SCHEDULE 14A INFORMATION

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held April 28, 2009

 

To the Stockholders:

 

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the “Annual Meeting”) of Informatica Corporation, a Delaware corporation (“Informatica”), will be held on Tuesday, April 28, 2009 at 4:30 p.m., Pacific Time, at Informatica’s corporate headquarters, 100 Cardinal Way, Redwood City, CA 94063, for the following purposes:

 

1. To elect three Class III directors for a term of three years or until their respective successors have been duly elected and qualified.

 

2. To approve the adoption of Informatica’s 2009 Equity Incentive Plan, reserving 9,000,000 shares of common stock for issuance thereunder.

 

3. To ratify the appointment of Ernst & Young LLP as Informatica’s independent registered public accounting firm for the fiscal year ending December 31, 2009.

 

4. To transact such other business as may properly come before the Annual Meeting or any adjournment or postponement of the Annual Meeting.

 

These items of business are more fully described in the Proxy Statement accompanying this Notice of Annual Meeting.

 

Only holders of record of Informatica’s common stock at the close of business on February 27, 2009, the record date, are entitled to vote on the matters listed in this Notice of Annual Meeting.

 

All stockholders are cordially invited to attend the Annual Meeting in person. However, to ensure your representation at the Annual Meeting, please vote as soon as possible using one of the following methods: (1) by using the Internet as instructed on the enclosed proxy card, (2) by telephone by calling the toll-free number as instructed on the enclosed proxy card or (3) by mail by completing, signing, dating and returning the enclosed proxy card in the postage-prepaid envelope enclosed for such purpose. For further details, please see the section entitled “Voting” on page 2 of the accompanying Proxy Statement. Any stockholder attending the Annual Meeting may vote in person even if he or she has voted using the Internet, telephone or proxy card.

 

By Order of the Board of Directors
of Informatica Corporation

 

 

 

Sohaib Abbasi

Chairman & Chief Executive Officer

 

Redwood City, California

March 11, 2009

 

	WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE VOTE BY (1) USING THE INTERNET, (2) TELEPHONE OR (3) COMPLETING AND RETURNING THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED ENVELOPE.

TABLE OF CONTENTS

 

INFORMATICA CORPORATION

 

 

 

 

PROXY STATEMENT
FOR
2009 ANNUAL MEETING OF STOCKHOLDERS

 

 

 

 

 

This Proxy Statement is being furnished to holders of common stock, par value $0.001 per share (the “Common Stock”), of Informatica Corporation, a Delaware corporation (“Informatica” or the “Company”), in connection with the solicitation of proxies by the Board of Directors of Informatica for use at the Annual Meeting of Stockholders (the “Annual Meeting”) to be held on Tuesday, April 28, 2009 at 4:30 p.m., Pacific Time, and at any adjournment or postponement thereof for the purpose of considering and acting upon the matters set forth herein. The Annual Meeting will be held at Informatica’s corporate offices, located at 100 Cardinal Way, Redwood City, CA 94063. The telephone number at that location is (650) 385-5000.

 

This Proxy Statement, the accompanying form of proxy card and the Company’s 2008 Annual Report to Stockholders are first being mailed on or about March 11, 2009 to all stockholders entitled to vote at the Annual Meeting.

 

Only holders of record of Informatica’s Common Stock at the close of business on February 27, 2009 (the “Record Date”) are entitled to notice of and to vote at the Annual Meeting. Such stockholders are entitled to cast one vote for each share of Common Stock held as of the Record Date on all matters properly submitted for the vote of stockholders at the Annual Meeting. As of the Record Date, there were 86,870,588 shares of Common Stock outstanding and entitled to vote at the Annual Meeting. No shares of preferred stock were outstanding. For information regarding security ownership by management and by the beneficial owners of more than 5% of Informatica’s Common Stock, see the section of this Proxy Statement entitled “Security Ownership by Principal Stockholders and Management.”

 

The presence of the holders of a majority of the shares of Common Stock entitled to vote generally at the Annual Meeting is necessary to constitute a quorum at the Annual Meeting. Stockholders are counted as present at the meeting if they are present in person or have properly submitted a proxy card or voted by telephone or by Internet.

 

A plurality of the votes duly cast is required for the election of directors. The affirmative vote of a majority of the votes duly cast is required to approve the adoption of the Company’s 2009 Equity Incentive Plan and to ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm of the Company.

 

Under the General Corporation Law of the State of Delaware, an abstaining vote and a broker “non-vote” are counted as present and entitled to vote and are, therefore, included for purposes of determining whether a quorum is present at the Annual Meeting. An abstaining vote is deemed to be a “vote cast” and has the same effect as a vote cast against approval of a proposal requiring approval by a majority of the votes cast. However, broker non-votes are not deemed to be votes cast. As a result, broker non-votes are not included in the tabulation of the voting results on the election of directors or issues requiring approval of a majority of the votes cast and, therefore, do not have the effect of votes in opposition in such tabulations. A broker non-vote occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received instructions from the beneficial owner.

 

The Board of Directors recommends that you vote your shares:

 

 

Voting by telephone or the Internet.  A stockholder may vote his or her shares by calling the toll-free number indicated on the enclosed proxy card and following the recorded instructions or by accessing the website indicated on the enclosed proxy card and following the instructions provided. When a stockholder votes by telephone or via the Internet, his or her vote is recorded immediately. Informatica encourages its stockholders to vote using these methods whenever possible.

 

Voting by proxy card.  All shares entitled to vote and represented by properly executed proxy cards received prior to the Annual Meeting, and not revoked, will be voted at the Annual Meeting in accordance with the instructions indicated on those proxy cards. If no instructions are indicated on a properly executed proxy card, the shares represented by that proxy card will be voted as recommended by the Board of Directors. If any other matters are properly presented for consideration at the Annual Meeting, including, among other things, consideration of a motion to adjourn the Annual Meeting to another time or place (including, without limitation, for the purpose of soliciting additional proxies), the persons named as proxies in the enclosed proxy card and acting thereunder will have discretion to vote on those matters in accordance with their best judgment. The Company does not currently anticipate that any other matters will be raised at the Annual Meeting.

 

Voting by attending the meeting.  A stockholder may also vote his or her shares in person at the Annual Meeting. A stockholder planning to attend the Annual Meeting should bring proof of identification for entrance to the Annual Meeting. If a stockholder attends the Annual Meeting, he or she may also submit his or her vote in person, and any previous votes that were submitted by the stockholder, whether by Internet, telephone or mail, will be superseded by the vote that such stockholder casts at the Annual Meeting. A stockholder may obtain directions to the Company’s corporate headquarters in order to attend the Annual Meeting in the “Contact Us” section of the Company’s website at http://www.informatica.com, or by calling 1-650-385-5000.

 

Changing vote; revocability of proxy.  If a stockholder has voted by telephone or the Internet or by sending a proxy card, such stockholder may change his or her vote before the Annual Meeting.

 

A stockholder that has voted by telephone or the Internet may change his or her vote by making a timely and valid later telephone or Internet vote, as the case may be.

 

Any proxy card given pursuant to this solicitation may be revoked by the person giving it at any time before it is voted. A proxy card may be revoked by (1) filing with the Secretary of the Company, at or before the taking of the vote at the Annual Meeting, a written notice of revocation or a duly executed proxy card, in either case dated later than the prior proxy card relating to the same shares, or (2) attending the Annual Meeting and voting in person (although attendance at the Annual Meeting will not of itself revoke a proxy). Any written notice of revocation or subsequent proxy card must be received by the Secretary of the Company prior to the taking of the vote at the Annual Meeting. Such written notice of revocation or subsequent proxy card should be hand delivered to the Secretary of the Company or should be sent so as to be delivered to Informatica Corporation, 100 Cardinal Way, Redwood City, CA 94063, Attention: Corporate Secretary.

 

Informatica will bear all expenses of this solicitation, including the cost of preparing and mailing this solicitation material. The Company may reimburse brokerage firms, custodians, nominees, fiduciaries and other

persons representing beneficial owners of Common Stock for their reasonable expenses in forwarding solicitation materials to such beneficial owners. Directors, officers and employees of the Company may also solicit proxies in person or by telephone, letter, e-mail, telegram, facsimile or other means of communication. Such directors, officers and employees will not be additionally compensated, but they may be reimbursed for reasonable out-of-pocket expenses in connection with such solicitation. The Company may engage the services of a professional proxy solicitation firm to aid in the solicitation of proxies from certain brokers, bank nominees and other institutional owners. The Company’s costs for such services, if retained, will not be significant.

 

Requirements for stockholder proposals to be considered for inclusion in the Company’s proxy materials.  Stockholders may present proper proposals for inclusion in the Company’s proxy statement and for consideration at the next annual meeting of its stockholders by submitting their proposals in writing to the Secretary of the Company in a timely manner. In order to be included in the Company’s proxy materials for the 2010 annual meeting of stockholders, stockholder proposals must be received by the Secretary of the Company no later than November 11, 2009 and must otherwise comply with the requirements of Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

Requirements for stockholder proposals to be brought before an annual meeting.  In addition, the Company’s Bylaws establish an advance notice procedure for stockholders who wish to present certain matters before an annual meeting of stockholders. In general, nominations for the election of directors may be made by (1) the Board of Directors, (2) the Corporate Governance and Nominating Committee or (3) any stockholder entitled to vote who has delivered written notice to the Secretary of the Company within the Notice Period (as defined below), which notice must contain specified information concerning the nominees and concerning the stockholder proposing such nominations. However, if a stockholder wishes only to recommend a candidate for consideration by the Corporate Governance and Nominating Committee as a potential nominee for the Company’s Board of Directors, see the procedures discussed in “Proposal One — Election of Directors — Corporate Governance Matters.”

 

The Company’s Bylaws also provide that the only business that may be conducted at an annual meeting is business that is (1) specified in the notice of meeting given by or at the direction of the Board of Directors, (2) properly brought before the meeting by or at the direction of the Board of Directors, or (3) properly brought before the meeting by any stockholder entitled to vote who has delivered written notice to the Secretary of the Company within the Notice Period (as defined below), which notice must contain specified information concerning the matters to be brought before such meeting and concerning the stockholder proposing such matters.

 

The “Notice Period” is defined as that period not less than 45 days nor more than 75 days prior to the anniversary of the date on which the Company first mailed its proxy materials for the previous year’s annual meeting of stockholders. As a result, the Notice Period for the 2010 annual stockholder meeting will start on December 26, 2009 and end on January 25, 2010.

 

If a stockholder who has notified the Company of his or her intention to present a proposal at an annual meeting does not appear to present his or her proposal at such meeting, the Company need not present the proposal for vote at such meeting.

 

A copy of the full text of the Bylaw provisions discussed above may be obtained by writing to the Secretary of the Company or by accessing the Company’s filings on the SEC’s website at www.sec.gov. All notices of proposals by stockholders, whether or not included in the Company’s proxy materials, should be sent to Informatica Corporation, 100 Cardinal Way, Redwood City, CA 94063, Attention: Corporate Secretary.

 

If you share an address with another stockholder, each stockholder may not receive a separate copy of the proxy materials and 2008 annual report to stockholders. Stockholders who do not receive a separate copy of the proxy materials and 2008 annual report may request to receive a separate copy of the proxy materials and 2008 annual report by calling 1-650-385-5289, by sending an email to ir@informatica.com or by writing to Informatica Corporation, 100 Cardinal Way, Redwood City, CA 94063, Attention: Corporate Secretary. Alternatively,

stockholders who share an address and receive multiple copies of the Company’s proxy materials and 2008 annual report can request to receive a single copy by following the same instructions.

 

The proxy statement and 2008 annual report to stockholders are available at www.proxyvote.com.

 

The Company’s Board of Directors is currently comprised of nine members who are divided into three classes with overlapping three-year terms. A director serves in office until his or her respective successor is duly elected and qualified or until his or her earlier death or resignation. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of an equal number of directors. Three directors shall be elected at the Annual Meeting.

 

Three Class III directors are to be elected at the Annual Meeting for a three-year term ending in 2012. Upon the recommendation of the Corporate Governance and Nominating Committee, the Board of Directors has nominated David W. Pidwell, Sohaib Abbasi, and Geoffrey W. Squire, O.B.E. for re-election as Class III directors. Messrs. Pidwell, Abbasi, and Squire were elected by the stockholders at the 2006 annual meeting, The Company expects that Mr. Pidwell, Mr. Abbasi and Mr. Squire will accept such nomination; however, in the event that any nominee is unable or declines to serve as a director at the time of the meeting, the proxies will be voted for any nominee who shall be designated by the Board of Directors to fill the vacancy. The term of office of each person elected as a director will continue until such director’s term expires in 2012 or until such director’s successor has been elected and qualified.

 

The Board of Directors recommends a vote “FOR” the nominees listed above.

 

In 2008, two of the Company’s directors, Janice Chaffin and Carl Yankowski, resigned from the Board of Directors. In October 2008, Mark Garrett was appointed to the Board of Directors upon the recommendation of the Corporate Governance and Nominating Committee. Mr. Garrett was recommended to the Corporate Governance and Nominating Committee by Charles Robel. After conducting its evaluation, including interviews with Mr. Garrett, the Corporate Governance and Nominating Committee recommended his election to the Board of Directors. In November 2008, Gerald Held was appointed to the Board of Directors upon the recommendation of the Corporate Governance and Nominating Committee. Dr. Held was recommended to the Corporate Governance and Nominating Committee by Sohaib Abbasi. After conducting its evaluation, including interviews with Dr. Held, the Corporate Governance and Nominating Committee recommended his election to the Board of Directors.

Nominees for Class III Directors for a Term Expiring in 2012

 

Incumbent Class II Directors Whose Term Expires in 2011

 

Incumbent Class I Directors Whose Term Expires in 2010

 

 

During 2008, the Board of Directors held seven meetings (including regularly scheduled and special meetings), and no director attended fewer than 75% of the total number of meetings of the Board of Directors and the committees of which he or she was a member.

 

The Board of Directors currently has four standing committees: an Audit Committee, a Compensation Committee, a Corporate Governance and Nominating Committee and a Strategy Committee.

 

Audit Committee.  The Audit Committee, which has been established in accordance with Section 3(a)(58)(A) of the Exchange Act, currently consists of Messrs. Seawell, Robel, and Garrett, each of whom is “independent,” as such term is defined for audit committee members by the listing standards of The NASDAQ Stock Market. The Board of Directors has determined that each of Messrs. Seawell, Robel, and Garrett is an “audit committee financial expert” as defined under the rules of the Securities Exchange Commission (the “SEC”). Mr. Seawell is the Chairman of the Audit Committee. The Audit Committee met eight times in 2008. The Audit Committee (1) provides oversight of the Company’s accounting and financial reporting processes and of the audit of the Company’s financial statements, (2) assists the Board of Directors in oversight of the integrity of the Company’s financial statements, the Company’s compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications, independence and performance, and the Company’s internal accounting and financial controls, and (3) provides to the Board of Directors such information and materials as it may deem necessary to make the Board of Directors aware of significant financial matters that require the attention of the Board of Directors. The Audit Committee acts pursuant to a written charter adopted by the Board of Directors, which is available in the “Investor Relations” section of the Company’s website at http://www.informatica.com.

 

Compensation Committee.  The Compensation Committee currently consists of Messrs. Pidwell, Sullivan, and Held, each of whom is “independent” as defined in the listing standards of The NASDAQ Stock Market. Mr. Pidwell is the chairman of the Compensation Committee. The Compensation Committee met six times in 2008. In addition to holding regular meetings, the Compensation Committee took action by written consent at various times during the course of 2008. The Compensation Committee reviews and approves the compensation and benefits for the Company’s executive officers and the Board of Directors, administers the Company’s stock plans and performs such other duties as may from time to time be determined by the Board of Directors. The

Compensation Committee acts pursuant to a written charter adopted by the Board of Directors, which is available in the “Investor Relations” section of the Company’s website at http://www.informatica.com.

 

Corporate Governance and Nominating Committee.  The Corporate Governance and Nominating Committee currently consists of Messrs. Robel, Pidwell and Sullivan, each of whom is “independent” as defined in the listing standards of The NASDAQ Stock Market. Mr. Robel is the chairman of the Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee met four times in 2008. This committee is responsible for making recommendations to the Board on matters concerning corporate governance, evaluating and recommending candidates for election to the Board of Directors, reviewing and making recommendations regarding the composition and mandate of Board committees, developing overall governance guidelines, and overseeing the performance of the Board of Directors. It is the policy of the Corporate Governance and Nominating Committee to consider recommendations of candidates for the Board of Directors submitted by the stockholders of the Company; for more information see the discussion in “Corporate Governance Matters.” The Corporate Governance and Nominating Committee acts pursuant to a written charter adopted by the Board of Directors, which is available in the “Investor Relations” section of the Company’s website at http://www.informatica.com.

 

Strategy Committee.  The Strategy Committee was established in January 2006 and currently consists of Messrs. Squire, Robel, Held, and Bertelsen, each of whom is “independent” as defined in the listing standards of The NASDAQ Stock Market. Mr. Squire is the Chairman of the Strategy Committee. This committee is responsible for assisting the Company’s Board of Directors and management to oversee the Company’s strategic plans. It is the committee’s practice to meet quarterly.

 

Lead Independent Director.  Mr. Robel was appointed Lead Independent Director in January 2009. As Lead Independent Director, among other things, Mr. Robel schedules and chairs meetings of the independent directors, communicates with the Chairman and Chief Executive Officer and raises issues with management on behalf of the independent directors when appropriate. In addition, the independent directors may hold a closed session at regularly scheduled Board meetings.

 

Cash Compensation.  In 2008, non-employee members of the Board of Directors received (1) an annual retainer of $35,000, paid quarterly at the rate of $8,750 per quarter; (2) $15,000 paid quarterly at the rate of $3,750 per quarter for the Lead Independent Director; (3) $15,000 per year for each member of the Audit Committee (or $20,000 if such member is the chairperson); (4) $10,000 per year for each member of the Compensation Committee (or $15,000 if such member is the chairperson); (5) $5,000 per year for each member of the Corporate Governance and Nominating Committee ($10,000 if such member is the chairperson) and (6) $5,000 per year for each member of the Strategy Committee ($10,000 if such member is the chairperson). In 2009, the Board of Directors increased the compensation for the chair of the Audit Committee to $30,000 and for the chair of the Compensation Committee to $20,000. In addition, there shall be a fee of $1,000 for meetings deemed to be extraordinary based on their relation to special projects which require effort beyond traditional requirements.

 

Non-Employee Director Option Grants.  Non-employee directors are eligible to receive options to purchase the Company’s Common Stock pursuant to the Company’s 1999 Non-Employee Director Stock Incentive Plan (the “1999 Director Plan”), which provides for annual automatic grants of non-statutory stock options to continuing non-employee directors. Under the 1999 Director Plan, each non-employee director is automatically granted a non-statutory stock option grant of 60,000 shares of the Company’s Common Stock upon his or her initial election to the Board of Directors (“Initial Grant”). Immediately following each annual stockholders’ meeting, each non-employee director who continues to serve as a non-employee director following such annual meeting is automatically granted a non-statutory stock option to purchase 25,000 shares of the Company’s Common Stock (“Subsequent Grant”), as long as the director had been a non-employee director for at least six months prior to such annual meeting of stockholders. All options automatically granted to non-employee directors have an exercise price equal to 100% of the fair market value on the date of grant. One third of the shares subject to the Initial Grant vests and becomes exercisable one year after the grant date and the remaining shares subject to the Initial Grant vest in equal monthly installments over the following 24-month period, such that the option is fully exercisable three years after its date of grant. Each Subsequent Grant vests and becomes 100% exercisable one year after the date such

option is granted. As explained in more detail in Proposal Two, in 2009 the Initial Grant and the Subsequent Grant could include restricted stock units under the 2009 Equity Incentive Plan if approved.

 

In 2008, the shares available for issuance under the 1999 Director Plan were exhausted, and thus the options for the non-employee directors were granted from the Company’s 1999 Stock Incentive Plan under the same terms and conditions as those in the 1999 Director Plan. If Proposal Two is approved by the stockholders, the Company’s non-employee directors will receive awards under the 2009 Equity Incentive Plan. See “Proposal Two — Description of 2009 Plan — Awards to Non-Employee Directors.”

 

In 2008, Mr. Sullivan, Mr. Garrett and Dr. Held each received Initial Grants upon their joining the Board, and each of Ms. Chaffin and Messrs. Bertelsen, Pidwell, Seawell, Yankowski, Robel and Squire received Subsequent Grants.

 

The following table includes the compensation elements that were earned by the Company’s directors for fiscal 2008.

 

DIRECTOR COMPENSATION — FISCAL YEAR 2008(1)

 

 

 

 

 

Code of Business Conduct.  The Company has adopted a Code of Business Conduct that applies to all of the Company’s directors, officers (including the Company’s principal executive officer and senior financial and accounting officers), and employees. You can find the Code of Business Conduct in the “Investor Relations” section of the Company’s website at http://www.informatica.com. The Company will post any amendments to the Code of Business Conduct, as well as any waivers, that are required to be disclosed by the rules of either the SEC or The NASDAQ Stock Market on the website.

 

Independence of the Board of Directors.  The Board of Directors has determined that, with the exception of Sohaib Abbasi, who is the Chief Executive Officer and President of Informatica, all of its members are “independent directors” as defined in the listing standards of The NASDAQ Stock Market. In making this determination, the Board considered that Mark A. Bertelsen is a member of the law firm of Wilson Sonsini Goodrich & Rosati, Professional Corporation (“WSGR”). Fees paid by the Company to WSGR for legal services rendered for the year ended December 31, 2008 were approximately $0.9 million, which represented less than one percent of WSGR’s revenues. The Company believes the services performed by WSGR were provided in the ordinary course of business on terms no more or less favorable than those available from unrelated parties.

 

Contacting the Board of Directors.  Stockholders and other individuals may communicate with the Board of Directors by submitting either an e-mail to board@informatica.com or a written communication addressed to the Board of Directors (or specific board member), Informatica Corporation, 100 Cardinal Way, Redwood City, California 94063. E-mail communications that are intended for a specific director should be sent to the e-mail address above to the attention of the applicable director.

 

Attendance at annual stockholder meetings by the Board of Directors.  Although the Company does not have a formal policy regarding attendance by members of the Board of Directors at the Company’s annual meeting of stockholders, the Company encourages, but does not require, directors to attend. Three directors attended the Company’s 2008 annual meeting of stockholders.

 

Process for recommending candidates for election to the Board of Directors.  The Corporate Governance and Nominating Committee is responsible for, among other things, determining the criteria for membership to the Board

of Directors and recommending candidates for election to the Board of Directors. It is the policy of the Committee to consider recommendations for candidates to the Board of Directors from stockholders. Stockholder recommendations for candidates to the Board of Directors must be directed in writing to Informatica Corporation, Corporate Secretary, 100 Cardinal Way, Redwood City, CA 94063 and must include the candidate’s name, home and business contact information, detailed biographical data and qualifications, information regarding any relationships between the candidate and the Company within the last three years, and evidence of the nominating person’s ownership of the Company’s Common Stock.

 

The Committee’s general criteria and process for evaluating and identifying the candidates that it recommends to the full Board of Directors for selection as director nominees, are as follows:

 

 

The Board of Directors has adopted the 2009 Equity Incentive Plan (the “2009 Plan”), subject to its approval by the Company’s stockholders. If the stockholders approve the 2009 Plan, the Company’s 2000 Employee Stock Incentive Plan, which expires in January 2010, will be terminated. The Company’s two other existing plans, the 1999 Stock Incentive Plan and the 1999 Non-Employee Director Stock Incentive Plan both expire in March 2009 (collectively the “Expiring Plans”). The Expiring Plans and the terminated 2000 Employee Stock Incentive Plan will continue to govern awards previously granted under such plans. If the stockholders do not approve the 2009 Plan, the 2000 Employee Stock Incentive Plan will remain in effect through the remainder of its term.

 

The Board believes that long-term incentive compensation programs align the interests of management, employees and the stockholders to create long-term stockholder value. The Board believes that plans such as the 2009 Plan increase the Company’s ability to achieve this objective, and, by allowing for several different forms of long-term incentive awards, help the Company to recruit, reward, motivate and retain talented personnel. The Board believes strongly that the approval of the 2009 Plan is essential to the Company’s continued success. In particular, the Board believes that the Company’s employees are its most valuable assets and that the awards permitted under the 2009 Plan are vital to the Company’s ability to attract and retain outstanding and highly skilled individuals in the extremely competitive labor markets in which the Company competes. Such awards also are crucial to the Company’s ability to motivate employees to achieve its goals.

 

The Board of Directors recommends a vote “FOR” this proposal.

 

The 2009 Plan will allow the Company to make broad-based grants of stock options (nonstatutory and incentive), stock appreciation rights, restricted stock, restricted stock units, performance units and performance shares to employees, non-employee directors and consultants as key elements of compensation. The 2009 Plan will be administered by a committee appointed by the Board, in accordance with the provisions contained in the 2009 Plan.

 

The key terms of the 2009 Plan are summarized below:

 

 

 

The following paragraphs provide a summary of the principal features of the 2009 Plan and its operation. The 2009 Plan is set forth in its entirety as Appendix A to this Proxy Statement. The following summary is qualified in its entirety by reference to Appendix A.

 

The 2009 Plan provides for the grant of the following types of incentive awards: (i) stock options, (ii) stock appreciation rights, (iii) restricted stock, (iv) restricted stock units, (v) performance units and (vi) performance shares. Each of these is referred to individually as an “Award.” Those who will be eligible for Awards under the 2009 Plan include employees, non-employee directors and consultants who provide services to the Company and its affiliates. As of February 27, 2009, approximately 1,660 employees and non-employee directors would be eligible to participate in the 2009 Plan.

 

Number of Shares of Common Stock Available Under the 2009 Plan

 

The Board has reserved 9,000,000 shares of the Company’s common stock for issuance under the 2009 Plan. The shares may be either authorized, but unissued, common stock or treasury shares. Shares subject to full value awards (restricted stock units, restricted stock, performance units or performance shares) will count against the share reserve as 1.52 shares for every one share subject to such an Award. To the extent that a share that was subject to an Award that counted as 1.52 shares against the 2009 Plan reserve pursuant to the preceding sentence is returned to the 2009 Plan, the 2009 Plan reserve will be credited with 1.52 shares that will thereafter be available for issuance under the 2009 Plan.

 

The Company made grants of 204,025 options and 509,750 restricted stock units under the 1999 Stock Incentive Plan since December 31, 2008, which includes equity granted in connection with the acquisition of Applimation, Inc. in February 2009. The 1999 Stock Incentive Plan expires in March 2009. These grants represent the final grants under the 1999 Stock Incentive Plan as it is the company’s practice not to grant equity during a “closed trading window,” which commenced on March 1, 2009 and will remain closed through the expiration of the 1999 Stock Incentive Plan.

 

If an Award expires or becomes unexercisable without having been exercised in full, or, with respect to restricted stock, restricted stock units, performance shares or performance units, is forfeited to or repurchased by the Company, the unpurchased Shares (or for Awards other than options and stock appreciation rights, the forfeited or repurchased shares) will become available for future grant or sale under the 2009 Plan (unless the 2009 Plan has terminated). Awards paid out in cash rather than shares will not reduce the number of shares available for issuance under the 2009 Plan. If a stock appreciation right is settled in shares, such shares as well as shares that represent payment of the exercise price and tax related to the award will cease to be available under the 2009 Plan.

If the Company declares a dividend or other distribution or engages in a recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Company’s common stock, the Committee will adjust the number and class of shares that may be delivered under the 2009 Plan, the number, class, and price of shares covered by each outstanding Award, and the numerical per-person limits on Awards.

 

Administration of the 2009 Plan

 

A committee authorized by the Board, (the “Committee”), will administer the 2009 Plan. To make grants to certain of the Company’s officers and key employees, the members of the Committee must qualify as “non-employee directors” under Rule 16b-3 of the Securities Exchange Act of 1934, and as “outside directors” under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) so that the Company can receive a federal tax deduction for certain compensation paid under the 2009 Plan. Subject to the terms of the 2009 Plan, the Committee has the sole discretion to select the employees, consultants, and non-employee directors who will receive Awards, determine the terms and conditions of Awards, and to interpret the provisions of the 2009 Plan and outstanding Awards. The Committee may not, without the approval of the Company’s stockholders, institute an exchange program under which outstanding Awards are amended to provide for a lower exercise price or surrendered or cancelled in exchange for Awards with a lower exercise price.

 

Options

 

The Committee is able to grant nonstatutory stock options and incentive stock options under the 2009 Plan. The Committee determines the number of shares subject to each option, although the 2009 Plan provides that a participant may not receive options (and/or stock appreciation rights) for more than one million (1,000,000) shares in any fiscal year, except in connection with his or her initial service as an employee with the Company, in which case he or she may be granted an option (and/or stock appreciation rights) to purchase up to an additional two million (2,000,000) shares.

 

The Committee determines the exercise price of options granted under the 2009 Plan, provided the exercise price must be at least equal to 100% of the fair market value of the Company’s common stock on the date of grant. In addition, the exercise price of an incentive stock option granted to any participant who owns more than 10% of the total voting power of all classes of the Company’s outstanding stock must be at least 110% of the fair market value of the common stock on the grant date.

 

The term of an option may not exceed seven (7) years, except that, with respect to any participant who owns 10% of the voting power of all classes of the Company’s outstanding capital stock, the term of an incentive stock option may not exceed five years.

 

After a termination of service with the Company, a participant will be able to exercise the vested portion of his or her option for the period of time stated in the agreement governing his or her Award. No incentive stock option may be exercised more than three (3) months after the participant’s termination of service for any reason other than disability or death (unless the participant dies during such three (3) month period and/or the participant’s agreement governing his or her Award, or the Committee, permits later exercise). No incentive stock option may be exercised more than one (1) year after the participant’s termination of service due to disability or death (unless the participant’s agreement governing his or her Award, or the Committee, permits later exercise). In no event may an option be exercised later than the expiration of its term.

 

Stock Appreciation Rights

 

The Committee will be able to grant stock appreciation rights, which are the rights to receive the appreciation in fair market value of common stock between the exercise date and the date of grant. The Company can pay the appreciation in either cash or shares of common stock or a combination of both. Stock appreciation rights will become exercisable at the times and on the terms established by the Committee, subject to the terms of the 2009 Plan. The Committee, subject to the terms of the 2009 Plan, will have complete discretion to determine the terms and conditions of stock appreciation rights granted under the 2009 Plan; provided, however, that the exercise price

may not be less than 100% of the fair market value of a share on the date of grant. The term of a stock appreciation right may not exceed seven (7) years. No participant will be granted stock appreciation rights (and/or options) covering more than one million (1,000,000) shares during any fiscal year, except that a participant may be granted stock appreciation rights (and/or options) covering up to an additional two million (2,000,000) shares in connection with his or her initial service as an employee with the Company.

 

After termination of service with the Company, a participant will be able to exercise the vested portion of his or her stock appreciation right for the period of time stated in the agreement governing his or her stock appreciation right. If a participant dies prior to the exercise of his or her stock appreciation rights, the Committee, in its discretion, may provide that the stock appreciation rights will be exercisable for up to one (1) year after the date of death. In no event will a stock appreciation right be exercised later than the expiration of its term.

 

Restricted Stock

 

Awards of restricted stock are rights to acquire or purchase shares of the Company’s common stock, which vest in accordance with the terms and conditions established by the Committee in its sole discretion. For example, the Committee may set restrictions based upon continued employment or service with the Company, the achievement of specific performance goals, applicable laws, or any other basis determined by the Committee in its discretion. Subject to the provisions of the 2009 Plan, after the grant of restricted stock, the Committee, in its sole discretion, may reduce or waive any restrictions for such Award and may accelerate the time at which any restrictions will lapse at a rate determined by the Committee.

 

The Award agreement governing the grant of the restricted stock will generally grant the Company a right to repurchase or reacquire the shares upon the termination of the participant’s service with the Company for any reason (including death or disability). The Committee will determine the number of shares granted pursuant to an Award of restricted stock. With respect to restricted stock intended to qualify as “performance-based compensation” under Section 162(m) of the Code, the Committee, in its discretion, may set restrictions based upon the achievement of specific performance objectives. The Committee shall determine the number of shares of restricted stock granted to any participant, but no participant will be granted more than three hundred thirty three thousand three hundred thirty three (333,333) shares of restricted stock (and/or performance shares or restricted stock units) during any fiscal year, except that a participant may be granted up to an additional six hundred sixty six thousand six hundred sixty seven (666,667) shares of restricted stock (and/or performance shares or restricted stock units) in connection with his or her initial employment with the Company.

 

Restricted Stock Units

 

Awards of restricted stock units result in a payment to a participant only if the vesting criteria the Committee establishes is satisfied. For example, the Committee may set restrictions based on the achievement of specific performance goals or upon continued employment or service with the Company. Upon satisfying the applicable vesting criteria, the participant will be entitled to the payout specified in the Award agreement. Subject to the provisions of the 2009 Plan, after the grant of restricted stock units, the Committee, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such Award and may accelerate the time at which any restrictions will lapse at a rate determined by the Committee.

 

The Committee, in its sole discretion, may pay earned restricted stock units in cash, shares, or a combination thereof. Restricted stock units that are fully paid in cash will not reduce the number of shares available for grant under the 2009 Plan. On the date set forth in the Award agreement, all unearned restricted stock units will be forfeited to the Company. The Committee determines the number of restricted stock units granted to any participant. With respect to restricted stock units intended to qualify as “performance-based compensation” under Section 162(m) of the Code, the Committee, in its discretion, may set restrictions based upon the achievement of specific performance objectives. The Committee shall determine the number of restricted stock units granted to any participant, but no participant may be granted more than three hundred thirty three thousand three hundred thirty three (333,333) restricted stock units (and/or shares of restricted stock or performance shares) during any fiscal year, except that the participant may be granted up to an additional six hundred sixty six thousand six hundred sixty

seven (666,667) restricted stock units (and/or shares of restricted stock or performance shares) in connection with his or her initial employment with the Company.

 

Performance Units and Performance Shares

 

The Committee will be able to grant performance units and performance shares, which are Awards that will result in a payment to a participant only if the performance goals or other vesting criteria the Committee may establish are achieved or the Awards otherwise vest. The Committee will establish performance or other vesting criteria in its discretion, which, depending on the extent to which they are met, will determine the number and/or the value of performance units and performance shares to be paid out to participants. Subject to the provisions of the 2009 Plan, after the grant of performance units or performance shares, the Committee, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such Award and may accelerate the time at which any restrictions will lapse at a rate determined by the Committee.

 

The Committee determines the number of performance units and performance shares granted to any participant. With respect to performance units and performance shares intended to qualify as “performance-based compensation” under Section 162(m) of the Code, the Committee, in its discretion, may determine that the performance objectives applicable to the performance units and performance shares shall be based on the achievement of performance goals. During any fiscal year, no participant will receive more than three hundred thirty three thousand three hundred thirty three (333,333) performance shares (and/or shares of restricted stock or restricted stock units) and no participant will receive performance units having an initial value greater than three million dollars ($3,000,000), except that in the first year a participant becomes an employee, a participant may be granted performance shares (and/or shares of restricted stock or restricted stock units) covering up to an additional six hundred sixty six thousand six hundred sixty seven (666,667) shares or performance units having an initial value up to an additional three million dollars ($3,000,000). Performance units will have an initial dollar value established by the Committee on or before the date of grant. Performance shares will have an initial value equal to the fair market value of a share of the Company’s common stock on the grant date.

 

Performance Goals

 

Awards of restricted stock, restricted stock units, performance shares, performance units under the 2009 Plan may be made subject to the attainment of performance goals relating to one or more business criteria within the meaning of Section 162(m) of the Code and may provide for a targeted level or levels of achievement including: (i) profit, (ii) revenue, (iii) operating income; (iv) earnings per share; and (v) total shareholder return. Any criteria used may be (i) measured in absolute terms, (ii) in relative terms (including, but not limited to, passage of time and/or against another company or companies), (iii) on a per-share basis, (iv) against the performance of the Company as a whole or a business unit of the Company, and/or (v) on a pre-tax or after-tax basis. In granting Awards that are intended to qualify under Section 162(m) of the Code, the Committee will follow any procedures determined by it from time to time to be necessary or appropriate to ensure qualification of the Awards under Section 162(m) of the Code.

 

Awards to Non-Employee Directors

 

The 2009 Plan provides for automatic grants to non-employee directors. As stated in the 2009 Plan, the Committee’s philosophy is to grant such awards of the same type and following the same ratio as grants to the Company’s Section 16 officers.

 

Accordingly, the 2009 Plan provides for an automatic grant to non-employee directors on the date the person first becomes an non-employee director of one of the following: (a) an option to purchase sixty thousand (60,000) shares; (b) an option to purchase thirty thousand (30,000) shares plus an award of ten thousand restricted stock units; or (c) an award of twenty thousand (20,000) restricted stock units (the “Initial Grant”). Each non-employee director who is both a non-employee director on the date of an Annual Meeting of the Company’s Stockholders, and who has served as a non-employee director for at least six (6) months prior to such Annual meeting, automatically shall receive on the date of such annual meeting one of the following; (a) an option to purchase twenty five thousand (25,000) shares; (b) an option to purchase twelve thousand five hundred shares (12,500) shares plus an award of four

thousand one hundred sixty seven (4,167) restricted stock units; or (c) an award of eight thousand three hundred thirty three (8,333) restricted stock units (the “Ongoing Grant”).

 

The stock option granted pursuant to the Initial Grant will vest and become exercisable as to thirty three percent (33%) of the shares subject to the option on the first anniversary of the grant date, and as to an additional two and seventy eight one-hundredths percent (2.78%) each monthly anniversary thereafter, provided the participant continues to serve as a director through such dates. The restricted stock units subject to the Initial Grant will vest as to thirty three and one third percent (331/3%) on each of the first three anniversaries of the RSU vesting commencement date (as defined in the 2009 Plan) provided the participant continues to serve as a director through such dates. The stock option granted pursuant to the Ongoing Grant will vest and become exercisable as to one hundred percent (100%) of the shares subject to the option on the first anniversary of the grant date, provided the participant continues to serve as a director through such date. The restricted stock units subject to the Ongoing Grant will vest as to one hundred percent (100%) of the restricted stock units subject to the grant on the first anniversary of the grant date provided the participant continues to serve as a director through such date.

 

Transferability of Awards

 

Awards granted under the 2009 Plan are generally not transferable, and all rights with respect to an Award granted to a participant generally will be available during a participant’s lifetime only to the participant. If the Committee makes an Award transferable, such Award will contain such additional terms and conditions as the Committee deems appropriate.

 

Amendment and Termination of the 2009 Plan

 

The Committee will have the authority to amend, suspend or terminate the 2009 Plan. No amendment, suspension or termination of the 2009 Plan will impair the rights of any participant, without the consent of the participant. The 2009 Plan will remain in effect until terminated pursuant to the provisions of the 2009 Plan; provided, however, that without further stockholder approval, no incentive stock options may be granted under the 2009 Plan after April 28, 2019.

 

Change of Control

 

In the event of a “change of control”, as defined in the 2009 Plan, each outstanding Award will be treated as the Committee determines, including, without limitation, that each Award be assumed or an equivalent option or right substituted by the successor corporation or a parent or subsidiary of the successor corporation. The Committee will not be required to treat all Awards similarly in the transaction. In the event that the successor corporation refuses to assume or substitute for the Award, the participant will fully vest in and have the right to exercise all of his or her outstanding options or stock appreciation rights, including shares as to which such Awards would not otherwise be vested or exercisable, all restrictions on restricted stock and restricted stock units will lapse, and, with respect to Awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at one hundred percent (100%) of target levels and all other terms and conditions met. In addition, if an option or stock appreciation right is not assumed or substituted for, the Committee will notify the participant in writing or electronically that the option or stock appreciation right will be fully vested and exercisable for a period of time determined by the Committee in its sole discretion, and the option or stock appreciation right will terminate upon the expiration of such period. The above provisions will apply only upon the consummation of a change of control, and will not apply to a proposed or potential change of control.

 

Except as indicated below, the number of Awards that an employee, director or consultant may receive under the 2009 Plan is in the discretion of the Committee and therefore cannot be determined in advance. The following table sets forth (i) the aggregate number of shares of common stock subject to options granted under the Expiring

Plans during the last fiscal year, and (ii) the average per share exercise price of such options. No other type of award was granted under the Expiring Plans during this time.

 

 

The following paragraphs are a summary of the general federal income tax consequences to U.S. taxpayers and the Company of Awards granted under the 2009 Plan. Tax consequences for any particular individual may be different.

 

Nonstatutory Stock Options

 

No taxable income is reportable when a nonstatutory stock option with an exercise price equal to the fair market value of the underlying stock on the date of grant is granted to a participant. Upon exercise, the participant will recognize ordinary income in an amount equal to the excess of the fair market value (on the exercise date) of the shares purchased over the exercise price of the option. Any taxable income recognized in connection with an option exercise by an employee of the Company is subject to tax withholding by the Company. Any additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss.

 

Incentive Stock Options

 

No taxable income is reportable when an incentive stock option is granted or exercised (except for purposes of the alternative minimum tax, in which case taxation is the same as for nonstatutory stock options). If the participant exercises the option and then later sells or otherwise disposes of the shares more than two years after the grant date and more than one year after the exercise date, the difference between the sale price and the exercise price will be taxed as capital gain or loss. If the participant exercises the option and then later sells or otherwise disposes of the shares before the end of the two- or one-year holding periods described above, he or she generally will have ordinary income at the time of the sale equal to the fair market value of the shares on the exercise date (or the sale price, if less) minus the exercise price of the option. This taxable income is not subject to income tax withholding.

 

Stock Appreciation Rights

 

No taxable income is reportable when a stock appreciation right with an exercise price equal to the fair market value of the underlying stock on the date of grant is granted to a participant. Upon exercise, the participant will recognize ordinary income (subject to withholding) in an amount equal to the amount of cash received and the fair market value of any shares received. Any additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss.

Restricted Stock, Restricted Stock Units, Performance Units and Performance Shares

 

A participant generally will not have taxable income at the time an Award of restricted stock, restricted stock units, performance shares or performance units are granted. Instead, he or she will recognize ordinary income in the first taxable year in which his or her interest in the shares underlying the Award becomes either (i) freely transferable, or (ii) no longer subject to substantial risk of forfeiture.

 

Tax Effect for the Company

 

The Company generally will be entitled to a tax deduction in connection with an Award under the 2009 Plan in an amount equal to the ordinary income realized by a participant and at the time the participant recognizes such income (for example, the exercise of a nonstatutory stock option). Special rules limit the deductibility of compensation paid to the Company’s Chief Executive Officer and to each of its four most highly compensated executive officers. Under Section 162(m) of the Code, the annual compensation paid to any of these specified executives will be deductible only to the extent that it does not exceed $1,000,000. However, the Company can preserve the deductibility of certain compensation in excess of $1,000,000 if the conditions of Section 162(m) are met. These conditions include stockholder approval of the 2009 Plan, setting limits on the number of Awards that any individual may receive and for Awards other than certain stock options, establishing performance criteria that must be met before the Award actually will vest or be paid. The 2009 Plan has been designed to permit the Committee to grant Awards that qualify as performance-based for purposes of satisfying the conditions of Section 162(m), thereby permitting the Company to continue to receive a federal income tax deduction in connection with such Awards.

 

Section 409A

 

Section 409A of the Code, which was added by the American Jobs Creation Act of 2004, provides certain new requirements on non-qualified deferred compensation arrangements. These include new requirements with respect to an individual’s election to defer compensation and the individual’s selection of the timing and form of distribution of the deferred compensation. Section 409A also generally provides that distributions must be made on or following the occurrence of certain events (e.g., the individual’s separation from service, a predetermined date, or the individual’s death). Section 409A imposes restrictions on an individual’s ability to change his or her distribution timing or form after the compensation has been deferred. For certain individuals who are officers, Section 409A requires that such individual’s distribution commence no earlier than six months after such officer’s separation from service.

 

Awards granted under the Plan with a deferral feature will be subject to the requirements of Section 409A. If an Award is subject to and fails to satisfy the requirements of Section 409A, the recipient of that Award will recognize ordinary income on the amounts deferred under the Award, to the extent vested, which may be prior to when the compensation is actually or constructively received. Also, if an Award that is subject to Section 409A fails to comply with Section 409A’s provisions, Section 409A imposes an additional 20% federal income tax on compensation recognized as ordinary income, as well as possible interest charges and penalties. Certain states have enacted laws similar to Section 409A which impose additional taxes, interest and penalties on non-qualified deferred compensation arrangements. The Company will also have withholding and reporting requirements with respect to such amounts.

 

THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION UPON PARTICIPANTS AND THE COMPANY WITH RESPECT TO THE GRANT AND EXERCISE OF AWARDS UNDER THE 2009 PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF A PARTICIPANT’S DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE.

 

The Audit Committee has appointed Ernst & Young LLP (“E&Y”) as the independent registered public accounting firm of the Company for the fiscal year ending December 31, 2009. Although ratification by stockholders is not required by law, the Board has determined that it is desirable to request ratification of this selection by the stockholders. Notwithstanding its selection, the Audit Committee, in its discretion, may appoint a new independent registered public accounting firm at any time during the year if the Audit Committee believes that such a change would be in the best interest of the Company and its stockholders. If the stockholders do not ratify the appointment of E&Y, the Audit Committee may reconsider its selection.

 

E&Y has audited the Company’s financial statements since the Company’s inception. A representative of E&Y is expected to be present at the Annual Meeting with the opportunity to make a statement if he or she desires to do so, and is expected to be available to respond to appropriate questions.

 

The Board of Directors recommends a vote “FOR” this proposal.

 

The following table shows the fees paid or accrued by the Company for the audit and other services provided by E&Y for fiscal years 2007 and 2008.

 

 

 

 

All audit and non-audit services provided by E&Y to the Company must be pre-approved by the Audit Committee. The Audit Committee utilizes the following procedures in pre-approving all audit and non-audit

services provided by E&Y. At or before the second meeting of the Audit Committee each year, the Audit Committee is presented with a detailed listing of the individual audit and non-audit services and fees (separately describing audit-related services, tax services and other services) expected to be provided by E&Y during the year. On an as-needed basis, during subsequent Audit Committee meetings throughout the year, the Audit Committee is presented with an updated listing of approved services highlighting any new audit and non-audit services to be provided by E&Y. The Audit Committee reviews these listings and approves the services outlined therein if such services are acceptable to the Audit Committee.

 

To ensure prompt handling of unexpected matters, the Audit Committee delegates to the Chairman of the Audit Committee the authority to amend or modify the list of audit and non-audit services and fees; provided, however, that such additional or amended services may not affect E&Y’s independence under applicable SEC rules. The Chairman reports any such action taken to the Audit Committee at the subsequent Audit Committee meeting.

 

All E&Y services and fees in 2007 and 2008 were pre-approved by the Audit Committee.

 

With respect to the Company’s financial reporting process, the management of the Company is responsible for (1) establishing and maintaining internal controls and (2) preparing the Company’s consolidated financial statements. The Company’s independent registered public accounting firm, E&Y, is responsible for auditing these financial statements and performing an attestation of the Company’s internal controls. It is the responsibility of the Audit Committee to oversee these activities. It is not the responsibility of the Audit Committee to prepare or certify the Company’s financial statements or guarantee the audits or reports of the independent auditors. These are the fundamental responsibilities of Company management and the Company’s independent registered public accounting firm. In the performance of its oversight function, the Audit Committee has:

 

 

Based upon such review and discussions, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 for filing with the SEC.

 

 

AUDIT COMMITTEE OF
THE BOARD OF DIRECTORS

 

A. Brooke Seawell
Charles J. Robel
Mark Garrett

 

The following table sets forth certain information concerning the beneficial ownership of Informatica’s Common Stock as of February 1, 2009 for the following: (1) each person or entity who is known by the Company to own beneficially more than 5% of the outstanding shares of the Company’s Common Stock; (2) each of the Company’s directors; (3) each of the executive officers named in the Summary Compensation Table; and (4) all directors and current executive officers of the Company as a group.

 

 

 

 

 

Section 16(a) of the Exchange Act (“Section 16(a)”) requires the Company’s executive officers and directors, and certain persons who own more than 10% of a registered class of the Company’s equity securities (“10% Stockholders”), to file reports of ownership on Form 3 and changes in ownership on Forms 4 or 5 with the SEC. Such executive officers, directors and 10% Stockholders are also required by SEC rules to furnish the Company with copies of all Section 16(a) forms they file.

 

Based solely on its review of the copies of such reports furnished to the Company and written representations that no other reports were required to be filed during 2008, the Company believes that its executive officers, directors and 10% Stockholders have complied with all Section 16(a) filing requirements applicable to them.

 

The Company’s Compensation Committee is currently composed of Messrs. Pidwell, Sullivan, and Held. During fiscal 2008, Mr. Yankowski and Ms. Chaffin also served on the Compensation Committee. No interlocking relationship exists between any member of the Company’s Compensation Committee and any member of the compensation committee of any other company, nor has any such interlocking relationship existed in the past. No member of the Compensation Committee is or was formerly an officer or an employee of the Company.

 

Policies and Procedures for the Review and Approval of Related Person Transactions

 

Pursuant to the charter of the Company’s Audit Committee, the Audit Committee reviews and approves in advance any proposed related person transactions. In addition, in accordance with the Company’s Code of Business Conduct, directors, officers and employees should generally avoid conducting Informatica business in which a family member is associated in any significant role, or with other related parties. Related person transactions will be disclosed in the applicable SEC filing as required by the rules of the SEC. For purposes of these procedures, “related person” and “transaction” have the meanings contained in Item 404 of Regulation S-K promulgated by the SEC. The individuals and entities that are considered “related persons” include:

 

 

The following table provides information as of December 31, 2008 with respect to the shares of the Company’s Common Stock that may be issued under the Company’s existing equity compensation plans.

 

 

 

 

2000 Employee Stock Incentive Plan

 

In January 2000, the Board of Directors adopted the 2000 Employee Stock Incentive Plan, under which 1,600,000 shares were reserved for issuance. The 2000 Employee Stock Incentive Plan was not subject to stockholder approval. Under the 2000 Employee Stock Incentive Plan, eligible employees and consultants may be awarded stock options, stock appreciation rights, restricted shares and stock units. No stock options, stock appreciation rights, restricted shares or stock units from the 2000 Employee Stock Incentive Plan may be granted to directors or executive officers of the Company. The 2000 Employee Stock Incentive Plan was intended to help the Company attract and retain outstanding individuals in order to promote the Company’s success. The 2000 Employee Stock Incentive Plan does not provide for the grant of incentive stock options. The exercise price for non-qualified options may not be less than 85% of the fair value of the Common Stock at the option grant date. Even so, the Company has not granted and has no intention of granting any discounted options under this Plan. The 2000 Employee Stock Incentive Plan is administered by the Compensation Committee of the Board of Directors. Options granted are exercisable over a maximum term of ten years from the date of grant and generally vest over a period of four years from the date of grant. If Proposal Two is approved, the 2000 Employee Stock Incentive Plan will be terminated.

 

This section discusses the principles underlying the Company’s executive compensation programs, policies and decisions and important factors relevant to an analysis of these programs, policies and decisions. It provides qualitative information regarding the manner and context in which compensation is awarded to and earned by the Company’s Chief Executive Officer, Chief Financial Officer and two other executive officers (collectively referred to as “NEOs”) listed in the Summary Compensation Tables and the related tables below.

 

Philosophy of Compensation Programs

 

The principal objectives of the Company’s compensation programs are to attract and retain top-tier talent and to motivate and reward employees who continually drive strong results for the Company and its stockholders. The Company’s compensation philosophy, and the programs adopted in accordance with that philosophy, are driven by the belief that employee performance and success will result in economic growth for the Company, which will have the effect of increasing stockholder value.

The Company’s executives are compensated under the same programs as employees at other levels within the organization, although certain executive compensation elements are more heavily weighted towards overall Company performance as compared to achievement of individual objectives. Rewarding strong performance and contribution, regardless of seniority within the Company, is an important part of the Company’s culture and core values.

 

A significant portion of the executive officers’ compensation is directly tied to Company performance, ensuring that executive compensation, the Company’s financial results and stockholder value are properly aligned. The Company maintains a balance between short-term and long-term performance by rewarding executive officers both on the achievement of the Company’s current business plan objectives, as well as on the achievement of long-term growth and profitability and improvement in stockholder value.

 

The Company considers each of the following components as an integral part of the overall total compensation package:

 

 

The Compensation Committee considers each of the above items in determining the compensation package for each executive officer. Further detail on each component is provided in the section “Components of Compensation Package and 2008 Evaluation” below.

 

Role of the Compensation Committee

 

The Company’s Compensation Committee, which serves at the discretion of the Company’s Board of Directors, is empowered to review and approve, or in certain circumstances recommend for the approval of the Board, the annual compensation for and compensation policies applicable to the Company’s executive officers, including the Company’s Chief Executive Officer.

 

The Compensation Committee:

 

 

The Compensation Committee’s charter, which is approved by the Board, is available in the “Investor Relations” section of the Company’s website at http://www.informatica.com.

 

The Compensation Committee meets at least quarterly. Members of the Compensation Committee also meet with Company personnel as a part of the compensation planning and administration process throughout the year. In January, the Compensation Committee reviews and approves for all employees the compensation philosophy, option ranges for hiring and retention, bonus metrics and benefits, and also finalizes executive compensation plans for the upcoming year.

 

The Compensation Committee currently consists of Dr. Held, Mr. Sullivan and Mr. Pidwell, with Mr. Pidwell acting as the Committee Chairman. Each member is independent as that term is defined pursuant to the Compensation Committee’s charter in terms of the independence requirements of The NASDAQ Stock Market, the non-employee director definition under Section 16 of the Securities Exchange Act of 1934 and the outside director definition in Section 162(m) of the Internal Revenue Code of 1986. No Compensation Committee members are former or current officers or employees of Informatica or any of its subsidiaries.

The Compensation Committee consults with the Company’s human resources personnel, and when appropriate, with outside executive and employee compensation and benefits consultants, to assist in the evaluation of and recommendations related to the Company’s executive compensation program. While the Compensation Committee may, from time to time, consult with the Company’s Chief Executive Officer or Chief Financial Officer in connection with the planning or evaluation of compensation program-related matters, the Compensation Committee is responsible for oversight and approval of the overall program and the individual elements of that program.

 

In 2004, in connection with the recruitment and hiring of the Company’s current Chief Executive Officer, the Compensation Committee engaged Compensia, Inc. as an independent outside compensation consultant to advise the Compensation Committee on Chief Executive Officer compensation practices and policies. Since then, the Company and the Compensation Committee have retained Compensia in connection with reviews of the Company compensation programs and policies for the Company executives, the Board of Directors and the broader employee base. Compensia receives compensation from the Company on a fee-per-project basis. The Company also uses Radford Data to benchmark employee and executive compensation and reviews summaries of this data with the Compensation Committee.

 

Role of the Independent Compensation Consultant

 

Compensia or comparable independent compensation consultant is retained each year to analyze and benchmark the Company’s executives’ compensation package, including base salary, variable pay and equity awards. Additionally, they may be asked to review and benchmark the competitive structure of equity programs and benefits or severance provisions on an as needed basis.

 

The Compensation Committee and the Company’s human resources personnel meet annually to evaluate a group of software companies with the independent compensation consultant and to select a sub-group of companies for further peer analysis. This peer group includes a blend of mid-size companies and larger companies serving the data integration market or adjacent markets, as well as comparably sized software companies. The list is reviewed each year and new companies are added as necessary to ensure a significant sample size of companies. The independent compensation consultant is also asked to provide growth rates and financial data on each company to assist in benchmarking executive compensation. Companies in the 2008 peer group included Ariba, Epicor Software, i2 Technologies, Microstrategy, Progress Software, Netsuite, Sybase and Tibco.

 

Components of the Compensation Package and 2008 Evaluation

 

Base Salary

 

Annual base salaries for the Company’s executive officers are determined primarily on the basis of the executive officer’s level of responsibility, general salary practices of the select peer group and the individual officer’s specific qualifications and experience. Base salaries are reviewed annually by the Compensation Committee and any variances between the salary levels of each executive officer and those of the companies included in the selected benchmarks are reviewed. Salaries may be adjusted based on certain criteria including the Company’s recent financial performance, the executive’s individual performance, the functions performed by the executive officer, the scope of the executive officer’s on-going duties and any general changes in the compensation data from the benchmark companies. In determining any merit salary increase, the relative importance of each factor may vary from individual to individual.

 

Base Salary: 2008 Evaluation

 

In the fourth quarter of 2007, the Compensation Committee reviewed the data provided by Compensia, including the analysis of each NEO’s base salary against the select peer group The Compensation Committee also considered organizational changes and any planned changes in each executive officer’s responsibility. Increases were made to all NEOs’ salaries effective beginning January 1, 2008, based on a review of their compensation against the market data provided and based on the strength of their individual performance and the company’s overall performance in 2007.

2008 Base Salary Information

 

 

Non-Equity Incentive Plan (Cash Incentives) (“Bonus Plan”)

 

The Company’s non-equity incentive plan (the “bonus plan”) focuses on the achievement of fiscal year business objectives and is tied to the achievement of annual performance goals around growth and profitability. All of the Company’s executive officers participate in this bonus plan, which directly rewards the executives for achievement against semi-annual Company performance goals. The performance goals and the bonus targets are determined by the Compensation Committee in consultation with the Board of Directors and the Company’s Chief Executive Officer and Chief Financial Officer. The bonus target for each executive position is determined using competitive market data provided by external consultants, and evaluated against a number of criteria including job function, market competitive data and the scope of the executive officer’s position and on-going duties. In 2008, an adjustment was made to the EVP, Worldwide Field Operations’ target variable based on market data and the expansion of his role to include responsibility for global services.

 

2008 Cash Incentive (Bonus) Compensation Targets for Named Executive Officers

 

 

The bonus plan is designed to closely link reward with corporate achievement against performance goals. Bonuses are paid out after the second calendar quarter for performance achieved in the first half of the year, and after the fourth calendar quarter for performance achieved in the second half of the year. These performance goals are specifically tied to two internal key performance indicators, net license orders and operating income adjusted for certain items, such as charges related to restructuring and acquisitions, stock-based compensation and other non-recurring, non-cash charges, if any.

 

Structure of 2008 Cash Incentive (Bonus Plan) Compensation for Named Executive Officers

 

 

 

The performance goals are set annually, measured on a semi-annual basis and require aggressive levels of growth and significant improvement from the prior fiscal year’s performance. The bonus plan has a minimum payout threshold with zero payout for achievement at 80% or less of the performance goal. Because the Company’s philosophy is to set performance goals aggressively, achievement of 95% of these aggressive stretch goals is designed to equate to a 100% bonus payment. The plan also provides for above 100% payout when more than 95% of the stretch performance goal is achieved. In order to achieve a maximum payout, which is capped at 200%, the Company would need to achieve 120% performance against both the growth and profitability goals. Achievement at 120% is a significant stretch goal and the Company has never attained this maximum payout level.

 

Individual cash incentive allocations for the NEOs are determined by the Compensation Committee upon discussion with the Chief Executive Officer and Company human resources personnel. An individual executive may occasionally earn more or less than his or her calculated bonus based on factors including individual performance and any other exceptional contributions to the Company’s success during the measurement period. Any executive earnings more than his or her calculated bonus would receive this as a discretionary bonus.

 

The Compensation Committee separately makes an assessment and determines the bonus award for the Chief Executive Officer. The payout is computed based on achievement of the corporate performance goals; however, the Compensation Committee has discretion to allocate more or less than the computed allocation, based on the individual performance and contribution of the Chief Executive Officer during the measurement period.

 

Non-Equity Incentive Plan (Cash Incentives) (“Bonus Plan”): 2008 Evaluation

 

For the first half of 2008, the Compensation Committee determined that the stretch goal for net license orders was achieved at 83% and the stretch goal for operating income was achieved at 100%. For the second half of 2008, the Compensation Committee determined that the stretch goal for net license orders was achieved at 73% and the stretch goal for operating income was achieved at 108%. For the services margin target in the EVP Worldwide Field Operations, the target was not achieved, generating zero payout for this component. The EVP and General Manager, Data Integration achieved 92% of his individual goals in the first half of 2008 and 88% in the second half of 2008.

 

Based on these attainment levels, the Compensation Committee approved bonuses under the bonus plan of $432,900 to the Chief Executive Officer; $181,300 to the Chief Financial Officer; $181,913 to the EVP and General Manager, Data Integration and $211,412 to the EVP Worldwide Field Operations. In addition, a discretionary bonus of $30,000 was awarded to the Chief Financial Officer for excellent performance in the second half of 2008.

 

Equity Based Incentive Plans

 

The Company’s equity incentive plans are a critical component of the compensation program which the Company believes fosters an entrepreneurial spirit and incents the Company’s executives and key employees to focus on building stockholder value through meeting long-term financial and strategic goals. The Company grants stock options to executives and other employees under the Company’s 1999 Stock Incentive Plan (the “Option Plan”). The Company also sponsors an Employee Stock Purchase Plan (“ESPP”). All full time employees (except employees in geographies where participation is restricted by local statute or regulations) are eligible to participate in the Company’s ESPP which provides a fifteen percent (15%) discount on the purchase of shares twice a year. Executive officers participate in this plan on the same terms as all other employees. Offering stock options and an ESPP are critical elements in attracting and retaining high caliber employees, including executive level talent, in the competitive technology industry labor market. The Compensation Committee acts as the plan administrator for both the Option Plan and the ESPP.

 

Stock options ranges are set for each job function, level and position within the Company for both new hire grants and annual refresh grants and are reviewed and approved by the Compensation Committee at the start of each fiscal year. Ranges are set to balance the need to use equity grants to provide significant attraction and retention value against the need to limit dilution of shareholder interests by working within the Company’s target dilution rate. These options ranges provide reference guidelines for the Chief Executive Officer, the Company’s human resources personnel, the Compensation Committee and the Board of Directors when hiring new executives to the Company. Additionally, the Compensation Committee uses data provided by its independent compensation

consultant (in 2008 Compensia) to ensure that new hire and any refresh grants for executive officers are within the target positioning levels in the Company’s basket of comparable companies.

 

The principal factors considered in granting new employee stock options to executive officers of the Company are: (i) level of responsibility of the new hire’s position, (ii) total compensation profile, and (iii) the executive officer’s ability to influence the Company’s long-term growth and profitability. Additional factors considered when reviewing annual refresh grants include: (i) performance, (ii) the amount of unvested options that the particular executive holds, (iii) the existing levels of stock ownership and options among the executive officers relative to each other and to the Company’s employees as a whole, and (iv) the Company’s target dilution rate.

 

Equity Based Incentive Plans: 2008 Evaluation

 

In the fourth quarter of 2007, Compensia provided the Compensation Committee with an analysis of the long term incentive value of each executive’s equity based grants against the market peer group of companies, using the Black Scholes valuation model. The analysis indicated the value for each NEO’s vested and unvested options and the total value as a percentage of the market. Compensia made recommendations for annual refresh option grants for each NEO in fiscal 2008 based on consideration of the factors detailed above. See “Grants of Plan-Based Awards — 2008 Fiscal Year” below for a summary of the 2008 option grants to the NEOs.

 

The Compensation Committee discussed the Compensia analyses related to the NEOs with the Chief Executive Officer and reviewed the strong company performance and each individual NEO’s performance in 2007 in determining the final awards approved.

 

Stock Option Grant Process

 

The Company’s Option Plan authorizes the Compensation Committee to grant stock options to NEOs of the Company and as such, the Compensation Committee approves grants to new NEOs as well as approving refresh and promotional grants to existing NEOs.

 

The Company’s standard option granting practice includes authorizing grants to executives and employees at the regularly scheduled Compensation Committee meetings held during the first month of each quarter, although the policy allows for some flexibility regarding corrections and off-cycle grants within pre-approved guidelines. The effective grant date and strike price is set as of the first business day of the second month of the quarter if such date is in an open window, or if not, the next date that is in an open window. The vesting commencement date is the effective start date for new hire grants, the effective promotion date for promotional grants, and the actual grant date for the annual refresh grants.

 

Stock Ownership Guidelines for NEOs and Directors

 

To further align the interests of the NEOs and members of the Board of Directors with those of the Company’s stockholders, in February 2008, the Corporate Governance and Nominating Committee adopted stock ownership guidelines for the Company’s NEOs and directors. Pursuant to these guidelines, each director and NEO (except the Chief Executive Officer) is expected to hold at least 5,000 shares of the Company’s Common Stock for so long as he or she is a director or a NEO. The Chief Executive Officer is expected to hold at least 10,000 shares of the Company’s Common Stock for so long as he or she retains that position with the Company. Directors and NEOs, including the Chief Executive Officer, are expected to meet the standards set forth in the guidelines within three years from the date such guidelines were adopted by the Corporate Governance and Nominating Committee or within three years after the date of their election or reelection to the Board of Directors or appointment as a NEO.

 

Benefits

 

The Company has adopted certain general employee benefits plans in which executive officers also participate under the same terms as other employees. The benefits plans vary by geography to account for statutory requirements and local market practices. The primary benefit plans which are available to all U.S. employees who work at least twenty-four hours per week are:

 

 

 

The Company limits the perquisites that are available to its executives. The Company does not currently offer any non qualified deferred compensation plans or supplemental retirement plans to its executives. Also, the Company does not provide any pension arrangements or other similar benefits to its executives or employees, other than the 401(k) plan referenced above.

 

Executive Severance Arrangements

 

The Company has entered into agreements with its NEOs regarding severance arrangements. Such agreements are standard in the Company’s industry and are necessary in order to attract the best talent for these executive positions. See “Potential Payments on Termination or Change of Control” below for a summary of the material terms and conditions of these severance arrangements.

 

Accounting and Tax Considerations

 

The Company considers tax and accounting implications in designing its compensation programs. For example, in selecting equity based compensation elements, the Compensation Committee reviews the projected expense amounts and expense timing associated with equity grants. In addition, the Compensation Committee previously adjusted the ESPP look-back period from 24 months to six months to reduce the expense associated with ESPP participation. Section 162(m) of the Internal Revenue Code (“IRC”) disallows a deduction by the Company for compensation exceeding $1.0 million paid to certain executive officers, excluding, among other things, performance-based compensation. To maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals, the Company has not adopted a policy that all compensation must be deductible. In particular, because the Company’s pre-Initial Public Offering stock option plan (the “Option Plan”) was not ratified by stockholders within three years following the calendar year of the Initial Public Offering, options granted under such Option Plan on or after May 22, 2003 are not exempted under Section 162(m). This Option Plan will expire in March 2009 and the Company intends to replace it with the 2009 Plan that the Company is submitting to stockholders for approval in this proxy statement. The Company does not have any deferred compensation plans. Even so, given the broad language of Section 409A, in 2008 the Company reviewed and revised various compensation arrangements to address Section 409A compliance.

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with the Company’s management. Based on such review and discussion, the Compensation Committee recommended to the Company’s Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into the Company’s Form 10-K for the annual period ended December 31, 2008.

 

COMPENSATION COMMITTEE OF

THE BOARD OF DIRECTORS

 

David W. Pidwell

Godfrey R. Sullivan

Gerald Held

 

The following summary compensation table includes the compensation elements that were earned by the Company’s NEOs for the fiscal year ended December 31, 2008 (the “2008 Fiscal Year”).

 

 

 

 

The following table contains information for the NEOs related to (1) grants under the Company’s non-equity incentive plan and (2) grants of stock options during the 2008 Fiscal Year.

 

 

 

 

 

 

The following table reflects NEO option awards outstanding as of December 31, 2008.

 

 

 

 

 

 

The following table details 2008 stock option exercises for each of the Company’s NEOs.