UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. _ )

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o Preliminary Proxy Statement		o Confidential, for Use of the Commission Only (as
		permitted by Rule 14a-6(e)(2))
þ Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Pursuant to §240.14a-12

THE ADVISORY BOARD COMPANY

(Name of Registrant as Specified in Its Charter)

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

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2445 M Street, NW
Washington, D.C. 20037
(202) 266-5600

 

July 28, 2011

Dear Stockholder:

 

On behalf of the Board of Directors and management, I invite you to attend the 2011 Annual Meeting of Stockholders of The Advisory Board Company to be held at our offices at 2445 M Street, NW, Washington, D.C. 20037, on September 13, 2011, at 11:00 a.m., local time.

 

At the meeting, you will be asked to elect as directors the eight nominees named in the enclosed proxy statement, to ratify the selection of the company’s independent registered public accounting firm for fiscal year 2012, and to approve an amendment to the company’s 2009 stock incentive plan to increase the number of shares of common stock issuable under the plan. You will also be asked to approve, by an advisory vote, the company’s named executive officer compensation as described in the enclosed proxy statement, and to cast an advisory vote on whether the company should hold an advisory vote by stockholders to approve the company’s named executive officer compensation every 1, 2, or 3 years. These matters are discussed in detail in the proxy statement.

 

In addition to the specific matters to be acted upon, there will be a report on the progress of the company and an opportunity for questions of general interest to the stockholders.

 

It is important that your shares be represented at the meeting. Whether or not you plan to attend in person, please complete, date, sign, and return the enclosed proxy card in the postage-prepaid envelope.

 

Sincerely,

 

Robert W. Musslewhite

Chief Executive Officer

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On September 13, 2011

 

The 2011 Annual Meeting of Stockholders of The Advisory Board Company, a Delaware corporation, will be held at its corporate headquarters at 2445 M Street, NW, Washington, D.C. 20037, on September 13, 2011, at 11:00 a.m., local time. At the meeting we will ask stockholders to act on the following five proposals, which are further described in the accompanying proxy statement:

 

 

In addition, stockholders will consider and take action upon any other business that may properly come before the annual meeting or any adjournment or postponement thereof.

 

Only stockholders of record at the close of business on July 18, 2011, the record date fixed by the Board of Directors, are entitled to notice of and to vote at the annual meeting and any adjournment or postponement thereof. A copy of our annual report to stockholders for our 2011 fiscal year is enclosed with this notice.

 

Your broker or bank will not be permitted to vote on your behalf on the election of directors or most of the other annual meeting proposals unless you provide specific direction by following the instructions provided to you in your proxy card. For your vote to be counted, you will need to communicate your voting decision to your broker or bank before the date of the annual meeting.

 

All stockholders are cordially invited to attend this meeting. You must bring with you a valid personal photo identification card, such as a driver’s license or passport, in order to be admitted to the annual meeting.

 

Your vote is important. We appreciate your taking the time to vote promptly. After reading the proxy statement, please vote at your earliest convenience by completing, signing, and returning by mail a proxy card in the enclosed postage-prepaid envelope. Submitting the proxy before the annual meeting will not preclude you from voting in person at the annual meeting if you decide to attend.

 

By Order of the Board of Directors,

 

Evan R. Farber

General Counsel and Corporate Secretary

 

Washington, D.C.

July 28, 2011

2011 ANNUAL MEETING OF STOCKHOLDERS

 

 

PROXY STATEMENT

 

 

TABLE OF CONTENTS

 

 

2445 M Street, NW
Washington, D.C. 20037

(202) 266-5600

 

 

PROXY STATEMENT

 

 

 

Important Notice Regarding the Availability of Proxy Materials for the
Stockholder Meeting to be Held on September 13, 2011

 

This proxy statement and our 2011 annual report to stockholders are available electronically on our website at www.advisoryboardcompany.com/IR.

 

We are sending you this proxy statement in connection with the solicitation of proxies by our Board of Directors (the “Board of Directors” or the “Board”) for use at our 2011 annual meeting of stockholders to be held at our principal executive offices at 2445 M Street NW, Washington, D.C. 20037, on September 13, 2011, at 11:00 a.m., local time, and any adjournment or postponement of the meeting. Except where the context otherwise requires, references to the “company,” “we,” “us,” “our,” and similar terms refer to The Advisory Board Company.

 

This proxy statement and the accompanying notice and proxy card are first being mailed to our stockholders on or about July 29, 2011.

 

We will pay the costs of preparing, printing, and mailing this proxy statement, the accompanying notice and proxy card, and our 2011 annual report to stockholders. We will also reimburse brokerage firms and others for reasonable expenses incurred by them in connection with their forwarding these materials to beneficial owners of the company’s shares. We have engaged MacKenzie Partners Inc. to assist in the solicitation of proxies and provide related advice and informational support, for a service fee and the reimbursement of customary disbursements that are not expected to exceed $15,000 in the aggregate. MacKenzie Partners Inc. and our officers, directors, and employees may supplement the original solicitation of proxies by mail with telephone, facsimile, e-mail, and personal solicitation. We will pay no additional compensation to our officers, directors, or employees for these activities.

 

Only holders of record of our common stock at the close of business on July 18, 2011, which is the record date for the annual meeting, will be entitled to vote at the annual meeting and any adjournment or postponement thereof. As of the record date, we had 16,191,860 shares of common stock outstanding and entitled to receive notice of and to vote at the meeting. Holders of our common stock are entitled to one vote for each share of common stock they held on the record date. If a majority of the shares issued and outstanding and entitled to vote at the annual meeting on the record date are present at the annual meeting, either in person or by proxy, we will have a quorum at the annual meeting. Any shares represented by a proxy that are marked for voting on a proposal will be counted as present in determining whether we have a quorum. If a broker, bank, custodian, nominee, or other record holder of our common stock votes shares on

any matter, the shares held by that record holder will also be counted as present in determining whether we have a quorum, even if such person indicates that it does not have discretionary authority to vote those shares on another matter for which it has not received voting instructions (referred to as “broker non-votes”).

 

Voting by Stockholders of Record.  If your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, LLC, you are considered, with respect to those shares, the stockholder of record. As the stockholder of record, you may vote by completing, dating, signing, and returning the accompanying proxy card in the postage-prepaid envelope enclosed for that purpose, whether or not you plan to attend the annual meeting. If you attend the annual meeting, you may vote in person even if you have previously returned your proxy card. Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before it is voted. Proxies may be revoked by (1) filing with our corporate secretary, before the taking of the vote at the annual meeting, a written notice of revocation bearing a later date than the proxy, (2) duly completing a later-dated proxy relating to the same shares and delivering it to our corporate secretary before the taking of the vote at the annual meeting, or (3) attending the annual meeting and voting in person (although attendance at the annual meeting will not in and of itself constitute a revocation of a proxy). Any written notice of revocation or subsequent proxy should be sent so as to be delivered to The Advisory Board Company, 2445 M Street, NW, Washington, D.C. 20037, Attn: Evan R. Farber, Corporate Secretary, at or before the taking of the vote at the annual meeting.

 

Voting Instructions by Beneficial Owners.  If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in street name, and these proxy materials are being forwarded to you by your broker, bank, or nominee. As the beneficial owner, you have the right to direct your broker, bank, or nominee on how to vote and are also invited to attend the meeting. However, because you are not the stockholder of record, you may not vote these shares in person at the meeting unless you obtain a signed proxy from the record holder giving you the right to vote the shares. Your broker, bank, or nominee has enclosed or provided a voting instruction card for you to use in directing the broker or nominee how to vote your shares. Please check your voting instruction card or contact your broker, bank, or nominee to determine how you can revoke or change your voting instructions or vote in person at the annual meeting. If you do not provide the stockholder of record with voting instructions, your shares may constitute broker non-votes. The effect of broker non-votes is more specifically described below.

 

Assuming a quorum is present at the annual meeting, election of the eight nominees to the Board of Directors in accordance with Proposal 1 will require a plurality of the votes cast of the shares present in person or represented by proxy at the annual meeting and entitled to vote on the election of directors. In the election of directors, votes may be cast “for” or withheld with respect to any or all nominees. Votes to “withhold” will have no effect on the outcome of the vote. Broker non-votes will not affect the outcome of the vote on this proposal.

 

Assuming a quorum is present at the annual meeting, ratification of the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for our fiscal year ending March 31, 2012 in accordance with Proposal 2 will require the affirmative vote of a majority of the votes cast at the annual meeting. An abstention from voting on this proposal will have the same effect as a vote against the proposal.

 

Assuming a quorum is present at the annual meeting, approval of an amendment to the company’s 2009 stock incentive plan to increase the number of shares of common stock issuable under the plan as described in Proposal 3 will require the affirmative vote of a majority of the votes cast at the annual meeting. An abstention from voting on this proposal will have the same effect as a vote against the proposal. Broker non-votes will not affect the outcome of the vote on this proposal.

 

Assuming a quorum is present at the annual meeting, approval, by an advisory vote, of the company’s named executive officer compensation as described in this proxy statement in accordance with Proposal 4 will require the affirmative vote of a majority of the votes cast at the annual meeting. An abstention from voting on this proposal will have the same effect as a vote against the proposal. Broker non-votes will not affect the outcome of the vote on this proposal

Generally, a proposal presented to stockholders, such as Proposal 5, will be approved by the affirmative vote of a majority of the votes cast at a meeting. However, because the vote on this proposal is not binding on the company or the Board of Directors, if none of the frequency options — every 1 year, every 2 years, or every 3 years — receives a majority of the votes cast, the option receiving the greatest number of affirmative votes will be considered the frequency preferred by the stockholders. Abstentions and broker non-votes will not affect the outcome of the vote on this proposal.

 

The Board of Directors unanimously recommends that stockholders vote:

 

 

If you submit a properly signed proxy but do not indicate voting instructions for a particular proposal, your shares will be voted FOR that proposal and, in the case of Proposal 5, FOR every 1 year as the frequency with which the company should hold an advisory vote by stockholders to approve the company’s named executive officer compensation.

 

You must bring with you a valid personal photo identification card, such as a driver’s license or passport, in order to be admitted to the annual meeting. The purpose of this requirement is to help us verify that you are a stockholder of the company.

 

A copy of our 2011 annual report to stockholders, which contains our audited consolidated financial statements for the fiscal year ended March 31, 2011, accompanies this proxy statement. The annual report to stockholders does not constitute proxy soliciting material.

 

A copy of our Annual Report on Form 10-K for the fiscal year ended March 31, 2011 filed with the Securities and Exchange Commission (“SEC”) will be furnished without charge, without exhibits, to stockholders of record or beneficial owners of our common stock upon request to The Advisory Board Company, 2445 M Street, NW, Washington, D.C. 20037, Attn: Evan R. Farber, Corporate Secretary, or by calling (202) 266-5600. The 2011 Form 10-K is also available through the company’s website at www.advisoryboardcompany.com.

 

Beneficial owners, but not record holders, of our common stock who share a single address may receive only one copy of the proxy statement and our 2011 annual report, unless their broker has received contrary instructions from any beneficial owner at that address. This practice, known as “householding,” is designed to reduce printing and mailing costs. If any beneficial owner at such an address wishes to discontinue householding and receive a separate copy of the proxy statement and annual report, the beneficial owner should notify its broker. Beneficial owners sharing an address to which a single copy of the proxy statement and annual report was delivered can also request prompt delivery of a separate copy of the proxy statement

and annual report, now or in the future, by contacting us at The Advisory Board Company, 2445 M Street, NW, Washington, D.C. 20037, Attn: Evan R. Farber, Corporate Secretary, or by calling (202) 266-5600. Beneficial owners sharing an address to which multiple copies of the proxy statement and annual report were delivered should notify their broker if they wish to receive a single copy of these materials in the future.

 

Under the company’s certificate of incorporation and bylaws, the number of directors that shall constitute the whole Board of Directors shall be determined by a resolution of the Board. Our Board of Directors currently has eight members. Upon the recommendation of the Governance Committee, the Board of Directors has nominated all of the current directors for re-election to the Board at the annual meeting. The Board has determined that, if elected to serve another term on the Board, Mr. Williams will continue to serve as our Chairman of the Board, and Mr. Kindick will continue to serve as Lead Director.

 

Assuming a quorum is present at the annual meeting, election of the eight nominees to the Board of Directors will require a plurality of the votes cast of the shares present in person or represented by proxy at the annual meeting. Votes may be cast for or withheld with respect to any or all of the nominees. Unless authority to do so is withheld, it is the intention of the persons named in the proxy to vote such proxy FOR the election of each of the nominees.

 

If a nominee becomes unable or unwilling to accept nomination or election, the Board of Directors may either select a substitute nominee or reduce the size of the Board. If you have submitted a proxy and a substitute nominee is selected, your shares will be voted for the election of the substitute nominee. Alternatively, if the Board of Directors does not select a substitute nominee, the proxies may vote only for the remaining nominees, leaving a vacancy that may be filled at a later date by the Board of Directors. The Board of Directors has no reason to believe that any nominee would be unable or unwilling to serve if elected.

 

The following table shows the company’s nominees for election to the Board of Directors. Each of the nominees currently serves as a director. Each nominee, if elected, will serve until the next annual meeting of stockholders and the election and qualification of a successor, or until the nominee’s earlier death, resignation, or removal.

 

 

 

 

Set forth below is biographical information on each of the director nominees. In addition, we have set forth the experience, qualifications, attributes, and skills of each director that contributed to the determination of the Board of Directors that such director should serve on the Board.

 

Frank J. Williams joined us in September 2000 as an Executive Vice President and was our Chief Executive Officer and a director from June 2001 to August 2008, serving as Chairman of the Board of Directors from November 2004 through August 2008. Effective September 1, 2008, Mr. Williams became Executive Chairman of the company. From June 2000 through January 2001, Mr. Williams was the President of an affiliated company, eHospital Inc., whose business focused on developing and delivering health care content to patients and providers via the internet. From 1999 through May 2000, Mr. Williams served as the President of MedAmerica OnCall, a provider of outsourced services to physician organizations, hospitals, and managed care entities. Mr. Williams also served as a Vice President of Vivra Incorporated and as the General Manager of Vivra Orthopedics, an operational division of Vivra Specialty Partners, a private health care services and technology firm. Earlier in his career, Mr. Williams was employed by Bain & Company, a management consulting firm. Mr. Williams serves on the Board of Directors of Market Force Information, Inc., a privately held market research firm, and Sheridan Health Care, a privately held physician services company. Mr. Williams received a B.A. degree from University of California, Berkeley and an M.B.A. from Harvard Business School. The Board selected Mr. Williams because of his extensive knowledge and experience in all aspects of the company’s business, his nine years of leadership experience with the company, including in his former role as Chief Executive Officer, and his ten years of experience in the healthcare and consulting services fields prior to joining the company.

 

Robert W. Musslewhite has served as a member of our Board of Directors since May 2008 and became our Chief Executive Officer in September 2008. Mr. Musslewhite joined the company in 2003, initially serving in executive roles in strategic planning and new product development. In 2007, he was named Executive Vice President and general manager in charge of software-based programs, and was appointed Chief Executive Officer the following year. Prior to joining us, Mr. Musslewhite was an Associate Principal in the Washington, D.C., Amsterdam, and Dallas offices of McKinsey & Company, where he served a range of clients across the consumer products and other industries and was a co-leader of McKinsey’s Pricing Center. Mr. Musslewhite has an A.B. degree in Economics from Princeton University and a J.D. from Harvard Law School. The Board selected Mr. Musslewhite because of his extensive knowledge and experience in all aspects of the company’s business, his eight years of leadership experience with the company, including in his current role as Chief Executive Officer, and his six years of experience in the consulting and information services fields prior to joining the company.

 

Sanju K. Bansal has served as a member of our Board of Directors since November 2009. Mr. Bansal is Executive Vice President, Chief Operating Officer and Vice Chairman of the Board for MicroStrategy Incorporated, a worldwide provider of business intelligence software. He has served as that company’s Executive Vice President and Chief Operating Officer since 1993. Mr. Bansal has been a member of MicroStrategy’s Board of Directors since September 1997 and has served as Vice Chairman of its Board of Directors since November 2000. Prior to joining MicroStrategy as Vice President, Consulting in 1990, Mr. Bansal was a consultant at Booz, Allen & Hamilton, a worldwide technical and management consulting firm, from 1987 to 1990. Mr. Bansal received an S.B. in Electrical Engineering from the Massachusetts Institute of Technology and an M.S. in Computer Science from The Johns Hopkins University. The Board selected Mr. Bansal because of his strong background in consulting and information and systems technology, each of which is important to understanding and overseeing our operations and offerings, his 18 years of leadership experience as a senior executive of a public company, his 11 years of corporate governance experience as a member of a public company board of directors, and his extensive knowledge of relevant technologies.

 

Peter J. Grua has served as a member of the Board of Directors since January 2007. Mr. Grua is a Partner of HLM Venture Partners, a venture capital investment firm, where his investment activities focus on health services, medical technologies, and health care information technologies. Prior to joining HLM in 1992, Mr. Grua was a Managing Director at Alex. Brown & Sons, an investment banking firm, where he directed research in health care services and managed care. Previously, he was a research analyst at William Blair

Company, an investment banking firm, and a strategy consultant at Booz, Allen & Hamilton. Mr. Grua is currently a director of Health Care REIT, which is listed on the New York Stock Exchange, and several privately-held companies. Mr. Grua also served on the Board of Directors of Familymeds Group, Inc. between November 2004 and April 2007. Mr. Grua received an A.B. degree from Bowdoin College and an M.B.A. from Columbia University. The Board selected Mr. Grua because of his extensive knowledge of healthcare and consulting businesses, each of which is important to understanding and overseeing our operations and offerings, and his perspective and insights in assessing and valuing business initiatives relevant to our operations and markets, gained by almost ten years of experience as a research analyst and strategy consultant and 19 years of experience as a public market investor and healthcare venture capitalist.

 

Kelt Kindick has served as a member of our Board of Directors since November 2001, and was named Lead Director in November 2004. He has served as Chief Financial Officer at Bain & Company, a management consulting firm, since January 2009. Mr. Kindick joined Bain & Company in 1980, was elected partner in 1986, served as Managing Director of the firm’s Boston office from 1991 to 1996, and as Chairman of the firm’s executive committee from 1998 to 1999. Mr. Kindick also served as the Chief Financial Officer of the Commonwealth of Massachusetts from 2003 to 2004. Mr. Kindick received a B.A. degree from Franklin & Marshall College and an M.B.A. from Harvard Business School. The Board selected Mr. Kindick because of his 25 years of service as a partner at a leading management consulting firm where he has developed extensive experience in assessing and advising on corporate strategy, finance, operations, and talent management, as well as his finance and accounting experience gained as a Chief Financial Officer of a consulting firm and of a state government.

 

Mark R. Neaman has served as a member of our Board of Directors since 2004. Since 1992, Mr. Neaman has served as President and Chief Executive Officer of NorthShore University HealthSystem, a $1.7 billion integrated provider of healthcare services which includes four hospitals, a 700+ physician multi-specialty group practice, and a $100 million research institute. NorthShore also is an academic affiliate of The University of Chicago Pritzker School of Medicine, where Mr. Neaman holds a faculty position as a Biomedicine Fellow. From 1984 to 1991, Mr. Neaman served as the organization’s Executive Vice President and Chief Operating Officer. Mr. Neaman serves on the boards of directors of several private healthcare entities and charitable and educational organizations. Mr. Neaman received a B.S. in Business Administration and an M.S. in Business and Healthcare Administration from The Ohio State University. The Board selected Mr. Neaman because his 19 years of leadership experience as Chief Executive Officer of a nationally recognized healthcare system and his knowledge of current issues facing the industry, future healthcare trends, and potential new product concepts, all of which are important to understanding and overseeing our operations and offerings, and his operational knowledge and experience in managing a growth enterprise.

 

Leon D. Shapiro has served as a member of our Board of Directors since 2004. Since May 2011, Mr. Shapiro served as Executive Vice President of Client Relations for LogicSource, a business process management company focused on the procurement of printed materials and related commodities and services, where he is responsible for all client management functions. Between 2007 and March 2011, Mr. Shapiro served as Senior Vice President, Strategy and Operations at Warner Music Group, the only stand-alone music company to be publicly traded in the United States. From 2005 to 2006, Mr. Shapiro served as Group President of The NPD Group, Inc., a global provider of consumer and retail information, where he led all of their entertainment and technology related businesses. From 1989 to 2004, Mr. Shapiro was with Gartner, Inc., the leading provider of research and analysis on the global information technology industry, where he served as President, Gartner Executive Programs and was a member of the Gartner Leadership Team. Previously, Mr. Shapiro was Senior Vice President and General Manager of Gartner Community, which included Gartner’s Worldwide Events, Best Practices and Executive Programs business divisions, where he built the world’s largest CIO membership program. He earned his bachelor’s degree in economics and political science from the Hebrew University of Jerusalem in Israel. The Board selected Mr. Shapiro because of his leadership and operational experience as a senior executive of several public and private companies, including his 15 years of experience at a leading research and information services provider where he developed new research and

information products, managed renewals and sales, and led corporate strategy formulation, all of which are relevant and synergistic with our business model.

 

LeAnne M. Zumwalt has served as a member of our Board of Directors since November 2001. Ms. Zumwalt has served as a Vice President of DaVita, Inc., a publicly held provider of dialysis services, since 2000 and was promoted to Group Vice President in 2010. From 1997 through 1999, Ms. Zumwalt was the Chief Financial Officer of Vivra Specialty Partners, a privately held health care services and technology firm. From 1991 to 1997, Ms. Zumwalt held several executive positions, including Chief Financial Officer and Treasurer, with Vivra Incorporated, a publicly held provider of dialysis services. Ms. Zumwalt also served on the board of directors of Vivra Incorporated from 1994 to 1997. Prior to joining Vivra Incorporated, Ms. Zumwalt was with Ernst & Young LLP, an international accounting firm, for ten years. Ms. Zumwalt received a B.S. degree from Pacific Union College. The Board selected Ms. Zumwalt because of her strong experience in healthcare and technology, each of which is important to understanding and overseeing our operations and offerings, her eight years of financial experience as a Vice President and a Chief Financial Officer and ten years of accounting experience as a public accountant, her knowledge of financial operations, and her experience with investor relations at two public healthcare services companies.

 

The Board of Directors unanimously recommends a vote FOR
the election of each of the eight director nominees named above.

 

 

The Audit Committee has selected Ernst & Young LLP as the company’s independent registered public accounting firm to perform the audit of the company’s financial statements and an audit of the effectiveness of the company’s internal control over financial reporting for the fiscal year ending March 31, 2012. Ernst and Young LLP has served as our independent registered public accounting firm since 2002. We are asking stockholders to ratify this selection because we value our stockholders’ views on our selection of the company’s independent registered public accounting firm and as a matter of good corporate practice. If the stockholders do not ratify the selection of Ernst & Young LLP, that fact will be taken under advisement by the Audit Committee in determining whether to retain Ernst & Young LLP and whether to select the firm in future years. Representatives from Ernst & Young LLP are expected to be present at the meeting. They will have the opportunity to make a statement at the meeting if they wish to do so, and they will be available to respond to appropriate questions from stockholders.

 

Ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2012 requires the affirmative vote of a majority of the votes cast at the meeting.

The Board of Directors unanimously recommends a vote FOR ratification of the
selection of Ernst & Young LLP as the company’s independent
registered public accounting firm for the fiscal year ending March 31, 2012.

 

The following table sets forth approximate aggregate fees billed to us by Ernst & Young, LLP for fiscal years 2011 and 2010:

 

 

Audit Fees

 

Audit fees were for professional services rendered for the audit of the company’s annual financial statements and reports on the effectiveness of internal control over financial reporting for the fiscal years ended March 31, 2011 and 2010, the reviews of the financial statements included in the company’s quarterly reports on Form 10-Q for the quarterly periods in the fiscal years ended March 31, 2011 and 2010, and for accounting consultations for the fiscal years ended March 31, 2011 and 2010.

 

Audit-Related Fees

 

Audit-related fees were for assurance and related services rendered that are reasonably related to the audit and reviews of the company’s financial statements for the fiscal years ended March 31, 2011 and 2010, exclusive of the fees disclosed as Audit Fees above. For the fiscal years ended March 31, 2011 and 2010, audit-related fees included fees for the benefit plan audit and for due diligence services and consultations pertaining to acquisitions.

 

Tax Fees

 

Tax fees were for services related to tax compliance and advisory services rendered during the fiscal years ended March 31, 2011 and 2010.

 

All Other Fees

 

We did not incur fees for any other services, exclusive of the fees disclosed relating to audit, audit-related, and tax services rendered during the fiscal years ended March 31, 2011 and 2010.

 

The Audit Committee has adopted an Audit and Non-Audit Service Pre-Approval Policy to pre-approve the following services by our independent registered public accounting firm.

 

Audit Services.  Audit services include the annual financial statement audit (including quarterly reviews) and other procedures required to be performed by the independent registered public accounting firm to be able to form an opinion on our financial statements and the attestation engagement for the independent registered public accounting firm’s report on internal control over financial reporting. The Audit Committee may pre-approve specified annual audit services engagement terms and fees and other specified audit fees. All other audit services must be pre-approved by the Audit Committee on an engagement-by-engagement basis. The

Audit Committee monitors the audit services engagement and may approve, if necessary, any changes in terms, conditions, and fees resulting from changes in audit scope or other items.

 

Audit-Related Services.  Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of our financial statements, historically have been provided to us by the independent registered public accounting firm, and are consistent with the SEC’s rules on auditor independence. The Audit Committee may pre-approve specified audit-related services within pre-approved fee levels. All other audit-related services must be pre-approved by the Audit Committee on an engagement-by-engagement basis.

 

Tax Services.  The Audit Committee may pre-approve specified tax services that the Audit Committee believes would not impair the independence of our auditor and that are consistent with SEC rules and guidance. All other tax services must be approved by the Audit Committee on an engagement-by-engagement basis.

 

All Other Services.  The Audit Committee may pre-approve specified other services to be provided by our auditor that do not fall within the established audit, audit-related, and tax services categories on an engagement-by-engagement basis.

 

Delegation and Fee Levels.  The Audit Committee has authorized the chair of the Audit Committee or any of its other members to pre-approve audit, permissible non-audit services, and tax services that have not been previously pre-approved, if the services are consistent with the SEC’s rules on auditor independence and are not specified prohibited services, up to $50,000 per engagement. Engagements that exceed $50,000 must be approved by the full Audit Committee. The Audit Committee chair or other members, as applicable, are required to report any pre-approval decisions under these procedures to the full Audit Committee at its first scheduled meeting following any such pre-approval.

 

Pre-Approved Fee Levels.  The Audit Committee reviews the established pre-approved fee levels annually and makes adjustments to those levels as it deems necessary or appropriate. Any proposed service that would exceed the applicable pre-approved fee level, after taking into account fees incurred for services in the same category, requires approval by the Audit Committee.

 

Procedures.  All requests for services to be provided by the independent registered public accounting firm, which must include a detailed description of the services to be rendered and the amount of corresponding fees, are submitted to the Chief Financial Officer. The Chief Financial Officer authorizes services that have been pre-approved by the Audit Committee. If there is any question as to whether a proposed service qualifies as a pre-approved service, the Audit Committee chair is consulted for a determination. The Chief Financial Officer submits requests or applications to provide services that have not been pre-approved by the Audit Committee, which must include an affirmation by the Chief Financial Officer and the independent auditor that the request or application is consistent with the SEC’s rules on auditor independence, to the Audit Committee (or its chair or any of its other members pursuant to delegated authority) for approval.

 

The Audit Committee assists the Board of Directors in fulfilling its responsibility for oversight of the quality and integrity of the accounting and reporting practices of the company, the qualifications and independence of the company’s independent registered public accounting firm, and such other duties as directed by the Board. Management has the primary responsibility for preparing the financial statements and implementing the company’s financial reporting process. Management also has the primary responsibility for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. The company’s independent registered public accounting firm is responsible for expressing an opinion on the conformity of the company’s audited financial statements to accounting principles generally accepted in the United States of America. The company’s independent registered public accounting firm also is responsible for expressing an opinion on the effectiveness of the company’s internal control over financial reporting. The Audit Committee members do not serve as professional accountants or auditors, and their functions are not intended to duplicate or certify the activities

of management and the independent registered public accounting firm or to verify the independence of the independent registered public accounting firm under applicable rules.

 

In this context, the Audit Committee reviewed and discussed with management and the independent registered public accounting firm the audited financial statements for the fiscal year ended March 31, 2011 (the “Audited Financial Statements”) and management’s maintenance of and assessment of the effectiveness of internal control over financial reporting as of March 31, 2011. The Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended, as adopted by the Public Company Accounting Oversight Board (“PCAOB”) in Rule 3200T. In addition, the Audit Committee has received from the independent registered public accounting firm the written disclosures and the letter required by applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence and discussed with them their independence. In addition, the Audit Committee has considered whether the non-audit services provided by Ernst & Young LLP are compatible with maintaining the independent registered public accounting firm’s independence.

 

Following the reviews and discussions referred to above, the Audit Committee recommended to the Board that the Audited Financial Statements be included in the company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2011, for filing with the Securities and Exchange Commission.

 

THE AUDIT COMMITTEE

LeAnne M. Zumwalt, Chair
Kelt Kindick
Mark R. Neaman

 

As Proposal 3 for the annual meeting, stockholders are asked to approve an amendment (the “2009 Plan Amendment”) to the company’s 2009 Stock Incentive Plan (the “2009 Plan”) to increase the number of shares of common stock originally authorized for issuance under the plan by 1,250,000 shares from 1,055,000 shares to 2,305,000 shares. The company is seeking stockholder approval of the 2009 Plan Amendment to comply with NASDAQ stockholder approval requirements applicable to equity plans which are incorporated in the 2009 Plan.

 

You are urged to read this entire proposal and the complete plan document. We believe that the 2009 Plan Amendment is necessary to recruit and retain key employees critical to our success and align management with stockholders, and thus is in the best interests of our stockholders. We have explained our reasons for supporting this proposal under “Why We Believe You Should Vote For this Proposal” below.

 

2009 Plan Amendment

 

The company’s stockholders approved the 2009 Plan at the 2009 annual meeting of stockholders held on September 11, 2009. The Board of Directors approved the 2009 Plan Amendment, subject to stockholder approval, on July 26, 2011 upon the recommendation of the Compensation Committee. If approved by stockholders at the annual meeting, the 2009 Plan Amendment will be effective at the time of stockholder approval.

 

Why We Believe You Should Vote For the 2009 Plan Amendment

 

The Board of Directors believes that the 2009 Plan Amendment is essential for the ongoing success of our company and its ability to recruit, retain, and reward key employees and its ability to continue to provide equity-based compensation across the next two years in a manner that is consistent with the company’s current compensation program. Your directors believe that if the 2009 Plan Amendment is not approved, our ability to align the interests of key employees with stockholders through equity-based compensation would be

compromised, disrupting our compensation program and impairing our ability to recruit and retain key employees, or requiring us to shift our compensation plan to include more cash compensation. The Board recommends approval of the 2009 Plan Amendment for the following reasons:

 

Our Continuing Emphasis on Linking Compensation and Stockholder Value Creation.  We believe it is essential to provide a long-term link between compensation and stockholder value creation, and we rely on equity compensation as one of the most efficient and effective means to create such a relationship. Our long-term equity incentive program is designed to align the interests of our officers and other key employees with those of stockholders, motivate the executive officer team to achieve key financial goals, and reward superior performance over a multi-year period. We have historically utilized stock options and RSUs to create this link between pay and performance. Stock options inherently have no value unless our stock price increases. The fair value of an RSU fluctuates with upward or downward movements in our stock price, which serves to align management’s interests with those of stockholders while at the same time creating more stability by providing an incentive for the holders of RSUs to remain with the company even if our stock price declines after the date of grant. If stockholders do not approve the 2009 Plan Amendment, our ability to create long-term incentives for key employees will be substantially diminished.

 

The Need to Provide Competitive Compensation.  Similar to other companies in our industry, we believe equity compensation is integral in providing a competitive total compensation package necessary to recruit, retain, and reward key employees. Equity awards are commonly used by companies our size, and the ability to provide competitive grants is essential to competing in our labor markets. Therefore, we believe it is imperative to provide long-term incentive awards as a component of our compensation program.

 

To execute our business strategy, we must retain and recruit key employees in a number of functional areas, including operations, engineering and software development sales, marketing, finance, legal, and human resources. We compete for talented employees in these areas with many other public and privately-held companies, who provide equity-based compensation. We believe that we must continue granting equity-based awards to remain a competitive employer.

 

Cash Compensation Expense Increase.  If our ability to provide equity compensation is impaired, our company’s cash compensation costs could increase substantially to offset equity compensation typically provided in the marketplace. It is important that we use our cash resources to operate and expand our business, rather than unnecessarily divert cash to pay compensation.

 

We believe that our historic equity usage has been effective in recruiting and retaining talent and aligning management incentives with company performance, and has been in line with industry norms on an aggregate basis. We set targets for equity compensation based on industry standards and other data provided to the Compensation Committee by a compensation consultant. Based on this information, we believe that our equity usage is consistent with the broader market as well as with the peer group of companies we use to benchmark executive compensation.

 

Over the past three years, our annual “run rate” (stock options and full-value shares granted, as a percentage of shares outstanding, with full-value shares counting as two shares and stock options as one share) has ranged between approximately 4.7% and 7.1%, and the company repurchased approximately 2.4 million shares of its common stock for an aggregate of approximately $74.0 million across such period pursuant to its share repurchase program. The Compensation Committee does not anticipate that future annual long-term incentive grants will materially differ our grant practices of the recent past. We will continue to seek an appropriate balance between meeting employee hiring, retention, and compensation goals and avoiding excessive stockholder dilution.

 

Promotion of Good Corporate Governance Practices

 

The company and the Board of Directors designed the 2009 Plan to include a number of provisions that we believe promote best practices by reinforcing the alignment between stock-based compensation arrangements and stockholders’ interests. Under these provisions:

 

 

 

Equity Awards and Other Plan Information

 

The following table includes information regarding all of the company’s outstanding equity awards and shares available for future awards under the company’s equity plans as of July 18, 2011 (and without giving effect to this Proposal 3):

 

 

 

 

Upon approval of the 2009 Plan by stockholders, the company’s 2006 Stock Incentive Plan (defined in the 2009 Plan as the “Prior Plan”) was frozen with respect to new awards. As a result, no further awards will be made under the Prior Plan. However, to the extent that shares are not issued under awards that are currently outstanding under the Prior Plan, those shares will become available for new awards under the 2009 Plan.

 

Section 162(m) of the Internal Revenue Code

 

The Board of Directors believes that it is in the best interests of the company and its stockholders to continue to provide for an incentive plan under which compensation awards made to the company’s executive officers can qualify for deductibility by the company for federal income tax purposes. Accordingly, the 2009

Plan has been structured in a manner such that awards granted under it can satisfy the requirements for “performance-based” compensation within the meaning of Section 162(m) of the Internal Revenue Code of 1986 (the “Code”). In general, under Section 162(m), in order for the company to be able to deduct compensation in excess of $1 million paid in any one year to the company’s chief executive officer or any of the company’s three other most highly compensated executive officers (other than the company’s chief financial officer), such compensation must qualify as “performance-based.” One of the requirements of “performance-based” compensation for purposes of Section 162(m) is that the material terms of the performance goals under which compensation may be paid be disclosed to and approved by the company’s stockholders. For purposes of Section 162(m), the material terms include (1) the employees eligible to receive compensation, (2) a description of the business criteria on which the performance goal is based, and (3) the maximum amount of compensation that can be paid to an employee under the performance goal.

 

Plan Summary

 

The following summary of the material terms of the 2009 Plan is qualified in its entirety by reference to the text of the 2009 Plan, as the plan is proposed to be amended by the 2009 Plan Amendment, which is set forth in Appendix A to this proxy statement.

 

Administration

 

The 2009 Plan is administered by the Compensation Committee. Subject to the express provisions of the 2009 Plan, the administrator is authorized and empowered to do all things that it determines to be necessary or appropriate in connection with the administration of the 2009 Plan. The Compensation Committee may authorize one or more officers of the company to perform any or all things that the administrator is authorized and empowered to do or perform under the 2009 Plan. In addition, the Compensation Committee may delegate any or all aspects of the day-to-day administration of the 2009 Plan to one or more officers or employees of the company or any subsidiary, and/or to one or more agents.

 

The Board of Directors will be authorized to appoint one or more committees of the Board consisting of one or more directors of the company who need not be non-employee directors. Any such committees would be authorized to administer the 2009 incentive plan with respect to participants in the plan who are not the company “officers” within the meaning of Rule 16a-1(f) under the Exchange Act or the company directors and, in this capacity, would be authorized to grant awards under the 2009 Plan to such participants and to determine all terms of such awards.

 

Participants

 

Any person who is a current or prospective officer or employee of the company or of any subsidiary will be eligible for selection by the administrator for the grant of awards under the 2009 Plan. In addition, non-employee directors and any service providers who have been retained to provide consulting, advisory, or other services to the company or to any subsidiary will be eligible for the grant of awards under the 2009 Plan. Options intending to qualify as “incentive stock options” (“ISOs”) within the meaning of Section 422 of the Code may only be granted to employees of the company or any subsidiary. As of July 18, 2011, approximately 1,490 employees and six non-employee directors qualified to participate in the 2009 Plan.

 

Shares Subject to the 2009 Plan and to Awards

 

Subject to adjustments for changes in the company’s capitalization, the aggregate number of shares issuable pursuant to all awards will not exceed 2,305,000, plus (a) any shares that were authorized for issuance under the Prior Plan that, as of June 26, 2009, remained available for issuance under the Prior Plan (not including any shares that, as of June 26, 2009, were subject to outstanding awards under the Prior Plan or any shares that prior to June 26, 2009 were issued pursuant to awards granted under the Prior Plan) and (b) any shares subject to outstanding awards under the Prior Plan as of June 26, 2009 that on or after such date cease for any reason to be subject to such awards (other than by reason of exercise or settlement of the awards to the extent they are exercised for or settled in vested and nonforfeitable shares), except that any shares granted

under options or stock appreciation rights will be counted against this limit on a one-for-one basis and any shares granted as awards other than options or stock appreciation rights will be counted against this limit as two and one one-hundredths (2.01) shares for every one (1) share subject to such award. The shares issued pursuant to awards granted under the 2009 Plan may be shares that are authorized and unissued or shares that were reacquired by the company, including shares purchased in the open market.

 

For purposes of determining the share limits described in the paragraph above, the aggregate number of shares issued under the 2009 Plan at any time will equal only the number of shares actually issued upon exercise or settlement of an award. Notwithstanding the foregoing, shares subject to an award under the 2009 Plan may not again be made available for issuance under the 2009 Plan if such shares are:

 

 

Shares subject to awards that have been canceled, expired, forfeited, or otherwise not issued under an award and shares subject to awards settled in cash will not count as shares issued under the 2009 Plan. Any shares that again become available for grant will be added back as one (1) share if such shares were subject to options or stock appreciation rights granted under the 2009 Plan, and as two and one one-hundredths (2.01) shares if such shares were subject to awards other than options or stock appreciation rights granted under the 2009 Plan.

 

Subject to adjustments for changes in the company’s capitalization, the aggregate number of shares subject to awards granted under the 2009 Plan during any calendar year to any one participant will not exceed 500,000, and the aggregate number of shares that may be issued pursuant to the exercise of ISOs granted under the 2009 Plan will not exceed 1,055,000. The maximum amount payable pursuant to that portion of an incentive bonus granted in any calendar year to any participant under the 2009 Plan that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code will not exceed $5 million. Subject to certain exceptions, the aggregate number of shares subject to options and stock appreciation rights granted under the 2009 Plan during any calendar year to any one non-employee director will not exceed 30,000, and the aggregate number of shares issued or issuable under all awards granted under the 2009 Plan other than options or stock appreciation rights during any calendar year to any one non-employee director will not exceed 15,000. In the calendar year in which a non-employee director first joins the Board, is designated as Chairman of the Board, or is designated as Lead Director, the maximum number of shares subject to awards granted to the non-employee director may be up to 200% of the number of shares set forth in the foregoing limits. The aggregate number of shares issued under the 2009 Plan pursuant to all awards granted to service providers, other than employees or non-employee directors, will not exceed 100,000.

 

In the event that the company acquires another corporation and assumes outstanding equity awards of such acquired corporation, the number of shares authorized for issuance under the 2009 Plan will be increased to the extent necessary to satisfy such assumed equity awards and such shares will not reduce the shares otherwise authorized for issuance under the 2009 Plan. In the event that a corporation acquired by the company, or with which the company combines, has shares available under a pre-existing plan approved by stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan may be used for awards under the 2009 Plan and will not reduce the shares authorized for issuance under the 2009 Plan, so long as awards using such available shares will not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and will only be made to individuals who were not an employee, director, or consultant of ours immediately before such acquisition or combination.

 

On July 18, 2011, the closing price of the company’s common stock as reported on the NASDAQ Global Select Market was $53.76 per share.

Option Awards

 

The administrator will establish the exercise price per share under each option, which, other than in the event of options granted in connection with a merger or other acquisition, will not be less than the fair market value of a share on the date the option is granted. The administrator will establish the term of each option, which in no case may exceed a period of five years from the date of grant. Options granted under the 2009 Plan may either be ISOs or nonqualified stock options which are not intended to qualify as ISOs (“NQSOs”). Unless such action is approved by stockholders, the 2009 Plan prohibits repricing out-of-the-money options and stock appreciation rights (that is, reducing the exercise price of an option or stock appreciation right with an exercise price above the market value of the company’s common stock or exchanging any such option or stock appreciation right for cash or a new award with a lower (or no) exercise price).

 

Stock Appreciation Rights

 

A stock appreciation right provides the right to the monetary equivalent of the increase in value of a specified number of the shares over a specified period of time after the right is granted. Stock appreciation rights may be granted to participants either in tandem with or as a component of other awards granted under the 2009 Plan (“tandem SARs”) or not in conjunction with other awards (“freestanding SARs”). All freestanding SARs will be granted subject to the same terms and conditions applicable to options as set forth above and in the 2009 Plan and all tandem SARs will have the same exercise price, vesting, exercisability, forfeiture, and termination provisions as the award to which they relate. The 2009 Plan prohibits repricing stock appreciation rights without stockholder approval.

 

Restricted Stock and Restricted Stock Units

 

Restricted stock is an award or issuance of shares that the grant, issuance, retention, vesting, and/or transferability of which is subject during specified periods of time to conditions (including continued employment or performance conditions) and terms as the administrator deems appropriate. Restricted stock units are awards denominated in shares under which the issuance of shares is subject to conditions (including continued employment or performance conditions) and terms as the administrator deems appropriate. Participants holding shares of restricted stock granted under the 2009 Plan may exercise full voting rights with respect to those shares during the period of restriction. Participants have no voting rights with respect to shares underlying restricted stock units unless and until such shares are reflected as issued and outstanding shares on the company’s stock ledger. Participants in whose name restricted stock is granted are entitled to receive all dividends and other distributions paid with respect to those shares, unless determined otherwise by the administrator. Shares underlying restricted stock units are entitled to dividends or dividend equivalents only to the extent provided by the administrator. Participants will not vest in dividends paid on performance-based awards of restricted stock or in dividend equivalent rights paid on performance-based awards of restricted stock units, and will be required to forfeit and repay to the company such dividends and dividend equivalent rights, if the performance criteria for the underlying awards of restricted stock or restricted stock units are not achieved.

 

Other than with respect to awards to non-employee directors, and subject to exceptions for death, disability, retirement, or a change of control, the grant, issuance, retention, vesting, and/or settlement of shares under any such award that is based on performance criteria and level of achievement versus such criteria will be subject to a performance period of not less than 12 months, and the grant, issuance, retention, vesting, and/or settlement of shares under any restricted stock or restricted stock unit award that is based solely upon continued employment and/or the passage of time may not vest or be settled in full prior to the 36th month following its date of grant, but may be subject to pro-rata vesting over such period. Notwithstanding the foregoing, the 2009 Plan provides that up to 100,000 shares are available for issuance to employee participants as awards having no minimum vesting period.

Incentive Bonuses

 

Each incentive bonus confers upon the participant the opportunity to earn a future payment tied to the level of achievement with respect to one or more performance criteria established for a performance period of not less than one year. The administrator establishes the performance criteria and level of achievement versus these criteria that will determine the target and maximum amount payable under an incentive bonus, which criteria may be based on financial performance and/or personal performance evaluations.

 

Deferral of Gains

 

The administrator may provide, in an award agreement or otherwise, for the deferred delivery of shares upon settlement, vesting, or other events with respect to restricted stock or restricted stock units, or in payment or satisfaction of an incentive bonus.

 

Qualifying Performance Criteria

 

The administrator may establish performance criteria and level of achievement versus such criteria that will determine the number of shares to be granted, retained, vested, issued or issuable under or in settlement of, or the amount payable pursuant to an award, which criteria may be based on “qualifying performance criteria” (as described below) or other standards of financial performance and/or personal performance evaluations. In addition, the administrator may specify that an award or a portion of an award is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code, so long as the performance criteria for such award or portion of an award that is intended by the administrator to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code will be a measure based on one or more qualifying performance criteria selected by the administrator and specified at the time the award is granted. The administrator will certify the extent to which any qualifying performance criteria have been satisfied and the amount payable as a result thereof, prior to payment, settlement, or vesting of any award that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code. Notwithstanding satisfaction of any performance goals, the number of shares issued under or the amount paid under an award may be reduced, but not increased, by the administrator on the basis of such further considerations as the administrator in its sole discretion may determine.

 

For purposes of the 2009 Plan, the term “qualifying performance criteria” means any one or more of the following performance criteria, or derivations of such performance criteria, either individually, alternatively, or in any combination, applied to either the company as a whole or to a business unit or subsidiary, either individually, alternatively or in any combination, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, in each case as specified by the administrator:

 

 

 

To the extent consistent with Section 162(m) of the Code, the administrator (1) may appropriately adjust any evaluation of performance under a qualifying performance criteria to eliminate the effects of charges for restructurings, discontinued operations, extraordinary items, and all items of gain, loss, or expense determined to be extraordinary or unusual in nature or related to the disposal of a segment of a business or related to a change in accounting principle all as determined in accordance with standards established by opinion No. 30 of the Accounting Principles Board (APB Opinion No. 30) or other applicable or successor accounting provisions, as well as the cumulative effect of accounting changes, in each case as determined in accordance with generally accepted accounting principles or identified in the company’s financial statements or notes to the financial statements, and (2) may appropriately adjust any evaluation of performance under a qualifying performance criteria to exclude any of the following events that occurs during a performance period:

 

 

Settlement of Awards

 

Awards may be settled in shares, cash, or a combination thereof, as determined by the administrator.

 

Amendment and Termination

 

The Board of Directors may amend, alter, or discontinue the 2009 Plan, and the administrator may amend or alter any agreement or other document evidencing an award made under the 2009 Plan, except no such amendment may, without the approval of the stockholders of the company (other than in respect of a change in the company’s capitalization): increase the maximum number of shares for which awards may be granted under the 2009 Plan; reduce the exercise price of outstanding options and stock appreciation rights; extend the term of the 2009 Plan; change the class of persons eligible to be participants; increase the individual maximum limits set forth in the 2009 Plan; or otherwise amend the 2009 Plan in any manner requiring stockholder approval by law or under the NASDAQ Global Select Market listing requirements.

 

No amendment or alteration to the 2009 Plan or an award or award agreement may be made that would impair the rights of the holder of an award without such holder’s consent, except that no such consent will be required if the administrator determines in its sole discretion and prior to the date of any change of control

that such amendment or alteration either is required or advisable in order for the company, the 2009 Plan, or the award to satisfy any law or regulation or to meet the requirements of or avoid adverse financial accounting consequences under any accounting standard.

 

Change of Control

 

In the event there is a change in the number or kind of outstanding shares under the 2009 Plan as a result of a change of control, other merger, consolidation or otherwise, then the administrator will determine the appropriate and equitable adjustment to be effected. In addition, in the event of such a change, the administrator may accelerate the time or times at which any award may be exercised and may provide for cancellation of such accelerated awards that are not exercised within a time prescribed by the administrator in its sole discretion.

 

Adjustments

 

The number and kind of shares available for issuance under the 2009 Plan, and the number and kind of shares subject to the individual limits set forth under the 2009 Plan, will be equitably adjusted by the administrator to reflect any reorganization, reclassification, combination of shares, stock split, reverse stock split, spin-off, dividend or distribution of securities, property, or cash (other than regular, quarterly cash dividends), or any other event or transaction that affects the number or kind of shares of the company outstanding. The terms of any outstanding award will also be equitably adjusted by the administrator as to price, number, or kind of shares subject to such award and other terms to reflect the foregoing events, which adjustments need not be uniform as between different awards or different types of awards.

 

Transferability

 

Awards may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated by a participant other than by will or the laws of descent and distribution, and each option or stock appreciation right may be exercisable only by the participant during his or her lifetime. Notwithstanding the foregoing, to the extent permitted by the administrator, the person to whom an award is initially granted may make certain limited transfers to certain family members, family trusts, or family partnerships.

 

No Right to Company Employment

 

Nothing in the 2009 Plan or an award agreement will interfere with or limit in any way the right of the company, its subsidiaries, and/or its affiliates to terminate any participant’s employment, service on the Board of Directors, or service for the company at any time or for any reason not prohibited by law, nor will the 2009 Plan or an award itself confer upon any participant any right to continue his or her employment or service for any specified period of time. Neither an award nor any benefits arising under the 2009 Plan will constitute an employment contract with the company, any subsidiary, and/or its affiliates.

 

Compliance with Law

 

The 2009 Plan, the grant, issuance, vesting, exercise, and settlement of awards thereunder, and the obligation of the company to sell, issue, or deliver shares under such awards, will be subject to all applicable foreign, federal, state, and local laws, rules and regulations, stock exchange rules, and regulations, and to such approvals by any governmental or regulatory agency as may be required. The company will not be required to issue or deliver any certificates for shares prior to the completion of any registration or qualification of such shares under any federal or state law or issuance of any ruling or regulation of any government body that the company will, in its sole discretion, determine to be necessary or advisable.

 

Termination of the 2009 Plan

 

The 2009 Plan became effective on September 11, 2009 and, unless earlier terminated by the Board of Directors, will remain available for the grant of awards until the tenth anniversary of the effective date.

Federal Income Tax Treatment

 

The following discussion of the federal income tax consequences of the 2009 Plan is intended to be a summary of applicable federal law as currently in effect.

 

Stock Options

 

ISOs and NQSOs are treated differently for federal income tax purposes. ISOs are intended to comply with the requirements of Section 422 of the Code. NQSOs do not comply with such requirements.

 

An optionee is not taxed on the grant or exercise of an ISO. The difference between the exercise price and the fair market value of the shares on the exercise date will, however, be a preference item for purposes of the alternative minimum tax. If an optionee holds the shares acquired upon exercise of an ISO for at least two years following the option grant date and at least one year following exercise, the optionee’s gain, if any, upon a subsequent disposition of such shares is long term capital gain. The measure of the gain is the difference between the proceeds received on disposition and the optionee’s basis in the shares (which generally equals the exercise price). If an optionee disposes of stock acquired pursuant to exercise of an ISO before satisfying these holding periods, the excess of the fair market value of the option shares on the date of disposition over the exercise prices will be taxable income to the optionee at the time of the disposition. Of that income, the amount up to the excess of the fair market value of the shares at the time the option was exercised over the exercise price will be ordinary income for income tax purposes and the balance, if any, will be long-term or short-term capital gain, depending upon whether or not the shares were sold more than one year after the option was exercised. The company is not entitled to an income tax deduction on the grant or exercise of an ISO or on the optionee’s disposition of the shares after satisfying the holding period requirement described above. If the holding periods are not satisfied, the company will be entitled to an income tax deduction in the year the optionee disposes of the shares in an amount equal to the ordinary income recognized by the optionee.

 

If an optionee pays the exercise price of an ISO by tendering shares with a fair market value equal to part or all of the exercise price, the exchange of shares will be treated as a nontaxable exchange, except that this treatment will not apply if the optionee acquired the shares being tendered pursuant to the exercise of an ISO and have not satisfied the special holding period requirements summarized above. The tax basis of the shares tendered to pay the exercise price will be treated as the substituted tax basis for an equivalent number of shares received, and the new shares will be treated as having been held for the same holding period as the holding period that expired with respect to the tendered shares.

 

If an optionee makes a cashless exercise of an ISO, the optionee will have a disqualifying disposition of the shares that are sold under the cashless exercise program. As a result, as to these shares, the optionee will be taxed in the year of exercise at ordinary-income rates. In other words, a cashless exercise always involves a disqualifying disposition of shares acquired under an ISO.

 

In order for an option to qualify for ISO tax treatment, the grant of the option must satisfy various other conditions more fully described in the Code. The company does not guarantee that any option will qualify for ISO tax treatment even if the option is intended to qualify for such treatment. In the event an option intended to be an ISO fails to so qualify, it will be taxed as an NQSO described below.

 

An optionee is not taxed on the grant of an NQSO. On exercise, the optionee recognizes ordinary income equal to the difference between the exercise price and the fair market value of the shares acquired on the date of exercise. The company is entitled to an income tax deduction in the year of exercise in the amount recognized by the optionee as ordinary income. The optionee’s gain (or loss) on subsequent disposition of the shares is long term capital gain (or loss) if the shares are held for at least one year following exercise. The company does not receive an income tax deduction for this gain.

 

If an optionee tenders shares in payment of part or all of the exercise price of an NQSO, no gain or loss will be recognized with respect to the shares tendered, even if the shares were acquired pursuant to the exercise of an ISO. In such an event, the optionee will be treated as receiving an equivalent number of shares pursuant to the exercise of the option in a nontaxable exchange. The tax basis of the shares tendered will be

treated as the substituted tax basis for an equivalent number of shares received, and the shares received will be treated as having been held for the same holding period as the holding period that expired with respect to the tendered shares. The difference between the aggregate exercise price and the aggregate fair market value of the shares received pursuant to the exercise of the option will be taxed as ordinary income, just as if the optionee had paid the exercise price in cash.

 

Stock Appreciation Rights

 

An optionee is not taxed on the grant of a stock appreciation right. On exercise, the optionee recognizes ordinary income equal to the cash or the fair market value of any shares received. The company is entitled to an income tax deduction in the year of exercise in the amount recognized by the optionee as ordinary income.

 

Restricted Stock and Restricted Stock Units

 

Grantees of restricted stock or restricted stock units do not recognize income at the time of the grant. When the award vests or is paid, grantees generally recognize ordinary income in an amount equal to the fair market value of the stock or units at such time, and the company will receive a corresponding income tax deduction. However, no later than 30 days after a participant receives an award of restricted stock, the participant may elect to recognize taxable ordinary income in an amount equal to the fair market value of the shares at the time of receipt. Provided that the election is made in a timely manner, when the restrictions on the shares lapse, the participant will not recognize any additional income. If the participant forfeits the shares to the company (e.g., upon the participant’s termination prior to vesting), the participant may not claim an income tax deduction with respect to the income recognized as a result of the election. Dividends paid with respect to unvested shares of restricted stock generally will be taxable as ordinary income to the participant at the time the dividends are received unless the participant has made the election described above in which case the dividends will be taxable as dividends.

 

Incentive Bonuses

 

A participant will have taxable income at the time an incentive bonus award becomes payable, and, if the participant has timely elected deferral to a later date, such later date. At that time, the participant will recognize ordinary income equal to the value of the amount then payable.

 

Company Deduction and Section 162(m)

 

For the individual serving as the chief executive officer of the company at the end of the taxable year and for the individuals serving as officers of the company or a subsidiary at the end of such year who are among the three highest compensated officers (other than the chief executive officer and chief financial officer) for proxy reporting purposes, Section 162(m) limits the amount of compensation otherwise deductible by the company and its subsidiaries for such year to $1 million for each such individual, except to the extent that such compensation is “performance-based compensation.” The company expects that NQSOs, ISOs, and stock appreciation rights to qualify as performance-based compensation. The administrator may establish performance conditions and other terms with respect to grants of restricted stock, restricted stock units, and incentive compensation awards in order to qualify such grants as performance-based compensation for purposes of Section 162(m).

 

New Plan Benefits

 

The benefits that will be awarded or paid under the 2009 Plan are not currently determinable. Such awards are within the discretion of the Compensation Committee, and the Compensation Committee has not determined future awards or who might receive them. Information about awards granted in fiscal 2011 under the company’s stock plans to the company’s named executive officers can be found in the table under the heading “Grants of Plan-Based Awards” under “Executive Compensation.”

The table below provides information about our compensation plans at March 31, 2011:

 

 

Column (c) above includes 638,029 shares of common stock remaining available for future issuance under the 2005 Stock Incentive Plan, 569,151 shares of common stock remaining available for future issuance under the 2009 Plan, and 755,232 shares of common stock remaining available for future issuance under the company’s employee stock purchase plan.

 

The affirmative vote of a majority of votes cast at the annual meeting is required to approve the 2009 Plan.

 

The Board of Directors unanimously recommends a vote For
approval of an amendment to the company’s
2009 Stock Incentive Plan to increase the number of shares
of common stock issuable under the plan.

 

As Proposal 4 for the annual meeting, in accordance with recently adopted Section 14A of the Exchange Act and the SEC’s rules thereunder, the Board of Directors is asking stockholders to approve, on an advisory basis, the compensation of the company’s named executive officers as described in this proxy statement. This vote, known as “say on pay,” gives you the opportunity to share your views about the compensation we pay to our named executive officers, who are the executive officers named in the Summary Compensation Table under “Executive Compensation.”

 

As described below in the Compensation Discussion and Analysis section of this proxy statement, the Compensation Committee has structured our executive compensation program to emphasize long-term, performance-dependent pay to motivate and reward long-term value creation for the company’s stockholders. The Board of Directors urges stockholders to read the Compensation Discussion and Analysis section of this proxy statement, which describes in detail how the company’s executive compensation practices operate and are designed to achieve our core executive compensation objectives, as well as the Summary Compensation Table and other compensation tables and related narrative appearing under “Executive Compensation,” which provide detailed information about the compensation of our named executive officers.

 

In accordance with Section 14A of the Exchange Act and the SEC’s rules thereunder, we are asking stockholders to approve this proposal by approving the following non-binding resolution:

 

RESOLVED, that the Company’s shareholders APPROVE, on an advisory basis, the compensation of the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion.

 

You may vote for or against this proposal or abstain from voting on the proposal. This “say on pay” vote is advisory and is therefore not binding on the company, the Compensation Committee, or the Board of Directors. Although the vote is non-binding, the Compensation Committee and the Board of Directors value

the opinions of our stockholders and, to the extent that there is any significant vote against approval of the named executive officer compensation as disclosed in this proxy statement, they will consider our stockholders’ concerns and will evaluate whether any actions are necessary to address those concerns.

 

Approval of this proposal requires the affirmative vote of a majority of the votes cast at the annual meeting.

 

The Board of Directors unanimously recommends a vote FOR approval of the
company’s compensation of its named executive officers as described in
this proxy statement.

 

 

In Proposal 4 above, the Board of Directors is asking stockholders to vote, on an advisory basis, to approve the compensation of the company’s named executive officers as described in this proxy statement. The company is required under recently adopted Section 14A of the Exchange Act and the SEC’s rules thereunder to provide this type of advisory “say on pay” vote at least once every 3 years. In accordance with these requirements, the Board of Directors is asking stockholders, as Proposal 5 for the annual meeting, to vote, on an advisory basis, on whether future advisory votes on named executive officer compensation should occur every 1, 2, or 3 years.

 

After careful consideration, the Board of Directors has determined to recommend that future advisory votes on named executive officer compensation occur every 1 year (annually). Although the company’s executive compensation program is designed to promote a long-term connection between pay and performance, the company’s executive compensation disclosures are made annually. The Board of Directors has considered that an annual advisory vote on named executive officer compensation will allow stockholders to provide more timely feedback on the company’s compensation philosophy, objectives, and practices as disclosed in the company’s annual proxy statement.

 

Stockholders are not voting in this proposal to approve or disapprove the Board’s recommendation. Stockholders will be able to specify one of the four choices for this proposal on the proxy card or voting instruction form:

 

 

Generally, a proposal presented to stockholders, such as Proposal 5, will be approved by the affirmative vote of a majority of the votes cast at a meeting. However, because the vote on this proposal is not binding on the company or the Board of Directors, if none of the frequency options — every 1 year, every 2 years, or every 3 years — receives a majority of the votes cast, the option receiving the greatest number of affirmative votes will be considered the frequency preferred by the stockholders. Although this vote is not binding, the Board of Directors will take into account the outcome of this vote in making a determination on the frequency with which advisory votes on named executive officer compensation will be included in the company’s annual proxy statement.

The Board of Directors unanimously recommends a vote FOR every “1 YEAR” as the
frequency with which the company should hold an advisory vote by stockholders to
approve the compensation of its named executive officers as described in the company’s
annual proxy statement.

 

Under the Marketplace Rules of the NASDAQ Stock Market (“NASDAQ”), on which our common stock is listed, a director will only qualify as an “independent director” if, in the opinion of our Board, that person does not have a relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, and the director does not otherwise have a relationship with us described under Rule 5605(a)(2) of the Marketplace Rules.

 

The Board has determined that each of the following six of our eight directors is independent under the foregoing standards: Mr. Bansal; Mr. Grua; Mr. Kindick; Mr. Neaman; Mr. Shapiro; and Ms. Zumwalt. In assessing Mr. Bansal’s independence, the Board considered that MicroStrategy, Inc., for which Mr. Bansal serves as Vice Chairman of the Board, Executive Vice President and Chief Operating Officer, provides certain services and technology to the company, but that the fees paid by the company to MicroStrategy accounted for less than 1% of MicroStrategy’s total revenue for fiscal 2011 and represented payment for transactions conducted on customary commercial terms in the ordinary course of business, and that Mr. Bansal had no material interest in such transactions. In assessing Mr. Grua’s independence, the Board considered that HLM Venture Partners, of which Mr. Grua serves as a Partner, is a member of one of our membership programs, but that the fees paid by HLM Venture Partners to the company accounted for less than 1% of the company’s total revenue for fiscal 2011 and represented payment for transactions conducted on customary commercial terms in the ordinary course of business, and that Mr. Grua had no material interest in such transactions. In assessing Mr. Neaman’s independence, the Board considered that NorthShore University HealthSystem, of which Mr. Neaman serves as President and Chief Executive Officer, is a member of several of our membership programs, but that the fees paid by NorthShore University HealthSystem to the company accounted for less than 1% of the company’s total revenue for fiscal 2011 and represented payment for transactions conducted on customary commercial terms in the ordinary course of business, and that Mr. Neaman had no material interest in such transactions. In assessing Ms. Zumwalt’s independence, the Board considered that DaVita, Inc., of which Ms. Zumwalt serves as Group Vice President, is a member of one of our membership programs, but that the fees paid by DaVita, Inc. to the company accounted for less than 1% of the company’s total revenue for fiscal 2011 and represented payment for transactions conducted on customary commercial terms in the ordinary course of business, and that Ms. Zumwalt had no material interest in such transactions.

 

During fiscal 2011, the Board of Directors met eight times. All directors attended 80% or more of the aggregate number of meetings of the Board and of the committees on which they served during fiscal 2011. The Board of Directors also meets in regularly scheduled executive sessions at least two times per year and met four times in executive session in fiscal 2011. These sessions, which were attended only by the Board’s independent directors, were chaired by Kelt Kindick, our Lead Director.

 

We do not have a policy on director attendance at our annual meetings of stockholders. One director attended our 2010 annual meeting of stockholders.

 

The Board’s three standing committees are the Audit Committee, the Compensation Committee and the Governance Committee. The role of each of the committees is governed by a charter adopted by the Board. A copy of each committee’s charter may be accessed via our website at www.advisoryboardcompany.com.

Audit Committee.  The members of our Audit Committee are Ms. Zumwalt, Mr. Kindick, and Mr. Neaman. Ms. Zumwalt serves as chair of the Audit Committee. The Audit Committee, among its responsibilities:

 

 

Each member of the Audit Committee is independent within the meaning of NASDAQ’s director independence standards, as currently in effect, and meets heightened independence criteria applicable to audit committee members under SEC rules and NASDAQ rules. The Board of Directors has determined that all of the company’s Audit Committee members are financially literate and has determined that Ms. Zumwalt meets the qualifications of an “audit committee financial expert” as defined under SEC rules. The Audit Committee met six times during fiscal year 2011.

 

Governance Committee.  The members of our Governance Committee are Mr. Kindick, Mr. Bansal, Mr. Grua, Mr. Neaman, Mr. Shapiro, and Ms. Zumwalt. Mr. Kindick serves as chair of the Governance Committee. The Governance Committee, among its responsibilities:

 

 

Each member of the Governance Committee is independent within the meaning of NASDAQ’s director independence standards, as currently in effect. The Governance Committee met twice times during fiscal year 2011.

 

Compensation Committee.  The members of our Compensation Committee are Mr. Grua, Mr. Kindick, and Mr. Shapiro. Mr. Grua serves as chair of the Compensation Committee.

 

The Compensation Committee, among its responsibilities:

 

 

Each member of the Compensation Committee is independent within the meaning of NASDAQ’s director independence standards, as currently in effect. The Compensation Committee met seven times during fiscal year 2011.

 

The Compensation Committee has retained the services of Towers Watson, a compensation consultant, to provide the Compensation Committee with independent compensation data, analysis, and advice with respect to executive compensation. The Compensation Committee also engaged The Delves Group, a compensation

consultant, to provide additional advice and analysis on executive compensation matters, including assistance concerning the appropriate type and mix of compensation and related matters. Both Towers Watson and The Delves Group report to the Compensation Committee, which has sole authority to retain and terminate the firms and to approve their respective fees and other retention terms. Neither Towers Watson nor The Delves Group performs any work for the company other than the work to be performed for the Compensation Committee.

 

Our chief executive officer, with the assistance of our chief talent officer, makes recommendations to the Compensation Committee with respect to the compensation of the named executive officers following our annual performance review process. The chief executive officer does not make recommendations to the Compensation Committee with respect to his own compensation, and he is not present when the Compensation Committee independently discusses and determines his compensation.

 

The company’s bylaws permit the roles of Chairman of the Board and Chief Executive Officer to be filled by the same or different individuals. The company believes that the decision whether to separate or combine the offices of Chairman of the Board and Chief Executive Officer should be based upon the Board’s determination of what is in the best interests of the company and its stockholders, in light of then-current and anticipated future circumstances and taking into consideration the skills and experience of the individual or individuals filling those positions and other relevant factors. The Board reviews the structure of Board and company leadership as part of the succession planning process.

 

The Board has determined that the Board leadership structure that is most appropriate at this time, given the specific characteristics and circumstances of the company, the skills and experience of Mr. Williams and Mr. Musslewhite and succession planning needs, is a leadership structure based on the experienced leadership afforded by a chairman (currently Mr. Williams) and a full-time chief executive officer (currently Mr. Musslewhite), both positions being subject to oversight and review by the company’s independent directors. Since 2008, the roles have been separated, with Mr. Williams serving as Executive Chairman. Mr. Williams has been closely involved with the company for a number of years in various leadership roles, including as Chairman of the Board and Chief Executive Officer. The company’s Executive Chairman provides leadership as chairman of the Board and is involved in the strategic oversight of the company. Given his unique knowledge, experience, and relationship with both the Board and management, Mr. Williams’ continued role as Executive Chairman provides significant value for the company and its stockholders. The company’s Chief Executive Officer is responsible for the day-to-day supervision, management, and control of the business and affairs of the company and serves as a bridge between management and the Board to support the alignment of the goals of both. The Board recognizes that, depending on the specific characteristics and circumstances of the company, other leadership structures might also be appropriate. A combined Chairman and Chief Executive Officer Board leadership structure has previously served the company and its stockholders well and may serve them well in the future.

 

Because the Board believes that strong, independent Board leadership is a critical aspect of effective corporate governance, the Board has appointed a Lead Director (currently Mr. Kindick), an independent director whose responsibilities include chairing executive sessions of the Board and the Governance Committee. In support of the independent oversight of management, the independent directors routinely meet in executive session and hold discussions without management present.

 

The Board of Directors is responsible for overseeing the risk management policies of the company. The Board evaluates and discusses management policies with respect to operational and financial risk assessment and enterprise risk management. Our full Board of Directors periodically engages in discussions of the most significant risks facing the company and how these risks are being managed, and the Board receives reports on risk management from senior officers of the company and from the Audit Committee and the Compensation

Committee as part of their regular reporting processes. The Audit Committee also oversees our corporate compliance programs.

 

Members of the senior management of the company (including our Chief Financial Officer and General Counsel) report directly to our Chief Executive Officer, providing him with information concerning the company’s risk profile. These executive officers also present information regarding the risk profile directly to the Board of Directors from time to time. The Board of Directors believes that the work undertaken by the Board, the Audit Committee, and the Compensation Committee and the company’s senior management enables the Board to effectively oversee the company’s risk management processes.

 

Messrs. Grua, Kindick, and Shapiro served on the Compensation Committee during our last fiscal year. All members of the Compensation Committee are independent directors, and none of them has been an officer or employee of the company at any time, nor did any of them have a relationship requiring disclosure by the company under Item 404 of the SEC’s Regulation S-K. None of our executive officers served during the last fiscal year on the compensation committee (or equivalent) or the board of directors of another entity whose executive officers served on our Compensation Committee or Board of Directors.

 

The Governance Committee will consider director candidates recommended by stockholders. Stockholders should submit the name of any person recommended as a director candidate along with information demonstrating their own stock ownership to The Advisory Board Company, 2445 M Street, NW, Washington, D.C. 20037, Attn: Evan R. Farber, Corporate Secretary. Director candidates recommended by stockholders will be evaluated by the Governance Committee in the same manner as the Committee’s nominees.

 

The Governance Committee identifies prospective director candidates in various ways, including through current Board members, management, stockholders, and other persons. These candidates are evaluated at meetings of the Governance Committee, and may be considered at any point during the year.

 

The Governance Committee works with the Board on an annual basis to determine the appropriate characteristics, skills, and experience for the Board as a whole and its individual members. The Board seeks to include directors with significant and varied experience in areas relevant to the company’s business. The company also seeks directors with the highest standards of ethics and integrity, sound business judgment, and the willingness to make a strong commitment to the company and its success. The Board does not have a formal diversity policy. The Board will evaluate each individual in the context of the Board as a whole, with the objective of recommending nominees that as a group that can best contribute to the success of the business and represent stockholder interests through the exercise of sound judgment. In determining whether to recommend a director for re-election, the Governance Committee also considers the director’s past attendance at meetings and participation in and contributions to the activities of the Board.

 

The Board, or the Compensation Committee to the extent authorized by the Board, sets the compensation of our non-employee directors under The Advisory Board Company 2005 Stock Incentive Plan and 2009 Stock Incentive Plan and such other arrangements as are deemed to be appropriate. For their Board service in fiscal 2011, non-employee directors were paid a cash retainer in the amounts set forth in the table below. For their Board service from the 2009 annual meeting of stockholders held in September 2009 until the 2010 annual meeting of stockholders held in September 2010, the non-employee directors were granted in April 2010 an annual award of restricted stock units (“RSUs”) with a grant date value of approximately $90,000, except that Mr. Kindick received an annual award of RSUs with a grant date value of approximately $150,000 in connection with his service as Lead Director. These RSUs, which are described in the table below, vested in full in September 2010 in order to coincide with the 2010 annual meeting of stockholders.

The compensation policy for directors was modified in March 2011. For their Board service from the 2010 annual meeting of stockholders in September 2010 until the 2011 annual meeting of stockholders in September 2011, the non-employee directors were granted in April 2011 an annual award of RSUs with a grant date value of approximately $100,000, except that Mr. Kindick was granted an annual award of RSUs with a grant date value of approximately $160,000 in connection with his service as Lead Director. The RSUs awarded in April 2011 will vest in full in May 2012. In addition, non-employee directors are entitled to a retainer of $30,000, and chairs of our committees are entitled to an additional $10,000 annual retainer.

 

Neither Mr. Williams nor Mr. Musslewhite, the two employee members of the Board, received additional compensation for their service on the Board.

 

The following table sets forth the compensation of our directors for fiscal 2011.

 

 

 

 

SEC rules define “related person transactions” as any transaction since the beginning of our last fiscal year or any proposed transaction with a value of over $120,000 and in which one of our executives, directors, or greater than five percent stockholders (or a member of their immediate family) has a material direct or indirect interest. The Audit Committee is responsible for overseeing transactions with related persons that may require disclosure under applicable SEC rules, but the company has not adopted formal written policies and procedures for reviewing and approving these types of transactions. Since the beginning of the last fiscal year, there have not been any related person transactions.

 

The company has adopted The Advisory Board Company Code of Ethics for Finance Team Members, which is available electronically on the company’s website at www.advisoryboardcompany.com in the section titled “The Firm” with the subtitle “Investor Relations” and “Governance.” To the extent permitted by SEC and NASDAQ rules, we intend to disclose future amendments to, or waivers from, certain provisions of the Code of Ethics on the company’s website.

 

Stockholders may communicate with the members of the Board individually, with all independent directors, or with the Board as a group by writing to The Advisory Board Company, 2445 M Street, NW, Washington, D.C. 20037, Attn: Evan R. Farber, Corporate Secretary. Please mark the outside of the envelope

“BOARD COMMUNICATION,” and indicate the director(s) or group of directors to whom you wish to direct your communication.

 

You should identify your communication as being from a stockholder of The Advisory Board Company. The corporate secretary may request reasonable evidence that your communication is made by one of our stockholders before transmitting your communication to the designated member or members of the Board. The corporate secretary will review all communications from our stockholders, and communications relevant to our business and operations, as determined by the corporate secretary, will be forwarded to the designated member or members of the Board.

 

The Audit Committee has established procedures for the receipt, retention, and treatment of complaints regarding accounting, internal accounting controls, or auditing matters. A communication or complaint to the Audit Committee regarding such matters may be submitted by writing to The Advisory Board Company, 2445 M Street, NW, Washington, D.C. 20037, Attn: Evan R. Farber, Corporate Secretary. Please mark the outside of the envelope “AUDIT COMMITTEE COMMUNICATION.”

 

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of the SEC’s Regulation S-K. Based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into our Annual Report on Form 10-K for the fiscal year ended March 31, 2011.

 

THE COMPENSATION COMMITTEE

Peter J. Grua, Chair
Kelt Kindick
Leon D. Shapiro

 

The following discussion describes our compensation philosophy and policies and the compensation earned by each of the named executive officers identified in the Summary Compensation Table under “Executive Compensation” for their service in fiscal 2011.

 

Compensation Philosophy.  Our compensation and benefit plans are designed to create value for our stockholders in three primary ways:

 

 

These fundamental principles guide the design and implementation of our compensation programs for our named executive officers.

 

Company Performance.  Overall performance for the calendar year ended December 31, 2010 was strong, exceeding expectations established at the beginning of the year. The company outperformed target

goals under its annual incentive plan for revenue, contract value performance, adjusted EBITDA, adjusted earnings per share, and share price growth. The company’s target and actual performance for calendar year 2010 are set forth in the following table.

 

 

We define contract value as the aggregate annualized revenue attributable to all agreements in effect at a particular date. Adjusted EBITDA and adjusted earnings per share are not financial measures calculated in accordance with accounting principles generally accepted in the United States of America, or “GAAP.” We define adjusted EBITDA as earnings before other income, net, which includes interest income and foreign currency losses and gains; income taxes; depreciation and amortization; amortization of acquisition-related intangibles included in cost of services; and certain other cash and non-cash charges. We define adjusted earnings per share as net income per share excluding the per share effect, net of tax, of certain cash and non-cash charges and any fair value adjustments made to the company’s acquisition-related earn-out liabilities.

 

Additionally, the company’s business operations for calendar year 2010 showed improved performance across all product lines, and the company successfully launched multiple new products with improved pacing, product management, and service delivery, relative to prior launches.

 

Compensation Decisions for Fiscal 2011.  Our compensation programs for fiscal 2011 reflected the Compensation Committee’s objectives of focusing our executives on strategic objectives and stockholder value, reinforcing the connection between pay and performance, and compensating executives at a market rate competitive to peer companies. The Compensation Committee’s compensation actions included the following:

 

 

Each of these actions is discussed in greater detail below.

 

Our Board of Directors has established a Compensation Committee composed of independent directors, as determined under the NASDAQ Marketplace Rules, that is responsible for guiding and overseeing the

formulation and application of our compensation and benefit programs for our executive officers, including our named executive officers, as well as certain compensation and employee benefits that are generally applicable to all employees. Our chief executive officer, with the assistance of our chief talent officer, makes recommendations to the Compensation Committee with respect to the compensation of the named executive officers following our annual performance review process. The chief executive officer does not make recommendations to the Compensation Committee with respect to his own compensation, and he is not present when the Compensation Committee independently discusses and determines his compensation.

 

As part of the Compensation Committee’s ongoing efforts to help ensure that the company’s compensation and benefit plans fulfill the company’s goals and that the company’s practices with respect to executive compensation-related matters reflect and promote good corporate governance practices, the Compensation Committee began a process at the beginning of fiscal 2010 to, among other things, review the company’s executive compensation philosophy, develop a peer group of companies with respect to which market competitive assessments are made, and provide advice on the types, levels, and design of compensation that is included in the company’s executive compensation program consistent with that philosophy. In furtherance of this process, the Compensation Committee retained the services of Towers Watson, a compensation consultant, to provide the Compensation Committee with independent compensation data, analysis, and advice. The Compensation Committee also engaged The Delves Group, a compensation consultant, to provide additional analysis and advice. Both Towers Watson and The Delves Group report to the Compensation Committee. Under its charter, the Compensation Committee has sole authority to retain and terminate Towers Watson and The Delves Group and to approve their fees and other retention terms. Neither Towers Watson nor The Delves Group provides any work for the company other than the work performed for the Compensation Committee.

 

To begin the compensation review process, Towers Watson selected, and the Compensation Committee approved, the following peer companies on the basis of several factors, including size, similarity of business operations, focus and markets served, and competition for executive talent. The peer group, which was established in 2009 and confirmed in 2010 without changes, consists of the following companies:

 

 

Compensation data from public filings of companies in our peer group and from published surveys formed the basis of the competitive benchmarking analysis and pay mix comparison that Towers Watson prepared for the Compensation Committee. This data provided a useful reference point in the Committee’s efforts to align total executive compensation for fiscal 2011 between the 50th and 75th percentile of our peers. The Committee did not benchmark or target a precise pay level relative to the market data, but rather the Committee allows our executive officers the opportunity to earn above median level compensation for performance that generates increasing value for stockholders. None of the named executive officers’ total compensation for fiscal 2011 exceeded the 75th percentile of our peers.

 

Our compensation programs are composed of salary, annual incentive compensation, and long-term incentive compensation.

 

Base Salary.  Salary is included in the compensation of our named executive officers because we believe it is appropriate that some portion of compensation be provided in a form that is liquid and assured. Salaries are initially established at levels necessary to enable us to attract and retain highly qualified executives, being mindful of factors and considerations such as internal pay equity, peer group assessments and benchmarks provided by Towers Watson, the prior experience of the executive, and expected contributions to company

performance. We do not guarantee salary adjustments on a yearly basis, and the Compensation Committee considers adjustments to salary as part of the overall compensation assessment for our named executive officers.

 

For the fiscal year ended March 31, 2011, base salaries for the named executive officers remained unchanged from the previous fiscal year. Upon the recommendation of the chief executive officer and after taking into account peer group benchmark data and performance feedback, the Compensation Committee increased Mr. Kirshbaum’s base salary from $225,000 to $275,000, effective on July 1, 2010. The salaries for each of our named executive officers for the fiscal year ended March 31, 2011 were as follows:

 

 

Annual Incentive Compensation.  At the beginning of fiscal 2012, our chief executive officer, Mr. Musslewhite, reviewed with the Compensation Committee the quantitative and qualitative goals approved by the Compensation Committee in the beginning of fiscal 2011 for each of the named executive officers (which are described below under “Factors Considered in Award” for each named executive officer) other than himself and the achievement by each such other officer of success against those pre-determined goals, as well as changes in responsibility levels, and input obtained from other members of the company’s senior management. With respect to the annual incentive compensation for the company’s chief executive officer, the Compensation Committee reviewed Mr. Musslewhite’s performance against the quantitative and qualitative goals approved by the Compensation Committee in the beginning of fiscal 2011 (which are described below under “Factors Considered in Award” for Mr. Musslewhite) and considered information relating to the his performance during fiscal 2011 from other members of the company’s senior management. The Compensation Committee also reviewed the peer group benchmark data provided by Towers Watson in determining the absolute levels for annual incentive compensation targets and the overall mix of compensation types.

 

When determining the annual incentive compensation for each of the named executive officers, the Compensation Committee took into consideration the financial and non-financial objectives described below with respect to the particular named executive officer. In fiscal 2011, the company’s financial objectives — against which the named executive officers with annual cash-based incentive plans were measured and which determined 60% of their incentive compensation — included adjusted EBITDA performance (calculated as described above) and contract value growth (calculated as described above) during the calendar year ended December 31, 2010, as compared with the measures for the prior calendar year. The specific payout levels of

the portion of the annual incentive compensation based on these financial objectives for fiscal 2011 were determined by reference to the following:

 

 

These company performance metrics were utilized because the Compensation Committee believes that they directly reflect stockholder value and offer a comprehensive and clear measure of the company’s business performance during the calendar year. These payout levels were set at challenging levels such that attainment of executive target bonuses was not assured at the time they were set and would require a high level of effort and execution on the part of our executive management team in order to receive a bonus payout. The remaining 40% of the annual incentive compensation was determined based on the achievement of individual goals and priorities, some of which were measured quantitatively and others subjectively through comprehensive performance evaluations. Details on each executive’s annual incentive opportunity, annual incentive award, and factors considered when determining each award are below:

 

Robert M. Musslewhite

 

Fiscal 2011 annual incentive compensation

 

 

Factors Considered in Award

 

 

Fiscal 2012 annual incentive compensation

 

 

Factors to Be Considered in Award

 

 

 

 

Michael T. Kirshbaum

 

Fiscal 2011 annual incentive compensation

 

 

Factors Considered in Award

 

 

Fiscal 2012 annual incentive compensation

 

 

Factors to Be Considered in Award

 

 

 

David L. Felsenthal

 

Fiscal 2011 annual incentive compensation

 

 

Factors Considered in Award

 

 

 

Fiscal 2012 annual incentive compensation

 

 

Factors To Be Considered in Award

 

 

 

Richard A. Schwartz

 

Fiscal 2011 annual incentive compensation

 

 

Factors Considered in Award

 

 

Fiscal 2012 annual incentive compensation

 

 

Factors To Be Considered in Award

 

 

 

Martin D. Coulter

 

Fiscal 2011 annual incentive compensation

 

 

Factors Considered in Award

 

 

Fiscal 2012 annual incentive compensation

 

 

Factors to Be Considered in Award

 

 

 

Frank J. Williams

 

Fiscal 2011 annual incentive compensation

 

 

Factors Considered in Award

 

 

Fiscal 2012 annual incentive compensation

 

Factors to Be Considered in Award

 

 

 

Long-term incentive compensation.  A significant portion of total direct compensation to our named executive officers is long-term incentive compensation, which includes stock-based awards. While there is no specific targeted mix between annual and long-term compensation by individual executive position, we do vary the mix by executive seniority level. In general, as executive seniority levels increase, more weight is placed on stock-based compensation and retention. Compensation of this nature creates commonality of interest between the named executive officers and our stockholders and helps ensure that the named executive officers benefit from increases in the value of the company’s stock. Grants of stock-based awards also serve as an important tool for retaining our named executive officers. The majority of our grants of stock-based awards vest solely based on the passage of time, and vesting is contingent upon continued employment with us. While we do not target a specific allocation between cash and non-cash compensation, or between annual and long-term compensation by position, the Compensation Committee referred to benchmarks and other publicly available data in determining allocations between cash and non-cash compensation and annual and long-term compensation. We evaluate each component of compensation together with total overall compensation and consider internal factors that may cause us to target a particular element of an executive’s compensation for specific treatment. These internal factors include the executive’s operating responsibilities, management level, and unique contribution for the period in question.

 

Our stock-based incentive compensation plan generally includes the use of stock options and restricted stock units, or “RSUs.” Stock options provide the holder with a strong performance-based incentive since the value of a stock option depends upon an increase in our stock price from the price on the date of grant. The fair value of an RSU fluctuates with the upward or downward movements in stock price, which serves to align management’s interest with those of stockholders while at the same time creating more stability by providing an incentive for holders of RSUs to remain with the company even if our stock price declines after the date of the grant. Generally, our stock-based compensation awards vest 25% per year beginning one year from the date of grant. With vesting typically occurring over four years, the value of a stock-based award may only be realized by the executive so long as the executive’s employment with the company continues, creating a strong retention incentive.

 

Grants of stock-based awards to our named executive officers are generally made as part of a broad grant to other company employees, which occurs annually (typically in the first half of the calendar year). The timing of the annual grants is generally dictated by the timing of the completion of performance reviews and the timing of decisions regarding other forms of direct compensation. We do not have any program, plan, or practice to time such awards in coordination with the release of material non-public information. Stock-based awards are made under the terms of the company’s stock incentive plans and are granted with an exercise or base price equal to the closing price of our common stock on the date of grant, as reported on the NASDAQ Global Select Market.

 

The Compensation Committee or the full Board reviews with our chief executive officer and our chief talent officer the annual grant recommendations for named executive officers and other company employees in advance of the grant date. Based on these discussions, our chief executive officer provides final grant recommendations to the Compensation Committee for approval within approximately thirty days after the initial meeting with the Compensation Committee or the full Board. The Compensation Committee may accept, reject, or modify the chief executive officer’s recommendations in its discretion. The Committee

accepted the chief executive officer’s recommendations for awards made in fiscal 2011. The grant date is the date of approval of the awards by our Compensation Committee or the Board. The Board has delegated the authority to our chief executive officer to grant a limited number of stock-based awards to employees, other than our named executive officers, between meetings of the Board or of the Compensation Committee in accordance with guidelines established by the Compensation Committee. The grant date for all interim awards is the date of approval by the Compensation Committee, the Board, or the chief executive officer pursuant to delegated authority, as applicable.

 

Stock-based awards were made to each of the named executive officers in April 2010 at the same time as the annual broad grant to other company employees. In determining these equity awards, the Compensation Committee took into account the awards to similar executives within our peer group of companies; the CEO’s recommendations (for all officers other than himself) based on a thorough evaluation of each individual’s performance and the importance of the executive’s long-term retention; each executive’s total compensation; and the impact on the company’s overall equity plan and number of shares outstanding. Based on these considerations, the Compensation Committee awarded stock-based compensation to each executive, as outlined below. The Company calculates the fair value of all stock option awards on the date of grant using the Black-Scholes model, while the fair value of RSUs is based on the grant date closing price of the Company’s common stock of $33.16, as reported on the The NASDAQ Global Select Stock Market.

 

 

All awards above vest in four equal annual installments. In addition to the awards set forth above, Mr. Williams was awarded stock options to purchase 45,000 shares of common stock that vest on April 29, 2013 (with an additional grant date value of $441,900, calculated using the lattice option-pricing model for awards with market-based conditions), subject to the company achieving specified compounded annual growth rates with respect to its stock price, as set forth below:

 

 

The Compensation Committee believes that the company’s goal of aligning the interests of our named executive officers is better achieved by ensuring that those officers maintain a meaningful stake in the equity of the company. Therefore, to facilitate this alignment the Compensation Committee adopted in March 2011 stock ownership guidelines requiring executive officers and non-employee directors to own specified amounts of common stock (which may include unvested restricted stock units and deferred shares). Ownership requirements vary by position and are based on a multiple of each officer’s base salary or annual retainer, as set forth below. The guidelines, which became effective April 1, 2011, require individuals to be in compliance

by April 1, 2016 and to hold at least 25% of the net after tax share issuances from the vesting of any RSUs until the stock target ownership requirement is met.

 

 

The named executive officers participate in the same company-wide benefit plans designed for all of our full-time employees, including a limited number of company-sponsored insurance and other benefit plans. We presently believe that it is more cost- effective to pay members of the company’s senior management a highly competitive salary, bonus, and long-term incentive award than to maintain expensive retirement programs. We do not maintain a defined benefit plan.

 

Insurance Plans.  The core insurance package includes health, dental, disability, and basic group life insurance coverage generally available to all employees. The named executive officers are eligible to participate in our company-wide personal medical, dental, life, and disability insurance plans, and other broad-based benefit plans. Certain members of the company’s senior management, including the named executive officers, receive supplemental long-term disability coverage.

 

Retirement Plans.  We provide retirement benefits to executives through a 401(k) plan, which gives employees the opportunity to save for retirement on a tax-favored basis. Executives may elect to participate in the 401(k) plan on the same basis as all other employees. The company provides discretionary contributions in the range of 0% to 100% of an employee’s contribution, up to a maximum of 4% of the employee’s base salary. The percentage of the discretionary contribution is determined by the company after the end of the applicable plan year.

 

Executive Perquisites and Other Compensation.  Historically, we have kept the number and value of executive perquisites to a minimum. The perquisites that are provided to members of the company’s senior management (which includes our named executive officers) are limited to items that enable them to balance their personal, business, and travel schedules and to promote their continued good health. The incremental costs to us associated with providing each of these perquisites to the named executive officers was less than $10,000 for each named executive officer in fiscal 2011.

 

Section 162(m) of the Code limits deductibility of certain compensation to $1 million per year for the chief executive officer and the three other most highly paid executive officers (other than the chief financial officer) who are employed at year-end. If certain conditions are met, performance-based compensation may be excluded from this limitation. Stock options granted during fiscal 2011 are designed to qualify for exclusion from this limitation so as to be deductible. While other incentive awards under our stockholder-approved incentive plans could be designed to satisfy the conditions necessary for deductibility, the Compensation Committee may not structure all compensation arrangements to satisfy all of the conditions required under Section 162(m) because the Committee wishes to retain flexibility in the administration of our executive compensation programs.

 

In connection with the transition of Mr. Williams to executive chairman, Mr. Musslewhite’s promotion to chief executive officer, and Mr. Felsenthal’s promotion to president, each of which was effective on September 1, 2008, the company sought to renegotiate Mr. Williams’ then existing employment agreement, to renegotiate

agreements entered into in October 2001 with Mr. Felsenthal relating to the acceleration of vesting of his stock-based awards and potential payments upon termination of his employment, and, for purposes of the long-term retention of Mr. Musslewhite, to enter into an employment agreement with Mr. Musslewhite that provided to him some, but not all, of the same benefits and security provided to Messrs. Williams and Felsenthal in their agreements. Mr. Williams’ employment agreement was amended and restated effective as of September 10, 2010, when his prior employment agreement expired in accordance with its terms as of that date. The employment agreements with Messrs. Williams, Musslewhite, and Felsenthal are discussed in further detail below in the “Executive Compensation” section of this proxy statement under “Employment Agreements and Arrangements.”

 

The employment agreements of Messrs. Williams, Musslewhite, and Felsenthal provide severance payments and other benefits in the event the company terminates their employment without cause or the executive terminates his employment with us for good reason. In the event of a change of control of the company, each of their employment agreements only provides benefits upon a so-called “double trigger.” This means that severance benefits are triggered only when the executive is involuntarily terminated by the company without cause or the executive terminates employment for good reason after the change of control.

 

We believe that protections, in the event of a termination without cause or in circumstances that constitute good reason under the terms of the employment agreement of those officers eliminate potential and unnecessary uncertainty in connection with the occurrence or potential occurrence of a change of control of the company. This uncertainty results from the fact that many change of control transactions result in significant organizational changes, particularly at the senior executive level. In order to encourage these named executive officers to remain employed with us during an important time when their prospects for continued employment following the transaction may be uncertain, we provide each of these named executive officers with severance benefits in the event that the executive’s employment terminates in connection with a change of control.

 

The change of control protection benefits provided to Messrs. Musslewhite and Felsenthal in their employment agreements include reimbursement for the full amount of any excise taxes imposed under Section 4999 of the Internal Revenue Code. However, this excise tax gross-up will not be made if the total amount of such change of control protection benefits exceeds the threshold by which such excise tax is triggered by $50,000 or less. Under these circumstances, the executive’s severance benefits will be reduced to the extent necessary to avoid excise tax triggers. In providing this protection to Messrs. Musslewhite, and Felsenthal, the Compensation Committee carefully considered concessions made by these officers in their respective employment agreement negotiations and the fact that certain other companies provide tax-gross up protections following a change of control to one or more of their named executive officers.

 

The specific severance benefits payable to our named executive officers are set forth below under “Potential Payments Upon Termination or Change of Control.”

 

Effective July 2009, our Compensation Committee adopted a policy that restricts the company from entering into any future agreement that provides an executive officer with a severance payment following a change of control of the company, except in the case of a double trigger termination event. The policy also restricts the company from entering into any future agreement that provides an executive officer with the right to receive excise tax gross-ups following a change of control, except in unusual circumstances where the Compensation Committee believes that accommodations have to be made to recruit a new executive officer to the company. In those circumstances, the excise tax gross-up will be limited to a double trigger termination event and will be subject to a three-year sunset provision that will result in the termination of the excise tax gross-up if an employment termination does not occur within three years of the change of control. In addition, under the policy any future agreement providing for severance payments following a change of control of the company will utilize a definition of “change of control” that is triggered only if an enumerated transaction actually is consummated or occurs, instead of being triggered solely by the announcement of or stockholder approval of any such transaction or event.

 

The following table presents certain information concerning compensation awarded or earned for services rendered for fiscal 2011, 2010, and 2009 by our named executive officers:

 

 

 

 

The following table sets forth information regarding annual incentive compensation, or cash bonuses, and grants of stock options and RSUs to the named executive officers in fiscal 2011 under our stock incentive plans:

 

 

 

 

Robert W. Musslewhite

 

We entered into an employment agreement with Mr. Musslewhite in connection with his promotion from executive vice president to chief executive officer of the company, effective as of September 1, 2008. Mr. Musslewhite’s employment agreement has a four-year term that will renew automatically on an annual basis unless the company or Mr. Musslewhite provides notice of nonrenewal at least one year prior to the last day of the term. Following a change of control, the term of the agreement will continue for the longer of the remainder of the initial four-year term or the first anniversary of the change of control, and will thereafter renew automatically on an annual basis unless the company or Mr. Musslewhite provides notice of nonrenewal no later than one year prior to the last day of the then-current term. The employment agreement provides for an initial annual salary of $500,000. Mr. Musslewhite is also entitled to receive awards under the company’s stock incentive plans at the discretion of the Board or the Compensation Committee.

 

During his employment with us and for two years following the termination of his employment, Mr. Musslewhite will be subject to certain non-solicitation and non-competition restrictions.

 

David L. Felsenthal

 

In connection with Mr. Felsenthal’s promotion to president of the company, the company and Mr. Felsenthal entered into an employment agreement effective as of September 1, 2008. Mr. Felsenthal’s employment agreement has a four-year term that will renew automatically on an annual basis unless the company or Mr. Felsenthal provides notice of nonrenewal at least one year prior to the last day of the term. The employment agreement provides for an initial annual salary of $425,000. Mr. Felsenthal is also entitled to receive awards under the company’s stock incentive plans at the discretion of the Board or the Compensation Committee.

 

In October 2001, the company entered into an agreement with Mr. Felsenthal concerning exclusive services, confidential information, business opportunities, noncompetition, non-solicitation and work product, which was substantially similar to the terms of the agreements between the company and Messrs. Coulter, Kirshbaum, and Schwartz described below. Mr. Felsenthal’s employment agreement amended that October 2001 agreement between the company and Mr. Felsenthal to provide that, during his employment with us and for two years following the termination of his employment, Mr. Felsenthal would be subject to certain non-solicitation and non-competition provisions without any payment in addition to those provided for in Mr. Felsenthal’s employment agreement in connection with the termination of his employment.

 

Frank J. Williams

 

Effective September 1, 2008, the company entered into an employment agreement with Mr. Williams for his employment as executive chairman. On November 3, 2010, the company entered into an amended and restated employment agreement (the “amended agreement”) with Mr. Williams for his employment as executive chairman. The amended agreement replaced and superseded the employment agreement, dated as of September 12, 2008 (the “original agreement”), between the company and Mr. Williams, effective as of September 10, 2010, which is the date on which the original agreement expired in accordance with its terms. The amended agreement provides for a one-year term that will end on the later of August 31, 2011 or the date of the company’s 2011 annual meeting of stockholders, subject to renewal upon mutual agreement of the company and Mr. Williams. No changes to Mr. Williams’ compensation were made in the amended agreement. Pursuant to the terms of the amended agreement, Mr. Williams is entitled to receive an annual base salary of $400,000 and will continue to be eligible to participate in the company’s annual incentive compensation plan.

 

The other terms of the amended agreement are substantially the same as the terms of the original agreement, except that some provisions of the original agreement either were not included or were modified in the amended agreement to be consistent with the policy adopted by the company’s Compensation Committee in July 2009 described in the Compensation Discussion and Analysis section of this proxy statement under the

heading “Compensation Committee Policy Regarding Change of Control Severance Payments.” Accordingly, consistent with that policy, the amended agreement:

 

 

During his employment with us and for two years following the termination of his employment, Mr. Williams will be subject to certain non-solicitation and non-competition restrictions.

 

The following table sets forth information regarding the number of shares of unexercised stock options and the number of shares and the value of unvested RSUs held by the named executive officers at March 31, 2011.