UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

(Rule 14a-101)

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934     

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

o  Preliminary Proxy Statement

     Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to §240.14a-12

 

DealerTrack Holdings, Inc.

(Name of Registrant as Specified in Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

April 30, 2008

Dear Stockholder:

 

On behalf of the board of directors and management of DealerTrack Holdings, Inc., I invite you to attend our Annual Meeting of Stockholders. The meeting will be held on Tuesday, June 3, 2008, at 3:00 p.m. local time, at DealerTrack Holdings, Inc. Corporate Headquarters, 1111 Marcus Avenue, Lake Success, New York 11042.

 

The details of the business to be conducted at the Annual Meeting are provided in the attached Notice of the Annual Meeting of Stockholders and in the attached Proxy Statement.

 

It is important that your stock is represented, regardless of the number of shares you hold. After reading the enclosed Proxy Statement, please vote your proxy in accordance with the instructions provided.

 

If you have any questions about the meeting, please contact our Investor Relations Department at (516) 734-3758.

 

We look forward to seeing you at the Annual Meeting.

 

Sincerely,

 

Mark F. O’Neil

Chairman of the Board,

President and Chief Executive Officer

 

NOTICE OF ANNUAL MEETING OF THE STOCKHOLDERS

 

 

By Order of the Board of Directors,

 

Eric D. Jacobs

Secretary

 

Lake Success, New York

April 30, 2008

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on June 3, 2008. The proxy statement and annual report to security holders are available on our website at ir.dealertrack.com/documents.cfm.

 

Table of Contents

 

DEALERTRACK HOLDINGS, INC.

1111 Marcus Ave., Suite M04

Lake Success, New York 11042

 

 

PROXY STATEMENT

 

 

For the Annual Meeting of Stockholders
to be held June 3, 2008

 

Our board of directors is soliciting proxies to be used at our Annual Meeting of Stockholders to be held on June 3, 2008. This Proxy Statement, the accompanying Notice of Annual Meeting of Stockholders and form of proxy are being made available to our stockholders on or about April 30, 2008.

 

The specific proposals to be considered and acted upon at the Annual Meeting are summarized in the accompanying Notice of Annual Meeting. The proposals are described in more detail in this Proxy Statement.

 

Only stockholders of record at the close of business on April 25, 2008 may vote at the Annual Meeting. As of April 25, 2008, there were 42,609,372 shares of our common stock outstanding.

 

You may vote using one of the following methods:

 

 

If a broker holds your shares in “street name,” the broker is required to vote those shares in accordance with your instructions. If you do not give instructions to the broker, the broker may vote your shares with respect to the election of directors and the ratification of auditors.

 

All shares that have been voted properly by an unrevoked proxy will be voted at the Annual Meeting in accordance with your instructions. If you sign your proxy card, but do not give voting instructions, the shares represented by that proxy will be voted as our board of directors recommends.

 

If any other matters are brought properly before the Annual Meeting, the persons named as proxies in the enclosed proxy card will have the discretion to vote on those matters for you. As of the date of this Proxy Statement, we did not know of any other matter to be raised at the Annual Meeting.

 

You can revoke your proxy or change your vote before your proxy is voted at the Annual Meeting by:

 

 

 

Each stockholder has one vote for each share of common stock that he or she owned on the record date for all matters being voted on.

 

A quorum is constituted by the presence, in person or by proxy, of holders of our common stock representing a majority of the aggregate number of shares of common stock entitled to vote. Abstentions and broker non-votes will be considered present to determine the presence of a quorum.

 

Election of Directors.  The two nominees for director receiving the highest vote totals will be elected. Abstentions and broker non-votes will have no effect on the election of directors.

 

Ratification of PricewaterhouseCoopers LLP as our Independent Registered Public Accounting Firm.  To pass, this proposal must receive a “for” vote of a majority of the votes. Abstentions will have the effect of a negative vote with respect to this ratification and broker non-votes will have no effect on the ratification of our independent registered public accounting firm.

 

Amend and Restate our Amended and Restated 2005 Incentive Award Plan.  To pass, this proposal must receive a “for” vote of a majority of the votes. Abstentions will have the effect of a negative vote with respect to this proposal and broker non-votes will have the effect of votes not cast with respect to this proposal.

 

Each of our directors is elected for a three-year staggered term. The seven members of our board of directors are divided into three classes: Class I, Class II and Class III. One class of directors is elected at each Annual Meeting. The following table shows our current directors, when each class of directors is elected and how each director is classified:

 

 

The two nominees are listed below. If any nominee is unable or declines unexpectedly to stand for election as a director at the Annual Meeting, proxies will be voted for a nominee designated by the present board of directors to fill the vacancy. Each person elected as a director will continue to be a director until the 2011 Annual Meeting or until a successor has been elected.

 

Our board of directors recommends that you vote FOR the nominees listed below:

 

 

None of our directors or executive officers is related to another director or executive officer by blood, marriage or adoption. Mr. O’Neil’s employment agreement provides that he shall serve as Chairman of the board of directors during the term of his agreement. Mr. Tischler was initially appointed to our board of directors pursuant to a stockholders’ agreement, which terminated on our initial public offering and is no longer in effect. There are no other arrangements between any director or nominee and any other person pursuant to which the director or nominee was selected.

 

Mary Cirillo-Goldberg, 60, has served on our board of directors since December 2002, and served as lead director from May 2005 to April 2006. Since September 2003, Ms. Cirillo-Goldberg has served as an advisor to Hudson Venture Partners, L.P., a venture capital fund. Ms. Cirillo-Goldberg served as the Chairman and Chief Executive Officer of OPCENTER, LLC, a privately held company that provides help desk, e-commerce and network operations services, from March 2000 to September 2003. From June 1997 through March 2000, she served as Executive Vice President and Managing Director of Bankers Trust Corporation. Ms. Cirillo-Goldberg currently serves as a director of three other public companies: ACE Limited, Health Care Property Investors, Inc. and the Thomson Corporation.

 

Mark F. O’Neil has served as our Chairman of the Board, President and Chief Executive Officer since May 2005 and has served as a member of the board of directors since August 2001. From August 2001 to May 2005, Mr. O’Neil served as our Chief Executive Officer and President. From February 2001 to May 2005 and since August 2006, Mr. O’Neil has served as President, and he continues to serve as Chairman of the Board, Chief Executive Officer and a director of DealerTrack, Inc. Mr. O’Neil began his career at Intel Corporation, where he first developed knowledge of the technology industry. He subsequently worked for McKinsey & Co. before moving to

the automotive industry in the late 1980’s. His experience in the automotive industry includes serving as President of Ertley MotorWorld, a dealer group based in Pennsylvania. From this traditional retail dealer group, Mr. O’Neil went on to co-found and lead the development and rollout of CarMax, Inc., a publicly-held used automobile retailer. From June 2000 through January 2001, Mr. O’Neil was President and Chief Operating Officer of Greenlight.com, an online automotive sales website. He also serves as a director of DealerTire LLC, a privately held company. Mr. O’Neil holds a BS in Industrial Engineering from Worcester Polytechnic Institute and an MBA from Harvard Business School.

 

Class I Directors (term expires at the 2009 Annual Meeting)

 

James David Power III, 76, has served on our board of directors since June 2002. Mr. Power has spent more than 35 years at, is a founder of, and from 1996 until April 2005 served as the Chairman of the Board of J.D. Power and Associates, a marketing information firm. Mr. Power also serves as a director of IMPCO Technologies, Inc., a public company, which supplies alternative fuel products to the transportation, industrial and power generation industries. In 1992, Mr. Power was a recipient of the Automotive Hall of Fame’s Distinguished Service Citation, awarded each year to seven of the industry’s most accomplished leaders. Mr. Power holds honorary doctorate degrees from College of the Holy Cross, California Lutheran University, California State University, Northridge and College Misericordia. He also serves as an adjunct professor of marketing at California State University, Northridge. Mr. Power holds a BA from the College of the Holy Cross and an MBA from The Wharton School of Finance at the University of Pennsylvania.

 

Howard L. Tischler, 54, has served as lead director since April 2006 and on our board of directors since March 2003. Since September 2005, Mr. Tischler has been employed by First Advantage Corporation, where he serves as Group President of First Advantage Dealer Services. From 2001 until September 2005, Mr. Tischler was President and Chief Executive Officer of First American Credit Management Solutions, Inc., or CMSI, which was a subsidiary of The First American Corporation, as well as Teletrack, Inc. From 1999 until our acquisition of Credit Online, Inc. from CMSI in 2003, Mr. Tischler was President and Chief Executive Officer of Credit Online. Mr. Tischler currently serves on the Engineering Advisory Board at George Washington University. He holds a BS in Mathematics from the University of Maryland and an MS in Engineering and Operations Research from The George Washington University.

 

Class II Directors (term expires at the 2010 Annual Meeting)

 

Barry Zwarenstein, 59, has served as a director of DealerTrack since November 2007. Since June 2004, Mr. Zwarenstein has served as Executive Vice President and Chief Financial Officer for VeriFone Holdings, Inc. Mr. Zwarentstein has announced his resignation from VeriFone, effective subsequent to the completion of the restatement and filing of VeriFone’s quarterly reports and annual report with the Securities and Exchange Commission. Prior to joining VeriFone, Mr. Zwarenstein served as Chief Financial Officer of Iomega Corporation from November 2001 to June 2004, of Mellanox Technologies Limited from January 2001 to June 2001, of Acuson Corporation from October 1998 to December 2000, and of Logitech S.A. from July 1996 to September 1998. Mr. Zwarenstein started his career at FMC Corporation, where he held a variety of financial positions, including, at the time of his departure, Chief Financial Officer for FMC Europe in Brussels, Belgium. Mr. Zwarenstein received a Bachelor of Commerce degree from the University of Natal, South Africa and an M.B.A. from the Wharton School of Business at the University of Pennsylvania. He is qualified as a Chartered Accountant (South Africa).

 

Ann B. Lane, 53, has served on our board of directors since July 2007. From April 2000 to January 2005, Ms. Lane was Managing Director, Co-Head of Syndicated & Leveraged Finance and Head of Bank Loan Capital Markets at JPMorgan. From 1997 to 2000, Ms. Lane was Managing Director and Global Co-Head of Bank Loan Syndications at Citigroup Inc. From 1995 to 1997, Ms. Lane was Global Industry Head, Aviation and Defense at Citigroup Inc., and from 1982 to 1995, Ms. Lane held a number of senior level positions at Citigroup, including Global Head of Corporate Debt Restructuring. Ms. Lane is an Advisory Board Member to the New York City Ballet

and a Board Member of Musical Masterworks in Old Lyme, Connecticut. Ms. Lane holds a BS in Economics from the University of California at Berkeley.

 

John J. McDonnell Jr., 70, has served as a director of DealerTrack since July 2005. Mr. McDonnell is the founder of TNS, Inc., a leading provider of data communications services to processors of credit card, debit card, and ATM transactions worldwide. Mr. McDonnell served as Chairman and Chief Executive Officer of TNS, Inc. from April 2001 to September 2006. Previously, he served as chairman and CEO of PaylinX Corp., a software provider for transaction processing, from November 1999 until it was sold to CyberSource Corp. in September 2000. He remains a director of CyberSource, a publicly held company. Prior to that, Mr. McDonnell was President, Chief Executive Officer and a director of Transaction Network Services, Inc. from the time he founded the company in 1990. Mr. McDonnell is also a founder and director of the Electronic Funds Transfer Association. He was the recipient of KPMG Peat Marwick LLP’s 1997 High Tech Entrepreneur Award and the Rensselaer Polytechnic Institute 2002 Entrepreneur of the Year Award. Mr. McDonnell holds a BS in Electrical Engineering from Manhattan College, a MSEE from Renssalaer Polytechnic Institute and an Honorary Doctorate of Humane Letters from Marymount University.

 

Our board of directors held six meetings during 2007 and acted three times by written consent. During 2007, each director attended at least 75% of the board of directors and committee meetings held while such director served as a director and committee member, except Mr. Power who attended 73% of the board of directors and committee meetings. At each regular meeting of the board of directors, the non-management directors met in executive session with our lead director presiding.

 

The Nominating and Corporate Governance Committee and our board of directors annually assess the independence of the non-management directors by reviewing the financial and other relationships between the directors and us. This review is designed to determine whether these directors are independent under the criteria established by NASDAQ for independent board members. The Nominating and Governance Committee and our board of directors have determined that all of our non-management directors and our director nominee are independent under those standards.

 

Stockholders and other interested parties may communicate with any of our directors, including our non-management directors, by writing to them c/o Secretary, DealerTrack Holdings, Inc., 1111 Marcus Ave., Suite M04, Lake Success, NY 11042. Our Secretary will forward all correspondence to the board of directors, except for spam, junk mail, mass mailings, products complaints or inquiries, job inquiries, surveys, business solicitations or advertisements, or patently offensive or otherwise inappropriate material. Our Secretary may forward certain correspondence, such as product-related inquiries, elsewhere within DealerTrack for review and possible response.

 

Our board of directors’ policy regarding director attendance at the Annual Meeting is that they are welcome to attend, and that we will make all appropriate arrangements for directors who choose to attend. Mr. O’Neil attended our 2007 Annual Meeting.

 

We have adopted a “code of ethics,” as defined by regulations promulgated under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, that applies to all of our directors and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A current copy of our Code of Business Conduct and Ethics is available on our website at www.dealertrack.com. A copy of our Code of Business Conduct and Ethics may also be obtained, free of charge, from us upon request directed to: DealerTrack Holdings, Inc., 1111 Marcus Avenue, Suite M04, Lake

Success, NY 11042, Attention: Investor Relations. We intend to disclose any amendment to or waiver of a provision of the Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, by posting such information on our website at www.dealertrack.com and/or in our public filings with the Securities and Exchange Commission, or SEC.

 

Our board of directors has four standing committees:  Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee and Investment Committee. All committee members are non-management directors who, in the opinion of our board of directors, are independent as defined under applicable NASDAQ standards. Our board of directors has approved a written charter for each committee which is available at www.dealertrack.com.

 

Audit Committee.  Our Audit Committee consists of Ms. Lane and Messrs. Zwarenstein and McDonnell. Mr. Zwarenstein serves as chairperson of the Audit Committee. Our board of directors has determined that each member of the Audit Committee is independent and that Ms. Lane and Mr. Zwarenstein are each audit committee financial experts as defined by SEC rules, and have financial sophistication, in accordance with the applicable NASDAQ listing standards. During 2007, the Audit Committee held twelve meetings. The purpose of the Audit Committee is to oversee our accounting and financial reporting processes and the audits of our financial statements. The Audit Committee’s responsibilities include assisting our board of directors in its oversight and evaluation of:

 

 

The Audit Committee has the sole and direct responsibility for appointing, evaluating and retaining our independent registered public accounting firm and for overseeing their work. All audit and non-audit services, other than de minimis non-audit services, to be provided to us by our independent registered public accounting firm must be approved in advance by our Audit Committee. The Audit Committee also reports to stockholders as required by the SEC (please see page 11).

 

Compensation Committee.  We have a Compensation Committee consisting of Ms. Cirillo-Goldberg and Mr. McDonnell. Ms. Cirillo-Goldberg serves as chairperson of the Compensation Committee. During 2007, the Compensation Committee held eight meetings and acted once by written consent. The purpose of our Compensation Committee is to discharge the responsibilities of our board of directors relating to compensation of our executive officers. Specific responsibilities of our Compensation Committee include:

 

 

Our board of directors has determined that each member of the Compensation Committee is independent in accordance with the applicable NASDAQ listing standards. The Compensation Committee also reports to stockholders on executive compensation items as required by the SEC (please see page 24).

 

Nominating and Corporate Governance Committee.  We have a Nominating and Corporate Governance Committee consisting of Ms. Cirillo-Goldberg and Messrs. Power and Tischler. Mr. Tischler serves as chairperson of the Nominating and Corporate Governance Committee. During 2007, the Nominating and Corporate Governance Committee held five meetings. The responsibilities of the Nominating and Corporate Governance Committee include:

 

 

 

The board of directors has determined that each member of the Nominating and Corporate Governance Committee is independent in accordance with the applicable NASDAQ listing standards.

 

Candidates may come to the attention of the Nominating and Corporate Governance Committee through current members of the board of directors, stockholders or other persons. These candidates are evaluated at regular or special meetings of the Nominating and Corporate Governance Committee. Stockholders wishing to recommend director candidates for consideration by the committee may do so by writing to the Secretary at 1111 Marcus Avenue, Suite M04, Lake Success, NY 11042 who will forward all recommendations to the committee. Stockholders must submit their recommendations by or before December 31, 2008 and provide the following information:

 

 

The Nominating and Corporate Governance Committee may consider the following criteria in recommending candidates for election to the board of directors:

 

 

Investment Committee.  We have an Investment Committee consisting of Ms. Lane and Mr. Tischler. Ms. Lane serves as chairperson of the Investment Committee. The Investment Committee was formed in January 2006. The purpose of our Investment Committee is to review investment and acquisition opportunities, approve certain acquisition and investment transactions and also make recommendations to our board of directors. During 2007, the Investment Committee held three meetings.

 

Directors who are also employees receive no fees for their services as directors. During 2007, all other directors received the following compensation for their services:

 

 

Effective January 1, 2008, we changed our annual equity grant from a fixed amount of shares of restricted common stock to a fixed dollar amount equal to $135,000 of restricted common stock.

 

Directors are eligible to participate in the Directors’ Deferred Compensation Plan, a non-qualified retirement plan. The Directors’ Deferred Compensation Plan allows our non-employee directors to elect to defer between zero and 100% of the fees they would otherwise be entitled to receive in cash for services rendered as directors. Amounts deferred under the Directors’ Deferred Compensation Plan are general liabilities of ours and are represented by bookkeeping accounts maintained on behalf of the participants. Such accounts are deemed to be invested in share units that track the value of our common stock. Distributions will generally be made to a participant either following the end of the participant’s service on our board of directors, following a change of control if so elected, or at a specified time elected by the participant prior to the deferral. Distributions will generally be made in the form of shares of our common stock. Our Directors’ Deferred Compensation Plan is intended to comply with Section 409A of the Internal Revenue Code

 

Our stock ownership and retention program requires non-employee members of our board of directors to own shares equal in value to four times their annual retainer. Directors are expected to attain the required share ownership level within five years from joining our board of directors.

 

The following table sets forth our non-management directors’ compensation for 2007.

 

 

 

 

 

 

 

 

 

The Audit Committee of DealerTrack Holdings, Inc. hereby reports as follows:

 

1. Management has the primary responsibility for the consolidated financial statements and the reporting process, including the system of internal accounting controls. The Audit Committee, in its oversight role, has reviewed and discussed the audited consolidated financial statements with the Company’s management.

 

2. The Audit Committee has discussed with the company’s independent registered public accounting firm, the overall scope of and plans for its audit. The Audit Committee has met with the independent registered public accounting firm, with and without management present, to discuss the Company’s financial reporting process and internal accounting controls in addition to other matters required to be discussed by the Statement on Auditing Standards No. 61, as amended (Communications with Audit Committee), as may be modified or supplemented.

 

3. The Audit Committee has received the written disclosures and the letter from PricewaterhouseCoopers LLP, or PwC, required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), as may be modified or supplemented, and has discussed with PwC its independence.

 

4. The Audit Committee has policies and procedures that require the pre-approval by the Audit Committee of all fees paid to, and all services performed by, the Company’s independent registered public accounting firm, unless entered into pursuant to the pre-approval policies and procedures established by the Audit Committee. At the beginning of each year, the Audit Committee approves the proposed services, including the nature, type and scope of service contemplated and the related fees, to be rendered by the firm during the year. In addition, Audit Committee pre-approval is also required for those engagements that may arise during the course of the year that are outside the scope of the initial services and fees approved by the Audit Committee. For each category of proposed service, the independent registered public accounting firm is required to confirm that the provision of such services does not impair their independence.

 

5. Based on the review and discussions referred to in paragraphs (1) through (4) above, the Audit Committee recommended to the board of directors of DealerTrack Holdings, Inc. and the board of directors has approved, that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, for filing with the Securities and Exchange Commission.

 

Respectfully Submitted by the Audit Committee,

Barry Zwarenstein (chairperson)

Ann B. Lane

John J. McDonnell, Jr.

 

The following table represents the fees billed by PricewaterhouseCoopers LLP, or PWC, for 2007 and 2006:

 

 

 

 

The Audit Committee of our board of directors has selected, subject to ratification by our stockholders, PricewaterhouseCoopers LLP, or PwC, to serve as our independent registered public accounting firm for the 2008 fiscal year. Additional information concerning the Audit Committee and its activities with PwC can be found in the “Audit Committee Report” on page 11 and the “Principal Accountant Fees and Services”.

 

The Sarbanes-Oxley Act of 2002 and Section 10A of the Securities Exchange Act of 1934 require that the Audit Committee of the board of directors be directly responsible for the appointment, compensation and oversight of the audit work of our independent registered public accounting firm. Ratification by the stockholders of the selection of PwC is not required by law, our bylaws or otherwise. However, the board of directors is submitting the selection of PwC for stockholder ratification to ascertain stockholders’ views on the matter.

 

A representative of PwC will attend the Annual Meeting to respond to appropriate questions and to make a statement if he or she desires to do so.

 

Our board of directors recommends that you vote FOR the Proposal to ratify the selection of PwC as our independent registered public accounting firm for fiscal 2008.

 

On April 29, 2008, our board of directors voted to amend and restate the Amended and Restated DealerTrack Holdings, Inc. 2005 Incentive Award Plan, or the Restated 2005 Plan, and is recommending the Restated 2005 Plan to our stockholders for approval.

 

There are 50,969 shares of common stock available under the existing Amended and Restated DealerTrack Holdings, Inc. 2005 Incentive Award Plan. The Restated 2005 Plan increases the reserved shares of our common stock under the plan by 1,550,000 shares, although only 889,624 of the aggregate shares available under the plan may be granted in the form of full value shares. The addition of these shares of common stock allows the Compensation Committee to continue to use stock-based awards to attract and retain employees and directors, further align employee and stockholder interests, continue to link employee compensation with Company performance and maintain a culture of ownership. The Restated 2005 Plan also removes the ability to grant dividend equivalent awards and vests the sole authority to administer the plan in the Compensation Committee. In addition, the Restated 2005 Plan limits the term of stock appreciation rights, or SAR, to seven years.

 

The material features of the Restated 2005 Plan are:

 

 

Based solely on the closing price of our common stock as reported by the Nasdaq Global Market on April 15, 2008, the maximum aggregate market value of the additional 1,550,000 new shares of common stock that could be issued under the Restated 2005 Plan is $28.8 million. The shares we issue under the Restated 2005 Plan will be authorized but unissued shares.

 

The following description of certain features of the Restated 2005 Plan is intended to be a summary only. The summary is qualified in its entirety by the full text of the Restated 2005 Plan that is attached hereto as Exhibit I.

 

Administration

 

The Compensation Committee of the board of directors is authorized to administer the Restated 2005 Plan. The Compensation Committee has the power, subject to the provisions of the Restated 2005 Plan, to determine the nature and extent of the awards to be made to each participant; to determine the time when awards will be made to participants; to establish the performance goals and determine the period of time within which performance is measured with respect to performance units; to establish the various targets and bonus amounts which may be earned by certain employees; to specify the relationship between the performance goals and the targets and amounts that may be earned by certain employees; to determine the period of time during which shares of restricted common stock or units are subject to restrictions; to determine the conditions for the payment of awards; and to prescribe the forms of agreements and documents evidencing the awards. The Compensation Committee may also delegate to one or more of our officers the power to designate which of our non-officer employees shall receive stock awards, and the number of shares of common stock that will be subject to each award, subject to a maximum aggregate number of shares specified by the Compensation Committee at the time the delegation to the officers is made.

 

Eligibility

 

Persons eligible to participate in the Restated 2005 Plan will be officers, employees, non-employee directors and consultants of the Company. Approximately 1,050 individuals are currently eligible to participate in the Restated 2005 Plan.

 

Types of Equity-Based Awards

 

Stock Options.  The Compensation Committee may grant stock options to eligible persons under the Restated 2005 Plan. Each option granted pursuant to the Restated 2005 Plan is designated at the time of grant as either an incentive stock option or as a non-qualified stock option. Non-qualified stock options may be granted to all eligible persons, but incentive stock options may be granted only to employees of the Company and its related entities. The option term of new option grants is limited to seven years. All options must have a per share option exercise price that is not less than the fair market value of shares of our common stock on the grant date.

 

Restricted Common Stock.  Participants’ rights with respect to grants of restricted common stock awarded under the Restated 2005 Plan are subject to transferability and forfeiture restrictions during a restricted period. While the restrictions are in place, the participant generally has the rights and privileges of a stockholder, including the right to vote the restricted common stock and to receive dividends.

 

Restricted Stock Units and Deferred Stock Units.  Each restricted stock unit and deferred stock unit awarded by the Compensation Committee entitles the participant to receive one share of common stock for each unit at the end of the vesting or deferral periods. A holder of restricted stock units or deferred stock units has no voting rights, right to receive cash distributions, or other rights as a stockholder until shares of common stock are issued to the holder in settlement of the stock units.

 

Stock Appreciation Rights.  SARs are awards that give the recipient the right to receive an amount equal to (1) the number of shares exercised under the right, multiplied by (2) the amount by which our stock price exceeds the fair market value of shares of our common stock on the grant date. Payment may be in shares of our common stock with equivalent value. The term of SARs is limited to seven years. SARs expire under the same rules that apply to stock options.

Performance Awards.  Holders of performance shares or units will be entitled to receive payment in shares of our common stock if the performance goals established by the Compensation Committee are achieved. The Compensation Committee may also award incentive bonuses in the form of cash upon the attainment of performance goals established by the Compensation Committee.

 

Change of Control

 

In connection with any change of control, except as may otherwise be provided in any applicable award or employment agreement, unless awards granted pursuant to the Restated 2005 Plan are converted, assumed or replaced by the successor entity, the awards will automatically become fully vested and exercisable and all forfeiture restrictions with respect to such awards shall lapse prior to the consummation of the change in control. In addition, with respect to any awards, in connection with any change in control (or other unusual or nonrecurring transaction affecting us or our consolidated financial statements), the Compensation Committee, in its sole discretion, may:

 

 

Any such action may be effected by the Compensation Committee either by the terms of the applicable award agreement or by action of the Compensation Committee taken prior to the change of control.

 

Adjustments for Stock Dividends, Stock Splits, Etc.

 

The Compensation Committee shall make appropriate adjustments to the number of shares of common stock that are subject to the Restated 2005 Plan and to any outstanding awards to reflect stock dividends, stock splits, extraordinary cash dividends and similar events.

 

Tax Withholding

 

Participants in the Restated 2005 Plan are responsible for the payment of any federal, state or local taxes that the Company is required by law to withhold upon any option exercise or vesting of other awards. Subject to approval by the Compensation Committee, participants may elect to have the minimum tax withholding obligations satisfied by authorizing us to withhold shares of common stock to be issued pursuant to an option exercise or vesting of other awards.

 

Amendments, Suspension and Termination

 

The Compensation Committee is generally authorized to adopt, amend and rescind rules relating to the administration of the Restated 2005 Plan, and to amend, suspend and terminate the Restated 2005 Plan. However, we must generally obtain approval of our stockholders: (i) to increase the number of shares of our common stock that may be issued under the Restated 2005 Plan; (ii) to extend the limit on the period during which options may be granted; or (iii) to the extent required by applicable law, rule or regulation (including any applicable Financial Industry Regulatory (FINRA) rule). In addition, without stockholder approval, no option may be amended to reduce the option exercise price either through repricing or regranting.

New Plan Benefits

 

If the Restated 2005 Plan is approved by our stockholders, it is anticipated that the Compensation Committee will make the following grants of restricted common stock and stock options as set forth in the table below. We can not project the grants that may be made to our officers and employees because such grants are made at the discretion of the Compensation Committee.

 

 

 

 

Tax Aspects Under the Code

 

The following is a summary of the principal federal income tax consequences of certain transactions under the Restated 2005 Plan. It does not describe all federal tax consequences under the Restated 2005 Plan, nor does it describe state or local tax consequences.

 

Stock Options.  The grant of stock options under the Plan will not result in taxable income at the time of the grant for either the Company or the optionee. Upon exercising an incentive stock option, the optionee will have no taxable income (except for the alternative minimum tax, if applicable) and the Company will receive no deduction. Upon exercising a non-qualified stock option, the optionee will recognize ordinary income in the amount by which the fair market value of the common stock at the time of exercise exceeds the option exercise price, and the Company will be entitled to a deduction for the same amount. The optionee’s income is subject to withholding tax as wages. The tax treatment of the optionee upon a disposition of shares of common stock acquired through the exercise of a stock option is dependent upon the length of time that the shares have been held and whether such shares were acquired by exercising an incentive stock option or a non-qualified stock option. If an employee exercises an incentive stock option and holds the shares for two years from the date of grant and one year after exercise, then any gain or loss upon the sale of the underlying shares will be treated as long-term capital gain or loss. Shares obtained upon exercise of an incentive stock option that are sold without satisfying these holding periods will be treated as shares received from the exercise of a non-qualified stock option. Generally, upon the sale of shares obtained by exercising a non-qualified stock option, the optionee will treat the gain realized on the sale as a short-term or long-term capital gain, depending on the length of the holding period. Generally, there will be no tax consequence to the Company in connection with the disposition of shares of common stock acquired under an option, except that the Company may be entitled to a deduction in the case of a disposition of shares acquired upon exercise of an incentive stock option before the applicable holding periods have been satisfied.

 

Restricted Common Stock.  An award of restricted common stock will not result in taxable income to the participant at the time of grant. Upon the lapse of the restrictions, the participant will recognize ordinary income in the amount of the fair market value of the shares of common stock at the time that the restriction lapses. Alternatively, within 30 days after receipt of the restricted common stock, a participant may make an election under Section 83(b) of the Code, which would allow the participant to include in income in the year that the restricted common stock is awarded an amount equal to the fair market value of the restricted common stock on the date of such award determined without regard to the restrictions.

 

The Company will be entitled to a deduction for the year in which the participant recognizes ordinary income with respect to the restricted common stock in an amount equal to such income.

Other Awards.  The current federal income tax consequences of other awards authorized under the Plan generally follow certain basic patterns: SARs are taxed and deductible in substantially the same manner as non-qualified stock options. Restricted stock units and deferred stock units are taxed and deductible when the recipient receives shares of common stock in settlement of such units. Stock-based or cash-based performance awards, and other types of awards are generally subject to tax at the time of payment. In each of the foregoing cases, the Company will generally have a corresponding deduction at the time the participant recognizes income.

 

Parachute Payments

 

The vesting of any portion of an option or other award that is accelerated due to the occurrence of a change of control may cause a portion of the payments with respect to such accelerated awards to be treated as “parachute payments” as defined in the Code. Any such parachute payments may be non-deductible to us, in whole or in part, and may subject the recipient to a non-deductible 20% federal excise tax on all or a portion of such payment (in addition to other taxes ordinarily payable).

 

Limitation on Deductions

 

Under Section 162(m) of the Code, our deduction for certain awards under the Restated 2005 Plan may be limited to the extent that the Chief Executive Officer or other executive officer whose compensation is required to be reported in the Summary Compensation Table receives compensation in excess of $1 million a year (other than performance-based compensation that otherwise meets the requirements of Section 162(m) of the Code). The Restated 2005 Plan is structured to allow grants to qualify as performance-based compensation.

 

Under our bylaws, the affirmative vote of a majority of shares of common stock present in person or represented by proxy at the meeting and entitled to vote on this proposal is required for the approval of the Restated 2005 Plan. Abstentions shall be included in determining the number of shares present and entitled to vote on the proposal, thus having the effect of a vote against the proposal. Broker non-votes are not counted in determining the number of shares present and entitled to vote and will therefore have no effect on the outcome.

 

OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE AMENDED AND RESTATED DEALERTRACK HOLDINGS, INC. 2005 INCENTIVE AWARD PLAN.

 

The following individuals were serving as our executive officers:

 

 

Mark F. O’Neil has served as our Chairman of the Board, President and Chief Executive Officer since May 2005 and has served as a member of the board of directors since August 2001. From August 2001 to May 2005, Mr. O’Neil served as our Chief Executive Officer and President. From February 2001 to May 2005 and since August 2006, Mr. O’Neil has served as President, and he continues to serve as Chairman of the Board, Chief Executive Officer and a director of DealerTrack, Inc. Mr. O’Neil began his career at Intel Corporation, where he first developed knowledge of the technology industry. He subsequently worked for McKinsey & Co. before moving to the automotive industry in the late 1980’s. His experience in the automotive industry includes serving as President of Ertley MotorWorld, a dealer group based in Pennsylvania. From this traditional retail dealer group, Mr. O’Neil went on to co-found and lead the development and rollout of CarMax, Inc., a publicly-held used automobile retailer. From June 2000 through January 2001, Mr. O’Neil was President and Chief Operating Officer of Greenlight.com, an online automotive sales website. He also serves as a director of DealerTire LLC, a privately held company. Mr. O’Neil holds a BS in Industrial Engineering from Worcester Polytechnic Institute and an MBA from Harvard Business School.

 

Robert J. Cox III has served as our Senior Vice President, Chief Financial Officer and Treasurer since November 2004. From May 2002 to October 2004, Mr. Cox was our Vice President of Finance and Treasurer, from January 2002 to April 2002, Mr. Cox served as our Vice President of Finance, Treasurer and Secretary, from August 2001 to December 2001, Mr. Cox served as our Director of Finance, Treasurer and Secretary, and from June 2001 to July 2001, Mr. Cox served as Director of Finance, Treasurer and Secretary for DealerTrack, Inc. In 1998, Mr. Cox joined Triton International, Inc., a facilities-based provider of wireless and wire-line telecommunications products, as its Executive Vice President and Chief Financial Officer and left in January 2001. In 1991, he joined Green Stamp America, Inc., a real estate investment company, as their Controller and was elevated to the position of Chief Financial Officer in 1996. Mr. Cox began his career at KPMG LLP in the audit practice. Mr. Cox holds a BS in Accounting from St. Bonaventure University and an MBA from the Columbia University Graduate School of Business and is a CPA.

 

John A. Blair has served as Chief Executive Officer of our Automotive Lease Guide (alg), Inc. subsidiary since May 2005. Mr. Blair served as Chief Executive Officer of Automotive Lease Guide (alg), LLC, from 1996 until its acquisition by us in May 2005 and President of our subsidiary, DealerTrack Data Services, Inc., from May 2005 to August 2006. Mr. Blair also served as Chief Executive Officer of webalg, Inc., the developer of PaymentTrack, from March 2000 to March 2002, which was acquired by us in August 2001. Prior to joining ALG, Mr. Blair held marketing and management positions with Xerox Corporation and IBM Corporation. Mr. Blair holds a BA in Economics from the University of California, Santa Barbara.

Charles J. Giglia has served as Senior Vice President and Chief Information Officer since January 2003. From February 2001 until January 2003, Mr. Giglia served as Vice President and Chief Information Officer of DealerTrack, Inc. Previously, he served as a Vice President of the Chase Manhattan Bank, responsible for Internet development in its Diversified Consumer Services business. Prior to that, from 1980 to 1995, he served as online delivery group project manager with responsibility for managing multiple service delivery applications. Mr. Giglia holds a BS in Computer Science with a minor in Business and an MBA in Management Information Systems, both from the New York Institute of Technology.

 

Ana M. Herrera has served as Senior Vice President, Human Resources since February 2007. From May 2005 to January 2007, Ms. Herrera served as Vice President, Human Resources, of DealerTrack, Inc. From September 2002 to May 2005, Ms. Herrera was Vice President of Human Resources at MeadWestvaco Corporation, where she led the global human resources function for the company’s Consumer Packaging Group. Prior to this, Ms. Herrera spent two years as a consultant, working on a wide range of human resources assignments for a diverse group of clients. Other previous experience includes having served as Vice President of Human Resources for Revlon Consumer Products Corporation’s International Division, and as, first, Director and later Vice President of Human Resources for Duracell Corporation. Ms. Herrera holds a BS in Business Administration from California State Polytechnic University.

 

Eric D. Jacobs has served as our Senior Vice President, General Counsel and Secretary since January 2004 and President of DealerTrack Canada, Inc., our Canadian subsidiary formerly known as dealerAccess Canada, Inc., since August 2006. From April 2002 to December 2003, Mr. Jacobs served as our Vice President, General Counsel and Secretary. Mr. Jacobs was an associate at the international law firm of O’Melveny & Myers LLP where he specialized in general corporate and securities law from August 1998 to April 2002. Prior to becoming an attorney, Mr. Jacobs was an audit manager at KPMG LLP. Mr. Jacobs holds a BS in Business Administration with a major in Accounting, magna cum laude, from Rider University and a JD, with honors, from the Rutgers School of Law-Newark, and is a CPA.

 

Richard McLeer has served as Senior Vice President, Strategy & Development since August 2006. From April 2005 to August 2006, Mr. McLeer served as Vice President, Credit and Contract Solutions for DealerTrack, Inc., and served as our National Lender Development Manager from February 2001 to April 2005. From 1996 to 2001, Mr. McLeer was Senior Vice President and National Product Director for the Bank of America Auto Group, and previously held a variety of marketing, sales and business development positions at Bank of America. Prior to that, Mr. McLeer worked at Trans Union Corporation from 1993 to 1996. Other previous experience includes two years serving as controller of Ellesse, U.S.A., a division of Reebok, and four years in public accounting. Mr. McLeer holds a BS in Accounting from Hofstra University and is a CPA.

 

Rajesh (Raj) Sundaram has served as Senior Vice President, Dealer Solutions since August 2006. Mr. Sundaram served as President of Automotive Lease Guide (alg), Inc. and President of Automotive Lease Guide (alg), LLC, from 2002 to until its acquisition by us in May 2005, and continued to hold those positions from May 2005 to August 2006. Prior to joining ALG as Vice President and General Manager in 1999, Mr. Sundaram served as Senior Manager, Strategic Planning and Pricing at Nissan North America, Inc. from 1997 to 1999, and held various positions in financial planning including Finance Manager, Infiniti division at Nissan North America, Inc. from 1994 to 1997. Mr. Sundaram previously held roles in the controller’s office of the Ford division of Ford Motor Company from 1991 to 1994. Mr. Sundaram holds a BS and MS in Accounting from the University of Mumbai in India and an MBA in Finance from Lehigh University.

 

David P. Trinder has served as Senior Vice President, Network Solutions since August 2006. Mr. Trinder served as President of DealerTrack Aftermarket Services, Inc. from June 2005 to August 2006, and Chief Executive Officer and President of dealerAccess Canada, Inc., our Canadian subsidiary which we acquired in January 2004, from April 2002 to August 2006. In the years before joining dealerAccess Canada, Inc., Mr. Trinder built and operated two businesses in South Africa, and followed this as director of a venture capital fund that focused on IT investments. Mr. Trinder holds a Bachelor of Commerce and an MBA from the University of Cape Town, South Africa, and is a South African Chartered Accountant.

 

Rick G. Von Pusch has served as Senior Vice President, Customer Development since August 2006. From April 2006 to August 2006, Mr. Von Pusch served as President of Sales and Marketing at 5Square Systems, a provider of

CRM, desking and menu products. Mr. Von Pusch served as Vice President of U.S. Retail Sales at Reynolds and Reynolds Corporation from April 2005 to October 2005, Area Vice President from October 2001 to April 2005 and held various positions in sales and sales management at Reynolds and Reynolds from 1988 to 2001. Mr. Von Pusch also was a sales representative for NCR Corporation from 1985-1987. Mr. Von Pusch holds a BA in Management Information Systems from the University of South Florida.

 

Overview

 

The Company’s compensation philosophy is designed to support the key objective of creating value for the stockholders by growing the revenue and earnings before interest, taxes, depreciation and amortization, or EBITDA, increasing the total market capitalization and growing the share price. The Compensation Committee is responsible for establishing and approving the executive officers’ compensation.

 

The Compensation Committee has established the following principles in determining the compensation of the executive officers:

 

 

The Company had a successful year in 2007, growing revenue by 35%, connecting 160 new lenders, growing the subscription business revenue by 41%, and growing subscriptions under contract by 34%. For 2007, 62% of the growth was considered organic and the other 38% came from acquisitions. The market capitalization increased by approximately $266 million from January 1, 2007 through December 31, 2007.

 

We believe that a sound compensation philosophy and strategy serve to align the team members and focus the executive team and the whole Company on the vision and the achievement of the stated strategic objectives and goals.

 

Compensation Processes and Criteria

 

The Compensation Committee has established a number of processes, some of which are described below, to ensure that the executive compensation achieves these objectives.

 

Peer Group Information and Benchmarking

 

In connection with compensation decisions, the Compensation Committee reviewed market compensation data of a peer group provided by Ernst & Young, an independent compensation consultant that is retained by and reports to the Compensation Committee. In October 2007, the Committee evaluated the fifteen peer group companies that comprised the peer group for 2006. The Compensation Committee elected to remove six companies whose legal and/or financial structures were no longer an appropriate peer for the Company. The six companies were Digital Insight Corp., MRO Software, Inc., Open Solutions, Inc., Talx Corp., Motive Inc. and Autobytel, Inc.. Ernst & Young identified additional companies in a related SIC code that fell within a certain revenue size range to replace the companies that had been dropped. The Compensation Committee selected the following four companies as replacements; Blackboard, Inc., Choicepoint, Inc., Heartland Payment Systems, Inc. and TNS, Inc. The following companies from the 2006 peer group remained as part of the peer group; Digital River, Inc., f5 Networks Inc., Network Equipment Technologies, Inc., Radiant Systems, Inc., Salesforce.com, Inc., Tier Technologies, Inc., Websense, Inc., Witness Systems, Inc., Micromuse, Inc. and SeeBeyond, Inc.

We changed the peer group for 2007 for the following reasons: Digital Insight Corp., MRO Software, Inc., Open Solutions, Inc. and Talx Corp. were acquired and no longer had public data available, Motive, Inc., has filed a notice with the SEC indicating that it will be filing its documents late; as such, no information will be available for inclusion in the compensation analysis. Autobytel, Inc. was removed because it has been in restructuring/turn-around mode and is no longer an appropriate peer. Blackboard Inc., Choicepoint, Inc., Heartland Payment Systems, Inc., and TNS, Inc. were added because their business models, as well as revenue and market capitalizations, are similar to the Company’s. The Compensation Committee uses the peer group compensation data primarily to ensure that the total direct compensation for executive management is within the broad middle range of comparative pay while providing an opportunity for the annual cash bonus to attain the 75th percentile when targeted performance levels are exceeded. While peer group market data provides a useful starting point for compensation decisions, the Compensation Committee also takes into account factors such as level of responsibility, prior experience and individual performance in arriving at final compensation decisions.

 

The elements of executive compensation include base salary, annual and long term incentive plans, and annual grants of stock options and/or restricted common stock. Executive compensation has a high proportion of total direct compensation delivered through pay-for-performance incentive and long-term equity compensation, equating to more compensation at risk.

 

Assessment of Company and Individual Performance

 

The Compensation Committee, in collaboration with senior management, establishes on an annual basis specific revenue and EBITDA targets that determine the size of bonus payouts under the annual incentive bonus plan.

 

Individual performance directly determines total direct compensation levels for the Chief Executive Officer and other executive officers. The Compensation Committee meets with the Chief Executive Officer at the beginning of the year to establish the Chief Executive Officer’s performance objectives (both individual and Company) for the year. At the end of the year, the Compensation Committee conducts a performance review of the Chief Executive Officer based on his achievement of the pre-established objectives. The overall performance of the Chief Executive Officer and the Company are considered by the Compensation Committee in setting the Chief Executive Officer’s compensation.

 

For all other executive officers, the Compensation Committee receives a performance assessment and compensation recommendation from the Chief Executive Officer. The performance evaluation of the executive officers is based on achievement of pre-established objectives.

 

Total Compensation Review

 

The Compensation Committee reviews each executive’s base pay, bonus and equity incentives annually with the guidance of the Compensation Committee’s independent consultant. In addition to these compensation elements, the Compensation Committee reviews the deferred compensation program and payments that would be required under various severance and change-in-control scenarios.

 

Components of Executive Compensation for 2007

 

Base Salary

 

Base salaries are pegged at the market median and are competitive with similar positions at the peer group companies. The base salaries of all executive offers are reviewed annually against market data and adjusted to reflect individual roles and performance. Adjustments to base salary are determined based upon market trends as well as individual performance and experience. Base salary may be adjusted during the year if a change in the scope of the officer’s responsibilities justifies such consideration. In 2007, we increased the base salaries of each of the named executive officers from 2006 by approximately 6.4%.

Annual Incentive Bonus Plan

 

Under the annual incentive bonus plan, the cash incentives are targeted at the 50th percentile of the peer group. If we exceed the targets and achieve the stretch goals, the bonus amount is then targeted at the 75th percentile of the peer group in order to provide rewards consistent with performance. The 2007 performance metrics were: an EBITDA target of $64.6 million, a corporate-wide revenue target of $215.4 million, as well as separate revenue targets for each of the business units. As a result of acquisitions, the Compensation Committee increased the EBITDA target to $66.2 million and the revenue target to $235.2million. Under this plan, no annual bonuses would have been paid had the Company not met the adjusted EBITDA threshold of $61.0 million. EBITDA was used as the principal metric to review and assess the operating performance and the performance of the management team as EBITDA provides useful information with respect to the performance of the fundamental business activities and is also frequently used by equity research analysts and others in the evaluation of the Company. The EBITDA for 2007 was reported in Item 7 of the Annual Report on Form 10-K. For executive officers with Company-wide responsibility, equal weight is given to corporate revenue and EBITDA targets. For other executive officers who are responsible for business units, depending on position, different weights are given to corporate and business unit revenues. In each case, additional weight is given to individual performance and attainment of individual goals. The bonus target amounts, expressed as a percentage of base salary, are established for the executive officers each year, with a target range of 45% to 80% of base salary for 2007 and a maximum range of 160% to 210% of base salary for 2007, depending on position. As stated above, no bonuses are payable if the Company does not meet the pre-determined EBITDA threshold amount. If the EBITDA threshold amount and the respective revenue targets are exceeded, the payouts may be increased or reduced by up to 5% depending on performance relative to specific subscription and transaction revenue targets. The actual reward to each executive officer is further adjusted, up or down, depending on the Compensation Committee’s assessment of such individual’s performance. In making this assessment, the Compensation Committee also considers the input of the Chief Executive Officer with respect to all executive officers. In the case of the Chief Executive Officer, the Compensation Committee considers factors such as leadership, leadership development, talent management and succession planning. The Compensation Committee may adjust the financial metrics in appropriate circumstances. The actual revenue and EBITDA in 2007 were $233.8 million and $66.0 million, respectively. Accordingly, the actual cash incentive bonuses awarded to executive officers ranged from 53% to 102% of base salary.

 

Annual Equity Grants

 

In order to align the executive officers’ interests with those of the stockholders, the Compensation Committee makes an annual equity grant each year to the executive officers. These grants may include restricted common stock, stocks options or a combination. These annual grants are targeted at the median of the market, which is consistent with the general compensation philosophy to pay total direct compensation at the median of the market except in the case of exceptional performance. We use nonqualified stock options instead of incentive stock options in order to preserve the compensation expense tax deduction. The annual equity grants also serve as a retention device as they are earned through service with us over a four-year period and the options have a seven-year life. These equity grants further the long-term perspective necessary for continued success of the business. Towards this end, we have also implemented share ownership requirements for the executive team equal to multiples of their base salary, which vary from six times to one times base salary. Each executive officer is expected to attain share ownership level within five years. Stock options are not included in determining compliance with the share ownership requirement. Executive officers are expected to retain 25% of the net after-tax shares acquired pursuant to the exercise of a stock option until they achieve the minimum share ownership position. The Compensation Committee reviews each executive officer’s compliance with the minimum share ownership requirement once a year. As of the end of 2007, each executive officer met the minimum share ownership requirement. Additionally, in 2007 each of the executive officers received an additional grant of options and restricted common stock in consideration of their willingness to accept a lower level of severance in connection with the amendment of their employments agreements.

 

We typically make the annual stock option grants at the first regularly scheduled meeting of the Compensation Committee of the year. Option grants to new hires are generally made at the first regularly scheduled Compensation

Committee meeting that follows the date of hire. We price the options at the closing price of the stock on the date of grant.

 

Long-Term Equity Incentive Program

 

In August 2006, we implemented a performance-based long-term equity incentive program and made significant grants of restricted common stock to the executive officers. These grants are targeted to deliver total direct compensation at the 75th percentile of the peer group upon the achievement of exceptional performance. These grants will be fully earned only if during the three fiscal year measurement period: (i) we achieve annual growth for the EBITDA and market capitalization metrics as set forth below; and (ii) if the executive officers remain continuously employed with us through January 31, 2010. As provided in the award agreements, the EBITDA goals are adjusted from time to time to reflect both the positive and negative impact of acquisitions. The purpose of the adjustments is to neutralize the impact of acquisitions.

 

Performance Goals

 

 

The objective for making these restricted common stock grants is to provide significant incentives to the executive officers to achieve the corporate goal of doubling the size in terms of EBITDA and market capitalization by the end of 2009.

 

Employment Agreements

 

We have entered into employment agreements with each of the named executive officers. These agreements were amended in 2007 to reduce the amount of severance provided in the event of termination without cause or for good reason from one year of base salary to one year of base salary. Additionally, these agreements provide for pro rata annual cash incentive and limited accelerated vesting of equity grants (other than performance-based restricted common stock) in the event of a termination of employment by us without cause or by a named executive officer for good reason. In return, each executive covenants not to compete or solicit the employees for one year from the date of termination. Severance is stopped if the executive violates these covenants during the one-year severance period.

 

The employment agreements also provide change in control benefits. In the event we were to undergo a change in control, the employment agreements provide for 36 months of accelerated vesting for time-based stock option and restricted common stock grants and full vesting of such grants in the event of termination within 12 months of the change in control. The performance-based restricted common stock grants provide for full acceleration upon a change in control. We believe that it is fair to provide for accelerated vesting because equity grants provide such a high proportion of the total compensation. Very often, senior management lose their jobs in connection with a change of control. By agreeing up front to protect the executive officers from losing their equity in the event of a change in control, we believe we can reinforce and encourage the continued attention and dedication of the executive officers to their assigned duties without distraction in the face of an actual or threatened change in control. This protection also aligns the interests of the executive officers with that of the stockholders.

 

The employment agreements also provide for a tax gross-up payment to the named executive officers in the event they become subject to the 20% golden parachute excise tax. We have agreed to this payment because it is market practice and because we believe that the named executive officers should be able to receive what they have bargained for without being subject to this punitive tax. Please see page 32 for more information about the named executive officers’ employment agreements.

 

Mr. Sundaram’s employment agreement contains an additional term that results from his joining us upon w the acquisition of certain assets of Automotive Lease Guide (alg), LLC. We agreed to honor an existing arrangement that he had in regards to a promissory note owed to his former employer in order to encourage Mr. Sundaram to remain with us after the acquisition.

In 2006, Mr. Sundaram’s promotion to Senior Vice President, Dealer Solutions, required him to move across the country to corporate headquarters in Lake Success, New York. Accordingly, we entered into a relocation agreement with Mr. Sundaram that provided, among other things, reimbursement of his moving expenses, temporary housing expenses, forfeited tuition deposits and certain expenses in connection with the purchase and sale of his primary residence, as well as a car allowance. All of these amounts are grossed up for taxes.

 

Perquisites

 

We believe that cash and equity compensation are the two key components in attracting and retaining management talent and therefore do not generally provide any substantial perquisites other than relocation expenses.

 

Deferred Compensation Plan

 

We have a deferred compensation plan that allows the executive officers to defer bonus compensation by investing it in deferred stock units based on the fair market value of the common stock on the date the bonuses would otherwise be paid. This plan provides a tax effective means of allowing the executive officers to invest in the stock and fulfills the objective of encouraging equity ownership. Two executives elected to defer part of the 2006 bonus which was payable in 2007. None of our executives elected to have part of their 2007 or 2008 bonuses deferred.

 

401(k) Plan

 

We maintain a 401(k) plan which covers substantially all the employees. The 401(k) plan is an essential part of the retirement package needed to attract and retain employees in the industry. The 401(k) plan permits employees to contribute up to the lesser of 20% of plan earnings or the annual dollar limit prescribed by the tax laws. The Company provides a matching contribution, the amount of which is determined at our discretion. For 2007, the matching contribution is 50% of each employee’s contribution up to 6% of eligible pay, subject to IRS limitations. The matching contribution vests incrementally over a five-year period.

 

This report is submitted by the Compensation Committee of the board of directors. The Compensation Committee has reviewed the Compensation Discussion and Analysis and discussed that Analysis with management. Based on its review and discussion with management, the Compensation Committee has recommended to the board of directors that the Compensation Discussion and Analysis be included in this Proxy Statement for filing with the Securities and Exchange Commission.

 

No portion of this Compensation Committee Report shall be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, through any general statement incorporating by reference in its entirety the Proxy Statement in which this report appears, except to the extent that the Company specifically incorporates this report or a portion of it by reference. In addition, this report shall not be deemed filed under either the Securities Act or the Exchange Act.

 

Respectfully submitted by the Compensation Committee,

 

Mary Cirillo-Goldberg (chairperson)
John J. McDonnell, Jr.

 

 

 

 

The following table describes each component of the All Other Compensation column in the Summary Compensation Table.

 

 

 

 

The following table provides information about equity and non-equity awards granted to the named executives in 2007:

 

 

 

 

The following table provides information on the current holdings of equity awards by the named executives. This table includes unexercised and unvested option awards; unvested restricted common stock; and restricted common stock with performance conditions that have not yet been satisfied. Each equity grant is shown separately for each named executive. The vesting schedule for each grant is shown following this table, based on the award grant date.

 

 

 

 

Option Vesting Schedule

 

Except for grant dates set forth below, the vesting schedule for stock options is 25% of the shares subject to the option vest on the one year anniversary of the date of grant, and 1/36th of the remaining shares subject to the option vest each month thereafter, such that 100% of the shares subject to the option will be fully vested four years after the date of grant.