PC CONNECTION, INC.

730 Milford Road

Merrimack, New Hampshire 03054

(603) 683-2000

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

To Be Held May 25, 2016

 

 

The 2016 Annual Meeting of Stockholders of PC Connection, Inc., a Delaware corporation, which we refer to as the Company, will be held at the Crowne Plaza Hotel, 2 Somerset Parkway (Exit 8 off the Everett Turnpike), Nashua, New Hampshire 03063 on Wednesday, May 25, 2016 at 10:00 a.m., Eastern time, to consider and act upon the following matters:

 

 

 

 

 

 

Stockholders of record at the close of business on March 28, 2016 are entitled to notice of and to vote at the meeting or any adjournments thereof.  Our stock transfer books will remain open.  All stockholders are cordially invited to attend the meeting.

 

 

 

 

WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO ENSURE REPRESENTATION OF YOUR SHARES AT THE MEETING.  NO POSTAGE NEED BE AFFIXED IF THE PROXY IS MAILED IN THE UNITED STATES.

 

 

 

PC CONNECTION, INC.

730 Milford Road

Merrimack, New Hampshire 03054

 

 

PROXY STATEMENT FOR THE 2016 ANNUAL MEETING OF STOCKHOLDERS

 

To Be Held On May 25, 2016

 

 

This Proxy Statement is furnished in connection with the solicitation of proxies by PC Connection, Inc., a Delaware corporation, which we refer to as the Company, (or “we,” “us,” or “our”) by our Board of Directors, or the Board, for our 2016 Annual Meeting of Stockholders, or the Annual Meeting, to be held on Wednesday, May 25, 2016 at 10:00 a.m., Eastern time, at the Crowne Plaza Hotel, 2 Somerset Parkway (Exit 8 off the Everett Turnpike), Nashua, New Hampshire 03063 or any adjournment or adjournments of the Annual Meeting.  You may obtain directions to the location of the meeting by contacting Investor Relations at 603‑683‑2505.  All proxies will be voted in accordance with the stockholders’ instructions.  If no choice is specified, the proxies will be voted in favor of the matters set forth in the accompanying Notice of Meeting.  Any proxy may be revoked by a stockholder at any time before its exercise by delivery of a written revocation or a subsequently dated proxy to our secretary or by voting in person at the Annual Meeting.

 

The Notice of Meeting, this Proxy Statement, the enclosed proxy, our Annual Report on Form 10-K for the year ended December 31, 2015 as filed with the Securities and Exchange Commission, or the SEC, and our Annual Report to Stockholders for the year ended December 31, 2015 are being mailed to stockholders on or about April 25, 2015.

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be Held on May 25, 2016:

 

This proxy statement, form of proxy, and our 2015 Annual Report to Stockholders for the year ended December 31, 2015 are available at http://ir.pcconnection.com/annuals.cfm.

 

Voting Securities and Votes Required

 

On March 28, 2016, the record date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting, there were outstanding and entitled to vote an aggregate of 26,500,940 shares of our common stock, $.01 par value per share, or the Common Stock.  Stockholders are entitled to one vote per share of Common Stock. Our stock record books will remain open for inspection by stockholders of record for ten days prior to the Annual Meeting at our offices at the above address and at the time and place of the Annual Meeting.

 

The presence, in person or by proxy, of the holders of a majority of the issued and outstanding shares of Common Stock entitled to vote at the Annual Meeting shall be necessary to constitute a quorum for the transaction of business. If a quorum is not present, the meeting will be adjourned until a quorum is obtained.  Abstentions and broker non-votes (where a broker or nominee does not have discretionary authority to vote on a proposal) will be considered as present for purposes of determining whether a quorum is present.

 

If a quorum is present at the Annual Meeting, the vote required to adopt each of the scheduled proposals will be as follows:

 

Election of Directors.    Under the Company’s by-laws, any election by stockholders shall be determined by a plurality of the votes cast on the election.

 

Other Matters.   Under the Company’s by-laws, the affirmative vote of the holders of a majority of the votes cast will be required for:  approval of the advisory vote on executive compensation (Proposal 2); approval of the amendment to the Company’s Amended and Restated 2007 Stock Incentive Plan, as amended (Proposal 3); and approval of the ratification of the selection of the independent registered public accounting firm (Proposal 4). Shares which abstain and broker non-votes will not be counted as votes in favor of, or with respect to, these proposals and will also not be counted as votes cast. Accordingly, abstentions and broker non-votes will have no effect on the outcome of these proposals.  Proposal 2 is a non-binding proposal.

 

Persons who hold shares on the record date through a broker, bank, or other nominee are considered beneficial owners.  Brokers holding shares must vote according to specific instructions they receive from the beneficial owners of those shares.  If brokers do not receive specific instructions, brokers may in some cases vote the shares in their discretion.  However, brokers holding shares in “street name” for their beneficial owners are prohibited from voting on behalf of the clients in director elections and certain other non-routine matters unless the brokers have received specific voting instructions from those clients.  Accordingly, a broker cannot vote shares held on behalf of a beneficial owner on Proposals 1, 2, and 3, regarding the election of directors, the advisory vote on executive compensation, and the amendment to our stock plan, respectively, unless such broker has received specific voting instructions from the beneficial owner.  However, a broker will have discretion to vote shares held on behalf of a beneficial owner on Proposal 4, the ratification of Deloitte & Touche LLP as our independent registered public accounting firm for the year ending December 31, 2016, even if such broker has not received specific voting instructions from the beneficial owner.  Shares that abstain from voting in a particular matter, and shares held in “street name” by brokers or nominees who indicate on their proxies that they do not have discretionary authority to vote such shares as to a particular matter, will not be counted as votes in favor of such matter and will also not be counted as votes cast or shares voting on such matter.  Abstentions and “broker non-votes” will have no effect on the voting on matters, such as the ones presented for stockholder approval at this Annual Meeting, that require the affirmative vote of a certain percentage of the shares voting on the matter.  

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

Unless otherwise provided below, the following table sets forth, as of March 14, 2016, the beneficial ownership of our Common Stock by: (i) persons known by us to own more than 5% of our outstanding shares; (ii) each of our current and nominated directors; (iii) each of our named executive officers in the Summary Compensation Table under the heading “Executive Compensation” below; and (iv) all our current directors and executive officers as a group.  Unless otherwise indicated, each person has sole investment and voting power, or shares such power with his or her spouse, with respect to the shares set forth in the following table. The inclusion in this table of any shares deemed beneficially owned does not constitute an admission of beneficial ownership of those shares.

 

Except as otherwise set forth below, the street address of each beneficial owner is c/o PC Connection, Inc., 730 Milford Road, Merrimack, New Hampshire 03054.    

 

*Less than 1% of the total number of our outstanding shares of Common Stock on March 14, 2016.

 

 

 

 

 

 

 

 

 

PROPOSAL ONE

 

ELECTION OF DIRECTORS

 

Directors are to be elected at the Annual Meeting.  Our Board of Directors currently consists of six members and will, if all nominees are elected at the Annual Meeting, increase to seven members.  Our Bylaws provide that our directors will be elected at each annual meeting of our stockholders to serve until the next annual meeting of stockholders or until their successors are duly elected and qualified.

 

The persons named in the enclosed proxy (Patricia Gallup and David Hall) will vote to elect the seven nominees named below as our directors unless authority to vote for the election of any or all of the nominees is withheld by marking the proxy to that effect.  Each nominee, other than Mr. Ferguson, is presently serving as a director, and each nominee has consented to being named in this Proxy Statement and to serve, if elected.  If for any reason any nominee should be unable to serve, the person acting under the proxy may vote the proxy for the election of a substitute nominee designated by our Board of Directors.  It is not presently expected that any of the nominees will be unavailable to serve.

 

Our Board of Directors recommends a vote “FOR” the election of the nominees described below.

 

Set forth below are the name, age, and length of service as a director for each nominee of our Board of Directors and the positions and offices held by him or her, his or her principal occupation and business experience for at least the past five years, and the names of other publicly-held companies of which he or she serves as a director or served as a director during the past five years.  Information with respect to the number of shares of Common Stock beneficially owned by each director or nominee, directly or indirectly, as of March 14, 2016, appears under “Security Ownership of Certain Beneficial Owners and Management.”

 

Nominees for Election to our Board of Directors

 

Patricia Gallup, age 62, is our Chairman and Chief Administrative Officer.  Ms. Gallup served as Chief Executive Officer from September 2002 until August 2012 and from 1990 to 2001.  Ms. Gallup is a co-founder of our Company, and has served on our Board of Directors since its inception and as an executive officer since 1982.

 

David Hall, age 66, is a co‑founder of our Company and has served on our Board of Directors since its inception.  Mr. Hall served as Vice Chairman of our Board of Directors from March 1998 to December 2004.  Mr. Hall was an executive officer from 1982 to 1997, and since then has served as an analyst for our Company.

 

Joseph Baute, age 88, has served on our Board of Directors since June 2001 and has served as Vice Chairman since August 2012. From 1979 to 1993, Mr. Baute served as Chairman and Chief Executive Officer of Markem Corporation, an industrial marking and coding solutions provider.  Since 1993, Mr. Baute has worked as an independent consultant. 

Mr. Baute has served on the boards of directors of several public and private companies, including the Federal Reserve in Boston, State Street Bank, and Houghton-Mifflin Company, as well as several non-profit organizations. 

 

David Beffa-Negrini, age 62, has served on our Board of Directors since September 1994.  Mr. Beffa-Negrini served as our Senior Vice President, Corporate Marketing and Creative Services from February 2007 until his retirement effective December 31, 2008.  Mr. Beffa-Negrini served as Co-President of our former Merrimack Services subsidiary from September 2005 to February 2007, and as our Vice President of Corporate Communications from June 2000 to February 2007.  Mr. Beffa‑Negrini served in a variety of senior management capacities in the areas of merchandising, marketing, and communications during his 25 years of employment with the Company.

 

Barbara Duckett, age 71, has served on our Board of Directors since June 2009.  From 2000 to 2013, Ms. Duckett served as the President, Chief Executive Officer, and as a member of the board of directors of Home Healthcare, Hospice and Community Services.  Since April 2011, Ms. Duckett has served as a member of the board of directors of Monadnock Community Hospital.  She also has served as a director or officer of several other non-profit and privately-held healthcare organizations, at the local, state, and national level.

 

Jack Ferguson, age 77, has not previously served on our Board of Directors.  Mr. Ferguson served as our Executive Vice President from May 2007 to March 2012, Chief Financial Officer from December 2005 to March 2012, and Treasurer from November 1997 to March 2012.  From December 1992 to May 2007, Mr. Ferguson served in various financial executive roles at the Company.  He retired from the Company in March 2012.

 

Donald Weatherson, age 78, has served on our Board of Directors since June 2005.  Mr. Weatherson served on the board of directors of our GovConnection subsidiary from May 2003 to June 2005.  Since August 2002, Mr. Weatherson has pursued personal and community interests and served on an interim basis as Chief Executive Officer of GovConnection from November 2003 to May 2004.  From June 2000 to July 2002, Mr. Weatherson served as Vice President of North American Operations and Strategy for Compaq Computer Corporation.  From April 1994 to June 2000, Mr. Weatherson served as Vice President of Compaq’s Government and Education business.  Prior to joining Compaq, Mr. Weatherson was Chief Executive Officer of the Navy Exchange System, a retail services company operated by the U.S. Navy.  He retired from the Navy as a Rear Admiral in 1993.

 

We believe that each of our nominees is qualified to serve as a director of the Company as a result of his or her level of business experience described in the individual biographies above.  Each nominee has served in a broad range of senior management roles, and some have served on other boards of directors.  The Board concluded that the depth of experience and the combination of the different backgrounds of each of our nominees facilitate the Company’s goal of having a diversity of viewpoints and backgrounds on the Board, and gives the Company a broad range of experience on which to draw.  Accordingly, the Board concluded that each of these individuals should serve as a director of the Company, in light of its business and structure, at the time of filing this proxy.  In particular:

 

 

 

 

 

 

 

 

No family relationship exists between any of our executive officers or directors.

 

INFORMATION CONCERNING DIRECTORS, NOMINEES, AND EXECUTIVE OFFICERS

 

Board Meetings and Attendance

 

Our Board of Directors met seven times during the year ended December 31, 2015, either in person or by teleconference.  During 2015, each director attended at least 75% of the aggregate number of Board meetings and the number of meetings held by all committees on which he or she serves.  Our Board of Directors does not currently have a policy with regard to the attendance of Board members at our annual meeting of stockholders.

 

Board Committees

 

Our Board of Directors has established two standing committees–Audit and Compensation.  The Audit and Compensation Committees each operate under written charters that have been approved by our Board of Directors. We included the charter of the Audit Committee as an appendix to our 2015 Proxy Statement and included the charter of the Compensation Committee as an appendix to our 2014 Proxy Statement. They can also be obtained by accessing the website maintained by the SEC at www.sec.gov or by contacting our investor relations department at PC Connection, Inc., 730 Milford Road, Merrimack, New Hampshire 03054.

 

Our Board of Directors has determined that all of the members of our two standing committees are independent as defined under the rules of the Nasdaq Stock Market including, in the case of all members of the Audit Committee, the independence requirements set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. 

 

Audit Committee

 

The Audit Committee’s responsibilities include:

 

 

 

 

 

 

 

 

 

 

 

The members of our Audit Committee are Ms. Duckett and Messrs. Baute and Weatherson.  Our Board of Directors has determined that all three members qualify as an “audit committee financial expert” as defined by applicable SEC rules. The Audit Committee met six times during 2015.

 

Compensation Committee and Subcommittee

 

The Compensation Committee’s responsibilities include:

 

 

 

 

 

 

 

 

 

 

The processes and procedures followed by our Compensation Committee in considering and determining executive and director compensation are described below under the heading “Executive and Director Compensation Processes.”

 

The Compensation Committee met two times in 2015.  The members of the Compensation Committee are Ms. Duckett and Messrs. Baute and Weatherson.  The Compensation Committee has established a subcommittee (which

we refer to as the 162(m) Subcommittee) and delegated to that subcommittee authority to issue equity awards and to determine other qualified performance‑based compensation for our CEO and three other most highly compensated employees (other than the CEO and CFO) whose compensation is required to be reported to our stockholders pursuant to the Exchange Act in accordance with the requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended, which we refer to as the Code. The 162(m) Subcommittee is comprised of Mr. Baute and Ms. Duckett, who are “outside directors” under IRS regulations.    

 

Controlled Company Status

 

We are a “Controlled Company” as defined in Nasdaq Stock Market Rule 5615(c).  Our Board of Directors has based this determination on the fact that approximately 56% of our voting stock is beneficially owned or controlled by Ms. Gallup and Mr. Hall.

 

We do not have a standing nominating committee, and the functions of evaluating and selecting directors have been performed by our Board of Directors as a whole.  We believe that it is not necessary to have a nominating committee because our directors have generally served for extended terms.  Our Board of Directors will from time to time evaluate biographical information and background material relating to and for the purpose of identifying potential candidates and interview selected candidates. Our Board of Directors does not currently have a charter or written policy with regard to the nomination process.  We do not have a written policy due to the generally extended terms served by our directors.

 

Board Leadership Structure

 

Ms. Gallup is the Chairman of our Board of Directors and Chief Administrative Officer of our Company.  While the roles of Chief Executive Officer and Chairman are separate, our leadership structure does not include a lead independent director. In light of our controlled company status discussed above, we believe that the creation of a lead independent director position is not necessary at this time. Our Board of Directors has determined that having Ms. Gallup act as Chairman and as Chief Administrative Officer of our Company is in the best interests of the Company and our stockholders and is consistent with good corporate governance for the following reasons:

 

 

 

 

Our Board decided to separate the roles of Chairman and Chief Executive Officer because it believes that this leadership structure offers the following benefits:

 

 

 

 

Director Independence

 

Under applicable NASDAQ rules, a director will only qualify as an “independent director” if, in the opinion of our Board of Directors, that person does not have a relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.  Our Board of Directors has determined that none of Ms.

Duckett or Messrs. Baute or Weatherson, who comprise our Audit and Compensation Committees, has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.  Each of Messrs. Baute and Weatherson and Ms. Duckett is an “independent director” as defined under Nasdaq Stock Market Inc. Marketplace Rule 5605(a)(2).  We are exempt from the requirement that our board have a majority of independent directors because we are a controlled company.  Please see “Controlled Company Status” above for information on our controlled company status. 

 

Executive and Director Compensation Processes 

 

Our Compensation Committee generally reviews employee performance and compensation on an annual basis.  Our Compensation Committee also compares the salaries of our executive officers to salaries of individuals who hold comparable positions in our immediate peer group as appropriate. The Compensation Committee makes salary determinations based on a number of factors, including the level and breadth of each executive officer’s responsibilities and experience. Salary decisions are also made with a view to retaining our executive talent. The Compensation Committee may, in its discretion, invite the Chief Executive Officer to be present during the approval of, or deliberations with respect to, other executive officer compensation, and our Chief Executive Officer may make recommendations relating to the salaries of our other executive officers. 

 

In 2008, our stockholders approved for our executive officers the original Executive Bonus Plan.  In 2011, our shareholders approved the Amended and Restated Executive Bonus Plan, which was amended in 2013. Annual cash bonuses under our Executive Bonus Plan are based on the achievement of company-wide net income and expense leverage goals.  Cash bonuses are set as a percentage of the executive officer's base salary. 

 

Our Compensation Committee administers our Amended and Restated 2007 Stock Incentive Plan, as amended, and our Amended and Restated 1997 Employee Stock Purchase Plan, as amended. To the extent permitted by applicable law, our Board of Directors or the Compensation Committee may delegate its authority to grant options and other awards that constitute rights under Delaware law to employees and non-executive officers  under our Amended and Restated 2007 Stock Incentive Plan, as amended, to either a committee of our Board or to our Chief Executive Officer, provided that it will fix the terms of such awards to be granted (including the exercise price of such awards, which may include a formula by which the exercise price will be determined) and the maximum number of shares subject to awards that may be granted.  The Board of Directors has delegated authority to a committee of the Board of Directors comprised of Ms. Gallup, to issue (i) stock options and (ii) certain other stock-based awards payable only in cash and without any rights to acquire common stock, which we refer to as stock equivalent units, to any employee who is not an executive officer or an “officer,” as defined by Rule 16a-1 of the Securities Exchange Act of 1934, as amended.  This committee may grant up to an aggregate maximum of 350,000 shares of common stock subject to options, with no more than 20,000 shares of common stock subject to options permitted to be granted per individual per calendar year. It may also grant up to an aggregate maximum of 500,000 shares of stock equivalent units.

 

The Compensation Committee has the authority to retain compensation consultants and other outside advisors to assist in the evaluation of executive officer compensation.  In 2015, our Compensation Committee retained Pearl Meyer & Partners, a national consulting firm, as its independent compensation consultant to conduct a competitive assessment of our executive compensation and general compensation programs.  Pearl Meyer & Partners provided comparative market data on compensation practices and programs based on an analysis of ten peer companies deemed comparable in terms of product and service offerings and revenue levels.  The Compensation Committee used the report to assist in the review of executive compensation.

 

Oversight of Risk

 

Our Board of Directors oversees our risk management processes directly and through its committees.  Our management is responsible for risk management on a day-to-day basis.  The role of our Board of Directors and its committees is to oversee the risk management activities of management.  They fulfill this duty by discussing with management the policies and practices utilized by management in assessing and managing risks and providing input on those policies and practices.  In general, our Board of Directors oversees risk management activities relating to business strategy, capital allocation, organizational structure, and certain operational risks; our Audit Committee oversees risk

management activities related to financial controls and legal and compliance risks, and our Compensation Committee oversees risk management activities relating to the Company’s compensation policies and practices. Each committee reports to the full Board on a regular basis, including reports with respect to the committee’s risk oversight activities as appropriate.  In addition, since risk issues often overlap, committees from time to time request that the full Board discuss particular risks.

 

Director Candidates

 

All of the current members of our Board of Directors have served as directors since 2001, except Mr. Weatherson and Ms. Duckett, who became directors in June 2005 and June 2009, respectively.  Mr. Ferguson has not previously served on our Board of Directors.  Where called for, qualifications for consideration as a director nominee may vary according to the particular areas of expertise being sought as a complement to the existing board composition.  Minimum qualifications include high-level leadership experience in business activities, breadth of knowledge about issues affecting us, experience on other boards of directors, preferably public company boards, and time available for meetings and consultation on Company matters.  While we do not have a formal policy with regard to the consideration of diversity in identifying director nominees, our Board of Directors desires a group of candidates who represent a diversity of viewpoints, backgrounds, skills, and expertise that enable them to make a significant contribution to our Board of Directors, our Company, and stockholders.  In the event of a need for a new or additional director, our Board of Directors would evaluate potential nominees by reviewing their qualifications, results of personal and reference interviews, and such other information as the Board may deem relevant.

 

We do not currently employ an executive search firm, or pay a fee to any other third party, to locate qualified candidates for director positions.

 

Our Board of Directors has generally nominated the current directors for re-election at each annual meeting of stockholders.  Our Board of Directors has therefore not established special procedures for stockholders to submit director recommendations.  If we were to receive recommendations of candidates from our stockholders, the Board of Directors would consider such recommendations in the same manner as all other candidates.  Shareholders who wish to suggest qualified candidates should send relevant information to the attention of the Corporate Secretary, PC Connection, Inc., 730 Milford Road, Merrimack, New Hampshire 03054 (603-683-2505).

 

Communicating with the Board of Directors

 

We have not implemented a process for our stockholders to send communications to our Board of Directors, other than as set out elsewhere in this proxy. We have not done so primarily due to our status as a controlled company, as discussed earlier.

 

Code of Business Conduct and Ethics Policy

 

We have adopted a written Code of Business Conduct and Ethics Policy, which we refer to as the Policy, that applies to our directors, officers, and employees, including our principal executive officer, principal financial and accounting officer, controller, and persons performing similar functions.  We have posted our Policy on our website at http://ir.pcconnection.com.  In addition, we intend to post on our website all disclosures that are required by law or Nasdaq Stock Market listing standards concerning any amendments to, or waivers from, any provision of the Policy that occur in the future.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires our directors, executive officers, and holders of more than 10% of our Common Stock to file with the SEC initial reports of ownership and reports of changes in beneficial ownership of our Common Stock.  Based solely on our review of copies of reports filed by individuals required to make filings, or Reporting Persons, pursuant to Section 16(a) of the Exchange Act or written representations from certain Reporting Persons, we believe that all such reports required to be filed under Section 16(a) of the Exchange Act for 2015 were timely filed, except: 

 

On August 5, 2015, David Hall gifted 5,000 shares of Common Stock to an affiliated charity and should have filed a Form 4 on or before August 7, 2015.  Mr. Hall reported this transaction on a Form 4 filed with the SEC on August 11, 2015.

 

On August 10, 2015, David Hall sold 3,125 shares of Common Stock and should have filed a Form 4 on or before August 12, 2015.  Mr. Hall reported this transaction on a Form 4 filed with the SEC on August 13, 2015.

 

On November 12, 2015, the six members of our Board each received 2,000 shares of Common Stock as a result of the vesting of restricted stock units granted in November 2012, and should have filed a Form 4 on or about November 16, 2015.  Each director reported this transaction on a Form 4 filed with the SEC on April 4, 2016.

 

Director Compensation

 

Each director is entitled to receive an annual retainer of $75,000, payable quarterly, for service on the Board.  Each independent director also receives an annual retainer of $15,000, payable quarterly, for participation in the Board’s audit and compensation committees.  In addition, Board members who act in a chairman capacity receive annual fees as follows:  Board chair, $35,000; Board vice-chair, $10,000; audit committee chair, $10,000; compensation committee and sub-committee chair, $5,000.  

 

As more fully described below, the following table describes compensation paid to each director for the year ended December 31, 2015, except for compensation paid to Ms. Gallup, which is reflected below in the Summary Compensation Table for Fiscal Years Ended December 31, 2015, 2014, and 2013.

 

Director Compensation for Fiscal Year Ended December 31, 2015

 

 

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

The Compensation Committee of our Board of Directors oversees the design and implementation of our executive compensation program.  In this role, the Compensation Committee, which is comprised of three independent directors, evaluates the performance of, and reviews and approves annually all compensation decisions relating to our Chief Executive Officer.  Our Chief Executive Officer annually reviews the performance of our other named executive officers and makes recommendations regarding their compensation.  Our Compensation Committee may adopt or revise such recommendations in making compensation decisions for our other named executive officers.  The Compensation Committee has established a subcommittee, or the 162(m) Subcommittee, comprised of two of these independent directors, and delegated to the 162(m) Subcommittee authority to issue equity awards and to determine other qualified performance-based compensation for our Chief Executive Officer and three other most highly compensated employees (other than the Chief Financial Officer) whose compensation is required to be reported to our stockholders pursuant to the Exchange Act in accordance with the requirements of Section 162(m) of the Code.

 

Our named executive officers consist of our Chief Executive Officer, Chief Financial Officer, and Chief Administrative Officer.  For 2015, our Named Executive Officers were:

 

 

 

Compensation Objectives

 

Our Compensation Committee’s primary objectives with respect to executive compensation are to attract, retain, and motivate our executives and to create long-term stockholder value.  Additionally, the Committee seeks to ensure that executive compensation is aligned with our corporate strategies and business objectives, and that it promotes the achievement of key strategic and financial performance measures by linking short- and long-term cash and equity incentives to the achievement of measurable company performance goals.

 

To achieve these objectives, the Compensation Committee evaluates our executive compensation program with the goal of setting compensation at levels the Compensation Committee believes are competitive with those of other companies in our industry and our region that compete with us for executive talent.  In addition, our executive compensation program ties a substantial portion of each executive’s overall compensation to managing their respective areas of responsibility and meeting key strategic, financial, and operational goals.  These goals include success in (a) demonstrated leadership ability, (b) management development, (c) compliance with our policies, and (d) anticipation of, and response to, changing market and economic conditions that enhance our ability to operate profitably.  From time to time, we also provide a portion of our executive compensation in the form of stock options, restricted stock awards, restricted stock units, and other stock-based awards that vest over time, which we believe helps to attract new management talent, as well as retain our existing executives.  We believe such grants align our executives’ interests with those of our stockholders by allowing them to participate in the longer-term success of our Company as reflected in stock price appreciation.

 

We compete with many other companies for executive personnel.  Accordingly, the Compensation Committee generally targets overall base salary and bonus compensation for executives at or near the midpoint of compensation paid to similarly situated executives of companies analyzed in our survey data, described more fully below.  We may vary this general target in certain situations when necessary, due to the experience level of the individual or other market factors.

 

Components of our Executive Compensation Program

 

The primary elements of our executive compensation program are:

 

 

Allocations between long-term and short-term compensation, cash and non-cash compensation, or the different forms of non-cash compensation vary, depending on our current initiatives and stated goals.  Our goals for 2015 were focused on continuing the growth trend in consolidated net sales and net income that we established in prior years and, additionally, achieving a better leveraging of our expense structure by attaining our targeted selling, general and administrative, or SG&A, expenses as a percentage of net sales.  Accordingly, the 2015 performance targets for the

Executive Bonus Plan were designed to help achieve these two objectives.  A total of 60% of the bonus was allocated to the achievement of a net income target of $44.1 million, and 40% was allocated to achievement of an SG&A expense target of 10.48% of net sales.  Each component was then applied to a multiplier based on the degree to which the respective target was met or exceeded, ranging from 0.5 to 1.7 for each target.  No bonuses were to be paid for performance below $39.9 million of net income or SG&A expenses in excess of 11.51% of net sales. 

 

In 2015 our Compensation Committee retained Pearl Meyer & Partners, a national consulting firm, as its independent compensation consultant to conduct a competitive assessment of our executive compensation and general compensation programs.  Pearl Meyer & Partners provided comparative market data on compensation practices and programs based on an analysis of ten peer companies deemed comparable in terms of product and service offerings and revenue levels.  Individual compensation ranges for each executive position were provided that compared the compensation ranges to actual salary levels. 

 

The peer group updated for our Compensation Committee in 2015 was used to benchmark executive compensation levels against companies that have executive positions with responsibilities similar in breadth and scope to ours and that compete with us for executive talent.  The following companies, whose executive positions’ responsibilities were most similar to ours, were included in the peer group for 2015:

 

 

The Compensation Committee used the updated survey data to assist it in the review and comparison of each element of executive compensation, including base salary and bonus compensation for our executives.  With this information, the Compensation Committee analyzed compensation for each executive.  The Compensation Committee targeted different compensation levels for each element of compensation as described below.

 

Base Salary

 

Base salaries are reviewed at least annually by the Compensation Committee, and in the case of named executive officers other than our Chief Executive Officer, are based on recommendations of the Chief Executive Officer.  These salaries are adjusted from time to time to realign salaries with market levels after taking into account individual responsibilities, performance, experience, and the peer group data. 

 

The Compensation Committee reviews the base salaries of our executives initially by reference to the median base salary level of the updated survey data.  The Compensation Committee then makes adjustments to these reference levels for each executive’s base salary based on comparisons to the survey data and evaluation of the executive’s level of responsibility and experience, as well as company-wide performance.  The Compensation Committee also considers the executive’s success in achieving business results and demonstrating leadership in determining actual base salary levels.

 

In 2015, the base salary of our Chief Financial Officer was increased by the Compensation Committee as a result of its review and analysis of competitive data, as well as a review of the extent of his individual responsibilities.  In 2015, we increased the base salary of Mr. Driscoll by 5.0% to $357,000.  There was no change in the base salary of our Chief Executive Officer or Chief Administrative Officer.

 

The compensation levels of our executives are established to recognize the relative level of responsibility of each executive.  Our Chief Executive Officer’s compensation is higher than the levels of our other executives in order to

reflect the generally broader and more significant level of responsibility of our Chief Executive Officer.  We have found that compensation survey results generally reflect this pattern for most companies.

 

The Compensation Committee believes that benchmarking and aligning base salaries is especially critical to a competitive compensation program.  Other elements of compensation are affected by changes in base salary.  Annual incentives are targeted and paid out as a percentage of base salary, and the target levels of long-term incentives are also determined as a percentage of base salary.

 

Executive Bonus Plan

 

In 2008, our shareholders approved the original Executive Bonus Plan for our executive officers.  In 2011, our shareholders approved the Amended and Restated Executive Bonus Plan, and in 2013, our shareholders approved an amendment to the Amended and Restated Executive Bonus Plan.    Annual cash bonuses are intended to compensate our executives for the achievement of company-wide net income and expense leverage goals. Cash bonuses are set as a percentage of the executive officer's base salary, with higher-ranked executives typically being compensated at a higher percentage of base salary.  However, our success is dependent on the ability of our management group to integrate and work together to meet common company‑wide goals.  Accordingly, executives are not assigned specific individual goals but instead are collectively responsible for meeting company‑wide goals. Our Compensation Committee develops corporate goals that, if achieved, will result in improved operating performance.  In 2015, our target bonus percentages were 100% of base salary for our Chief Executive Officer and Chief Financial Officer, and 75% for our Chief Administrative Officer.  In addition, our compensation program also provides incentives for our executives to reach beyond our target corporate goals.  If our executives perform above expectations, they may be entitled to receive additional bonus amounts that can result in a total annual bonus of up to 170% of base salary for our Chief Executive Officer and Chief Financial Officer, and up to a proposed 127.5% of base salary for the Chief Administrative Officer.  Proportionally lower bonuses are provided for achievement levels between 90% and 100% of respective company-wide targets, and no bonuses are earned by any executive where less than 90% of the respective company-wide target factor is achieved. Our Compensation Committee approved a consolidated net income goal of $44.1 million for 2015, reflecting our growth target for the year and an expense leverage goal to limit 2015 consolidated SG&A expenses as a percentage of net sales at 10.48%.  The Executive Bonus Plan provides that the two targets be increased or decreased to reflect material changes in revenue growth rates for the IT markets in which the Company competes.  This potential adjustment is based on the belief that management should neither receive a windfall from higher-than-expected IT industry growth nor be penalized for lower-than-expected growth. The Company employs an assessment of IT industry revenue growth prepared quarterly by International Data Corporation, or IDC, a global provider of market intelligence for technology markets. In 2015, the IDC assessment found that the IT industry grew at higher-than-expected growth.  Accordingly the net income target was increased by $0.3 million to $44.4 million and the SG&A target was decreased from 10.48% to 10.46%.

 

Our executive officers work together as a team and all executives are assigned the same company‑wide net income and expense leverage goals.  In 2015, our net income was $46.8 million and SG&A expense as a percentage of net sales was 10.20%.  Performance by the Company against its adjusted net income target was exceeded by 6%, and performance against the adjusted SG&A target was exceeded by 3%, resulting in an overall payout at 106% of the combined targets.  Accordingly, total bonus payouts for the named executive officers aggregated $1.6 million.

 

The table below describes the bonus payments and the percentage of base salary for 2015 for the named executive officers:

 

 

Equity Awards

 

Our equity award program is a vehicle for offering long-term incentives to our executives. We believe that equity grants help attract management talent and provide a strong link to our long-term performance and help to align the interests of our executives and our stockholders. In addition, the vesting feature of our equity grants furthers our goal of executive retention by providing an incentive to our executives to remain in our employ during the vesting period.  In determining the size of equity grants to our executives, the Compensation Committee and the Chief Executive Officer consider comparative share ownership of executives in our compensation peer group, our company‑wide performance, the applicable executive’s performance, the amount of equity previously awarded to the executive, the vesting of such awards, and the recommendation of management.  In 2012, our Board of Directors delegated to Patricia Gallup as a committee of the Board the authority to grant stock options and stock equivalent units, or SEUs, to non-executive officers of up to 20,000 shares per individual per calendar year; provided that no more than 350,000 shares of options and 350,000 shares of SEUs may be granted in the aggregate.  In addition, the delegation limits the vesting of the SEUs to a period of no less than four years and requires the exercise price for options to be equal to the closing stock price of our common stock on the Nasdaq Stock Market on the date of the grant.  In September 2015, our Board of Directors increased the number of SEUs that may be granted in the aggregate to 500,000 shares.

 

Our equity awards have typically taken the form of stock options and restricted stock units, or RSUs.  The Compensation Committee and our Chief Executive Officer review all components of the executive’s compensation when determining equity awards to ensure that an executive’s total compensation conforms to our overall philosophy and objectives.

 

Stock Options have a ten-year life, and vesting and exercise rights cease shortly after termination of employment except in the case of death or disability. We do not have any equity ownership guidelines for our executives.

 

Benefits and Other Compensation

 

We maintain broad-based benefits that are provided to all employees, including health and dental insurance, life and disability insurance, and a 401(k) plan.  Executives are eligible to participate in all of our employee benefit plans, in each case on the same basis as other employees.  We provide a matching contribution equal to 25% of the employee’s deferral contributions to the 401(k) plan that does not exceed 6% of their qualified compensation.

 

No executive officer received perquisites aggregating $10,000 or more in 2015.

 

Severance Benefits

 

Pursuant to the employment agreement we have entered into with Mr. McGrath and the offer letter signed by Mr. Driscoll, each executive is entitled to specified benefits in the event of termination of their employment under specified circumstances.  We have provided more detailed information about these benefits, along with estimates of their value under various circumstances, under the caption “Potential Payments Upon Termination or Change in Control” below.

 

We believe providing these benefits help us compete for executive talent.  After reviewing the practices of companies represented in our 2015 peer group, we believe that our severance and change of control benefits are generally in line with severance packages offered to executives at such companies.

Tax and Accounting Considerations

 

Section 162(m) of the Code generally disallows a tax deduction for compensation in excess of $1.0 million paid to our Chief Executive Officer and the three other officers (other than the Chief Financial Officer) whose compensation is required to be disclosed to our stockholders under the Exchange Act by reason of being among our three other most highly compensated officers.  Qualifying performance-based compensation is not subject to the deduction limitation if specified requirements are met.  We periodically review the potential consequences of Section 162(m), and we intend to structure the performance-based portion of our executive compensation, where feasible, to comply with exemptions in Section 162(m) so that the compensation remains tax deductible to us.   However, the Compensation Committee may, in its judgment, authorize compensation payments that do not comply with the exemptions in Section 162(m) when it believes that such payments are appropriate to attract and retain executive talent.

 

We account for equity compensation awarded to our employees per the methods prescribed by ASC 718, which require us to recognize compensation expense in our financial statements for all share-based payments based upon an estimate of their fair value over the service period of the award.  We record cash compensation as an expense at the time the obligation is accrued.  Given our adoption of ASC 718, we believe that the accounting impact of the different forms of equity compensation awards generally reflects their economic impact.  Accordingly, the underlying accounting treatment is not a material consideration in determining the specific nature or size of equity awards granted.  The tax impact of the awards on the recipient and the effectiveness of the award in retaining executives are more relevant considerations.

 

Executive Compensation

 

The following table sets forth information for our Chief Executive Officer and our two other most highly compensated executive officers who were serving as executive officers as of December 31, 2015, collectively, the named executive officers for the fiscal years indicated.

 

Summary Compensation Table for Fiscal Years Ended December 31, 2015, 2014 and 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

Grants of Plan Based Awards

 

The following table sets forth certain information regarding grants of plan-based awards made to our named executive officers during 2015.

 

Grants of Plan-Based Awards for Fiscal Year Ended December 31, 2015

 

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table sets forth certain information regarding outstanding equity awards held by our named executive officers as of December 31, 2015.

 

Outstanding Equity Awards at Fiscal Year Ended December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

Options Exercised and Stock Vested

 

The following table sets forth certain information regarding stock options exercised and restricted stock units (RSUs) vested by our named executive officers during 2015.

 

 

 

 

Potential Payments Upon Termination or Change in Control

 

We have entered into an employment agreement with Mr. McGrath and have a signed offer letter from Mr. Driscoll, providing for severance payments for twelve months, or until such time as other employment is secured (whichever is earlier), of their then respective annual base salary if employment is terminated for any reason other than for cause, death, or disability as such terms are defined in their respective agreements.  Under such circumstances, severance payments for Messrs. McGrath and Driscoll would have an aggregate value of $900,000 and $357,000, respectively.  Such payments are conditioned upon our receipt of a general release of claims from Messrs. McGrath and Driscoll.  The agreements include certain non-compete and non-solicit obligations that extend for twenty-four and eighteen months, respectively, after termination of employment.  We assume, for the purpose of calculating values for all termination events, that the effective date of termination is December 31, 2015.

 

In the event that we undergo a change in control (referred to as an "Acquisition Event" in the Amended and Restated 1997 Stock Incentive Plan and a "Reorganization Event" in the Amended and Restated 2007 Stock Incentive Plan, as amended) and as a result our Board of Directors accelerates the vesting of all outstanding unvested equity awards, Mr. McGrath, Mr. Driscoll, and Ms. Gallup would realize $6,905,200, $1,086,720, and $113,200, respectively, based on the closing price of our Common Stock on December 31, 2015 of $22.64 per share, assuming the vesting and sale by each of their unvested equity awards presented above.

 

Compensation Committee Report

 

Our Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with our management.  Based on this review and discussion, the Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

By the Compensation Committee of the Board of Directors of PC Connection:

 

 

Compensation Committee Interlocks and Insider Participation

 

The members of the Compensation Committee are Ms. Duckett and Messrs. Baute and Weatherson.  Ms. Duckett, Mr. Baute, and Mr. Weatherson were not at any time during 2015 an officer or employee of the Company or any of our subsidiaries.  Mr. Weatherson was formerly an officer of the Company from November 2003 to May 2004.  None of our executive officers has served as a director or member of the Compensation Committee (or other committee serving an equivalent function) of any other entity, one of whose executive officers served as our director or a member of our Compensation Committee.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

We currently have leases for facilities in Marlow and Merrimack, New Hampshire and two facilities in Keene, New Hampshire with Gallup & Hall, or G&H, a partnership owned solely by Patricia Gallup and David Hall, our principal stockholders.  The three facilities located in Marlow and Keene, New Hampshire are leased on a month-to-month basis requiring monthly rental payments of $500, $1,344, and $11,773, respectively.  These leases also obligate us to pay certain real estate taxes and insurance premiums on the premises.  Rent expense under the three leases aggregated $163,404 for each of the years ended December 31, 2015 and 2014.

 

In November 1997, we entered into a fifteen-year lease for an 114,000 square foot corporate headquarters in Merrimack, New Hampshire with G&H Post, LLC, an entity owned solely by Patricia Gallup and David Hall, our principal stockholders.  The initial term of the fifteen-year lease ended in November 2013, and we amended the lease in May 2014 to extend the term for an additional five years.  The lease requires an annual rental payment of $1,253,208 and provides us the option to renew for an additional five-year term.  The lease requires us to pay our proportionate share of real estate taxes and common area maintenance charges as either additional rent or directly to third-party providers and also to pay insurance premiums for the leased property.  

 

In August 2008, we entered into a ten-year lease agreement with Patricia Gallup and David Hall, our principal stockholders, for an office facility adjacent to our corporate headquarters.  The lease requires an annual rental payment of $247,884 in year seven of the lease and provides us the option to renew for two additional two-year terms.  The rent for subsequent years shall be subject to adjustment to reflect increases in a local consumer price index, but such adjustments shall not exceed an increase of 5.0% per year.  The lease requires us to pay our proportionate share of real estate taxes and common area maintenance charges either as additional rent or directly to third-party providers and to pay insurance premiums for the leased property.  Rent payments under the lease agreement were $246,846 and $241,711 for the years ended December 31, 2015 and 2014, respectively.

 

During 2015, we provided various facilities management, maintenance, financial, tax, and legal services to certain affiliates of Patricia Gallup and David Hall in connection with the operation of facilities leased by us from those affiliates. G&H reimbursed us $175,159 and $118,073 during 2015 and 2014, respectively, for those services.

 

The 1998 PC Connection Voting Trust

 

In connection with our initial public offering in March 1998, Patricia Gallup and David Hall placed substantially all of the shares of Common Stock that they beneficially owned immediately prior to the public offering into a Voting Trust, or the “Voting Trust”, of which they serve as co‑trustees.  The Voting Trust is the record holder of 14,238,188 shares of Common Stock as of the record date, March 28, 2016.  The terms of the Voting Trust require that both Ms. Gallup and Mr. Hall, as co-trustees, agree as to the manner of voting the shares of our Common Stock held by the Voting Trust in order for the shares to be voted. In the event the co-trustees are deadlocked with respect to the election of directors at a meeting of stockholders, our Board of Directors may require the co-trustees to execute and deliver to our Secretary a proxy representing all shares issued and outstanding in the name of the Voting Trust and entitled to vote in the election of directors.  Such proxy shall confer upon the proxyholder authority to attend the meeting for purposes of establishing a quorum and to vote for the directors nominated by our Board of Directors, provided that such nominees are incumbent directors elected with the consent of the co‑trustees. Each of Ms. Gallup and Mr. Hall may transfer shares of Common Stock for value to unaffiliated third parties. Any shares so transferred will no longer be subject to the Voting Trust and an equal number of the non-transferring co-trustee’s shares will be released from the Voting Trust.  Transfers by either of Ms. Gallup or Mr. Hall in excess of 75,000 shares in any 90-day period, or that would decrease the shares held by the Voting Trust to less than a majority of the outstanding shares, will be subject to a right of first refusal to the other.  The Voting Trust will terminate when it holds less than 10% of the outstanding shares of our Common Stock or at the death of both co-trustees. In addition, in the event of the death or incapacity of either co‑trustee, or when either of Ms. Gallup or Mr. Hall holds less than 25% of the beneficial interest held by the other in the Voting Trust, the other will become the sole trustee of the Voting Trust with the right to vote all the shares held by the Voting Trust.

 

All related party transactions discussed above and referenced in this proxy statement were on terms comparable to those we could have obtained in arms-length transactions with unaffiliated third parties.

 

 

POLICIES AND PROCEDURES FOR RELATED PERSON TRANSACTIONS

 

Our Board of Directors has adopted written policies and procedures for the review of any transaction, arrangement, or relationship in which we are a participant, the amount involved exceeds $120,000, and one of our executive officers, directors, director nominees, or 5% stockholders (or their immediate family members), each of whom we refer to as a “related person,” has a direct or indirect material interest.

 

If a related person proposes to enter into such a transaction, arrangement, or relationship, which we refer to as a “related person transaction,” the related person must report the proposed related person transaction to our Chief Financial Officer.  The policy calls for the proposed related person transaction to be reviewed and, if deemed appropriate, approved by our Audit Committee.  Whenever practicable, the reporting, review, and approval will occur prior to entry into the transaction.  If advance review and approval is not practicable, the Audit Committee will review, and, in its discretion, may ratify the related person transaction.  The policy also permits the chairman of the Audit Committee to review and, if deemed appropriate, approve proposed related person transactions that arise between committee meetings, subject to ratification by the Audit Committee at its next meeting.  Any related person transactions that are ongoing in nature will be reviewed annually.

 

A related person transaction reviewed under the policy will be considered approved or ratified if it is authorized by the Audit Committee after full disclosure of the related person’s interest in the transaction.  As appropriate for the circumstances, the Audit Committee will review and consider:

 

 

 

 

 

 

 

 

The Audit Committee may approve or ratify the transaction only if the Audit Committee determines that, under all of the circumstances, the transaction is not inconsistent with our best interests.  The Audit Committee may impose any conditions on the related person transaction that it deems appropriate.

 

In addition to the transactions that are excluded by the instructions to the SEC’s related person transaction disclosure rule, our Board of Directors has determined that the following transactions do not create a material direct or indirect interest on behalf of related persons and, therefore, are not related person transactions for purposes of this policy:

 

 

 

The policy provides that transactions involving compensation of executive officers shall be reviewed and approved by the Audit Committee in the manner specified in its charter.

Equity Compensation Plan Information

 

The following table provides information about our Common Stock that may be issued upon exercise of options, warrants, and rights under all of our equity compensation plans as of December 31, 2015, including the Amended and Restated 1997 Stock Incentive Plan, the Amended and Restated 2007 Stock Incentive Plan, as amended, and the Amended and Restated 1997 Employee Stock Purchase Plan, as amended.  Our stockholders have approved all of these plans. 

 

 

 

 

 

PROPOSAL TWO

 

ADVISORY VOTE ON EXECUTIVE COMPENSATION

 

We are providing our stockholders the opportunity to vote to approve, on an advisory, non-binding basis, the compensation of the executive officers named in the Summary Compensation Table under the heading “Executive Compensation,” who we refer to as our named executive officers, as disclosed in this proxy statement in accordance with the SEC’s rules.  This proposal, which is commonly referred to as “say-on-pay,” is required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which added Section 14A to the Exchange Act.  We provide our stockholders the opportunity to vote to approve, on an advisory basis, the compensation of our named executive officers every three years. 

 

Our executive compensation programs are designed to attract, motivate, and retain our executive officers, who are critical to our success. Under these programs, our named executive officers are rewarded for the achievement of our near-term and longer-term financial and strategic goals and for driving corporate financial performance and stability.  The programs contain elements of cash and equity-based compensation and are designed to align the interests of our executives with those of our stockholders. 

The “Executive Compensation” section of this proxy statement beginning on page 11, including “Compensation Discussion and Analysis,” describes in detail our executive compensation programs and the decisions made by the Compensation Committee and the Board of Directors with respect to the fiscal year ended December 31, 2015. 

 

Our Board of Directors is asking stockholders to approve a non-binding advisory vote on the following resolution:

 

RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the compensation discussion and analysis, the compensation tables, and any related material disclosed in this proxy statement, is hereby approved.

 

As an advisory vote, this proposal is not binding.  The outcome of this advisory vote does not overrule any decision by the Company or the Board of Directors (or any committee thereof), create or imply any change to the fiduciary duties of the Company or the Board of Directors (or any committee thereof), or create or imply any additional fiduciary duties for the Company or the Board of Directors (or any committee thereof).  However, our Compensation Committee and Board of Directors value the opinions expressed by our stockholders in their vote on this proposal and will consider the outcome of the vote when making future compensation decisions for named executive officers.

 

      Our Board of Directors recommends a vote “FOR” the approval of the compensation of our named executive officers by voting “FOR” Proposal TWO.

 

PROPOSAL THREE

 

APPROVAL OF AMENDMENT TO AMENDED AND RESTATED 2007 STOCK INCENTIVE PLAN

 

Equity awards are the principal vehicle used by the Company for the payment of long-term compensation, to provide a stock-based incentive to improve the Company's financial performance and to assist in the recruitment, retention, and motivation of professional, managerial, and other personnel.  Accordingly in 2007, the Company adopted the 2007 Stock Incentive Plan, which plan has been periodically amended with stockholder consent and is now referred to as the A&R 2007 Plan.  On March 2, 2016, the Board of Directors adopted Amendment No. 5 to the A&R 2007 Plan, subject to stockholder approval, to amend the A&R 2007 Plan further to increase the number of shares reserved for issuance under the plan from 1,600,000 to 1,700,000.  As of March 24, 2016, there were 38,000 shares available for future grant under the A&R 2007 Plan. 

 

Our Board of Directors believes that the approval of Amendment No. 5 to the A&R 2007 Plan is in the best interests of the Company and its stockholders and recommends a vote “FOR” the approval of this proposal and the reservation of 100,000 shares of Common Stock for issuance thereunder by voting “FOR” Proposal THREE.

Summary of the A&R 2007 Plan

 

The following summary is qualified in its entirety by reference to the A&R 2007 Plan, Amendment No. 1 to the A&R 2007 Plan, Amendment No. 2 to the A&R 2007 Plan, Amendment No. 3 to the A&R 2007 Plan, Amendment No. 4 to the A&R 2007 Plan, and Amendment No. 5 to the A&R 2007 Plan, which are attached as Appendix A to this Proxy Statement. 

 

Number of Shares Available for Awards

 

The number of shares of our common stock reserved for issuance under the A&R 2007 Plan is 1,700,000 shares. This number is subject to adjustment in the event of stock splits and other similar events. Shares issued under the A&R 2007 Plan may be authorized and unissued shares, or may be issued from shares that we have reacquired. Shares covered by awards under the A&R 2007 Plan that are terminated, forfeited, cancelled, or otherwise expire without having been fully exercised or settled (including as a result of shares being repurchased by us pursuant to a contractual repurchase right), will be credited back to the pool and will become available for issuance pursuant to a new award. Shares that are delivered to pay the exercise price of an award are also available for issuance pursuant to new awards, subject, in the case of incentive stock options, to any applicable limitation imposed by the Code.

 

Types of Awards

 

The A&R 2007 Plan provides for the grant of incentive stock options intended to qualify under Section 422 of the Code, which we refer to as the Code, nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based awards as described below, which we collectively refer to as Awards.

 

Incentive Stock Options and Nonstatutory Stock Options    

 

Optionees receive the right to purchase a specified number of shares of Common Stock at a specified option price and subject to such other terms and conditions as are specified in connection with the option grant.  Options must be granted at an exercise price which is equal to or greater than the fair market value of the Common Stock on the date of grant.  Under present law, incentive stock options and options intended to qualify as performance-based compensation under Section 162(m) of the Code may not be granted at an exercise price less than 100% of the fair market value of the Common Stock on the date of grant (or less than 110% of the fair market value in the case of incentive stock options granted to optionees holding more than 10% of our voting power).  Options may not be granted for a term in excess of ten years (five years in the case of incentive stock options granted to optionees holding more than 10% of our voting power.)  The A&R 2007 Plan permits the following forms of payment of the exercise price of options:  (i) payment by cash, check, or in connection with a “cashless exercise” through a broker, (ii) subject to certain conditions, delivery to us of shares of Common Stock, (iii) subject to certain conditions, any other lawful means approved by our Board of Directors, or (iv) any combination of these forms of payment.

 

Unless such action is approved by our stockholders: (i) no outstanding option granted under the A&R 2007 Plan may be amended to provide an exercise price per share that is lower than the then-current exercise price per share of such outstanding option (other than certain adjustments pursuant to a reorganization event or a change in capitalization) and (ii) the Board of Directors may not cancel any outstanding option (whether or not granted under the A&R 2007 Plan) and grant in substitution therefore new Awards under the A&R 2007 Plan covering the same or a different number of shares of Common Stock and having an exercise price per share lower than the then-current exercise price per share of the cancelled option. 

Stock Appreciation Rights 

 

A stock appreciation right, or SAR, is an award entitling the holder, upon exercise, to receive an amount in Common Stock determined by reference to appreciation, from and after the date of grant, in the fair market value of a share of Common Stock.  SARs may be granted independently or in tandem with an option.  The grant price or exercise price of SARs may not be less than 100% of the fair market value of the common stock on the date of grant.  The term of SARs may be no more than 10 years from the date of grant.

 

Restricted Stock

 

Awards of Restricted Stock Awards entitle recipients to acquire shares of Common Stock, subject to our right to repurchase all or a portion of such shares (or to require forfeiture if issued at no cost) from the recipient in the event that the conditions specified in the applicable Award are not satisfied prior to the end of the applicable restriction period established for such Award.  Unless otherwise provided by our Board of Directors, recipients will be entitled to all ordinary cash dividends paid with respect to such shares.  If any dividends or distributions are paid in shares or consist of a dividend or distribution other than an ordinary cash dividend, the shares, cash, or other property received will be subject to the same restrictions on transferability and forfeitability as the shares of Restricted Stock with respect to which they were paid.

 

Restricted Stock Units    

 

Awards of Restricted Stock Units entitle the recipient to receive shares of Common Stock to be delivered at the time such shares vest pursuant to the terms and conditions established by our Board of Directors. Restricted Stock and Restricted Stock Unit Awards are collectively referred to herein as Restricted Stock Awards.  Our Board of Directors may provide recipients with the right to receive an amount equal to any dividends or other distributions declared and paid on an equal number of outstanding shares of Common Stock, which we call dividend equivalents.  The dividend equivalents may be paid currently or credited to an account for the recipients, may be settled in cash and/or shares of Common Stock, and may be subject to the same restrictions on transfer and forfeitability as the Restricted Stock Units with respect to which they are paid, as determined by the Board of Directors in its sole discretion, subject in each case to such terms and conditions as the Board shall establish, in each case to be set forth in the applicable Award agreement.

 

Other Stock-Based Awards    

 

Under the A&R 2007 Plan, our Board of Directors has the right to grant other Awards based upon our Common Stock or other property having such terms and conditions as our Board of Directors may determine, including the grant of shares based upon certain conditions, the grant of Awards that are valued in whole or in part by reference to, or otherwise based on, shares of Common Stock, and the grant of Awards entitling recipients to receive shares of Common Stock to be delivered in the future.  Other Stock-Based Awards may be paid in Common Stock or cash.

 

Performance Conditions    

 

The 162(m) Subcommittee may determine, at the time of grant, that a Restricted Stock Award, Restricted Stock Unit Award, or Other Stock-Based Award granted to an officer will vest subject to the achievement of one or more objective performance measures, which shall be based on the relative or absolute attainment of specified levels of one or any combination of the following:  (a) net income; (b) earnings before or after discontinued operations, interest, taxes, depreciation and/or amortization; (c) operating profit before or after discontinued operations and/or taxes; (d) sales; (e) sales growth; (f) earnings growth; (g) cash flow or cash position; (h) gross margins; (i) stock price; (j) market share; (k) return on sales, assets, equity, or investment; (l) improvement of financial ratings; (m) achievement of balance sheet or income statement objectives; or (n) total shareholder return.  These performance measures may be absolute in their terms or measured against or in relationship to other companies comparably, similarly, or otherwise situated.  Such performance measures may be adjusted to exclude any one or more of (i) extraordinary items, (ii) gains or losses on the dispositions of discontinued operations, (iii) the cumulative effects of changes in accounting principles, (iv) the write-down of any asset, and (v) charges for restructuring and rationalization programs.  Such performance measures: (i) may vary by participant and may be different for different Awards; (ii) may be particular to a participant or the department,

branch, line of business, subsidiary, or other unit in which the participant works and may cover such period as may be specified by the 162(m) Subcommittee; and (iii) will be set by the 162(m) Subcommittee within the time period prescribed by, and will otherwise comply with the requirements of, Section 162(m).

 

Transferability of Awards

 

Except as our Board of Directors may otherwise determine or provide in an Award, Awards may not be sold, assigned, transferred, pledged, or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution or, other than in the case of an incentive stock option, pursuant to a qualified domestic relations order.  During the life of the participant, Awards are exercisable only by the participant. 

 

Eligibility to Receive Awards

 

Our employees, officers, directors, consultants, and advisors, including those of our subsidiaries, are eligible to be granted Awards under the A&R 2007 Plan.  Under present law, however, incentive stock options may only be granted to our employees, including employees of our subsidiaries.  As of April 1, 2016, approximately 1,900 persons were eligible to receive Awards under the A&R 2007 Plan, including our three executive officers and all of our directors.   

 

The maximum number of shares with respect to which Awards may be granted to any participant under the A&R 2007 Plan may not exceed 250,000 shares per calendar year.  For purposes of this limit, the combination of an option in tandem with SAR is treated as a single award. 

 

Plan Benefits

 

Grants under the A&R 2007 Plan will be determined by our Board of Directors, or any committee to whom our Board of Directors delegates authority, as the case may be, and may vary from year to year and from participant to participant and are not determinable at this time.

 

The following table sets forth, as of March 24, 2016, the stock option and Restricted Stock Awards made under the A&R 2007 Plan since its adoption to the individuals and groups set forth below:

 

Administration

 

The A&R 2007 Plan is administered by our Board of Directors.  Our Board of Directors has the authority to adopt, amend, and repeal the administrative rules, guidelines, and practices relating to the A&R 2007 Plan and to interpret the provisions of the A&R 2007 Plan and any Award agreements.  Pursuant to the terms of the A&R 2007 Plan, to the extent permitted by applicable law, our Board of Directors may delegate authority under the A&R 2007 Plan to one or more committees or subcommittees of our Board of Directors.  Any references herein to our Board is also deemed to refer to our compensation committee and subcommittee.

 

Subject to any applicable limitations contained in the A&R 2007 Plan, our Board of Directors or any committee to whom our Board of Directors delegates authority, as the case may be, selects the recipients of Awards and determines (i) the number of shares of Common Stock covered by options and the dates upon which such options become exercisable, (ii) the exercise price of options (which may not be less than 100% of fair market value of the Common Stock), (iii) the duration of options (which may not exceed 10 years), and (iv) the number of shares of Common Stock subject to any SAR, Restricted Stock Awards, or other stock-based Awards and the terms and conditions of such Awards, including conditions for repurchase, issue price, and repurchase price.

 

In addition, to the extent permitted by applicable law and our A&R 2007 Plan, our Board of Directors may delegate to our Chief Executive Officer its authority under our A&R 2007 Plan to grant options and other Awards that constitute rights under Delaware law to employees and officers who are not executive officers and to exercise such other powers as our Board of Directors may determine, provided that it will fix the terms of the awards to be granted by the Chief Executive Officer (including the exercise price of such Awards, which may include a formula by which the exercise price will be determined) and the maximum number of shares subject to Awards that the Chief Executive Officer may grant.

 

Our Board of Directors is required to make appropriate and equitable adjustments in connection with the A&R 2007 Plan and any outstanding Awards to reflect stock splits, stock dividends, recapitalizations, spin-offs, and other similar changes in capitalization.  The A&R 2007 Plan also contains provisions addressing the consequences of any Reorganization Event, which is defined as (i) our merger or consolidation with or into another entity as a result of which all of our Common Stock is converted into or exchanged for the right to receive cash, securities, or other property or is cancelled or (b) any exchange of all of our Common Stock for cash, securities, or other property pursuant to a share exchange transaction or (c) our liquidation or dissolution.  In connection with a Reorganization Event, our Board of Directors will take any one or more of the following actions as to all or any outstanding Awards other than Restricted Stock Awards on such terms as our Board of Directors determines:  (i) provide that Awards will be assumed, or substantially equivalent Awards will be substituted, by the acquiring or succeeding corporation (or an affiliate thereof), (ii) upon written notice, provide that all unexercised options or other unexercised Awards will terminate immediately prior to the consummation of such Reorganization Event unless exercised within a specified period following the date of such notice, (iii) provide that outstanding Awards will become exercisable, realizable, or deliverable, or restrictions applicable to an Award will lapse, in whole or in part prior to or upon such Reorganization Event, (iv) in the event of a Reorganization Event under the terms of which holders of Common Stock will receive upon consummation thereof a cash payment for each share surrendered in the Reorganization Event, which we refer to as the Acquisition Price, make or provide for a cash payment to an Award holder equal to (A) the Acquisition Price times the number of shares of Common Stock subject to the holder’s Awards (to the extent the exercise price does not exceed the Acquisition Price) minus (B) the aggregate exercise price of all the holder’s outstanding Awards and any applicable tax withholdings, in exchange for the termination of such Awards, (v) provide that, in connection with our liquidation or dissolution, Awards will convert into the right to receive liquidation proceeds (if applicable, net of the exercise price thereof and any applicable tax withholdings), and (vi) any combination of the foregoing.  Our Board of Directors is not required to treat holders of the same types of Awards in the same manner. An Option will be treated as assumed if it relates to the consideration paid in the transaction or, if the consideration is not solely common stock of the acquiring or succeeding corporation, to stock of the corporation equivalent to the consideration.

 

If there is a Reorganization Event, other than our liquidation or dissolution, our successor will assume our repurchase and other rights under each outstanding Restricted Stock Award. Unless our Board of Directors determines otherwise, our successor’s rights will apply in the same manner and to the same extent to the cash, securities, or other property that our Common Stock was converted into or exchanged for pursuant to the Reorganization Event as they applied to our Common Stock subject to the Restricted Stock Award.  If there is a Reorganization Event that involves our liquidation or dissolution, except as otherwise provided in a participant’s Restricted Stock or Restricted Stock Unit agreement or in other agreements between the participant and us, all of the restrictions and conditions on the participant’s then-outstanding Restricted Stock Awards will automatically be deemed terminated or satisfied.

 

If any Award expires or is terminated, surrendered, canceled, or forfeited, the unused shares of Common Stock covered by such Award will again be available for grant under the A&R 2007 Plan, subject, however, in the case of incentive stock options, to any limitations under the Code.

 

Vesting Limitations

 

No Restricted Stock Awards or other stock-based awards that vest solely based on the passage of time shall be vested in full prior to the third anniversary of the date of grant. Restricted Stock Awards or other stock-based awards that do not vest solely based on the passage of time shall not vest in full prior to the first anniversary of the date of grant. The two foregoing sentences shall not apply to Restricted Stock Awards or other stock-based awards, in the aggregate, for up to 10% of the maximum number of shares available for award under the A&R 2007 Plan. Notwithstanding the foregoing and other than with respect to performance awards, as defined in the A&R 2007 Plan, our Board may, either at the time a Restricted Stock Award or other stock-based award is made or at any time thereafter, waive its right to repurchase shares of Common Stock (or waive the forfeiture thereof) or remove or modify the restrictions applicable to such award, in whole or in part, in the event of the death or disability of the participant; the termination of the participant’s employment by or service to us under specified circumstances; or a merger, consolidation, sale, reorganization, recapitalization, or change in control of the Company.

 

Substitute Awards

 

In connection with a merger or consolidation of an entity with us or the acquisition by us of property or stock of an entity, our Board of Directors may grant Awards in substitution for any options or other stock or stock-based awards granted by such entity or an affiliate thereof.  Substitute Awards may be granted on such terms, as our Board of Directors deems appropriate in the circumstances, notwithstanding any limitations on Awards contained in the A&R 2007 Plan.  Substitute Awards will not count against the A&R 2007 Plan’s overall share limit, except as may be required by the Code.

 

Provisions for Non U.S. Employees and Authorization of Sub-Plans 

 

Our Board of Directors may grant Awards to participants who are non-U.S. citizens or residents employed outside the United States, or both, on such terms and conditions different from those applicable to Awards to Participants employed in the United States as may, in the judgment of the Board of Directors, be necessary or desirable in order to recognize differences in local law or tax policy.  The Board of Directors also may impose conditions on the exercise or vesting of Awards in order to minimize the Board of Directors’ obligation with respect to tax equalization for Participants on assignments outside their home country. 

 

Our Board of Directors may also establish subplans or procedures under the A&R 2007 Plan to satisfy applicable securities or tax laws of various jurisdictions.

 

Amendment or Termination

 

Except as otherwise provided with respect to performance awards, the Board of Directors may amend, modify, or terminate any outstanding Award, including but not limited to, substituting therefore another Award of the same or a different type, changing the date of exercise or realization, and converting an incentive stock option to a nonstatutory stock option, provided either (i) that the participant’s consent to such action shall be required unless the Board of Directors determines that the action, taking into account any related action, would not materially and adversely affect the participant or (ii) that the change is permitted under the A&R 2007 Plan.

 

No Award may be made under the A&R 2007 Plan after May 26, 2020, but Awards previously granted may extend beyond that date.  Our Board of Directors may at any time amend, suspend, or terminate the A&R 2007 Plan, provided that, to the extent required by Section 162(m) of the Code, no Award granted to a participant that is intended to comply with Section 162(m), after the date of such amendment will become exercisable, realizable, or vested unless and until the amendment is approved by our stockholders if required by Section 162(m).  In addition, no amendment that would require stockholder approval under the rules of the Nasdaq Stock Market may be effective unless and until such amendment has been approved by our stockholders.  If the Nasdaq Stock Market amends its corporate governance rules so that the rules no longer require stockholder approval of “material amendments” to equity compensation plans, then, from the effective date of such amendment, no amendment to the A&R 2007 Plan which materially increases the number of shares authorized under the A&R 2007 Plan (other than pursuant to the adjustment provisions contained in the A&R 2007 Plan), expands the types of awards that may be granted under the A&R 2007 Plan, or materially expands the class of participants eligible to participate in the A&R 2007 Plan shall be effective unless stockholder approval is obtained. 

 

If stockholder approval is required under Section 422 of the Code, the Board may not effect such modification or amendment without stockholder approval. 

 

No Award shall be made that is conditioned upon stockholder approval of any amendment to the A&R 2007 Plan, provided however, that options and Restricted Stock Units may be granted that are conditioned upon stockholder approval as long as the grants provide that no shares may be issued unless and until the options and Restricted Stock Units are so approved and that the options and Restricted Stock Units will expire if not so approved within one year after grant.

 

Federal Income Tax Consequences

 

The following is a summary of the United States federal income tax consequences that generally will arise with respect to Awards granted under the A&R 2007 Plan.  This summary is based on the federal tax laws in effect as of the date of this proxy statement.  In addition, this summary assumes that all Awards are exempt from, or comply with, the rules under Section 409A of the Code regarding nonqualified deferred compensation.  Changes to these laws could alter the tax consequences described below.

 

Incentive Stock Options

 

A participant will not have income upon the grant of an incentive stock option.  Also, except as described below, a participant will not have income upon exercise of an incentive stock option if the participant has been employed by us or our corporate parent or 50% or more-owned corporate subsidiary at all times beginning with the option grant date and ending three months before the date the participant exercises the option.  If the participant has not been so employed during that time, then the participant will be taxed as described below under “Nonstatutory Stock Options.”  The exercise of an incentive stock option may subject the participant to the alternative minimum tax.

 

A participant will have income upon the sale of the stock acquired under an incentive stock option at a profit (if sales proceeds exceed the exercise price).  The type of income will depend on when the participant sells the stock.  If a participant sells the stock more than two years after the option was granted and more than one year after the option was exercised, then all of the profit will be long-term capital gain.  If a participant sells the stock prior to satisfying these waiting periods, then the participant will have engaged in a disqualifying disposition and a portion of the profit will be ordinary income and a portion may be capital gain.  This capital gain will be long-term if the participant has held the stock for more than one year and otherwise will be short-term.  If a participant sells the stock at a loss (sales proceeds are less than the exercise price), then the loss will be a capital loss.  This capital loss will be long-term if the participant held the stock for more than one year and otherwise will be short-term.

 

Nonstatutory Stock Options

 

A participant will not have income upon the grant of a nonstatutory stock option.  A participant will have compensation income upon the exercise of a nonstatutory stock option equal to the value of the stock on the day the participant exercised the option less the exercise price.  Upon sale of the stock, the participant will have capital gain or loss equal to the difference between the sales proceeds and the value of the stock on the day the option was exercised.  This capital gain or loss will be long-term if the participant has held the stock for more than one year and otherwise will be short-term.

 

Stock Appreciation Rights

 

A participant will not have income upon the grant of a SAR.  A participant generally will recognize compensation income upon the exercise of a SAR equal to the fair market value of any stock received.  Upon the sale of the stock, the participant will have capital gain or loss equal to the difference between the sales proceeds and the value of the stock on the day the SAR was exercised.  This capital gain or loss will be long-term if the participant held the stock for more than one year and otherwise will be short-term.

 

Restricted Stock Awards

 

A participant will not have income upon the grant of restricted stock unless an election under Section 83(b) of the Code is made within 30 days of the date of grant.  If a timely 83(b) election is made, then a participant will have compensation income equal to the value of the stock less the purchase price, if any. When the stock is sold, the participant will have capital gain or loss equal to the difference between the sales proceeds and the value of the stock on the date of grant.  If the participant does not make an 83(b) election, then when the stock vests the participant will have compensation income equal to the value of the stock on the vesting date less the purchase price, if any.  When the stock is sold, the participant will have capital gain or loss equal to the sales proceeds less the value of the stock on the vesting date.  Any capital gain or loss will be long-term if the participant held the stock for more than one year and otherwise will be short-term.

 

Restricted Stock Units

 

A participant will not have income upon the grant of a restricted stock unit.  A participant is not permitted to make a Section 83(b) election with respect to a restricted stock unit award.  When the restricted stock unit vests, the participant will have income on the vesting date in an amount equal to the fair market value of the stock on the vesting date less the purchase price, if any. When the stock is sold, the participant will have capital gain or loss equal to the sales proceeds less the value of the stock on the vesting date.  Any capital gain or loss will be long-term if the participant held the stock for more than one year and otherwise will be short-term.

 

Other Stock-Based Awards

 

The tax consequences associated with any other stock-based Award granted under the A&R 2007 Plan will vary depending on the specific terms of such Award.  Among the relevant factors are whether or not the Award has a readily ascertainable fair market value, whether or not the Award is subject to forfeiture provisions or restrictions on transfer, the nature of the property to be received by the participant under the Award, and the participant’s holding period and tax basis for the Award or underlying Common Stock.

 

Tax Consequences to the Company

 

There will be no tax consequences to the Company except that we will be entitled to a deduction when a participant has compensation income.  Any such deduction will be subject to the limitations of Section 162(m) of the Code.

 

PROPOSAL FOUR

 

RATIFICATION OF SELECTION OF

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Audit Committee of our Board of Directors has selected the firm of Deloitte & Touche LLP, an independent registered public accounting firm, to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2016. The ratification of this selection by the Audit Committee is not required under the laws of the State of Delaware, where we are incorporated, but the results of this vote will be considered by the Audit Committee in selecting our independent registered public accounting firm. Deloitte & Touche LLP has served as our independent registered public accounting firm since 1984. It is expected that a member of Deloitte & Touche LLP will be present at the meeting with the opportunity to make a statement if so desired and will be available to respond to appropriate questions from stockholders.

 

Our Board of Directors recommends a vote “FOR” the ratification of the selection by the Audit Committee of Deloitte & Touche LLP as our independent registered public accounting firm by voting “FOR” Proposal FOUR.

 

Principal Accounting Fees and Services

 

The following table summarizes the fees Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their affiliates, which we collectively refer to as Deloitte & Touche, billed to us for each of the last two fiscal years.  The Audit Committee of our Board of Directors believes that the non‑audit services described below did not compromise Deloitte & Touche’s independence.

 

 

 

 

Pre-Approval Policies and Procedures

 

Our Audit Committee has adopted policies and procedures relating to the approval of all audit and non‑audit services that are to be performed by our independent registered public accounting firm.  This policy generally provides that we will not engage an independent registered public accounting firm to render audit or non‑audit services unless the service is specifically approved in advance by our Audit Committee or the engagement is entered into pursuant to one of the pre‑approval procedures described below.

 

From time to time, our Audit Committee may pre‑approve specified types of services that are expected to be provided to us by our independent registered public accounting firm during the next twelve months.  Any such pre‑approval is detailed as to the particular service or type of services to be provided and is also generally subject to a maximum dollar amount. 

 

Our Audit Committee has also delegated to the Chairman of our Audit Committee the authority to approve any audit or non‑audit services to be provided to us by our independent registered public accounting firm.  Any approval of services by the Chairman of our Audit Committee pursuant to this delegated authority is reported on at the next meeting of our Audit Committee.

 

Audit Committee Report

 

Our Audit Committee has reviewed our audited financial statements for the fiscal year ended December 31, 2015, and discussed them with our management and our registered public accounting firm. 

 

The Audit Committee has also discussed with our registered public accounting firm various communications that our registered public accounting firm is required to provide to the Audit Committee, including the matters required to be discussed by Public Company Accounting Oversight Board (United States) Audit Standard AU Section 380, Communication with Audit, and Rule 2-07 of SEC Regulation S-X.  The Audit Committee was satisfied with this discussion.

 

The standards of the Public Company Accounting Oversight Board require our registered public accounting firm to discuss with our Audit Committee, among other things, the following:

 

 

 

 

 

Our Audit Committee has received the written disclosures and the letter from our registered public accounting firm required by PCAOB Ethics and Independence Rule 3526, Communication with Audit Committees Concerning Independence,  regarding the registered public accounting firm’s communication with the Audit Committee concerning independence, and has discussed with our registered public accounting firm their independence.

 

Based on the review and discussions referred to above, the Audit Committee recommended to our Board of Directors that our audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2015.

By the Audit Committee of the Board of Directors of PC Connection:

 

 

ADDITIONAL INFORMATION

 

Matters to be Considered at the Annual Meeting

 

Our Board of Directors does not know of any other matters which may come before the Annual Meeting.  However, if any other matters are properly presented to the Annual Meeting, it is the intention of persons named in the accompanying proxy to vote, or otherwise act, in accordance with their judgment on such matters.

 

Householding of Annual Meeting Materials  

 

Some banks, brokers, and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports.  This means that only one copy of the Notice of Internet Availability of Proxy Materials, proxy statement, or annual report may have been sent to multiple stockholders in your household.  We will promptly deliver a separate copy of these documents to you if you write or call us at the following address or phone number: PC Connection, Inc., Attention: Investor Relations, 730 Milford Road, Merrimack, New Hampshire 03054 (603-683-2505).  If you wish to receive separate copies of the Notice of Internet Availability of Proxy Materials, the annual report, or the proxy statement, as applicable in the future, or if you are receiving multiple copies and would like to receive only one copy for your household, you should contact your bank, broker, or other nominee record holder, or you may contact us at the above address and phone number.

 

A copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, as filed with the SEC, except for exhibits, will be furnished without charge to any stockholder upon written or oral request to PC Connection, Inc., Attention: Investor Relations, 730 Milford Road, Merrimack, New Hampshire 03054 (603-683-2505).

 

Solicitation of Proxies

 

All costs of solicitations of proxies will be borne by us. In addition to solicitations by mail, our directors, officers, and regular employees, without additional remuneration, may solicit proxies by telephone, mail, fax, and personal interviews.  We will also request brokers, custodians, and fiduciaries to forward proxy soliciting material to the owners of stock held in their names, and we will reimburse them for their out-of-pocket expenses in this regard.

 

 Deadline for Submission of Stockholder Proposals and Nominations

 

Proposals of stockholders to be included in the Company’s proxy statement pursuant to Rule 14a-8 of the Exchange Act for the 2017 Annual Meeting of Stockholders must be received by us at our principal office in Merrimack, New Hampshire not later than December 8, 2016, for inclusion in the proxy statement for that meeting.

 

If a stockholder of our Company who holds less than 40% of the shares of our capital stock issued and outstanding and entitled to vote wishes to otherwise present a proposal (including a nomination) before the 2017 Annual Meeting proxy, such stockholder must give timely notice of such proposal to our Secretary at our principal offices. The required notice must be delivered to or mailed and received at our principal executive offices not later than March 25, 2017 nor earlier than February 23, 2017.  Notwithstanding the foregoing, if we provide less than 70 days notice or prior public disclosure of the date of the meeting to stockholders, notice by the stockholder or stockholders to be timely must be delivered or mailed to the Secretary not later than the close of business on the tenth day following the date on which the notice of the meeting was mailed or public disclosure was made, whichever occurs first.

 

 

April 7, 2016

 

OUR BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.  WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN, AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. YOUR PROMPT RESPONSE WILL GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING, AND YOUR COOPERATION WILL BE APPRECIATED.

 

 

 

 

 

APPENDIX A

 

AMENDMENT NO. 1 TO

 

AMENDED AND RESTATED 2007 STOCK INCENTIVE PLAN

 

The Amended and Restated 2007 Stock Incentive Plan (the “Plan”) of PC Connection, Inc. is hereby further amended as follows: 

 

1. Section 7(b) of the Plan is hereby deleted in its entirety and a new Section 7(b) is inserted in lieu thereof which reads as follows:

 

“(b) Terms and Conditions for All Restricted Stock Awards. The Board shall determine the terms and conditions of a Restricted Stock Award, including the conditions for vesting and repurchase (or forfeiture) and the issue price, if any. No Restricted Stock Award that vests solely based on the passage of time shall vest in full earlier than the third anniversary of its date of grant. Restricted Stock Awards that do not vest solely based on the passage of time shall not vest in full prior to the first anniversary of the date of grant. The two foregoing sentences shall not apply to Restricted Stock Awards and Other Stock-Based Awards granted, in the aggregate, for up to 10% of the maximum number of authorized shares set forth in Section 4(a). Notwithstanding any other provision of the Plan (other than Section 10(h), if applicable), the Board may, either at the time a Restricted Stock Award is made or at any time thereafter, waive its right to repurchase shares of Common Stock (or waive the forfeiture thereof) or remove or modify the restrictions applicable to the Restricted Stock Award, in whole or in part, in the event of the death or disability of the Participant; the termination of the Participant’s employment by or service to the Company under specified circumstances; or a merger, consolidation, sale, reorganization, recapitalization, or change in control of the Company.”

 

2. Section 8 of the Plan is hereby deleted in its entirety and a new Section 8 is inserted in lieu thereof, which reads as follows:

 

“(a) General. Other Awards of shares of Common Stock, and other Awards that are valued in whole or in part by reference to, or are otherwise based on, shares of Common Stock or other property, may be granted hereunder to Participants (“Other Stock Based Awards”), including without limitation Awards entitling recipients to receive shares of Common Stock to be delivered in the future.  Such Other Stock Based Awards shall also be available as a form of payment in the settlement of other Awards granted under the Plan or as payment in lieu of compensation to which a Participant is otherwise entitled.  Other Stock Based Awards may be paid in shares of Common Stock or cash, as the Board shall determine. 

 

(b) Terms and Conditions. Subject to the provisions of the Plan, the Board shall determine the terms and conditions of each Other Stock-Based Award, including any purchase price applicable thereto. No Other Stock-Based Award that vests solely based on the passage of time shall vest in full earlier than the third anniversary of its date of grant. Other Stock-Based Awards that do not vest solely based on the passage of time shall not vest in full prior to the first anniversary of the date of grant. The two foregoing sentences shall not apply to Restricted Stock Awards and Other Stock-Based Awards granted, in the aggregate, for up to 10% of the maximum number of authorized shares set forth in Section 4(a). Notwithstanding any other provision of the Plan (other than Section 10(h), if applicable), the Board may, either at the time an Other Stock-Based Award is made or at any time thereafter, waive its right to repurchase shares of Common Stock (or waive the forfeiture thereof), as applicable, or remove or modify the restrictions applicable to the Other Stock-Based Awards, in whole or in part, in the event of the death or disability of the Participant; the termination of the Participant’s employment by or service to the Company under specified circumstances; or a merger, consolidation, sale, reorganization, recapitalization, or change in control of the Company.”

 

3. Section 10(f) of the Plan is hereby deleted in its entirety and a new Section 10(f) is inserted in lieu thereof which reads as follows:

 

“(f) Except as provided in Section 5(g) with respect to repricings, Section 7(b) or 8(b) with respect to the vesting of Awards, Section 10(h) with respect to Performance Awards and Section 11(d) with respect to actions requiring stockholder approval, the Board may amend, modify or terminate any outstanding Award, including but not limited to, substituting therefor another Award of the same or a different type, changing the date of exercise or realization, and converting an Incentive Stock Option to a Nonqualified Stock Option, provided either (i) that the Participant’s consent to such action shall be required unless the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participant or (ii) that the change is permitted under Section 9 hereof.

 

Except as set forth above, the remainder of the Plan remains in full force and effect.

 

Adopted by the Board of Directors on February 1, 2011.

 

AMENDMENT NO. 2 TO

 

AMENDED AND RESTATED 2007 STOCK INCENTIVE PLAN

 

The Amended and Restated 2007 Stock Incentive Plan (the “Plan”) of PC Connection, Inc. is hereby further amended as follows: 

 

1. The first sentence of the Section 4(a) is hereby deleted in its entirety and the following is inserted in lieu thereof:

 

“Subject to adjustment under Section 9, Awards may be made under the Plan for a number of shares of common stock, $0.01 par value per share, of the Company (the “Common Stock”), equal to 1,200,000 shares of Common Stock.”

 

Except as set forth above, the remainder of the Plan remains in full force and effect.

 

Adopted by the Board of Directors on January 31, 2012, and approved by shareholders on May 23, 2012.

AMENDMENT NO. 3 TO

 

AMENDED AND RESTATED 2007 STOCK INCENTIVE PLAN

 

The Amended and Restated 2007 Stock Incentive Plan (the “Plan”) of PC Connection, Inc. is hereby further amended as follows: 

 

1. The first sentence of the Section 4(a) is hereby deleted in its entirety and the following is inserted in lieu thereof:

 

“Subject to adjustment under Section 9, Awards may be made under the Plan for a number of shares of common stock, $0.01 par value per share, of the Company (the “Common Stock”), equal to 1,400,000 shares of Common Stock.”

 

Except as set forth above, the remainder of the Plan remains in full force and effect.

 

Adopted by the Board of Directors on February 21, 2013, and approved by shareholders on May 22, 2013.

AMENDMENT NO. 4 TO

 

AMENDED AND RESTATED 2007 STOCK INCENTIVE PLAN

 

The Amended and Restated 2007 Stock Incentive Plan (the “Plan”) of PC Connection, Inc. is hereby further amended as follows: 

 

1. The first sentence of the Section 4(a) is hereby deleted in its entirety and the following is inserted in lieu thereof:

 

“Subject to adjustment under Section 9, Awards may be made under the Plan for a number of shares of common stock, $0.01 par value per share, of the Company (the “Common Stock”), equal to 1,600,000 shares of Common Stock.”

 

Except as set forth above, the remainder of the Plan remains in full force and effect.

 

Adopted by the Board of Directors on February 25, 2014 and approved by shareholders on May 21, 2014.

AMENDMENT NO. 5 TO

 

AMENDED AND RESTATED 2007 STOCK INCENTIVE PLAN

 

The Amended and Restated 2007 Stock Incentive Plan (the “Plan”) of PC Connection, Inc. is hereby further amended as follows: 

 

1. The first sentence of the Section 4(a) is hereby deleted in its entirety and the following is inserted in lieu thereof:

 

“Subject to adjustment under Section 9, Awards may be made under the Plan for a number of shares of common stock, $0.01 par value per share, of the Company (the “Common Stock”), equal to 1,700,000 shares of Common Stock.”

 

Except as set forth above, the remainder of the Plan remains in full force and effect.

 

Adopted by the Board of Directors on March 2, 2016.

 

PC Connection, Inc.

AMENDED AND RESTATED 2007 STOCK INCENTIVE PLAN

 

 

The purpose of this 2007 Stock Incentive Plan (the “Plan”) of PC Connection, Inc., a Delaware corporation (the “Company”), is to advance the interests of the Company’s stockholders by enhancing the Company’s ability to attract, retain, and motivate persons who are expected to make important contributions to the Company and by providing such persons with equity ownership opportunities and performance-based incentives thereby better aligning the interests of such persons with those of the Company’s stockholders. Except where the context otherwise requires, the term “Company” shall include any of the Company’s present or future parent or subsidiary corporations as defined in Sections 424(e) or (f) of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the “Code”) and any other business venture (including, without limitation, joint venture or limited liability company) in which the Company has a controlling interest, as determined by the Board of Directors of the Company (the “Board”).

 

 

All of the Company’s employees, officers, directors, consultants, and advisors are eligible to be granted options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based awards (each, an “Award”) under the Plan.  Each person who is granted an Award under the Plan is deemed a “Participant”.