) acquisition by a third party of more
than 80% of the undiluted total voting power of the Company's then outstanding
securities eligible to vote to elect members of the Board, (b) consummation of a
merger or consolidation of the Company into any other entity, unless the holders
of the Company’s voting securities outstanding immediately before such
transaction hold securities that represent immediately after such merger or
consolidation at least 20% of the combined voting power of the then outstanding
voting securities of either the Company or the other surviving entity or its
parent, or (c) the stockholders of the Company approve (i) a plan of complete
liquidation or dissolution of the Company or (ii) an agreement for the Company's
sale or disposition of all or substantially all the Company's assets, and such
liquidation, dissolution, sale, or disposition is
consummated. Further, upon a substantial corporate change, if awards
are not assumed, substituted or continued, the awards shall immediately vest and
become exercisable before the consummation of the transaction. For
purpose of the stock incentive plans, a “substantial corporate change”
means: (w) dissolution or liquidation of the Company, (x) merger,
consolidation, or reorganization of the Company with one or more corporations in
which the Company is not the surviving corporation, (y) the sale of
substantially all of the assets of the Company to another corporation, or (z)
with respect to the 1998 Plan, any transaction (including a merger or
reorganization in which the Company survives) approved by the Board that results
in any person or entity (other than any affiliate of the Company as defined in
Rule 144(a)(1) under the Securities Act) owning 100% of the combined voting
power of all classes of stock of the Company, and, with respect to the 2007
Plan, a person acquires ownership of 100% of the combined voting power of all
classes of stock of the Company.
The table
below summarizes the potential termination and change of control payments
described above for each of the named executive officers, excluding any payments
that may be available under the Company’s company-wide severance plan, which
provides payments that do not discriminate in scope, terms or operation, in
favor of executive officers of the Company and that are available generally to
all salaried employees, including the named executive
53
officers. The
terms defined above apply to those used in this table. Unless
otherwise specifically noted below, all amounts assume that the triggering event
in question — the termination upon a change of control, termination without
cause or for good reason, death or disability — occurred on
December 31, 2009, the last business day of 2009.
|
Name
|
Termination
by Company “without cause”
|
Termination
by Executive for “good reason”
|
Termination
due to death or disability
|
Termination
upon change of control
|
Change
of Control without
Termination(1)
|
|||||||||||||||
|
Andrew
C. Florance
|
$ | 1,821,307 | (2) | $ | 1,821,307 | (2) | $ | 385,379 | (3) | $ | 5,326,854 | (4) | $ | 4,484,915 | ||||||
|
Brian
J. Radecki
|
— | — | — | $ | 1,187,644 | (1) | $ | 1,187,644 | ||||||||||||
|
John
Stanfill
|
— | — | — | $ | 2,077,622 | (1) | $ | 2,077,622 | ||||||||||||
|
Jennifer
L. Kitchen
|
— | — | — | $ | 529,479 | (1) | $ | 529,479 | ||||||||||||
|
Paul
Marples
|
$ | 114,000 | (5) | — | — | $ | 527,621 | (1) | $ | 527,621 | ||||||||||
__________
|
(1)
|
Consists
of the values realizable by the named executive officers with respect to
unvested stock options (that are in-the-money) and restricted stock under
the Company’s 1998 and 2007 Plans in the event of a change of control or
substantial corporate change, as defined in the plans and described above,
as of December 31, 2009, which values are summarized in the table below.
The intrinsic value of the stock options was calculated by multiplying the
number of shares underlying the unvested options by the difference between
the exercise price of each unvested option and the closing price of the
Company’s common stock ($41.77) on December 31, 2009, excluding
options with an exercise price greater than the closing price on December
31, 2009. The intrinsic value of the restricted stock was
calculated using the closing price of the Company’s common stock on
December 31, 2009 ($41.77).
|
|
Name
|
Unvested
(in-the-money) Options
(#
shares)
|
Intrinsic
Value
|
Unvested
Restricted Stock (# shares)
|
Intrinsic
Value
|
Total
|
|||||||||||||||
|
Andrew
C. Florance
|
58,400 | $ | 979,368 | 83,925 | $ | 3,505,547 | $ | 4,484,915 | ||||||||||||
|
Brian
J. Radecki
|
19,500 | $ | 327,015 | 20,604 | $ | 860,629 | $ | 1,187,644 | ||||||||||||
|
John
Stanfill
|
7,800 | $ | 130,806 | 46,608 | $ | 1,946,816 | $ | 2,077,622 | ||||||||||||
|
Jennifer
L. Kitchen
|
8,800 | $ | 147,576 | 9,143 | $ | 381,903 | $ | 529,479 | ||||||||||||
|
Paul
Marples
|
7,800 | $ | 130,806 | 9,500 | $ | 396,815 | $ | 527,621 | ||||||||||||
|
(2)
|
Includes
base salary for one year ($456,560), bonus for 2009 ($385,379), and the
immediate vesting of all unvested stock options ($979,368). The
value of stock option vesting included in this amount was calculated by
multiplying the number of unvested options by the difference between the
exercise price of each unvested option and the closing price of the
Company’s common stock ($41.77) on December 31, 2009, excluding
options with an exercise price greater than the closing price on December
31, 2009.
|
|
(3)
|
Consists
of the cash incentive bonus for
2009.
|
|
(4)
|
Mr.
Florance’s agreement provides for a termination payment if there is an
acquisition or change of control of the Company and Mr. Florance
terminates his employment within one year after that
event. Assuming, for these purposes, that those conditions are
met as of December 31, 2009, Mr. Florance would be entitled to the amount
set forth, which includes base salary for one year ($456,560), his cash
incentive bonus for 2009 ($385,379), and the immediate vesting of all
unvested stock options ($979,368) and all unvested restricted stock
($3,505,547) under the respective stock incentive plans. The
value of stock option vesting included in this amount was calculated by
multiplying the number of unvested options by the difference between the
exercise price of each unvested option and the closing price of the
Company’s common stock ($41.77) on December 31, 2009, excluding
options with an exercise price greater than the closing price on December
31, 2009. The value of the restricted stock was calculated by
multiplying the number of outstanding restricted shares by the closing
price of the Company’s common stock on December 31, 2009
($41.77).
|
|
(5)
|
Consists
of six months’ base salary. The amount set forth has been
converted from British pounds using a conversion rate of 1.57,
which is the average exchange rate for the
period from January 1, 2009 to December 31,
2009.
|
Company-Wide
Severance Policy
As
described above under “Termination and Change of Control Payments” on
page 43 of this proxy statement, in 2008, the Company adopted a
company-wide severance plan that provides payments that do not discriminate in
scope, terms or operation in favor of executive officers of the Company and that
are available generally to all salaried employees, including the named executive
officers. Pursuant to the company-wide severance policy, full-time
staff
54
who are
part of a position reduction may receive severance pay equal to two weeks
current base pay for the first year or less of employment, plus one week current
base pay for each completed additional year of continuous service (up to a
16-week maximum payout) in exchange for a full release of claims. In
the event of termination of employment as a result of a position reduction,
under the Company-wide severance policy, Mr. Radecki would be entitled to
$62,400, Mr. Stanfill would be entitled to $72,115 and Ms. Kitchen would be
entitled to $60,800. Messrs. Florance and Marples would be entitled
to the payments set forth in their employment agreements, which are described
above.
In April
2009, the Company entered into an engagement with ghSMART & Company, Inc.
(“ghSMART”), a management consulting firm, to evaluate the Company’s sales force
senior management and provide guidance with respect to hiring and recruiting
best practices for the Company’s sales force. Pursuant to the
engagement, we have paid ghSMART approximately $202,000, plus
expenses. In addition, in October 2009, the Company entered into an
engagement with ghSMART for phase 2 of ghSMART’s services, including hiring and
recruiting best practices for the Company’s sales force
management. Pursuant to the phase 2 engagement, we have currently
agreed to pay ghSMART $255,000, plus expenses. Randy Street, a
Partner of ghSMART is the brother-in-law of our Chief Executive
Officer. Mr. Street has acted and will continue to act as the senior
client manager on this project. He has a less than 0.5% equity stake
in ghSMART. Mr. Street is paid 25 percent of the amounts paid by the
Company pursuant to these engagements. In accordance with the
procedures described below for Interested Transactions (as defined below), the
Audit Committee reviewed and approved each engagement with ghSMART prior to
commencement of the respective engagement. The Company may enter into
additional engagements with ghSMART in the future.
Since
January 1, 2009, other than the ghSMART transaction discussed above, none
of our executive officers or directors has engaged in or had a direct or
indirect interest in any transactions with us that are required to be disclosed
in this proxy statement.
The Board
recognizes that Interested Transactions can present potential or actual
conflicts of interest and create the appearance that Company decisions are based
on considerations other than the best interests of the Company and its
stockholders. In April 2006, the Board delegated authority to the Audit
Committee to review and approve Interested Transactions, and the Audit Committee
has adopted written procedures as detailed below for the review, approval, or
ratification of Interested Transactions.
An
“Interested Transaction” is any transaction, arrangement or relationship
(including any indebtedness or guarantee of indebtedness), or any series of
similar transactions, arrangements or relationships, in which (a) the
aggregate amount involved will or may be expected to exceed $100,000 in any
calendar year, (b) the Company is a participant, and (c) any Related
Party (defined below) has or will have a direct or indirect interest (other than
solely as a result of being a director or trustee (or any similar position) or a
less than 10 percent beneficial owner of another entity). A
“Related Party” is any (a) person who is or was (since the beginning of the
last year for which the Company has filed an annual report on Form 10-K and
proxy statement, even if they do not presently serve in that role) an executive
officer, director or nominee for election as a director of the Company,
(b) greater than 5 percent beneficial owner of the Company’s
outstanding common stock, or (c) Immediate Family Member of any of the
foregoing. An “Immediate Family Member” is any child, stepchild, parent,
stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law or sister-in-law and any person (other than a
tenant or employee) sharing the household of a person.
The Audit
Committee will review all of the relevant facts and circumstances of all
Interested Transactions and either approve or disapprove of the entry into the
Interested Transaction, subject to limited exceptions described in the
Interested Transactions policy. In determining whether to approve an Interested
Transaction, the Audit Committee will take into account, among other factors it
deems appropriate, whether the Interested Transaction is on terms no less
favorable than terms generally available to an unaffiliated third-party under
the same or similar circumstances and the extent of the Related Party’s interest
in the transaction.
55
Section 16(a)
of the Securities Exchange Act of 1934 requires that our directors and executive
officers, and anyone who beneficially owns more than 10% of our common stock,
file with the SEC reports of initial ownership and reports of changes in
ownership of our common stock, and to furnish us with copies of those reports.
Based solely on a review of the reports furnished to us, we believe that during
2009, our directors, executive officers and 10% stockholders complied with these
requirements, except as follows: Messrs. Bonderman, Glosserman,
Haber, Klein, Low and Nassetta each did not timely report an acquisition of
shares of common stock on September 3, 2009 in connection with a stock grant
made to each member of the Board as part of our director compensation
program. Each individual made the required disclosure on a Form 4
that was filed with the SEC on December 8, 2009.
We have
included a copy of our Annual Report for the year ended December 31, 2009
and our annual report on Form 10-K for the year ended December 31, 2009 with
this proxy statement. In addition, you may obtain a copy of our annual report on
Form 10-K, including the financial statements and financial statement
schedules, without charge by sending a written request to Tim Trainor,
Communications Director, CoStar Group, Inc., 2 Bethesda Metro Center, Tenth Floor,
Bethesda, Maryland 20814.
If you
and others who share your mailing address own common stock in street name,
meaning through bank or brokerage accounts, you may have received a notice that
your household will receive only one annual report and proxy statement from each
company whose stock is held in such accounts. This practice, known as
“householding,” is designed to reduce the volume of duplicate information and
reduce printing and postage costs. Unless you responded that you did not want to
participate in householding, you were deemed to have consented to it and a
single copy of this proxy statement, the 2009 Annual Report and the 2009 annual
report on Form 10-K have been sent to your address. Each stockholder will
continue to receive a separate voting instruction form. If you would like to
revoke your consent to householding and in the future receive your own set of
proxy materials or if your household is currently receiving multiple copies of
the proxy materials and you would like in the future to receive only a single
set of proxy materials at your address, please contact our transfer agent,
American Stock Transfer and Trust Company, at 59 Maiden Lane, Plaza Level, New
York, NY 10038, or at (718) 921-8200 and indicate your name, the name of each of
your brokerage firms or banks where your shares are held, and your account
numbers. The revocation of consent to householding will be effective
30 days following its receipt. We will deliver promptly, upon
written or oral request, a separate copy of the proxy materials for the Annual
Meeting to a stockholder at a shared address to which a single copy of the
documents was delivered. This request should be made by sending a written
request to Tim Trainor, Communications Director, CoStar Group, Inc., 2 Bethesda
Metro Center, Tenth Floor, Bethesda, Maryland 20814 or by calling Mr. Trainor at
(301) 215-8300.
This
Proxy is solicited on behalf of the Board by directors, officers or employees.
The Company will bear all expenses in connection with the Annual Meeting and
this proxy solicitation. We have also retained Innisfree M&A Incorporated to
assist in distribution of these proxy materials and soliciting proxy voting
instructions, at an estimated cost not to exceed $10,000, plus reasonable
expenses. Proxies may be solicited in person, by telephone, by mail, telegram,
facsimile, or other electronic or other means. Innisfree M&A
Incorporated will request that brokerage houses, banks and other custodians
forward proxy material to beneficial owners of our common stock. We will
reimburse brokerage houses, banks, and other custodians for their reasonable
expenses for forwarding these materials to beneficial owners. American Stock
Transfer and Trust Company will act as proxy tabulator.
56
Appendix
A
(Amended
effective April 22, 2010)
1. Purpose
The
purpose of the CoStar Group, Inc. 2007 Stock Incentive Plan (the “Plan”) is to
advance the interests of CoStar Group, Inc. (the “Company”) by enabling the
Company and its subsidiaries to attract, retain and motivate employees of the
Company by providing for or increasing the proprietary interests of such
individuals in the Company, and by enabling the Company to attract, retain and
motivate its nonemployee directors and further align their interests with those
of the shareholders of the Company by providing for or increasing the
proprietary interests of such directors in the Company. The Plan provides for
the grant of Incentive and Nonqualified Stock Options, Stock Appreciation
Rights, Restricted Stock and Restricted Stock Units, any of which may be
performance-based, as determined by the Committee.
2. Definitions
As used
in the Plan, the following terms shall have the meanings set forth
below:
(a) “Award”
means an Incentive Stock Option, Nonqualified Stock Option, Stock Appreciation
Right, Restricted Stock, or Restricted Stock Unit granted to a Participant
pursuant to the provisions of the Plan, any of which the Committee may structure
to qualify in whole or in part as a Performance Award.
(b) “Award
Agreement” means a written agreement or other instrument as may be approved from
time to time by the Committee implementing the grant of each Award. An Agreement
may be in the form of an agreement to be executed by both the Participant and
the Company (or an authorized representative of the Company) or certificates,
notices or similar instruments as approved by the Committee.
(c) “Board”
means the board of directors of the Company.
(d) “Code”
means the Internal Revenue Code of 1986, as amended from time to time, and the
rulings and regulations issues thereunder.
(e) “Committee”
means the Committee delegated the authority to administer the Plan in accordance
with Section 16.
(f) “Common
Share” means a share of the Company’s common stock, subject to adjustment as
provided in Section 11.
(g) “Company”
means CoStar Group, Inc., a Delaware corporation.
(h) “Fair
Market Value” means, as of any given
date, the closing sales price on such date during normal trading hours (or, if
there are no reported sales on such date, on the last date prior to such date on
which there were sales) of the Common Shares on NASDAQ, the New York Stock
Exchange Composite Tape or, if not listed on such exchanges, on any other
national securities exchange on which the Common Shares are listed, in any case,
as reporting in such source as the Committee shall select. If there is no
regular public trading market for such Common Shares, the Fair Market Value of
the Common Shares shall be determined by the Committee in good faith and in
compliance with Section 409A of the Code.
(i) “Incentive
Stock Option” means a stock option that is intended to qualify as an “incentive
stock option” within the meaning of Section 422 of the Code.
(j) “Nonemployee
Director” means each person who is, or is elected to be, a member of the Board
or the board of directors of any Subsidiary and who is not an employee of the
Company or any Subsidiary.
(k) “Nonqualified
Stock Option” means a stock option that is not intended to qualify as an
“incentive stock option” within the meaning of Section 422 of the
Code.
(l) “Option”
means an Incentive Stock Option and/or a Nonqualified Stock Option granted
pursuant to Section 6 of the Plan.
(m) “Participant”
means any individual described in Section 3 to whom Awards have been
granted from time to time by the Committee and any authorized transferee of such
individual.
(n) “Performance
Award” means an Award, the grant, issuance, retention, vesting or settlement of
which is subject to satisfaction of one or more performance criteria pursuant to
Section 12.
(o) “Plan”
means the CoStar Group, Inc. 2007 Stock Incentive Plan as set forth herein and
as amended from time to time.
(p) “Prior
Plan” means the CoStar Group, Inc. 1998 Stock Incentive Plan.
(q) “Qualifying
Performance Criteria” has the meaning set forth in
Section 12(b).
(r) “Restricted
Stock” means Common Shares granted pursuant to Section 8 of the
Plan.
(s) “Restricted
Stock Unit” means an Award granted to a Participant pursuant to Section 8
pursuant to which Common Shares or cash in lieu thereof may be issued in the
future.
(t) “Stock
Appreciation Right” means a right granted pursuant to Section 7 of the Plan
that entitles the Participant to receive, in cash or Common Shares or a
combination thereof, as determined by the Committee, value equal to or otherwise
based on the excess of (i) the market price of a specified number of Common
Shares at the time of exercise over (ii) the exercise price of the right, as
established by the Committee on the date of grant.
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(u) “Subsidiary”
means any corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company where each of the corporations in the
unbroken chain other than the last corporation owns stock possessing at least 50
percent or more of the total combined voting power of all classes of stock in
one of the other corporations in the chain, and if specifically determined by
the Committee in the context other than with respect to Incentive Stock Options,
may include an entity in which the Company has a significant ownership interest
or that is directly or indirectly controlled by the Company.
(v) “Substitute
Awards” means Awards granted or Common Shares issued by the Company in
assumption of, or in substitution or exchange for, awards previously granted, or
the right or obligation to make future awards, by a corporation acquired by the
Company or any Subsidiary or with which the Company or any Subsidiary
combines.
3. Eligibility
Any
person who is an officer or employee of the Company or of any Subsidiary
(including any director who is also an employee, in his or her capacity as such)
shall be eligible for selection by the Committee for the grant of Awards
hereunder. In addition, Nonemployee Directors shall be eligible for the grant of
Awards hereunder as determined by the Committee. In addition any service
provider who has been retained to provide consulting, advisory or other services
to the Company or to any Subsidiary shall be eligible for selection by the
Committee for the grant of Awards hereunder. Options intending to qualify as
Incentive Stock Options may only be granted to employees of the Company or any
Subsidiary within the meaning of the Code, as selected by the
Committee.
4. Effective
Date and Termination of Plan
This Plan
was adopted by the Board and became effective as of April 26, 2007 (the
“Effective Date”), subject to the approval by the Company’s stockholders. All
Awards granted under this Plan are subject to, and may not be exercised before,
the approval of this Plan by the stockholders prior to the first anniversary
date of the effective date of the Plan by the affirmative vote of the holders of
a majority of the outstanding Common Shares of the Company present, or
represented by proxy, and entitled to vote, at a meeting of the Company’s
stockholders or by written consent in accordance with the laws of the State of
Delaware; provided that if such approval by the stockholders of the Company is
not forthcoming, all Awards previously granted under this Plan shall be void.
The Plan shall remain available for the grant of Awards until the tenth (10th)
anniversary of the Effective Date. Notwithstanding the foregoing, the Plan may
be terminated at such earlier time as the Board may determine. Termination of
the Plan will not affect the rights and obligations of the Participants and the
Company arising under Awards theretofore granted and then in
effect.
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5. Common
Shares Subject to the Plan and to Awards
(a) Aggregate Limits. The
aggregate number of Shares issuable pursuant to all Awards shall not exceed
1,000,000 shares, plus (i) any Shares that were authorized for issuance
under the Prior Plan that, as of June 7, 2007, remain available for issuance
under the Prior Plan (not including any Shares that are subject to, as of June
7, 2007, outstanding awards under the Prior Plan or any Shares that prior to
June 7, 2007 were issued pursuant to awards granted under the Prior Plan) and
(ii) any Shares subject to outstanding awards under the Prior Plan as of
June 7, 2007 that on or after such date cease for any reason to be subject to
such awards (other than by reason of exercise or settlement of the awards to the
extent they are exercised for or settled in vested and nonforfeitable shares).
The aggregate number of Common Shares available for grant under this Plan and
the number of Common Shares subject to outstanding Awards shall be subject to
adjustment as provided in Section 11. The Common Shares issued pursuant to
Awards granted under this Plan may be shares that are authorized and unissued or
shares that were reacquired by the Company, including shares purchased in the
open market.
(b) Issuance of Common Shares.
For purposes of this Section 5, the aggregate number of Common Shares
available for Awards under this Plan at any time shall not be reduced by
(i) shares subject to Awards that have been terminated, expired
unexercised, forfeited or settled in cash, (ii) shares subject to Awards
that have been retained by the Company in payment or satisfaction of the
exercise price, purchase price or tax withholding obligation of an Award, or
(iii) shares subject to Awards that otherwise do not result in the issuance
of Common Shares in connection with payment or settlement of an Award. In
addition, Common Shares that have been delivered (either actually or by
attestation) to the Company in payment or satisfaction of the exercise price,
purchase price or tax withholding obligation of an Award shall be available for
Awards under this Plan.
(c) Tax Code Limits. The
aggregate number of Common Shares subject to Awards granted under this Plan
during any calendar year to any one Participant shall not exceed 200,000, which
number shall be calculated and adjusted pursuant to Section 11 only to the
extent that such calculation or adjustment will not affect the status of any
Award intended to qualify as “performance based compensation” under
Section 162(m) of the Code but which number shall not count any tandem SARs
(as defined in Section 7). Any Common Shares that may be
issued under this Plan may be issued pursuant to the exercise of Incentive
Stock Options.
(d) Substitute Awards. Substitute
Awards shall not reduce the Common Shares authorized for issuance under the Plan
or authorized for grant to a Participant in any calendar year. Additionally, in
the event that a corporation 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 shareholders and not adopted in contemplation of
such acquisition or combination, 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 acquisition or combination to determine the consideration payable to the
holders of common stock of the entities party to such acquisition or
combination) may be used for Awards under the Plan and shall not reduce the
Common Shares authorized for issuance under the Plan; provided that Awards using
such available shares shall not be made after the date awards or grants could
have been made under the terms of the pre-existing plan, absent the acquisition
or combination, and shall only be made to individuals who were not employees,
directors or consultants of the Company or its Subsidiaries immediately before
such acquisition or combination.
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6. Options
(a) Option Awards. Options may be
granted at any time and from time to time prior to the termination of the Plan
to Participants as determined by the Committee. No Participant shall have any
rights as a stockholder with respect to any Common Shares subject to Option
hereunder until said Common Shares have been issued, except that the Committee
may authorize dividend equivalent accruals with respect to such Common Shares.
Each Option shall be evidenced by an Award Agreement. Options granted pursuant
to the Plan need not be identical but each Option must contain and be subject to
the terms and conditions set forth below.
(b) Price. The Committee will
establish the exercise price per Common Share under each Option, which, in no
event will be less than the Fair Market Value of the Common Shares on the date
of grant; provided, however, that the exercise price per Common Share with
respect to an Option that is granted in connection with a merger or other
acquisition as a substitute or replacement award for options held by optionees
of the acquired entity may be less than 100% of the market price of the Common
Shares on the date such Option is granted if such exercise price is based on a
formula set forth in the terms of the options held by such optionees or in the
terms of the agreement providing for such merger or other acquisition. The
exercise price of any Option may be paid in Common Shares, cash, certified
check, money order or a combination thereof, as determined by the Committee,
including an irrevocable commitment by a broker to pay over such amount from a
sale of the Common Shares issuable under an Option, the delivery of previously
owned Common Shares and withholding of Common Shares deliverable upon
exercise.
(c) No Repricing. Other than in
connection with a change in the Company’s capitalization (as described in
Section 11) the terms of outstanding Options may not be amended to reduce
the exercise price of an Option or cancel, exchange, substitute, buyout or
surrender an outstanding Option in exchange for cash, other awards or Options
with an exercise price that is less than the exercise price of the original
Option without stockholder approval.
(d) Provisions Applicable to
Options. The date on which Options become exercisable shall be determined
at the sole discretion of the Committee and set forth in an Award Agreement.
Unless provided otherwise in the applicable Award Agreement, to the extent that
the Committee determines that an approved leave of absence or employment on a
less than full-time basis is not a termination of employment, the vesting period
and/or exercisability of an Option shall be adjusted by the Committee during or
to reflect the effects of any period during which the Participant is on an
approved leave of absence or is employed on a less than full-time
basis.
(e) Term of Options and Termination of
Employment: The Committee shall establish the term of each
Option, which in no case shall exceed a period of ten (10) years from the date
of grant. Unless an Option earlier expires upon the expiration date established
pursuant to the foregoing sentence, upon the termination of the Participant’s
employment, his or her rights to exercise an Option then held shall be
determined by the Committee and set forth in an Award Agreement.
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(f) Incentive Stock Options.
Notwithstanding anything to the contrary in this Section 6, in the case of
the grant of an Option intending to qualify as an Incentive Stock Option:
(i) if the Participant owns stock possessing more than 10 percent of the
combined voting power of all classes of stock of the Company (a “10% Common
Shareholder”), the exercise price of such Option must be at least 110 percent of
the Fair Market Value of the Common Shares on the date of grant and the Option
must expire within a period of not more than five (5) years from the date of
grant, and (ii) termination of employment will occur when the person to
whom an Award was granted ceases to be an employee (as determined in accordance
with Section 3401(c) of the Code and the regulations promulgated
thereunder) of the Company and its Subsidiaries. Notwithstanding anything in
this Section 6 to the contrary, options designated as Incentive Stock
Options shall not be eligible for treatment under the Code as Incentive Stock
Options (and will be deemed to be Nonqualified Stock Options) to the extent that
either (a) the aggregate Fair Market Value of Common Shares (determined as of
the time of grant) with respect to which such Options are exercisable for the
first time by the Participant during any calendar year (under all plans of the
Company and any Subsidiary) exceeds $100,000, taking Options into account in the
order in which they were granted, or (b) such Options otherwise remain
exercisable but are not exercised within three (3) months of Termination of
employment (or such other period of time provided in Section 422 of the
Code).
7. Stock
Appreciation Rights
Stock
Appreciation Rights may be granted to Participants from time to time either in
tandem with or as a component of other Awards granted under the Plan (“tandem
SARs”) or not in conjunction with other Awards (“freestanding SARs”) and may,
but need not, relate to a specific Option granted under Section 6. The
provisions of Stock Appreciation Rights need not be the same with respect to
each grant or each recipient. Any Stock Appreciation Right granted in tandem
with an Award may be granted at the same time such Award is granted or at any
time thereafter before exercise or expiration of such Award. All freestanding
SARs shall be granted subject to the same terms and conditions applicable to
Options as set forth in Section 6 and all tandem SARs shall have the same
exercise price, vesting, exercisability, forfeiture and termination provisions
as the Award to which they relate. Subject to the provisions of Section 6
and the immediately preceding sentence, the Committee may impose such other
conditions or restrictions on any Stock Appreciation Right as it shall deem
appropriate. Stock Appreciation Rights may be settled in Common Shares, cash or
a combination thereof, as determined by the Committee and set forth in the
applicable Award Agreement. Other than in connection with a change in the
Company’s capitalization (as described in Section 11) the terms of
outstanding Stock Appreciation Rights may not be amended to reduce the exercise
price of a Stock Appreciation Right or cancel, exchange, substitute, buyout or
surrender an outstanding Stock Appreciation Right in exchange for cash, other
awards or Stock Appreciation Rights with an exercise price that is less than the
exercise price of the original Stock Appreciation Right without stockholder
approval.
8. Restricted
Stock and Restricted Stock Units
(a) Restricted Stock and Restricted
Stock Unit Awards. Restricted Stock and Restricted Stock Units may be
granted at any time and from time to time prior to the termination of the Plan
to Participants as determined by the Committee. Restricted Stock is an award or
issuance of Common Shares the grant, issuance, retention, vesting and/or
transferability of which is subject during specified periods of time to such
conditions (including continued
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employment
or performance conditions) and terms as the Committee deems appropriate.
Restricted Stock Units are Awards denominated in units of Common Shares under
which the issuance of Common Shares is subject to such conditions (including
continued employment or performance conditions) and terms as the Committee deems
appropriate. Each grant of Restricted Stock and Restricted Stock Units shall be
evidenced by an Award Agreement. Unless determined otherwise by the Committee,
each Restricted Stock Unit will be equal to one Common Share and will entitle a
Participant to either the issuance of Common Shares or payment of an amount of
cash determined with reference to the value of Common Shares. To the extent
determined by the Committee, Restricted Stock and Restricted Stock Units may be
satisfied or settled in Common Shares, cash or a combination thereof. Restricted
Stock and Restricted Stock Units granted pursuant to the Plan need not be
identical but each grant of Restricted Stock and Restricted Stock Units must
contain and be subject to the terms and conditions set forth below.
(b) Contents of Agreement. Each
Award Agreement shall contain provisions regarding (i) the number of Common
Shares or Restricted Stock Units subject to such Award or a formula for
determining such number, (ii) the purchase price of the Common Shares, if any,
and the means of payment, (iii) the performance criteria, if any, and level of
achievement versus these criteria that shall determine the number of Common
Shares or Restricted Stock Units granted, issued, retainable and/or vested, (iv)
such terms and conditions on the grant, issuance, vesting and/or forfeiture of
the Common Shares or Restricted Stock Units as may be determined from time to
time by the Committee, (v) the term of the performance period, if any, as
to which performance will be measured for determining the number of such Common
Shares or Restricted Stock Units, and (vi) restrictions on the transferability
of the Common Shares or Restricted Stock Units. Common Shares issued under a
Restricted Stock Award may be issued in the name of the Participant and held by
the Participant or held by the Company, in each case as the Committee may
provide.
(c) Vesting and Performance
Criteria. The grant, issuance, retention, vesting and/or settlement of
shares of Restricted Stock and Restricted Stock Units will occur when and in
such installments as the Committee determines or under criteria the Committee
establishes, which may include Qualifying Performance Criteria; provided,
however, that, except in the case of a change of control of the Company, the
death or disability of the Participant or awards granted to employees of the
Company or any Subsidiary in appreciation of past service to the Company or a
Subsidiary pursuant to a Company program or policy that applies to all such
employees on an equal basis, vesting of Restricted Stock and Restricted Stock
Units shall be no earlier than three (3) years from the date of grant for Awards
not subject to vesting based on performance criteria and one (1) year from the
date of grant for Awards that vest based on the achievement of performance
criteria. Notwithstanding anything in this Plan to the contrary, the performance
criteria for any Restricted Stock or Restricted Stock Unit that is intended to
satisfy the requirements for “performance-based compensation” under
Section 162(m) of the Code will be a measure based on one or more
Qualifying Performance Criteria selected by the Committee and specified when the
Award is granted.
(d) Discretionary Adjustments and
Limits. Subject to the limits imposed under Section 162(m) of the
Code for Awards that are intended to qualify as “performance based
compensation,” notwithstanding the satisfaction of any performance goals, the
number of Common Shares granted, issued, retainable and/or vested under an Award
of Restricted Stock or Restricted Stock Units on account of either financial
performance or personal performance evaluations may, to the extent specified in
the Award Agreement, be reduced by the Committee on the basis of such further
considerations as the Committee shall determine.
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(e) Voting Rights. Unless
otherwise determined by the Committee, Participants holding shares of Restricted
Stock granted hereunder may exercise full voting rights with respect to those
shares during the period of restriction. Participants shall have no voting
rights with respect to Common Shares underlying Restricted Stock Units unless
and until such Common Shares are reflected as issued and outstanding shares on
the Company’s stock ledger.
(f) Dividends and Distributions.
Participants in whose name Restricted Stock is granted shall be entitled to
receive all dividends and other distributions paid with respect to those Common
Shares, unless determined otherwise by the Committee. The Committee will
determine whether any such dividends or distributions will be automatically
reinvested in additional shares of Restricted Stock and subject to the same
restrictions on transferability as the Restricted Stock with respect to which
they were distributed or whether such dividends or distributions will be paid in
cash. Common Shares underlying Restricted Stock Units shall be entitled to
dividends or dividend equivalents only to the extent provided by the
Committee. Notwithstanding the foregoing, Restricted Stock and Common
Shares underlying Restricted Stock Units that are subject to Qualifying
Performance Criteria (as defined below) shall not be entitled to dividends or
dividend equivalents unless and until the applicable Qualifying Performance
Criteria have been achieved.
9. Deferral
of Gains
The
Committee may, in an Award Agreement or otherwise, provide for the deferred
delivery of Common Shares upon settlement, vesting or other events with respect
to Restricted Stock or Restricted Stock Units. Notwithstanding anything herein
to the contrary, in no event will any deferral of the delivery of Common Shares
or any other payment with respect to any Award be allowed if the Committee
determines, in its sole discretion, that the deferral would result in the
imposition of the additional tax under Section 409A(a)(1)(B) of the
Code.
10. Conditions
and Restrictions Upon Securities Subject to Awards
The
Committee may provide that the Common Shares issued upon exercise of an Option
or Stock Appreciation Right or otherwise subject to or issued under an Award
shall be subject to such further agreements, restrictions, conditions or
limitations as the Committee in its discretion may specify prior to the exercise
of such Option or Stock Appreciation Right or the grant, vesting or settlement
of such Award, including without limitation, conditions on vesting or
transferability, forfeiture or repurchase provisions and method of payment for
the Common Shares issued upon exercise, vesting or settlement of such Award
(including the actual or constructive surrender of Common Shares already owned
by the Participant) or payment of taxes arising in connection with an Award.
Without limiting the foregoing, such restrictions may address the timing and
manner of any resales by the Participant or other subsequent transfers by the
Participant of any Common Shares issued under an Award, including without
limitation (i) restrictions under an insider trading policy or pursuant to
applicable law, (ii) restrictions designed to delay and/or coordinate the timing
and manner of sales by Participant and holders of other Company equity
compensation arrangements, (iii) restrictions as to the use of a specified
brokerage firm for such resales or other transfers, and (iv) provisions
requiring Common Shares to be sold on the open market or to the Company in order
to satisfy tax withholding or other obligations.
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11. Adjustment
of and Changes in the Stock
The
number and kind of Common Shares available for issuance under this Plan
(including under any Awards then outstanding), and the number and kind of Common
Shares subject to the limits set forth in Section 5 of this Plan, shall be
equitably adjusted by the Committee to reflect any reorganization,
reclassification, combination of shares, stock split, reverse stock split,
spin-off, dividend or distribution of securities, property or cash (other than
regular, quarterly cash dividends), or any other equity restructuring
transaction, as that term is defined in Statement of Financial Accounting
Standards No. 123 (revised). Such adjustment may be designed to comply with
Section 425 of the Code or, except as otherwise expressly provided in
Section 5(c) of this Plan, may be designed to treat the Common Shares
available under the Plan and subject to Awards as if they were all outstanding
on the record date for such event or transaction or to increase the number of
such Common Shares to reflect a deemed reinvestment in Common Shares of the
amount distributed to the Company’s securityholders. The terms of any
outstanding Award shall also be equitably adjusted by the Committee as to price,
number or kind of Common Shares subject to such Award, vesting, and other terms
to reflect the foregoing events, which adjustments need not be uniform as
between different Awards or different types of Awards.
In the
event there shall be any other change in the number or kind of outstanding
Common Shares, or any stock or other securities into which such Common Shares
shall have been changed, or for which it shall have been exchanged, by reason of
a change of control, other merger, consolidation or otherwise in circumstances
that do not involve an equity restructuring transaction, as that term is defined
in Statement of Financial Accounting Standards No. 123 (revised), then the
Committee shall determine the appropriate adjustment, if any, to be effected. In
addition, in the event of such change described in this paragraph, the Committee
may accelerate the time or times at which any Award may be exercised and may
provide for cancellation of such accelerated Awards that are not exercised
within a time prescribed by the Committee in its sole discretion.
No right
to purchase fractional shares shall result from any adjustment in Awards
pursuant to this Section 11. In case of any such adjustment, the Common
Shares subject to the Award shall be rounded down to the nearest whole share.
The Company shall notify Participants holding Awards subject to any adjustments
pursuant to this Section 11 of such adjustment, but (whether or not notice
is given) such adjustment shall be effective and binding for all purposes of the
Plan.
12. Qualifying
Performance-Based Compensation
(a) General. The Committee may
establish performance criteria and level of achievement versus such criteria
that shall determine the number of Common Shares, units, or cash to be granted,
retained, vested, issued or issuable under or in settlement of or the amount
payable pursuant to an Award, which criteria may be based on Qualifying
Performance Criteria or other standards of financial performance and/or personal
performance evaluations.
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In
addition, the Committee may specify that an Award or a portion of an Award is
intended to satisfy the requirements for “performance-based compensation” under
Section 162(m) of the Code, provided that the performance criteria for such
Award or portion of an Award that is intended by the Committee to satisfy the
requirements for “performance-based compensation” under Section 162(m) of
the Code shall be a measure based on one or more Qualifying Performance Criteria
selected by the Committee and specified at the time the Award is granted. The
Committee shall certify the extent to which any Qualifying Performance Criteria
has been satisfied, and the amount payable as a result thereof, prior to
payment, settlement or vesting of any Award that is intended to satisfy the
requirements for “performance-based compensation” under Section 162(m) of
the Code. Notwithstanding satisfaction of any performance goals, the number of
Common Shares issued under or the amount paid under an award may, to the extent
specified in the Award Agreement, be reduced by the Committee on the basis of
such further considerations as the Committee in its sole discretion shall
determine.
(b) Qualifying Performance
Criteria. For purposes of this Plan, the term “Qualifying Performance
Criteria” shall mean any one or more of the following performance criteria,
either individually, alternatively or in any combination, applied to either the
Company as a whole or to a business unit or Subsidiary, either individually,
alternatively or in any combination, and measured either annually or
cumulatively over a period of years, on an absolute basis or relative to a
pre-established target, to previous years’ results or to a designated comparison
group, in each case as specified by the Committee: (i) cash flow (before or
after dividends), (ii) earnings or earnings per share (including earnings before
interest, taxes, depreciation and amortization), (iii) stock price, (iv)
return on equity, (v) total stockholder return, (vi) return on capital or
investment (including return on total capital, return on invested capital, or
return on investment), (vii) return on assets or net assets, (viii) market
capitalization, (ix) economic value added, (x) debt leverage (debt to
capital), (xi) revenue, (xii) income or net income, (xiii) operating income,
(xiv) operating profit or net operating profit, (xv) operating margin or profit
margin, (xvi) return on operating revenue, (xvii) cash from operations, (xviii)
operating ratio, (xix) operating revenue, or (xx) customer service. To the
extent consistent with Section 162(m) of the Code, the Committee
(A) shall appropriately adjust any evaluation of performance under a
Qualifying Performance Criteria to eliminate the effects of charges for
restructurings, discontinued operations, extraordinary items and all items of
gain, loss or expense determined to be extraordinary or unusual in nature or
related to the acquisition or disposal of a segment of a business or related to
a change in accounting principle all as determined in accordance with standards
established by opinion No. 30 of the Accounting Principles Board (APA
Opinion No. 30) or other applicable or successor accounting provisions, as well
as the cumulative effect of accounting changes, in each case as determined in
accordance with generally accepted accounting principles or identified in the
Company’s financial statements or notes to the financial statements, and (B) may
appropriately adjust any evaluation of performance under a Qualifying
Performance Criteria to exclude any of the following events that occurs during a
performance period: (i) asset write-downs, (ii) litigation, claims, judgments or
settlements, (iii) the effect of changes in tax law or other such laws or
provisions affecting reported results, (iv) accruals for reorganization and
restructuring programs and (v) accruals of any amounts for payment under this
Plan or any other compensation arrangement maintained by the
Company.
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13. Transferability
Unless
the Committee provides otherwise, each Award may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated by a Participant other
than by will or the laws of descent and distribution, and each Option or Stock
Appreciation Right shall be exercisable only by the Participant during his or
her lifetime.
14. Compliance
with Laws and Regulations
This
Plan, the grant, issuance, vesting, exercise and settlement of Awards
thereunder, and the obligation of the Company to sell, issue or deliver Common
Shares under such Awards, shall be subject to all applicable foreign, federal,
state and local laws, rules and regulations, stock exchange rules and
regulations, and to such approvals by any governmental or regulatory agency as
may be required. The Company shall not be required to register in a
Participant’s name or deliver any Common Shares prior to the completion of any
registration or qualification of such shares under any foreign, federal, state
or local law or any ruling or regulation of any government body which the
Committee shall determine to be necessary or advisable. To the extent the
Company is unable to or the Committee deems it infeasible to obtain authority
from any regulatory body having jurisdiction, which authority is deemed by the
Company’s counsel to be necessary to the lawful issuance and sale of any Common
Shares hereunder, the Company and its Subsidiaries shall be relieved of any
liability with respect to the failure to issue or sell such Common Shares as to
which such requisite authority shall not have been obtained. No Option shall be
exercisable and no Common Shares shall be issued and/or transferable under any
other Award unless a registration statement with respect to the Common Shares
underlying such Option is effective and current or the Company has determined
that such registration is unnecessary.
15. Withholding
To the
extent required by applicable federal, state, local or foreign law, a
Participant shall be required to satisfy, in a manner satisfactory to the
Company, any withholding tax obligations that arise by reason of an Option
exercise, disposition of Common Shares issued under an Incentive Stock Option,
the vesting of or settlement of an Award, an election pursuant to
Section 83(b) of the Code or otherwise with respect to an Award. The
Company and its Subsidiaries shall not be required to issue Common Shares, make
any payment or to recognize the transfer or disposition of Common Shares until
such obligations are satisfied. The Committee may provide for or permit the
minimum statutory withholding obligations to be satisfied through the mandatory
or elective sale of Common Shares and/or by having the Company withhold a
portion of the Common Shares that otherwise would be issued to him or her upon
exercise of the Option or the vesting or settlement of an Award, or by tendering
Common Shares previously acquired.
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16. Administration
of the Plan
(a) Committee of the Plan. The
Plan shall be administered by the Compensation Committee of the Board or the
Board itself. Any power of the Committee may also be exercised by the Board,
except to the extent that the grant or exercise of such authority would cause
any Award or transaction to become subject to (or lose an exemption under) the
short-swing profit recovery provisions of Section 16 of the Securities
Exchange Act of 1934 or cause an Award designated as a Performance Award not to
qualify for treatment as performance-based compensation under
Section 162(m) of the Code. To the extent that any permitted action taken
by the Board conflicts with action taken by the Committee, the Board action
shall control. The Compensation Committee may by resolution authorize one or
more officers of the Company to perform any or all things that the Committee is
authorized and empowered to do or perform under the Plan, and for all purposes
under this Plan, such officer or officers shall be treated as the Committee;
provided, however, that the resolution so authorizing such officer or officers
shall specify the total number of Awards (if any) such officer or officers may
award pursuant to such delegated authority, and any such Award shall be subject
to the form of Award Agreement theretofore approved by the Compensation
Committee. No such officer shall designate himself or herself as a recipient of
any Awards granted under authority delegated to such officer. In addition, the
Compensation Committee may delegate any or all aspects of the day-to-day
administration of the Plan to one or more officers or employees of
the Company or any Subsidiary, and/or to one or more agents.
(b) Powers of Committee. Subject
to the express provisions of this Plan, the Committee shall be authorized and
empowered to do all things that it determines to be necessary or appropriate in
connection with the administration of this Plan, including, without limitation:
(i) to prescribe, amend and rescind rules and regulations relating to this Plan
and to define terms not otherwise defined herein; (ii) to determine which
persons are Participants, to which of such Participants, if any, Awards shall be
granted hereunder and the timing of any such Awards; (iii) to grant Awards
to Participants and determine the terms and conditions thereof, including the
number of Common Shares subject to Awards and the exercise or purchase price of
such Common Shares and the circumstances under which Awards become exercisable
or vested or are forfeited or expire, which terms may but need not be
conditioned upon the passage of time, continued employment, the satisfaction of
performance criteria, the occurrence of certain events (including events which
constitute a change of control), or other factors; (iv) to establish and verify
the extent of satisfaction of any performance goals or other conditions
applicable to the grant, issuance, exercisability, vesting and/or ability to
retain any Award; (v) to prescribe and amend the terms of the agreements or
other documents evidencing Awards made under this Plan (which need not be
identical) and the terms of or form of any document or notice required to be
delivered to the Company by Participants under this Plan; (vi) to determine the
extent to which adjustments are required pursuant to Section 11; (vii) to
interpret and construe this Plan, any rules and regulations under this Plan and
the terms and conditions of any Award granted hereunder, and to make exceptions
to any such provisions in good faith and for the benefit of the Company; and
(viii) to make all other determinations deemed necessary or advisable for the
administration of this Plan.
(c) Determinations by the
Committee. All decisions, determinations and interpretations by the
Committee regarding the Plan, any rules and regulations under the Plan and the
terms and conditions of or operation of any Award granted hereunder, shall be
final and binding on all Participants, beneficiaries, heirs, assigns or other
persons holding or claiming rights under the Plan or any Award. The Committee
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.
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17. Amendment
of the Plan or Awards
The Board
may amend, alter or discontinue this Plan and the Committee may amend, or alter
any agreement or other document evidencing an Award made under this Plan but,
except as specifically provided for hereunder, no such amendment shall, without
the approval of the stockholders of the Company (a) reduce the exercise
price of outstanding Options or Stock Appreciation Rights, (b) reduce the
price at which Options may be granted below the price provided for in
Section 6 or (c) otherwise amend the Plan in any manner requiring
stockholder approval by law or under the NASDAQ’s listing requirements. No
amendment or alteration to the Plan or an Award or Award Agreement shall be made
which would impair the rights of the holder of an Award, without such holder’s
consent, provided that no such consent shall be required if the Committee
determines in its sole discretion and prior to the date of any change of control
that such amendment or alteration either is required or advisable in order for
the Company, the Plan or the Award to satisfy any law or regulation or to meet
the requirements of or avoid adverse financial accounting consequences under any
accounting standard.
18. Miscellaneous
(a) No Liability of Company. The Company and any
Subsidiary or affiliate which is in existence or hereafter comes into existence
shall not be liable to a Participant or any other person as to: (i) the
non-issuance or sale of Common Shares as to which the Company has been unable 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 Common
Shares hereunder; and (ii) any tax consequence expected, but not realized, by
any Participant or other person due to the receipt, exercise or settlement of
any Award granted hereunder.
(b) Non-Exclusivity of Plan.
Neither the adoption of this Plan by the Board nor the submission of this Plan
to the stockholders of the Company for approval shall be construed as creating
any limitations on the power of the Board or the Committee to adopt such other
incentive arrangements as either may deem desirable, including without
limitation, the granting of restricted stock or stock options otherwise than
under this Plan or an arrangement not intended to qualify under Code
Section 162(m), and such arrangements may be either generally applicable or
applicable only in specific cases.
(c) Governing Law. This Plan and
any agreements or other documents hereunder shall be interpreted and construed
in accordance with the laws of the Delaware and applicable federal
law.
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(d) No Right to Employment, Reelection
or Continued Service. Nothing in this Plan or an Award Agreement shall
interfere with or limit in any way the right of the Company, its Subsidiaries
and/or its affiliates to terminate any Participant’s employment, service on the
Board or service for the Company at any time or for any reason not prohibited by
law, nor shall this Plan or an Award itself confer upon any Participant any
right to continue his or her employment or service for any specified period of
time. Neither an Award nor any benefits arising under this Plan shall constitute
an employment contract with the Company, any Subsidiary and/or its
affiliates.
(e) Unfunded Plan. The Plan is
intended to be an unfunded plan. Participants are and shall at all times be
general creditors of the Company with respect to their Awards. If the Committee
or the Company chooses to set aside funds in a trust or otherwise for the
payment of Awards under the Plan, such funds shall at all times be subject to
the claims of the creditors of the Company in the event of its bankruptcy or
insolvency.
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