SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held May 22, 2008

 

To the Stockholders:

 

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the “Annual Meeting”) of Informatica Corporation, a Delaware corporation (“Informatica”), will be held on Thursday, May 22, 2008 at 2:00 p.m., Pacific Time, at Informatica’s corporate headquarters, 100 Cardinal Way, Redwood City, CA 94063, for the following purposes:

 

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

 

2. To approve the adoption of a new Employee Stock Purchase Plan, reserving 8,850,000 shares of common stock for issuance thereunder.

 

3. To ratify the appointment of Ernst & Young LLP as Informatica’s independent registered public accounting firm for the fiscal year ending December 31, 2008.

 

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

 

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

 

Only holders of record of Informatica’s common stock at the close of business on March 31, 2008, the record date, are entitled to vote on the matters listed in this Notice of Annual Meeting.

 

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

 

By Order of the Board of Directors
of Informatica Corporation

 

 

 

Sohaib Abbasi

Chairman & Chief Executive Officer

 

Redwood City, California

April 10, 2008

 

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

INFORMATICA CORPORATION

 

 

 

 

PROXY STATEMENT
FOR
2008 ANNUAL MEETING OF STOCKHOLDERS

 

 

 

 

PROCEDURAL MATTERS

 

General

 

This Proxy Statement is being furnished to holders of common stock, par value $0.001 per share (the “Common Stock”), of Informatica Corporation, a Delaware corporation (“Informatica” or the “Company”), in connection with the solicitation of proxies by the Board of Directors of Informatica for use at the Annual Meeting of Stockholders (the “Annual Meeting”) to be held on Thursday, May 22, 2008 at 2:00 p.m., Pacific Time, and at any adjournment or postponement thereof for the purpose of considering and acting upon the matters set forth herein. The Annual Meeting will be held at Informatica’s corporate offices, located at 100 Cardinal Way, Redwood City, CA 94063. The telephone number at that location is (650) 385-5000.

 

This Proxy Statement, the accompanying form of proxy card and the Company’s 2007 Annual Report to Stockholders are first being mailed on or about April 10, 2008 to all stockholders entitled to vote at the Annual Meeting.

 

Stockholders Entitled to Vote; Record Date

 

Only holders of record of Informatica’s Common Stock at the close of business on March 31, 2008 (the “Record Date”) are entitled to notice of and to vote at the Annual Meeting. Such stockholders are entitled to cast one vote for each share of Common Stock held as of the Record Date on all matters properly submitted for the vote of stockholders at the Annual Meeting. As of the Record Date, there were 88,628,386 shares of Common Stock outstanding and entitled to vote at the Annual Meeting. No shares of preferred stock were outstanding. For information regarding security ownership by management and by the beneficial owners of more than 5% of Informatica’s Common Stock, see the section of this Proxy Statement entitled “Security Ownership by Principal Stockholders and Management.”

 

Quorum; Required Vote

 

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

 

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

 

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

Board of Directors’ Recommendation

 

The Board of Directors recommends that you vote your shares:

 

 

Voting

 

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

 

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

 

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

 

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

 

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

 

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

 

Expenses of Solicitation

 

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

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

 

Procedure for Submitting Stockholder Proposals

 

Requirements for stockholder proposals to be considered for inclusion in the Company’s proxy materials.  Stockholders may present proper proposals for inclusion in the Company’s proxy statement and for consideration at the next annual meeting of its stockholders by submitting their proposals in writing to the Secretary of the Company in a timely manner. In order to be included in the Company’s proxy materials for the 2009 annual meeting of stockholders, stockholder proposals must be received by the Secretary of the Company no later than December 11, 2008 and must otherwise comply with the requirements of Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

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

 

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

 

The “Notice Period” is defined as that period not less than 45 days nor more than 75 days prior to the anniversary of the date on which the Company first mailed its proxy materials for the previous year’s annual meeting of stockholders. As a result, the Notice Period for the 2009 annual stockholder meeting will start on January 25, 2009 and end on February 24, 2009.

 

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

 

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

 

Delivery of Proxy Materials to Stockholders

 

If you share an address with another stockholder, each stockholder may not receive a separate copy of the proxy materials and 2007 Annual Report. Stockholders who do not receive a separate copy of the proxy materials and 2007 Annual Report may request to receive a separate copy of the proxy materials and 2007 Annual Report by calling 1-650-385-5289, by sending an email to ir@informatica.com or by writing to Informatica Corporation, 100 Cardinal Way, Redwood City, CA 94063, Attention: Corporate Secretary. Alternatively, stockholders who share an

address and receive multiple copies of the Company’s proxy materials and 2007 Annual Report can request to receive a single copy by following the same instructions.

 

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on May 22, 2008.

 

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

 

PROPOSAL ONE

 

ELECTION OF DIRECTORS

 

General

 

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

 

Nominees for Class II Directors

 

Three Class II directors are to be elected at the Annual Meeting for a three-year term ending in 2011. Upon the recommendation of the Corporate Governance and Nominating Committee, the Board of Directors has nominated A. Brooke Seawell, Mark A. Bertelsen and Godfrey R. Sullivan for re-election as Class II directors. Messrs. Seawell and Bertelsen were elected by the stockholders at the 2005 annual meeting, and Mr. Sullivan was appointed to the Board in January 2008. The Board of Directors’ Corporate Governance and Nominating Committee in consultation with Mr. Abbasi identified director candidates and evaluated such candidates including conducting interviews. After completing the evaluation process, the Corporate Governance and Nominating Committee recommended to the Board of Directors that Mr. Sullivan be appointed as a director and in January 2008, the Board of Directors appointed Mr. Sullivan as a director. Unless otherwise instructed, the proxy holders will vote the proxies received by them for the re-election of Mr. Seawell, Mr. Bertelsen and Mr. Sullivan. The Company expects that Mr. Seawell, Mr. Bertelsen and Mr. Sullivan will accept such nomination; however, in the event that any nominee is unable or declines to serve as a director at the time of the meeting, the proxies will be voted for any nominee who shall be designated by the Board of Directors to fill the vacancy. The term of office of each person elected as a director will continue until such director’s term expires in 2011 or until such director’s successor has been elected and qualified.

 

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

 

Information Regarding Nominees and Other Directors

 

Nominees for Class II Directors for a Term Expiring in 2011

 

Incumbent Class III Directors Whose Term Expires in 2009

 

Incumbent Class I Directors Whose Term Expires in 2010

 

Board Meetings and Committees

 

During 2007, the Board of Directors held five meetings (including regularly scheduled and special meetings), and no directors attended fewer than 75% of the total number of meetings of the Board of Directors and the committees of which he or she was a member.

 

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

 

Audit Committee.  The Audit Committee, which has been established in accordance with Section 3(a)(58)(A) of the Exchange Act, currently consists of Messrs. Seawell, Yankowski and Robel, each of whom is “independent,” as such term is defined for audit committee members by the listing standards of The NASDAQ Stock Market. The Board of Directors has determined that each of Messrs. Seawell, Yankowski and Robel is an “audit committee financial expert” as defined under the rules of the Securities Exchange Commission (the “SEC”). Mr. Seawell is the Chairman of the Audit Committee. The Audit Committee met nine times in 2007. The Audit Committee (1) provides oversight of the Company’s accounting and financial reporting processes and the audit of the Company’s financial statements, (2) assists the Board of Directors in oversight of the integrity of the Company’s financial statements, the Company’s compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications, independence and performance, and the Company’s internal accounting and financial controls, and (3) provides to the Board of Directors such information and materials as it may deem necessary to make the Board of Directors aware of significant financial matters that require the attention of the Board of Directors. The Audit Committee acts pursuant to a written charter adopted by the Board of Directors, which is available in the “Investor Relations” section of the Company’s website at http://www.informatica.com.

 

Compensation Committee.  The Compensation Committee currently consists of Ms. Chaffin and Messrs. Pidwell and Sullivan, each of whom is “independent” as defined in the listing standards of The NASDAQ Stock Market. Mr. Pidwell is the chairman of the Compensation Committee. During 2007, Mr. Yankowski was a Committee member but in January 2008, Mr. Sullivan succeeded Mr. Yankowski as a Committee member when Mr. Sullivan became a director. The Compensation Committee met nine times in 2007. In addition to holding regular meetings, the Compensation Committee took action by written consent at various times during the course of 2007. The Compensation Committee reviews and approves the compensation and benefits for the Company’s executive officers, administers the Company’s stock plans and performs such other duties as may from time to time be determined by the Board of Directors. The Compensation Committee acts pursuant to a written charter adopted by the Board of Directors, which is available in the “Investor Relations” section of the Company’s website at http://www.informatica.com.

 

Corporate Governance and Nominating Committee.  The Corporate Governance and Nominating Committee currently consists of Messrs. Robel, Pidwell and Seawell, each of whom is “independent” as defined in the listing standards of The NASDAQ Stock Market. Mr. Robel is currently the chairman of the Corporate Governance and Nominating Committee. During 2007, Mr. Bertelsen was the chairman but in January 2008, Mr. Robel succeeded Mr. Bertelsen as chairman of the Committee. In February 2008, the Committee recommended that Mr. Sullivan succeed Mr. Seawell on the Committee, subject to the approval of the full Board. The Corporate Governance and Nominating Committee acted by unanimous written consent in March 2007 and met in October 2007 and February 2008. This committee is responsible for making recommendations to the Board on matters concerning corporate governance, evaluating and recommending candidates for election to the Board of Directors, reviewing and making recommendations regarding the composition and mandate of Board committees, developing overall governance guidelines, and overseeing the performance and compensation of the Board of Directors. It is the policy of the Corporate Governance and Nominating Committee to consider recommendations of candidates for the Board of Directors submitted by the stockholders of the Company; for more information see the discussion in “Corporate Governance Matters.” The Corporate Governance and Nominating Committee acts pursuant to a written charter adopted by the Board of Directors, which is available in the “Investor Relations” section of the Company’s website at http://www.informatica.com.

 

Strategy Committee.  The Strategy Committee was established in January 2006 and currently consists of Ms. Chaffin and Messrs. Robel and Squire, each of whom is “independent” as defined in the listing standards of The NASDAQ Stock Market. Mr. Squire is the Chairman of the Strategy Committee. This committee is responsible for

assisting the Company’s Board of Directors and management to oversee the Company’s strategic plans. It is the committee’s practice to meet quarterly in tandem with the Board’s regularly scheduled quarterly meetings.

 

Lead Independent Director.  Mr. Pidwell was appointed Lead Independent Director in March 2005, whereby he serves as a liaison between management and the other non-employee directors. As Lead Independent Director, Mr. Pidwell will, among other things, schedule and chair meetings of the independent directors, communicate with the Chairman and Chief Executive Officer and raise issues with management on behalf of the independent directors when appropriate. In addition, the independent directors may hold a closed session at regularly scheduled Board meetings.

 

Director Compensation

 

Cash Compensation.  In 2007, non-employee members of the Board of Directors received (1) an annual retainer of $35,000, paid quarterly at the rate of $8,750 per quarter; (2) $15,000 paid quarterly at the rate of $3,750 per quarter for the Lead Independent Director (for 2007, Mr. Pidwell); (3) $15,000 per year for each member of the Audit Committee (or $20,000 if such member is the chairperson); (4) $10,000 per year for each member of the Compensation Committee (or $15,000 if such member is the chairperson); (5) $5,000 per year for each member of the Corporate Governance and Nominating Committee ($10,000 if such member is the chairperson) and (6) $5,000 per year for each member of the Strategy Committee ($10,000 if such member is the chairperson).

 

Non-Employee Director Option Grants.  Non-employee directors are eligible to receive options to purchase the Company’s Common Stock pursuant to the Company’s 1999 Non-Employee Director Stock Incentive Plan (the “1999 Director Plan”), which provides for annual automatic grants of non-statutory stock options to continuing non-employee directors. Under the 1999 Director Plan, each non-employee director is automatically granted a non-statutory stock option grant of 60,000 shares of the Company’s Common Stock upon his or her initial election to the Board of Directors (“Initial Grant”). Immediately following each annual stockholders’ meeting, each non-employee director who continues to serve as a non-employee director following such annual meeting is automatically granted a non-statutory stock option to purchase 25,000 shares of the Company’s Common Stock (“Subsequent Grant”), as long as the director had been a non-employee director for at least six months prior to such annual meeting of stockholders. All options automatically granted to non-employee directors have an exercise price equal to 100% of the fair market value on the date of grant. One third of the shares subject to the Initial Grant vests and becomes exercisable one year after the grant date and the remaining shares subject to the Initial Grant vest in equal monthly installments over the following 24-month period, such that the option is fully exercisable three years after its date of grant. Each Subsequent Grant vests and becomes 100% exercisable one year after the date such option is granted. In 2007, each of Ms. Chaffin and Messrs. Bertelsen, Pidwell, Seawell, Yankowski, Robel and Squire received Subsequent Grants. In 2007, the options in the 1999 Director Plan were exhausted and thus the options for the directors are now granted from the Company’s 1999 Stock Incentive Plan under the same terms and conditions as those in the 1999 Director Plan.

 

The following director compensation table includes the compensation elements that were earned by the Company’s directors for the 2007 Fiscal Year.

 

DIRECTOR COMPENSATION — FISCAL YEAR 2007 (1)

 

 

 

 

Corporate Governance Matters

 

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

NASDAQ Stock Market on the website. In addition, in late 2007 the Company introduced company-wide ethics training and achieved completion of initial training by February 2008.

 

Independence of the Board of Directors.  The Board of Directors has determined that, with the exception of Sohaib Abbasi, who is the Chief Executive Officer and President of Informatica, all of its members are “independent directors” as defined in the listing standards of The NASDAQ Stock Market. In making this determination, the Board considered that Mark A. Bertelsen is a member of the law firm of Wilson Sonsini Goodrich & Rosati, Professional Corporation (“WSGR”). During fiscal 2007, WSGR provided legal services to the Company of approximately $0.8 million which represented less than one percent of WSGR’s revenues. The Company believes the services performed by WSGR were provided in the ordinary course of business on terms no more or less favorable than those available from unrelated parties.

 

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

 

Attendance at annual stockholder meetings by the Board of Directors.  Although the Company does not have a formal policy regarding attendance by members of the Board of Directors at the Company’s annual meeting of stockholders, the Company encourages, but does not require, directors to attend. Three directors attended the Company’s 2007 annual meeting of stockholders.

 

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

 

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

 

discretion, include interviewing references for the candidate, direct interviews with the candidate, or other actions that the Committee deems necessary or proper.

 

 

PROPOSAL TWO

 

APPROVAL OF ADOPTION OF

COMPANY EMPLOYEE STOCK PURCHASE PLAN

 

The Company has adopted a new Employee Stock Purchase Plan (the “Plan”) effective May 22, 2008, subject to the approval by the stockholders. The following paragraphs provide a summary of the principal features of the Plan and its operation. The Plan is set forth in its entirety as Appendix A to this Proxy Statement. The following summary is qualified in its entirety by reference to Appendix A.

 

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

 

Purpose

 

The purpose of the Plan is to provide eligible employees of the Company and its participating subsidiaries with the opportunity to purchase shares of Common Stock of the Company through payroll deductions. The Plan is intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended. The Company previously adopted an Employee Stock Purchase Plan and eligible Company employees have participated in that plan since April 1999. However, that plan is scheduled to expire in March 2009. Accordingly, the Company is asking stockholders to approve the Plan so that the Company can continue to have an Employee Stock Purchase Plan to help the Company attract, retain and motivate employees through stock ownership.

 

Overview

 

The number of shares in the Plan would be less than ten percent of the Company’s shares currently outstanding and the term of the Plan shall be ten years. In keeping with the terms of the current Plan, the enrollment periods of the new Plan initially shall be set at six months by the Compensation Committee (though the Plan allows for up to 27 month duration for such periods). The purchase price shall be 85% of the lower of (1) the stock’s market value on the first day of the enrollment period, or (2) the stock’s market value on the purchase date at the end of the enrollment period. The Plan initially will operate with the following limits: (a) a limit on payroll deductions for participation of ten percent per year per participant; (b) a monetary per person limit on annual contributions (purchases cannot exceed $25,000 of Common Stock (based on market value on the applicable enrollment date(s)); and (c) a per person limit on total shares purchased during any enrollment period of 5,000 shares.

 

Eligibility to Participate

 

Most employees of the Company and its participating subsidiaries are eligible to participate in the Plan. However, an employee is not eligible if he or she has the right to acquire five percent or more of the voting stock of the Company or of any subsidiary of the Company. Also, the Compensation Committee has discretion to exclude any employee who normally is scheduled to work less than or equal to twenty hours per week or five months per calendar year, who have worked for the Company for less than two years, or who is an officer or other highly compensated employee. Approximately all full-time employees currently in locations where such participation is not limited by local rules are expected to be eligible to participate in the Plan.

Administration, Amendment and Termination

 

The Compensation Committee administers the Plan. The members of the Compensation Committee serve at the pleasure of the Board. Subject to the terms of the Plan, the Compensation Committee has all discretion and authority necessary or appropriate to control and manage the operation and administration of the Plan. The Compensation Committee also may establish a waiting period (not to exceed two years) before new employees may become eligible for the Plan. The Compensation Committee may make whatever rules, interpretations, and computations, and take any other actions to administer the Plan that it considers appropriate to promote the Company’s best interests, and to ensure that the Plan remains qualified under Section 423 of the Internal Revenue Code. The Compensation Committee may delegate one or more of its duties in the administration of the Plan. The Compensation Committee or the Company’s Board of Directors may amend or terminate the Plan at any time and for any reason. However, as required by Section 423 of the Internal Revenue Code, certain material amendments must be approved by the Company’s shareholders. Unless terminated sooner by the Compensation Committee or the Board, the Plan will expire May 21, 2018.

 

Number of Shares of Common Stock Available under the Plan

 

A maximum of eight million eight hundred fifty thousand (8,850,000) shares of Common Stock will be available for issuance pursuant to the Plan. Shares sold under the Plan may be newly issued shares or treasury shares. In the event of any stock split, dividend, distribution or other change in the capital structure of the Company, appropriate adjustments will be made in the number, kind and purchase price of the shares available for purchase under the Plan.

 

Enrollment and Contributions

 

Eligible employees voluntarily elect whether or not to enroll in the Plan. It is expected that employees initially will join for an enrollment period of six months. Employees who previously joined the Plan automatically are re-enrolled for additional rolling six month periods; provided, however, that an employee may cancel his or her enrollment at any time (subject to Plan rules). Employees contribute to the Plan through payroll deductions. Participating employees generally may contribute up to 10% of their eligible compensation through after-tax payroll deductions. From time to time, the Compensation Committee may establish a different maximum permitted contribution percentage, change the definition of eligible compensation, or change the length of the enrollment periods (but in no event may any enrollment period exceed 27 months). After an enrollment period has begun, an employee may decrease his or her contribution percentage (subject to Plan rules).

 

Purchase of Shares

 

On the last business day of each enrollment period, the Company uses each participating employee’s payroll deductions to purchase shares of Common Stock for the employee. The price of the shares purchased will be determined under a formula established in advance by the Compensation Committee. However, in no event may the purchase price be less than 85% of the lower of (1) the stock’s market value on the first day of the enrollment period, or (2) the stock’s market value on the purchase date. Market value under the Plan means the closing price of the Common Stock on NASDAQ for the day in question. On any purchase date, no participant may purchase more than 5,000 shares. In any single year, no employee may purchase more than $25,000 of Common Stock (based on market value on the applicable enrollment date(s)). The Compensation Committee also has discretion to set a different limit on the number of shares that may be purchased on any purchase date, to set a lower (but not higher) limit on the dollar value of shares that may be purchased, and to change the dates on which shares are purchased.

 

Termination of Participation

 

Participation in the Plan terminates when a participating employee’s employment with the Company ceases for any reason, the employee withdraws from the Plan, or the Company terminates or amends the Plan such that the employee no longer is eligible to participate.

Number of Shares Purchased by Certain Individuals and Groups

 

Given that the number of shares that may be purchased under the Plan is determined, in part, on the stock’s market value on the first and last day of the enrollment period and given that participation in the Plan is voluntary on the part of employees, the actual number of shares that may be purchased by any individual is not determinable. For illustrative purposes, the following table sets forth (a) the number of shares of the Company’s Common Stock that were purchased during 2007 under the Company’s existing Employee Stock Purchase Plan, and the (b) average price per share purchase price paid for such shares.

 

 

 

 

Tax Aspects

 

Based on management’s understanding of current federal income tax laws, the United States federal tax consequences of the purchase of shares of common stock under the Plan are generally as follows. An employee will not have taxable income when the shares of common stock are purchased for him or her, but the employee generally will have taxable income when the employee sells or otherwise disposes of stock purchased through the Plan. For shares that the employee does not dispose of until more than 24 months after the applicable enrollment date and more than 12 months after the purchase date (the “holding period”), gain up to the amount of the discount (if any) from the market price of the stock on the enrollment date (or re-enrollment date) is taxed as ordinary income. Any additional gain above that amount is taxed at long-term capital gain rates. If, after the holding period, the employee sells the stock for less than the purchase price, the difference is a long-term capital loss. Shares sold within the holding period are taxed at ordinary income rates on the amount of discount received from the stock’s market price on the purchase date. Any additional gain (or loss) is taxed to the stockholder as long-term or short-term capital gain (or loss). The purchase date begins the period for determining whether the gain (or loss) is short-term or long-term. The Company may deduct for federal income tax purposes an amount equal to the ordinary income an employee must recognize when he or she disposes of stock purchased under the Plan within the holding period (subject to the deduction limitations of Code Section 162(m), which may affect certain officers). The Company may not deduct any amount for shares disposed of after the holding period. Other tax consequences will be governed by the applicable local rules in the particular office location.

 

PROPOSAL THREE

 

RATIFICATION OF APPOINTMENT OF

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Audit Committee has appointed Ernst & Young LLP (“E&Y”) as the independent registered public accounting firm of the Company for the fiscal year ending December 31, 2008. Although ratification by stockholders is not required by law, the Board has determined that it is desirable to request ratification of this selection by the stockholders. Notwithstanding its selection, the Audit Committee, in its discretion, may appoint a new independent registered public accounting firm at any time during the year if the Audit Committee believes that such a change would be in the best interest of the Company and its stockholders. If the stockholders do not ratify the appointment of E&Y, the Audit Committee may reconsider its selection.

 

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

 

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

 

Accounting Fees

 

The following table shows the fees paid or accrued by the Company for the audit and other services provided by E&Y for fiscal years 2006 and 2007.

 

 

 

 

Pre-Approval of Audit and Non-Audit Services

 

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

 

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

 

All E&Y services and fees in 2006 and 2007 were pre-approved by the Audit Committee.

 

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

 

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

 

 

Based upon the reviews and discussions described in this Report, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 for filing with the Securities and Exchange Commission.

 

 

AUDIT COMMITTEE OF
THE BOARD OF DIRECTORS

 

A. Brooke Seawell
Carl J. Yankowski
Charles J. Robel

 

SECURITY OWNERSHIP BY PRINCIPAL STOCKHOLDERS AND MANAGEMENT

 

The following table sets forth certain information concerning the beneficial ownership of Informatica’s Common Stock as of March 1, 2008 for the following: (1) each person or entity who is known by the Company to own beneficially more than 5% of the outstanding shares of the Company’s Common Stock; (2) each of the Company’s directors; (3) each of the executive officers named in the Summary Compensation Table; and (4) all directors and current executive officers of the Company as a group.

 

 

 

 

 

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

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

 

Based solely on its review of the copies of such reports furnished to the Company and written representations that no other reports were required to be filed during 2007, the Company believes that its executive officers, directors and 10% Stockholders have complied with all Section 16(a) filing requirements applicable to them except that one Form 4 filing covering two transactions (an option exercise and stock sale) by Carl J. Yankowski was inadvertently filed late.

 

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

 

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

 

TRANSACTIONS WITH MANAGEMENT

 

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

 

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

 

 

EQUITY COMPENSATION PLAN INFORMATION

 

The following table provides information as of December 31, 2007 with respect to the shares of the Company’s Common Stock that may be issued under the Company’s existing equity compensation plans.

 

 

 

 

2000 Employee Stock Incentive Plan

 

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

 

EXECUTIVE OFFICER COMPENSATION

 

Compensation Discussion and Analysis

 

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

 

Philosophy of Compensation Programs

 

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

 

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

 

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

 

The elements of the Company’s compensation programs which are described below are designed to work together to:

 

 

The compensation package the Company offers to its employees directly reflects the Company’s culture and core values including the importance the Company places on its employees. The Company considers its employees

as a primary asset and structures its compensation programs to reward and retain that talent, to emphasize organizational and personal development and to instill a sense of ownership and commitment to results.

 

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

 

 

The Compensation Committee considers each of the above items in determining the compensation package for each executive officer. Further detail on each component is provided in the section “Components of Compensation Package and 2007 Evaluation” below.

 

Compensation Committee

 

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

 

The Compensation Committee:

 

 

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

 

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

 

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

 

The Compensation Committee consults with the Company’s human resources personnel, and when appropriate, with outside executive and employee compensation and benefits consultants, to assist in the evaluation of and recommendations related to the Company’s executive compensation program. In 2004, in connection with the recruitment and hiring of the Company’s current Chief Executive Officer, the Compensation Committee engaged Compensia, Inc. as an independent outside compensation consultant to advise the Compensation Committee on Chief Executive Officer compensation practices and policies. Since then, the Company and the Compensation Committee have retained Compensia in connection with reviews of the Company compensation programs and policies for the Company executives, the Board of Directors and the broader employee base. Compensia receives

compensation from the Company on a fee-per-project basis. The Company also uses Radford Data to benchmark employee and executive compensation and reviews summaries of this data with the Compensation Committee.

 

Role of the Independent Compensation Consultant (Compensia)

 

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

 

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

 

Companies in the 2007 peer group included Ariba, Borland Software, Business Objects, Cognos, i2 Technologies, Sybase and Tibco. While the Compensation Committee may, from time to time, consult with the Company’s Chief Executive Officer or Chief Financial Officer in connection with the planning or evaluation of compensation program-related matters, the Compensation Committee is responsible for oversight and approval of the overall program and the individual elements of that program.

 

Components of the Compensation Package and 2007 Evaluation

 

Base Salary

 

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

 

Base Salary: 2007 Evaluation

 

In the fourth quarter of 2006, the Compensation Committee reviewed the data provided by Compensia including the analysis of each NEO’s base salary against the benchmark companies. They also considered organizational changes and any planned changes in each executive’s responsibility. An adjustment was made to the Chief Executive Officer’s salary based on a market data comparison and his individual performance, with effect from January 1st, 2007, and for the Executive Vice President (“EVP”) of Products who was selected to undertake a business unit General Manager role at the end of the first quarter of 2007. This adjustment was made as of April 1, 2007. Both NEOs’ salaries were below market levels based on the data provided by Compensia. No adjustments were made to the other NEOs’ base salaries, which were at or slightly above the market data provided.

 

2007 Base Salary Information

 

 

 

 

Non-Equity Incentive Plan (Cash Incentives)

 

The Company’s non-equity incentive plan focuses on driving results for the fiscal year ahead and is tied to the achievement of annual performance goals around growth and profitability. All of the Company’s executive officers participate in this bonus plan, which directly rewards the executives for achievement against semi-annual Company performance goals. The performance goals and the bonus targets are determined by the Compensation Committee in consultation with the Board of Directors and the Company’s Chief Executive Officer and Chief Financial Officer. The bonus target for each executive position is determined using competitive market data provided by external consultants, and evaluated against a number of criteria including job function, market competitive data and the scope of the executive officer’s position and on-going duties.

 

Cash Incentive (Bonus) Compensation Targets for Named Executive Officers

 

 

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

 

Structure of 2007 Cash Incentive (Bonus Plan) Compensation for Named Executive Officers

 

 

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

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

 

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

 

Cash Incentive (Bonus Plan): 2007 Evaluation

 

For the first half of 2007, the Compensation Committee determined that the stretch goal for net license orders was achieved at 93% and the stretch goal for operating income was achieved at 104%. For the second half of 2007, the Compensation Committee determined that the stretch goal for net license orders was achieved at 104% and the stretch goal for operating income was achieved at 108%. The EVP and General Manager, Data Integration achieved 129% of his individual goals in the second half of 2007.

 

Based on these attainment levels, the Compensation Committee approved bonuses under the bonus plan of $625,650 to the Chief Executive Officer; $288,960 to the Chief Financial Officer; $267,660 to the EVP and General Manager, Data Integration and $305,683 to the EVP Worldwide Field Operations ($140,352 being related to corporate performance per the bonus plan and $165,331 as commission compensation for license orders).

 

Equity Based Incentive Plans

 

The Company’s equity incentive plans are a critical component of the compensation program which the Company believes fosters an entrepreneurial spirit and incents the Company’s executives and employees to focus on building stockholder value through meeting long-term financial and strategic goals. The Company grants stock options to executives and employees under the Company’s 1999 Stock Incentive Plan (the “Option Plan”) and the Company sponsors an Employee Stock Purchase Plan (“ESPP”). Offering stock options and an ESPP are critical elements in attracting and retaining high caliber employees, including executive level talent, in the competitive technology industry labor market.

 

The Compensation Committee acts as the plan administrator for both the Option Plan and the ESPP. All full time employees (except employees in geographies where participation is restricted by local statute or regulations) are eligible to participate in the Company’s ESPP which provides a fifteen percent (15%) discount on purchase of shares twice a year. Executive officers participate in this plan on the same plan terms as all other employees.

 

Options ranges are set for each job function; level and position within the Company for both new hire grants and annual refresh grants and are reviewed and approved by the Compensation Committee at the start of each fiscal year. Ranges are set to balance the need to use equity grants to provide significant attraction and retention value against the need to limit dilution of shareholder interests by working within the Company’s target dilution rate. These options ranges provide reference guidelines for the Chief Executive Officer, Human Resources, the Compensation Committee and the Board of Directors when hiring new executives to the Company. Additionally, the Compensation Committee uses data provided by its independent consultant, Compensia, to ensure that new hire and any refresh grants for executive officers are within the target positioning levels in the Company’s basket of comparable companies.

 

The principal factors considered in granting stock options to executive officers of the Company are prior performance, level of responsibility, total compensation profile, and the executive officer’s ability to influence the Company’s long-term growth and profitability. Factors considered when reviewing annual refresh grants include the amount of vested and unvested options that the particular executive holds and the retention value of such options, the existing levels of stock ownership and options among the executive officers relative to each other and to the Company’s employees as a whole, and the Company’s target dilution rate.

Equity Based Incentive Plans: 2007 Evaluation

 

In the fourth quarter of 2006, Compensia provided the Compensation Committee with an analysis of the long term incentive value of each executive’s equity based grants against the market peer group of companies, using the Black Scholes valuation model. The analysis indicated the value for each NEO’s vested and unvested options and the total value as a percentage of the market, and Compensia made recommendations for proposed option grants for each NEO in fiscal 2007.

 

The Compensation Committee discussed the Compensia grant proposals for the NEOs with the Chief Executive Officer. The recommended grants were adopted for the NEOs with revisions for two NEOs based upon planned increases in scope of responsibilities:

 

 

The Compensation Committee adopted the proposed grant in Compensia’s market analysis for the Chief Executive Officer.

 

Stock Option Grant Process

 

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

 

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

 

Stock Ownership Guidelines for NEOs and Directors

 

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

 

Benefits

 

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

 

 

 

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

 

Executive Severance Arrangements

 

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

 

Accounting and Tax Considerations

 

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

Report of the Compensation Committee of the Board of Directors

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with the Company’s management. Based on such review and discussion, the Compensation Committee recommended to the Company’s Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into the Company’s Form 10-K for the annual period ended December 31, 2007.

 

COMPENSATION COMMITTEE OF

THE BOARD OF DIRECTORS

 

David W. Pidwell

Janice D. Chaffin

Godfrey R. Sullivan

Summary Compensation Table — 2007 Fiscal Year

 

The following summary compensation table includes the compensation elements that were earned by the Company’s NEOs for the fiscal year ended December 31, 2007 (the “2007 Fiscal Year”).

 

 

 

 

Grants of Plan-Based Awards — 2007 Fiscal Year

 

The following table contains information for the NEOs related to (1) grants under the Company’s non-equity incentive plan and (2) grants of stock options during the 2007 Fiscal Year.

 

 

 

 

 

Outstanding Equity Awards at Fiscal Year-End 2007

 

The following table reflects NEO option awards outstanding as of December 31, 2007.

 

 

 

 

 

 

2007 Option Exercises and Stock Vested

 

The following table details 2007 stock option exercises for each of the Company’s NEOs.

 

 

Potential Payments on Termination of Change of Control

 

The Company has entered into severance agreements with its NEOs. Such agreements are standard in the Company’s industry and are necessary in order to attract the best talent for these executive positions. The Company has a standard agreement for its Executive Vice Presidents which has been signed by Mr. Fry, Mr. Pancha and Mr. Hoffman. A summary of the material terms and conditions in this standard Executive Severance Agreement as well as the Chief Executive Officer’s Severance Agreement are included below.

 

Term of Standard Agreement.  Each agreement has an initial term of two years, and provides that the initial term will be automatically extended each year for an additional one year term unless the Company informs the executive officer at least ninety days prior to the date of automatic renewal that it is electing not to extend the term.

 

Severance.  In the event that the Company terminates the executive officer’s employment without Cause or the executive resigns for Good Reason as such terms are defined in the agreements, and such termination occurs within the time period beginning on the date three months preceding a change of control of the Company and ending on the date twelve months following a change of control, the executive officer will receive the following severance package: (1) continued payment of the executive officer’s base salary and annual on-target bonus, commissions or variable earnings, assuming Company performance at 100% of target for bonus and commissions for a period of twelve months; (2) reimbursement for benefits premiums for a maximum of twelve months (to cease once eligible for similar benefits from another employer); and (3) twelve months accelerated vesting for any equity awards that are outstanding as of the date that the executive officer’s employment is terminated.

 

Definitions.  “Cause” is defined as (i) an executive officer’s act of dishonesty or fraud in connection with the performance of his responsibilities to the Company with the intention that such act result in an executive officer’s substantial personal enrichment, (ii) an executive officer’s conviction of, or plea of nolo contendere to, a felony, (iii) an executive officer’s willful failure to perform his duties or responsibilities, or (iv) an executive officer’s violation or breach of an executive officer’s Employee Proprietary Information and Inventions Agreement; provided that if any of the foregoing events is capable of being cured, the Company will provide notice to the executive officer describing the nature of such event and the executive officer will thereafter have 30 days to cure

such event. “Good Reason” is defined as the occurrence of any of the following without an executive officer’s express written consent: (i) a material reduction in an executive officer’s position or duties other than a reduction where the executive officer assumes similarly functional duties on a divisional basis following a change of control due to the Company becoming part of a larger entity, (ii) a reduction in an executive officer’s base salary other than a one-time reduction of not more than 10% that also is applied to substantially all of the Company’s other executive officers, (iii) a material reduction in the aggregate level of benefits made available to the executive officer other than a reduction that also is applied to substantially all of the Company’s other executive officers, or (iv) relocation of an executive officer’s primary place of business for the performance of his duties to the Company to a location that is more than 35 miles from its prior location.

 

Conditions.  The severance payments, continued benefits, and accelerated vesting will be subject to the executive officer entering into and not subsequently revoking: (1) a separation agreement and release of claims in a form satisfactory to the Company and the executive officer; (2) a non-compete and non-solicitation agreement that would be in effect during the 12 month period in which the executive officer receives continuing salary from the Company; and (3) a non-disparagement agreement.

 

Estimated Payments and Vesting Upon Termination Related to a Change in Control

 

(as described above) as if on December 31, 2007

 

 

 

 

For the Company’s Chief Executive Officer, the terms are the same as detailed above, except that in the event of a change of control, the Chief Executive Officer would also receives (1) an additional twelve months accelerated vesting for any equity awards that are outstanding as of the date that the Chief Executive Officer’s employment is terminated (for a total of 24 month acceleration); and (2) a tax “gross-up” payment in the event any of the foregoing benefits subject the Chief Executive Officer to excise tax on excess parachute payments as determined under Sections 280G and 4999 of the Internal Revenue Code which could include income and employment taxes on such tax gross up payment as well as interest and penalties.

Estimated Payments and Vesting Upon Termination Related to a Change in Control

(as described above) as if on December 31, 2007

 

 

 

 

The Chief Executive Officer also receives severance benefits if the Company terminates his employment without Cause or he resigns for Good Reason without any change of control. Such benefits would include: (1) continued payment of his base salary for twelve months; (2) lump-sum payments, paid at the time fiscal year bonuses are paid to other executives, equal in total to his then-current target bonus; (3) reimbursement for benefits premiums for a maximum of twelve months (to cease once eligible for similar benefits from another employer); and (4) 12 months accelerated vesting for any equity awards that are outstanding as of the date that his employment is terminated. The definitions for Cause and Good Reason are similar to those for the other executive officers.

 

Estimated Payments and Vesting Upon Termination (as described above)

as if on December 31, 2007