UNITED
STATES
SECURITIES
AND EXCHANGE
COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
PROXY
STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE
ACT OF 1934
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[ ]Preliminary
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[X]Definitive
Proxy Statement
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[ ]Definitive
Additional Materials
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[ ]Soliciting
Material Pursuant to §240.14a-12
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COSTAR
GROUP, INC.
(Name
of Registrant as Specified in Its Charter)
(Name
of Person(s) Filing Proxy Statement if other than the Registrant)
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April
29, 2008
Dear
Stockholder:
You
are cordially invited to attend the 2008 Annual Meeting of Stockholders of
CoStar Group, Inc., to be held at 11:00 a.m., Eastern Standard Time, on
Tuesday, June 10, 2008 at 2 Bethesda Metro Center, Bethesda, Maryland
20814.
At
the Annual Meeting, you will be asked (1) to elect seven directors and
(2) to ratify the appointment of Ernst & Young LLP as the
Company’s independent registered public accounting firm for 2008. The
accompanying Notice of 2008 Annual Meeting of Stockholders and Proxy Statement
describe these matters.
The
Board of Directors recommends that stockholders vote in favor of each of these
proposals.
Whether
or not you plan to attend the meeting in person, please return your executed
proxy card in the enclosed postage prepaid and addressed envelope and your
shares will be voted in accordance with the instructions you have given in your
proxy card.
Sincerely,
Andrew
C. Florance
Chief
Executive Officer and President
COSTAR
GROUP, INC.
April
29, 2008
NOTICE OF 2008 ANNUAL MEETING OF
STOCKHOLDERS
TO
BE HELD TUESDAY, JUNE 10, 2008
The
2008 Annual Meeting of Stockholders (the “Annual Meeting”) of CoStar Group, Inc.
(“CoStar”, “we” or the “Company”) will be held at 2 Bethesda Metro Center,
Bethesda, Maryland 20814, at 11:00 a.m., Eastern Standard Time, on Tuesday,
June 10, 2008, for the following purposes:
1. To
elect seven directors to hold office until the next Annual Meeting of
Stockholders, or until their respective successors are elected and
qualified;
2. To
ratify the appointment of Ernst & Young LLP as the Company’s
independent registered public accounting firm for 2008; and
3. To
transact any other business properly presented before the Annual
Meeting.
The
Board of Directors has fixed Monday, April 14, 2008 as the record date for
determining stockholders entitled to receive notice of and to vote at the Annual
Meeting (or any adjournment or postponement of it). Only stockholders of record
at the close of business on that date are entitled to notice of and to vote at
the Annual Meeting.
WE INVITE YOU TO ATTEND THE ANNUAL
MEETING IN PERSON, BUT WHETHER OR NOT YOU EXPECT TO ATTEND, PLEASE MARK, SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD IN THE POSTAGE-PREPAID ENVELOPE PROVIDED AS
PROMPTLY AS POSSIBLE.
By
Order of the Board of Directors,
Jonathan
Coleman
Secretary
Table of Contents
Item 1 - ELECTION OF
DIRECTORS
COSTAR
GROUP, INC.
ANNUAL
MEETING OF STOCKHOLDERS
TO
BE HELD ON TUESDAY, JUNE 10, 2008
The
Board of Directors (the “Board”) of CoStar Group, Inc. (“CoStar”, “we” or the
“Company”) solicits your proxy for use at the Annual Meeting of Stockholders
(the “Annual Meeting”) to be held at 11:00 a.m., Eastern Standard Time, on
Tuesday, June 10, 2008, at 2 Bethesda Metro Center, Bethesda,
Maryland 20814, and at any adjournment or postponement of the Annual
Meeting.
Our
headquarters are located at 2 Bethesda Metro Center, Tenth Floor, Bethesda,
Maryland 20814. We are mailing this Proxy Statement and the accompanying proxy
card to our stockholders eligible to vote at the Annual Meeting on or about May
2, 2008.
This
proxy statement and our annual report to stockholders are available on our
corporate Website located at www.costar.com/Corporate/Investor under SEC
Filings.
At
the close of business on the record date, Monday, April 14, 2008, there
were 19,522,579 shares of common stock outstanding and entitled to vote at
the Annual Meeting. Each outstanding share of common stock is entitled to one
vote on each proposal, except as specifically provided below with respect to the
election of directors.
The
presence at the Annual Meeting, in person or by proxy, of a majority of the
outstanding shares as of the record date constitutes a quorum (the minimum
number of shares required to take action) for the Annual Meeting. Both
abstentions and broker non-votes will be counted as shares present for purposes
of obtaining a quorum.
The
required vote and the calculation method for each of the matters scheduled for
consideration at the Annual Meeting are as follows:
Item 1 — Election of
Directors. Each outstanding share of common stock is entitled
to cast one vote for up to seven nominees. The seven nominees who receive the
most votes will be elected as directors.
Item 2 — Ratification of the Appointment of
Independent Registered
Public Accounting Firm. For stockholders to approve this
proposal, the number of votes cast in favor must exceed the number of votes cast
against this proposal.
Abstentions
and broker non-votes (shares held by brokers that do not have discretionary
authority to vote on the matter and have not received voting instructions from
their clients) will have no effect on the election of directors. For the
proposal to ratify the independent registered public accounting firm,
abstentions and broker non-votes are disregarded in calculating the total number
of votes on the proposals. Banks and brokers that have not received voting
instructions from their clients may vote their clients’ shares on the proposal
to ratify Ernst & Young LLP as our independent registered public
accounting firm.
You
may vote by signing your proxy card, or if your shares are held in street name,
by signing the voting instruction card included by your broker or nominee, and
mailing it in the enclosed, postage prepaid and addressed envelope. If you
properly complete and execute your proxy card and return it before the Annual
Meeting:
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Your
shares will be voted in accordance with your
instructions.
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For
any items for which you do not provide instructions, your shares will be
voted “FOR” the item, as recommended by the
Board.
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You
may revoke your proxy at any time before it is voted by:
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delivering
to the Corporate Secretary written notice that you are revoking your
proxy;
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submitting
a properly-executed proxy bearing a later
date; or
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attending
the Annual Meeting and voting in person. If you are not the owner of
record, but rather hold your shares through a broker or bank, you should
take appropriate steps to obtain a legal proxy from the owner of record if
you wish to attend and vote at the Annual
Meeting.
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Simply
attending the Annual Meeting will not revoke your proxy. If you instructed a
broker to vote your shares, you must follow your broker’s directions for
changing those instructions.
Only
stockholders as of the record date, their proxy holders, and our invited guests
may attend the meeting. If you intend to attend the Annual Meeting, please mark
your proxy card accordingly. Beneficial owners whose ownership is registered
under another party’s name and who plan to attend the meeting in person should
obtain an admission ticket in advance by sending written requests, along with
proof of beneficial ownership, such as a bank or brokerage firm account
statement, to: Tim Trainor, Communications Director, CoStar Group, Inc.,
2 Bethesda Metro Center, Tenth Floor, Bethesda, Maryland 20814. Beneficial
owners who do not present valid admission tickets at the registration counter at
the Annual Meeting will be admitted at CoStar’s sole discretion and may be
required to verify share ownership, which may be established by providing a bank
or brokerage firm account statement and photo identification, at the
registration counter at the Meeting. Stockholders as of the record date or their
proxy holders who plan to attend the Annual Meeting may also be asked to present
photo identification at the registration counter at the Annual Meeting to gain
admittance to the Meeting.
ELECTION
OF DIRECTORS
The
Board has fixed the number of directors constituting the Board at seven. Ms.
Reynolds has decided not to stand for reelection. We thank Ms.
Reynolds for her dedication and commitment to the Company. The
Nominating & Corporate Governance Committee recommended and the Board
nominated Michael J. Glosserman to fill Ms. Reynolds’ Board seat. The
Board has also nominated the remaining six of the seven current directors for
reelection. The persons named as proxy holders on the proxy card will vote your
shares for each of the seven nominees unless you instruct otherwise on your
proxy card.
Each
of our directors will serve until the next Annual Meeting of Stockholders or
until his or her successor is elected and qualified. If any of the nominees
should become unable to serve prior to the Annual Meeting, proxies that do not
withhold authority to vote for directors may be voted for any other nominee or
nominees selected by the Board unless the Board votes to reduce the size of the
Board to match the actual number of nominees. In no event may proxies be voted
for a greater number of persons than the number of nominees named. Information
about each of the nominees appears below.
2
Nominees for the Board of Directors
The
following table lists the seven director nominees and their current committee
memberships:
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Name
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Employment
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Years
as a Director
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Committee Membership
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Michael
R.
Klein
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Chairman,
CoStar Group, Inc.; Chairman, The Sunlight Foundation
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21
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Compensation;
Nominating & Corporate Governance
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Andrew
C. Florance*
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CEO &
President, CoStar Group, Inc.
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21
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None
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David
Bonderman
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Founding
Partner, TPG Capital, LLC
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13
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Compensation
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Michael
J. Glosserman
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Managing
Member, The JBG Companies
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—
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—
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Warren
H.
Haber
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Chairman
of the Board & CEO, Founders Equity Inc.
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13
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Audit;
Compensation
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Josiah
O.
Low, III
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Venture
Partner, Catterton Partners IV L.P.
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9
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Audit;
Nominating & Corporate Governance
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||||
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Christopher
J. Nassetta
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CEO &
President, Hilton Hotels Corporation
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6
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Compensation;
Nominating & Corporate Governance
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____________
* Executive
Officer
Information
about each of our current directors and our nominees for the Board appears
below.
Michael R. Klein has been the
Chairman of our Board of Directors since he and Mr. Florance started the
Company in 1987. He was a partner of the law firm Wilmer Cutler Pickering
Hale & Dorr, LLP from 1974 until the end of 2005. Mr. Klein
currently serves as Chairman of the board of directors of The Sunlight
Foundation, a non-profit educational organization, Vice Chairman of the board of
directors of Perini Corporation, and as a director of SRA International, Inc.
Mr. Klein is 66 years old.
Andrew C. Florance founded
the Company, the industry’s first independent commercial real estate information
research organization, in 1987. As President and CEO of CoStar, Mr.
Florance has directed CoStar’s successful expansion from start-up, to its IPO in
July 1998, to its market-leading position today with over 1,300 employees, a
client base that includes the commercial real estate industry’s leading
brokerage firms and property owners and an international service platform that
includes the entire United States, London, England, other parts of the United
Kingdom and Paris, France. Mr. Florance is actively involved in
building awareness of energy efficiency and sustainability within the commercial
property sector. He co-authored the first comprehensive, nationwide
analysis of leasing and sales activity in energy-efficient office buildings with
Dr. Norm Miller, professor and director of academic programs at the
Burnham-Moores Center for Real Estate, and he is a frequent speaker on this
topic at industry events. Mr. Florance is the recipient of numerous
awards recognizing his accomplishments as an entrepreneur and corporate leader,
including Transwestern 's 2007 Public Company Trendsetter of the Year for
revolutionizing the way the commercial real estate industry gathers, analyzes
and uses information on commercial property and markets; Ernst & Young’s
Entrepreneur of the Year award in 2000 for his pioneering work in real estate
information services; and Commercial Real Estate Women’s (CREW’s) 15th
anniversary award for industry innovation. He serves on the Board of Directors
for the American Real Estate Society, an association of real estate thought
leaders, the Board of Trustees for The St. Andrews School in Middletown,
Delaware and the Board of Trustees for Ford’s Theater in Washington,
D.C. Mr. Florance received a B.A. in economics from Princeton
University. He is 44 years old.
David Bonderman is a Founding
Partner of TPG. TPG invests primarily in restructurings,
recapitalizations and buyouts in the United States, Canada, Europe and
Asia. Prior to forming TPG in 1992, Mr. Bonderman was Chief Operating
Officer of the Robert M. Bass Group, Inc. (now doing business as Keystone, Inc.)
in Fort Worth, Texas. Prior to joining RMBG in 1983,
Mr. Bonderman was a partner in the law firm of Arnold & Porter in
Washington, D.C., where he specialized in corporate, securities, bankruptcy and
antitrust litigation. From 1969 to 1970, Mr. Bonderman was a
Fellow in Foreign and Comparative Law in conjunction with Harvard University and
from 1968 to 1969, he was Special Assistant to the U.S. Attorney General in the
Civil Rights Division. From 1967 to 1968, Mr. Bonderman was Assistant
Professor at Tulane University School of Law in New
Orleans. Mr. Bonderman serves on the Board of Directors of the
following public companies: Burger King Holdings, Inc.; Gemalto N.V.; and
Ryanair Holdings, plc. He is also Chairman of the Board of Ryanair
Holdings, plc. He also serves on the Board of Directors of The
Wilderness Society, The Grand Canyon Trust, The World Wildlife Fund, The
University of Washington Foundation and The American Himalayan
Foundation. Mr. Bonderman was a member of Phi Beta Kappa at the
University of Washington where he graduated cum laude, and a member of the
Harvard Law Review. Mr. Bonderman is 65 years
old.
3
Michael J. Glosserman is a
Managing Member of The JBG Companies, an active investor, owner and developer in
the Washington, D.C. metropolitan area’s real estate market. Mr.
Glosserman has over 35 years of experience in various aspects
of investment, development and ownership of commercial and
residential real estate. Prior to joining JBG in 1979, Mr. Glosserman
worked in commercial real estate and development with The Rouse
Company. Prior to his position at The Rouse Company, Mr. Glosserman
began his career as a staff attorney for the U.S. Department of
Justice. He serves as Board Chairman, The National Building Museum;
District Council member, the Washington Urban Land Institute District Council;
and Board Member of the Economic Club of Washington, DC. Mr.
Glosserman received a B.S. in Economics from The Wharton School of the
University of Pennsylvania, and a J.D. from University of Texas Law
School. He is 62 years old.
Warren H. Haber has been, for
more than thirty-five years, Chairman of the Board and Chief Executive Officer
of Founders Equity Inc. and its affiliates, private investment concerns.
Mr. Haber is also Managing General Partner of FEF Management Services, LLC,
which manages Founders Equity SBIC I, L.P. Mr. Haber also serves on
the board of directors of Warnex Ltd. Mr. Haber is 67 years
old.
Josiah O. Low, III is a
Senior Advisor to Catterton Partners IV L.P., a private equity firm, where he
previously served as a venture partner from 2001 to 2007. Prior to that,
Mr. Low worked for 16 years at the investment banking firm of Credit
Suisse First Boston (formerly Donaldson, Lufkin & Jenrette), where he
most recently served as Managing Director/Senior Advisor. Prior to joining
Credit Suisse First Boston in 1985, Mr. Low worked at Merrill Lynch,
Pierce, Fenner & Smith and was a founding Managing Director of the
Merrill Lynch Capital Market Group in 1977. Mr. Low also serves on the
board of directors of Rosetta Resources, Inc. Mr. Low is 68 years
old.
Christopher J. Nassetta has
been the President and Chief Executive Officer of Hilton Hotels Corporation
since December 2007. Prior to joining Hilton Hotels Corporation, Mr.
Nassetta served as the President and Chief Executive Officer of Host
Hotels & Resorts, Inc. (fka Host Marriott Corporation) from May
2000 to December 2007. Mr. Nassetta joined Host Hotels & Resorts
in 1995 as Executive Vice President and was elected the Chief Operating Officer
in 1997. Prior to joining Host Hotels & Resorts, Mr. Nassetta
served as President of Bailey Realty Corporation from 1991 until 1995, and he
had previously served as Chief Development Officer and in various other
positions with the Oliver Carr Company from 1984 through 1991. Mr. Nassetta
serves on the boards of directors of the National Association of Real Estate
Investment Trusts (NAREIT) and is the chairman of the Real Estate Round Table.
He is also a member of the McIntire School of Commerce Advisory Board for the
University of Virginia. Mr. Nassetta is 45 years old.
Catherine B. Reynolds has
been the Chairman, Chief Executive Officer and President of EduCap, Inc. a
not-for-profit corporation that provides education financing, since 1989. In
addition, she has been the Chairman and Chief Executive Officer of The Catherine
B. Reynolds Foundation, a philanthropic foundation, since 2000. Prior to that,
from 1993 to 2000, she was the Chairman and founder of Servus Financial
Corporation. Ms. Reynolds currently serves on the board of directors of
Zenith National Insurance Corp. Ms. Reynolds is 50 years
old.
THE
BOARD RECOMMENDS A VOTE FOR EACH OF THESE NOMINEES.
ITEM 2
The
Audit Committee has recommended, and the Board has approved, the appointment of
Ernst & Young LLP as the independent registered public accounting firm
for the Company for 2008. As a matter of good corporate governance, the Board
would like stockholders to ratify this appointment, even though ratification is
not legally necessary. If stockholders do not ratify this appointment, the Board
may, but is not required to, reconsider such appointment.
Ernst &
Young LLP has served as the independent registered public accounting firm for
the Company, its subsidiaries, and its predecessors since 1994. A representative
from Ernst & Young LLP will attend the Annual Meeting, may make a
statement and will be available to respond to appropriate
questions.
During
the years ended December 31, 2006 and 2007, Ernst & Young LLP
billed CoStar the fees set forth below, including expenses, in connection with
services rendered to CoStar:
4
|
Year Ended December 31,
2006
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Year Ended December 31,
2007
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||||||
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Audit
Fees
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$ | 692,586 | $ | 793,583 | |||
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Audit
Related
Fees
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$ | 8,879 | $ | 0 | |||
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Tax
Fees
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$ | 33,000 | $ | 42,800 | |||
| All Other Fees | $ |
0
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$ |
0
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|||
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Total
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$ | 734,465 | $ | 836,383 | |||
Ernst &
Young LLP did not provide any financial information systems design and
implementation services to the Company for the years ended December 31,
2006 and 2007.
Audit
Fees include fees for services performed for the audit of CoStar’s annual
financial statements, review of financial statements included in CoStar’s
periodic filings with the Securities and Exchange Commission (the “SEC”), audit
of CoStar’s internal control over financial reporting and statutory audits
required internationally. This category also includes fees for statutory audits,
consents and assistance with and review of documents filed with the
SEC.
Audit
Related Fees include fees associated with assurance and related services that
are reasonably related to the performance of the audit or review of CoStar’s
financial statements. This category includes fees related to assistance in
financial due diligence related to mergers and acquisitions. The reported audit
related fees for 2006 represent advisory fees paid to Ernst & Young in
connection with CoStar’s acquisition of Grecam S.A.S. in
France. There were no audit related fees for 2007.
Tax
Fees primarily include fees associated with tax return preparation, tax
compliance, tax advice and tax planning. This category also includes fees
associated with the tax planning on mergers and acquisitions and
restructurings. In 2007, Tax Fees included charges for services
provided in connection with the adoption of Financial Accounting Standards Board
Interpretation 48 Accounting
for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109
(FIN 48).
Audit
Committee Pre-Approval Policy
The
Audit Committee’s policy is that all audit and non-audit services provided by
CoStar’s independent registered public accounting firm, Ernst & Young
LLP, shall either be approved before the independent registered public
accounting firm is engaged for the particular services or shall be rendered
pursuant to pre-approval procedures established by the Audit Committee. These
services may include audit services and permissible audit-related services, tax
services and other services. Pre-approval spending limits for audit services are
established on an annual basis, detailed as to a particular service or category
of services to be performed and implemented by CoStar’s financial officers.
Pre-approval spending limits for permissible non-audit services are established
on a periodic basis, detailed as to a particular service or category of services
to be performed and implemented by CoStar’s financial officers. Any audit or
non-audit service fees that may be incurred by CoStar during a period that fall
outside the limits pre-approved by the Audit Committee for a particular service
or category of services must be reviewed and approved by the Chairperson of the
Audit Committee prior to the performance of services. CoStar’s Chief Financial
Officer reports to the Audit Committee on a quarterly basis on all services
rendered by the independent registered public accounting firm for which
pre-approval has been granted and all fees paid to the independent registered
public accounting firm for such services during the current year and the
previous quarter. The Audit Committee may revise its pre-approval spending
limits and policies at any time.
All
fees paid to the independent registered public accounting firm in 2007 were
pre-approved by the Audit Committee, and therefore no services were approved
after the services were rendered pursuant to the “de minimus” exception
established by the SEC for the provision of non-audit services.
THE BOARD RECOMMENDS THAT YOU VOTE
FOR RATIFYING THE APPOINTMENT OF ERNST & YOUNG LLP AS
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE COMPANY FOR
2008.
We
do not know of any other matter that will be presented for consideration at the
Annual Meeting. If any other matter does properly come before the Annual
Meeting, the proxy holders will, unless otherwise specified in the proxy, vote
on it as they think best in their discretion.
5
A
stockholder who intends to introduce a proposal for consideration at our 2009
Annual Meeting of Stockholders may seek to have that proposal and a statement in
support of the proposal included in our proxy statement if the proposal relates
to a subject that is permitted under Rule 14a-8 under the Securities
Exchange Act of 1934 (the “Exchange Act”). Additionally, in order to be eligible
for inclusion in our proxy statement, the stockholder must submit the proposal
and supporting statement to our Corporate Secretary in writing not later than
Thursday, January 2, 2009, and must satisfy the other requirements of
Rule 14a-8. Stockholders interested in submitting such a proposal are
advised to contact knowledgeable counsel with regard to the detailed
requirements of applicable securities laws. The submission of a stockholder
proposal does not guarantee that it will be included in our proxy
statement.
A
stockholder may otherwise propose business for consideration or nominate persons
for election to the Board, in compliance with federal proxy rules, applicable
state law and other legal requirements and without seeking to have the proposal
included in our proxy statement pursuant to Rule 14a-8. Our bylaws provide
that any such proposals or nominations must be submitted to us no less than 60
or more than 90 days before the first anniversary date of the preceding
year’s annual meeting. Accordingly, stockholders who wish to nominate persons
for election as directors or bring other proposals outside of Rule 14a-8 at
the 2009 Annual Meeting must give notice of their intention to do so in writing
to our Corporate Secretary on or before Saturday, April 11, 2009, but no
sooner than Thursday, March 12, 2009, to be considered “timely” within the
meaning of Rule 14a-4. The stockholder’s submission must include certain
specified information concerning the proposal or nominee, as the case may be,
and information as to the stockholder’s ownership of common stock. Proposals or
nominations not meeting these requirements will not be entertained at the 2009
Annual Meeting.
In
accordance with applicable Delaware law and the Company’s Bylaws, the business
and affairs of the Company are managed under the direction of its Board. The
Board, which is elected by the Company’s stockholders, is the ultimate
decision-making body of the Company except with respect to those matters
reserved to the stockholders. The Board selects, advises and monitors the
performance of the Company’s senior management team, which is charged with the
conduct of the Company’s business. The Board has established certain standing
committees to assist it in fulfilling its responsibilities as described
below.
During
2007, the Board of Directors held four meetings and acted on three occasions by
unanimous consent. The Board has Audit, Compensation and Nominating &
Corporate Governance committees. All directors attended at least 75% of the
meetings of the Board and the committees of which they were
members.
Board
Committees
The
following table sets forth the composition of each of our Board committees as of
the date of this proxy statement.
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Audit Committee
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Compensation Committee
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Nominating & Corporate Governance
Committee
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Warren
H. Haber (Chairman)
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Christopher
J. Nassetta (Chairman)
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Josiah
O. Low, III (Chairman)
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Josiah
O. Low, III
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David
Bonderman
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Michael
R. Klein
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Catherine
B. Reynolds
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Warren
H. Haber
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Christopher
J. Nassetta
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| Michael R. Klein |
Audit
Committee. The Audit Committee is currently composed of Warren
H. Haber (Chairman), Josiah O. Low, III and Catherine B. Reynolds. CoStar’s
Board has determined that each of the members of our Audit Committee is
independent as defined under Rule 4200(a)(15) of the NASD Listing Standards
for NASDAQ-listed companies. In addition, the Board has determined that
Committee members Haber, Low and Reynolds are each “audit committee financial
experts,” as defined by regulations promulgated by the SEC. During
2007, the Audit Committee met five times and acted on three occasions by
unanimous written consent. The Audit Committee’s responsibility is to assist the
Board in fulfilling its oversight responsibilities as to accounting policies,
internal controls, audit activities and reporting practices of the Company. The
Audit Committee is also responsible for producing the report of the Audit
Committee for inclusion in the Company’s proxy statement. The Audit Committee
operates under a written charter adopted by the Board and reviewed annually by
the Audit Committee.
6
Compensation
Committee. The members of the Compensation Committee are
Christopher J. Nassetta (Chairman), David Bonderman, Warren H. Haber and Michael
R. Klein. CoStar’s Board has determined that each of the members of our
Compensation Committee is independent as defined under Rule 4200(a)(15) of
the NASD’s Listing Standards for NASDAQ-listed companies. In 2007, the Committee
met two times and acted on two occasions by unanimous written consent. The
Compensation Committee operates under a written charter adopted by the Board and
reviewed annually by the Compensation Committee.
The
purpose of the Compensation Committee is to discharge the responsibilities of
the Board relating to compensation of the Company’s executive officers and
directors, as well as to produce the Compensation Committee report on executive
compensation for inclusion in the Company’s proxy statement. The
Compensation Committee’s authority and responsibilities include:
|
·
|
overseeing
the Company’s compensation structure, policies and programs for executive
officers and assessing whether the compensation structure establishes
appropriate incentives for the executive
officers;
|
|
·
|
reviewing
and approving corporate goals and objectives relevant to the compensation
of the Chief Executive Officer and other executive officers of the
Company, evaluating those executive officers’ performance in light of
their goals and setting their compensation levels based on the Committee’s
evaluation and the recommendations of the
CEO;
|
|
·
|
approving
stock options and other stock incentive awards for executive
officers;
|
|
·
|
reviewing
and approving the design of benefit plans pertaining to executive
officers;
|
|
·
|
reviewing
and recommending employment agreements for executive
officers;
|
|
·
|
approving,
amending or modifying the terms of any compensation or benefit plan that
does not require shareholder approval;
and
|
|
·
|
reviewing
the compensation of directors for service on the Board and its committees
and recommending changes in compensation to the
Board.
|
In
addition, the Board has designated the Compensation Committee as the
Administrator of both the Company’s 1998 Stock Incentive Plan, as amended (the
“1998 Plan”), and the Company’s 2007 Stock Incentive Plan, as amended (the “2007
Plan”). The Compensation Committee may delegate its duties or
responsibilities to a subcommittee of the Compensation Committee, and it has
authority to retain and to direct management to retain outside advisors and
experts that it determines appropriate to assist with performance of its
functions.
Our
Chief Executive Officer and Chief Financial Officer make recommendations to the
Committee for each element of compensation awarded to executives, but the
Compensation Committee must approve each element of (and any changes to)
executive compensation. Periodically, the Committee also retains
independent compensation consulting firms to assist it in gathering necessary
benchmarking data and to provide it with information about trends in
compensation among comparably sized companies. Most recently, the
Committee retained Towers Perrin in 2006 and made several changes to the
Company’s executive compensation structure based in part on Tower Perrin’s
recommendations, as described below in the section titled “Compensation
Discussion and Analysis” beginning on page 17 of this Proxy Statement. Towers
Perrin reported directly to the Committee through its chair, and, at the
direction of the Committee chair, also worked directly with the Company’s
management to develop materials and proposals with respect to executive officer
compensation for 2007 and future years. The Company did not engage an
outside consulting firm in 2007. In future years, the Committee plans
at its discretion to retain Towers Perrin (or another consulting firm) to update
or perform new studies to be used in connection with its executive compensation
decisions.
Nominating & Corporate
Governance Committee. The members of the Nominating &
Corporate Governance Committee are Josiah O. Low, III (Chairman), Michael
R. Klein and Christopher J. Nassetta. CoStar’s Board has determined that each of
the members of our Nominating & Corporate Governance Committee is
independent as defined under Rule 4200(a)(15) of the NASD’s Listing
Standards for NASDAQ-listed companies. The purpose of the Nominating &
Corporate Governance Committee is to identify individuals qualified to become
Board members, recommend to the Board director candidates to be nominated at the
Annual Meeting of Stockholders and perform a leadership role in shaping the
Company’s corporate governance. In 2007, the Committee met one time and acted on
one occasion by unanimous written consent. The Nominating &
Corporate Governance Committee operates under a written charter adopted by the
Board and reviewed annually by the Nominating & Corporate Governance
Committee.
All
of the charters for the Company’s Board committees are available on the
Company’s website, www.costar.com. You
will find the charters by clicking on “Corporate Info”, then “Investors”, then
“Corporate Governance.”
7
Identifying
and Evaluating Nominees
The
Nominating & Corporate Governance Committee identifies nominees for
director on its own as well as by considering recommendations from other members
of the Board, officers and employees of CoStar, and other sources that the
Committee deems appropriate. The Nominating & Corporate Governance
Committee will also consider Board nominees suggested by stockholders subject to
such recommendations being made in accordance with CoStar’s Bylaws and
applicable laws. Specifically, any stockholder recommendation for a nominee for
director to be voted upon at the 2009 Annual Meeting of Stockholders should be
submitted in writing to our Corporate Secretary at 2 Bethesda Metro Center,
Tenth Floor, Bethesda, MD 20814 no less than 60 nor more than
90 days before the first anniversary date of the preceding year’s annual
meeting. Accordingly, stockholders who wish to nominate persons for election as
directors at the 2009 Annual Meeting must give notice of their intention to do
so in writing to our Corporate Secretary on or before Saturday, April 11,
2009, but no sooner than Thursday, March 12, 2009. The stockholder’s
submission must include as to each person whom the stockholder proposes to
nominate for election, all information relating to such person that is required
to be disclosed in solicitations of proxies for election of directors, or is
otherwise required, in each case pursuant to Regulation 14A under the
Exchange Act, and as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination is made, (i) the name and
address of such stockholder, as they appear on the Company’s books, and of such
beneficial owner, and (ii) the class and number of shares of stock of the
Company which are beneficially owned and of record by such stockholder and such
beneficial owner. These requirements are separate from and in addition to the
requirements that stockholders must meet to include proposals in the proxy
materials for the 2009 Annual Meeting, discussed earlier in this Proxy
Statement.
When
evaluating nominees for director, the Nominating & Corporate Governance
Committee considers, among other things, an individual’s business experience and
skills, independence, judgment, integrity and ability to commit sufficient time
and attention to the activities of the Board, as well as the absence of any
potential conflicts with the Company’s interests. When considering a director
standing for re-election as a nominee, in addition to the attributes described
above, the Nominating & Corporate Governance Committee also considers
that individual’s past contribution and future commitment to CoStar. The
Nominating & Corporate Governance Committee evaluates the totality of
the merits of each prospective nominee that it considers and does not restrict
itself by establishing minimum qualifications or attributes. There is no
difference in the manner by which the Nominating & Corporate Governance
Committee evaluates prospective nominees for director based on the source from
which the individual was first identified.
Because
of Ms. Reynolds’ decision not to stand for reelection, the Nominating &
Corporate Governance Committee undertook a search for a new Board
candidate. The Committee members and our Chief Executive Officer
compiled a list of potential candidates in the real estate and technology
industries. Through this process, Mr. Glosserman was identified by
the Committee. The Nominating & Corporate Governance Committee
evaluated Mr. Glosserman based on the standards and qualifications set forth
above and determined to recommend him to the Board to nominate for election to
the Board by the Stockholders. The Committee did not use a third
party search firm during this process.
Stockholder
Communications with the Board
Stockholders
may communicate with our Board by sending written correspondence to
CoStar Group, Inc., Attention: Corporate Secretary, 2 Bethesda Metro
Center, Bethesda MD 20814. Such communications will be opened by the Corporate
Secretary. A copy of the contents will be made and retained by the Corporate
Secretary and the contents will be promptly forwarded to the Chairman of the
Nominating & Corporate Governance Committee. The Corporate Secretary
together with the Chairman of the Nominating & Corporate Governance
Committee and his duly authorized agents are responsible for collecting and
organizing stockholder communications. Absent a conflict of interest, the
Chairman of the Nominating & Corporate Governance Committee is
responsible for evaluating the materiality of each stockholder communication and
determining which stockholder communications are to be presented to the full
Board or other appropriate body.
Independent
Directors and Executive Sessions
CoStar’s
Board has determined that Messrs. Klein, Bonderman, Glosserman, Haber, Low,
Nassetta and Reynolds are each independent as defined under
Rule 4200(a)(15) of the NASD’s Listing Standards for NASDAQ-listed
companies. In making this determination, the board determined that
none of the independent directors has any direct or indirect relationship with
the company other than his or her relationship as a director.
8
The
independent directors of the Board of Directors meet in regularly scheduled
executive sessions, which are typically run by the Chairman of the Board, Mr.
Klein.
Policy
Regarding Attendance at Annual Meetings
CoStar
encourages, but does not require, directors to attend the Annual Meetings of
Stockholders. In 2007, Messrs. Klein and Florance attended the Annual
Meeting of Stockholders.
Codes
of Conduct
CoStar
has adopted a Code of Conduct for its directors. In addition, CoStar has adopted
a separate Code of Conduct for its officers and employees, including its
principal executive officer and principal financial officer. Copies of each of
these codes may be found on the Company’s website, www.costar.com. You
will find the codes by clicking on “Corporate Info,” then “Investors” and then
“Corporate Governance.”
The
Audit Committee reviews the Company’s financial reporting process on behalf of
the Board. Management has the primary responsibility for the financial
statements and the reporting process. The Company’s independent registered
public accounting firm is responsible for expressing an opinion on the
conformity of the Company’s audited consolidated financial statements to
generally accepted accounting principles.
In
this context, the Audit Committee has reviewed and discussed with management and
the independent registered public accounting firm the audited consolidated
financial statements for 2007. The Audit Committee has discussed with the
independent registered public accounting firm the matters required to be
discussed by Statement on Auditing Standards No. 61, as amended (AICPA,
Professional Standards,
Vol. 1. AU Section 380), as adopted by the PCAOB in Rule 3200T. In
addition, the Audit Committee has received from the independent registered
public accounting firm the written disclosures and the letter required by
Independence Standards Board Standard No. 1 (Independence Discussions with
Audit Committees), as adopted by the PCAOB in Rule 3600T, and discussed
with them their independence from the Company and its management. The Audit
Committee has also considered whether the independent registered public
accounting firm’s provision of non-audit services to the Company is compatible
with the auditors’ independence.
In
reliance on the reviews and discussions referred to above, the Audit Committee
recommended to the Board that the audited consolidated financial statements be
included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2007, for filing with the SEC.
By
the Audit Committee
of
the Board of Directors
April 28,
2008
Warren
H. Haber, Chairman
Josiah
O. Low, III
Catherine
B. Reynolds
The
Compensation Committee of the Board annually reviews director compensation for
service on the Board and for service on any Board committees and subsequently
recommends director compensation and any changes to such compensation to the
Board for approval. The Board annually reviews and approves director
compensation for Board and committee services based on the recommendations of
the Compensation Committee. Current director compensation is set out
below.
Board Fees. Each
director, other than the Chairman of the Board and any employee director,
receives $20,000 annually as compensation for serving on the Company’s
Board.
9
Attendance
Fees. Each director, other than the Chairman of the Board and
any employee director, receives $2,000 for each meeting of the Board attended in
person or by telephone. Attendance fees are not paid for special meetings
attended by telephone or other similar means of remote
communication.
Chairman. The
Chairman of the Board receives $120,000 annually as compensation for additional
services that he is required to perform in his role as Chairman.
Stock
Grants. Annually on the date of the first Board meeting
following the annual meeting of stockholders: (a) each non-employee Board
member is entitled to receive a restricted stock grant worth at least $72,000 on
the date of grant; (b) the Chairperson of the Audit Committee is entitled
to receive a restricted stock grant worth at least $30,000 on the date of grant;
(c) each member of the Audit Committee (other than the Chairperson) is
entitled to receive a restricted stock grant worth at least $15,000 on the date
of grant; and (d) the Chairperson of each of the Compensation and
Nominating & Corporate Governance Committees of the Company is entitled
to receive a restricted stock grant worth at least $15,000 on the date of grant.
Each such restricted stock grant to the directors is made based on the fair
market value of the Company’s common stock on the date of grant and vests over
four years, as long as the director is still serving on our Board on such
vesting date.
During
2007, each non-employee director received a grant of 1,365 shares of
restricted stock valued at a price per share of $52.75, the fair market value of
the Company’s stock on the date of grant. One-fourth of these shares will vest
on each anniversary of the date of grant over four years, as long as such
director is still serving on our Board on such vesting date.
During
2007, Warren H. Haber, as the Chairman of the Audit Committee, received a grant
of 569 shares of restricted stock valued at a price per share of $52.75,
the fair market value of the Company’s stock on the date of grant. One-fourth of
these shares will vest on each anniversary of the date of grant over four years,
as long as Mr. Haber is still serving on our Board on such vesting
date.
During
2007, Josiah O. Low, III and Catherine B. Reynolds, as members of the Audit
Committee, each received a grant of 285 shares of restricted stock valued
at a price per share of $52.75, the fair market value of the Company’s stock on
the date of grant. One-fourth of these shares will vest on each anniversary of
the date of grant over four years, as long as the respective committee member is
still serving on our Board on such vesting date.
During
2007, Christopher J. Nassetta, as the Chairman of the Compensation Committee,
received a grant of 285 shares of restricted stock valued at a price per
share of $52.75, the fair market value of the Company’s stock on the date of
grant. One-fourth of these shares will vest on each anniversary of the date of
grant over four years, as long as Mr. Nassetta is still serving on our
Board on such vesting date.
During
2007, Josiah O. Low, III, as the Chairman of the Nominating &
Corporate Governance Committee, received a grant of 284 shares of
restricted stock valued at a price per share of $52.75, the fair market value of
the Company’s stock on the date of grant. One-fourth of these shares will vest
on each anniversary of the date of grant over four years, as long as
Mr. Low is still serving on our Board on such vesting date.
Expenses. Each
director is entitled to reimbursement of his expenses for serving as a member of
our Board, including expenses in connection with attending each meeting of the
Board and each meeting of any committee.
Director
Compensation Table for Fiscal-Year 2007
The
following Director Compensation table shows the compensation we paid in 2007 to
our non-employee directors.
|
Name
|
Fees
Earned or
Paid
in Cash
(1)
($)
|
Stock
Awards(2)
($)
|
Option
Awards(3)
($)
|
Total
($)
|
|||||||||||
|
Michael
R. Klein, Chairman
|
$ | 120,000 | $ | 41,099 | (4a) | $ | 24,089 | (4b) | $ | 185,188 | |||||
|
David
Bonderman
|
$ | 28,000 | $ | 41,099 | (5a) | $ | 24,089 | (5b) | $ | 93,188 | |||||
|
Warren
H. Haber
|
$ | 28,000 | $ | 58,211 | (6a) | $ | 33,725 | (6b) | $ | 119,936 | |||||
|
Josiah
O. Low, III
|
$ | 26,000 | $ | 58,211 | (7a) | $ | 28,907 | (7b) | $ | 113,118 | |||||
|
Christopher
J. Nassetta
|
$ | 28,000 | $ | 49,657 | (8a) | $ | 24,089 | (8b) | $ | 101,746 | |||||
|
Catherine
B. Reynolds
|
$ | 26,000 | $ | 49,657 | (9a) | $ | 19,352 | (9b) | $ | 95,009 | |||||
10
__________
|
(1)
|
This
column shows the amount of cash compensation earned in 2007 for Board and
Committee service.
|
|
(2)
|
This
column shows the dollar amount recognized for financial statement
reporting purposes with respect to the 2007 fiscal year fair value of
restricted stock granted in 2007 and prior fiscal years, in accordance
with FAS 123R. The award fair values for 2007 have been
determined based on the assumptions set forth in the Company’s
Form 10-K for the period ended December 31, 2007 (Note 13,
Employee Benefit Plans).
|
|
(3)
|
This
column shows the dollar amount recognized for financial statement
reporting purposes with respect to the 2007 fiscal year fair value of
stock options granted in 2007 and prior fiscal years, in accordance with
FAS 123R. The award fair values for 2007 have been
determined based on the assumptions set forth in the Company’s
Form 10-K for the period ended December 31, 2007 (Note 13,
Employee Benefit Plans).
|
|
(4a)
|
The
grant date fair value of the restricted stock award granted to Mr. Klein
on September 14, 2007 is $72,003.75, based on the closing stock price on
the date of grant, which was $52.75. As of December 31, 2007,
Mr. Klein held 779 shares of restricted common stock granted on October 7,
2005, 1,369 shares of restricted common stock granted on September 7,
2006, and 1,365 shares of restricted common stock granted on September 14,
2007.
|
|
(4b)
|
As
of December 31, 2007, Mr. Klein held options to purchase up to 19,000
shares of common stock, 17,750 of which are currently
exercisable.
|
|
(5a)
|
The
grant date fair value of the restricted stock award granted to Mr.
Bonderman on September 14, 2007 is $72,003.75, based on the closing stock
price on the date of grant, which was $52.75. As of December
31, 2007, Mr. Bonderman held 779 shares of restricted common stock granted
on October 7, 2005, 1,369 shares of restricted common stock granted on
September 7, 2006, and 1,365 shares of restricted common stock granted on
September 14, 2007.
|
|
(5b)
|
As
of December 31, 2007, Mr. Bonderman held options to purchase up to 20,000
shares of common stock, 18,750 of which are currently
exercisable.
|
|
(6a)
|
The
grant date fair value of the restricted stock award granted to Mr. Haber
on September 14, 2007 is $102,018.50, based on the closing stock price on
the date of grant, which was $52.75. As of December 31, 2007,
Mr. Haber held 1,103 shares of restricted common stock granted on October
7, 2005, 1,939 shares of restricted common stock granted on September 7,
2006, and 1,934 shares of restricted common stock granted on September 14,
2007.
|
|
(6b)
|
As
of December 31, 2007, Mr. Haber held options to purchase up to 28,000
shares of common stock, 26,250 of which are currently
exercisable.
|
|
(7a)
|
The
grant date fair value of the restricted stock award granted to Mr. Low on
September 14, 2007 is $102,018.50, based on the closing stock price on the
date of grant, which was $52.75. As of December 31, 2007, Mr.
Low held 1,103 shares of restricted common stock granted on October 7,
2005, 1,939 shares of restricted common stock granted on September 7,
2006, and 1,934 shares of restricted common stock granted on September 14,
2007.
|
|
(7b)
|
As
of December 31, 2007, Mr. Low held options to purchase up to 22,000 shares
of common stock, 20,500 of which are currently
exercisable.
|
|
(8a)
|
The
grant date fair value of the restricted stock award granted to Mr.
Nassetta on September 14, 2007 is $87,037.50, based on the closing stock
price on the date of grant, which was $52.75. As of December
31, 2007, Mr. Nassetta held 941 shares of restricted common stock granted
on October 7, 2005, 1,654 shares of restricted common stock granted on
September 7, 2006, and 1,650 shares of restricted common stock granted on
September 14, 2007.
|
|
(8b)
|
As
of December 31, 2007, Mr. Nassetta held options to purchase up to 15,000
shares of common stock, 13,750 of which are currently
exercisable.
|
|
(9a)
|
The
grant date fair value of the restricted stock award granted to Ms.
Reynolds on September 14, 2007 is $87,037.50, based on the closing stock
price on the date of grant, which was $52.75. As of December
31, 2007, Ms. Reynolds held 941 shares of restricted common stock granted
on October 7, 2005, 1,654 shares of restricted common stock granted on
September 7, 2006, and 1,650 shares of restricted common stock granted on
September 14, 2007.
|
|
(9b)
|
As
of December 31, 2007, Ms. Reynolds held options to purchase up to 5,000
shares of common stock, 3,750 of which are currently
exercisable.
|
11
The
following table lists our current executive officers and key
employees:
|
Name
|
Age(1)
|
Years of Service(2)
|
Position
|
|||
|
Andrew
C. Florance*
|
44
|
21
|
Chief
Executive Officer, President and Director
|
|||
|
Brian
J. Radecki*
|
37
|
11
|
Chief
Financial Officer and Treasurer
|
|||
|
Jennifer
L. Kitchen*
|
35
|
14
|
Sr.
Vice President of Research
|
|||
|
Paul
Marples*
|
46
|
7(3) |
Managing
Director, CoStar UK Limited
|
|||
|
Christopher
R. Tully*
|
51
|
4
|
Sr.
Vice President of Sales and Customer Service
|
|||
|
Jonathan
Coleman
|
43
|
8
|
General
Counsel and Secretary
|
|||
|
Craig
Farrington
|
|
50
|
25(3) |
Vice
President of Research
|
||
|
Frank
Simuro
|
41
|
9
|
Chief
Information Officer
|
|||
|
John
Stanfill
|
40
|
13
|
Sr.
Vice President, Marketing & Product Management
|
|||
|
Dean
Violagis
|
41
|
19
|
Vice
President of Research
|
____________
*
Executive Officer.
|
(1)
|
Age
determined as of June 1, 2008.
|
|
(2)
|
Years
of service include the current year of
service.
|
|
(3)
|
Includes
years of service with acquired
companies.
|
Information
about Mr. Florance appears above under “Item 1 — Election of
Directors.” Information about each of the other individuals appears
below.
Brian J. Radecki, our Chief
Financial Officer and Treasurer, first joined the Company in 1997 as our
Corporate Controller. Prior to his appointment as Chief Financial
Officer in 2007, Mr. Radecki served as Vice President of Research Operations,
the Company’s largest operating area, and before that he was Director of
Accounting and Finance where he was involved in every aspect of the company's
accounting and finance functions in the U.S. and U.K. Also, from
February 2000 until February 2001, he was Chief Financial Officer of Comps, Inc.
(formerly a wholly owned subsidiary of the Company). Before joining CoStar, Mr.
Radecki was the Accounting Manager at Axent Technologies, Inc. (“Axent”), a
publicly held international security software company. Prior to Axent, Mr.
Radecki worked at Azerty, Inc. and the public accounting firm, Lumsden &
McCormick, LLP, in Buffalo, NY. Mr. Radecki received a B.S. in business
administration and a dual degree in both accounting and finance from the State
University of New York at Buffalo.
Jennifer L. Kitchen, our
Senior Vice President of Research, first joined CoStar in 1994 as a research
analyst for the company’s first New York City research team. Prior to
her appointment as Senior Vice President of Research in 2006, Ms. Kitchen held
management positions with increasing responsibility. Between 1995 and
1997, she led CoStar’s research expansion into the Los Angeles market and
managed its research operations on the West Coast. In 1998, Ms. Kitchen
established CoStar’s first field research and photography operations and was
subsequently promoted to Director of Field Research and Photography. She was
appointed Vice President of Field Research in 2004, where she led the company’s
overall field operations for collecting building-level data and photographing
properties throughout the United States. Ms. Kitchen is responsible for our
entire research operations. Ms. Kitchen holds a B.A. in history from
Wellesley College.
Paul Marples, the Managing
Director of our U.K. subsidiary, CoStar UK Limited, is in charge of our CoStar
FOCUS service and our European operations. Mr. Marples joined us upon
the acquisition of Property Investment Exchange Limited (Propex) in February
2007. Mr. Marples previously served as Managing Director of Propex
from 2001 to 2007. Mr. Marples began his career in the commercial property
industry in 1984, as a Chartered Surveyor for Weatherall Green and Smith
(Atisreal) in London and Spain. From 1984 to 1996, Mr. Marples rose from
Chartered Surveyor to Partner (London) to Managing Director (Spain) of
Weatherall Green and Smith. In 1996, he established Brown Cooper Marples (BCM),
a London-based investment brokerage firm where he served as Managing Director,
before helping launch Propex beginning in 2001 through the consolidation of a
number of property-related, Internet-based businesses. Mr. Marples received a
M.A. in geography from Oxford University.
Christopher R. Tully, our
Senior Vice President of Sales and Customer Service, joined us in December 2004.
From July 2002 until December 2004, Mr. Tully was Group Vice President of
Sales for GTSI, Corp., a provider of information technology solutions to
federal, state and local governments worldwide. Before joining GTSI, from May
2001 to June 2002, Mr. Tully was Director of Sales for the Preferred
Accounts Division at Dell Computer Corporation. Prior to that, from June
1998 to April 2001, Mr. Tully served as Director of Sales in Dell’s
Business Systems Division. Prior to his employment with Dell, Mr. Tully
served as Vice President — Worldwide Digital Office Marketing at Xerox
Corp., where he worked for sixteen years in sales and marketing. Mr. Tully
received a B.A. in English from Georgetown University.
12
Jonathan Coleman, our General
Counsel and Secretary, first joined us in May 2000 as Deputy General Counsel. He
has served as General Counsel and Secretary since July 2005. From October 1996
to May 2000, Mr. Coleman was a Trial Attorney with the U.S. Department
of Justice’s Civil Division. Prior to that, Mr. Coleman was an associate at
Fried, Frank, Harris, Shriver & Jacobson, where he practiced commercial
litigation. Mr. Coleman received a B.A. in economics and public policy
studies from Dickinson College and his J.D. from George Washington
University.
Craig S. Farrington, our Vice
President of Research, joined the Company as a result of the merger of COMPS.COM
and CoStar Group, Inc. in February 2000. Mr. Farrington is responsible for
our SanDiego, California research operations and has product management
responsibility for CoStar COMPS®.
Mr. Farrington joined COMPS.COM in 1983, where he served in various senior
management roles throughout the company, including Vice President of Marketing
and Product Development. Mr. Farrington received a B.A. in business and
economics from Westmont College.
Frank Simuro, our Chief
Information Officer, first joined the Company in December 1999 as Director of
Information Systems. He served as Senior Vice President of Information Systems
from May 2005 to January 2008. Prior to joining CoStar, Mr. Simuro was
Director of Data Warehousing at GRC International. Prior to GRC, Mr. Simuro
was a technology consultant specializing in operational efficiency and database
technologies. Mr. Simuro received a M.S. in information systems from George
Washington University and a B.A. in computer science from State University of
New York — Geneseo.
John Stanfill, our Senior
Vice President of Marketing & Product Management, first joined us in June
1995 as an Account Executive for the New York City market. Since
then, he has held positions of increasing responsibility at CoStar, ranging from
business development and national market expansion to management of the
Company’s Inside Sales Division. Before being appointed Senior Vice
President of Marketing & Product Management, Mr. Stanfill held the position
of Vice President of Product Management from December 2007 to early
2008. Mr. Stanfill received a B.A. from Boston
University.
Dean L. Violagis, our Vice
President of Research, joined us in 1989 as a research analyst. He has served as
Vice President of Research since May 1996. Over the years, he has been
involved in the company’s geographic market expansion. Mr. Violagis is
responsible for our Bethesda, Maryland research operations. Mr. Violagis
received a B.A. in real estate finance from American University.
The
following table provides certain information regarding the beneficial ownership
of our common stock as of April 1, 2008, unless otherwise noted,
by:
|
|
•
|
our
Chief Executive Officer and President, our Chief Financial Officer, the
three most highly compensated executive officers of the Company (other
than the CEO and CFO) who were serving as executive officers on
December 31, 2007, consisting of our three other executive officers,
our former CFO who served in that capacity during 2007, and one additional
individual for whom disclosure would have been provided but for the fact
that the individual was not serving as an executive officer as of December
31, 2007 (whom we refer to collectively in this proxy statement as the
“named executive officers”);
|
|
|
•
|
each
of our current directors and our nominee for
director;
|
|
|
•
|
each
person we know to be the beneficial owner of more than 5% of the
outstanding common stock (based solely upon Schedule 13D and
Schedule 13G filings with the Securities and Exchange Commission,
which can be reviewed for further information on each such beneficial
owner’s holdings); and
|
• all
of our named executive officers, our current directors and our nominee for
director as a group.
13
|
Name and Address(1)
|
Shares
Beneficially Owned (1)
|
Percentage
of
Outstanding Shares(1)
|
|||
|
Michael
R. Klein(2)
|
923,497 | 4.73 | |||
|
Andrew
C. Florance(3)
|
444,967 | 2.25 | |||
|
Brian
J. Radecki(4)
|
27,429 | * | |||
|
Frank
Carchedi
|
16,043 | * | |||
|
Jennifer
L. Kitchen(5)
|
18,329 | * | |||
|
Christopher
R. Tully(6)
|
65,289 | * | |||
|
Paul
Marples(7)
|
29,249 | * | |||
|
Craig
Farrington(8)
|
65,456 | * | |||
|
David
Bonderman(9)
|
284,489 | 1.46 | |||
| Michael J. Glosserman | 0 | — | |||
|
Warren
H. Haber(10)
|
116,284 | * | |||
|
Josiah
O. Low, III(11)
|
34,224 | * | |||
|
Christopher
J. Nassetta(12)
|
19,486 | * | |||
|
Catherine
B. Reynolds(13)
|
9,486 | * | |||
|
Baron
Capital Group, Inc and related entities and persons(14)
|
1,855,500 | 9.51 | |||
|
FMR
LLC and Edward C. Johnson 3d(15)
|
2,893,060 | 14.83 | |||
|
Federated
Investors, Inc. and related entities and persons(16)
|
1,605,575 | 8.23 | |||
|
Janus
Capital Management LLC(17)
|
2,375,229 | 12.17 | |||
|
Morgan
Stanley and related entity(18)
|
2,445,286 | 12.53 | |||
|
TimesSquare
Capital Management, LLC(19)
|
1,395,189 | 7.15 | |||
|
Transamerica
Investment Management, LLC(20)
|
1,337,744 | 6.86 | |||
|
All directors,
nominees and named executive officers as a group (14
persons)(21)
|
2,054,228 | 10.28 |
____________
|
(1)
|
Unless
otherwise noted, each listed person’s address is c/o CoStar Group,
Inc., 2 Bethesda Metro Center, Tenth Floor, Bethesda, Maryland 20814.
Beneficial ownership, as determined in accordance with Rule 13d-3
under the Exchange Act, includes sole or shared power to vote or direct
the voting of, or to dispose or direct the disposition of shares, as well
as the right to acquire beneficial ownership within 60 days of
April 1, 2008, through the exercise of an option or otherwise. Except
as indicated in the footnotes to the table, we believe that the persons
named in the table have sole voting and investment power with respect to
the indicated shares of common stock. The use of * indicates ownership of
less than 1%. As of April 1, 2008, the Company had
19,511,749 shares of common stock
outstanding.
|
|
(2)
|
Includes
17,750 shares issuable upon options exercisable within 60 days
of April 1, 2008, as well as 3,513 shares of restricted stock
that are subject to vesting
restrictions.
|
|
(3)
|
Includes
237,472 shares issuable upon options exercisable within 60 days
of April 1, 2008, as well as 80,849 shares of restricted stock
that are subject to vesting
restrictions.
|
|
(4)
|
Includes
9,208 shares issuable upon options exercisable within 60 days of
April 1, 2008, as well as 15,510 shares of restricted stock that
are subject to vesting
restrictions.
|
|
(5)
|
Includes
10,266 shares issuable upon options exercisable within 60 days
of April 1, 2008, as well as 7,486 shares of restricted stock
that are subject to vesting
restrictions.
|
|
(6)
|
Includes
54,633 shares issuable upon options exercisable within 60 days
of April 1, 2008, as well as 10,069 shares of restricted stock
that are subject to vesting
restrictions.
|
|
(7)
|
Includes
9,600 shares of restricted stock that are subject to vesting
restrictions.
|
|
(8)
|
Includes
58,833 shares issuable upon options exercisable within 60 days
of April 1, 2008, as well as 5,381 shares of restricted stock
that are subject to vesting
restrictions.
|
|
(9)
|
Includes
18,750 shares issuable upon options exercisable within 60 days
of April 1, 2008, as well as 3,513 shares of restricted stock
that are subject to vesting
restrictions.
|
|
(10)
|
Includes
6,000 shares held by Mr. Haber’s spouse and excludes
20,000 shares held by Mr. Haber’s adult son for which
Mr. Haber disclaims beneficial ownership. Also includes
26,250 shares issuable upon options exercisable within 60 days
of April 1, 2008, as well as 4,976 shares of restricted stock
that are subject to vesting
restrictions.
|
|
(11)
|
Includes
1,000 shares held by Mr. Low’s spouse for which Mr. Low
disclaims beneficial ownership. Also includes 20,500 shares issuable
upon options exercisable within 60 days of April 1, 2008, as
well as 4,976 shares of restricted stock that are subject to vesting
restrictions.
|
14
|
(12)
|
Includes
13,750 shares issuable upon options exercisable within 60 days
of April 1, 2008, as well as 4,245 shares of restricted stock
that are subject to vesting
restrictions.
|
|
(13)
|
Includes
3,750 shares issuable upon options exercisable within 60 days of
April 1, 2008, as well as 4,245 shares of restricted stock that
are subject to vesting
restrictions.
|
|
(14)
|
Based
on a Schedule 13G/A filed by Baron Capital Group, Inc. (“BCG”),
BAMCO, Inc. (“BAMCO”), Baron Capital Management, Inc. (“BCM”) and Ronald
Baron on February 14, 2008. BCG and Ronald Baron both had sole voting
power with respect to no shares, shared voting power with respect to
1,731,000 shares, sole dispositive power with respect to no shares,
and shared dispositive power with respect to 1,855,500 shares. BAMCO
had sole voting power with respect to no shares, shared voting power with
respect to 1,624,000 shares, sole dispositive power with respect to
no shares, and shared dispositive power with respect to
1,744,000 shares. Baron Capital Management, Inc. (“BCM”) had sole
voting power with respect to no shares, shared voting power with respect
to 107,000 shares, sole dispositive power with respect to no shares,
and shared dispositive power with respect to 111,500 shares. BCG and
Ronald Baron disclaim beneficial ownership of shares held by their
controlled entities (or the investment advisory clients thereof) to the
extent such shares are held by persons other than BCG and Ronald Baron.
BAMCO and BCM disclaim beneficial ownership of shares held by their
investment advisory clients to the extent such shares are held by persons
other than BAMCO, BCM and their affiliates. The address of the reporting
person is 767 Fifth Avenue, New York, NY
10153.
|
|
(15)
|
Based
on a Schedule 13G/A filed by FMR LLC on February 14, 2008. The
reporting person had sole voting power with respect to no shares, shared
voting power with respect to no shares, sole dispositive power with
respect to 2,893,060 shares, and shared dispositive power with
respect to no shares. Fidelity Management & Research Company
(“Fidelity”), a wholly owned subsidiary of FMR LLC, is the beneficial
owner of 2,893,060 shares as a result of acting as investment adviser
to various investment companies registered under Section 8 of the
Investment Company Act of 1940. The ownership of one investment company,
Fidelity Mid Cap Stock Fund, amounted to 1,750,000 shares or 8.97% of
the common stock outstanding. Edward C. Johnson 3d and FMR LLC, through
its control of Fidelity, and the funds each has sole power to dispose of
the 2,893,060 shares owned by the Funds. Members of the family of
Edward C. Johnson 3d, Chairman of FMR LLC, are the predominant owners,
directly or through trusts, of Series B shares of common stock of FMR
LLC, representing 49% of the voting power of FMR LLC. The Johnson family
group and all other Series B shareholders have entered into a
shareholders’ voting agreement under which all Series B voting common
shares will be voted in accordance with the majority vote of Series B
voting common shares. Accordingly, through their ownership of voting
common shares and the execution of the shareholders’ voting agreement,
members of the Johnson family may be deemed, under the Investment Company
Act of 1940, to form a controlling group with respect to FMR LLC. Neither
FMR LLC nor Edward C. Johnson 3d, Chairman of FMR LLC, has the sole power
to vote or direct the voting of the shares owned directly by the Fidelity
Funds, which power resides with the Funds’ Boards of Trustees. Fidelity
carries out the voting of the shares under written guidelines established
by the Funds’ Boards of Trustees. The address of the reporting person is
82 Devonshire Street, Boston, MA
02109.
|
|
(16)
|
Based
on a Schedule 13G/A filed by Federated Investors, Inc. on
February 13, 2008. The reporting person had sole voting power with
respect to 1,605,575 shares, shared voting power with respect to no
shares, sole dispositive power with respect to 1,605,575 shares, and
shared dispositive power with respect to no shares. Federated Investors,
Inc. is the parent holding company of Federated Equity Management Company
of Pennsylvania and Federated Global Investment Management Corp. (the
“Investment Advisers”), which act as investment advisers to registered
investment companies and separate accounts that own shares of our common
stock (the “Reported Securities”). The Investment Advisers are wholly
owned subsidiaries of FII Holdings, Inc., which is wholly owned subsidiary
of Federated Investors, Inc. (the “Parent”). All of the Parent’s
outstanding voting stock is held in the Voting Shares Irrevocable
Trust (the “Trust”) for which John F. Donahue, Rhodora J. Donahue and J.
Christopher Donahue act as trustees (collectively, the “Trustees”). The
Trustees joined in filing the Schedule 13G/A because of the
collective voting control that they exercise over the Parent. The Parent,
the Trust, and each of the Trustees expressly disclaim beneficial
ownership of the Reported Securities. The address of the reporting person
is Federated Investors Towers, Pittsburgh, PA
15222-3779.
|
|
(17)
|
Based
on a Schedule 13G/A filed by Janus Capital Management LLC (“Janus
Capital”) on February 14, 2008. The reporting person had sole voting
power with respect to 2,375,229 shares, shared voting power with
respect to no shares, sole dispositive power with respect to
2,375,229 shares, and shared dispositive power with respect to no
shares. The address of the reporting person is 151 Detroit Street, Denver,
CO 80206. Janus Capital has an indirect 86.5% ownership stake
in Enhanced Investment Technologies LLC (“InTech”) and an indirect 30%
ownership stake in Perkins, Wolf, McDonnell and Company, LLC (“Perkins
Wolf”). Due to this ownership structure, holdings for Janus
Capital, Perkins Wolf and InTech are aggregated in their Schedule
13G/A.
|
15
|
(18)
|
Based
on a Schedule 13G/A filed by Morgan Stanley on February 14,
2008. The reporting person had sole voting power with respect to
2,273,085 shares, shared voting power with respect to no shares, sole
dispositive power with respect to 2,445,286 shares, and shared
dispositive power with respect to no shares. The securities
being reported upon by Morgan Stanley as a parent holding company are
owned, or may be deemed to be beneficially owned, by Morgan Stanley
Investment Management Inc., an investment adviser in accordance with
Rule 13d-1(b)(1)(ii)(E), as amended. Morgan Stanley Investment
Management Inc. is a wholly owned subsidiary of Morgan
Stanley. Morgan Stanley Investment Management Inc. had sole
voting power with respect to 1,660,967 shares, shared voting power with
respect to no shares, sole dispositive power with respect to 1,761,137
shares, and shared dispositive power with respect to no
shares. The address of the reporting person is 1585 Broadway,
New York, NY 10036, and the address of Morgan Stanley Investment
Management Inc. is 522 Fifth Avenue, New York,
NY 10036.
|
|
(19)
|
Based
on a Schedule 13G/A filed by TimesSquare Capital Management, LLC on
January 31, 2008. The reporting person had sole voting power with respect
to 1,257,389 shares, shared voting power with respect to no shares,
sole dispositive power with respect to 1,395,189 shares, and shared
dispositive power with respect to no shares. The address of the reporting
person is 1177 Avenue of the Americas — 39th Floor, New York,
NY 10036.
|
|
(20)
|
Based
on a Schedule 13G/A filed by Transamerica Investment Management, LLC
on February 14, 2007. The reporting person had sole voting power with
respect to 1,096,340 shares, shared voting power with respect to
17 shares, sole dispositive power with respect to
1,337,744 shares, and shared dispositive power with respect to no
shares. The address of the reporting person is 11111 Santa Monica
Boulevard, Suite 820, Los Angeles,
CA 90025.
|
|
(21)
|
Includes
471,162 shares issuable upon options exercisable within 60 days
of April 1, 2008, as well as 154,363 shares of restricted stock
that are subject to vesting
restrictions.
|
Plan
Shares Outstanding
The
following table sets forth information with respect to the Company’s equity
compensation plans approved by security holders. The Company does not have any
equity compensation plans not approved by security holders. The information in
this table is as of December 31, 2007.
|
Plan Category
|
Number
of securities to be issued
upon exercise of outstanding
options,
warrants, and rights
|
Weighted-average
exercise price of outstanding
options, warrants, and rights
|
Number
of securities remaining available
for future issuance
under equity compensation
plans
(excluding
securities reflected in the first column)
|
|||
|
Equity
compensation plans approved by security holders (1)
|
967,845
|
$33.25
|
1,055,998
|
__________
(1) The
Company’s 1998 Plan and the Company’s 2007 Plan, provide for various types of
awards, including options and restricted stock grants. In April 2007,
the Company’s Board of Directors adopted the 2007 Plan, subject to stockholder
approval, which was obtained on June 7, 2007. All shares of common
stock that were authorized for issuance under the 1998 Plan that, as of June 7,
2007, remained available for issuance under the 1998 Plan (excluding shares
subject to outstanding awards) were rolled into the 2007 Plan and, as of that
date, no shares of common stock remained available under the 1998
Plan. The 1998 Plan continues to govern unexercised and unexpired
awards issued under the 1998 Plan prior to June 7, 2007.
Messrs. Nassetta,
Bonderman, Haber and Klein, the current members of the Compensation Committee,
are each non-employee directors. Mr. Klein serves as the Chairman of the
Board of the Company. During 2007, none of the members of the Compensation
Committee were officers or employees of the Company or any of its subsidiaries.
During 2007, none of the Company’s executive officers served as a director or
compensation committee member of any entity with an executive officer or
director who served as a director or Compensation Committee member of the
Company.
16
The
Compensation Committee has reviewed and discussed with management the following
Compensation Discussion and Analysis section of the Company’s 2008 Proxy
Statement. Based on its review and discussions with management, the Compensation
Committee recommended to the Board of Directors that the Compensation Discussion
and Analysis be included in the Company’s Proxy Statement for 2008.
By
the Compensation Committee
of
the Board of Directors
April 28,
2008
Christopher
J. Nassetta, Chairman
Warren
H. Haber
David
Bonderman
Michael
R. Klein
Compensation
Philosophy and Objectives
The
Company’s Compensation Committee (the “Committee”) is responsible for designing
and maintaining the Company’s executive compensation program consistent with the
objectives below. The Committee operates under a written charter approved by the
Board. For additional information about the Committee’s authority and
its ability to delegate its authority, see the section of this proxy statement
titled “Additional Information—Board Meetings and Committees—Compensation
Committee” on page 7. The Committee annually establishes and reviews
all forms of direct compensation, including base salaries, annual incentive
bonuses, and both the terms and types of equity awards, for the Company’s named
executive officers.
The
Company’s executive compensation program seeks to
|
·
|
link
executive compensation with the achievement of overall corporate
goals,
|
|
·
|
encourage
and reward superior performance,
and
|
|
·
|
assist
the Company in attracting, motivating and retaining talented
executives.
|
Accordingly,
executive compensation is structured to ensure that a significant portion of
compensation paid to named executive officers is directly related to the
Company’s short-term and long-term performance, thereby aligning the interests
of named executive officers with those of the Company’s stockholders. For
example, as discussed below, a major portion of the named executive officers’
opportunities under the Company’s cash incentive and equity compensation
programs is tied to the Company’s revenue growth objectives, earnings objectives
and stock performance. The Committee also recognizes that the market for
executives in the commercial real estate information services industry is highly
competitive, and therefore seeks to provide a competitive total compensation
package so that the Company may maintain its leadership position in this
industry by attracting, retaining, and motivating executives capable of
enhancing stockholder value.
Determination
of Executive Compensation
As
part of the compensation review process, the Committee annually reviews and
approves each element and the mix of compensation that comprises each named
executive officer’s total compensation package. Our Chief Executive
Officer and Chief Financial Officer make recommendations to the Committee for
each element of compensation awarded to named executive officers (including
establishment of individual and corporate financial goals), but the Compensation
Committee must approve each element of (and any changes to) executive
compensation. The Committee may consider a number of factors in
establishing or revising each named executive officer’s total compensation,
including individual performance, the Company’s financial performance, external
market and peer group practices, current compensation arrangements, certain
internal pay equity considerations and long-term potential to enhance
stockholder value. Particular factors considered by the Committee
with respect to each element of executive compensation are discussed
below. As in past years, for 2007 the Committee reviewed information
quantifying each element of the named executive officers’ compensation,
including base pay, annual cash incentives and equity awards.
17
Periodically
the Committee also retains independent compensation consulting firms to assist
it in gathering necessary benchmarking data and to provide it with information
about trends in compensation among comparably sized companies. The Committee
believes that comparing the compensation of each of the Company’s named
executive officers with executives in comparable positions at these peer
companies helps to ensure that the total compensation provided to the Company’s
named executive officers is set at an appropriate level to reward, attract and
retain top performers over the long term. Most recently, the
Committee retained Towers Perrin in 2006 and made several changes to the
Company’s executive compensation structure based in part on Tower Perrin’s
recommendations described below. The details of the Company’s current
executive compensation structure are discussed below.
As
referenced above, in May 2006, the Committee retained the outside consulting
firm of Towers Perrin to assess the competitiveness of the Company’s executive
pay structure and to identify potential modifications based on market practices
and trends, the Company’s business priorities, structure and growth
expectations, and views of management and the Committee. Towers Perrin reported
directly to the Committee through its chair, and, at the direction of the
Committee chair, also worked directly with the Company’s management to develop
materials and proposals with respect to named executive officer compensation for
2007 and future years. The Company did not engage an outside
consulting firm in 2007. In future years, the Committee plans at its
discretion to retain Towers Perrin (or another consulting firm) to update or
perform new studies to be used in connection with its executive compensation
decisions.
The
following is the list of peer companies selected and approved by the Committee
in 2006, based upon the recommendation of Towers Perrin, as comparable to the
Company in terms of market capitalization and annual revenues, and in terms of
product and potential competition for talent or business: Advent Software, Inc.;
Advisory Board Company; ANSYS Inc.; Atwood Oceanics Inc.; Brookline Bancorp
Inc.; Commercial Net Lease Realty, Cyberonics Inc.; Entertainment Properties
Trust; Idenix Pharmaceuticals Inc.; Immucor Inc.; IXIA, LCA-Vision Inc; Matria
Healthcare Inc.; The Medicines Company; Myogen Inc.; Onyx Pharmaceuticals Inc.;
Quality Systems Inc.; Shuffle Master Inc.; Sycamore Networks Inc.; TALX Corp.;
Theravance Inc.; TrustCo Bank Corp NY; CSG Systems International Inc.;
Infocrossing Inc.; LoopNet Inc.; and Move Inc. The Towers Perrin study also
considered general industry pay data (based on a survey prepared by Towers
Perrin) for comparably sized companies based on annual revenues, as well as data
processing and information services industry pay data. The Committee
was not made aware of the names of the companies who participated in Towers
Perrin’s surveys of general industry pay data and data processing and
information services industry pay data.
The
Committee utilized peer company and survey data as presented by Towers Perrin
when evaluating the executives’ base salary, total cash compensation (base
salary and bonus), and total compensation (base salary, bonus and expected value
at grant of long-term incentives) for 2007. In general, the Committee
believes that each element of executive compensation is market competitive if it
falls within +/- 15% of the median levels of peer company and survey data
provided by Towers Perrin.
Towers
Perrin presented its preliminary findings to the Committee in September 2006. On
December 12, 2006, after having met on several occasions to discuss the
Towers Perrin study and its recommendations, the Committee made a number of
changes to the Company’s named executive officer compensation program for 2007
and future years, including
|
-
|
adjustment
of base salaries based on peer group and industry survey
data;
|
|
-
|
changing
the focus of the annual cash incentive plan from a range focused on
“maximum” award values, to a range of opportunities oriented around a
“target” level of performance; and
|
|
-
|
revised
the structure of annual equity awards to include an annual grant of
performance-based restricted stock tied to a range of opportunities
oriented around a “target” level of performance pursuant to a four-year
plan, and an annual grant of options tied to a target award
value.
|
These
changes are consistent with the Committee’s desire to implement an executive
compensation program that is aligned with the Company’s performance and is
designed to enable the Company to attract, motivate and retain talented
executives. The Committee reevaluates and approves executive
compensation each year and, as indicated above, may retain consulting firms in
the future to assist with updating or performing studies to be used to assist
with executive compensation decisions.
Elements
of the Compensation Program
The
Company’s executive compensation program consists primarily of base salary,
annual cash bonuses and an annual award of restricted stock and stock
options. Additionally, each of our U.S. named executive officers are
eligible to receive compensation in the form of a Company 401(k) match, as well
as health insurance and similar benefits that are generally available to the
Company’s U.S. employees, and our U.K. named executive officer is eligible to
receive compensation in the form of a pension scheme contribution to a defined
contribution plan and Company-paid private medical insurance. As discussed more
fully below, our Senior Vice President of Sales and Customer Service,
Christopher Tully, also receives commission payments based on monthly production
of our U.S. sales force as a component of his total
compensation.
18
The
Company has an employment arrangement with each of its named executive officers
that entitles the executive to a specified base salary, an annual cash bonus
based on a percentage of base compensation subject to achievement of individual
and corporate goals, and an equity award (including restricted stock and stock
options), which may vest over time and/or in full after a specified period of
time. Each of these components is discussed in further detail below. Overall,
the Company strives to motivate its executives with straightforward, transparent
and competitive compensation arrangements intended to reward excellent
individual and corporate performance and enhance stockholder value.
Base
Salaries
Named
executive officers’ base salaries set a minimum level of compensation for
performance. Salary levels are reviewed annually by the
Committee. In establishing salary levels for 2007, the Committee
considered each executive’s individual responsibilities and performance, prior
base salary and total compensation, the pay levels of similarly situated
executives within the Company and data on market base salary and total
compensation levels (including Towers Perrin peer group and survey
data).
The
Committee determined, based on the Towers Perrin study, that, except for the
Company’s former Chief Financial Officer (Mr. Carchedi, who was acting CFO
at the time of the study), the named executive officers’ 2006 base salaries were
at or near market competitive levels at the time of the study based on peer
group and survey data. Accordingly, the Committee increased 2007
base salary for Messrs. Tully (Senior Vice President of Sales and Customer
Service) and Farrington (Vice President of Research) by 3% over their base
salaries for 2006 to account for cost of living adjustments, but increased
Mr. Carchedi’s base salary for 2007 by 24% in order to bring it within a
market competitive range. Mr. Florance, the Company’s Chief Executive
Officer and President, received an 8% increase in his 2007 base pay, due
primarily to the Committee’s strong belief that Mr. Florance significantly
and directly influences the Company’s overall performance. Mr.
Carchedi resigned effective June 5, 2007, at which time, Mr. Radecki was
appointed the Company’s Chief Financial Officer. Mr. Radecki
(our current Chief Financial Officer) received a 46% increase in his base salary
to bring it within a market competitive range and as a result of having been
promoted to the executive team on June 5, 2007, which was also the effective
date of the increase. Ms. Kitchen (Senior Vice President of
Research) received a 41% increase in her base salary to bring it within a market
competitive range and as a result of having been promoted to the executive team
on December 12, 2006, which was also the effective date of her
increase. Mr. Marples joined the Company in February 2007 as a result
of the Company’s acquisition of Property Investment Exchange Ltd. (Propex), and
his base salary for 2007 was included in his executive service contract signed
in connection with that acquisition.
The
Committee reviewed 2007 base salaries in early 2008 and determined to increase
the 2008 salaries for the named executive officers (who remain employed by
the Company as a named executive officer) by 4% over their salaries for 2007
primarily to account for cost of living adjustments.
Annual
Cash Incentive Plan
The
Committee administers an annual cash incentive plan under which the Company’s
named executive officers may receive a cash bonus based on individual and
corporate performance. At the beginning of each year, the Committee establishes
individual goals for each named executive officer based upon recommendations
from our Chief Executive Officer, as well as Company financial goals that apply
to all named executive officers, based upon recommendations from our Chief
Executive Officer and our Chief Financial Officer. The Committee also determines
the weighting of the various individual and Company financial goals, which may
vary among the named executive officers by position due to functional
accountability and responsibility and is subject to change from year to year,
based upon recommendations from our Chief Executive Officer and Chief Financial
Officer. The Committee seeks to establish performance goals that are challenging
but realistic given the expected operating environment at the time they are
established. These performance goals are intended to provide named
executive officers with incentive to achieve the Company’s short-term financial
and operating goals. After the completion of each year, the Committee
reviews individual and Company performance to determine the extent to which the
goals were achieved and the actual cash bonus to be paid to the named executive
officer.
In
the Committee’s view, the use of annual cash bonuses that are based on
performance creates a direct link between executive compensation and individual
and corporate performance. After review of our annual incentive
program in 2006 and at the recommendation of Towers Perrin, the Committee
modified the design of our annual cash incentive plan to focus on a “target”
level of performance with potential to earn more or less within the minimum and
maximum set award amounts, instead of a payout range previously used by the
Company that focused on “maximum” award values.
19
The
modification was designed to eliminate the focus placed on maximum award values
and to provide named executive officers a range of opportunities oriented around
a “target” award value consistent with most companies within the Towers Perrin
peer group. Commencing with the named executive officers’ 2007 cash
incentive awards to be paid in early 2008, the Committee implemented a system
with minimum, target and maximum percentages of base salary for each named
executive officer’s annual cash incentive award. These changes remain
in effect for 2008 incentive cash awards to be paid in early
2009. Accordingly, the chart below sets forth the minimum, target and
maximum percentages of base salary set by the Committee for each named executive
officer’s 2007 and 2008 annual cash incentive awards:
|
Name
|
Title
|
Minimum
|
Target
|
Maximum
|
||||||||||
|
Andrew Florance
|
President &
CEO
|
0 | % | 75 | % | 150 | % | |||||||
|
Brian
Radecki
|
CFO &
Treasurer
|
0 | % | 40 | % | 80 | % | |||||||
|
Frank
Carchedi(1)
|
Former
CFO & Treasurer
|
0 | % | 60 | % | 120 | % | |||||||
|
Jennifer
Kitchen
|
Sr.
Vice President, Research
|
0 | % | 55 | % | 110 | % | |||||||
|
Christopher
Tully
|
Sr.
Vice President, Sales & Customer Service
|
0 | % | 25 | % | 50 | % | |||||||
|
Paul
Marples
|
Managing
Director, CoStar UK Limited
|
0 | % | 40 | % | 80 | % | |||||||
|
Craig
Farrington(2)
|
Vice
President Research
|
— | — | — | ||||||||||
__________
|
(1)
|
Mr.
Carchedi resigned as Chief Financial of the Company in June 2007, and was
no longer an employee of the Company as of September
2007. Pursuant to his employment agreement, in March 2008 Mr.
Carchedi received that portion of his cash bonus that accrued up to the
date of his termination for services performed in 2007. He is
not eligible to receive the 2008 annual cash incentive
award.
|
|
(2)
|
Mr.
Farrington was no longer an executive officer of the Company as of
September 2007; however, he is still currently an employee of the
Company. Mr. Farrington’s 2007 bonus was not determined by the
Committee, and his potential 2008 annual cash incentive award was not
set by the Committee.
|
These
targets generally represent compensation in the 50th to
75th percentile
of the Towers Perrin market data for annual cash bonuses and were determined
based primarily on peer group and survey data, previous cash incentive awards
granted (if applicable) and internal pay equity considerations. The revised
compensation structure provides each named executive officer with the potential
to earn up to 200% of their target for exceptional performance as measured
against pre-established metrics and goals.
Named
executive officers are entitled to receive a bonus equal to, greater than or
less than the target percentage of his or her base salary depending on whether
the individual and the Company achieve the objectives delineated by the
Committee at the start of the year, in each case subject to the maximum set
percentage of base salary. These objectives include individual qualitative
performance goals, as well as Company-wide corporate and financial goals. For
2007, the financial goals were based on the Company’s achievement
of: (1) annual revenue targets included in the Company’s 2007
operating plan approved by the Company’s Board at the beginning of 2007 (the
“2007 Operating Plan”); and (2) net income (loss) before interest, income
taxes, depreciation and amortization (“EBITDA”) targets included in the 2007
Operating Plan, adjusted to eliminate equity charges. For 2008, the
financial goals are similarly based on achievement of revenue and EBITDA targets
included in the Company’s 2008 operating plan approved by the Company’s Board at
the beginning of 2008, except that the Committee decided that beginning with
awards for 2008 the EBITDA financial goal will not be adjusted to eliminate
equity charges in order to simplify the calculation.
The
individual performance goals established for the named executive officers at the
beginning of 2007 included strategic and leadership goals tailored to the
individual’s position and focused on the Company’s short-term strategic
initiatives. The financial goals (Company revenue and adjusted EBITDA)
established for the named executive officers in 2007 focused on enhancing
stockholder value. The individual goals assist the Committee in assessing the
named executive officer’s individual performance in key areas that help drive
the Company’s operating and financial results, while the financial goals provide
a measure to help the Committee to determine the size of awards to the named
executive officers based on the Company’s financial results. The use of both of
these types of goals advances the Company’s executive compensation philosophy
that individual executives be held accountable for both their own individual
performance as well as the Company’s performance. Performance
measures and the weighting given to each may change in the Committee’s
discretion from year to year. The measures and the relative weighting
of individual and financial performance goals for each of the named executive
officers is reviewed by the Committee annually at the beginning of the
year. The Chief Executive Officer reviews and proposes any changes to
the measures and the weighting of each one for approval by the Committee based
on the Company’s current strategic initiatives and corporate
objectives. The weighting of each of the three measures (or portions)
for the named executive officers for 2007 and 2008 are set out in the tables
below.
In
February 2008, the Committee assessed the Company’s and each named executive
officer’s achievement of the goals and targets for 2007 (which was the first
year of implementation for the Company’s new compensation program). Information
regarding the target percentages of base salary for each named executive
officer’s 2007 cash incentive award, percentage of target achieved and actual
2007 cash incentive awards paid to each named executive officer, as well as the
relative weighting of individual and financial performance goals for 2007, is
shown in the table below. For 2007, the weighting for each component
of the annual cash incentive award was set at 20% for the individual component,
40% for the revenue component, and 40% for the adjusted EBITDA component for all
named executive officers, except for Mr. Marples whose entire award was
based on individual goals. Mr. Marples cash incentive award criteria
was set by the Chief Executive Officer prior to Mr. Marples' appointment as an
executive officer.
20
2007 Cash Incentive Awards
|
Name
|
Title
|
Target
as a %
of
Salary
|
Percentage of Target
Achieved
|
Actual
Award
as a %
of Salary
|
Actual
Cash Award
($)
|
|||||||||||||
|
Andrew
Florance
|
President &
CEO
|
75 | % | 122.9 | % | 92 | % | $ | 404,584 | |||||||||
|
Brian
Radecki
|
CFO &
Treasurer
|
40 | % | 125.9 | % | 50 | % | $ | 120,845 | |||||||||
|
Frank
Carchedi(1)
|
Former
CFO & Treasurer
|
60 | % | — | — | — | ||||||||||||
|
Jennifer
Kitchen
|
Sr.
Vice President, Research
|
55 | % | 122.9 | % | 68 | % | $ | 128,410 | |||||||||
|
Christopher
Tully
|
Sr.
Vice President, Sales & Customer Service
|
25 | % | 119.9 | % | 30 | % | $ | 73,727 | |||||||||
|
Paul
Marples(2)
|
Managing
Director, CoStar UK Limited
|
40 | % | 125.0 | % | 50 | % | $ | 140,562 | |||||||||
|
Craig
Farrington(3)
|
Vice
President Research
|
— | — | — | — | |||||||||||||
|
(1)
|
Mr.
Carchedi resigned as Chief Financial of the Company in June 2007, and was
no longer an employee of the Company as of September
2007. Pursuant to his employment agreement, Mr. Carchedi was
entitled to a pro-rata portion of his bonus for 2007, which is reflected
in the column titled “All Other Compensation” in the Summary Compensation
Table on page 27 of this Proxy Statement. Mr. Carchedi’s
post-termination payment was not determined by the Committee, as he was no
longer a named executive officer as of the date of
determination.
|
|
(2)
|
Mr.
Marples joined the Company on February 16, 2007 as a result of the
Company’s acquisition of Propex, and was appointed an executive officer in
September 2007. All dollar amounts listed for Mr. Marples have
been converted from British pounds using a conversion rate of 2.00803,
which is the average exchange
rate for period from February 16, 2007 to December 31,
2007.
|
|
(3)
|
Mr.
Farrington was no longer an executive officer of the Company as of
September 2007; however, he is still currently an employee of the
Company. Mr. Farrington was awarded a bonus, which is reflected
in the column titled “All Other Compensation” in the Summary Compensation
Table on page 27 of this Proxy Statement. Mr. Farrington’s
2007 cash bonus was not determined by the Committee, as he was no longer a
named executive officer as of the date of
determination.
|
Individual
Performance Goals for 2007 Annual Cash Incentive Awards
The
Company is not disclosing the specific individual performance goals because they
are based on key short-term operational objectives that would signal the
Company’s strategic direction and could be used by competitors to gain insight
into market dynamics. For example, individual performance goals
may include the development and release of new services, the implementation of
geographic and/or service expansion plans, the implementation of customer
service and quality control measures, and database growth
objectives. These individual goals could also be used by competitors
to target recruitment of key personnel.
The
Committee sets aggressive individual performance criteria for annual cash
incentive awards that are challenging, but realistic to achieve to motivate
named executive officers to excel and perform at a higher level and to focus
on overall corporate objectives. Named executive officers were
entitled to between 0% and 200% credit for the individual performance component
of their annual cash incentive, depending upon achievement of established goals
for 2007, which percentage credit is then multiplied by the weighting applied
for the individual performance component of the cash incentive
award. The Committee intends to set the individual performance
criteria for the annual cash incentive awards such that the relative difficulty
of achieving the target level is consistent from year to year.
The
table below sets forth the percentage of individual performance goals achieved
by each of the named executive officers for 2007 for the annual cash incentive
award, as determined by the Committee in early 2008.
|
Name
|
Title
|
Percentage of Individual Performance Goals
Achieved
|
||||
|
Andrew Florance
|
President &
CEO
|
85 | % | |||
|
Brian Radecki
|
CFO &
Treasurer
|
100 | % | |||
|
Frank
Carchedi(1)
|
Former
CFO & Treasurer
|
— | ||||
|
Jennifer
Kitchen
|
Sr.
Vice President, Research
|
85 | % | |||
|
Christopher
Tully
|
Sr.
Vice President Sales & Customer Service
|
70 | % | |||
|
Paul
Marples
|
Managing
Director, CoStar UK Limited
|
125 | % | |||
|
Craig
Farrington(2)
|
Vice
President Research
|
— | ||||
____________
|
(1)
|
Mr.
Carchedi resigned as Chief Financial of the Company in June 2007, and was
no longer an employee of the Company as of September
2007.
|
|
(2)
|
Farrington
was no longer an executive officer of the Company as of September 2007;
however, he is still currently an employee of the Company. Mr.
Farrington’s bonus was not determined by the
Committee.
|
21
Revenue
Target for 2007 Annual Cash Incentive Awards
The
revenue target in the 2007 Operating Plan was $196.3 million. Named
executive officers were entitled to between 0% and 200% credit for the
revenue component of their annual cash incentive, depending upon actual
revenue achieved for 2007. Revenue at target would result in 100%
credit for the revenue component of the goals. Revenue below 95% of
the target would result in no credit for the revenue component of the
goals. Revenue above 105% of the target would not increase
the percentage credited for that component of the award above
200%. Accordingly, actual annual revenue that falls between 95% and
105% (or more) of the revenue target translates into a
percentage (between 0% and 200%) that is credited for that specific
target, which is then multiplied by the weighting applied for the
revenue component of the cash incentive award. Based on the
Company’s $192.8 million of actual revenue for 2007, the named executive
officers achieved 98.2% of the 2007 revenue target ($196.3
million).
Adjusted EBITDA Target for 2007 Annual
Cash Incentive Awards
The
adjusted EBITDA target in the 2007 Operating Plan was $29.8
million. Named executive officers were entitled to between 0% and
200% credit for the adjusted EBITDA component of their annual cash incentive,
depending upon actual adjusted EBITDA achieved for 2007. Adjusted
EBITDA at target would result in 100% credit for the adjusted EBITDA component
of the goals. Adjusted EBITDA below 80% of the target would result in
no credit for the adjusted EBITDA component of the goals. Adjusted
EBITDA above 120% of the target would not increase the percentage credited for
that component of the award above 200%. Accordingly, actual adjusted
EBITDA that falls between 80% and 120% (or more) of the adjusted EBITDA target
translates into a percentage (between 0% and 200%) that is credited for that
specific target, which is then multiplied by the weighting applied for the
adjusted EBITDA component of the cash incentive award. Based on the
Company’s adjusted EBITDA of $39.4 million for 2007, the named executive
officers achieved 132.2% of the 2007 adjusted EBITDA target ($29.8
million).
2008
Cash Incentive Awards Goals
The
relative weighting of individual and financial performance goals for each of the
current named executive officers’ 2008 bonuses to be paid in early 2009 were
also determined by the Committee in February 2008, and are set forth in the
table below:
|
Name
|
Title
|
Individual
Goals
as a
%
of Target Award
|
Revenue
Target
as a
%
of Target Award
|
EBITDA
Target
as a
%
of Target Award
|
||||||||||
|
Andrew
Florance
|
President &
CEO
|
0 | % | 30 | % | 70 | % | |||||||
|
Brian
Radecki
|
CFO &
Treasurer
|
20 | % | 20 | % | 60 | % | |||||||
|
Frank
Carchedi(1)
|
Former
CFO & Treasurer
|
— | — | — | ||||||||||
|
Jennifer
Kitchen
|
Sr.
Vice President, Research
|
30 | % | 20 | % | 50 | % | |||||||
|
Christopher
Tully
|
Sr.
Vice President, Sales & Customer Service
|
60 | % | 0 | %(2) | 40 | % | |||||||
|
Paul
Marples
|
Managing
Director, CoStar UK Limited
|
20 | % | 30 | %(3) | 50 | %(3) | |||||||
|
Craig
Farrington(4)
|
Vice
President Research
|
— | — | — | ||||||||||
_____________
|
(1)
|
Mr.
Carchedi resigned as Chief Financial of the Company in June 2007, and was
no longer an employee of the Company as of September
2007. Therefore, the Committee did not set individual and
financial performance goals for Mr. Carchedi for
2008.
|
|
|
(2)
|
Mr. Tully's revenue target as a percentage of his target award is less than other executives becasue he is entitled to commission payments based on a percentage of the Company's monthly net new subscription contract amounts. |
|
(3)
|
Mr.
Marples financial goals for 2008 are based on CoStar UK Limited, a wholly
owned subsidiary of the Company, achieving (1) annual revenue targets
included in the Company’s 2008 operating plan approved by the Company’s
Board at the beginning of 2008; and (2) EBITDA targets included in
that 2008 operating plan.
|
| (4) | Mr. Farrington was no longer an executive officer of the Company as of September 2007; however, he is still currently an employee of the Company. The Committee did not set individual and financial performance goals for Mr. Farrington for 2008. |
Commission
Payments
In
addition to annual cash incentive awards, Mr. Tully is entitled to receive
monthly commissions based on a percentage of the Company’s monthly net new
subscription contract amounts. Mr. Tully’s annual cash incentive award
target set forth above is less than other named executive officers because he is
entitled to these commission payments. The commission payments provide incentive
for Mr. Tully to continue to grow the Company’s business and generate
revenues, and the rates of payment are set to provide challenging, but
achievable goals to motivate Mr. Tully to maintain his focus on sales of the
Company’s subscription-based services, the Company’s primary source of
revenue. The Company is not disclosing the specific commission rates
because they are based on key operational objectives that would signal the
Company's strategic direction and also could be used by competitors to target
recruitment of Mr. Tully. The total commission payments paid to
Mr. Tully for 2007 are shown in the Summary Compensation Table on
page 27 of this Proxy Statement.
22
Equity
Incentive Plan
The
Committee has designed its equity incentive compensation programs to achieve its
goal of aligning executive incentives with long-term shareholder value. The
Committee believes that equity-based compensation and ownership ensures that the
Company’s named executive officers have a continuing stake in the long-term
success of the Company.
Each
named executive officer is eligible to receive equity awards under the Company’s
2007 Stock Incentive Plan, as amended (the “2007 Plan”). The Committee generally
grants restricted stock and stock options to each executive when he or she joins
the Company or upon promotion to an executive position as an incentive to accept
employment and become a member of the Company’s executive team. As set forth in
more detail below, the Committee currently also makes annual grants of a mix of
equity awards as part of the executive compensation program, including stock
options and restricted stock.
Each
type of equity award has its own characteristics and helps achieve some of the
objectives of the compensation program. Restricted stock that vests over time
promotes executive retention and focuses executives’ attention on total
stockholder return, while stock options also include the potential for
significant value appreciation tied to the Company’s stock price. The Committee
believes that the use of multi-year vesting periods for equity awards (whether
stock options or restricted stock) emphasizes a longer-term perspective and
therefore encourages executive retention.
On
December 12, 2006, as part of its implementation of the executive compensation
program commencing fiscal 2007, the Committee decided to award each named
executive officer in that position as of that date a one-time grant of
restricted stock that will vest in its entirety on the four-year anniversary of
the date of grant. The value of these stock grants was approved by
the Committee and varied among executives by position, depending upon individual
responsibility and performance, external market and peer group practices and
certain internal pay equity considerations. The number of shares
awarded to each named executive officer was based on the fair market value of
the Company’s common stock on the date of grant. These stock grants
are shown in the table below.
|
Name
|
Title
|
Award Value ($)
(1)
|
Actual
Award
of Shares
(#)
|
||||||
|
Andrew
Florance
|
President &
CEO
|
$ | 2,253,328 | 43,400 | |||||
|
Brian
Radecki(2)
|
CFO &
Treasurer
|
— | — | ||||||
|
Frank
Carchedi
|
Former
CFO & Treasurer
|
$ | 804,760 | 15,500 | |||||
|
Jennifer
Kitchen
|
Sr.
Vice President, Research
|
$ | 202,488 | 3,900 | |||||
|
Christopher
Tully
|
Sr.
Vice President, Sales & Customer Service
|
$ | 150,568 | 2,900 | |||||
|
Paul
Marples(2)
|
Managing
Director, CoStar UK Limited
|
— | — | ||||||
|
Craig
Farrington
|
Vice
President Research
|
$ | 103,840 | 2,000 | |||||
_____________
|
(1)
|
Award
value based on the closing stock price on the date of grant, December 12,
2006, which was $51.92.
|
|
(2)
|
Neither
Mr. Radecki nor Mr. Marples were executive officers at the time of grant,
December 12, 2006.
|
In
2006, the Committee also changed the methodology to be used for making annual
grants of performance-based stock to named executive officers, effective
beginning with stock awards granted to named executive officers in 2008 for 2007
performance. The Committee adopted a long-term equity incentive plan
that is designed to measure incremental growth for certain performance targets
over the base year of 2006 for each year during a four-year period (i.e.,
2007-2010). Each year through 2010, the targets for each component
increase by a set percentage measured against the base year, as determined by
the Committee in 2006. In this manner, annual incremental growth is
measured for each financial performance criteria (i.e. revenue, EBITDA and stock
price) and provides the basis for the grants of restricted stock made to
executives each year during the four-year period, but executives remain focused
on achieving specific long-term financial goals by the end of the four-year
period.
Specifically,
the Committee decided that: (1) the shares of restricted stock awarded
annually will be based upon the Company’s achievement of target annual
revenues, EBITDA targets and cumulative changes in the Company’s stock price, as
measured each year over the base year for the four-year period (i.e.,
2007 — 2010), with each target having an equal one-third weighting,
(2) the restricted stock awarded annually will vest pro rata over three
years and (3) there will be a “catch up” provision whereby any value
(shares) not awarded at the end of a given year may be recovered at the end of
the fourth year. In the event that the named executive officers
achieve greater than 100% of their targets in the fourth and final year, they
will have the opportunity to recoup any amounts not achieved in each of the
prior years during the four-year period, provided, that in no event can the
named executive officers receive greater than 100% in any of the three previous
years by way of the “catch up” provision. Awards granted during the
four-year period are not subject to forfeiture in the event that the named
executive officers do not achieve targets in a subsequent year. The
performance-based restricted stock component of the Company’s executive
compensation program is subject to change in the Committee’s
discretion.
23
After
2010, if the Committee continues the program, the financial goals will be
reset. Similar to the cash incentive awards, EBITDA targets for 2007
equity incentive awards were adjusted to eliminate equity charges, but will not
be adjusted for 2008 and future years to simplify the
calculation. The performance criteria established by the Committee
for 2007 and the awards granted for 2007 performance are described further below
under the caption “2007 Performance-Based Stock Awards.”
The
values of the annual performance-based stock awards granted to our named
executive officers are based on a target award dollar amount, and vary among
named executive officers by position, depending upon individual responsibility
and performance, external market and peer group practices and certain internal
pay equity considerations, as well as achievement of the performance criteria
set forth immediately above. Once the achievement level of each
performance target and the total amount of the award for each named executive
officer has been determined by the Committee, the number of restricted shares
actually granted to a named executive officer is determined using the fourth
quarter average daily closing price of the Company’s common
stock. The number of shares of restricted stock awarded to each named
executive officer is ultimately approved by the Committee and awarded under our
2007 Plan.
Commencing
December 2006, the Committee also decided to supplement the named executive
officers’ annual performance-based stock award with an annual award of stock
options. The Committee determined that the annual option grants will
also be based on target award values and vest pro rata over three years, and
that the value awarded to each named executive officer will be converted to a
number of shares underlying options based on the Towers Perrin recommended value
per option, which may be updated from time-to-time. The exercise
price for each option granted shall be equal to the closing price on the date of
grant. On December 12, 2006, as part of its implementation of
executive compensation decisions for 2007, the Committee awarded each named
executive officer in that position as of that date a grant of stock options that
vest pro-rata over three years. The December 12, 2006 option grants
that are currently outstanding are reflected in the “Outstanding Equity Awards
at December 31, 2007 Table” on page 32 of this Proxy Statement. These
option awards were granted in 2006 but represent the portion of each named
executive officer’s annual stock option target award value for
2007. Consequently, our named executive officers did not receive
additional stock option awards in 2007.
The
chart below sets forth the target award values established in 2007 for each of
the annual performance-based stock awards and the annual stock option awards,
which are subject to change in the discretion of the Committee. These
target award values generally represent values of long-term incentives in the
50th to
75th percentile
of the Towers Perrin market data for long-term equity compensation and were
determined based primarily on peer group and survey data and internal pay equity
considerations. The value of restricted stock ultimately awarded to
our named executive officers for 2007 performance depends upon achievement of
financial performance criteria as described above. The revised
compensation structure provides each named executive officer with the potential
to earn up to 200% of his or her annual restricted stock target award value for
exceptional performance as measured against pre-established metrics and
goals.
|
Name
|
Title
|
Annual
Stock Target Award Values
|
Annual
Option Target Award Values
|
||||||
|
Andrew
Florance
|
President &
CEO
|
$ | 750,000 | $ | 750,000 | ||||
|
Brian
Radecki
|
CFO &
Treasurer
|
$ | 200,000 | $ | 200,000 | ||||
|
Frank
Carchedi(1)
|
Former
CFO & Treasurer
|
— | — | ||||||
|
Jennifer
Kitchen
|
Sr.
Vice President, Research
|
$ | 100,000 | $ | 100,000 | ||||
|
Christopher
Tully
|
Sr.
Vice President, Sales & Customer Service
|
$ | 150,000 | $ | 150,000 | ||||
|
Paul
Marples
|
Managing
Director, CoStar UK Limited
|
$ | 100,000 | $ | 100,000 | ||||
|
Craig
Farrington(2)
|
Vice
President Research
|
— | — | ||||||
_____________
|
(1)
|
Mr.
Carchedi resigned as Chief Financial of the Company in June 2007, and was
no longer an employee of the Company as of September
2007.
|
|
(2)
|
Mr.
Farrington was no longer an executive officer of the Company as of
September 2007.
|
Consistent
with the decisions implemented in December 2006 discussed above, the Committee
anticipates that as part of the Company’s long-term incentive program it will
continue to make annual grants of stock options and performance-based restricted
stock to named executive officers in the future. Grants of stock options will
have an exercise price equal to the fair market value of the Company’s common
stock on the date of grant, which date shall be the date of approval by the
Company’s board of directors or Compensation Committee. Grants of
performance-based restricted stock will be accounted for using the fair market
value of such stock on the date of grant, which date shall also be the date of
approval by the Company’s board of directors or Compensation Committee. These
grants of options and restricted stock will typically vest over a period of
three years, but may be subject to different vesting
provisions.
24
The
details of the Company’s current long-term incentive program may change in the
future to reflect the impact of changes in the Company’s business, executives’
individual performance or relevant new information (e.g., new information about
trends in compensation among the Company’s peer groups). For example, the
Committee may modify the financial goals that form the basis for the annual
performance-based stock grants (e.g. as a result of acquisition activity or
unusual or non-recurring accounting transactions). Similarly, the Committee may
decide to implement additional one-time equity awards (similar to the Company’s
December 2006 restricted stock awards) or add new equity grants to the Company’s
annual executive compensation program in order to achieve its stated goal of
enhancing long-term incentives and retention of Company executives. The
Committee will determine the actual terms of any future grant of options or
restricted stock.
Although
the Company does not currently have security ownership requirements or
guidelines for its executive officers or directors, the Committee may adopt such
ownership requirements in the future. Pursuant to the Company’s
insider trading policy, the Company does not permit directors, officers or other
employees to engage in speculative or short-term financial activities involving
the Company’s stock or derivatives based on the Company’s securities without
consent of the Company’s compliance officer. Further, the Company does not
generally allow any such activities or other hedging activities by its executive
officers or directors absent an extraordinary circumstance.
The
Company does not have any program, plan or practice to time equity awards in
coordination with the release of material non-public information, nor does the
Company time the release of material nonpublic information for the purpose of
affecting the value of executive compensation.
2007
Performance-Based Stock Awards
On
February 27, 2008, the Committee approved and awarded each named executive
officer a grant of restricted stock, the size of which was based on the target
award values set forth above and achievement of certain Company financial goals
for 2007 (the “2007 Performance-Based Stock Awards”).
As
stated above, in December 2006 the Committee established the financial goals
that will be used for calculation of the named executive officers’ annual stock
awards each year over a four-year period (2007 – 2010). Specifically,
the Committee established three financial goals with equal weight, the
achievement of which would determine the size of the annual performance-based
award for each executive — revenue growth, EBITDA growth and share price
growth. These financial goals reflect a significant level of growth
each year over the four-year period and are designed to be challenging for the
executives given the Company’s dynamic business environment. The
grant date of these stock awards is the date that the Committee approves the
grants, and they vest one third on each anniversary date of such grant over
three years.
Revenue
Target for 2007 Performance-Based Stock Awards
The
annual revenue target for the 2007 performance-based stock awards was $184.3
million. Named executive officers were entitled to between 0% and
200% credit for the revenue component of their annual performance-based stock
awards, depending upon actual revenue achieved for 2007. Revenue at
target would result in 100% credit for the revenue component of the
goals. Revenue below 95% of the target would result in no credit for
the revenue component of the goals. Revenue above 105% of the target
would not increase the percentage credited for that component of the award above
200%. Accordingly, actual annual revenue that falls between 95% and
105% (or more) of the revenue target translates into a percentage (between 0%
and 200%) that is credited for that specific target, which is then multiplied by
the weighting (33%) applied for the revenue component of the performance-based
stock award. Based on the Company’s $192.8 million of actual revenue
for 2007, the named executive officers achieved 104.6% of the 2007 revenue
target ($184.3 million).
Adjusted
EBITDA Targets for 2007 Performance-Based Stock Awards
The
adjusted EBITDA target for the 2007 performance-based stock awards was $36.4
million. Named executive officers were entitled to between 0% and
200% credit for the adjusted EBITDA component of their annual performance-based
stock awards, depending upon actual adjusted EBITDA achieved for
2007. Adjusted EBITDA at target would result in 100% credit for the
adjusted EBITDA component of the goals. Adjusted EBITDA below 80% of
the target would result in no credit for the adjusted EBITDA component of the
goals. Adjusted EBITDA above 120% of the target would not increase
the percentage credited for that component of the award above
200%. Accordingly, actual adjusted EBITDA that falls between 80% and
120% (or more) of the adjusted EBITDA target translates into a percentage
(between 0% and 200%) that is credited for that specific target, which is then
multiplied by the weighting (33%) applied for the adjusted EBITDA component of
the annual performance-based stock award. Based on the Company’s
adjusted EBITDA of $39.4 million for 2007, the named executive officers achieved
108.3% of the adjusted EBITDA target ($36.4 million).
25
Stock
Price Targets for 2007 Performance-Based Stock Awards
The
stock price target for the 2007 performance-based stock awards was $55.88. Named
executive officers were entitled to between 0% and 200% credit for the stock
price growth component of their annual performance-based stock award, depending
upon actual stock price growth achieved for 2007 (measured as the fourth quarter
average). Stock price growth at target would result in 100% credit for the stock
price component of the goals. Stock price growth less than 5% over
the base year (2006 for 2007 awards) would result in no credit for the stock
price component of the goals. Stock price growth greater than 25% over the base
year would not increase the percentage credited for that component of the award
above 200%. Accordingly, stock price growth between 5% and 25% (or more) over
the base year translates into a percentage (between 0% and 200%) that is
credited for that specific target, which is then multiplied by the weighting
(33%) applied for the stock price component of the annual performance-based
stock award. Based on the Company’s 2007 fourth quarter average stock price of
$53.11, stock price growth was 9.3% over the 2006 fourth quarter average stock
price.
For
2007, each named executive officer received 111.3% of the target award value set
for that executive. The 2007 Performance-Based
Stock Awards granted February 27, 2008, and the award earned value are shown in
the table below.
|
Name
|
Title
|
Award
Earned
Value
($)
|
Actual
Award
of Shares
(#)(1)
|
||||||
|
Andrew
Florance
|
President &
CEO
|
$ | 835,091 | 15,800 | |||||
|
Brian
Radecki
|
CFO &
Treasurer
|
$ | 222,691 | 4,200 | |||||
|
Frank
Carchedi(2)
|
Former
CFO & Treasurer
|
— | — | ||||||
|
Jennifer
Kitchen
|
Sr.
Vice President, Research
|
$ | 111,345 | 2,100 | |||||
|
Christopher
Tully
|
Sr.
Vice President, Sales & Customer Service
|
$ | 167,018 | 3,200 | |||||
|
Paul
Marples
|
Managing
Director, CoStar UK Limited
|
$ | 111,345 | 2,100 | |||||
|
Craig
Farrington(3)
|
Vice
President Research
|
— | — | ||||||
_____________
|
(1)
|
Actual
Award of Shares based on the fourth quarter average daily price ($53.11),
then rounded up to the nearest 100
shares.
|
|
(2)
|
Mr.
Carchedi resigned as Chief Financial Officer of the Company in June 2007,
and was no longer an employee of the Company as of September
2007. Therefore, the Committee did not grant a
performance-based stock award to Mr. Carchedi in 2008 for 2007
performance.
|
|
(3)
|
Mr.
Farrington was no longer an executive officer of the Company as of
September 2007. Therefore, the Committee did not grant a
performance-based stock award to Mr. Farrington in 2008 for 2007
performance. However, Mr. Farrington received a grant of 500
shares on December 6, 2007, at the time the Company granted annual
restricted stock awards to certain of its employees, other than executive
officers. Mr. Farrington’s December 6, 2007 grant vests equally
over four years on each anniversary of the date of
grant.
|
Termination
and Change of Control Payments
Except
for Messrs. Florance, Tully and Marples, each of whom have termination
provisions in their respective employment agreements, the Company does not
provide significant severance or termination payments to named executive
officers. In 2007, the Company adopted a company-wide severance plan
that provides payments that do not discriminate in scope, terms or operation, in
favor of executive officers of the Company and that are available generally to
all salaried employees, including the named executive officers.
Similarly,
except for Messrs. Florance and Tully, each of whom negotiated change of control
provisions in their respective employment agreements, the Company does not
provide significant payments to named executive officers upon a change of
control or similar event. The Company’s 1998 and 2007 stock incentive
plans provide for acceleration of vesting of stock and option grants and rights
to exercise stock options upon certain significant events. Those
rights do not discriminate in scope, terms or operation, in favor of named
executive officers of the Company and are available generally to all employees
who participate in those plans, including the named executive
officers. Details of the potential termination payments for Messrs.
Florance, Tully and Marples and of the rights triggered under the 1998 and 2007
stock incentive plans in the case of a significant event are set out below in
the section entitled “Other Post-Employment Compensation” beginning on page 33
of this Proxy Statement. Details of actual post-termination payments
made to Mr. Carchedi are also set forth in the section entitled “Other
Post-Employment Compensation” on page 35 of this Proxy Statement.
26
The
following table includes information concerning compensation paid to or earned
by the Company’s “named executive officers” listed in the table for 2006 and
2007.
SUMMARY
COMPENSATION TABLE
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Stock Awards
(1)
($)
|
Option Awards
(2)
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
All Other Compensation($)
|
Total
($)
|
||||||||||||||||
|
Andrew
C. Florance
|
2007
|
$ | 438,352 | $ | 961,636 | $ | 920,332 | $ | 404,584 | (3a) | $ | 16,612 | (4a) | $ | 2,741,516 | ||||||||
|
Chief
Executive Officer
|
|||||||||||||||||||||||
|
and
President
|
2006
|
$ | 399,185 | $ | 298,758 | $ | 419,120 | $ | 363,813 | (3b) | $ | 27,999 | (4b) | $ | 1,508,875 | ||||||||
|
Brian
J. Radecki(5)
|
2007
|
$ | 206,215 | $ | 109,171 | $ | 116,540 | $ | 120,845 | (3a) | $ | 12,373 | (4c) | $ | 565,144 | ||||||||
|
Chief
Financial Officer
|
|||||||||||||||||||||||
|
and
Treasurer
|
|||||||||||||||||||||||
|
Frank
A. Carchedi(6)
|
2007
|
$ | 224,397 | $ | 309,973 | $ | 140,799 | — | $ | 198,225 | (4d) | $ | 873,394 | ||||||||||
|
Former
Chief Financial Officer
|
|||||||||||||||||||||||
|
and
Treasurer
|
2006
|
$ | 223,004 | $ | 83,953 | $ | 124,393 | $ | 159,696 | (3b) | $ | 14,916 | (4e) | $ | 605,962 | ||||||||
|
Jennifer
L. Kitchen(7)
|
2007
|
$ | 190,000 | $ | 74,425 | $ | 143,683 | $ | 128,410 | (3a) | $ | 13,556 | (4c) | $ | 550,074 | ||||||||
|
Sr.
Vice President
|
|||||||||||||||||||||||
|
Research
|
2006
|
$ | 125,480 | $ | 17,335 | $ | 88,133 | $ | 36,167 | (3b) | $ | 8,837 | (4e) | $ | 275,952 | ||||||||
|
Christopher
R. Tully
|
2007
|
$ | 245,943 | $ | 95,904 | $ | 387,680 | $ | 73,727 | (3a) | $ | 14,254 | (4c) | $ | 942,714 | ||||||||
|
Sr.
Vice President
|
$ | 125,206 | (8a) | ||||||||||||||||||||
|
Sales &
Customer Service
|
|||||||||||||||||||||||
|
2006
|
$ | 236,209 | $ | 32,199 | $ | 434,108 | $ | 74,767 | (3b) | $ | 13,767 | (4e) | $ | 957,971 | |||||||||
| $ | 166,921 | (8b) | |||||||||||||||||||||
|
Paul
Marples(9)
|
2007
|
$ | 246,485 | $ | 102,191 | — | $ | 140,562 | (3a) | $ | 16,867 | (4f) | $ | 506,105 | |||||||||
|
Managing
Director, CoStar UK Limited
|
|||||||||||||||||||||||
|
Craig
S. Farrington(10)
|
2007
|
$ | 183,892 | $ | 80,910 | $ | 122,172 | $ | 113,574 | (3a) | $ | 15,500 | (4c) | $ | 516,048 | ||||||||
|
Vice
President
|
|||||||||||||||||||||||
|
Research
|
2006
|
$ | 176,584 | $ | 39,365 | $ | 109,191 | $ | 115,089 | (3b) | $ | 15,000 | (4e) | $ | 455,229 | ||||||||
__________
|
(1)
|
This
column shows the dollar amount recognized for financial statement
reporting purposes with respect to the 2007 fair value of restricted stock
granted in the respective year and prior years, in accordance with
FAS 123R. Additional information regarding the size of the awards is
set forth in the notes to the “Grants of Plan Based Awards” and
“Outstanding Equity Awards” tables. The award fair values for 2006 have
been determined based on the assumptions set forth in the Company’s
Form 10-K for the period ended December 31, 2006 (Note 12,
Employee Benefit Plans). The award fair values for 2007 have
been determined based on the assumptions set forth in the Company’s
Form 10-K for the period ended December 31, 2007 (Note 13,
Employee Benefit Plans). See the table of Grants of Plan-Based
Awards for Fiscal Year 2007 for restricted stock grants made in February
2008 based on 2007 performance. Since the grants were made in 2008,
no costs were recognized for these grants in the 2007 financial
statements.
|
|
(2)
|
This
column shows the dollar amount recognized for financial statement
reporting purposes with respect to the respective year fair value of stock
options granted in that year and prior years, in accordance with
FAS 123R. Additional information regarding the size of the awards is
set forth in the notes to the “Grants of Plan Based Awards” and
“Outstanding Equity Awards” tables. The award fair values for 2006 have
been determined based on the assumptions set forth in the Company’s
Form 10-K for the period ended December 31, 2006 (Note 12,
Employee Benefit Plans). The award fair values for 2007 have
been determined based on the assumptions set forth in the Company’s
Form 10-K for the period ended December 31, 2007 (Note 13,
Employee Benefit Plans).
|
|
(3a)
|
This
amount represents the annual cash incentive paid in 2008 for performance
in 2007. The amount paid is based on the executive’s achievement of
pre-determined individual and Company financial goals. For additional
information regarding the annual cash incentives paid for 2007
performance, see “Compensation Discussion and Analysis” at
pages 19-22 of this Proxy
Statement.
|
27
|
(3b)
|
This
amount represents the annual cash incentive paid in 2007 for performance
in 2006. The amount paid is based on the executive’s achievement of
pre-determined individual and Company financial
goals.
|
|
(4a)
|
Pursuant
to the CoStar Realty Information, Inc. 401(k) Plan (a defined contribution
plan available generally to employees of the Company) (the “401(k) Plan”),
for the 2007 plan year, Mr. Florance deferred a portion of his annual
compensation and CoStar contributed a matching contribution in the amount
of $15,500. The Company paid $1,112 in annual premiums to
maintain a $1 million life insurance policy for the benefit of Mr.
Florance.
|
|
(4b)
|
Pursuant
to the 401(k) Plan, for the 2006 plan year, Mr. Florance deferred a
portion of his annual compensation and CoStar contributed a matching
contribution in the amount of $15,000. The Company paid $1,112
in annual premiums to maintain a $1 million life insurance policy for the
benefit of Mr. Florance. In the Company’s 2007 Proxy Statement,
the Company inadvertently set forth the imputed income allocated to the
coverage provided to Mr. Florance pursuant to both the Company’s life
insurance program that is generally available to all employees on the same
basis for coverage equal to one time’s salary to a maximum of $300,000 and
for the additional $1 million life insurance policy provided by the
Company for the benefit of Mr. Florance. Mr. Florance also
received an aggregate of $11,887 of perquisites in 2006, including spousal
accompaniment while on business travel valued at $7,755, utilization of an
Executive Health Benefit valued at $2,212, and a parking subsidy valued at
$1,920 (which was previously inadvertently calculated incorrectly for 2006
as $60).
|
|
(4c)
|
Pursuant
to the 401(k) Plan, for the 2007 plan year, the named executive officer
deferred a portion of his or her annual compensation and CoStar
contributed a matching contribution in the amount deferred by each
executive officer. The amount shown is the Company’s matching
contribution.
|
|
(4d)
|
Pursuant
to the 401(k) Plan, for the 2007 plan year, Mr. Carchedi deferred a
portion of his annual compensation and CoStar contributed a matching
contribution in the amount of $15,500. Mr. Carchedi received an
aggregate of $11,436 of perquisites in 2007, including retirement gifts
from the Company valued at $8,524, utilization of an Executive Health
Benefit valued at $2,282, and a parking subsidy valued at
$630. Finally, pursuant to his employment agreement, Mr.
Carchedi was entitled to receive that portion of his bonus that accrued up
to the date of his termination. Accordingly, Mr. Carchedi was
paid $171,289 in February 2008 for services performed in 2007 based on his
achievement of pre-determined individual and Company financial
goals.
|
|
(4e)
|
Pursuant
to the 401(k) Plan, for the 2006 plan year, the named executive officer
deferred a portion of his or her annual compensation and CoStar
contributed a matching contribution in the amount deferred by each
executive officer. The amount shown is the Company’s matching
contribution. In the Company’s 2007 Proxy Statement, the
Company inadvertently set forth the imputed income allocated to the
coverage provided to the named executive officer pursuant to the Company’s
life insurance program that is generally available to all employees on the
same basis for coverage equal to one time’s salary to a maximum of
$300,000.
|
|
(4f)
|
Pursuant
to a defined contribution scheme available generally to employees of the
Company’s wholly owned subsidiary, CoStar UK Limited, for 2007 Mr. Marples
deferred a portion of his annual compensation and CoStar UK Limited made a
corresponding contribution in an amount specifically
tied to the amount deferred by Mr. Marples, based on the Company’s
contribution rules for defined contribution schemes and Mr. Marples
employment agreement. The employer contribution is capped at
six percent of the executive’s gross pay. The amount shown is CoStar UK
Limited’s corresponding contribution. Executives are entitled
to make contributions either to the CoStar UK Limited pension scheme or
their personal pension scheme. Mr. Marples has elected to have
his contributions made to his personal pension
scheme.
|
|
(5)
|
Mr.
Radecki was appointed Chief Financial Officer of the Company in June
2007.
|
|
(6)
|
Mr.
Carchedi resigned as Chief Financial Officer of the Company in June 2007,
and was no longer an employee of the Company as of September
2007.
|
|
(7)
|
Ms. Kitchen
was appointed an executive officer of the Company in December
2006.
|
|
(8a)
|
This
amount represents total monthly commission payments paid to Mr. Tully
during 2007, which are based on the Company’s monthly net new subscription
contract amounts.
|
|
(8b)
|
This
amount represents total monthly commission payments paid to Mr. Tully
during 2006, which are based on the Company’s monthly net new subscription
contract amounts.
|
|
(9)
|
Mr.
Marples was appointed an executive officer of the Company in September
2007. All dollar amounts listed for Mr. Marples have been
converted from British pounds using a conversion rate of 2.00803,
which is the average exchange
rate for period from February 16, 2007 to December 31,
2007. Mr. Marples joined the Company on February 16, 2007 as a
result of the Company’s acquisition of Propex.
|
|
(10)
|
Mr.
Farrington was no longer an executive officer of the Company as of
September 2007; however, he is still currently an employee of the
Company. Mr. Farrington's 2007 cash bonus was not determined by the
Committee.
|
28
Employment
Agreements and Arrangements
We
have employment agreements with Messrs. Florance, Tully and Marples, and we
have at will employment terms with Mr. Radecki, Ms. Kitchen and
Mr. Farrington. We had an employment agreement with Mr. Carchedi which
terminated upon his resignation in September 2007. Our employment
agreement with Mr. Florance became effective as of January 1, 1998.
Mr. Tully’s employment agreement became effective December 1, 2004,
and Mr. Marples employment agreement became effective February 16,
2007. Mr. Florance’s and Mr. Tully’s employment agreements currently
automatically renew for successive one-year terms unless we, or the executive,
terminate the agreement. Mr. Marples employment agreement continues
in effect until terminated. Mr. Radecki’s current employment terms
became effective as of June 5, 2007. Ms. Kitchen’s current
employment terms became effective as of March 6, 2001 and
Mr. Farrington’s employment terms became effective as of February 18,
2000.
Chief
Executive Officer Employment Agreement
Pursuant
to his employment agreement, Mr. Florance is entitled to base salary, an annual
cash bonus, six weeks of paid vacation per year, the same health insurance,
accident and disability insurance, life insurance, and other fringe benefits
provided to most senior executives of the Company, and additional term life
insurance coverage not to exceed one million dollars (at a cost to the Company
not to exceed $2,000 per year), payable as designated by Mr.
Florance. Mr. Florance’s employment agreement automatically renews
for successive one-year terms unless either the Company or Mr. Florance provides
the other with written notice of termination at least three months prior to the
end of the term.
The
Company is permitted to terminate Mr. Florance at any time, without “cause,”
upon 60 days written notice, and Mr. Florance may voluntarily terminate for
“good reason” upon at least 60 days written notice, at which time Mr. Florance
is entitled to severance payments set out in more detail below under “Other
Post-Employment Compensation.” The acquisition or change of control
of the Company is one of the events included within the meaning of the term
“good reason” if Mr. Florance terminates his employment within one year after
such an event. If the Company terminates Mr. Florance without cause
or Mr. Florance terminates his employment for good reason, all of Mr. Florance’s
unvested stock options would immediately vest and Mr. Florance would have 180
days post-termination to exercise all vested options. Mr. Florance
shall also have the right at any time to terminate his employment without good
reason upon 180 days written notice to the Company and the Company shall have
the right at any time to terminate Mr. Florance for cause. In either
such event, Mr. Florance would not be entitled to any base salary or fringe
benefits for any period after termination, and he would forfeit any unvested
stock options and his right to participate in the Company’s cash incentive
program. In the event of a termination for cause or by Mr. Florance
without good reason, Mr. Florance would have 60 days post-termination to
exercise all vested options. “Cause” and “good reason” in the context
of Mr. Florance’s employment agreement are defined below under “Other
Post-Employment Compensation.”
Mr. Florance’s
employment agreement also provides that in the event of his disability, the
Company shall have the right to terminate his employment. In the
event of termination of his employment due to disability or his death, Mr.
Florance (or his estate) would be entitled to (i) a prorated portion of his
unvested stock options due to vest during the calendar year of his disability or
death, and (ii) a prorated share of his bonus for the year of his
disability or death. In the event of termination due to disability or
his death, Mr. Florance (or his estate) would have one year to exercise all
vested options.
Pursuant
to his employment agreement, Mr. Florance is subject to confidentiality and
non-compete restrictive covenants. The non-compete restrictions apply
during the term of the agreement, any period of time during which he remains
employed “at will” and through the second anniversary of the date of his
termination.
Other
Executive Employment Agreements
Pursuant
to his employment agreement, Mr. Tully is entitled to base salary, an annual
cash bonus, monthly sales commissions, four weeks of paid vacation per year, the
same health insurance, accident and disability insurance, life insurance, and
other fringe benefits provided to most senior executives of the
Company. Mr. Tully’s employment agreement automatically renews for
successive one-year terms unless either the Company or Mr. Tully provides the
other with written notice of termination at least three months prior to the end
of the term.
The
Company is permitted to terminate Mr. Tully at any time, without “cause,” upon
30 days written notice, at which time Mr. Tully is entitled to severance
payments set out in more detail below under “Other
Post-Employment Compensation”. Mr. Tully is entitled to
treat the merger of the Company or acquisition, directly or indirectly, of all
or substantially all of the Company’s assets or a controlling interest in the
voting shares of the Company by an unaffiliated party as a termination by the
Company without cause, unless the acquirer retains Mr. Tully in a comparable
position for at least six months and Mr. Tully retains all rights under his
employment agreement.
29
Mr.
Tully shall also have the right at any time to terminate his employment without
cause upon 90 days written notice to the Company, at which time he would be paid
his base salary and earned commissions up to the date of his
termination. Under his agreement, Mr. Tully must be employed on the
last day of the applicable calendar year in order to receive any part of his
annual bonus. The Company shall have the right at any time to
terminate Mr. Tully for cause or as a result of his death or prolonged
disability. In such event, Mr. Tully would forfeit all unvested
options and all claims to bonuses not yet awarded and paid. He would
be entitled to salary and commission, excluding bonus, through the date of his
termination. “Cause” in the context of Mr. Tully’s employment
agreement is defined below under “Other Post-Employment
Compensation”. In any such termination event, the period of time
during which Mr. Tully has to exercise vested options shall be determined by the
applicable grant agreement, which typically provides for 90 days
post-termination.
Pursuant
to his employment agreement, Mr. Tully is subject to confidentiality and
non-compete restrictive covenants. The non-compete restrictions apply
during the term of the agreement through the second anniversary of the date of
his termination.
Pursuant
to his executive service contract, Mr. Marples is entitled to base salary,
participation in the Company’s stock incentive plan, health and life insurance
benefits, disability benefits, Company contributions in an amount that
corresponds to his individual contributions to an HMRC approved pension scheme,
and twenty-five days of paid vacation per year. Mr. Marples’ service
contract continues until terminated pursuant to the terms of the
agreement. Mr. Marples may terminate his service contract on not less
than three months’ prior written notice, which cannot be effective before the
second anniversary of his employment (February 16, 2009). The Company
may terminate Mr. Marples’ employment before the second anniversary of his
employment by providing him with nine months’ prior written notice or a payment
in lieu thereof as described below under “Other Post-Employment
Compensation.” Further, the Company may terminate Mr. Marples’ employment
on or after the second anniversary of his employment by providing him with six
months’ prior written notice or a payment in lieu thereof as described below
under “Other Post-Employment Compensation.”
Further,
the Company may terminate Mr. Marples’ service contract immediately upon notice
if one of the events listed under “Other Post-Employment Compensation” below
occurs. In the event of termination by the Company as a result of one
of those events, Mr. Marples forfeits all unvested restricted stock and any
unpaid bonus. Pursuant to his employment agreement, Mr. Marples is
subject to confidentiality and non-compete restrictive covenants. The
non-compete restrictions apply for twelve months following termination of
employment.
Grants
of Plan-Based Awards for Fiscal-Year 2007
The
following Grants of Plan-Based Awards table provides additional information
about stock and option awards and non-equity incentive plan awards earned by our
Named Executive Officers during the year ended December 31,
2007. All grants of equity awards made through June 6, 2007, were
made under the Company’s 1998 Plan. All grants of equity made from
June 7, 2007, through the end of the year were made under the Company’s 2007
Plan. In April 2007, the Company’s Board adopted the 2007 Plan,
subject to stockholder approval, which was obtained on June 7,
2007. All shares of common stock that were authorized for issuance
under the 1998 Plan that, as of June 7, 2007, remained available for issuance
under the 1998 Plan (excluding shares subject to outstanding awards) were rolled
into the 2007 Plan and, as of that date, no shares of common stock remained
available under the 1998 Plan. The 1998 Plan continues to govern
unexercised and unexpired awards issued under the 1998 Plan prior to June 7,
2007.
30
|
Estimated
Possible
|
All
Other
|
All
Other
|
|||||||||||||||||||||||||||||||
|
Payouts
|
Estimated
Possible
|
Stock
Awards:
|
Option
Awards:
|
||||||||||||||||||||||||||||||
|
Under
Non-Equity
|
Payouts
Under Equity
|
Number
of
|
Number
of
|
Exercise
or
|
|||||||||||||||||||||||||||||
|
Incentive
Plan
|
Incentive
Plan
|
Shares of
|
Securities
|
Base Price
|
Grant Date
|
||||||||||||||||||||||||||||
|
Awards(1)
|
Awards(2)
|
Stock or
|
Underlying
|
of Option
|
Fair
Value
|
||||||||||||||||||||||||||||
|
Threshold
|
Target
|
Maximum
|
Minimum
|
Target
|
Maximum
|
Units (3)
|
Options (4)
|
Awards
|
of Stock
and
|
||||||||||||||||||||||||
|
Name
|
Grant Date
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
(#)
|
(#)
|
($/Sh)
|
Option Awards
(5)
|
||||||||||||||||||||||
|
Andrew
C. Florance
|
$ | 0 | $ | 329,250 | $ | 658,500 | |||||||||||||||||||||||||||
|
2/27/08
|
$ | 0 | $ | 750,000 | $ | 1,500,000 | $ | 695,042(5a) | |||||||||||||||||||||||||
|
9/10/07
|
39(3a) | $ | 2,011 | ||||||||||||||||||||||||||||||
|
Brian
J. Radecki
|
$ | 0 | $ | 96,000 | $ | 192,000 | |||||||||||||||||||||||||||
|
2/27/08
|
$ | 0 | $ | 200,000 | $ | 400,000 | $ | 184,758(5b) | |||||||||||||||||||||||||
|
1/29/07
|
2,500(3b) | 4,000(3b) | $ | 48.25 | $ | 224,961 | |||||||||||||||||||||||||||
|
6/5/07
|
7,391(3c) | 3,000(3c) | $ | 54.12 | $ | 504,596 | |||||||||||||||||||||||||||
|
12/6/07
|
21(3d) | $ | 1,025 | ||||||||||||||||||||||||||||||
|
Frank
A. Carchedi
|
$ | 0 | $ | 168,000 | $ | 336,000 | |||||||||||||||||||||||||||
| $ | 0 | $ | 200,000 | $ | 400,000 | —(5c) | |||||||||||||||||||||||||||
|
5/1/07
|
21(3e) | $ | 1,039 | ||||||||||||||||||||||||||||||
|
Jennifer
L. Kitchen
|
$ | 0 | $ | 104,500 | $ | 209,000 | |||||||||||||||||||||||||||
|
2/27/08
|
$ | 0 | $ | 100,000 | $ | 200,000 | $ | 92,379(5d) | |||||||||||||||||||||||||
|
Chistopher
R. Tully
|
$ | 0 | $ | 61,500 | $ | 123,000 | |||||||||||||||||||||||||||
| $ | 0(1a) | $ | 125,206(1a) | (1a) | |||||||||||||||||||||||||||||
|
2/27/08
|
$ | 0 | $ | 150,000 | $ | 300,000 | $ | 140,768(5e) | |||||||||||||||||||||||||
|
Paul
Marples
|
$ | 29,120(6) | $ | 112,000 | $ | 224,000 | |||||||||||||||||||||||||||
|
2/27/08
|
$ | 0 | $ | 100,000 | $ | 200,000 | $ | 92,379(5d) | |||||||||||||||||||||||||
|
2/16/07
|
10,000(3f) | $ | 469,500 | ||||||||||||||||||||||||||||||
|
Craig
S. Farrington
|
|
— | — | —(1b) | |||||||||||||||||||||||||||||
| — | — | — | —(5f) | ||||||||||||||||||||||||||||||
|
12/6/07
|
500(3g) | $ | 24,400 | ||||||||||||||||||||||||||||||
|
(1)
|
Except
as specifically noted otherwise, amounts in these columns are amounts
payable under the Company’s cash incentive plan. The actual
cash payments for performance under the Company’s cash incentive plan for
the year are reported in the Summary Compensation table
above. The Company’s cash incentive plan in effect for 2007 is
described more fully in the Compensation Discussion and Analysis at
pages 19-22 of this Proxy
Statement.
|
|
(1a)
|
Amounts
in this row represent amounts payable under Mr. Tully’s commission
plan. That plan does not set a specified target, but is based
on paying a percentage of monthly net new subscription contract
amounts. The target amount set forth represents the amount
actually achieved in 2007. There is no
maximum.
|
| (1b) |
Mr.
Farrington received a cash bonus outside the executives’ cash incentive
plan based on achievement of his objectives established by his supervisor.
Mr. Farrington’s 2007 cash bonus was not determined by the Committee, as
he was no longer a named executive officer as of the date of
determination. His bonus is reflected in the column titled “All Other
Compensation” in the Summary Compensation Table on page 27 of this Proxy
Statement.
|
|
(2)
|
We
have chosen to disclose in this table the minimum, target and maximum of
the performance-based stock awards that were actually granted in 2008 for
performance in 2007. The basis for the calculation of the
actual number of shares granted in 2008 is reported in the
Compensation Discussion and Analysis at pages 25-26 of this Proxy
Statement. This performance-based stock award opportunity was
established commencing the beginning of
2007.
|
|
(3)
|
The
amounts shown in this column represent restricted stock awards granted to
certain executives in 2007.
|
|
(3a)
|
Mr.
Florance received a grant of 39 shares of common stock in connection with
his 20th
anniversary of employment with the Company, pursuant to the Company’s
service award program which grants anniversary awards to all employees on
the same terms on every five-year anniversary. The closing
price of our common stock on the date of grant was
$51.57.
|
|
(3b)
|
Mr.
Radecki received stock and option grants on January 29, 2007, before being
appointed an executive officer.
|
|
(3c)
|
Mr.
Radecki received stock and option grants on June 5, 2007, in connection
with his appointment as Chief Financial
Officer.
|
|
(3d)
|
Mr.
Radecki received a stock grant of 21 shares of common stock in connection
with his 10th
anniversary of employment with the Company, pursuant to the Company’s
service award program which grants anniversary awards to all employees on
the same terms on every five-year anniversary. The closing price of our
common stock on the date of grant was
$48.80.
|
|
(3e)
|
Mr.
Carchedi received a stock grant of 21 shares of common stock in connection
with his 10th
anniversary of employment with the Company, pursuant to the Company’s
service award program which grants anniversary awards to all employees on
the same terms on every five-year anniversary. The closing
price of our common stock on the date of grant was
$49.46.
|
|
(3f)
|
Mr.
Marples received a stock grant on February 16, 2007, in connection with
the acquisition of Propex, before being appointed an executive officer.
The closing price of our common stock on the date of grant was
$46.95.
|
|
(3g)
|
Mr.
Farrington received a stock grant on December 6, 2007, at which time he
was no longer an executive officer. The closing price of our
common stock on the date of grant was
$48.80.
|
|
(4)
|
Amounts
shown in this column represent stock options granted to certain executives
on the respective dates.
|
|
(5)
|
The
amounts shown in this column represent the grant date fair value of each
equity award computed in accordance with FAS
123R.
|
31
|
(5a)
|
Mr.
Florance was granted 15,800 shares on February 27, 2008. The
closing price of our common stock on the date of grant was
$43.99.
|
|
(5b)
|
Mr.
Radecki was granted 4,200 shares on February 27, 2008. The
closing price of our common stock on that date was
$43.99.
|
|
(5c)
|
Mr.
Carchedi resigned as Chief Financial Officer of the Company in June 2007,
and was no longer an employee of the Company as of September
2007. Therefore, the Committee did not grant a
performance-based stock award to Mr. Carchedi in 2008 for 2007 performance
under the Company’s equity incentive
plan.
|
|
(5d)
|
Ms.
Kitchen and Mr. Marples were each granted 2,100 shares on February 27,
2008. The closing price of our common stock on that date was
$43.99.
|
|
(5e)
|
Mr.
Tully was granted 3,200 shares on February 27, 2008. The
closing price of our common stock on that date was
$43.99.
|
|
(5f)
|
Mr.
Farrington was no longer an executive officer of the Company as of
September 2007. Therefore, the Committee did not grant a
performance-based stock award to Mr. Farrington in 2008 for 2007
performance under the Company’s equity incentive
plan.
|
|
(6)
|
Pursuant
to Mr. Marples Executive Service Contract, during the first year of his
employment only, he was entitled to a minimum bonus of 10% of his base
salary. For 2008 and future years, Mr. Marples’ non-equity
incentive compensation will be paid in accordance with the Company’s
executive compensation program, the current format of which is discussed
in detail in the Compensation Discussion and Analysis beginning at
page 17 of this Proxy
Statement.
|
Outstanding
Equity Awards at December 31, 2007
The
following table summarizes the equity awards we have made to our Named Executive
Officer’s that are outstanding as of December 31, 2007.
|
Option
Awards(1)
|
Stock
Awards
|
||||||||||||||||||
|
Market
|
|||||||||||||||||||
|
Number
of
|
Number
of
|
Number
of
|
Value of
|
||||||||||||||||
|
Securities
|
Securities
|
Shares or
|
Shares or
|
||||||||||||||||
|
Underlying
|
Underlying
|
Units of
|
Units of
|
||||||||||||||||
|
Unexercised
Options
|
Unexercised
Options
|
Option
Exercise
|
Stock
That
|
Stock
That
|
|||||||||||||||
|
(#)
|
(#)
|
Price
|
Option
Expiration
|
Have Not
Vested
|
Have Not Vested (2)
|
||||||||||||||
|
Name
|
Grant
Date(1)
|
Exercisable
|
Unexercisable
|
($)
|
Date
|
(#)
|
($)
|
||||||||||||
|
Andrew
C.
Florance
|
4/1/1999
|
25,447 | $ | 30.00 |
3/31/2009
|
||||||||||||||
|
6/21/2000
|
12,940 | $ | 24.875 |
6/20/2010
|
|||||||||||||||
|
4/17/2001
|
44,463 | $ | 18.06 |
4/16/2011
|
|||||||||||||||
|
6/4/2002
|
45,074 | $ | 20.30 |
6/3/2012
|
|||||||||||||||
|
9/23/2003
|
46,448 | $ | 28.15 |
9/22/2013
|
|||||||||||||||
|
3/1/2004
|
37,500 | 12,500 | $ | 39.00 |
2/28/2014
|
||||||||||||||
|
12/12/2006
|
13,100 | 26,200 | $ | 51.92 |
12/11/2016
|
||||||||||||||
| 69,029(3a) | $ | 3,261,620 | |||||||||||||||||
|
Brian
J.
Radecki
|
12/2/2002
|
1,875 | $ | 18.28 |
12/1/2012
|
||||||||||||||
|
2/6/2004
|
4,500 | 1,500 | $ | 39.81 |
2/5/2014
|
||||||||||||||
|
1/29/2007
|
4,000 | $ | 48.25 |
1/28/2017
|
|||||||||||||||
|
6/5/2007
|
3,000 | $ | 54.12 |
6/4/2017
|
|||||||||||||||
| 11,310(3b) | $ | 534,398 | |||||||||||||||||
|
Frank
A. Carchedi
|
— | — | — | — | — | — | — | ||||||||||||
|
Jennifer
L. Kitchen
|
9/4/2003
|
1,000 | $ | 30.06 |
9/3/2013
|
||||||||||||||
|
9/9/2004
|
7,500 | 2,500 | $ | 44.86 |
9/8/2014
|
||||||||||||||
|
12/12/2006
|
1,766 | 3,534 | $ | 51.92 |
12/11/2016
|
||||||||||||||
| 5,386(3c) | $ | 254,489 | |||||||||||||||||
|
Chistopher
R. Tully
|
12/1/2004
|
52,000 | 13,000 | $ | 45.18 |
11/30/2014
|
|||||||||||||
|
12/12/2006
|
2,633 | 5,267 | $ | 51.92 |
12/11/2016
|
||||||||||||||
| 6,912(3d) | $ | 326,592 | |||||||||||||||||
|
Paul
Marples
|
10,000(3e) | $ | 472,500 | ||||||||||||||||