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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrantý | ||
Filed by a Party other than the Registranto | ||
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o | Preliminary Proxy Statement | |
o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
ý | Definitive Proxy Statement | |
o | Definitive Additional Materials | |
o | Soliciting Material under §240.14a-12 |
KAR AUCTION SERVICES, INC. | ||||
(Name of Registrant as Specified In Its Charter) | ||||
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) | ||||
Payment of Filing Fee (Check the appropriate box): | ||||
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o | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | |||
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(2) | Aggregate number of securities to which transaction applies: | |||
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | |||
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o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | |||
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(4) | Date Filed: |
Notice of Annual Meeting
and
Proxy Statement
Annual Meeting of Stockholders
June 8, 2016
13085 Hamilton Crossing BoulevardCarmel, Indiana 46032
April 29, 201428, 2016
Dear Fellow Stockholder:
WeI would like to cordially invite you to attend KAR Auction Services'Services, Inc.'s ("KAR" or the "Company") annual meeting of stockholders. The meeting will be held on June 10, 2014,8, 2016, at 9:00 a.m., Eastern Daylight Time, at the RenaissanceConrad Indianapolis, North Hotel, 11925 North Meridian50 West Washington Street, in Carmel,Indianapolis, Indiana 46032.46204.
As a KAR Auction Services stockholder, your vote is important. AtThe matters to be acted upon are described in the notice of annual meeting of stockholders will vote on a number of important matters.and the proxy statement. Even if you are planning to attend the annual meeting in person, you are strongly encouraged to vote your shares through one of the methods described in the enclosed proxy statement. Please take the time
I am pleased to carefully read eachreport that 2015 was an excellent year for KAR. We met or exceeded our key financial targets and delivered solid year-over-year growth in total vehicles sold, revenues, adjusted EBITDA and adjusted net income. As an established market leader with an experienced management team, we believe that we are well-positioned to continue driving growth with solid operating performance and disciplined capital investments.
We have a comprehensive capital allocation plan for increasing stockholder value. We are focused on return of the proposals describedcapital to our stockholders and accretive investments in the attached proxy statement. The Boardbusiness, including the acquisition of Directors would appreciate your support on our recommendations forphysical auctions and new technology platforms, as well as enhancing current technologies. In 2015, we announced the following proposals:
I would like to express our independent registered public accounting firm for 2014.
This year we are pleased to take advantage of the Securities and Exchange Commission rules that allow issuers to furnish proxy materials to their stockholders on the Internet. We believe these rules allow us to provide you with the information you need while lowering the costs of delivery and reducing the environmental impact of our annual meeting. The proxy statement contains instructions on how you can request a paper copy of the proxy statement and annual report.
Thank youappreciation for your continued support of KAR Auction Services.KAR.
Sincerely,
James P. Hallett
Chairman of the Board and
Chief Executive Officer
This proxy statement is dated April 29, 201428, 2016 and is first being distributed to stockholders on or about April 29, 2014.28, 2016.
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13085 Hamilton Crossing Boulevard
Carmel, Indiana 46032
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS |
Time and Date | 9:00 a.m., Eastern Daylight Time, on June | |
Place | ||
Items of Business | Proposal No. 1: To elect | |
Proposal No. 2: | ||
Proposal No. | ||
To transact any other business as may properly come before the meeting or any adjournments or postponements thereof. | ||
Record Date | You are entitled to vote at the annual meeting and at any adjournments or postponements thereof if you were a stockholder of record at the close of business on April | |
Voting by Proxy | Please submit your proxy card as soon as possible so that your shares can be voted at the annual meeting in accordance with your instructions. For specific instructions on voting, please refer to the instructions on your enclosed proxy card. | |
On Behalf of the Board of Directors, | ||
April Carmel, Indiana | Rebecca C. Polak Executive Vice President, General Counsel and Secretary |
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Notice of Internet Availability of Proxy Materials for the Annual Meeting
The proxy statement for the Annual Meetingannual meeting and the Annual Reportannual report to Stockholdersstockholders for the fiscal year ended December 31, 2013,2015, each of which is being provided to stockholders prior to or concurrently with this notice, are also available to you electronically via the Internet. We encourage you to review all of the important information contained in the proxy materials before voting. To view the proxy statement and Annual Reportannual report to Stockholdersstockholders on the Internet, visit the "Investor Relations" sectionpage of our website, under the "Proxy Statement"Material" link at www.karauctionservices.com.www.karauctionservices.com.
TABLE OF CONTENTS |
PROXY STATEMENT SUMMARY | 1 | |
ANNUAL MEETING OF STOCKHOLDERS | 1 | |
ITEMS TO BE VOTED ON AT ANNUAL MEETING OF STOCKHOLDERS | 1 | |
KAR AUCTION SERVICES 2015 HIGHLIGHTS | 3 | |
ELECTION OF DIRECTORS: PROPOSAL NO. 1 | 7 | |
DIRECTORS ELECTED ANNUALLY | 7 | |
DIRECTOR INDEPENDENCE | 7 | |
BOARD NOMINATIONS AND DIRECTOR NOMINATION PROCESS | 7 | |
DIVERSITY | 8 | |
INFORMATION REGARDING THE NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS | 8 | |
BOARD OF DIRECTORS STRUCTURE AND CORPORATE GOVERNANCE | 18 | |
ROLE OF THE BOARD OF DIRECTORS | 18 | |
BOARD LEADERSHIP | 18 | |
BOARD OF DIRECTORS MEETINGS AND ATTENDANCE | 19 | |
COMMITTEES OF THE BOARD OF DIRECTORS | 19 | |
BOARD OF DIRECTORS' RISK OVERSIGHT | 21 | |
CORPORATE GOVERNANCE DOCUMENTS | 22 | |
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION | 22 | |
COMMUNICATIONS WITH THE BOARD OF DIRECTORS | 22 | |
EXECUTIVE SESSIONS | 23 | |
DIRECTOR COMPENSATION | 24 | |
BENEFICIAL OWNERSHIP OF THE COMPANY'S COMMON STOCK | 27 | |
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE | 28 | |
AMENDMENT AND RESTATEMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION: PROPOSAL NO. 2 | 29 | |
PROPOSAL | 29 | |
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM: PROPOSAL NO. 3 | 30 | |
PROPOSAL | 30 | |
REPORT OF THE AUDIT COMMITTEE | 31 | |
FEES PAID TO KPMG LLP | 32 |
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 32 | |
COMPENSATION DISCUSSION AND ANALYSIS | 33 | |
OVERVIEW | 33 | |
EXECUTIVE SUMMARY | 34 | |
COMPENSATION PHILOSOPHY AND OBJECTIVES | 38 | |
THE ROLE OF THE COMPENSATION COMMITTEE AND THE EXECUTIVE OFFICERS IN DETERMINING EXECUTIVE COMPENSATION | 38 | |
ELEMENTS USED TO ACHIEVE COMPENSATION PHILOSOPHY AND OBJECTIVES | 40 | |
COMPENSATION POLICIES AND OTHER INFORMATION | 49 | |
RESULTS OF SAY ON PAY VOTES AT 2014 ANNUAL MEETING | 51 | |
COMPENSATION COMMITTEE REPORT | 51 | |
ANALYSIS OF RISK IN THE COMPANY'S COMPENSATION STRUCTURE | 52 | |
SUMMARY COMPENSATION TABLE FOR 2015 | 53 | |
GRANTS OF PLAN-BASED AWARDS FOR 2015 | 55 | |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2015 | 56 | |
OPTION EXERCISES DURING FISCAL YEAR 2015 | 58 | |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL | 59 | |
EQUITY-BASED AWARDS—STOCK INCENTIVE PLAN AND OMNIBUS PLAN | 59 | |
ANNUAL CASH INCENTIVE AWARDS—OMNIBUS PLAN | 61 | |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL—TABLE | 62 | |
EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS | 64 | |
CERTAIN RELATED PARTY RELATIONSHIPS | 68 | |
REVIEW AND APPROVAL OF TRANSACTIONS WITH RELATED PERSONS | 68 | |
REQUIREMENTS, INCLUDING DEADLINES, FOR SUBMISSION OF PROXY PROPOSALS | 69 | |
NOMINATION OF DIRECTORS AND OTHER BUSINESS OF STOCKHOLDERS | 69 | |
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING | ||
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This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement before voting. For more complete information regarding the Company's 20132015 performance, please review the Company's Annual Report on Form 10-K for the year ended December 31, 2013.2015.
Date and Time: | 9:00 a.m., Eastern Daylight Time, on June | |
Location: | Conrad Indianapolis, | |
Record Date: | ||
| Stockholders of record as of the close of business on | |
| KAR | |
Registrar and Transfer Agent: | American Stock Transfer & Trust Company, LLC |
ITEMS TO BE VOTED ON AT ANNUAL MEETING OF STOCKHOLDERS |
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Proposal | Board of Directors' Recommendation | Page | ||||
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1. | Election of each of the nine director nominees | FOR | 7 | |||
2. | Amendment and restatement of the Company's Amended and Restated Certificate of Incorporation to provide that stockholders may remove any director from office, with or without cause, and other ministerial changes | FOR | 29 | |||
3. | Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for 2016 | FOR | 30 |
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Board Nominees (pages 8-17)
Name | Age | Director Since | Independent | Primary Occupation | Committee Membership*** | |||||
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Todd F. Bourell | 46 | 2015 | Yes | Managing Partner of WLJ Capital, LLC | NCGC | |||||
Donna R. Ecton | 69 | 2013 | Yes | Chairman and Chief Executive Officer of EEI Inc. | CC (Chair), AC | |||||
James P. Hallett* | 63 | 2007 | No | Chairman of the Board and Chief Executive Officer of KAR | — | |||||
Mark E. Hill | 60 | 2014 | Yes | Managing Partner of Collina Ventures, LLC | NCGC (Chair), RC | |||||
J. Mark Howell | 51 | 2014 | Yes | Chief Operating Officer of Angie's List, Inc. | RC (Chair), CC | |||||
Lynn Jolliffe | 64 | 2014 | Yes | Human Capital and Talent Management Consultant | AC, CC | |||||
Michael T. Kestner | 62 | 2013 | Yes | Building Products and Automotive Industry Consultant | AC (Chair), RC | |||||
John P. Larson** | 53 | 2014 | Yes | Chief Executive Officer of Bestop, Inc. | CC, RC | |||||
Stephen E. Smith | 67 | 2013 | Yes | Automotive Industry Consultant | AC, NCGC |
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DespiteFor the impact of Superstorm Sandy on our salvage auction business,year ended December 31, 2015, KAR Auction Services, Inc. (the "Company," "KAR" or "KAR Auction Services") again delivered solid growth in volume of total vehicles sold, revenues, and Adjusted EBITDA. Adjusted EBITDA is a non-GAAP measure and is defined and reconciled to the GAAP measure, net income (loss), in our Annual Report on Form 10-K for the year ended December 31, 2013 in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—adjusted EBITDA and Adjusted EBITDA."
adjusted net income. Specific highlights for fiscal 20132015 included:
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Corporate Governance
(pages 18-23)
We are committed to high standards of ethical and business conduct and strong corporate governance practices. This commitment is highlighted by the practices described below as well as the information contained on our website atwww.karauctionservices.com on the "Investor Relations" page under the link "Corporate Governance":
Annual Elections: Our directors are elected annually for one year terms.
Majority Voting:
Director Independence: Eight of our tennine director nominees are independent, and all committees of our Board of Directors' committeesDirectors are comprised entirely of independent directors.
Board Leadership:
Board Diversity: Twenty percent of our Board of Directors is comprised of women.
Robust Equity Ownership Requirements: In 2015, we adopted stock ownership guidelines that are applicable to our non-employee directors. The stock ownership guideline for our non-employee directors is three times their annual base cash retainer.
Robust Equity Retention Requirement: In 2015, we adopted an equity retention requirement that is applicable to non-employee directors. All shares of our common stock granted on and after January 1, 2014 must be held for four years after the grant while serving as a director, regardless of whether the stock ownership guideline has been met. All shares of our common stock granted on and after January 1, 2014 must be held for six months after service as a director has ended with the Company.
Board of Directors Risk Oversight: OurIn July 2015, the Board of Directors established a Risk Committee of the Board of Directors to assist the Board of Directors in its oversight of:
The Risk Committee provides oversight with respect to risk practices implemented by management, except for the oversight of risks that have been specifically delegated to aanother committee of the Board of Directors (in which case the Board of DirectorsRisk Committee may maintain oversight over such risks through the receipt of reports from thesuch committees). The Audit Committee maintains initial oversight over risks related to the integrity of our financial statements; internal controls over financial reporting and disclosure controls and procedures (including the performance of our internal audit function); the performance of the independent auditor; and oversees our responses to ethics issues arising from our whistleblower hotline. The Compensation Committee maintains oversight over risks related to our compensation practices. The Nominating and Corporate Governance Committee monitors potential risks relating to the effectiveness of the Board of Directors, notably director succession, composition of the Board of Directors and the principal policies that guide our governance.
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outstanding common stock. As of June 6, 2013, KAR LLC ceased
Executive Compensation (pages 33-67)
We maintain a compensation program structured to holdachieve a majority of our outstanding common stockclose connection between executive pay and Company performance. We believe that this strong pay-for-performance orientation has served us well in recent years, particularly as of the date of this proxy statement, does not hold any shares of our common stock. Accordingly, we are no longer a controlled company, and we continue to evaluate our corporate governance structure in light of such transition. We currently have a majority of independent directors under the NYSE standards and each of our committees is comprised entirely of independent directors. See "Board of Directors Structure and Corporate Governance."
During the past five years, includingwe've moved forward following the sale by our former equity sponsors of all of their holdings of our common stock in 2013, we have maintained a compensation program structured to achieve close connection between executive pay and company performance.
2013. For more information regarding our named executive officer compensation, see "Compensation Discussion and Analysis" and the compensation tables that follow.follow such section.
WE DO:
✔ | | Pay for performance alignment: Historically, we have demonstrated close alignment between our total stockholder return (TSR) performance and the compensation of our Chief Executive Officer, as shown in the chart on page 36. | | ✔ | | Pay for performance: The equity awards granted to our named executive officers in 2015 and in 2016 are heavily performance-based, including restricted stock units that vest based on achievement of adjusted earnings per share and net income goals. |
✔ | | Independent Compensation Committee: All of the members of our Compensation Committee are independent under NYSE rules. | | ✔ | | Maximum payout caps for annual cash incentive compensation and performance restricted stock units (PRSUs). |
✔ | | Moderate change-in-control benefits: Change-in-control severance benefits are two times base salary and target bonus for the CEO and one times base salary and target bonus for the other executive officers. | | ✔ | | Independent compensation consultants: In 2015, our Compensation Committee engaged Semler Brossy Consulting Group LLC as its independent compensation consultant. |
✔ | | Clawback of certain compensation if restatement and intentional misconduct: Our clawback policy provides for the recovery of incentive compensation in the event we are required to prepare an accounting restatement due to such executive officer's intentional misconduct. | | ✔ | | Robust equity retention requirement: In 2015, we adopted an equity retention requirement that is applicable to senior executives, including our named executive officers. Our named executive officers are required to hold 100% of net shares of Company stock received under awards granted on or after January 1, 2015 for at least 12 months after vesting, regardless of whether the stock ownership guideline has been met. |
✔ | | Robust equity ownership requirements: In 2015, we adopted stock ownership guidelines that are applicable to senior executives, including our named executive officers. The stock ownership guideline for our CEO is five times his annual base salary. | | |
WE DO NOT:
✘ | | Allow dividends or dividend equivalents to be paid on unvested PRSUs: Dividend equivalents are accrued but not paid on PRSUs until (i) the performance conditions are satisfied; and (ii) the PRSUs vest after the performance measurement period. | | ✘ | | Allow hedging of KAR securities: We prohibit the hedging of Company stock by our directors and officers. |
✘ | | Allow pledging of KAR securities: As part of our Insider Trading Policy, we prohibit the pledging of Company stock. | | ✘ | | Provide excessive executive perquisites: We provide only a limited number of perquisites to attract talented executives and to retain our current executives. |
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KAR AUCTION SERVICES, INC.13085 Hamilton Crossing BoulevardCarmel, Indiana 46032
PROXY STATEMENT
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALSAND THE ANNUAL MEETING
These shares include shares that are:
On the record date, KAR Auction Services had approximately 139,772,786 shares of common stock issued and outstanding.
Stockholder of Record. If your shares are registered directly in your name with the Company's transfer agent, American Stock Transfer & Trust Company, LLC, you are considered, with respect to those shares, the stockholder of record, and these proxy materials are being sent to you directly by KAR Auction Services. As the stockholder of record, you have the right to grant your voting proxy directly to the Company or to vote in person at the annual meeting. You may vote on the Internet, by telephone or by mail, as described below under the heading "How can I vote my shares without attending the annual meeting?"
Beneficial Owner. 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 or nominee who is considered, with respect to those shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker on how to vote your shares and are also invited to attend the annual meeting. To vote these shares in person at the annual meeting, you must obtain a signed proxy from the record holder giving you the right to vote the shares. You may also vote by Internet, by telephone or by mail, as described below under "How can I vote my shares without attending the annual meeting?"
Beneficial Owner. Shares held in street name may be voted in person by you only if you obtain an account statement or letter from your bank, broker or other nominee indicating that you are the beneficial owner of the shares and a legal proxy from the record holder giving you the right to vote the shares. The account statement or letter must show that you were the beneficial owner of shares on April 16, 2014, the record date.
If you vote on the Internet or by telephone, you do not need to return your proxy card or voting instruction card. Internet and telephone voting for stockholders will be available 24 hours a day, and will close at 11:59 p.m., Eastern Daylight Time, on June 9, 2014.
Beneficial Owners. If you are a beneficial owner of shares held in street name and do not provide the organization (e.g., broker or bank) that holds your shares in "street name" with specific voting instructions, the organization that holds your shares may generally vote on routine matters (Proposal No. 4 (ratification of auditor)) but cannot vote on non-routine matters (Proposal No. 1 (director elections), Proposal No. 2 (advisory vote on the compensation of our named executive officers) and Proposal No. 3 (approval of the amendment and restatement of the Omnibus Plan)). If the organization that holds your shares does not receive instructions from you on how to vote your shares on Proposals No. 1, 2 and 3, such organization will inform the inspector of election that it does not have the authority to vote on these matters with respect to your shares. This is generally referred to as a "broker non-vote." Therefore, we urge you to give voting instructions to your broker. Shares represented by such broker non-votes will be counted in determining whether there is a quorum. Because broker non-votes are not considered shares entitled to vote, they will have no effect on the outcome of any proposal other than reducing the number of shares present in person or by proxy and entitled to vote from which a majority is calculated.
other nominee may generally vote on routine matters, and therefore no broker non-votes are expected to exist in connection with Proposal No. 4.
The election of directors (Proposal No. 1), the advisory vote on the compensation of our named executive officers (Proposal No. 2) and the approval of the amendment and restatement of the Omnibus Plan (Proposal No. 3) are considered non-routine matters under applicable rules. A broker or other nominee cannot vote without instructions on non-routine matters, and therefore there may be broker non-votes on Proposal Nos. 1, 2 and 3.
The advisory approval of the compensation of our named executive officers, the approval of the amendment and restatement of the Omnibus Plan and the ratification of the appointment of our independent registered public accounting firm require the affirmative vote of a majority of the votes represented at the meeting and entitled to vote on the proposals. In accordance with Delaware law, only votes cast "FOR" a matter constitute affirmative votes. A properly executed proxy marked "abstain" with respect to the advisory approval of our executive compensation, the approval of the amendment and restatement of the Omnibus Plan and/or the ratification of the appointment of our independent registered public accounting firm will not be voted, although it will be counted for purposes of determining whether there is a quorum. Accordingly, with respect to Proposals Nos. 2, 3 and 4, abstentions will have the same effect as negative votes or votes "AGAINST" that matter. Broker non-votes will have no effect on Proposals Nos. 2 and 3.
Please note that your attendance at the annual meeting in person will not cause your previously granted proxy to be revoked unless you vote in person at the annual meeting to revoke your proxy. If you wish to revoke your proxy, you must do so in sufficient time to permit the necessary
examination and tabulation of the subsequent proxy or revocation before the vote is taken. Shares held in street name may be voted in person by you at the annual meeting only if you obtain a signed proxy from the record holder giving you the right to vote the shares.
In addition, if you currently are a stockholder who shares an address with another stockholder and would like to receive only one copy of future notices and proxy materials for your household, you may notify your broker if your shares are held in a brokerage account or you may notify us if you hold registered shares. Registered stockholders may notify us by contacting Broadridge Financial Solutions, Inc. at the above telephone number or address.
ELECTION OF DIRECTORS: PROPOSAL NO. 1 |
DIRECTORS ELECTED ANNUALLY |
Our Board of Directors has nominated the tennine individuals named below to stand for election to the Board of Directors at the annual meeting. Messrs. Ament, Finlayson, Goldberg, Moore, O'Brien and Ward,Mr. Formanek, who currently serveserves on our Board of Directors, areis not standing for re-election at the annual meeting. KAR Auction Services'In connection with Mr. Formanek's retirement from the Board of Directors, the Board of Directors has approved by resolution to decrease of the size of the Board of Directors from ten directors to nine directors effective at the annual meeting. The Company's directors are elected each year by the stockholders at the annual meeting. We do not have a staggered or classified board. Each director's term will last until the 20152017 annual meeting of stockholders and until such director's successor is duly elected and qualified, or such director's earlier death, resignation or removal. Directors are elected byEach director nominee must receive the affirmative vote of a pluralitymajority of the votes cast in the election of directors at the annual meeting.meeting to be elected (i.e., the number of shares voted "FOR" a director nominee must exceed the number of votes cast "AGAINST" such nominee).
DIRECTOR INDEPENDENCE |
The Board of Directors is responsible for determining the independence of our directors. Under the NYSE listing standards, a director qualifies as independent if the Board of Directors affirmatively determines that the director has no material relationship with us. While the focus of the inquiry is independence from management, the Board is required to broadly consider all relevant facts and circumstances in making an independence determination. Based upon its evaluation, our Board has affirmatively determined that the following directors and director nominees meet the standards of "independence" established by the NYSE: David J. Ament, Ryan M. Birtwell,Todd F. Bourell, Donna R. Ecton, Robert M. Finlayson, Peter R. Formanek, Michael B. Goldberg, Mark E. Hill, J. Mark Howell, Lynn Jolliffe, Michael T. Kestner, John P. Larson Church M. Moore,and Stephen E. SmithSmith. James P. Hallett, our Chief Executive Officer and Jonathan P. Ward. Brian T. Clingen, our Chairman of the Board, James P. Hallett, our CEO, and Thomas C. O'Brien, CEO of IAA, areis not an independent directors.
director.Board Nominations and Director Nomination Process
BOARD NOMINATIONS AND DIRECTOR NOMINATION PROCESS |
The Board of Directors is responsible for nominating members for election to the Board of Directors and for filling vacancies on the Board of Directors that may occur between the annual meetings of stockholders. The Nominating and Corporate Governance Committee is responsible for identifying, screening and recommending candidates to the Board of Directors for board membership. When formulating its Board of Directors membership recommendations, the Nominating and Corporate Governance Committee may also consider advice and recommendations from others, including stockholders, as it deems appropriate.
Board candidates also are selected based upon various criteria including experience, skills, expertise, diversity, personal and professional integrity, character, business judgment, time availability in light of other commitments, dedication, conflicts of interest and such other relevant factors that the Nominating and Corporate Governance Committee considers appropriate in the context of the needs of the Board of Directors. Board members are expected to prepare for, attend and participate in all Board of Directors and applicable committee meetings and the Company's annual meetings of stockholders.
In accordance with its charter, the Board of Directors also considers candidates for election as a director of the Company recommended by any stockholder, provided that the recommending stockholder follows the procedures set forth in Section 5 of the Company's Second Amended and Restated By-Laws for nominations by stockholders of persons to serve as directors, including the requirements of timely notice and certain information to be included in such notice. The Board of Directors generally evaluates such candidates in the same manner by which it evaluates other director candidates considered by the Board of Directors.
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An employment agreement entered into on February 27, 2012, between the Company and James P. Hallett, the Company's CEO and Chairman of the Board, provides that Mr. Hallett shall be entitled to serve as a member of the Board of Directors for so long as the employment agreement is in effect.
Previously, KAR LLC had the right to directly nominate individuals to our Board of Directors for so long as KAR LLC owned at least 5% of our outstanding common stock pursuant to a director designation agreement entered into in connection with the Company's initial public offering. See "Certain Related Party Relationships—Historical Transactions with Former Equity Sponsors—Director Designation Agreement." During 2013, KAR LLC sold all if its shares of Company common stock in a series of transactions, and accordingly, KAR LLC's director nomination rights have terminated and are of no further effect.
DIVERSITY |
The Nominating and Corporate Governance Committee and the Board of Directors believe that diversity along multiple dimensions, including opinions, skills, perspectives, personal and professional experiences and other differentiating characteristics, is an important element of its nomination recommendations. The Nominating and Corporate Governance Committee has not identified any specific minimum qualifications which must be met for a person to be considered as a candidate for director. However, Board candidates are selected based upon various criteria including experience, skills, expertise, diversity, personal and professional integrity, character, business judgment, time availability in light of other commitments, dedication, conflicts of interest and such other relevant factors that the Nominating and Corporate Governance Committee considers appropriate in the context of the needs of the Board of Directors. Although the Board of Directors does not have a formal diversity policy, the Nominating and Corporate Governance Committee and Board of Directors review these factors, including diversity, in considering candidates for board membership.
Information Regarding the Nominees for Election to the Board of Directors
INFORMATION REGARDING THE NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS |
The following information is furnished with respect to each nominee for election as a director. SevenAll of the nominees are currently directors. Each of the nominees has consented to being named in this proxy statement and to serve as a director if elected. If a nominee is unavailable to serve as a director, your proxies will have the authority and discretion to vote for another nominee proposed by the Board of Directors or the Board of Directors may reduce the number of directors to be elected at the annual meeting. The ages of the nominees are as of the date of the annual meeting, June 10, 2014.8, 2016.
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Todd F. Bourell
| Independent Director since June Age: 46 Current Board Committee: | |
•
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• Partner/Analyst at ValueAct Capital, LLC, a privately held hedge fund, from May 2001 to December 2014. • Global Industry Analyst at Wellington Management • Partner/Analyst at Peak Investment L.P., a private investment firm, from July 1994 to July 1998. • Served as ValueAct Capital, • Graduate of Harvard College and |
Skills and Qualifications
✔ | ||
✔ | Background provides perspective on institutional investors' approach to company performance, capital allocation and corporate governance. | |
✔ | Extensive knowledge of IAA's business as a former owner (through ValueAct Capital, LLC) and board member on IAA's board of directors. | |
✔ | Public company board experience. |
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Donna R. Ecton
Current Board Committees: | ||
• Chairman and Chief Executive Officer of EEI Inc., a management consulting firm she founded in July • Director (1994 to 1998) and Chief Operating Officer • Chief Executive Officer of • Held senior corporate management positions at Nutri/System, Inc., Campbell Soup Company and Nordemann Grimm, Inc. • Began career in banking at Chemical Bank and Citibank N.A. in New York City, running the Upper Manhattan middle market lending business and midtown Manhattan's retail banks. • Previous public company board of director positions have included Mellon Bank Corporation and Mellon Bank N.A., Mellon PSFS, H&R Block, Inc., Tandy Corporation, Barnes Group Inc. and Vencor, Inc. • Elected to and served on the Harvard University's Board of Overseers. • Member of the • Serves on the NYSE Governance Services Advisory Council. • Graduate of Other Current Public Company Directorships: Director of CVR GP, LLC, the general partner of CVR Partners, LP, a nitrogen fertilizer business, since March 2008. Other Public Company Directorships in Last Five Years: Former Director and Non-Executive Chairman of the Board of Body Central Corp. | ||
Table of ContentsSkills and Qualifications
✔ | Experience in running multiple location businesses not only in the U.S., but also in Canada, the U.K. and Australia. | |
✔ | Significant strategy and risk assessment experience developed in her roles as a management consultant and as a senior executive of multiple companies. | |
✔ | Substantial financial experience gained in her roles as CEO, COO and other senior executive positions. | |
✔ | Current and prior service on the board of directors of public companies, including several committee chair roles, provides additional perspective to our Board of Directors. |
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James P. Hallett
Chairman of the Board and Chief Executive Officer | Career Highlights • Chairman of the Company since December 2014 and Chief Executive Officer since September 2009. • Chief Executive Officer and President of ADESA from April 2007 to September 2009. • President of Columbus Fair Auto Auction, a large independent automobile auction located in Columbus, Ohio, from May 2005 to April 2007. • After selling his auctions to ADESA in 1996, Mr. • Founded and owned two automobile auctions in Canada from 1990 to 1996. • Graduate of Algonquin College. • Managed and then owned a • Winner of multiple industry awards, including NAAA Pioneer of the Year in 2008. • Recognized as the EY Entrepreneur of the Year 2014 National Services Award Winner and one of Northwood University's 2015 Outstanding Business Leaders. |
Skills and Qualifications
✔ | Committed and deeply engaged leader with over 20 years of experience in key leadership roles throughout the Company and over 35 years of experience in the industry. | |
✔ | As Chief Executive Officer, Mr. | |
✔ | Utilizes strong communication skills to guide Board discussions and keep our Board of Directors apprised of significant developments in our business and industry; including our risk management practices, strategic planning and development. |
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Mark E. Hill
Current Board Committees: | Career Highlights • Managing Partner of Collina Ventures, LLC, a private investment company that invests in software and technology • Co-founder and Chairman of Bluelock, LLC, a privately held infrastructure as a services company, since 2006. • Co-Founder, President and Chief Executive Officer of Baker Hill Corporation, • Graduate of the Other Current Public Company Directorships: Lead Independent Director of Interactive Intelligence Group, Inc., a global software business, since |
Skills and Qualifications
✔ | Significant executive leadership and | |
✔ | Extensive experience as an investor and mentor to numerous early stage software and technology companies provides entrepreneurial perspective to the | |
✔ | Key leadership experience in numerous central Indiana business and community service organizations, including TechPoint, the Central Indiana Community Foundation, the Orr Fellowship and the local Teach For America board. | |
✔ | Public company board experience, including serving as a lead independent director. |
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J. Mark Howell
Current Board Committees: | • Chief Operating Officer of Angie's List, Inc., a publicly-traded, United States-based, leading consumer web services business connecting more than three million consumers to • President, Ingram Micro North America Mobility of Ingram Micro Inc., a technology distribution company, from 2012 to 2013. • President, BrightPoint Americas of BrightPoint, Inc., a distributor of mobile devices for phone companies, including Chief Operating Officer, Executive Vice President and Chief Financial Officer, from 1994 to 2012. BrightPoint, Inc. was sold to Ingram Micro Inc. in 2012. • Vice President and Corporate Controller of ADESA, Inc. from August 1992 to July 1994. • Audit Staff and Senior Staff at Ernst & Young LLP. • Graduate of the |
Skills and Qualifications
✔ | Extensive senior leadership experience | |
✔ | Provides unique, in-depth knowledge of ADESA and its industry | |
✔ | Substantial financial experience. | |
✔ | Certified Public Accountant with experience in public accounting and public companies. |
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Lynn Jolliffe
Current Board Committees: | • Chief Executive Officer of Jolliffe • Executive Vice President, Global Human Resources of Ingram Micro Inc., a technology distribution company, – Vice President, Human Resources for the North America region from October 2006 to May – Served as Regional Vice President, Human Resources and Services for Ingram Micro European Coordination Center from August 1999 to October 2006. • Served in various capacities, including Vice President and Chief Financial Officer with responsibility for human resources, at two Canadian retailers, including Holt • Began career at Bell Canada and then moved to Bank of Montreal. • Graduated from Queens University and University of Toronto (MBA). |
Skills and Qualifications
✔ | ||
✔ | Deep understanding of business drivers from the financial, operational and people perspective gained from experience in multiple industries across three continents. | |
✔ | Diversity in viewpoint and international business experience as she has lived and worked in U.S., Canada and abroad. | |
✔ | Significant experience with executive compensation |
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Michael T. Kestner
Independent Director Age: 62 Current Board Committees: | ||
• Consultant in the building products and automotive industry since December 2015. • Chief Financial Officer of Building Materials Holding Corporation, a building products company, • Partner in FocusCFO, LLC, a consulting firm providing part-time CFO services, from April 2012 to August • Executive Vice President, Chief Financial Officer and a director of Hilite International, Inc., an automotive supplier of powertrain parts, from October 1998 to July • Chief Financial Officer of Sinter Metals, Inc., a supplier of metal power precision components, from 1995 to 1998. • Served in various capacities at Banc One Capital Partners, | ||
• Graduated from Southeast Missouri State University. |
Table of ContentsSkills and Qualifications
✔ | Over 20 years as a CFO provides valuable experience and perspective as Chair of the Audit Committee. | |
✔ | Brings experience as the former CFO of a large, United States-based company which includes experience with complex capital structures and mergers and acquisitions. | |
✔ | Extensive experience in financial analysis and financial statement preparation. | |
✔ | Management experience in the automotive industry both domestically and internationally provides him with additional insight into financial and business matters that are important to the Company. | |
✔ | Certified Public Accountant with experience in public accounting and public companies. |
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John P. Larson
Lead Independent Director Current Board Committees: | Career Highlights • Chief Executive Officer of Bestop, Inc., a | |
•
• Served in a number of capacities at General Motors Company from 1986 to 2007, most recently serving as General Manager overseeing operations for the Buick, Pontiac and GMC Divisions from January 2005 to May 2007 and as • Led General Motors Company's used car remarketing activity from 1999 to 2000. • Graduated from Northern Illinois University and Purdue University (M.S., Management). |
Skills and Qualifications
✔ | ||
✔ | Extensive experience in automotive remarketing, captive finance (GMAC), rental car program design and automotive dealer activities, as well as an in-depth understanding of the overall automotive business provide him a broad perspective on our industry and key customers. | |
✔ | Extensive experience as a senior leader in corporate finance has provided him with key skills, including financial reporting, accounting and control, business planning and analysis and risk management, that are valuable to the oversight of our business. | |
✔ | Strong communication and leadership skills allow Mr. Larson to be an effective Lead Independent Director and liaison to the other independent directors. |
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Stephen E. Smith
| ||
Age: 67 Current Board Committees: | • Consultant in the automotive industry since October 2012. • Senior Vice President, Financial Services of American Honda Finance Corporation, a provider of automobile financing to purchasers, lessees and dealers, from 1985 to October 2012 (including various other positions). • Interim President of the California Council on Economic Education, a not-for-profit organization that provides training and educational materials to California teachers relating to economics and personal finance, from July 2013 to February 2014. • Graduated from |
Skills and Qualifications
✔ | ||
✔ | Significant expertise in building and developing consumer and commercial financial services business, utilizing strategy development, market analysis, problem solving and performance improvement. | |
✔ | Considerable financial skill and expertise. |
KAR AUCTION SERVICES' BOARD OF DIRECTORS RECOMMENDS A VOTE"FOR" THE ELECTION OF THE FOREGOING TEN NOMINEESTO THE BOARD OF DIRECTORS.
PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED "FOR" THEELECTION OF EACH OF THE DIRECTOR NOMINEES NAMED IN THISPROXY STATEMENT AND THE PROXY CARD UNLESS STOCKHOLDERS SPECIFY ACONTRARY VOTE.
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BOARD OF DIRECTORS STRUCTURE AND CORPORATE GOVERNANCE
BOARD OF DIRECTORS STRUCTURE AND CORPORATE GOVERNANCE |
Role of the Board of Directors
The Company's business and affairs are managed under the direction of the Board of Directors, which is the Company's ultimate decision-making body, except with respect to those matters reserved to the Company's stockholders.
ROLE OF THE BOARD OF DIRECTORS |
The Board of Directors, among other things, establishes the Company's overall corporate policies, evaluatesoversees the Company's Chief Executive Officer and other senior management in the senior leadership teamcompetent and oversees senior management.ethical operation of the Company and assures that the long-term interests of the stockholders are being served. The BoardCompany's Corporate Governance Guidelines are available on our website atwww.karauctionservices.com on the "Investor Relations" page under the link "Corporate Governance." The information on our website is not part of Directors also overseesthis proxy statement and is not deemed incorporated by reference into this proxy statement or any other public filing made with the Securities and Exchange Commission (the "SEC").
BOARD LEADERSHIP |
Neither the Company's business strategy and planning, as well as the performance of management in executing the Company's business strategy, assessing and managing risks and managing the Company's day-to-day operations.
Currently, KAR Auction Services separates the roles of Chairman of the Board of Directors and Chief Executive Officer. Separating these roles allows our Chief Executive Officer to focus on the day-to-day management of our business and our Chairman of the Board of Directors to lead the Board of Directors and focus on providing advice and general oversight of management. Given the time and effort that is required of each of these positions, the Company currently believes it is best to separate these roles. However, neither the Company'sSecond Amended and Restated By-Laws nor the Company's Corporate Governance Guidelines requires that the Company separate thesethe roles of Chairman of the Board and Chief Executive Officer, and the Board of Directors does not have a policy on whether the same person should serve as both the Chief Executive Officer and Chairman of the Board of Directors, or if the roles must remain separate. The Board of Directors believes that it should have the flexibility to make these determinations from time to time in the way that it believes best to provide appropriate leadership for the Company under then-existing circumstances.
At present, the Board of Directors Meetingshas chosen to combine the positions of Chief Executive Officer and Attendance
Chairman of the Board and to appoint a Lead Independent Director. Our Board of Directors believes that having the same person serve in the roles of Chairman of the Board and Chief Executive Officer is appropriate for the Company at this time, as it fosters clear accountability, effective decision making and alignment on corporate strategy. Meanwhile, the appointment of a Lead Independent Director ensures that the Company benefits from effective oversight by its independent directors.
In connection with the appointment of a Lead Independent Director, the Board of Directors adopted a Lead Independent Director Charter, which sets forth a clear mandate and significant authority and responsibilities, including:
Board Meetings and Executive Sessions | • The authority to call meetings of the independent members of the Board. • Presides at all meetings of the Board at which the Chairman of the Board is not present, including executive sessions of the independent members of the Board. | |
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Communications | • Serves as principal liaison on Board-wide issues between the independent directors and the Chairman and CEO and facilitates communication generally between and among directors. | |
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Agendas | • Reviews, in consultation with the Chairman and CEO, the agenda for Board meetings. | |
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Meeting Schedules | • Reviews, in consultation with the Chairman and CEO, the meeting schedules to assure there is sufficient time for discussion of all agenda items. | |
• Reviews, in consultation with the Chairman and CEO, information sent to the Board, including the quality, quantity, appropriateness and timeliness of such information. | ||
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Communicating with Stockholders | • If requested by stockholders, ensures that he or she is available, when appropriate, for consultation and direct communication. | |
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Chairman and CEO Performance Evaluation | • Together with the Compensation Committee of the Board, conducts an annual evaluation of the Chairman and CEO, including an annual evaluation of his or her interactions with the independent directors. | |
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BOARD OF DIRECTORS MEETINGS AND ATTENDANCE |
The Board of Directors held 13 meetings during 2013.2015. All of the incumbent directors attended at least 75% of the meetings of the Board of Directors and Board committees on which they served during 2013.2015. As stated in our Corporate Governance Guidelines, each director is expected to attend all annual meetings of stockholders. LastAll of our current directors attended last year's annual meeting of stockholders was attended, either in person or by telephone (one director attended by all of the directors.phone).
COMMITTEES OF THE BOARD OF DIRECTORS |
Committees of the Board of Directors
In 2013,2015, the Board of Directors maintained three standing committees: the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee. In addition, the Board of Directors established a Risk Committee in July 2015. Each of our committees operates pursuant to a written charter. Copies of the committee charters, other than the Risk Committee Charter, are available on KAR Auction Services' website atwww.karauctionservices.com on the "Investor Relations" page under the link "Corporate Governance." The information on our website is not part of this proxy statement and is not deemed incorporated by reference into this proxy statement or any other public filing made with the SEC. The following table sets forth the current membership of each committee:
Name | Audit Committee | Nominating and Corporate Governance Committee | Compensation Committee | Risk Committee | ||||
Todd F. Bourell | X | |||||||
Donna R. Ecton | X | | Chair | | ||||
Peter R. Formanek | X | |||||||
James P. Hallett* | ||||||||
Mark E. Hill | Chair | X | ||||||
J. Mark Howell | | | X | Chair | ||||
Lynn Jolliffe | X | X | ||||||
Michael T. Kestner | Chair | | | X | ||||
John P. Larson** | X | X | ||||||
Stephen E. Smith | X | X | | |
*Chief Executive Officer and Chairman of the Board
**Lead Independent Director
A description of each Board committee is set forth below.
Audit Committee.Committee
Meetings Held in 2015: Five
Primary Responsibilities: Our Audit Committee assists the Board of Directors in its oversight of the integrity of our financial statements, our independent registered public accounting firm's qualifications and independence and the performance of our independent registered public accounting firm. The Audit Committee reviews the audit plans and findings of our independent registered public accounting firm and our internal audit team and tracks management's corrective action plans where necessary; reviews our financial statements, including any significant financial items and changes in accounting policies or practices, with our senior management and independent registered public accounting firm; reviews our financial risk and control procedures, compliance programs and significant tax, legal and regulatory matters; and has the sole discretion to appoint annually our independent registered public accounting firm, evaluate its independence and performance and set clear hiring policies for employees or former employees of the independent registered public accounting firm. The Audit Committee held six meetings during 2013.
Independence: Each of Messrs. Finlayson, Formanek, Kestner and Ward, who comprise the Audit Committee, areSmith and Mmes. Ecton and Jolliffe is "financially literate" under the rules of the New York Stock Exchange (the "NYSE").
Mr. Finlayson serves as Chairman of the Audit CommitteeNYSE, and each of Messrs. Finlayson, FormanekMr. Kestner and Kestner haveMs. Ecton has been designated as an "audit committee financial expert" as that term is defined by the SEC. In addition, the Board of Directors has determined that each of the current members of the Audit Committee meets the standards of "independence"
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established by the NYSE and is "independent" under the independence standards for audit committee members adopted by the SEC. If all of our director nominees are elected at
Committee Composition Following the Annual Meeting: Following the annual meeting, we expect to appoint Messrs. Kestner, Larson and Smith and Ms. Jolliffe as members ofthat the Audit Committee followingwill be comprised of Donna R. Ecton, J. Mark Howell, Michael T. Kestner and Stephen E. Smith, with Mr. Kestner serving as the annual meeting.Chairman. Mr. Howell has been designated as an "audit committee financial expert" as that term is defined by the SEC.
Compensation Committee.Committee
Meetings Held in 2015: Eight
Primary Responsibilities: The Compensation Committee reviews and recommends policies relating to compensation and benefits of our officers and employees. The Compensation Committee establishes, reviews and approves corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers, evaluates the performance of these officers in light of those goals and objectives, and approves the compensation of these officers based on such evaluations. The Compensation Committee also administers the issuance of stock optionsequity and other awards under our equity plans. The Compensation Committee held 11 meetings during 2013. The Compensation Committee is currently comprised of Messrs. Formanek and Moore and Ms. Ecton. Mr. Moore serves as Chairman of the Compensation Committee. Mr. Clingen, Sanjeev Mehra and Gregory P. Spivy served on the Compensation Committee during a portion of 2013.
Independence: All of the current and former members of the Compensation Committee are or were during their tenure on the committee, independent under the NYSE rules (including the new enhanced independence requirements for Compensation Committee members), except for Mr. Clingen. If all of our director nominees are elected at.
Committee Composition Following the Annual Meeting: Following the annual meeting, we expect to appoint Messrs. Formanek and Larson, Ms. Ecton and Ms. Jolliffe as members ofthat the Compensation Committee followingwill be comprised of Todd F. Bourell, Donna R. Ecton, Lynn Jolliffe and John P. Larson, with Ms. Ecton serving as the annual meeting.Chairman.
The Compensation Committee retained ClearBridge Compensation Group ("ClearBridge") as its independent compensation consultant in 2013. During 2013, ClearBridge provided advice to the Compensation Committee with respect to the assessment of the Company's executive compensation practices, evaluation of long-term incentive compensation practices, designing new long-term equity awards, and related compensation matters. The Compensation Committee has reviewed the independence of ClearBridge in light of SEC rules and NYSE listing standards regarding compensation consultants and has concluded that ClearBridge's work for the Compensation Committee does not raise any conflict of interest.
Nominating and Corporate Governance Committee.Committee
Meetings Held in 2015: Four
Primary Responsibilities: The Nominating and Corporate Governance Committee is responsible for making recommendations to the Board of Directors regarding candidates for directorships and the size and composition of the Board of Directors. In addition, the Nominating and Corporate Governance Committee is responsible for overseeing our Corporate Governance Guidelines and reporting and making recommendations to the Board of Directors concerning governance matters. The Nominating and Corporate Governance Committee held four meetings during 2013. The Nominating and Corporate Governance Committee is comprised of Messrs. Birtwell, Goldberg, Moore and Ward. Mr. Birtwell serves as Chairman of the Nominating and Corporate Governance Committee. Kelly J. Barlow and Mr. Mehra served on the Nominating and Corporate Governance Committee during 2013.
Independence: All of the current and former members of the Nominating and Corporate Governance Committee are, or were during their tenure on the committee, independent under the NYSE rules. If all of our director nominees are elected at
Committee Composition Following the Annual Meeting: Following the annual meeting, we expect to appoint Messrs. Birtwell, Hill and Smith as members ofthat the Nominating and Corporate Governance Committee followingwill be comprised of Todd F. Bourell, Mark E. Hill, Lynn Jolliffe and Stephen E. Smith, with Mr. Hill serving as the Chairman.
Risk Committee
Meetings Held in 2015: One
Primary Responsibilities: The Risk Committee was established in July 2015. The Risk Committee assists the Board of Directors in its oversight of (i) the principal business, financial, technology and operational risks, and other material risks and exposures of the Company and (ii) the actions, activities and initiatives of the Company to mitigate such risks and exposures. The Risk Committee also provides oversight for matters specifically relating to cyber security and other risks related to information technology systems and procedures.
Independence: All of the current members of the Risk Committee are independent under the NYSE rules.
Committee Composition Following the Annual Meeting: Following the annual meeting.meeting, we expect that the Risk Committee will continue to be comprised of Mark E. Hill, J. Mark Howell, John P. Larson and Michael T. Kestner, with Mr. Howell serving as the Chairman.
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Each of our committees operates pursuant to a written charter. Copies of the committee charters are available on KAR Auction Services' website at www.karauctionservices.com on the "Investor Relations" page under the link "Corporate Governance." The information on our website is not part of this proxy statement and is not deemed incorporated by reference into this proxy statement or any other public filing made with the SEC.
BOARD OF DIRECTORS' RISK OVERSIGHT |
Our management is responsible for the management and assessment of risk at the Company, including communication of the most material risks to the Board of Directors and its committees. TheOversight of risks to the Company is carried out by the Board of Directors as a whole and by each of its various committees. In July 2015, the Board of Directors formed a new Risk Committee which provides oversight with respect to risk practices implemented by management, except for the oversight of risks that have been specifically delegated to aanother committee of the Board of Directors. Even when the oversight of a specific area of risk has been delegated to aanother committee, the Board of DirectorsRisk Committee may maintain oversight over such risks through the receipt of reports from the committee chairpersons to the Risk Committee. The Board of Directors maintains oversight over such risks through the receipt of reports from the chairperson of the Risk Committee and from the other committees at each regularly scheduled Board of Directors meeting. The Board of DirectorsRisk Committee and other committee reviews occur principally through the receipt of regular reports from management to the Board of Directors on these areas of risk, and discussions with management regarding risk assessment and risk management.
At its regularly scheduled meetings, the Board of Directors generally receives a number of reports which include information relating to risks faced by the Company. The Company's Chief Financial Officer provides a report on the Company's results of operations, its liquidity position, including an analysis of prospective sources and uses of funds, and the implications to the Company's debt covenants and credit rating, if any. The Chief Executive Officer of each primary business unit provides an operational report, which includes information relating to strategic, operational and competitive risks. Finally, the Company's General Counsel provides a privileged report which provides information regarding the status of the Company's material litigation and related matters, if any, including environmental updates and the Company's continuing compliance with applicable laws and regulations. At each regularly scheduled Board of Directors meeting, the Board of Directors also receives reports from the Risk Committee chairperson as well as other committee chairpersons, which may include a discussion of risks initially overseen by the committees for discussion and input from the Board of Directors. As noted above, in addition to these regular reports, the Board of DirectorsRisk Committee receives reports on specific areas of risk from time to time, such as regulatory, cyclical or other risks that are not covered in the regularand reports given to the Board of Directors and described above.on these matters.
The Board of Directors' leadership structure, through its committees, also supports its role in risk oversight. The Audit Committee maintains initial oversight over risks related to the integrity of the Company's financial statements; internal controls over financial reporting and disclosure controls and procedures (including the performance of the Company's internal audit function); the performance of the independent auditor;registered public accounting firm; and oversees the Company's responses to ethics issues arising from the Company's whistleblower hotline. The Company's Compensation Committee maintains oversight over risks related to the Company's compensation practices. The Nominating and Corporate Governance Committee monitors potential risks relating to the effectiveness of the Board of Directors, notably director succession, composition of the Board of Directors and the principal policies that guide the Company's governance. The Risk Committee maintains oversight over risks generally and specifically with respect to cyber security and information technology systems and procedures.
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CORPORATE GOVERNANCE DOCUMENTS |
The Board of Directors has adopted the following corporate governance documents:
Document | Purpose/Application | |
---|---|---|
Code of Business Conduct and Ethics | Applies to all of the Company's employees, officers and directors, including those officers responsible for financial reporting. | |
Code of Ethics for Principal Executive and Senior Financial Officers | Applies to the Company's principal executive officer, principal financial and accounting officer and such other persons who are designated by the Board of Directors. | |
Corporate Governance Guidelines | Contains general principles regarding the functions of the Board of Directors and its committees. | |
Committee Charters | Applies to the following Board committees, as applicable: Audit Committee, Compensation Committee, | |
Lead Independent Director Charter | Sets forth a clear mandate and significant authority and responsibilities for the Lead Independent Director. |
We expect that any amendments to the codes of ethics, or any waivers of their requirements for executive officers and directors, will be disclosed on the Company's website. The foregoing documents are available atwww.karauctionservices.com under on the "Investor Relations" link onpage under the "Corporate Governance" pagelink and in print to any stockholder who requests them. Requests should be made to KAR Auction Services, Inc., Investor Relations, 13085 Hamilton Crossing Boulevard, Carmel, Indiana 46032. The information on our website is not part of this proxy statement and is not deemed incorporated by reference into this proxy statement or any other public filing made with the SEC.
Cessation of "Controlled Company" Status
At the time of our initial public offering, we qualified as a "controlled company" within the meaning of the NYSE corporate governance standards, as KAR LLC controlled a majority of the voting power of our outstanding common stock. As of June 6, 2013, KAR LLC ceased to hold a majority of our outstanding common stock and, as of the date of this proxy statement, does not hold any shares of our common stock. As a controlled company, we were exempt from compliance with certain NYSE corporate governance standards, including (i) the requirement that a majority of the Board of Directors consist of independent directors; (ii) the requirement that we have a nominating/corporate governance committee that is composed entirely of independent directors; and (iii) the requirement that we have a compensation committee that is composed entirely of independent directors.
The NYSE listing rules provide that, to the extent a controlled company ceases to qualify as such, it is required to comply with the corporate governance requirements from which it was previously exempt as follows:
least a majority of independent members on each committee within 90 days of the date its status changed and fully independent committees within one year of the date its status changed.
As of the date of this proxy statement, ten of our 13 directors are independent under NYSE standards, and each of our committees is comprised entirely of independent directors. In addition, eight of our ten nominees are independent.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION |
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 2013,2015, Messrs. Clingen, Formanek, Mehra, MooreHowell and SpivyLarson and Ms.Mmes. Ecton and Jolliffe served as members of the Compensation Committee. None of our executive officers serve as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our Board of Directors or our Compensation Committee. None of the individuals serving as members of the Compensation Committee during 2013 is2015 are now or waswere previously an officer or employee of the Company, other than Mr. ClingenHowell who isserved as the Vice President and Corporate Controller of ADESA, Inc. from August 1992 to July 1994. Our Board has affirmatively determined that Mr. Howell meets the standards of "independence" established by the NYSE.
COMMUNICATIONS WITH THE BOARD OF DIRECTORS |
Any interested parties desiring to communicate with the Chairman of the Board of Directors or any of the independent directors regarding the Company may directly contact such directors by delivering such correspondence to the Company's General Counsel at KAR Auction Services, Inc., 13085 Hamilton Crossing Boulevard, Carmel, Indiana 46032.
The Audit Committee of the Board of Directors has established procedures for employees, stockholders and others to submit confidential and anonymous reports regarding accounting, internal accounting controls, auditing or any other matters.
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EXECUTIVE SESSIONS |
The independent directors of the Company meet in executive session at every regularly scheduled Board of Directors meetings. The Company's Corporate Governance Guidelines state that the Chairman of the Board of Directors, if an independent director, or the Lead Independent Director shall preside at such executive sessions, or in such director's absence, another independent director designated by the Chairman of the Board of Directors or the Lead Independent Director, as applicable, shall preside at such executive sessions. Currently, Mr. Larson, our Lead Independent Director, presides at the executive sessions of our independent directors.
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DIRECTOR COMPENSATION |
We use a combination of cash and stock-based incentive compensation to attract and retain independent, qualified candidates to serve on the Board of Directors. The Board of Directors makes all director compensation determinations after considering the recommendations of the Nominating and Corporate Governance Committee. For 2015, the Nominating and Corporate Governance Committee retained Semler Brossy as its independent compensation consultant.
In setting director compensation, we consider market comparison studies and other data obtained from Semler Brossy, the responsibilities of directors generally including committee chairs, the significant amount of time that directors expend in fulfilling their duties, and the skill level we require of members of our Board of Directors. Directors who also serve as employees of the Company do not receive payment for services as directors.
CASH AND STOCK RETAINERS |
Directors who served for the entirety of 2015 received:
Components of Director Compensation Program For 2015 Service | Value of Cash Payment/Award | Form of Payment | ||
---|---|---|---|---|
| | | | |
Annual Cash Retainer(1) | $75,000 | Cash; May elect to receive annual cash retainer in common stock | ||
Annual Stock Retainer(2) | $100,000 | Restricted Stock | ||
Lead Independent Director Retainer | $30,000 | Cash | ||
Audit and Compensation Committee Chair Fee(3) | $20,000 | Cash | ||
Nominating and Corporate Governance Committee Chair Fee | $10,000 | Cash | ||
Risk Committee Chair Fee(4) | — | Cash |
All of our directors are reimbursed for reasonable expenses incurred in connection with attending Board of Directors meetings, committee meetings and Board education events.
For any director who started after the beginning of the year, became a Committee Chair after the beginning of the year or retired during the year, relevant compensation was prorated according to the number of months during which he or she served in that position during that year.
DIRECTORS DEFERRED COMPENSATION PLAN |
Our Board of Directors adopted the KAR Auction Services, Inc. Directors Deferred Compensation Plan (the "Director Deferred Compensation Plan") in December 2009. Pursuant to the terms of the Director Deferred
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Compensation Plan, each non-employee director may elect to defer the receipt of his or her cash director fees into a pre-tax interest-bearing deferred compensation account, which account accrues interest as described in the Director Deferred Compensation Plan. Amounts under the Director Deferred Compensation Plan may also be invested in the same investment choices as are available under our 401(k) plan. Directors also may choose to receive all or a portion of their annual stock retainer in the form of a deferred share account. The plan provides that the amount of cash in a director's deferred cash account, plus a number of shares of common stock equal to the number of shares in the director's deferred share account, will be delivered to a director in installments over a specified period or within 60 days following the date of the director's departure from the Board of Directors, with cash being paid in lieu of any fractional shares.
DIRECTOR STOCK OWNERSHIP AND HOLDING GUIDELINES |
The Company's non-employee directors are subject to the Company's Chief Executive Officer from April 2007director stock ownership and holding guidelines. The stock holding guideline requires each non-employee director to September 2009. See "Certain Related Party Relationships"hold any shares of the Company's common stock granted after January 1, 2014 for at least four years, subject to certain exceptions approved by the Nominating and Corporate Governance Committee. All shares granted on and after January 1, 2014 must be held for six months after service as a descriptiondirector has ended with the Company.
The stock ownership guidelines, which were adopted in 2015, require each non-employee director to own a minimum of certain relationships betweenthree times his or her annual cash retainer amount in shares of Company stock.
DIRECTOR COMPENSATION PAID IN 2015 |
The following table provides information regarding the Company and memberscompensation paid to our non-employee directors.
Name | Fees Earned or Paid in Cash(1) | Stock Awards(2) | Total | |||
---|---|---|---|---|---|---|
Ryan M. Birtwell(3) | $35,961 | — | $35,961 | |||
Todd F. Bourell(4) | $43,269 | $100,031 | $143,300 | |||
Donna R. Ecton(5) | $89,926 | $100,031 | $189,957 | |||
Peter R. Formanek(6) | $78,062 | $100,031 | $178,093 | |||
Mark E. Hill(7) | $80,769 | $100,031 | $180,800 | |||
J. Mark Howell | $75,000 | $143,884 | $218,884 | |||
Lynn Jolliffe | $75,000 | $100,031 | $175,031 | |||
Michael T. Kestner | $95,000 | $100,031 | $195,031 | |||
John P. Larson(8) | $105,000 | $100,031 | $205,031 | |||
Stephen E. Smith | $75,000 | $100,031 | $175,031 |
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Mr. Hallett was not entitled to receive any fees or other compensation for serving as a member of our Board of Directors because he was employed by the Company.
OUTSTANDING DIRECTOR RESTRICTED STOCK AWARDS |
The following table sets forth information regarding the number of unvested shares of our common stock held by each non-employee director as of December 31, 2015:
Name | Unvested Shares of Common Stock | Deferred Phantom Shares and Dividend Equivalents(1) | ||
---|---|---|---|---|
Todd F. Bourell | 1,328 | 2,658 | ||
Donna R. Ecton | 1,328 | 7,747 | ||
Peter R. Formanek | 1,328 | — | ||
Mark E. Hill | 1,328 | 5,978 | ||
J. Mark Howell | 1,328 | 3,957 | ||
Lynn Jolliffe | 1,328 | 5,978 | ||
Michael T. Kestner | 1,328 | 6,041 | ||
John P. Larson | 1,328 | 5,978 | ||
Stephen E. Smith | 1,328 | 7,747 |
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Section 16(a) Beneficial Ownership Reporting Compliance
Table of Contents
BENEFICIAL OWNERSHIP OF THE COMPANY'S COMMON STOCK |
The following table sets forth certain information with respect to the beneficial ownership of our common stock as of April 13, 2016 of: (1) each person or entity who owns of record or beneficially 5% or more of any class of the Company's voting securities of which 137,300,457 shares of common stock were outstanding as of April 13, 2016; (2) each of our directors, director nominees and named executive officers; and (3) all of our directors, director nominees and executive officers as a group. Beneficial ownership is determined in accordance with the rules of the SEC. To our knowledge, each stockholder will have sole voting and investment power with respect to the shares indicated as beneficially owned, unless otherwise indicated in a footnote to the following table. The percentage calculations below are based on 137,300,457 shares of common stock outstanding as of April 13, 2016 rather than the percentages set forth in any stockholders' Schedule 13D and Schedule 13G filings. Unless otherwise indicated in a footnote, the business address of each person is our corporate address, c/o KAR Auction Services, Inc. 13085 Hamilton Crossing Boulevard, Carmel, Indiana 46032.
| Shares Beneficially Owned | ||||||
---|---|---|---|---|---|---|---|
Name of Beneficial Owner | Number of Shares(1) | Percent of Class(2) | |||||
5% BENEFICIAL OWNERS | | | |||||
Wells Fargo & Company(3) | 8,986,848 | 6.5 | % | ||||
The Vanguard Group(4) | | 9,307,797 | | 6.8 | |||
NAMED EXECUTIVE OFFICERS, DIRECTORS AND DIRECTOR NOMINEES | |||||||
Todd F. Bourell | | 2,871 | | * | |||
Donna R. Ecton | 8,039 | * | |||||
Peter R. Formanek | | 38,984 | | * | |||
Donald S. Gottwald(5) | 166,039 | * | |||||
James P. Hallett(5) | | 251,601 | | * | |||
Mark E. Hill | 19,743 | * | |||||
J. Mark Howell | | 4,190 | | * | |||
Lynn Jolliffe | 6,242 | * | |||||
Michael T. Kestner | | 11,378 | | * | |||
John Kett(5) | 102,695 | * | |||||
John P. Larson | | 6,243 | | * | |||
Eric M. Loughmiller(5) | 63,457 | * | |||||
Stephen E. Smith | | 8,038 | | * | |||
Stéphane St-Hilaire(5) | 152,286 | * | |||||
Executive officers, directors and director nominees as a group 22 persons(6) | | 1,764,382 | | 1.3 | % |
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE |
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires KAR Auction Services' directors and executive officers and persons who own more than 10% of the issued and outstanding shares of the Company's common stock to file reports of initial ownership of common stock and other equity securities and subsequent changes in that ownership with the SEC and the NYSE. Based solely on a review of such reports and written representations from the directors and executive officers, the Company believes that all such filing requirements were met during 2013.2015.
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We use a combination of cash and stock-based incentive compensation to attract and retain independent, qualified candidates to serve on the Board of Directors. In setting director compensation, we consider the significant amount of time that directors expend in fulfilling their duties as well as the skill level we require of members of our Board of Directors. As discussed below, we have revised our director compensation program for 2014 in connection with the ongoing transition of our Board of Directors upon KAR LLC losing its director nomination rights pursuant to its divestiture of its holdings of our Company stock in 2013.
Cash. Members of the Board of Directors who are not our employees nor employed by Kelso Investment Associates VII, L.P., GS Capital Partners VI, L.P., ValueAct Capital Master Fund, L.P. or Parthenon Investors II, L.P. and their respective affiliates (collectively, the "Former Equity Sponsors"), which, prior to their divestiture of our common stock in 2013, collectively owned through KAR LLC a majority of the common stock of KAR Auction Services, were entitled to receive an annual cash retainer of $50,000 during 2013. Such directors may elect to receive their annual cash retainer in common stock. The Chairperson of the Audit Committee received an additional cash retainer of $10,000 during 2013. One-fourth of the annual cash retainer is paid at the end of each quarter, provided that the director served as a director in such fiscal quarter. All of our directors are reimbursed for reasonable expenses incurred in connection with attending Board of Directors meetings and committee meetings.
The Company's non-employee director compensation program was revised effective January 1, 2014 to provide for (i) a $75,000 annual cash retainer (increased from $50,000); and (ii) additional
annual cash retainer amounts of $20,000 for the chair of the Audit Committee; $15,000 for the chair of the Compensation Committee; and $10,000 for the chair of the Nominating and Corporate Governance Committee.
Stock. In addition to the annual cash compensation, directors who are not employed by us or the Former Equity Sponsors received an annual stock retainer of $75,000 of our common stock in the form of restricted stock during 2013. Pursuant to our Policy on Granting Equity Awards, unless specifically provided otherwise by the Compensation Committee or the Board of Directors, annual grants for directors are effective on the date of the annual meeting at which the director was elected or re-elected. One-fourth of the annual restricted stock grant vests quarterly following the date of the grant. The number of shares of our common stock received is based on the value of the shares on the date of the restricted stock grant.
The Company's non-employee director compensation program was revised effective January 1, 2014 to provide for a $100,000 annual restricted stock retainer (increased from $75,000), which is normally granted on the date of the annual meeting of stockholders and vests quarterly over a one-year period. On January 2, 2014, Ms. Ecton and Messrs. Clingen, Kestner and Smith each received pro-rata restricted stock grants worth approximately $50,000 and Messrs. Finlayson, Formanek and Ward received a pro-rata grant worth approximately $12,500 to reflect the increased stock retainer amount for 2014.
Directors Deferred Compensation Plan
Our Board of Directors adopted the KAR Auction Services, Inc. Directors Deferred Compensation Plan (the "Director Deferred Compensation Plan") in December 2009. Pursuant to the terms of the Director Deferred Compensation Plan, each director who is not employed by us or the Former Equity Sponsors may elect to defer the receipt of his cash director fees into a pre-tax interest-bearing deferred compensation account, which account accrues interest as described in the Director Deferred Compensation Plan. Directors also may choose to receive all or a portion of their annual stock retainer in the form of a deferred share account. The plan provides that the amount of cash in a director's deferred cash account, plus a number of shares of common stock equal to the number of shares in the director's deferred share account, will be delivered to a director within 60 days following the date of the director's departure from the Board of Directors, with cash being paid in lieu of any fractional shares.
Director Compensation Paid in 2013
The following table provides information regarding the compensation paid to our directors.
Name(1) | Fees Earned or Paid in Cash(2) | Stock Awards(3) | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Donna R. Ecton(4) | $ | 2,174 | — | $ | 2,174 | |||||
Robert M. Finlayson | $ | 60,000 | $ | 75,018 | $ | 135,018 | ||||
Peter R. Formanek | $ | 50,000 | (5) | $ | 75,018 | $ | 125,018 | |||
Michael T. Kestner(6) | $ | 2,174 | — | $ | 2,174 | |||||
Stephen E. Smith(7) | $ | 2,174 | — | $ | 2,174 | |||||
Jonathan P. Ward | $ | 50,000 | $ | 75,018 | (8) | $ | 125,018 |
in 2013. Effective January 1, 2014, Mr. Clingen is no longer an executive officer of the Company and will instead be compensated as our non-executive Chairman.
Directors that are employed by the Company are not (or, prior to the November 13, 2013 Exit Event (as defined below), those employed by the Former Equity Sponsors were not) entitled to receive any fees for serving as a member of our Board of Directors. Mr. Clingen serves as Chairman of the Board of Directors, which was also an executive officer position, during the last fiscal year and received a base salary and a cash bonus payment for that year solely resulting from holding such officer position. Mr. Clingen is not a named executive officer and did not receive any additional compensation for services provided as Chairman of the Board in 2013. Mr. Clingen's compensation in 2013 as an executive officer was approved by the Compensation Committee of the Board of Directors. Effective January 1, 2014, Mr. Clingen is no longer an executive officer of the Company and will no longer be eligible to receive a base salary and cash bonus and will instead be compensated as our non-executive Chairman solely through our director compensation program, as described above.
The following table sets forth information regarding the number of vested and unvested shares of our common stock held by each director who was not employed by the Company or one of our Former Equity Sponsors as of December 31, 2013:
Name | Shares of Common Stock | |||
---|---|---|---|---|
Robert M. Finlayson | 19,595 | (1) | ||
Peter R. Formanek | 27,399 | (1) | ||
Jonathan P. Ward | 19,942 | (1)(2) |
AMENDMENT AND RESTATEMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION: PROPOSAL NO. 2 |
Director Stock Ownership and Holding Guidelines
The Company's non-employee directors are subject to the Company's stock ownership and holding guidelines, which require each non-employee director to hold any shares of the Company's common stock granted after January 1, 2014 for at least four years, subject to certain exceptions approved by the Compensation Committee.
PROPOSAL |
Communications with the Board of Directors
Any interested parties desiring to communicate with the Chairman of the Board of Directors or any of the independent directors regarding the Company may directly contact such directors by delivering such correspondence to the Company's General Counsel at KAR Auction Services, Inc., 13085 Hamilton Crossing Boulevard, Carmel, Indiana 46032.
The Audit Committee of the Board of Directors has established procedures for employees,approved an amendment and restatement of our Amended and Restated Certificate of Incorporation to provide that the Company's stockholders may remove any director from office, with or without cause, and others to submit confidential and anonymous reports regarding accounting, internal accounting controls, auditing or any other matters.
ministerial changes. The independent directorsfull text of the Company meet in executive session at regularly scheduledproposed Second Amended and Restated Certificate of Incorporation is included asAnnex I hereto and has been marked to show changes from the current Amended and Restated Certificate of Incorporation.
Removal of Directors With or Without Cause
Article Fifth, Section (d) of the Company's Amended and Restated Certificate of Incorporation currently provides that the Company's stockholders may remove directors from office only for cause. The Delaware General Corporation Law, as applicable to corporations without a classified Board of Directors, meetings, if needed,requires that stockholders be afforded the right to remove directors from office with or without cause. The proposed amendment to the Company's Amended and Restated Certificate of Incorporation is intended to conform the membersCompany's Amended and Restated Certificate of Incorporation to the Audit Committee generally meet in executive session at each regularly scheduled, in person Audit Committee meeting. requirements of Delaware law.
Ministerial Changes
The Company's Corporate Governance Guidelines stateAmended and Restated Certificate of Incorporation contains a number of references to the Company's former private equity sponsors and a completed stock split that are no longer applicable to the ChairmanCompany. The Second Amended and Restated Certificate of Incorporation will delete these erroneous references and include the Boardre-numbering and lettering of Directors, if an independent director, or the lead independent director shall preside at such executive sessions, or in such director's absence, another independent director designated by the Chairman of the Board of Directors or the lead independent director, as applicable, shall preside at such executive sessions. Our Chairman of the Board is not an independent director and we currentlyremaining provisions. We do not have a designated lead director. Until such time asbelieve that any of these ministerial changes would materially affect the Boardrights or preferences of Directors appoints a lead independent director,our stockholders. We believe that these changes are advisable in order to simplify the Amended and Restated Certificate of Incorporation for all executive sessions of the non-employee or independentour stockholders, directors, the independent directors will rotate as the presiding director.officers, employees, agents and advisors.
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ADVISORY VOTE TO APPROVE THE COMPENSATIONOF OUR NAMED EXECUTIVE OFFICERS
Pursuant to Section 14A of the Securities Exchange Act of 1934, as amended, the Board of Directors is providing our stockholders the opportunity to vote to approve, on a non-binding, advisory basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with the compensation disclosure rules of the SEC. As approved by its stockholders at the 2011 Annual Meeting and consistent with the Board of Directors' recommendation, the Company submits this proposal for a non-binding vote on executive compensation every three years. The next advisory vote to approve the compensation of our named executive officers is scheduled to occur at the 2017 Annual Meeting.
As described in more detail under the heading "Executive Compensation—Compensation Discussion and Analysis," we believe that the compensation program for our named executive officers is designed to enhance stockholder value by (i) closely aligning compensation with our performance on both a short-term and long-term basis through the use of annual cash incentive awards and equity awards such as stock options and performance-based restricted stock unit awards; (ii) linking compensation to specific, measurable results; and (iii) attracting and retaining key executive talent in the vehicle remarketing and automotive finance industry. More specifically, we believe that each of the compensation programs that we have developed and implemented satisfies one or more of the following specific objectives:
For these reasons and the others described elsewhere in this proxy statement, the Board of Directors recommends approval of the following non-binding resolution:
RESOLVED, that the compensation paid to the Company's named executive officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis section, the compensation tables and any related material disclosed in this proxy statement, is hereby APPROVED.
The vote is an advisory vote only and is not binding on the Company or the Board of Directors. However, the Compensation Committee will consider, in its discretion, the result of the vote in future compensation decisions for the named executive officers.
KAR AUCTION SERVICES' BOARD OF DIRECTORS RECOMMENDS A VOTE"FOR" THE NON-BINDING RESOLUTIONAPPROVING THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS.
PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED "FOR"PROPOSAL NO. 2 UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE.
APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE KAR AUCTION SERVICES, INC. 2009 OMNIBUS STOCK AND INCENTIVE PLAN
We are asking our stockholders to approve the amendment and restatement of the Omnibus Plan, under which we are seeking the approval of additional shares. Approval of this proposal requires the affirmative vote of the majority of shares present in person or represented by proxy at the annual meeting and entitled to vote.
The following description of the Omnibus Plan is qualified in its entirety by the full text of the Omnibus Plan, which is attached as Appendix A to this proxy statement. Capitalized terms used herein but not otherwise defined shall have the meaning assigned to such terms in the Omnibus Plan, unless the context clearly dictates otherwise.
The purpose of the Omnibus Plan is to provide an additional incentive to participants whose contributions are essential to the growth and success of our business, in order to strengthen the commitment of such persons to the Company, motivate such persons to faithfully and diligently perform their responsibilities and attract and retain competent and dedicated persons whose efforts will result in our long-term growth and profitability.
As described below, the Omnibus Plan would be amended to, among other things:
The employees, directors and independent contractors and consultants of the Company and its affiliates who are chosen by the Committee are eligible to receive awards under the Omnibus Plan. As of March 31, 2014, there were approximately 12,282 employees, 13 directors and 450 independent contractors and consultants of the Company and its affiliates.
Available Shares and Award Limitations
The aggregate awards granted during any calendar year to any single individual shall not exceed (i) 600,000 shares subject to options or SARs; (ii) 300,000 shares subject to restricted shares or other share-based awards; and (iii) $5,000,000 with respect to cash-based awards. Following the approval of this amendment and restatement of the Omnibus Plan, which seeks to add 6,000,000 shares, the number of shares of our common stock, in the aggregate, which may be issued pursuant to awards
under the Omnibus Plan will be increased from 6,492,683 to 12,492,683. If the amendment and restatement of the Omnibus Plan is approved by stockholders, the 2,082,560 shares which remained available for issuance after February 28, 2014 would be increased to 8,082,560 shares that would be available for future issuance. Based on historic and projected usage patterns, we expect that, if this proposal is approved by stockholders, the shares under the Omnibus Plan will be exhausted for purposes of granting awards under the Omnibus Plan within the next three to four years. As of the close of the regular trading session on April 16, 2014, the Company's stock price was $30.18 per share.
Our three year average adjusted equity plan burn rate for 2011 through 2013 was 0.64% under the model used by Institutional Shareholder Services (ISS), which treats each full value share awarded as equivalent to 2.5 option shares. In addition, our equity plan overhang (or potential dilution) as of February 28, 2014 (prior to our additional share request) was approximately 6.8% on a fully-diluted basis and with the additional requested shares, if approved, would be approximately 10.5%. We are defining and calculating equity plan overhang to be (i) the total of all shares subject to outstanding awards PLUS shares remaining available for future issuance, including any additional share requests, DIVIDED BY (ii) our total issued and outstanding shares PLUS the total of all shares subject to outstanding awards PLUS shares remaining available for future issuance, including any share requests.
Under the Omnibus Plan, the Committee is authorized to grant stock options, SARs, restricted shares and other share-based awards or cash-based awards, each of which may be made subject to the achievement of specified Performance Goals established by the Committee.
Stock Options. Nonqualified stock options, which are not intended to qualify for special tax treatment under the Code, may be granted under the Omnibus Plan. The Committee is authorized to set the terms of an option, including exercise price and the time and method of exercise, but is prohibited from repricing options without stockholder approval. The exercise price applicable to option awards must be at least equal to the fair market value of a share of the Company's common stock on the applicable grant date, generally determined based on the closing sale price on the New York Stock Exchange on the grant date.
SARs. A SAR entitles the holder to receive an amount equal to the difference between the fair market value of a specified number of shares on the exercise date and the exercise price of the SAR set by the Committee as of the date of grant. The exercise price applicable to SAR awards must be at least equal to the fair market value of a share of the Company's common stock on the applicable grant date, generally determined based on the closing sale price on the New York Stock Exchange on the grant date. The Committee is authorized to set the terms of the SARs, including the time and method of exercise, but is prohibited from repricing SARs without stockholder approval.
Restricted Shares. Awards of restricted shares are subject to restrictions on transferability and such other restrictions, if any, as the Committee may impose on the date of grant or thereafter. Such restrictions may lapse under circumstances as the Committee may determine, such as completion of a specified period of continued employment or upon the achievement of performance criteria. Except as otherwise determined by the Committee, eligible participants, who are granted restricted shares will have all of the rights of a stockholder with respect to such restricted shares during any period of restriction.
Other Share-Based Awards or Cash-Based Awards. The Committee may also grant rights or other interests that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, our common stock, including, but not limited to, unrestricted shares, restricted stock units, dividend equivalents or performance units, each of which may be subject to the
attainment of Performance Goals or a period of continued employment or other terms or conditions as permitted under the Omnibus Plan.
Awards under the Omnibus Plan to the chief executive officer and the three other most highly compensated officers other than the chief financial officer (the "Covered Employees") may be made subject to the attainment of Performance Goals relating to one or more of the following business criteria within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended ("Section 162(m)"): (i) earnings, including one or more of operating income, earnings before or after taxes, earnings before or after interest, depreciation, amortization, adjusted EBITDA, economic earnings, or extraordinary or special items or book value per share (which may exclude nonrecurring items); (ii) pre-tax income or after-tax income; (iii) earnings per share (basic or diluted); (iv) operating profit; (v) revenue, revenue growth or rate of revenue growth; (vi) return on assets (gross or net), return on investment, return on capital, or return on equity; (vii) returns on sales or revenues; (viii) operating expenses; (ix) stock price appreciation (including total stockholder return, on an absolute basis or relative to a peer group or other index selected by the Committee); (x) cash flow, free cash flow, cash flow return on investment (discounted or otherwise), net cash provided by operations, or cash flow in excess of cost of capital; (xi) implementation or completion of critical projects or processes; (xii) cumulative earnings per share growth; (xiii) operating margin or profit margin; (xiv) cost targets, reductions and savings, productivity and efficiencies; (xv) strategic business criteria, consisting of one or more objectively determinable objectives based on meeting specified market penetration, geographic business expansion, customer satisfaction, employee satisfaction, human resources management, supervision of litigation, information technology, and goals relating to acquisitions, divestitures, joint ventures and similar transactions, and budget comparisons; (xvi) objectively determinable personal professional objectives, including any of the foregoing Performance Goals, the implementation of policies and plans, the negotiation of transactions, the development of long term business goals, formation of joint ventures, research or development collaborations, and the completion of other corporate transactions; and (xvii) any combination of, or a specified increase in, any of the foregoing.
Where applicable, the Performance Goals may be expressed in terms of attaining a specified level of the particular criteria or the attainment of a percentage increase or decrease in the particular criteria, and may be applied to one or more of the Company or affiliate thereof, or a division or strategic business unit of the Company, or may be applied to the performance of the Company relative to a market index, a group of other companies or a combination thereof, all as determined by the Committee. The Performance Goals may include a threshold level of performance below which no payment shall be made (or no vesting shall occur), levels of performance at which specified payments shall be made (or specified vesting shall occur), and a maximum level of performance above which no additional payment shall be made (or at which full vesting shall occur). Each of the foregoing Performance Goals shall be subject to certification by the Committee. The Committee has the authority to specify reasonable definitions for any Performance Goals it uses and the definitions may provide for equitable adjustments to the Performance Goals in recognition of unusual or non-recurring events affecting the Company or any affiliate thereof or the financial statements of the Company or any affiliate thereof, in response to changes in applicable laws or regulations, or to account for items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a segment of a business or related to a change in accounting principles (in each case, to the extent not inconsistent with Section 162(m), if applicable).
Upon the consummation of a Change in Control, unless otherwise determined by the Administrator or as otherwise specified in an award agreement, all outstanding awards granted under the Omnibus Plan (other than Other Cash-Based Awards granted pursuant to the Company's annual incentive plan or program) will fully vest and become exercisable. With respect to Other Cash-Based Awards granted pursuant to the Company's annual incentive plan or program, such awards shall be paid upon the consummation of a Change in Control and calculated based on the actual performance of the applicable performance goals through the date of the Change in Control, as determined by the Administrator in its discretion, prorated based on the number of days of the annual performance period that have elapsed prior to and including the date of the Change in Control.
If the Administrator determines that a share dividend, special dividend (including cash dividends), recapitalization, share split, reverse split, reorganization, merger, consolidation, spin-off, repurchase, share exchange, or other similar corporate transaction affects the shares such that an adjustment is appropriate in order to prevent the dilution of the rights of participants, the Administrator may make such equitable changes as it deems appropriate.
The Omnibus Plan may be amended, suspended or terminated by the board of directors or the Committee. However, any amendment or modification for which stockholder approval is required will not be effective until such stockholder approval has been obtained. Except as described above in "Capital Structure Changes," the Administrator will not modify any outstanding stock option or SAR in order to specify a lower exercise price or grant price (and will not cancel a stock option or SAR and substitute for it a stock option or SAR with a lower exercise price or grant price), without the approval of the Company's stockholders. In addition, except as described above in "Capital Structure Changes," the Administrator may not cancel an outstanding stock option or SAR whose exercise price or grant price is equal to or greater than the current fair market value of a share and substitute for it another award or cash payment without the prior approval of the Company's stockholders.
The Omnibus Plan originally became effective on December 10, 2009 and, if the amendment and restatement thereof is approved by our stockholders, will be effective as of June 10, 2014 and will terminate as to future awards on June 10, 2024.
Incentive Compensation Recoupment Policy
The Omnibus Plan and all awards issued thereunder will be subject to any compensation recoupment policy adopted by the Company to comply with applicable laws, including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act.
U.S. Federal Income Tax Considerations
The following is a brief description of the federal income tax treatment that generally apply to Omnibus Plan awards. The description is based on current federal tax laws, rules and regulations, which are subject to change, and does not purport to be a complete description of the federal income tax aspects of the Omnibus Plan. A participant may also be subject to state and local taxes.
Nonqualified Stock Options. The grant of a nonqualified stock option will not result in taxable income to the participant. The participant will realize ordinary income at the time of exercise in an
amount equal to the excess, if any, of the then fair market value of the stock acquired over the exercise price for those shares, and we will be entitled to a corresponding deduction. Gains or losses realized by the participant upon disposition of such shares will be treated as capital gains or losses, with the basis in such stock equal to the fair market value of the shares at the time of exercise.
SARs. The grant of a SAR will not result in taxable income to the participant at the time of the grant. The participant will realize ordinary income at the time of exercise in an amount equal to the amount of cash or the fair market value of the shares paid upon exercise, and we will be entitled to a corresponding deduction. Gains or losses realized by the participant upon disposition of any shares received will be treated as capital gains or losses, with the basis in such stock equal to the fair market value of the shares at the time of exercise.
Restricted Stock. A grant of restricted stock will not result in taxable income to the participant at the time of grant, and we will not be entitled to a corresponding deduction, assuming that the shares are subject to transferability restrictions and that certain restrictions on the shares constitute a "substantial risk of forfeiture" for federal income tax purposes. Upon vesting, the holder will realize ordinary income in an amount equal to the then fair market value of the vested shares, and we will be entitled to a corresponding deduction. Gains or losses realized by the participant upon subsequent disposition of such shares will be treated as capital gains or losses, with the basis in such shares equal to the fair market value of the shares at the time of vesting. Dividends paid to the holder of restricted stock during the restricted period also will be compensation income to the participant, and we will be entitled to a corresponding deduction when the dividends no longer are subject to a substantial risk of forfeiture or become transferable. A participant may elect pursuant to Section 83(b) of the Code to have income recognized at the date a restricted stock award is granted and to have the applicable capital gain holding period commence as of that date. In such a case, we will be entitled to a corresponding deduction on the date of grant.
Other Share-Based Awards—Restricted Stock Units and Performance Units. A grant of restricted stock units or performance units will not result in taxable income to the participant at the time of grant, and we will not be entitled to a corresponding deduction. Upon vesting and issuance of the underlying shares, the holder will realize ordinary income in an amount equal to the then fair market value of the issued shares, and we will be entitled to a corresponding deduction. Gains or losses realized by the participant upon disposition of such shares will be treated as capital gains or losses, with the basis in such shares equal to the fair market value of the shares at the time of vesting and issuance. Dividend equivalents paid to the holder of restricted stock units during the restricted period also will be compensation income to the participant, and we will be entitled to a corresponding deduction when the dividend equivalents are paid. No election pursuant to Section 83(b) of the Code may be made with respect to restricted stock units and performance units.
Other Share-Based Awards. With respect to grants of other share-based awards (other than restricted stock units or performance units), upon payment of cash or the vesting or issuance of the underlying shares, the participant will realize ordinary income in an amount equal to the cash received or the then fair market value of the issued shares, and we will be entitled to a corresponding deduction. Gains or losses realized by the participant upon subsequent disposition of such shares will be treated as capital gains or losses, with the basis in such shares equal to the fair market value of the shares at the time of vesting and issuance.
Other Cash-Based Awards. A participant will have taxable compensation equal to the amount of the cash award on the date the award is vested and paid to the participant. The Company will be able to deduct, at the same time as it is recognized by the participant, the amount of taxable compensation to the participant for U.S. federal income tax purposes.
Tax Withholding. As a condition to the delivery of any shares to the recipient of an award, we may require the recipient to make arrangements for meeting certain tax withholding requirements in connection with the award.
Section 162(m). In general, Section 162(m) denies a publicly held corporation a deduction for U.S. federal income tax purposes for compensation in excess of $1,000,000 per year per Covered Employee, subject to certain exceptions. The Omnibus Plan is designed to permit certain awards to be granted as performance compensation awards intended to qualify under the "performance-based compensation" exception to Section 162(m). The Committee generally will attempt to structure awards to preserve federal income tax deductions, but the Committee retains the discretion to approve awards that do not meet the "performance-based compensation" exception to Section 162(m).
Code Section 409A. The American Jobs Creation Act of 2004, enacted on October 22, 2004, revised the federal income tax law applicable to certain types of awards that may be granted under the Omnibus Plan. To the extent applicable, it is intended that the Omnibus Plan and any awards made under the Omnibus Plan either be exempt from, or, in the alternative, comply with the provisions of Code Section 409A, including the exceptions for stock rights and short-term deferrals. The Company intends to administer the Omnibus Plan and any awards made thereunder in a manner consistent with the requirements of Code Section 409A.
The Committee has established the 2014 Annual Incentive Program for the Company's executive officers as a cash-based award under the Omnibus Plan. No decisions have been made regarding the amount and type of other awards that are to be made under the Omnibus Plan to participants in the future. The following table sets forth certain information relating to the amount of the 2014 target bonus that would be payable under the cash-based award to the Company's named executive officers and executive officers and employees. No amounts have been included relating to other awards as the amounts of any such awards are not determinable at this time.
Name and Position | Target Dollar Value | |||
---|---|---|---|---|
James Hallett | $ | 900,000 | ||
CEO | ||||
Eric Loughmiller | $ | 331,901 | ||
CFO | ||||
Rebecca Polak | $ | 273,105 | ||
EVP, General Counsel and Secretary | ||||
Thomas O'Brien | $ | 522,037 | ||
CEO of IAA | ||||
Thomas Caruso | $ | 318,750 | ||
Chief Client Officer | ||||
Executive Officers as a Group | $ | 4,746,861 | ||
Non-Executive Directors as a Group | N/A | |||
Non-Executive Officers as a Group | $ | 33,670,334 |
KAR AUCTION SERVICES' BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR"THE AMENDMENT AND RESTATEMENT OFTHE KAR AUCTION SERVICES, INC. 2009 OMNIBUS STOCK AND INCENTIVE PLAN.
PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED "FOR"PROPOSAL NO. 3 UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE.
Equity Compensation Plan Information
The following table sets forth the aggregate information of our equity compensation plans in effect as of December 31, 2013.
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights(1) | Weighted- average exercise price of outstanding options, warrants and rights(2) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column)(3) | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Equity compensation plans approved by security holder(s) | 7,741,999 | $ | 12.70 | 3,703,415 | ||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||
| | | | | | | | | | |
Total | 7,741,999 | $ | 12.70 | 3,703,415 |
Updated Equity Compensation Plan Information as of February 28, 2014
As of February 28, 2014, there were 2,082,560 shares remaining available for future issuance under the Omnibus Plan and 8,061,653 shares subject to outstanding awards. Of the 8,061,653 shares subject to outstanding awards, 323,466 were full value awards and 7,738,187 were related to options, with a weighted average exercise price of $14.39 and a weighted average remaining term of 5.6 years.
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM: PROPOSAL NO. 3 |
PROPOSAL |
RATIFICATION OF INDEPENDENT AUDITORS
The Audit Committee has appointed KPMG LLP ("KPMG") to serve as KAR Auction Services'the Company's independent registered public accounting firm for its fiscal year ending December 31, 2014.2016. The Audit Committee and the Board of Directors seek to have the stockholders ratify the Audit Committee's appointment of KPMG, which has served as KAR Auction Services'the Company's independent registered public accounting firm since 2006. Although KAR Auction Servicesthe Company is not required to seek stockholder approval of this appointment, the Board of Directors believes it to be sound corporate governance to do so. If the appointment of KPMG is not ratified by the stockholders, the Audit Committee will consider the vote of the Company's stockholders and may appoint another independent registered public accounting firm or may decide to maintain its appointment of KPMG. Ratification of the appointment of our independent registered public accounting firm requires the affirmative vote of the majority of shares present in person or represented by proxy at the annual meeting and entitled to vote.
Representatives of KPMG will be present at the annual meeting and will have the opportunity to make a statement, if they desire to do so, and to respond to appropriate questions.
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KAR AUCTION SERVICES' BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE"FOR" THE RATIFICATION OF THE APPOINTMENT OF KPMG AS OUR INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM FOR 2013.Table of Contents
PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED "FOR"PROPOSAL NO. 4 UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE.
REPORT OF THE AUDIT COMMITTEE |
The Audit Committee reviewsis composed of four independent directors, each of whom satisfies the Company'sindependence requirement of Rule 10A-3 under the Securities Exchange Act of 1934, as amended. The Audit Committee oversees our financial reporting process on behalf of the Board of Directors. The Audit Committee consists of directors who have been determined byDirectors and serves as the primary communication link between the Board of Directors to beas the representative of our stockholders, the independent of the Company as prescribed by the NYSEauditors, KPMG LLP and other regulators. The Company'sour internal auditors. Our management has the primary responsibility for the financial statements and for the reporting process, including the establishmentsystems of internal control and maintenance offor assessing the systemeffectiveness of internal control over financial reporting. The Company's independent registered public accounting firm is responsible for auditing the financial statements prepared by management, expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles, and auditing the Company's internal control over financial reporting and expressing an opinion thereon. In this context, the Audit Committee has met and held discussions with management and KPMG, the Company's independent registered public accounting firm, regarding the fair and complete presentation of the Company's financial statements and the assessment of the Company's internal control over financial reporting.
The Audit Committee has discussed with KPMG matters required to be discussed by the Statement on Auditing Standards No. 61, as amended (AICPA,Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board (the "PCAOB") in Rule 3200T, and has reviewed and discussed KPMG's independence from the Company and its management. As part of that review, the Audit Committee has received the written disclosures and the letter required by applicable requirements of the PCAOB regarding KPMG's communications with the Audit Committee concerning independence, and the Audit Committee has discussed KPMG's independence from the Company. The Audit Committee also has considered whether KPMG's provision of non-audit services to the Company is compatible with the auditor's independence. The Audit Committee has concluded that KPMG is independent from the Company and its management.
The Audit Committee meets with the Company's Chief Financial Officer, the Company's Vice President of Internal Audit and representatives of KPMG, in regular and separate, executive sessions, to discuss the audited consolidated financial statements, the evaluations of the Company's internal controls and the overall quality of the Company's financial reporting and compliance programs.
In fulfilling its responsibilities during the fiscal year, the Audit Committee reviewed with management the consolidated financial statements and related financial statement disclosures included in our Quarterly Reports on Form 10-Q and the audited consolidated financial statements and related financial statement disclosures included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. Also, the Audit Committee reviewed with the independent auditors their judgments as to both the quality and the acceptability of our accounting policies. The Audit Committee's review with the independent auditors included a discussion of other matters required under Auditing Standards promulgated by the Public Company Accounting Oversight Board ("PCAOB"), including PCAOB Auditing Standard No. 16,Communications with Audit Committees. The Audit Committee received the written disclosures from the independent auditors required by the PCAOB Rule Nos. 3524 and 3526 regarding communications with the Audit Committee concerning independence and has discussed those disclosures with the independent auditors. The Audit Committee has also reviewed non-audit services performed by KPMG and considered whether KPMG's provision of non-audit services was compatible with maintaining its independence from the Company.
The Audit Committee discussed with our internal auditors and independent auditors the overall scope and plans for their respective audits and reviewed our plans for compliance with management certification requirements pursuant to Section 404 of the Sarbanes-Oxley Act of 2002. The Audit Committee met with the internal auditors and independent auditors, with and without management present, to discuss the results of the auditors' examinations, their evaluations of our internal controls, including a review of the disclosure control process, and the overall quality of our financial reporting. Management represented to the Audit Committee that the Company's consolidated audited financial statements as of and for the fiscal year ended December 31, 2015 were prepared in accordance with generally accepted accounting principles, and the Audit Committee has reviewed and discussed the audited consolidated financial statements with management and the independent auditors. The Audit Committee, or the Chairman of the Audit Committee, also pre-approved all audit and non-audit services provided by the independent auditors during and relating to fiscal year 2015. In reliance on the reviews and discussions referred to above, the Audit Committee has recommended to the Board of Directors and the Board of Directors has approved, that the audited consolidated financial statements be included in the Company'sour Annual Report on Form 10-K for the fiscal year ended December 31, 2013, for filing2015.
The Audit Committee evaluates the performance of the independent auditors each year and determines whether to re-engage the current independent auditors or consider other audit firms. In doing so, the Audit Committee considers the quality and efficiency of the services provided by the independent auditors, along with the SEC.independent auditor's capabilities, technical expertise, and knowledge of our operations and industry. In addition, the Audit Committee reviews with our Chief Financial Officer and our Vice President of Internal Audit, the overall audit scope and plans, the results of internal and external audit examinations, evaluations by management and the independent auditors of our internal control over financial reporting and the quality of our financial reporting and the ability of the independent auditors to remain independent. Based on these evaluations, the Audit Committee decided to engage KPMG LLP as our independent auditors for fiscal year 2016. Although the Audit Committee has the sole authority to appoint the independent auditors, the Audit
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Committee has continued its long-standing practice of recommending that the Board ask our stockholders to ratify the appointment of the independent auditors at our annual meeting of stockholders.
The Audit Committee
Robert M. Finlayson (Chairman)Peter R. Formanek
Michael T. Kestner(Chairman)Jonathan P. WardDonna R. Ecton
Lynn Jolliffe
Stephen E. Smith
FEES PAID TO KPMG LLP |
The following table sets forth the aggregate fees charged to KAR Auction Services by KPMG for audit services rendered in connection with the audit of our consolidated financial statements and reports for 20132015 and 20122014 and for other services rendered during 20132015 and 20122014 to KAR Auction Services and its subsidiaries, as well as all out-of-pocket costs incurred in connection with these services:
Fee Category | 2013 | 2012 | 2015 | 2014 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Audit Fees(1) | $ | 2,160,000 | $ | 2,089,500 | | $2,359,561 | | $2,148,000 | ||||||
Audit-Related Fees(2) | 237,000 | 100,500 | 33,000 | 32,500 | ||||||||||
Tax Fees(3) | — | 37,222 | | 248,615 | | 96,035 | ||||||||
All Other Fees(4) | 51,014 | — | 160,432 | 70,471 | ||||||||||
| | | | | | | | | | | | | ||
Total Fees | $ | 2,448,014 | $ | 2,227,222 | | $2,801,608 | | $2,347,006 | ||||||
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Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
KAR Auction Services' independent auditorregistered public accounting firm fee pre-approval policy provides for an annual process through which the Audit Committee evaluates the nature and scope of the audit prior to the commencement of the audit. The Audit Committee also evaluates audit-related, tax and other services
that are proposed, along with the anticipated cost of such services. The Audit Committee reviews schedules of specific services to be provided. If other services are provided outside of this annual process, under the policy they may be (i) pre-approved by the Audit Committee at a regularly scheduled meeting; or (ii) pre-approved by the Chairman of the Audit Committee, acting between meetings and reporting back to the Audit Committee at the next scheduled meeting. All audit, audit-related, tax services and all other fees described above were approved by the Audit Committee or the Chairman of the Audit Committee before such services were rendered.
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COMPENSATION DISCUSSION AND ANALYSIS |
COMPENSATION DISCUSSION AND ANALYSIS
OVERVIEW |
The following discussion and analysis of our compensation program for named executive officers should be read in conjunction with the tables and text elsewhere in this proxy statement that describe the compensation awarded to, earned by, and paid to the named executive officers.
Named Executive Officers.Officers
Our named executive officers for the last completed fiscal year were (i) our principalchief executive officer, or PEO;officer; (ii) our principalchief financial officer, or PFO;officer; and (iii) each of the three other most highly compensated executive officers (other than the PEO and the PFO) who were serving as executive officers at the end of the last completed fiscal year. The following persons were ourOur named executive officers for the period covered by this compensation discussion and analysis:are:
JamesJim Hallett, Chief Executive Officer (PEO)and Chairman of the Board of KAR Auction Services;
Eric Loughmiller, Executive Vice President and Chief Financial Officer (PFO) of KAR Auction Services;
John Kett, Chief Executive Officer and President of IAA.
This CD&A is organized into the following six sections:
Executive Summary (page 34)
Compensation Philosophy and Objectives (page 38)
The Role of the Compensation Committee and the Executive Officers in Determining Executive Compensation (page 38)
Elements Used to Achieve Compensation Philosophy and Objectives (page 40)
Compensation Policies and Other Information (page 49)
Results of Say on Pay Votes at 2014 Annual Meeting (page 51)
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EXECUTIVE SUMMARY |
Executive Summary
Business Highlights
DespiteFor the impact of Superstorm Sandy on our salvage auction business,year ended December 31, 2015, KAR Auction Services again delivered solid growth in volume of total vehicles sold, revenues, adjusted EBITDA and adjusted net income. Specific highlights for fiscal 2015 included:
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Specific highlights for fiscal 2013 included:
During the past five
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We maintain a compensation program structured to achieve a close connection between executive pay and company performance. We believe that this strong pay-for-performance orientation has served us well in recent years, andparticularly as we movewe've moved forward following the sale by our former equity sponsors of all of their holdings of our common stock in 2013, we have maintained a compensation program structured to achieve a close connection between executive pay and company performance.late 2013.
Table of Contents WE DO:
5-Year 5-year Pay Alignment Chart
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Fiscal Year | 2010 YE | 2011 | 2012 | 2013 | 2014 | 2015 | ||||||
| | | | | | | | | | | | |
CEO Pay ($000) | | $1,475 | $1,414 | $5,994 | $4,808 | $4,824 | ||||||
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Indexed TSR | 100 | 97.83 | 148.15 | 223.66 | 270.86 | 297.96 | ||||||
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Table of Company Stock Policy:Contents
WE DO NOT:
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COMPENSATION PHILOSOPHY AND OBJECTIVES |
We design and administer our executive officers and directors.
Compensation Philosophy and Objectives
We believe thatpay programs to help ensure the compensation of our named executive officers should beis (i) closely aligned with our performance on both a short-term and long-term basis; (ii) linked to specific, measurable results intended to create value for stockholders; and (iii) competitive in attracting and retaining key executive talent ininto the vehicle remarketing and auto finance industry. Each of the compensation programs that we have developed and implemented is intended to satisfy one or more of the following specific objectives:
THE ROLE OF THE COMPENSATION COMMITTEE AND THE EXECUTIVE OFFICERS IN DETERMINING EXECUTIVE COMPENSATION |
Composition of the Compensation Committee. The Compensation Committee of our Board of Directors is comprised of Church M. MooreMmes. Ecton (Chairman), Donna R. Ecton and Peter R. Formanek. Mr. Moore was originally appointed by KAR LLC pursuant to a director designation agreement between KAR Auction ServicesJolliffe and KAR LLC.Messrs. Howell and Larson.
Role of the Compensation Committee. The Compensation Committee has primary responsibility for all compensation decisions relating to our named executive officers. The Compensation Committee reviews the aggregate level of our executive compensation, as well as the mix of elements used to compensate our named executive officers on an annual basis.
Compensation Committee's Use of Market and Survey Data. In light of the unique mix of businesses that comprise KAR Auction Services and the lack of directly comparable public companies, the Compensation Committee has traditionally not identifiedadopted a specific peer group of companies for comparative purposes and does notthe purpose of formally engage in benchmarking of compensation. During 2013,The Compensation Committee understands that most companies consider pay levels at comparably-sized, peer companies when setting named executive officer compensation levels. Knowing this practice, the Compensation Committee engaged ClearBridge ashas attempted to develop a meaningful peer group for the Company, with help from its independent compensation consultantconsultant; however, the Committee has historically stopped short of a formal peer group, in part due to provide advicethe unique combination of our three separate business segments.
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In order to confirm competitiveness of compensation, the Compensation Committee reviews survey data and proxy compensation data of other comparably-sized companies. Prior to 2015, the Compensation Committee had not set compensation levels by reference to competitive market data using any specific target percentiles within such data. Beginning in late 2015, the Compensation Committee began using a combination of (i) survey data (cuts from the 2015 Aon Hewitt and Mercer general industry and service industry surveys); and (ii) proxy compensation data of a "proxy comparator group" more formally in setting and adjusting base salary levels for 2016. In light of the lack of comparable companies for KAR's business, as discussednoted above, companies in the proxy comparator group were selected based on (i) a focus on service-oriented industries; (ii) comparable revenue and market capitalization levels (KAR represents the 41st and 53rd percentiles, respectively, within the selected proxy comparator group on these measures); (iii) comparable growth, profitability and/or market valuation profiles; and (iv) the avoidance of over-representing any one industry. Where possible, the Compensation Committee included companies that are in related or similar industries to the Company. The proxy comparator group used in late 2015 consisted of the following paragraph.30 companies:
Allison Transmission Holdings, Inc. | Kansas City Southern | Steelcase, Inc. | ||
AOL, Inc. | Kirby Corp. | Stericycle, Inc. | ||
Cintas Corp. | Landstar System, Inc. | Teradata Corp. | ||
Comerica, Inc. | LKQ Corp. | Tetra Tech, Inc. | ||
Copart, Inc. | MSC Industrial Direct Co., Inc. | Total System Services, Inc. | ||
Equifax, Inc. | Old Dominion Freight Line, Inc. | Trimble Navigation Ltd. | ||
GATX Corp. | Plexus Corp. | Vantiv, Inc. | ||
Heartland Payment Systems, Inc. | Ritchie Bros. Auctioneers, Inc. | Waste Connections, Inc. | ||
HNI Corp. | Solera Holdings, Inc. | Werner Enterprises, Inc. | ||
Itron, Inc. | Springleaf Holdings, Inc. | Westinghouse Air Brake Technologies Corp. |
The Compensation Committee viewed the proxy comparator group and market data as an important guide, but not as the sole determinant in making its decisions regarding 2016 base salary levels. The Compensation Committee also considered experience and tenure, sustained performance and specific requirements of roles relative to market.
Role of the Independent Compensation Consultant. In 2013, theThe Compensation Committee engaged ClearBridge to provideused Semler Brossy as its independent compensation consultant in 2015. During 2015, Semler Brossy provided (i) advice to the Compensation Committee with respect to evaluatingthe assessment of the Company's executive compensation practices; (ii) advice regarding the evaluation of long-term incentive compensation practicespractices; (iii) advice and designingguidance regarding the design of new long-term equity awards andawards; (iv) advice regarding related compensation matters. matters; (v) advice to the Compensation Committee with respect to annual and long-term incentive plan design; and (vi) guidance on the competitiveness of the executive officers' elements of compensation.
The Compensation Committee has reviewed the independence of ClearBridgeSemler Brossy in light of SEC rules and NYSE listing standards regarding compensation consultants and has concluded that ClearBridge'sthe work of Semler Brossy for the Compensation Committee does not raise any conflict of interest. All work performed by ClearBridgeSemler Brossy is subject to review and approval of the Compensation Committee.
Role of the Executive Officers. Mr. Hallett regularly participates in meetings of the Compensation Committee at which compensation actions involving our named executive officers are discussed. Mr. Hallett assists the Compensation Committee by making recommendations regarding compensation actions relating to the executive officers other than himself. Mr. Hallett recuses himself and does not participate in any portion of any meeting of the Compensation Committee at which his compensation is discussed.
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Elements Used to Achieve Compensation Philosophy and Objectives
Components of Executive Compensation for 2013. The Compensation Committee has established a total compensation and benefits program for our named executive officers that consist of the following:
ELEMENTS USED TO ACHIEVE COMPENSATION PHILOSOPHY AND OBJECTIVES |
Elements of 2015 Executive Compensation Program Design
The following table lists the elements of compensation for our 2015 executive compensation program. The program uses a mix of fixed and variable compensation elements and provides alignment with both short- and long-term business goals through annual and long-term incentives. Our incentives are designed to drive overall corporate performance and business unit strategies that correlate to stockholder value and align with our strategic vision. In order to confirm competitiveness of compensation, the Compensation Committee reviews survey data and proxy compensation data of other companies.
Element | Key Characteristics | Why We Pay This Element | How We Determine Amount | 2015 Decisions | ||||||
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Fixed | Base salary | Fixed compensation component payable in cash. Reviewed annually and adjusted when appropriate. | Reward the NEOs for their past performance and facilitate the attraction and retention of a skilled and experienced executive management team. | Individual performance, experience, job scope, tenure and review of competitive pay practices. | One named executive officer received a salary increase in 2015. See page 42. | |||||
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Variable | Annual cash incentive awards | Variable compensation component payable in cash based on performance against annually established targets. | Motivate and reward the successful achievement of pre-determined financial objectives at the Company. | Individual performance, experience, job scope and review of competitive pay practices. Based on achievement of 2015 Adjusted EBITDA. | Strong performance resulted in 114% of target for the CEO and an average of 115% of target for the other named executive officers. See page 45. | |||||
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Performance restricted stock units (PRSUs) | PRSUs vest at the end of a three-year performance period. See pages 46 for the retention requirements for PRSUs. | Motivate and reward executives for performance on key long-term measures. Align the interests of executives with long-term stockholder value and serve to retain executive talent. | Target awards based on individual's ability to impact future results, job scope, individual performance and review of competitive pay practices. Earned awards based on Cumulative Adjusted Net Income Per Share performance through December 31, 2017. PRSU awards made up 75% of the value of the aggregate long-term incentives granted to the named executive officers in 2015. | The Compensation Committee granted PRSUs to all of the named executive officers in 2015. See pages 46 to 47. | ||||||
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Restricted stock units (RSUs) | RSUs vest ratably on each of the first three anniversaries of the grant date subject to the named executive officer's continued employment with the Company, provided that the Company achieves $100 million in adjusted net income in its 2015 fiscal year, as reported by the Company (which condition was satisfied). | Align the interests of executives with long-term stockholder value and serve to retain executive talent. | Awards based on individual's ability to impact future results, job scope, individual performance and review of competitive pay practices. RSU awards made up 25% of the value of the aggregate long-term incentives granted to the named executive officers in 2015. | The Compensation Committee granted RSUs to all of the named executive officers in 2015. See page 46. | ||||||
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Compensation Structure and Goal Setting
Our executive compensation program is designed to deliver compensation in accordance with corporate and business unit performance with a large percentage of compensation at risk through long-term equity awards and annual cash incentive awards. These awards are linked to actual performance, consistent with our belief that a significant amount of executive compensation should be in the form of equity and that a greater percentage of compensation should be tied to performance for executives who bear higher levels of responsibility for our performance. The mix of target direct compensation for 2015 for our CEO and the average of our other named executives is shown in the charts below. Approximately 80% of our CEO's total compensation, and approximately 70% of the average total compensation of our other named executive officers, is at-risk, consisting of stock options and other performance-based incentives. As we move away from historical incentive programs developed in large part by our former equity sponsors, the Compensation Committee continues to refine the elements, mix of awards and performance goals in our incentive compensation program, while ensuring that a large portion of our named executive officers' compensation is performance-based.
CEO
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Other NEO Average Compensation
Base Salary
General. Base salary is the fixed component of total annual cash compensation and is intended to reward the named executive officers for their past performance and facilitate the attraction and retention of a skilled and experienced executive management team. The Compensation Committee reviews base salaries for our named executive officers annually and as it deems necessary and appropriate in connection with any promotion or other change in responsibility of a named executive officer.
Annual salary levels for our named executive officers are based upon various factors, including the individual's performance, budget guidelines, experience, business unit responsibilities, tenure in the particular position, other competitive market salaries for the particular position and the terms of any employment agreements with the named executive officers. In addition, the Compensation Committee also considers the amount and relative percentage of total compensation that is derived from base salary when setting the compensation of our executive officers. The Compensation Committee has not, however, established a policy or a specific formula for such purpose.
officers, individual performance, experience, job scope and tenure. In view of the wide variety of factors considered by the Compensation Committee in connection with determining the base salary of each of our named executive officers, the Compensation Committee has not attempted to rank or otherwise assign relative weights to the factors that it considers. The Compensation Committee considers all theA description of how these factors as a wholewere applied in reaching its determination. The Compensation Committee collectively makes its determination with respect to base salaries based on the conclusions reached by its members, in light of the factors that each of them considered appropriate.2015 is described below.
Base Salaries for 2013.2015. At its February 20, 2013 meeting,In late 2014 and the first quarter of 2015, the Compensation Committee reviewed the base salaries of each of our named executive officers for 2013.2015. After considering multiple factors, the Compensation Committee approved a base salary adjustment only for Mr. Loughmiller. The Compensation Committee did not approve base salary adjustments for Messrs. Hallett, St-Hilaire, Kett or Gottwald because the Compensation Committee determined that their base salaries were already set at competitive levels. The following base salaries were in effect for 2015:
Name | Base Salary | Increase % | Effective Date | Why Was Increase Approved? | ||||
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Jim Hallett | $900,000 | 0% | January 1, 2014 | N/A. | ||||
Eric Loughmiller | $450,000 | 1.7% | January 1, 2015 | Increase based upon review of competitive pay practices. | ||||
Don Gottwald | $550,000 | 0% | January 1, 2014 | N/A. | ||||
Stéphane St-Hilaire | $450,000 | 0% | January 1, 2014 | N/A. | ||||
John Kett | $450,000 | 0% | January 1, 2014 | N/A. |
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Base Salaries for 2016. In late 2015, the Compensation Committee reviewed the base salaries of each of our named executive officers for 2016. After considering multiple factors, including, without limitation, the performance of the Company, and the contribution of each named executive officer and review of competitive pay practices, the Compensation Committee approved a 2% increase in the following base salaries effective January 1, 2016:
Name | Base Salary | Increase % | ||
---|---|---|---|---|
Jim Hallett | $900,000 | 0% | ||
Eric Loughmiller | $450,000 | 0% | ||
Don Gottwald | $566,500 | 3% | ||
Stéphane St-Hilaire | $459,000 | 2% | ||
John Kett | $463,500 | 3% |
The Compensation Committee did not approve base salary adjustments for Messrs. Hallett or Loughmiller O'Brien and Caruso and Ms. Polak. The amount of the increase was consistent with the overall 2% merit increase pool established for the Company. The increases resulted in the following salaries, which were retroactive to January 1, 2013: Mr. Hallett—$832,320; Mr. Loughmiller—$433,857; Ms. Polak—$357,000; Mr. O'Brien—$511,801; and Mr. Caruso—$510,000 (until starting in his new role as Chief Client Officer on December 17, 2013, as described below).
Base Salaries for 2014. The Compensation Committee approved an 8.13% increase in Mr. Hallett's base salary, effective as of January 1, 2014, on December 10, 2013 based on its review of competitive market salaries for CEOs. On December 17, 2013, Mr. Caruso entered into a new employment agreement with the Company to serve as its Chief Client Officer, and pursuant to this agreement his base salary was adjusted, commensurate with his new role with the Company. At its February 7, 2014 meeting,because the Compensation Committee reviewed thedetermined that their base salaries were already set at competitive levels. In order to confirm competitiveness of each of our other named executive officers for 2013. After considering multiple factors, including, without limitation, the performance of the Company and the contribution of each named executive officer,compensation, the Compensation Committee approved a 2% increase in the base salaries for Messrs. Loughmillerreviews survey data and O'Brien and Ms. Polak, effective retroactive to January 1, 2014. The amountproxy compensation data of the increase was consistent with the overall 2% merit increase pool established for the Company. These base salary
adjustments resulted in the following salaries for 2014: Mr. Hallett—$900,000; Mr. Loughmiller—$442,534; Ms. Polak—$364,140; Mr. O'Brien—$522,037; and Mr. Caruso—$425,000.other companies.
Annual Cash Incentive Programs
General. We provide annual cash incentive opportunities to our named executive officers in order to:
Annual cash incentive opportunities are established for each named executive officer by the Compensation Committee based upon a number of factors, including the job responsibilities of such executive and internal equity among the named executive officers. Consistent with our compensation philosophy and objectives, the Compensation Committee sets annual incentive bonus targets in amounts which are intended to encourage the achievement of certain levels of performance, provide competitive upside opportunity without encouraging excessive risk-taking and provide a significant portion of each named executive officer's compensation through variable pay based upon pre-established goals and objectives. Generally, named executive officers with greater job responsibilities have a significant proportion of their annual cash compensation tied to Company performance through their annual incentive opportunity. The Compensation Committee has not, however, established a policy or a formula for the purpose of calculating the specific amount or relative percentage of total compensation that should be derived from annual cash incentive opportunities.
The KAR Auction Services, Inc. Annual Incentive Program. TheUnder the KAR Auction Services, Inc. Annual Incentive Program (the "Annual Incentive Program"), which is part of the Omnibus Plan, was adopted for the purpose of motivating and rewarding the successful achievement of pre-determined financial objectives at KAR Auction Services and its subsidiaries. Under such program, the grant of cash-based awards to eligible participants is contingent upon the achievement of certain corporate performance goals as determined by the Compensation Committee.
Use of 2015 Adjusted EBITDA
In 2013,2015, the Compensation Committee used "Adjusted"2015 Adjusted EBITDA" (as defined below and in the Company's senior credit agreement, for KAR Auction Services, ADESA and IAA, depending upon the named executive officer)officer, as the measure of performance when establishing annual performance objectives for the named executive officers. Using these measures, the Compensation Committee establishes, on an annual basis, specific targets that determine the size of payouts under the incentive plan. In 2013, the annual incentive opportunity for each named executive officer other than Messrs. Hallett and Loughmiller and Ms. Polak, was based upon a combination of the performance of the Company overall and the performance of the executive's business unit. Mr. Hallett's, Mr. Loughmiller's and Ms. Polak's annual incentive opportunity was based solely upon the performance of KAR Auction Services. Mr. O'Brien's annual incentive opportunity was based on the performance of IAA and KAR Auction Services. Mr. Caruso's annual incentive opportunity was based on the performance of ADESA and KAR Auction Services.Annual Incentive Program.
"Adjusted EBITDA Defined
"Adjusted EBITDA" is equal to EBITDA (earnings before interest expense, income taxes, depreciation and amortization) adjusted to exclude among other things: (a)
the determination of net income; (f)
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Using these measures, the Compensation Committee establishes, on an annual basis, specific targets that determine the size of payouts under the incentive plan. In 2015, the annual incentive opportunity for each named executive officer was as follows:
Name | KAR Auction Services | ADESA | IAA | |||
---|---|---|---|---|---|---|
Jim Hallett | Annual incentive award based 100% on performance of KAR Auction Services | — | — | |||
Eric Loughmiller | Annual incentive award based 100% on performance of KAR Auction Services | — | — | |||
Don Gottwald | Annual incentive award based 100% on performance of KAR Auction Services | — | — | |||
Stéphane St-Hilaire | Annual incentive award based 50% on performance of KAR Auction Services | Annual incentive award based 50% on performance of ADESA | — | |||
John Kett | Annual incentive award based 50% on performance of KAR Auction Services | — | Annual incentive award based 50% on performance of IAA |
The amount to be earned by our operating business units, ADESA and IAA,named executive officers under the Annual Incentive Program is determined in a similar manner, however, it excludes "holding company" expensesby multiplying each officer's target opportunity by the Business Performance Factor as disclosed in our Annual Report on Form 10-K.shown below:
Performance Targets for the Annual Incentive Program
The Compensation Committee analyzes financial measures and determines the level of performance required to receive threshold, target and superior annual incentive payouts. The Compensation Committee established the performance objectives in amounts which it believes would increase stockholder value and which it believed would be achievable given a sustained effort on the part of the named executive officers and which would require increasingly greater effort to achieve the target and superior objectives. The Compensation Committee may increase or decrease the performance targets and the potential payouts at each performance target if, in the discretion of the Compensation Committee, the circumstances warrant such an adjustment. In 2015, the Compensation Committee did not increase or decrease the performance targets or the payouts of any 2015 annual incentive program payout.
2015 Performance Targets.2013 PERFORMANCE TARGETS
The chart which follows provides the 2015 Adjusted EBITDA performance targets established by the Compensation Committee for 20132015 as well as the actual level of performance achieved (dollars in millions):
| Threshold | Target | Superior | Actual | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
KAR Auction Services | $ | 505.91 | $ | 546.93 | $ | 601.62 | $ | 534.99 | (1) | ||||
ADESA | $ | 236.37 | $ | 255.53 | $ | 281.09 | $ | 250.86 | |||||
IAA | $ | 203.30 | $ | 219.78 | $ | 241.76 | $ | 216.70 | (1) |
| Threshold | Target | Superior | Achieved Results | Percentage of Target Achieved | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
KAR Auction Services | $ | 592.9 | $ | 641.0 | $ | 673.0 | $ | 649.8 | | 101.4 | % | |||||
ADESA* | $ | 270.1 | $ | 292.0 | $ | 321.2 | $ | 316.2 | 108.3 | % | ||||||
IAA | $ | 245.1 | $ | 265.0 | $ | 291.5 | $ | 265.1 | | 100.0 | % |
*ADESA's performance targets and achieved results (in the above chart) are used for bonus purposes only and include certain technology expenses recorded in "holding company" expenses. ADESA's reported Adjusted
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EBITDA figures for KAR Auction Services and IAA have been adjusted to account for the impact of Superstorm Sandy. In 2013, however, the Compensation Committee only allowed up to $10.36year ended December 31, 2015 was $328.6 million and did not include such technology expenses recorded in losses to be excluded from KAR Auction Services and IAA's EBITDA for annual incentive award calculation purposes. Losses of $13.52 million were incurred by IAA in 2013 in connection with Superstorm Sandy, meaning that our named executive officers earned annual incentive awards based on KAR Auction Services and IAA Adjusted EBITDA figures that are $3.16 million less than the figures reported in our financial statements with respect to fiscal 2013."holding company" expenses.
2015 Annual Incentive Opportunities.2013 ANNUAL INCENTIVE OPPORTUNITIES
Under the Annual Incentive Program, threshold performance objectives must be met in order for any payout to occur. Payouts can range from 50% of target awards for performance at threshold up to a maximum of 150% of target awards for superior performance or no payout if performance is below
threshold. The following table shows the annual incentive opportunities for our named executive officers for 2013:2015:
| | Bonus Opportunity | Bonus Goal Weighting % | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Base Salary | Threshold % of Base Salary | Target % of Base Salary | Superior % of Base Salary | KAR Auction Services | ADESA | IAA | |||||||||||||||
James Hallett | $ | 832,320 | 50 | 100 | 150 | 100 | ||||||||||||||||
Eric Loughmiller | $ | 433,857 | 37.5 | 75 | 112.5 | 100 | ||||||||||||||||
Rebecca Polak | $ | 357,000 | 37.5 | 75 | 112.5 | 100 | ||||||||||||||||
Thomas O'Brien | $ | 511,801 | 50 | 100 | 150 | 50 | 50 | |||||||||||||||
Thomas Caruso | $ | 510,000 | 50 | 100 | 150 | 50 | 50 |
| | Bonus Opportunity | Bonus Goal Weighting % | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | 2015 Adjusted EBITDA | |||||||||
| | Threshold % of Base Salary | Target % of Base Salary | Superior % of Base Salary | ||||||||||
Name | Base Salary | KAR Auction Services | ADESA | IAA | ||||||||||
Jim Hallett | $900,000 | 50 | 100 | 150 | 100 | | | |||||||
Eric Loughmiller | $450,000 | 37.5 | 75 | 112.5 | 100 | |||||||||
Don Gottwald | $550,000 | 50 | 100 | 150 | 100 | | | |||||||
Stéphane St-Hilaire | $450,000 | 50 | 100 | 150 | 50 | 50 | ||||||||
John Kett | $450,000 | 50 | 100 | 150 | 50 | | 50 |
Because KAR Auction Services, ADESA and IAA each achieved at least the threshold level of performance, each of our named executive officers werewas eligible to receive an award under the Annual Incentive Program for 2013. The respective award amounts2015, which are set forth in the Summary Compensation Table.
2014 ANNUAL INCENTIVE OPPORTUNITIES
The following table showsTable (page 53). Based on the annual incentive opportunitiesCompany's performance during 2015, and the accompanying payout percentages for the different performance goals set forth above, our named executive officers for 2014:earned the following percentages and corresponding payout amounts of their target annual incentive awards:
| | Bonus Opportunity | Bonus Goal Weighting % | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Base Salary | Threshold % of Base Salary | Target % of Base Salary | Superior % of Base Salary | KAR Auction Services(1) | ADESA | IAA | |||||||||||||||
James Hallett | $ | 900,000 | 50 | 100 | 150 | 100 | ||||||||||||||||
Eric Loughmiller | $ | 442,534 | 37.5 | 75 | 112.5 | 100 | ||||||||||||||||
Rebecca Polak | $ | 364,140 | 37.5 | 75 | 112.5 | 100 | ||||||||||||||||
Thomas O'Brien(2) | — | — | — | — | — | — | ||||||||||||||||
Thomas Caruso | $ | 425,000 | 37.5 | 75 | 112.5 | 100 |
Name | Percentage of Target Annual Incentive Award Earned | 2015 Payout | ||
---|---|---|---|---|
Jim Hallett | 113.7% | $1,023,613 | ||
Eric Loughmiller | 113.7% | $383,855 | ||
Don Gottwald | 113.7% | $625,541 | ||
Stéphane St-Hilaire(1) | 122.9% | $553,145 | ||
John Kett | 106.9% | $481,030 |
Long-Term Incentive Opportunities
The Company provides long-term incentive compensation opportunities in the form of performance-based restricted stock units ("PRSUs"), and restricted stock units, and previously had provided performance-based stock options and service-based stock options, each as described below.
Recent2015 Long-Term Incentive Awards. Following the Exit Event (as defined in "KAR LLC Override Units" below)As previously disclosed, on November 13, 2013,February 20, 2015, the Compensation Committee has providedgranted PRSUs and restricted stock units ("RSUs") under its long-term incentive compensation opportunitiesprogram to the Company's named executive officers, as described in the table below. The Company did not grant any stock options to its named executive officers in 2015. Awards were based on the individual's ability to impact future results, job scope, individual performance and a review of competitive pay practices. Mr. Loughmiller's 2015 award was enhanced for retentive purposes due to the fact that Mr. Loughmiller did not have any equity grants that carried forward following the sale by our former equity sponsors of all of their holdings of our common
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stock in late 2013. The aggregate target award value for each named executive officer was allocated such that 75% of the value was in the form of PRSUs and service-based stock options.25% of the value was in the form of RSUs.
Name | Target PRSUs (Cumulative Adjusted Net Income Per Share Goal) | Value of Target Shares at Grant | RSUs | Value of RSUs at Grant | ||||
---|---|---|---|---|---|---|---|---|
Jim Hallett | 57,879 | $2,142,681 | 19,293 | $714,227 | ||||
Eric Loughmiller | 26,796 | $991,988 | 8,932 | $330,663 | ||||
Don Gottwald | 14,738 | $545,601 | 4,913 | $181,879 | ||||
Stéphane St-Hilaire | 9,647 | $357,132 | 3,216 | $119,056 | ||||
John Kett | 9,647 | $357,132 | 3,216 | $119,056 |
20132015 Performance-Based RSU Awards
On December 13, 2013, the Compensation Committee approved the grant of PRSUs to certain of the Company's named executive officers, as disclosed in the table below.
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The awards were designed to drive and reward long-term, sustainable stockholder value creation, achieve the Company's retention goals and to reflect the individuals' role, responsibility and contribution to the Company's success. The PRSUs will vest on the third anniversary of the grant date if and to the extent that the Company's total stockholder return relative to that of companies within the S&P 500 Index"Cumulative Adjusted Net Income Per Share" exceeds certain levels over the three-year period beginning on January 1, 2015. "Cumulative Adjusted Net Income Per Share" means the grant date. sum of the Company's Adjusted Net Income Per Share for the three fiscal years in the measurement period beginning on January 1, 2015 and ending on December 31, 2017.
"Adjusted Net Income Per Share" for a fiscal year is calculated by dividing Adjusted Net Income by the weighted average diluted common shares outstanding per year. "Adjusted Net Income" for a fiscal year is equal to the Company's net income as reported in the Form 10-K filed by the Company with respect to such fiscal year, adjusted to (i) exclude gains/losses from certain nonrecurring and unbudgeted capital transactions, including debt prepayment, debt refinancing and similar items; (ii) exclude depreciation and amortization expenses resulting from the revaluation of certain assets at the time of the 2007 merger consistent with the Company's calculation of its reported adjusted net income; (iii) exclude certain expenses incurred in connection with stock-based compensation related to the 2007 merger consistent with the Company's calculation of its reported adjusted net income; (iv) exclude acquisition contingent consideration; (v) exclude the impact of significant acts of God or other events outside of the Company's control that may affect the overall economic environment; and (vi) exclude significant asset impairments.
The amount of the target PRSUs actually earned and paid (on a 1-for-1 basis) in shares of common stock in a lump sum following the performance period will be: 0% for below threshold performance, 50% for threshold performance, 100% for target performance and up to 200% for achieving the maximum performance level. Linear interpolation will be used to calculate the percentage of target PRSUs earned and paid (on a 1-for-1 basis) if performance falls between the threshold and maximum levels. A summary
2015 Time-Based RSU Awards
The RSUs will vest and convert into shares of common stock of the relativeCompany on a 1-for-1 basis on each of the first three anniversaries of the grant date, subject to the named executive officer's continued employment with the Company through each such anniversary, provided that the Company has achieved $100 million in adjusted net income in its 2015 fiscal year (as reported in the Form 10-K filed by the Company with respect to such fiscal year, and which condition was satisfied).
Prior Years' Awards.
2014 Stock Option and Performance-Based RSU Awards
As previously disclosed, on February 27, 2014, the Compensation Committee approved the grant of PRSUs and stock options to certain of the Company's named executive officers which remain outstanding, the amounts of which are disclosed in the "Outstanding Equity Awards" table below to the extent they remain outstanding.
The stock options have an exercise price of $30.89 per share and vest in equal 25% increments on the first four anniversaries of the grant date, subject to the executive's continued employment with the Company through each such anniversary.
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Fifty percent of the PRSUs vest on the third anniversary of the grant date if and to the extent that the Company's total stockholder return relative to that of companies within the S&P 500 Index exceeds certain levels and corresponding payouts is provided in(identified below) over the following table:three-year period beginning on the grant date.
Total Stockholder Return Percentile Rank vs. S&P 500 During the Measurement Period | Number of PRSUs Vesting | |
---|---|---|
Below Threshold: | ||
Below 40th percentile | 0% of Target | |
Threshold: | ||
40th percentile | 50% of Target | |
Target: | ||
65th percentile | 100% of Target | |
Maximum: | ||
Greater than or equal to 85th percentile | 200% of Target |
The remaining 50% of the PRSUs vest if and to the extent that the Company's Cumulative Adjusted Net Income Per Share (as described above with respect to the 2015 PRSUs) exceeds certain levels over the three-year period beginning on January 1, 2014 and ending on December 31, 2016.
2014 Long-Term Incentive2013 Performance-Based RSU Awards
On February 27, 2014,As previously disclosed, on December 13, 2013, the Compensation Committee approved the grant of PRSUs and stock options under its long-term incentive program to certain of the Company's named executive officers including Messrs. Hallett and Loughmiller and Ms. Polak. The awards were designed so that each participating executive received approximately 50% of the total award valuewhich, as applicable, are disclosed in the form of stock options and 50% in the form of PRSUs. Mr. Hallett received an option to purchase 194,404 shares of common stock of the Company and a total target amount of 43,832"Outstanding Equity Awards" table.
The PRSUs Mr. Loughmiller received an option to purchase 97,204 shares of common stock of the Company and a total target amount of 21,916 PRSUs and Ms. Polak received an option to purchase 34,996 shares of common stock of the Company and a total target amount of 7,890 PRSUs.
The stock options have an exercise price of $30.89 per share and will vest in equal 25% increments on the first four anniversaries of the grant date, subject to the executive's continued employment with the Company on such dates. Fifty percent of the PRSUs will vest on the third anniversary of the grant date if and to the extent that the Company's total stockholder return relative to that of companies within the S&P 500 Index exceeds the same levels described in the table above with respect to the 2014 PRSUs (earned based on total stockholder return) over the three-year period beginning on the grant date. The remaining 50% of the PRSUs will vest if and to the extent that the Company's Cumulative Adjusted Net Income Per Share exceeds certain levels over the three-year period beginning on January 1, 2014. The amount of the target PRSUs earned and paid (on a 1-for-1 basis) in shares of
common stock in a lump sum following the performance period will be: 0% for below threshold performance, 50% for threshold performance, 100% for target performance and up to 200% for achieving the maximum performance level. Linear interpolation will be used to calculate the percentage of target PRSUs earned and paid (on a 1-for-1 basis) if performance falls between the threshold and maximum levels.
Legacy Long-Term Incentive Awards.Awards
Certain service options and performance-based exit options were granted to our named executive officers prior to our Exit Event under the KAR Auction Services, Inc. Stock Incentive Plan ("Stock Incentive Plan"), which was in effect prior to our initial public offering, and later under the Omnibus Plan, which was initially adopted on December 10, 2009.
Grants under the Stock Incentive Plan and the March 1, 2010 grant under the Omnibus Plan were structured as follows: (i)
Together, these awards aligned the interests of our named executive officers and other employees with the interests of our stockholders, who benefited from both the retention of a skilled management team and an increase in the value of the Company.
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Performance-Based Option Vesting
The performance-based exit options vestvested and becomebecame exercisable in four tranches contingent upon the closing price of the shares of common stock of the Company exceeding the threshold levels of $20.00, $25.00, $30.00 or $35.00 for 20 consecutive trading days. The exit options included in the first tranche (the exit options associated with the $20.00 threshold level) became fully vested in March 2013. The2013, the exit options included in the second tranche (the exit options associated with the $25.00 threshold level) became fully vested in August 2013, and the exit options included in the third tranche (the exit options associated with the $30.00 threshold level) became fully vested in March 2014 and the exit options included in the fourth tranche (the exit options associated with the $35.00 threshold level) became fully vested in March 2015, upon achieving the applicable vesting criteria.
Plans under which Long-Term Incentive Awards are Granted. The Company currently grants long-term incentive awards under the Omnibus Plan and formerly granted awards under the Stock Incentive Plan.
Omnibus Plan
Our Board of Directors initially adopted the Omnibus Plan on December 10, 2009, as amended. Under the Omnibus Plan, participants are eligible to receive options, restricted stock, restricted stock units, SARs, other stock-based awards or cash-based awards as determined by the Compensation Committee.
Stock Incentive Plan
The Stock Incentive Plan was in effect prior to our initial public offering and was subsequently frozen as of December 10, 2009. No further awards have been issued under this plan.
Retirement, Health and Welfare Benefits
We offer a variety of health and welfare and retirement programs to all eligible employees, including our named executive officers. OurAs with all Company employees, our named executive officers are eligible to receive 401(k) employer matching contributions onequal to 100% of the same terms as all Company employees.first 4% of compensation contributed by the named executive officer or, in the case of Mr. St-Hilaire (prior to his move in 2015 onto our U.S. payroll), deferred profit sharing employer matching contributions of up to $2,500 (employer matches 100% of first $1,500 contributed by the named executive officer and 50% of the next $2,000 contributed by the named executive officer, subject to a cap equal to 6% of compensation) under the Group Registered Retirement Savings Plan ("GRRSP"). The health and welfare programs are intended to protect employees against catastrophic loss and encourage a healthy lifestyle. Our
health and welfare programs include medical, dental, vision, pharmacy, life insurance, disability and accidental death and disability. We also provide travel insurance to all employees who travel for business purposes.
In general, the Compensation Committee believes that the provision of a certain level of perquisites and other personal benefits to the named executive officers is reasonable and consistent with the objective of facilitating and allowing us to attract and retain highly qualified executive officers. The perquisites which are currently available to certain of our named executive officers include an automobile allowance or company car,use of a Company-owned automobile, an allowance for executive physicals and Company-paid group term life insurance premiums, professional association membership fees and club membership fees.premiums. Please see footnote 4 to the Summary Compensation Table for more information regarding perquisites.
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COMPENSATION POLICIES AND OTHER INFORMATION |
Employment and Severance Agreements
The Compensation Committee recognizes that, from time to time, it is appropriate to enter into agreements with our executive officers to ensure that we continue to retain their services and to promote stability and continuity within the Company. All of our named executive officers have an employment agreement with KAR Auction Services or one of its subsidiaries. A description of these agreements can be found in the section titled "Employment"Potential Payments Upon Termination or Change in Control—Employment Agreements with Named Executive Officers."
Each of our named executive officers other than Mr. Caruso was also a Management Member of KAR LLC. Through the issuance by KAR LLC of certain profit interests, referred to as "Override Units," such named executive officers were incentivized to manage from the perspective of owners with an equity stake in the Company. One-fourth of the Override Units were issued as Operating Units and the remaining three-fourths were issued as Value Units. The ratio of Operating Units to Value Units was determined by our Former Equity Sponsors and was intended to serve as both a retention tool to reward continued service and as a performance incentive to reward our named executive officers for the achievement of certain multiples on our Former Equity Sponsors' original investment in KAR LLC. Prior to the Exit Event on November 13, 2013, our named executive officers held the following profit interests in KAR LLC:
Name | Operating Units | Value Units | |||||
---|---|---|---|---|---|---|---|
James Hallett | 43,684.92 | 131,054.76 | |||||
Eric Loughmiller | 12,812.00 | 38,436.00 | |||||
Rebecca Polak | 3,494.91 | 10,484.73 | |||||
Thomas O'Brien | 13,732.07 | 41,196.22 |
The Operating Units were 100% vested and participated in distributions from KAR LLC to its members (including our Former Equity Sponsors) in excess of such members' original investments in KAR LLC. On November 13, 2013, an Exit Event occurred when our Former Equity Sponsors divested their holdings of our common stock. As a result of the occurrence of an Exit Event, our named executive officers received the following distributions during 2013 with respect to their Operating Units: Mr. Hallett: $6,902,462; Mr. Loughmiller: $2,024,368; Ms. Polak: $552,215; and Mr. O'Brien: $2,169,744.
The portion of the Value Units held by our named executive officers that participated in distributions from KAR LLC to its members (including our Former Equity Sponsors) was determined based on the investment multiple and internal rate of return realized by the Investor Members on their original investment in KAR LLC. Based on the Investment Multiple which was achieved at the time of the Exit Event, approximately 39.5% of our named executive officers' Value Units quantified in the table above participated in distributions from KAR LLC to its members upon the Exit Event because the Investment Multiple was at least greater than 1.5 but less than 3.5, meaning that only the Applicable Performance Percentage of the Value Units participated in distributions, subject to the next sentence, and the remaining Value Units were automatically forfeited for no consideration. The Override Committee of KAR LLC approved the vesting of additional Value Units for Messrs. Hallett and Loughmiller and Ms. Polak. Thus, our named executive officers received the following distributions during 2013 with respect to their Value Units: Mr. Hallett: $6,930,337; Mr. Loughmiller: $3,269,300; Ms. Polak: $914,441; and Mr. O'Brien: $1,628,406.
For purposes of the foregoing, the "Investment Multiple" was equal to the quotient of the "Current Value" divided by the "Initial Price." The "Current Value" was generally equal to the sum of (i) the aggregate amount of distributions received by the Investor Members in respect of their common equity interests of KAR LLC plus (ii) in the case of a distribution made in connection with an Exit Event, the product of (y) the aggregate amount per Common Unit of distributions to be received by the Investor Members upon such Exit Event and (z) the aggregate number of Units held by the Investor Members as of the occurrence of such Exit Event. The "Initial Price" is equal to the product of (i) the Investor Members' average cost per each Common Unit held by the Investor Member and (ii) the total number of the Common Units held by the Investor Member.
An "Exit Event" included, generally, any transaction other than an initial public offering which resulted in the sale, transfer, or other disposition by certain of the original members of KAR LLC, which were referred to as the "Investor Members," to a third party of (a) all or substantially all of the limited liability company interests of KAR LLC beneficially owned by the Investor Members, as of the date of such transaction; or (b) all of the assets of KAR LLC and its subsidiaries, taken as a whole.
The "Investor Members" included Kelso Investment Associates VII, L.P.; KEP VI, LLC; GS Capital Partners VI Fund, L.P.; GS Capital Partners VI Parallel, L.P.; GS Capital Partners VI GmbH & Co. KG; GS Capital Partners VI Offshore Fund, L.P.; ValueAct Capital Master Fund, L.P.; PCap KAR LLC; Axle Holdings II, LLC ("Axle LLC"); and such other persons who from time to time became members of the Company and were designated as Investor Members.
The "Applicable Performance Percentage" means, expressed as a percentage, the quotient obtained by dividing (x) the excess, if positive, of the Investment Multiple over 1.5 by (y) 2.
Mr. O'Brien held profit interests in Axle LLC referred to as Override Units (the "Axle Override Units") which were granted prior to the completion of the 2007 Transactions (as defined in "Certain Related Party Relationships").
Similar to the Override Units in KAR LLC, Mr. O'Brien's Axle Override Units consisted of 64,485 Operating Units, which were 100% vested, and 128,971 Value Units, which vested upon the achievement of certain financial objectives for the benefit of certain of the investors in Axle LLC referred to in the Axle LLC Agreement as the "Kelso Members."
On November 13, 2013, an Exit Event occurred when our Former Equity Sponsors indirectly divested their holdings of our common stock. As a result of the Former Equity Sponsors' divestiture of our common stock, Mr. O'Brien received distributions of $6,469,851 during 2013 to with respect to his Operating Units.
Upon the occurrence of the November 13, 2013 Exit Event, 97.8% of Mr. O'Brien's Value Units became eligible to participate in distributions from Axle LLC because (i) the Kelso Members received an internal rate of return, compounded annually, on their investment in Axle LLC which exceeded the 12% threshold, and (ii) the Investment Multiple fell between the threshold of 2.0 and the maximum of 4.0, resulting in the Value Units vesting and participating in the distribution on a ratable basis. The remaining Axle Value Units were forfeited for no consideration. Thus, Mr. O'Brien received distributions of $7,475,512 during 2013 with respect to his Value Units.
For purposes of the Axle Override Units, an "Exit Event" included, generally, any transaction which resulted in the sale, transfer or other disposition by the Kelso Members to a third party of (i) all or substantially all of the limited liability company interests of Axle LLC beneficially owned by the Investor Members as of the date of such transaction; or (ii) all of the assets of Axle LLC and its subsidiaries, taken as a whole. For purposes of the Axle LLC Agreement, the Investment Multiple was, generally, equal to the quotient of the fair market value of all distributions received by Kelso Investment Associates VII, L.P. and KEP VI, LLC (collectively, "Kelso") divided by Kelso's aggregate capital contributions to Axle LLC.
Tax and Accounting Considerations
Employment Agreements. Section 280G of the Internal Revenue Code ("Section 280G") and related provisions impose substantial excise taxes under Section 4999 of the Code on so-called "excess parachute payments" payable to certain named executive officers upon a change in control and results in the loss of the compensation deduction for such payments by the Company.
Mr. Hallett's and Mr. O'Brien's employment agreements each provideagreement, which became effective as of February 27, 2012, provides for a potential "gross-up payment" in the event that such excise taxes result from any excess parachute payments.
Mr. Hallett's employment agreement provides that in the event that any payment or benefit under such agreement in connection with Mr. Hallett's employment or termination of employment is or becomes subject to an excise tax under Code Section 4999, then KAR Auction Servicesthe Company will make a cash payment to Mr. Hallett, which, after the imposition of all income, employment, excise and other taxes thereon as well as any penalty and interest assessments associated therewith, will be sufficient to place Mr. Hallett in the same after-tax position as he would have been in had such excise tax not been applied. However, in the event that a reduction of the total payments to Mr. Hallett would avoid the application of the excise tax, then the total payments will be reduced to the extent necessary to avoid the excise tax, but in no event by more than 10% of the original amount of the total payments.
Mr. O'Brien's employment agreement provides that, in connection with a change in control of IAA, a lump sum gross-up payment will be made to Mr. O'Brien in such amount as is necessary to ensure that the net amount retained by Mr. O'Brien, after reduction for any excise taxes on the payments under his employment agreement, will be equal to the amount that he would have received if no portion of the payments had been an excess parachute payment.
None of the new employment agreements entered into with Messrs. Loughmiller, Gottwald, St-Hilaire and Caruso and Ms. PolakKett contain excise tax gross-up provisions.
Stock Incentive Plan. In the event that any payment received under this plan upon the occurrence of an Exit Event would constitute an excess parachute payment, the payment will be reduced to the extent necessary to eliminate any such excess parachute payment.
Omnibus Plan. Certain awards under the Omnibus Plan are designed toso that they may comply with the performance-based compensation exception to the $1,000,000 per person annual deductibility limit under Section 162(m) applicable to Covered Employees. Though tax deductibility is one of many factors considered by the Compensation Committee when determining executive compensation, the
Compensation Committee retains the discretion to award compensation that exceeds or does not qualify for the Section 162(m) deductibility limit. For example, in seeking to tie executive pay to company performance in a meaningful way, the Compensation Committee may make decisions in designing and approving pay programs that are not driven by tax consequences to the Company.
Accounting for Stock-Based Compensation. We account for stock-based compensation in accordance with the requirements of ASC 718.
Clawback Policy for Financial Restatements. In 2014, the Company adopted aThe Company's clawback policy providingprovides for the recovery of incentive compensation in the event the Company is required to prepare an accounting restatement due to any current or former executive officer's intentional misconduct. In such an event, the executive officer would be required to repay to the Company the excess amount of incentive compensation received under the inaccurate financial statement. The Company intends to revise this policy as needed to comply with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act when such requirements become effective.
| | 49 |
Insider Trading Policy
Our insider trading policy expressly prohibits:
We also prohibit officers, directors and directors from employees from:
Our executives and directors are permitted to enter into trading plans that are intended to comply with the requirements of Rule 10b5-1 of the Securities Exchange Act of 1934 so that they can prudently diversify their asset portfolios and exercise their stock options before their scheduled expiration dates.
In addition to the Company's existing anti-pledging of Company stock policy, the Company adopted a formal anti-hedging of Company stock policy in 2014. This policy prohibits our officers and directors from engaging in certain forms of hedging or monetization transactions with respect to the Company's stock, such as prepaid variable forward contracts, equity swaps, collars and exchange funds.
Results of Say on Pay Votes at 2011 Annual Meeting
Stock Ownership and Stock Holding Guidelines
In 2015, we adopted the following stock ownership guidelines which are applicable to our named executive officers.
Title | Stock Ownership Guideline | |||||
---|---|---|---|---|---|---|
CEO | 5 times annual base salary | |||||
Other Named Executive Officers | 3 times annual base salary |
The named executive officers must hold 100% of net shares of Company stock received under awards granted on or after January 1, 2015 until the applicable ownership guideline is met. In addition, our named executive officers are required to hold 100% of net shares of Company stock received under awards granted on or after January 1, 2015 for at least 12 months after vesting, regardless of whether the stock ownership guideline has been met.
The Company's non-employee directors are subject to the Company's director stock ownership and holding guidelines. The stock holding guideline requires each non-employee director to hold any shares of the Company's common stock granted after January 1, 2014 for at least four years, subject to certain exceptions approved by the Compensation Committee. The stock ownership guideline, which was adopted in 2015, requires each non-employee director to own a minimum of three times his or her annual cash retainer amount in shares of Company stock.
| | 50 |
RESULTS OF SAY ON PAY VOTES AT 2014 ANNUAL MEETING |
At the Company's 20112014 annual meeting of stockholders, the Company last held a non-binding stockholder vote on executive compensation (commonly referred to as "Say on Pay"). At the meeting, approximately 97%excluding broker non-votes, over 95% of the votes on the matter were cast to approve the Company's executive compensation programs, less than 1%4% of the votes were cast against, and approximately 2%less than 1% abstained from voting or constituted a broker non-vote.voting.
The Compensation Committee has considered the results of the vote, and feedback received from stockholders as part of its review of the Company's overall compensation program, including the appropriateness of the compensation philosophy and objectives, the role of the Compensation Committee and executive officers in setting compensation, the elements used to achieve the compensation philosophy and objectives and the levels of compensation provided to the named executive officers. Following its review, the Compensation Committee decided to retain the Company's general approach to executive compensation in 2014 and 2015, in part due to the significant majority of stockholders that
voted to approve the Company's executive compensation programs at the 20112014 annual meeting of stockholders.
ThePreviously, at the Company's 2011 annual meeting of stockholders, the Company also held a non-binding stockholder vote at the meeting on whether to hold a Say on Pay vote every one, two or three years. Approximately 12% of the votes on the matter were cast in favor of holding a vote every year, less than one-tenth of 1% were cast in favor of holding a vote every two years, approximately 86% were cast in favor of holding a vote every three years and approximately 2% abstained or constituted a broker non-vote. In line with the results of the vote, the Company will present a Say on Pay vote every three years, the most recentnext of which is included in this proxy statement as Proposal No. 2.
will occur at the Company's 2017 annual meeting of stockholders.Compensation Committee Report
COMPENSATION COMMITTEE REPORT |
The Compensation Committee, which was chaired by Peter R. Formanek from June 2014 to March 2015 and by Donna R. Ecton from March 2015 to present, has reviewed the Compensation Discussion and Analysis for executive compensation for 20132015 and discussed that analysis with management. Based on its review and discussions with management, the Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement. This report is submitted by Donna R. Ecton, J. Mark Howell, Lynn Jolliffe and John P. Larson, being all current members of the Compensation Committee, and Peter R. Formanek, who was the Chairman of the Compensation Committee for a portion of 2015.
Compensation Committee
Church M. Moore (Chairman)
Donna R. Ecton(Chairman)
Peter R. Formanek
J. Mark Howell
Lynn Jolliffe
John P. Larson
| | 51 |
ANALYSIS OF RISK IN THE COMPANY'S COMPENSATION STRUCTURE |
The Compensation Committee considers the potential risks in our business when designing and administering the Company's pay program, and the Compensation Structure
Committee believes its balanced approach to performance measurement and pay delivery works to avoid misaligned incentives for individuals to undertake excessive or inappropriate risk. Further, program administration is subject to considerable internal controls, and when determining the principal outcomes—performance assessments and pay decisions—the Compensation Committee relies on principles of sound governance and good business judgment. As part of its responsibilities to annually review all incentive compensation and equity-based plans, and evaluate whether the compensation arrangements of the Company's employees incentivize unnecessary and excessive risk-taking, the Compensation Committee evaluated the risk profile of all of the Company's compensation policies and practices for 2013, and concluded that they do not motivate imprudent risk-taking. 2015.
In its evaluation, the Compensation Committee reviewed the Company's employee compensation structures and noted numerous design elements that manage and mitigate risk without diminishing the incentive nature of the compensation, including:
The Compensation Committee also reviewed the Company's compensation programs for certain design features that may have the potential to encourage excessive risk-taking, including: over-weighting towards annual incentives, highly leveraged payout curves, unreasonable thresholds and steep payout cliffs at certain performance levels that may encourage short-term business decisions to meet payout thresholds. The Compensation Committee concluded that the Company's compensation programs (i) do not include such elementselements; or (ii) have implemented features, steps and controls that are designed to limit risks of our compensation arrangements. In light of these analyses, the Compensation Committee concluded that itthe Company has a balanced pay and performance program that does not encourage excessive risk-taking that is reasonably likely to have a material adverse effect on the Company.
| | 52 |
SUMMARY COMPENSATION TABLE FOR 2013
SUMMARY COMPENSATION TABLE FOR 2015 |
The table below contains information concerning the compensation of our (i) PEO;chief executive officer; (ii) PFO;chief financial officer; and (iii) each of the three other most highly compensated executive officers (other than the PEO and PFO) who were serving as executive officers as of December 31, 2013.2015.
Name and Principal Position | Year | Salary | Stock Awards(1) | Option Awards(2) | Non-Equity Incentive Plan Compensation(3) | All Other Compensation(4) | Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
James Hallett, | 2013 | $ | 832,320 | $ | 4,407,271 | — | $ | 711,164 | $ | 43,399 | $ | 5,994,154 | ||||||||||
CEO (PEO) | 2012 | $ | 816,000 | — | — | $ | 559,025 | $ | 38,870 | $ | 1,413,895 | |||||||||||
2011 | $ | 816,000 | — | — | $ | 625,508 | $ | 33,770 | $ | 1,475,278 | ||||||||||||
Eric Loughmiller, | 2013 | $ | 433,857 | $ | 2,203,652 | — | $ | 278,027 | $ | 12,270 | $ | 2,927,806 | ||||||||||
EVP and CFO (PFO) | 2012 | $ | 425,350 | — | — | $ | 218,549 | $ | 12,565 | $ | 656,464 | |||||||||||
2011 | $ | 425,350 | — | — | $ | 244,541 | $ | 6,970 | $ | 676,861 | ||||||||||||
Rebecca Polak, | 2013 | $ | 357,000 | $ | 705,182 | — | $ | 228,775 | $ | 25,634 | $ | 1,316,591 | ||||||||||
EVP, General Counsel and | 2012 | $ | 347,195 | — | $ | 179,833 | $ | 25,412 | $ | 552,440 | ||||||||||||
Secretary | 2011 | $ | 321,484 | — | $ | 184,826 | $ | 20,250 | $ | 526,560 | ||||||||||||
Thomas O'Brien, | 2013 | $ | 511,801 | — | — | $ | 450,650 | $ | 43,940 | $ | 1,006,391 | |||||||||||
CEO of IAA | 2012 | $ | 501,766 | — | — | $ | 312,080 | $ | 41,730 | $ | 855,576 | |||||||||||
2011 | $ | 501,766 | — | — | $ | 619,870 | $ | 36,590 | $ | 1,158,226 | ||||||||||||
Thomas Caruso, | 2013 | $ | 510,000 | — | — | $ | 441,799 | $ | 36,160 | $ | 987,959 | |||||||||||
Chief Client Officer | 2012 | $ | 500,000 | — | — | $ | 438,467 | $ | 16,604 | $ | 955,071 | |||||||||||
2011 | $ | 500,000 | — | $ | 462,000 | $ | 95,818 | $ | 10,665 | $ | 1,068,483 |
Name and Principal Position | Year | Salary | Stock Awards(1) | Option Awards(2) | Non-Equity Incentive Plan Compensation(3) | All Other Compensation(4) | Total | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jim Hallett, | 2015 | $900,000 | $2,856,908 | — | $1,023,613 | $43,420 | $4,823,941 | ||||||||
| | | | | | | | | | | | | | | |
CEO and Chairman | 2014 | $900,000 | $1,477,796 | $1,283,066 | $1,106,118 | $41,340 | $4,808,320 | ||||||||
| | | | | | | | | | | | | | | |
| 2013 | $832,320 | $4,407,271 | — | $711,164 | $43,399 | $5,994,154 | ||||||||
Eric Loughmiller, | 2015 | $450,000 | $1,322,651 | — | $383,855 | $37,456 | $2,193,962 | ||||||||
| | | | | | | | | | | | | | | |
EVP and CFO | 2014 | $442,534 | $738,898 | $641,546 | $407,913 | $32,026 | $2,262,917 | ||||||||
| | | | | | | | | | | | | | | |
2013 | $433,857 | $2,203,652 | — | $278,027 | $12,270 | $2,927,806 | |||||||||
Don Gottwald, | 2015 | $550,000 | $727,480 | — | $625,541 | $31,385 | $1,934,406 | ||||||||
| | | | | | | | | | | | | | | |
Chief Operating | 2014 | $523,388 | — | — | $617,391 | $29,750 | $1,170,529 | ||||||||
| | | | | | | | | | | | | | | |
Officer | 2013 | $424,483 | — | — | $430,638 | $29,358 | $884,479 | ||||||||
Stéphane St-Hilaire,(5) | 2015 | $447,937 | $476,188 | — | $553,145 | $80,059 | $1,557,323 | ||||||||
| | | | | | | | | | | | | | | |
CEO and President | 2014 | $434,363 | $295,582 | $256,634 | $456,113 | $93,051 | $1,535,743 | ||||||||
| | | | | | | | | | | | | | | |
of ADESA | |||||||||||||||
John Kett,(6) | 2015 | $450,000 | $476,188 | — | $481,030 | $33,620 | $1,440,838 | ||||||||
| | | | | | | | | | | | | | | |
CEO and President | |||||||||||||||
of IAA |
| | 53 |
Compensation information for 2013 is not provided for Mr. St-Hilaire because he was not a named executive officer in that year.
| | 54 |
GRANTS OF PLAN-BASED AWARDS FOR 2013
GRANTS OF PLAN-BASED AWARDS FOR 2015 |
The following table summarizes the payouts which our named executive officers could have received upon the achievement of certain performance objectives under the Annual Incentive Program.Program and the grants of PRSUs and RSUs made under the Omnibus Plan in 2015. We did not grant any option awards in 2015.
| | Estimated Future Payouts under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts under Equity Incentive Plan Awards(2) | | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Grant Date Fair Value of Stock Awards ($)(3)(l) | |||||||||||||||||||||||
Name (a) | Grant Date (b) | Threshold ($) (c) | Target ($) (d) | Maximum ($) (e) | Threshold (#) (f) | Target (#) (g) | Maximum (#) (h) | ||||||||||||||||||
James Hallett | — | 416,160 | 832,320 | 1,248,480 | — | — | — | — | |||||||||||||||||
12/13/2013 | — | — | — | 67,205 | 134,409 | 268,818 | 4,407,271 | ||||||||||||||||||
Eric Loughmiller | — | 162,696 | 325,393 | 488,089 | — | — | — | — | |||||||||||||||||
12/13/2013 | — | — | — | 33,603 | 67,205 | 134,410 | 2,203,652 | ||||||||||||||||||
Rebecca Polak | — | 133,875 | 267,750 | 401,625 | — | — | — | — | |||||||||||||||||
12/13/2013 | — | — | — | 10,753 | 21,506 | 43,012 | 705,182 | ||||||||||||||||||
Thomas O'Brien | — | 255,901 | 511,801 | 767,702 | — | — | — | — | |||||||||||||||||
Thomas Caruso | — | 255,000 | 510,000 | 765,000 | — | — | — | — |
| | Estimated Future Payouts under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts under Equity Incentive Plan Awards(2) | | | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name (a) | Grant Date (b) | Threshold ($)(c) | Target ($)(d) | Maximum ($)(e) | Threshold (#)(f) | Target (#)(g) | Maximum (#)(h) | Number of Securities Underlying Restricted Stock Units (#)(3)(i) | Grant Date Fair Value of Stock Awards ($)(4)(l) | |||||||||||||||||||
Jim Hallett | | — | | 450,000 | | 900,000 | | 1,350,000 | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2/20/2015 | | | | | | | | 28,940 | | 57,879 | | 115,758 | | | | 2,142,681 | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2/20/2015 | | | | | | | | | | | | | | 19,293 | | 714,227 | ||||||||||
Eric Loughmiller | — | 168,750 | 337,500 | 506,250 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2/20/2015 | 13,398 | 26,796 | 53,592 | 991,988 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2/20/2015 | 8,932 | 330,663 | ||||||||||||||||||||||||||
Don Gottwald | | — | | 275,000 | | 550,000 | | 825,000 | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2/20/2015 | | | | | | | | 7,369 | | 14,738 | | 29,476 | | | | 545,601 | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2/20/2015 | | | | | | | | | | | | | | 4,913 | | 181,879 | ||||||||||
Stéphane St-Hilaire(5) | — | 225,000 | 450,000 | 675,000 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2/20/2015 | 4,824 | 9,647 | 19,294 | 357,132 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2/20/2015 | 3,216 | 119,056 | ||||||||||||||||||||||||||
John Kett | | — | | 225,000 | | 450,000 | | 675,000 | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2/20/2015 | | | | | | | | 4,824 | | 9,647 | | 19,294 | | | | 357,132 | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2/20/2015 | | | | | | | | | | | | | | 3,216 | | 119,056 |
Additional information concerning our cash and equity incentive plans may be found in the sections titled "Compensation Discussion and Analysis—Elements Used to Achieve Compensation Philosophy and Objectives—Annual Cash Incentive Programs" and "Long-Term Incentive Opportunities," respectively.
| | 55 |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2015 |
| Option Awards | Stock Awards | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name (a) | Number of Securities Underlying Unexercised Options (#) Exercisable (b) | Number of Securities Underlying Unexercised Options (#) Unexercisable (c) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d) | Option Exercise Price ($) (e) | Option Expiration Date (f) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that have Not Vested (#) (i) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that have Not Vested ($) (j) | |||||||
Jim Hallett | 37,500 | | | 13.46 | 03/01/2020 | | | |||||||
| | | | | | | | | | | | | | |
| 112,500 | | | 13.46 | 03/01/2020 | | | |||||||
| | | | | | | | | | | | | | |
| 48,601 | 145,803(1) | | 30.89 | 02/27/2024 | | | |||||||
| | | | | | | | | | | | | | |
| | | | | | 268,818(2) | 9,954,331(2) | |||||||
| | | | | | | | | | | | | | |
| | | | | | 43,832(3) | 1,623,099(3) | |||||||
| | | | | | | | | | | | | | |
| | | | | | 43,832(4) | 1,623,099(4) | |||||||
| | | | | | | | | | | | | | |
| | | | | | 115,758(5) | 4,286,519(5) | |||||||
| | | | | | | | | | | | | | |
| | | | | | 19,293(6) | 714,420(6) | |||||||
Eric Loughmiller | 24,301 | 72,903(1) | 30.89 | 02/27/2024 | ||||||||||
| | | | | | | | | | | | | | |
134,410(2) | 4,977,202(2) | |||||||||||||
| | | | | | | | | | | | | | |
21,916(3) | 811,549(3) | |||||||||||||
| | | | | | | | | | | | | | |
21,916(4) | 811,549(4) | |||||||||||||
| | | | | | | | | | | | | | |
53,592(5) | 1,984,512(5) | |||||||||||||
| | | | | | | | | | | | | | |
8,932(6) | 330,752(6) | |||||||||||||
Don Gottwald | 165,000 | | | 10.00 | 05/06/2019 | | | |||||||
| | | | | | | | | | | | | | |
| | | | | | 29,476(5) | 1,091,496(5) | |||||||
| | | | | | | | | | | | | | |
| | | | | | 4,913(6) | 181,928(6) | |||||||
Stéphane St-Hilaire | 59,355 | 10.00 | 08/20/2017 | |||||||||||
| | | | | | | | | | | | | | |
5,598 | 13.46 | 03/01/2020 | ||||||||||||
| | | | | | | | | | | | | | |
67,170 | 13.46 | 03/01/2020 | ||||||||||||
| | | | | | | | | | | | | | |
9,721 | 29,163(1) | 30.89 | 02/27/2024 | |||||||||||
| | | | | | | | | | | | | | |
8,768(3) | 324,679(3) | |||||||||||||
| | | | | | | | | | | | | | |
8,766(4) | 324,605(4) | |||||||||||||
| | | | | | | | | | | | | | |
19,294(5) | 714,457(5) | |||||||||||||
| | | | | | | | | | | | | | |
3,216(6) | 119,088(6) | |||||||||||||
John Kett | 28,661 | | | 10.00 | 08/20/2017 | | | |||||||
| | | | | | | | | | | | | | |
| 56,585 | | | 10.00 | 08/20/2017 | | | |||||||
| | | | | | | | | | | | | | |
| | | | | | 19,294(5) | 714,457(5) | |||||||
| | | | | | | | | | | | | | |
| | | | | | 3,216(6) | 119,088(6) |
| | 56 |
Additional information concerning our cash and equity incentive plans may be found in the sections titled "Elements Used to Achieve Compensation Philosophy and Objectives—Annual Cash Incentive Programs" and "Long-Term Incentive Opportunities," respectively.
Employment Agreements with Named Executive Officers
Each of our named executive officers has an employment agreement with the Company or one of its subsidiaries. A summary of each of the agreements is provided below.
James Hallett
Mr. Hallett's employment agreement, which became effective as of February 27, 2012, provides for the following severance and change of control payments:
Termination Due to Mr. Hallett's Death or Disability. If Mr. Hallett's employment is terminated as a result of his death or disability, we will pay Mr. Hallett, or in the case of his death, Mr. Hallett's estate or beneficiaries, an amount equal to the sum of (i) any accrued but unpaid base salary and
accrued but unused vacation days; (ii) any earned and vested benefits and payments pursuant toheld by each named executive officer multiplied by the termsmarket price of any benefit plan (collectively,Company common stock at the amounts described in (i) and (ii) above are, the "Accrued Obligations"); and (iii) subject to Mr. Hallett executing a general release of any claims that he may have against the Company (the "Release"), any annual bonus for a prior completed calendar year that has not yet been calculated or paid to Mr. Hallett (the "Earned but Unpaid Bonus").
In addition, if Mr. Hallett is participating in the health plansclose of the Company at the time of his termination, we will pay him, orlast trading day in the case of his death, his estate or beneficiaries, his or their premiums attributable to maintaining insurance coverage under COBRA for the shorter of (i) 18 months; or (ii) until Mr. Hallett becomes eligible for comparable coverage under the health plans of another employer (the "Continued Benefits"). Subject to receipt and effectiveness of the Release, we also will pay Mr. Hallett, or his estate or beneficiaries, a prorated bonus based upon the portion of the year during2015, which Mr. Hallett was employed by us (the "Prorated Bonus").
For purposes of Mr. Hallett's employment agreement, "disability" means a "Total Disability" (or equivalent) as defined in the Company's long term disability plan in effect at the time of the disability.
Termination by the Company for Cause. Following a majority vote of the Board of Directors (excluding Mr. Hallett or any other employee of the Company), we may terminate Mr. Hallett's employment at any time for "Cause."$37.03 per share. In such event, our only obligation to Mr. Hallett would be the payment, in a lump sum, of Mr. Hallett's Accrued Obligations.
"Cause" is defined in the employment agreement to mean (i) Mr. Hallett's willful, continued and uncured failure to perform substantially his duties under the employment agreement for a period of 14 days following notice to Mr. Hallett of such failure; (ii) Mr. Hallett engaging in illegal conduct or gross misconduct that is demonstrably likely to lead to material injury to the Company; (iii) Mr. Hallett's indictment or conviction of, or plea ofnolo contendere to, a crime constituting a felony or any other crime involving moral turpitude; or (iv) Mr. Hallett's failure to comply with the provisions of the employment agreement relating to confidential information, intellectual property, non-competition and non-solicitation which is not cured within the 14 day period following written notice to Mr. Hallett of such failure.
Termination by the Company Without Cause. Mr. Hallett's employment may be terminated without Cause at any time upon 30 days' prior written notice. In the event of a termination without Cause, the Company will pay Mr. Hallett the following "Severance Benefits": (i) two times the sum of Mr. Hallett's (a) annual base salary and (b) target bonus for the year in which termination occurs which, for this purpose, shall not equal less than 100% of Mr. Hallett's base salary; (ii) a Prorated Bonus in a lump sum; and (iii) the Continued Benefits. In addition to the Severance Benefits described above, we will also pay Mr. Hallett the Accrued Obligations and any Earned but Unpaid Bonus.
Termination by Mr. Hallett for Good Reason. Mr. Hallett may terminate his employment for "Good Reason" within 90 days following the occurrence of an event constituting "Good Reason," if such event remains uncured for a period of 30 days following notice of the event by Mr. Hallett to the Company. Upon such termination, the Company will pay Mr. Hallett the sum of the Severance Benefits, the Accrued Obligations, and any Earned but Unpaid Bonus.
"Good Reason" is defined in the employment agreement to mean the occurrence of any of the following:
Termination by Mr. Hallett without Good Reason. Mr. Hallett may terminate his employment under the employment agreement at any time without Good Reason upon 30 days' prior written notice. In such event, we will pay Mr. Hallett a lump sum amount equal to the Accrued Obligations.
Termination by Mr. Hallett upon Retirement. Mr. Hallett may voluntarily terminate his employment under the employment agreement due to retirement at any time on or after the third anniversary of the effective date of the employment agreement by announcing his retirement at least 12 months prior to such termination. In the event of such a termination, we will pay Mr. Hallett a lump sum amount equal to the Accrued Obligations and a Prorated Bonus.
Excise Tax Gross-Up. As described above in "—Tax and Accounting Considerations—Employment Agreements," Mr. Hallett's employment agreement provides that in the event that any payment or benefit in connection with his employment is or becomes subject to an excise tax under Code Section 4999, the Company will make a cash payment to Mr. Hallett, which after the imposition of all income, employment, excise and other taxes thereon as well as any penalty and interest assessments associated therewith, will be sufficient to place Mr. Hallett in the same after-tax position as he would have been in had such excise tax not applied. However, in the event that a reduction of the total payments due to Mr. Hallett would avoid the application of the excise tax, then the total payments will be reduced to the extent necessary to avoid the excise tax, but in no event by more than 10% of the original amount of the total payments due.
Requirements With Respect to Non-Competition and Non-Solicitation. Upon a termination of employment for any reason, Mr. Hallett is subject to the following two year post-termination restrictive covenants (except in the case of retirement): (i) non-competition restrictions; and (ii) non-solicitation of Company employees and customers.
Eric Loughmiller, Thomas Caruso and Rebecca Polak
The Company entered into substantially similar employment agreements with Messrs. Loughmiller and Caruso and Ms. Polak on December 17, 2013, providing for their at-will employment and the following severance and change of control payments. Mr. Caruso's employment agreement was subsequently amended to reflect that he reports to our Chief Operating Officer.
Termination Due to Death or Disability. If Messrs. Loughmiller or Caruso or Ms. Polak terminate their employment due to death or disability, the Company will be obligated to pay to the executive (or his/her legal representatives) an amount equal to the sum of (i) any earned but unpaid base salary; (ii) accrued but unpaid vacation earned through the date of termination; (iii) unreimbursed business expenses; and (iv) any vested employee benefits. The aggregate of the foregoing is referred to
as the "Accrued Obligations." In addition, the executive or his/her estate/beneficiaries would be entitled to receive (i) COBRA premium payments for 12 months or until the executive becomes eligible for coverage under another employer's health plan, if the executive is participating in the Company's health plans on the date of such termination of employment, (the "Continued Benefits"); (ii) the prorated portion of his/her annual bonus for the calendar year in which such termination of employment occurred, calculated based on the executive's actual performance and based oncalculating the number of daysPRSUs and their value, we are required by SEC rules to compare our performance through 2015 under the executive was employed byPRSU grants against the Company during such calendar year;threshold, target and (iii) a payment equalmaximum performance levels for the grant and report in these columns the applicable potential share number and payout amount. If the performance is between levels, we are required to report the amount of any annual bonus which has been earned in a prior year but which has not yet been paid to the executive (the "Earned but Unpaid Bonus").
For purposes of their employment agreements, "disability" means a "Total Disability" (or equivalent) as defined in the Company's long term disability plan in effectpotential payout at the timenext highest level. Through December 31, 2015, we exceeded target levels of total stockholder return relative to that of companies within the disability.
Voluntary Termination or Termination for Cause. If Messrs. Loughmiller or Caruso or Ms. Polak voluntarily terminates their employment or ifS&P 500 Index and have accordingly reported the Company terminates their employment for Cause,PRSUs at the Company's sole obligation will be to pay them the Accrued Obligations. For purposes of their employment agreements, "Cause" means (i) executive's willful, continued and uncured failure to perform substantially their duties under the agreement (other than any such failure resulting from incapacity due to medically documented illness or injury) for a period of 14 days following written notice by the Company to the executive of such failure; (ii) executive engaging in illegal conduct or gross misconduct that is demonstrably likely to lead to material injury to the Company, monetarily or otherwise; (iii) executive's indictment or conviction of, or plea ofnolo contendere to, a crime constituting a felony or any other crime involving moral turpitude; or (iv) executive's violation of the restrictive covenants under the agreement or any other covenants owed to the Company by executive.
Termination Without Cause or Resignation for Good Reason. In the event Messrs. Loughmiller or Caruso or Ms. Polak are terminated by the Company without Cause or such executive resigns for Good Reason, the executive would be entitled to receive, subject to execution and non-revocation of a release of claims, (i) a lump sum cash payment equal to the sum of his/her annual base salary plus target annual bonus for the year in which such termination of employment occurs; (ii) the Continued Benefits; and (iii) the Earned but Unpaid Bonus. For purposes of their employment agreements, "Good Reason" means (i) any material reduction of the executive's authority, duties and responsibilities; (ii) any material failure by the executive to comply with any of the terms and conditions of the agreement; (iii) any failure to timely pay or provide the executive's base salary, or any reduction in the executive's base salary, excluding any base salary reduction made in connection with across the board salary reductions; (iv) the requirement by the Company that the executive relocate his/her principal business location to a location more than 50 miles from the executive's principal base of operation as of the effective date of the agreement; or (v) a Change of Control occurs and, if applicable, the Company fails to cause its successor (whether by purchase, merger, consolidation or otherwise) to assume or reaffirm the Company's obligations under the agreement without change. For purposes of the foregoing, "Change of Control" has the same meaning as under the Omnibus Plan.
Requirements With Respect to Non-Competition and Non-Solicitation. Upon a termination of employment for any reason, Messrs. Loughmiller and Caruso and Ms. Polak are subject to the following one year post-termination restrictive covenants: (i) non-competition restrictions; and (ii) non-solicitation of Company employees and customers.
Thomas O'Brienmaximum award level.
Mr. O'Brien's employment agreement, which was amended and restated effective as of April 2, 2001 and further amended on December 1, 2008, provides that Mr. O'Brien is an at-will employee and provides for the following severance and change of control payments:
Termination Due to Mr. O'Brien's Death or Disability. If Mr. O'Brien's employment is terminated as a result of his death or disability, IAA will be obligated to pay him (or his legal representatives) an amount equal to the sum of (i) any earned but unpaid base salary; (ii) his accrued but unpaid vacation earned through the date of termination; (iii) the greater of (I) the product of (x) any incentive compensation paid to or deferred by Mr. O'Brien for the fiscal year preceding the fiscal year in which the date of termination occurs, multiplied by (y) a fraction, the numerator of which is the number of days in the current fiscal year through the date of termination, and the denominator of which is 365; and (II) the average of the past three years' annual bonuses (such greater amount being "O'Brien's Annual Bonus"); and (iv) any compensation previously deferred by Mr. O'Brien. The aggregate of the foregoing is referred to as the "O'Brien's Accrued Obligations." Mr. O'Brien's target bonus is 100% of his annual base salary. For purposes of Mr. O'Brien's employment agreement, "disability" is defined to mean with respect to Mr. O'Brien, a substantial inability, by reason of physical or mental illness or accident, to perform his regular responsibilities under the employment agreement indefinitely or for a period of 180 days. Long-term disability insurance is a Company-paid benefit for all employees and is only paid after six months on short-term disability. The benefit is 66.67% of base pay capped at $10,000 per month.
Voluntary Termination by Mr. O'Brien or Termination for Cause by IAA. If Mr. O'Brien voluntarily terminates his employment or if IAA terminates his employment for Cause, IAA's sole obligation will be to pay Mr. O'Brien a lump sum amount equal to (i) any earned but unpaid base salary; and (ii) his accrued but unpaid vacation earned through the date of termination. For purposes of the employment agreement, "Cause" means, as determined in the Board of Directors' discretion, Mr. O'Brien's (i) willful and continued failure to perform substantially his duties with IAA or one of its affiliates (other than any such failure resulting from incapacity due to medically documented illness or injury) for a period of 30 days after a written demand for substantial performance is delivered to Mr. O'Brien by the Board of Directors, which specifically identifies the manner in which the Board of Directors believes that Mr. O'Brien has not substantially performed his duties; or (ii) willful engaging in illegal conduct or gross misconduct which is demonstrably injurious to IAA.
Termination for Other Reasons. If Mr. O'Brien's employment is terminated for any reason other than by IAA for Cause or upon Mr. O'Brien's voluntary resignation, death or disability, either prior to or more than two years after a "change of control" (as defined in his agreement), IAA will be obligated to pay Mr. O'Brien an amount equal to the sum of (i) Mr. O'Brien's annual base salary on the date of such termination; (ii) Mr. O'Brien's average annual bonus received over the eight fiscal quarters immediately preceding the fiscal quarter during which Mr. O'Brien's employment terminates without exceeding Mr. O'Brien's target bonus for the fiscal year during which Mr. O'Brien's employment terminates; and (iii) Mr. O'Brien's auto allowance for IAA's fiscal year during which Mr. O'Brien's employment terminates. In addition, IAA must provide, at IAA's expense, continued group health plan coverage for Mr. O'Brien and his qualified beneficiaries until the earlier of the date that Mr. O'Brien begins any subsequent full-time employment for another employer for pay and the date that is one year after Mr. O'Brien's termination of employment.
Termination within Two Years Following a Change of Control. If Mr. O'Brien's employment with IAA is terminated by IAA without Cause or by reason of Mr. O'Brien's "involuntary termination" (as defined below), in either case within two years after the effective date of a change of control, IAA shall pay Mr. O'Brien (i) an amount equal to 150% of the sum of (a) Mr. O'Brien's then-current annual base salary; and (b) O'Brien's Annual Bonus (as defined above) and (ii) the amount of O'Brien's
Accrued Obligations (as defined above). In addition, IAA must provide, at its expense, continued group health plan coverage for Mr. O'Brien and his qualified beneficiaries until the earlier of the date that Mr. O'Brien begins any subsequent full-time employment for another employer for pay and the date that is 18 months after Mr. O'Brien's termination of employment for any reason.
For purposes of the foregoing, an "involuntary termination" means, generally, Mr. O'Brien's voluntary termination of employment following (i) a change in Mr. O'Brien's position which materially reduces Mr. O'Brien's level of responsibility; (ii) a reduction in Mr. O'Brien's level of compensation (base salary and target incentive compensation); or (iii) a change in Mr. O'Brien's place of employment, which is more than 75 miles from Mr. O'Brien's then-current place of employment, provided that such change or diminution, as applicable, is effected without Mr. O'Brien's written concurrence.
Excise Tax Gross-Up. Mr. O'Brien's employment agreement provides that if any payment or benefit due and payable under the agreement causes any excise tax imposed by Section 4999 of the Code to become due and payable by Mr. O'Brien, then IAA will pay to Mr. O'Brien a "gross-up" payment so that he is in the same after-tax position as he would have been had the excise tax not been payable.
Requirements With Respect to Non-Competition and Non-Solicitation. Upon a termination of employment for any reason, Mr. O'Brien is subject to the following 18 month post-termination restrictive covenants: (i) non-competition restrictions; and (ii) non-solicitation of IAA employees and customers.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END FOR 2013
| Option Awards | Stock Awards | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name (a) | Number of Securities Underlying Unexercised Options (#) Exercisable (b) | Number of Securities Underlying Unexercised Options (#) Unexercisable (c) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d) | Option Exercise Price ($) (e) | Option Expiration Date (f) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that have Not Vested (#) (i) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that have Not Vested ($) (j) | |||||||||||||||
James Hallett | 28,125 | (1) | 9,375 | (1) | 13.46 | 03/01/2020 | ||||||||||||||||
56,250 | (2) | 56,250 | (2) | 13.46 | 03/01/2020 | |||||||||||||||||
67,205 | (3) | 1,985,908 | (3) | |||||||||||||||||||
Eric Loughmiller | 33,603 | (3) | 992,969 | (3) | ||||||||||||||||||
Rebecca Polak | 44,180 | (4) | 10.00 | 05/06/2019 | ||||||||||||||||||
66,270 | (5) | 66,270 | (5) | 10.00 | 05/06/2019 | |||||||||||||||||
10,753 | (3) | 317,751 | (3) | |||||||||||||||||||
Thomas O'Brien | ||||||||||||||||||||||
Thomas Caruso | 3,970 | (6) | 10.00 | 08/20/2017 | ||||||||||||||||||
35,955 | (7) | 65,955 | (7) | 10.00 | 08/20/2017 | |||||||||||||||||
13,700 | (8) | 16.68 | 08/19/2018 | |||||||||||||||||||
20,550 | (9) | 20,550 | (9) | 16.68 | 08/19/2018 | |||||||||||||||||
5,000 | (1) | 11,195 | (1) | 13.46 | 03/01/2020 | |||||||||||||||||
67,170 | (2) | 67,170 | (2) | 13.46 | 03/01/2020 | |||||||||||||||||
50,000 | (10) | 50,000 | (10) | 14.44 | 02/25/2021 |
| | 57 |
OPTION EXERCISES DURING FISCAL YEAR 2013(1)
| | Option Awards | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Name (a) | Award Type | Number of LLC Units Vested/Shares Acquired on Exercise (b) | Value Realized on Exercise (c) | |||||||
James Hallett | KAR LLC Operating Units | 43,684.92 | $ | 6,902,462 | ||||||
KAR LLC Value Units | (2) | 51,788.2 | (3) | $ | 6,930,337 | (3) | ||||
Eric Loughmiller | KAR LLC Operating Units | 12,812 | $ | 2,024,368 | ||||||
KAR LLC Value Units | (2) | 15,188.5 | (3) | $ | 3,269,300 | (3) | ||||
Rebecca Polak | KAR LLC Operating Units | 3,494.91 | $ | 552,215 | ||||||
KAR LLC Value Units | (2) | 4,143.20 | (3) | $ | 914,441 | (3) | ||||
Thomas O'Brien | KAR LLC Operating Units | 13,732.07 | $ | 2,169,744 | ||||||
KAR LLC Value Units | (2) | 16,279.30 | $ | 1,628,406 | ||||||
Axle LLC Operating Units | 64,485.00 | $ | 6,469,851 | |||||||
Axle LLC Value Units | (4) | 126,148.00 | $ | 7,475,512 | ||||||
Thomas Caruso | KAR Auction Services Stock Options | 98,585.00 | $ | 1,752,026 |
OPTION EXERCISES DURING FISCAL YEAR 2015 |
| Option Awards | ||||||
---|---|---|---|---|---|---|---|
Name (a) | Number of Shares Acquired on Exercise (#) (b) | Value Realized on Exercise ($) (c) | |||||
Jim Hallett | | — | | — | |||
Eric Loughmiller | — | — | |||||
Don Gottwald | | 28,270 | | 780,414 | |||
Stéphane St-Hilaire | — | — | |||||
John Kett | | 75,000 | | 2,066,000 |
| | 58 |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Table of Contents
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL |
The following is a discussion of the treatment of equity-based awards held by our named executive officers and annual cash incentive awards due to our named executive officers upon certain types of employment terminations or the occurrence of a change in control of the Company. For a discussion of our named executive officers' severance payments and the treatment of their annual cash incentive awards that may become due upon certain types of employment terminations pursuant to their employment agreements, see "Employment Agreements with Named Executive Officers" above.
below.Equity-Based Awards—Stock Incentive Plan and Omnibus Plan
EQUITY-BASED AWARDS—STOCK INCENTIVE PLAN AND OMNIBUS PLAN |
To the extent a named executive officer's employment agreement does not provide otherwise, the Stock Incentive Plan and the Omnibus Plan (and the related award agreements thereunder) provide for the following treatment of stock options and other equity awards issued pursuant to the plans upon the termination of employment scenarios or a change in control, as set forth below. As a result of the Stock Incentive Plan being frozen by the Company on December 10, 2009, no additional stock options will be granted under this plan. Since December 10, 2009, all grants of stock options and other equity awards have been and will be made pursuant to the terms of the Omnibus Plan. For RSU and PRSU awards granted on and after January 1, 2016, participants who achieve an Early Retirement Date will receive pro rata vesting of RSUs and PRSUs (subject to achievement of performance conditions) based on the number of months worked through their Early Retirement Date plus a credit of an additional 12 months (i.e., "pro rata plus 12 months"). "Early Retirement Date" will mean the date of the executive's voluntary termination of employment after attaining a combination of years of age and service with the Company and its affiliates of at least 70, with a minimum age of 60.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Termination or Change in Control Scenario | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Award Type | | Voluntary Termination | | Termination by the Company for Cause | | Death, Disability or Retirement | | Termination without Cause or for Good Reason | | Effect of Change in Control or Exit Event | | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| Unless otherwise specified in an award agreement, all unvested equity-based awards under the Stock Incentive Plan and the Omnibus Plan will be forfeited upon a termination of employment for any reason. | | ||||||||||||||||||||||
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Options | Omnibus Plan: Voluntary resignation: vested options remain exercisable for 90 days (or until earlier expiration date). For Cause: all vested and unvested options are cancelled.
| All vested options remain exercisable for one year (or until earlier expiration date). In the event | ||||||||||||||||||||||
|
| Unless otherwise specified in an award agreement, vested options remain exercisable for 90 days (or until earlier expiration date). | Single trigger vesting with committee discretion to | |||||||||||||||||||||
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| | 59 |
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| Termination or Change in Control Scenario | | |||||||||||||||||||||||||
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Award Type | | Voluntary Termination | | Termination by the Company for Cause | | Death, Disability or Retirement | | Termination without Cause or for Good Reason | | Effect of Change in Control or Exit Event | | ||||||||||||||||
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| 2013 PRSUs
2014 CANIPS PRSUs 2015 PRSUs | | Automatic forfeiture. | | Death or Disability: Full vesting of PRSU award based on the | | 2013 PRSUs, 2014 CANIPS PRSUs: Double trigger vesting at target. 2015 PRSUs: Single trigger vesting at target. | | |||||||||||||||||||
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2015 RSUs | Voluntary Termination (with or without Good Reason), Retirement or Termination by the Death or Disability: Full vesting of any unvested 2015 RSUs. | Single trigger vesting if adjusted net income goal is attained. | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Unless specified otherwise in a named executive officer's employment agreement, the termination of a named executive officer's employment with the Company or any subsidiary shall be deemed to be for "cause" under the Omnibus Plan and the Stock Incentive Plan upon any of the following events: (i) the refusal or neglect of the named executive officer to perform substantially his employment-related duties; (ii) the named executive officer's personal dishonesty, incompetence, willful misconduct, or breach of fiduciary duty; (iii) the named executive officer's indictment for, conviction of, or entering a plea of guilty ornolo contendere to a crime constituting a felony or his willful violation of any applicable law; (iv) the named executive officer's failure to reasonably cooperate, following a request to do so by the Company or any subsidiary, in any internal or governmental investigation; or (v) the named executive officer's material breach of any written covenant or agreement not to disclose any information pertaining to the Company or any subsidiary or not to compete or interfere with the Company or any subsidiary.
Unless specified otherwise in a named executive officer's employment agreement, the termination of a named executive officer's employment with the Company or any subsidiary shall be deemed to be for "good reason" under the Stock Incentive Plan if such named executive officer voluntarily terminates his or her employment with the Company or any subsidiary as a result of (i) the Company or any subsidiary significantly reducing the named executive officer's current salary without the named executive officer's prior written consent; or (ii) the Company or any subsidiary taking any action that would substantially diminish the aggregate value of the benefits provided to the named executive officer under the Company's or such subsidiary's accident, disability, life insurance, or any other employee benefit plans in which the named executive officer participates. The Omnibus Plan does not provide a default "good reason" definition in the event such term is not specified in a named executive officer's employment agreement.
| | 60 |
ANNUAL CASH INCENTIVE AWARDS—OMNIBUS PLAN |
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Termination or Change in Control Scenario | | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Voluntary Termination | | Termination by the Company for Cause | | Death, Disability or Retirement | �� | Termination without Cause or for Good Reason | | Effect of Change in Control or Exit Event | | |||||||||||
| | | | | | | | | | | | | | | | | | | | |
| Death, Disability, Voluntary Termination (with or without Good Reason) | Annual cash incentive awards are treated as described in the | ||||||||||||||||||
| Unless otherwise specified in an employment agreement, | |||||||||||||||||||
| | Unless otherwise determined by the administrator of the Omnibus Plan or as evidenced in an award agreement, | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
| | 61 |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL—TABLE |
Potential Payments Upon Termination or Change in Control—Tables
The amounts in the tablestable below assume that the termination and/or change in control, as applicable, was effective as of December 31, 2013,2015, the last business day of the prior fiscal year, and that the respective named executive officers exercised all options and/or received cash in exchange for vested PRSUs and RSUs at such time. The tables aretable is merely an illustrative examplesexample of the impact of a hypothetical termination of employment or change in control. The amounts that would actually be paid upon a termination of employment can only be determined at the time of such termination, based on the facts and circumstances then prevailing.
Named Executive Officer and Triggering Event | Cash Severance | Non- Equity Incentive Pay (1) | Stock Options (2) | PRSUs (3) | RSUs (4) | Excise Tax Gross- Up (5) | Life Insurance (6) | Total | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Jim Hallett | | | | | | | | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
• Death | — | $ | 1,023,613 | $ | 895,230 | $ | 9,273,962 | $ | 714,420 | — | $ | 800,000 | $ | 12,707,225 | |||||||||||
• Disability (7) | | — | $ | 1,023,613 | $ | 895,230 | $ | 9,273,962 | $ | 714,420 | | — | | — | $ | 11,907,225 | |||||||||
• Retirement (8) | — | $ | 1,023,613 | — | — | — | — | — | $ | 1,023,613 | |||||||||||||||
• Voluntary / for Cause | | — | | — | | — | | — | | — | | — | | — | | — | |||||||||
• Termination w/o Cause or for Good Reason | $ | 3,600,000 (9) | $ | 1,023,613 | — | $ | 5,398,808 | — | — | — | $ | 10,022,421 | |||||||||||||
• CIC (single trigger) | | — | $ | 1,023,613 | $ | 895,230 | $ | 2,207,591 | $ | 714,420 | | — | | — | $ | 4,840,854 | |||||||||
• Termination after CIC (double trigger) | $ | 3,600,000 (9) | $ | 1,023,613 | $ | 895,230 | $ | 9,273,962 | $ | 714,420 | $ | 4,085,563 | — | $ | 19,592,788 | ||||||||||
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Eric Loughmiller | | | | | | | | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
• Death | $ | 13,560 (10) | $ | 383,855 | $ | 447,624 | $ | 4,555,245 | $ | 330,752 | — | $ | 800,000 | $ | 6,531,056 | ||||||||||
• Disability (7) | $ | 13,560 (10) | $ | 383,855 | $ | 447,624 | $ | 4,555,245 | $ | 330,752 | | — | | — | $ | 5,731,036 | |||||||||
• Retirement (8) | — | — | — | — | — | — | — | — | |||||||||||||||||
• Voluntary / for Cause | | — | | — | | — | | — | | — — | | — | | — | | — | |||||||||
• Termination w/o Cause or for Good Reason | $ | 801,060 (9) | $ | 383,855 | — | $ | 2,419,991 | — | — | — | $ | 3,604,906 | |||||||||||||
• CIC (single trigger) | | — | $ | 383,855 | $ | 447,624 | $ | 1,022,039 | $ | 330,752 | | — | | — | $ | 2,184,270 | |||||||||
• Termination after CIC (double trigger) | $ | 801,060 (9) | $ | 383,855 | $ | 447,624 | $ | 4,555,245 | $ | 330,752 | — | — | $ | 6,518,536 | |||||||||||
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Don Gottwald | | | | | | | | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
• Death | $ | 19,644 (10) | $ | 625,541 | — | $ | 562,129 | $ | 181,928 | — | $ | 800,000 | $ | 2,189,242 | |||||||||||
• Disability (7) | $ | 19,644 (10) | $ | 625,541 | | — | $ | 562,129 | $ | 181,928 | | — | | — | $ | 1,389,242 | |||||||||
• Retirement (8) | — | — | — | — | — | — | — | — | |||||||||||||||||
• Voluntary / for Cause | | — | | — | | — | | — | | — | | — | | — | | — | |||||||||
• Termination w/o Cause or for Good Reason | $ | 1,119,644 (9) | $ | 625,541 | — | $ | 187,376 | — | — | — | $ | 1,932,561 | |||||||||||||
• CIC (single trigger) | | — | $ | 625,541 | | — | $ | 562,129 | $ | 181,928 | | — | | — | $ | 1,369,598 | |||||||||
• Termination after CIC (double trigger) | $ | 1,119,644 (9) | $ | 625,541 | — | $ | 562,129 | $ | 181,928 | — | — | $ | 2,489,242 | ||||||||||||
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Stéphane St-Hilaire | | | | | | | | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
• Death | $ | 13,560 (10) | $ | 553,145 | $ | 179,061 | $ | 713,356 | $ | 119,088 | — | $ | 800,000 | $ | 2,378,210 | ||||||||||
• Disability (7) | $ | 13,560 (10) | $ | 553,145 | $ | 179,061 | $ | 713,356 | $ | 119,088 | | — | | — | $ | 1,578,210 | |||||||||
• Retirement (8) | — | — | — | — | — | — | — | — | |||||||||||||||||
• Voluntary / for Cause | | — | | — | | — | | — | | — | | — | | — | | — | |||||||||
• Termination w/o Cause or for Good Reason | $ | 913,560 (9) | $ | 553,145 | — | $ | 343,324 | — | — | — | $ | 1,810,029 | |||||||||||||
• CIC (single trigger) | | — | $ | 553,145 | $ | 179,061 | $ | 367,951 | $ | 119,088 | | — | | — | $ | 1,219,245 | |||||||||
• Termination after CIC (double trigger) | $ | 913,560 (9) | $ | 553,145 | $ | 179,061 | $ | 713,356 | $ | 119,088 | — | — | $ | 2,478,210 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
John Kett | | | | | | | | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
• Death | $ | 19,366 (10) | $ | 481,030 | — | $ | 367,951 | $ | 119,088 | — | $ | 800,000 | $ | 1,787,435 | |||||||||||
• Disability (7) | $ | 19,366 (10) | $ | 481,030 | | — | $ | 367,951 | $ | 119,088 | | — | | — | $ | 987,435 | |||||||||
• Retirement (8) | — | — | — | — | — | — | — | — | |||||||||||||||||
• Voluntary / for Cause | | — | | — | | — | | — | | — | | — | | — | | — | |||||||||
• Termination w/o Cause or for Good Reason | $ | 919,366 (9) | $ | 481,030 | — | $ | 122,650 | — | — | — | $ | 1,523,046 | |||||||||||||
• CIC (single trigger) | | — | $ | 481,030 | | — | $ | 367,951 | $ | 119,088 | | — | | — | $ | 968,069 | |||||||||
• Termination after CIC (double trigger) | $ | 919,366 (9) | $ | 481,030 | — | $ | 367,951 | $ | 119,088 | — | — | $ | 1,887,435 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
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James Hallett Footnotes to Potential Payments Upon Termination or Change in Control Table
| Severance | Non-Equity Incentive Pay(1) | KAR Stock Options(2) | KAR PRSUs(3) | Excise Tax Gross-up(4) | Other (Life Ins)(5) | Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Death | — | $ | 711,164 | — | — | — | $ | 800,000 | $ | 1,511,164 | ||||||||||||
Disability(6) | — | $ | 711,164 | — | — | — | — | $ | 711,164 | |||||||||||||
Retirement | — | $ | 711,164 | — | — | — | — | $ | 711,164 | |||||||||||||
Voluntary Termination | — | — | — | — | — | — | — | |||||||||||||||
Termination for Cause | — | — | — | — | — | — | — | |||||||||||||||
Term w/o Cause or for Good Reason | $ | 3,329,280 | (7) | $ | 711,164 | — | — | — | — | $ | 4,040,444 | |||||||||||
Change in Control (single trigger) | — | $ | 711,164 | $ | 1,055,906 | — | — | — | $ | 1,767,070 | ||||||||||||
Termination after Change in Control (double trigger) | $ | 3,329,280 | (7) | $ | 711,164 | $ | 1,055,906 | $ | 5,957,694 | $ | 2,852,539 | — | $ | 13,906,583 |
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Tableabove); and (ii) for all other named executive officers, (a) one times the sum of Contents
Ericthe officer's current annual base salary ($450,000 for each of Messrs. Loughmiller,
| Severance | Non-Equity Incentive Pay(1) | KAR Stock Options | KAR PRSUs(2) | Excise Tax Gross-up | Other (Life Ins)(3) | Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Death | $ | 15,124 | (4) | $ | 278,027 | — | — | — | $ | 800,000 | $ | 1,093,151 | ||||||||||
Disability(5) | $ | 15,124 | (4) | $ | 278,027 | — | — | — | — | $ | 293,151 | |||||||||||
Retirement | — | $ | 278,027 | — | — | — | — | $ | 278,027 | |||||||||||||
Voluntary Termination | — | — | — | — | — | — | — | |||||||||||||||
Termination for Cause | — | — | — | — | — | — | — | |||||||||||||||
Term w/o Cause or for Good Reason | $ | 774,374 | (6) | $ | 278,027 | — | — | — | — | $ | 1,052,401 | |||||||||||
Change in Control (single trigger) | — | $ | 278,027 | — | — | — | — | $ | 278,027 | |||||||||||||
Termination after Change in Control (double trigger) | $ | 774,374 | (6) | $ | 278,027 | — | $ | 2,978,876 | — | — | $ | 4,031,277 |
Rebecca Polak
| Severance | Non-Equity Incentive Pay(1) | KAR Stock Options | KAR PRSUs(2) | Excise Tax Gross-up | Other (Life Ins)(3) | Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Death | $ | 19,284 | (4) | $ | 228,775 | — | — | — | $ | 714,000 | $ | 962,059 | ||||||||||
Disability(5) | $ | 19,284 | (4) | $ | 228,775 | — | — | — | — | $ | 248,059 | |||||||||||
Retirement | — | $ | 228,775 | — | — | — | — | $ | 228,775 | |||||||||||||
Voluntary Termination | — | — | — | — | — | — | — | |||||||||||||||
Termination for Cause | — | — | — | — | — | — | — | |||||||||||||||
Term w/o Cause or for Good Reason | $ | 644,034 | (6) | $ | 228,775 | ��� | — | — | — | $ | 872,809 | |||||||||||
Change in Control (single trigger) | — | $ | 228,775 | — | — | — | — | $ | 228,775 | |||||||||||||
Termination after Change in Control (double trigger) | $ | 644,034 | (6) | $ | 228,775 | — | $ | 953,253 | — | — | $ | 1,826,062 |
Thomas O'Brien
| Severance | Non-Equity Incentive Pay | KAR Stock Options | KAR PRSUs | Excise Tax Gross-up | Other (Life Ins)(1) | Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Death | — | $ | 536,467 | (2) | — | — | — | $ | 800,000 | $ | 1,336,467 | |||||||||||
Disability(3) | — | $ | 536,467 | (2) | — | — | — | — | $ | 536,467 | ||||||||||||
Retirement | — | $ | 450,650 | (4) | — | — | — | — | $ | 450,650 | ||||||||||||
Voluntary Termination | — | — | — | — | — | — | — | |||||||||||||||
Termination for Cause | — | — | — | — | — | — | — | |||||||||||||||
Term w/o Cause or for Good Reason | $ | 1,015,187 | (5) | — | — | — | — | — | $ | 1,015,187 | ||||||||||||
Change in Control (single trigger) | — | $ | 450,650 | (4) | — | — | — | — | $ | 450,650 | ||||||||||||
Termination after Change in Control (double trigger) | $ | 1,601,518 | (6) | $ | 450,650 | (4) | — | — | — | — | $ | 2,052,168 |
Thomas Caruso
| Severance | Non-Equity Incentive Pay(1) | KAR Stock Options(2) | KAR PRSUs | Excise Tax Gross-up | Other (Life Ins)(3) | Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Death | $ | 13,575 | (4) | $ | 441,799 | — | — | — | $ | 800,000 | $ | 1,255,374 | ||||||||||
Disability(5) | $ | 13,575 | (4) | $ | 441,799 | — | — | — | — | $ | 455,374 | |||||||||||
Retirement | — | $ | 441,799 | — | — | — | — | $ | 441,799 | |||||||||||||
Voluntary Termination | — | — | — | — | — | — | — | |||||||||||||||
Termination for Cause | — | — | — | — | — | — | — | |||||||||||||||
Term w/o Cause or for Good Reason | $ | 757,325 | (6) | $ | 441,799 | — | — | — | — | $ | 1,199,124 | |||||||||||
Change in Control (single trigger) | — | $ | 441,799 | $ | 2,016,393 | — | — | — | $ | 2,458,192 | ||||||||||||
Termination after Change in Control (double trigger) | $ | 757,325 | (6) | $ | 441,799 | $ | 2,016,393 | — | — | — | $ | 3,215,517 |
EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS |
Each of our named executive officers has an employment agreement with the Company. A summary of each of the agreements is provided below.
CEO
Mr. Hallett's employment agreement, which became effective as of February 27, 2012, provides for the following severance and change of control payments:
Termination Due to Mr. Hallett's Death or Disability.(5)Long-termis a Company-paid benefit for all employees and only paid after six months on short-term disability. The benefit is 66.67%we will pay Mr. Hallett, or in the case of base pay capped at $15,000 per month.(6)These amounts arehis death, Mr. Hallett's estate or beneficiaries, an amount equal to the sum of (i) oneany accrued but unpaid base salary and accrued but unused vacation days; (ii) any earned and vested benefits and payments pursuant to the terms of any benefit plan (collectively, the amounts described in (i) and (ii) above are, the "Accrued Obligations"); and (iii) subject to Mr. Hallett or his estate executing a general release of any claims that he may have against the Company (the "Release"), any annual bonus for a prior completed calendar year that has not yet been calculated or paid to Mr. Hallett (the "Earned but Unpaid Bonus").
In addition, if Mr. Hallett is participating in the health plans of the Company at the time of his termination, we will pay him, or in the case of his death, his estate or beneficiaries, his or their premiums attributable to maintaining insurance coverage under COBRA for the shorter of (i) 18 months; or (ii) until Mr. Hallett becomes eligible for comparable coverage under the health plans of another employer (the "Continued Benefits"). Subject to receipt and effectiveness of the Release, we also will pay Mr. Hallett, or his estate or beneficiaries, a prorated bonus based upon the portion of the year during which Mr. Hallett was employed by us (the "Prorated Bonus").
For purposes of Mr. Hallett's employment agreement, "disability" means a "Total Disability" (or equivalent) as defined in the Company's long term disability plan in effect at the time of the disability.
Termination by the Company for Cause. Following a majority vote of the Board of Directors (excluding Mr. Hallett or any other employee of the Company), we may terminate Mr. Hallett's employment at any time for
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"Cause." In such event, our only obligation to Mr. Hallett would be the payment, in a lump sum, of Mr. Hallett's Accrued Obligations.
"Cause" is defined in the employment agreement to mean (i) Mr. Hallett's willful, continued and uncured failure to perform substantially his duties under the employment agreement for a period of 14 days following notice to Mr. Hallett of such failure; (ii) Mr. Hallett engaging in illegal conduct or gross misconduct that is demonstrably likely to lead to material injury to the Company; (iii) Mr. Hallett's indictment or conviction of, or plea ofnolo contendere to, a crime constituting a felony or any other crime involving moral turpitude; or (iv) Mr. Hallett's failure to comply with the provisions of the employment agreement relating to confidential information, intellectual property, non-competition and non-solicitation which is not cured within the 14 day period following written notice to Mr. Hallett of such failure.
Termination by the Company Without Cause. Mr. Hallett's employment may be terminated without Cause at any time upon 30 days' prior written notice. In the event of a termination without Cause, the Company will pay Mr. Hallett the following "Severance Benefits": (i) two times the sum of Mr. Caruso's currentHallett's (a) annual base salary ($425,000and (b) target bonus for the year in which termination occurs which, for this purpose, shall not equal less than 100% of Mr. Hallett's base salary; (ii) a Prorated Bonus in a lump sum; and (iii) the Continued Benefits. In addition to the Severance Benefits described above, we will also pay Mr. Hallett the Accrued Obligations and any Earned but Unpaid Bonus.
Termination by Mr. Hallett for Good Reason. Mr. Hallett may terminate his employment for "Good Reason" within 90 days following the occurrence of an event constituting "Good Reason," if such event remains uncured for a period of 30 days following notice of the event by Mr. Hallett to the Company. Upon such termination, the Company will pay Mr. Hallett the sum of the Severance Benefits, the Accrued Obligations and any Earned but Unpaid Bonus.
"Good Reason" is defined in the employment agreement to mean the occurrence of any of the following:
Termination by Mr. Hallett without Good Reason. Mr. Hallett may terminate his employment under the employment agreement at any time without Good Reason upon 30 days' prior written notice. In such event, we will pay Mr. Hallett a lump sum amount equal to the Accrued Obligations.
Termination by Mr. Hallett upon Retirement. Mr. Hallett may voluntarily terminate his employment under the employment agreement due to retirement by announcing his retirement at least 12 months prior to such termination. In the event of such a termination, we will pay Mr. Hallett a lump sum amount equal to the Accrued Obligations and a Prorated Bonus.
Excise Tax Gross-Up. As described above in "Compensation Policies and Other Information—Tax and Accounting Considerations—Employment Agreements," Mr. Hallett's employment agreement provides that in the event that any payment or benefit in connection with his employment is or becomes subject to an excise tax under Code Section 4999, the Company will make a cash payment to Mr. Hallett, which after the imposition of all income, employment, excise and other taxes thereon as well as any penalty and interest assessments associated therewith, will be sufficient to place Mr. Hallett in the same after-tax position as he would have been in had such excise tax not applied. However, in the event that a reduction of the total payments due to Mr. Hallett would avoid the application of the excise tax, then the total payments will be reduced to the extent
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necessary to avoid the excise tax, but in no event by more than 10% of the original amount of the total payments due.
Requirements With Respect to Non-Competition and Non-Solicitation. Upon a termination of employment for any reason, Mr. Hallett is subject to the following two year post-termination restrictive covenants (except in the case of retirement): (i) non-competition restrictions; and (ii) non-solicitation of Company employees and customers.
Other Named Executive Officers
The Company has entered into substantially similar employment agreements with Messrs. Loughmiller, Gottwald St-Hilaire and Kett, providing for their at-will employment and the following severance and change of control payments.
Termination Due to Death or Disability. If Messrs. Loughmiller, Gottwald, St-Hilaire or Kett terminates his employment due to death or disability, the Company will be obligated to pay to the executive (or his legal representatives) an amount equal to the sum of (i) any earned but unpaid base salary; (ii) accrued but unpaid vacation earned through the date of termination; (iii) unreimbursed business expenses; and (iv) any vested employee benefits. The aggregate of the foregoing is referred to as the "Accrued Obligations." In addition, the executive or his estate/beneficiaries would be entitled to receive (i) COBRA premium payments for 12 months.
For purposes of their employment agreements, "disability" means a "Total Disability" (or equivalent) as defined in the Company's long term disability plan in effect at the time of the disability.
Voluntary Termination or Termination for Cause. If Messrs. Loughmiller, Gottwald, St-Hilaire or Kett voluntarily terminates his employment or if the Company terminates his employment for Cause, the Company's sole obligation will be to pay him the Accrued Obligations. For purposes of their employment agreements, "Cause" means the (i) executive's willful, continued and uncured failure to perform substantially their duties under the agreement (other than any such failure resulting from incapacity due to medically documented illness or injury) for a period of 14 days following written notice by the Company to the executive of such failure; (ii) executive engaging in illegal conduct or gross misconduct that is demonstrably likely to lead to material injury to the Company, monetarily or otherwise; (iii) executive's indictment or conviction of, or plea ofnolo contendere to, a crime constituting a felony or any other crime involving moral turpitude; or (iv) executive's violation of the restrictive covenants under the agreement or any other covenants owed to the Company by executive.
Termination Without Cause or Resignation for Good Reason. In the event Messrs. Loughmiller, Gottwald, St-Hilaire or Kett is terminated by the Company without Cause or such executive resigns for Good Reason, the executive would be entitled to receive, subject to execution and non-revocation of a release of claims, (i) a lump sum cash payment equal to the sum of his annual base salary plus target annual bonus for the year in which such termination of employment occurs; (ii) the Continued Benefits; and (iii) the Earned but Unpaid Bonus. For purposes of their employment agreements, "Good Reason" means (i) any material reduction of the executive's authority, duties and responsibilities; (ii) any material failure by the Company to comply with any of the terms and conditions of the agreement; (iii) any failure to timely pay or provide the executive's base salary, or any reduction in the executive's base salary, excluding any base salary reduction made in connection with across the board salary reductions; (iv) the requirement by the Company that the executive relocate his principal business location to a location more than 50 miles from the executive's principal base of operation as of the effective date of the agreement; or (v) a Change of Control occurs and, if applicable, the Company fails to cause its successor (whether by purchase, merger, consolidation or otherwise) to assume or reaffirm the
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Company's obligations under the agreement without change. For purposes of the foregoing, "Change of Control" has the same meaning as the term "Change in Control" under the Omnibus Plan.
Requirements With Respect to Non-Competition and Non-Solicitation. Upon a termination of employment for any reason, Messrs. Loughmiller, Gottwald, St-Hilaire and Kett are subject to the following one year post-termination restrictive covenants: (i) non-competition restrictions; and (ii) non-solicitation of Company employees and customers.
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BENEFICIAL OWNERSHIP OF THE COMPANY'S COMMON STOCK
The following table sets forth certain information with respect to the beneficial ownership of our common stock as of April 16, 2014 of: (1) each person or entity who owns of record or beneficially 5% or more of any class of KAR Auction Services' voting securities of which 139,772,786 shares were outstanding as of April 16, 2014; (2) each of our directors, director nominees and named executive officers; and (3) all of our directors, director nominees and executive officers as a group. Beneficial ownership is determined in accordance with the rules of the SEC. To our knowledge, each stockholder will have sole voting and investment power with respect to the shares indicated as beneficially owned, unless otherwise indicated in a footnote to the following table. The percentage calculations below are based on 139,772,786 shares of common stock outstanding as of April 16, 2014 rather than the percentages set forth in any stockholders' Schedule 13D and Schedule 13G filings. Unless otherwise indicated in a footnote, the business address of each person is our corporate address, c/o KAR Auction Services, Inc. 13085 Hamilton Crossing Boulevard, Carmel, Indiana 46032.
| Shares Beneficially Owned | ||||||
---|---|---|---|---|---|---|---|
Name of Beneficial Owner | Number of Shares(1) | Percent of Class(2) | |||||
5% BENEFICIAL OWNERS | |||||||
FMR LLC(3) | 15,402,186 | 11 | % | ||||
The Vanguard Group(4) | 7,347,618 | 5 | % | ||||
EXECUTIVE OFFICERS, DIRECTORS AND DIRECTOR NOMINEES | |||||||
David J. Ament(6) | — | — | |||||
Ryan M. Birtwell(6) | — | — | |||||
Thomas J. Caruso(5) | 236,858 | * | |||||
Brian T. Clingen(6) | 1,676 | * | |||||
Donna R. Ecton(6) | 1,690 | * | |||||
Robert M. Finlayson(6) | 20,014 | * | |||||
Peter R. Formanek(6) | 28,860 | * | |||||
Michael B. Goldberg(6) | — | — | |||||
James P. Hallett(6)(7) | 121,875 | * | |||||
Mark E. Hill(6) | — | — | |||||
Lynn Jolliffe(6) | — | — | |||||
Michael T. Kestner(6) | 3,183 | * | |||||
John P. Larson(6) | — | — | |||||
Eric M. Loughmiller | 12,900 | * | |||||
Church M. Moore(6) | — | — | |||||
Thomas C. O'Brien(6) | — | — | |||||
Rebecca C. Polak(8) | 143,585 | * | |||||
Stephen E. Smith(6) | 1,690 | * | |||||
Jonathan P. Ward(6) | 3,099 | * | |||||
Executive officers, directors and director nominees as a group (27 persons) | 1,544,782 | 1 | % |
CERTAIN RELATED PARTY RELATIONSHIPS |
REVIEW AND APPROVAL OF TRANSACTIONS WITH RELATED PERSONS |
CERTAIN RELATED PARTY RELATIONSHIPS
Review and Approval of Transactions with Related Persons
Pursuant to our written related party transactiontransactions policy, the Company reviews relationships and transactions in which the Company, or one of its business units, and our directors and executive officers or their immediate family members are participants to determine whether such persons have a direct or indirect material interest.
In the course of the review and approval of a related party transaction, the Board of Directors or the Audit Committee may consider the following factors:
Transactions in which the amount involved exceeds $120,000 in which the Company, or one of its business units, was a participant and a related person had a direct or indirect material interest are required to be disclosed in this proxy statement (each, a "Transaction").statement. There were not any such related party transactions identified for 2015.
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We have no ongoing Transactions, except to the limited extent as noted under the section "Agreements in Connection with the 2007 Transactions—Registration Rights Agreement."
Historical Transactions with Former Equity Sponsors
We entered into the Transactions described below with our former equity sponsors. Following the divestiture of our common stock by KAR LLC on November 13, 2013, the Transactions and agreements described below are no longer in effect, except to the limited extent noted under the section "Agreements in Connection with the 2007 Transactions—Registration Rights Agreement."
Agreements in Connection with the 2007 Transactions
On December 22, 2006, KAR LLC entered into a definitive merger agreement to acquire ADESA. The merger occurred on April 20, 2007. Concurrently with the merger, IAA was contributed by affiliates of Kelso & Company and Parthenon Capital and IAA's management to KAR Auction Services. Both ADESA and IAA became wholly owned subsidiaries of KAR Auction Services, which was wholly-owned by KAR LLC prior to the Company's initial public offering. These events are referred to herein as the "2007 Transactions." Upon consummation of the 2007 Transactions, the Company entered into the agreements described below.
Tag Along Rights. The IAA continuing investors (as defined below) and KAR LLC entered into an agreement which granted the IAA continuing investors "tag-along rights" to sell their shares of common stock on a pro rata basis with KAR LLC in sales by KAR LLC to third parties. The "IAA continuing investors" are Thomas C. O'Brien, Scott P. Pettit, David R. Montgomery, Donald J. Hermanek, John W. Kett, John R. Nordin and Sidney L. Kerley.
Registration Rights Agreement. We entered into a registration rights agreement with KAR LLC and the IAA continuing investors. Under the terms of the registration rights agreement, KAR LLC (at the request of the initiating holders (i.e., two of Kelso, ValueAct Capital and Goldman, Sachs & Co.)) had the right, subject to certain conditions, to make an unlimited number of requests that we use our best efforts to register under the Securities Act of 1933, as amended, the shares of our common stock owned by KAR LLC. In any demand registration, or if KAR Auction Services proposed to register any shares (subject to certain exceptions, such as benefit plan registrations), all of the parties to the registration rights agreement had "piggyback rights" to participate on a pro rata basis, subject to certain conditions, which in the case of KAR LLC included the right of each member of KAR LLC to direct KAR LLC to include shares of common stock attributable to each such member of KAR LLC based on such member's ownership interest in KAR LLC.
KAR LLC exercised its rights under the registration rights agreement and caused us to file a registration statement under the Securities Act. In March 2013, pursuant to the registration statement, KAR LLC sold 14,950,000 of its shares in KAR Auction Services. We incurred expenses of $320,000 related to such sale and we received no proceeds from the sale. In June 2013, pursuant to the registration statement, KAR LLC sold 17,250,000 of its shares in KAR Auction Services. We incurred expenses of $280,000 related to such sale and we received no proceeds from the sale. In August 2013, pursuant to the registration statement, KAR LLC sold 17,250,000 of its shares in KAR Auction Services. We incurred expenses of $180,000 related to such sale and we received no proceeds from the sale. In September 2013, pursuant to the registration statement, KAR LLC sold 13,800,000 of its shares in KAR Auction Services. We incurred expenses of $140,000 related to such sale and we received no proceeds from the sale. In November 2013, pursuant to the registration statement, KAR LLC sold 27,481,070 of its shares in KAR Auction Services. We incurred expenses of $685,000 related to such sale and we received no proceeds from the sale.
In addition, in December 2013 and as further supplemented in February 2014, we filed a resale prospectus supplement for the resale of 597,590 shares of our common stock by permitted transferees of KAR LLC under the registration rights agreement. The registration rights agreement will still be in effect until such permitted transferees sell all such shares pursuant to the prospectus supplement or such shares cease to be registrable securities under the registration rights agreement.
LLC Agreement. Affiliates or designees of Kelso Investment Associates VII, L.P., GS Capital Partners VI, L.P., ValueAct Capital Master Fund, L.P. or Parthenon Investors II, L.P. and their respective affiliates (collectively, the "Former Equity Sponsors"), which previously collectively owned through KAR LLC a majority of the common stock of KAR Auction Services, Axle Holdings II, LLC ("Axle LLC"), certain of our executive officers and other employees and third parties entered into a second amended and restated limited liability company agreement of KAR LLC (the "LLC Agreement"). The Equity Sponsors and their affiliates or designees and certain of our executive officers and other employees and third parties held all of the Class A common units in KAR LLC. In addition, Axle LLC owned all of the Class B common units in KAR LLC. The Class B common units were identical to the Class A common units in all respects, except with respect to distributions. Distributions to holders of units in KAR LLC were made pro rata based on the number of units held by each such holder and the aggregate number of units eligible to participate in the distribution, plus the aggregate amount of distributions to the IAA continuing investors in respect of the options held (or any common stock obtained upon the exercise of such options) by them in Axle Holdings, Inc. that were converted into options to purchase our common stock; provided, however, that in order to prevent dilution to the holders (other than Axle LLC) of KAR LLC common units that would be caused by the distribution of amounts to the IAA continuing investors in respect of such options (or any such common stock), the amount available for distribution to Axle LLC in respect of the Class B common units held by Axle LLC is reduced dollar-for-dollar by the net amount distributed to the IAA continuing investors in respect of such converted options (or any common stock obtained upon the
exercise of such options) in connection with such distribution. Prior to the completion of the Company's initial public offering, the provisions relating to the Class B common units were revised to reflect and appropriately adjust the dilution to the holders of Class A common units that is caused by the existence of the options held by the IAA continuing investors.
The LLC Agreement generally restricts the transfer of interests in KAR LLC owned by the Former Equity Sponsors (and their affiliates, designees or permitted transferees), Axle LLC, our management employees and executive officers and the other employees and third parties holding equity interests in KAR LLC (the "Holders"). Exceptions to this restriction include transfers of common interests by our management employees and executive officers party thereto for certain estate planning purposes and certain involuntary transfers by the Holders in connection with a default, foreclosure, forfeiture, divorce, court order or otherwise than by a voluntary decision of the continuing investor (so long as KAR LLC has been given the opportunity to purchase the interests subject to such involuntary transfer). In addition, each Holder has customary pro rata "tag-along" rights to sell their common interests in KAR LLC in the event of a proposed sale that is permitted by the LLC Agreement of common interests in KAR LLC by any of the Former Equity Sponsors or Axle LLC to a third party. Similarly, if any two of Kelso, Goldman, Sachs & Co. or ValueAct Capital elect to sell 80% or more of their common interests in KAR LLC to a third party, each of the remaining Holders is required to sell (upon exercise of such selling Holders' "drag-along" rights) a pro rata portion of their respective common interests based on their respective ownership of common interests to such third party at the same price as such selling Holders elect to sell their common interests. The LLC Agreement also provides Holders with certain "piggyback rights" with respect to participation in the registration of our shares pursuant to the registration rights agreement, described above.
Axle LLC Agreement. Affiliates of Kelso, affiliates of Parthenon and Magnetite Asset Investors III, L.L.C., Brian T. Clingen, Dan Simon and the IAA continuing investors entered into the Amended and Restated Operating Agreement of Axle LLC, dated May 25, 2005 (the "Axle LLC Agreement"). Affiliates of Kelso and Parthenon and Magnetite and Mr. Clingen and a trust established to monitor the estate of Mr. Simon owned approximately 99.9% of the common interests in Axle LLC and the IAA continuing investors owned less than 0.4%. The Axle LLC Agreement, among other things, provided that the IAA continuing investors were awarded profit interests in Axle LLC that entitled such persons to a portion of the future appreciation in the value of the assets of Axle LLC. The holders of profit interests in Axle LLC were not entitled to receive shares of our common stock but were only entitled to participate, to the extent such profit interests were vested, in distributions from Axle LLC to its members (including Kelso and Parthenon and the IAA continuing investors). As a result, the existence of these profit interests only diluted the economic interests of the members in Axle LLC and did not dilute the holders of our common stock.
Financial Advisory Agreements. The Former Equity Sponsors owned the controlling interest in KAR LLC. We paid the Former Equity Sponsors' travel expenses related to KAR Auction Services, pursuant to the terms contained in certain financial advisory agreements. We paid the Former Equity Sponsors approximately $200,000 for travel expenses incurred in 2013. Additionally, the financial advisory agreements provide that KAR Auction Services indemnify the Former Equity Sponsors and their respective officers, directors, partners, employees, agents and control persons (as such term is used in the Securities Act and the rules and regulations thereunder) against any and all claims, losses and expenses as incurred arising in connection with the merger and the transactions contemplated by the merger agreement (including the financing of the merger) entered into in connection with the 2007 Transactions.
Director Designation Agreement
In connection with the Company's initial public offering, we entered into a director designation agreement that provided for the rights of KAR LLC to directly nominate individuals to our Board of
Directors. In an amendment to the KAR LLC Agreement that was effective upon consummation of the initial public offering, the Former Equity Sponsors agreed to their respective rights to nominate the individuals that KAR LLC had the right to nominate under the director designation agreement, with such allocation to be generally based on the Former Equity Sponsors' relative indirect ownership of our outstanding common stock.
The director designation agreement provided that, for so long as KAR LLC owned more than 10% of our outstanding common stock, no change would be made to the size of the Board of Directors without the consent of KAR LLC. KAR LLC had the right to nominate individuals to our Board of Directors at each meeting of stockholders where directors were to be elected and, subject to limited exceptions, we agreed to include in the slate of nominees recommended to our stockholders for election as directors the number of individuals designated by KAR LLC as follows (depending on the percentage ownership of KAR LLC at the time of such election):
In addition, so long as KAR LLC had the right to nominate one or more directors under the director designation agreement and beneficially owned 50% or less of our outstanding common stock, and, under certain circumstances, including, in the event a Former Equity Sponsor lost the right to indirectly nominate an individual under the director designation agreement, each Equity Sponsor would have certain rights to appoint an individual to serve as a non-voting observer at meetings of our Board of Directors.
As of November 13, 2013, KAR LLC ceased to own at least 5% of our outstanding common stock and, accordingly, no longer has the right to nominate individuals to our Board of Directors. Other than Ryan Birtwell, the Former Equity Sponsor designees are not standing for re-election at the Annual Meeting.
Transactions with Goldman, Sachs & Co. and its Affiliates
GS Capital Partners VI Fund, L.P. and other private equity funds affiliated with Goldman, Sachs & Co. beneficially owned 17% of our issued and outstanding common stock as of January 1, 2013, and as of the end of 2013 fiscal year, after giving effect to the secondary offerings described below no longer own any shares of our common stock.. An affiliate of GS Capital Partners VI Fund, L.P. was part of the banking syndicate for our previous credit facility and is a joint bookrunner and lender under our current credit facility. Goldman, Sachs & Co. also was an underwriter of the Company's secondary offerings of approximately 14,950,000 shares of our common stock in March 2013, 17,250,000 shares of our common stock in June 2013, 17,250,000 shares of our common stock in August 2013, 13,800,000 shares of our common stock in September 2013 and 27,481,070 shares of our common stock in November 2013. Goldman, Sachs & Co. was paid usual and customary underwriting discounts and commissions for the secondary offerings in 2013. Messrs. Mehra and Carella, who served on our Board of Directors in 2013 (Mr. Carella resigned effective November 13, 2013 and Mr. Mehra resigned effective December 16, 2013), are employed by Goldman, Sachs and Co. Messrs. Mehra and Carella both work in a separate division from the division that assisted with the offerings. Goldman, Sachs & Co. and its affiliates may in the future engage in commercial banking, investment banking or other financial advisory transactions with us and our affiliates.
REQUIREMENTS, INCLUDING DEADLINES, FOR SUBMISSION OF PROXY PROPOSALS |
REQUIREMENTS, INCLUDING DEADLINES, FOR SUBMISSION OF PROXY PROPOSALS,NOMINATION OF DIRECTORS AND OTHER BUSINESS OF STOCKHOLDERS
NOMINATION OF DIRECTORS AND OTHER BUSINESS OF STOCKHOLDERS |
In order to submit stockholder proposals for the 20152017 annual meeting of stockholders for inclusion in the Company's proxy statement pursuant to SEC Rule 14a-8, materials must be received by the Secretary at the Company's principal office in Carmel, Indiana, no later than December 30, 2014.29, 2016.
The proposals must comply with all of the requirements of SEC Rule 14a-8. Proposals should be addressed to: Rebecca C. Polak, Executive Vice President, General Counsel and Secretary, KAR Auction Services, Inc., 13085 Hamilton Crossing Boulevard, Carmel, Indiana 46032. As the SEC's shareholder proposal rules of the SEC make clear, simply submitting a proposal does not guarantee its inclusion.
The Company's By-Laws also establish an advance notice procedure with regard to director nominations and stockholder proposals that are not submitted for inclusion in the proxy statement, but that a stockholder instead wishes to present directly at an annual meeting. To be properly brought before the 20152016 annual meeting, a notice of the nomination or the matter the stockholder wishes to present at the meeting must be delivered to the Secretary at the Company's principal office in Carmel, Indiana (see above), not less than 90 or more than 120 days prior to the first anniversary of the date of this year's annual meeting. As a result, any notice given by or on behalf of a stockholder pursuant to these provisions of the Company's By-Laws (and not pursuant to SEC Rule 14a-8) must be received no earlier than February 15, 2015,8, 2017, and no later than March 12, 2015.10, 2017. All director nominations and stockholder proposals must comply with the requirements of the Company's By-Laws, a copy of which may be obtained at no cost from the Secretary of the Company.
Other than the proposals described in this proxy statement, KAR Auction Services does not expect any matters to be presented for a vote at the annual meeting. If you grant a proxy, the persons named as proxy holders on the proxy card will have the discretion to vote your shares on any additional matters properly presented for a vote at the annual meeting. If for any unforeseen reason, any one or more of KAR Auction Services' nominees is not available as a candidate for director, the persons named as proxy holders will vote your proxy for such other candidate or candidates as may be nominated by the Board of Directors.
The chairman of the meeting may refuse to allow the transaction of any business not presented beforehand, or to acknowledge the nomination of any person not made in compliance with the foregoing procedures.
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QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING |
Q: | Why am I receiving these materials? | |
A: | We are providing these proxy materials to you in connection with the solicitation, by the Board of Directors of KAR Auction Services, of proxies to be voted at the Company's 2016 annual meeting of stockholders and at any adjournments or postponements thereof. Stockholders are invited to attend the annual meeting to be held on June 8, 2016 beginning at 9:00 a.m., Eastern Daylight Time, at the Conrad Indianapolis, 50 West Washington Street, Indianapolis, Indiana 46204. Our proxy materials are first being distributed to stockholders on or about April 28, 2016. | |
Q: | What proposals will be voted on at the annual meeting? | |
A: | There are three proposals scheduled to be voted on at the annual meeting: • To elect nine directors to the Board of Directors; • To amend and restate the Amended and Restated Certificate of Incorporation to provide that the Company's stockholders may remove any director from office, with or without cause, and other ministerial changes; and • To ratify the appointment of KPMG as our independent registered public accounting firm for 2016. | |
Q: | What is the Board of Directors' voting recommendation? | |
A: | The Company's Board of Directors recommends that you vote your shares: • "FOR" each of the nominees to the Board of Directors; • "FOR" the amendment and restatement of the Amended and Restated Certificate of Incorporation; and • "FOR" the ratification of the appointment of KPMG as our independent registered public accounting firm for 2016. | |
Q: | Who is entitled to vote? | |
A: | All shares owned by you as of the record date, which is the close of business on April 13, 2016, may be voted by you. You may cast one vote per share of common stock that you held on the record date. These shares include shares that are: • held directly in your name as the stockholder of record; and • held for you as the beneficial owner through a broker, bank or other nominee, including shares purchased under the KAR Auction Services, Inc. Employee Stock Purchase Plan (the "Employee Stock Purchase Plan"). On the record date, KAR Auction Services had 137,300,457 shares of common stock issued and outstanding. | |
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Table of ContentsAppendix A
Q: | What is the difference between holding shares as a stockholder of record and as a beneficial owner? | |
A: | Many of our stockholders hold their shares through a broker, bank or other nominee rather than directly in their own name. As summarized below, there are some differences between shares held of record and those owned beneficially. Stockholder of Record. If your shares are registered directly in your name with the Company's transfer agent, American Stock Transfer & Trust Company, LLC, you are considered, with respect to those shares, the stockholder of record, and these proxy materials are being sent to you directly by the Company. As the stockholder of record, you have the right to grant your voting proxy directly to the Company or to vote in person at the annual meeting. You may vote on the Internet, by telephone or by mail, as described below under the heading "How can I vote my shares without attending the annual meeting?" Beneficial Owner. If your shares are held in a 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 or nominee who is considered, with respect to those shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker on how to vote your shares and are also invited to attend the annual meeting. To vote these shares in person at the annual meeting, you must obtain a signed proxy from the stockholder of record giving you the right to vote the shares. You may also vote by Internet, by telephone or by mail, as described below under "How can I vote my shares without attending the annual meeting?" | |
Q: | How can I vote my shares in person at the annual meeting? | |
A: | Stockholder of Record. Shares held directly in your name as the stockholder of record may be voted in person at the annual meeting. If you choose to vote your shares in person at the annual meeting, please bring proof of identification. Even if you plan to attend the annual meeting, the Company strongly recommends that you vote your shares in advance as described below so that your vote will be counted if you later decide not to attend the annual meeting. See "How can I vote my shares without attending the annual meeting?" Beneficial Owner. Shares held in street name may be voted in person by you only if you obtain an account statement or letter from your bank, broker or other nominee indicating that you are the beneficial owner of the shares and a legal proxy from the stockholder of record giving you the right to vote the shares. The account statement or letter must show that you were the beneficial owner of shares on April 13, 2016, the record date. | |
Q: | How can I vote my shares without attending the annual meeting? | |
A: | Whether you hold your shares directly as the stockholder of record or beneficially in street name, you may direct your votewithout attending the annual meeting by voting in one of the following manners: • Internet. Go towww.proxyvote.com and follow the instructions. You will need the control number included on your proxy card or voting instruction form; • Telephone. Dial 1-800-690-6903. You will need the control number included on your proxy card or voting instruction form; or • Mail. Complete, date and sign your proxy card or voting instruction card and mail it using the enclosed, pre-paid envelope. If you vote on the Internet or by telephone, you do not need to return your proxy card or voting instruction card. Internet and telephone voting for stockholders will be available 24 hours a day, and will close at 11:59 p.m., Eastern Daylight Time, on June 7, 2016. | |
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Q: | If I am an employee holding shares pursuant to the Employee Stock Purchase Plan, how will my shares be voted? | |
A: | Employees holding stock acquired through the Employee Stock Purchase Plan will receive a voting instruction card covering all shares held in their individual account from Computershare, the plan record keeper. The voting instruction cards have an earlier return date than proxy cards. The record keeper for the Employee Stock Purchase Plan will vote your shares (i) in accordance with the specific instructions on your returned voting instruction card; or (ii) in its discretion, if you return a signed voting instruction card with no specific voting instructions. | |
Q: | What is the quorum requirement for the annual meeting? | |
A: | A quorum is necessary to hold the annual meeting. A quorum at the annual meeting exists if the holders of a majority of the Company's capital stock issued and outstanding and entitled to vote at the annual meeting are present in person or represented by proxy. Abstentions and broker non-votes are counted as present for establishing a quorum. A broker non-vote occurs when a broker does not vote on some matter on the proxy card because the broker does not have discretionary voting power for that particular item and has not received instructions from the beneficial owner. | |
Q: | What happens if I do not give specific voting instructions? | |
A: | Stockholder of Record. If you are a stockholder of record and you sign and return a proxy card without giving specific voting instructions, then the proxy holders will vote your shares in the manner recommended by the Board of Directors on all matters presented in this proxy statement and as the proxy holders may determine in their discretion with respect to any other matters properly presented for a vote at the annual meeting. Beneficial Owners. If you are a beneficial owner of shares held in street name and do not provide the organization (e.g., broker or bank) that holds your shares in "street name" with specific voting instructions, the organization that holds your shares may generally vote on routine matters (Proposal No. 3 (ratification of independent registered public accounting firm)) but cannot vote on non-routine matters (Proposal No. 1 (election of directors) and Proposal No. 2 (amendment and restatement of the Amended and Restated Certificate of Incorporation)). If the organization that holds your shares does not receive instructions from you on how to vote your shares on Proposal No. 1 and/or Proposal No. 2, such organization will inform the inspector of election that it does not have the authority to vote on these matters with respect to your shares. This is generally referred to as a "broker non-vote." Therefore, we urge you to give voting instructions to your broker. Shares represented by such broker non-votes will be counted in determining whether there is a quorum. Because broker non-votes are not considered shares entitled to vote, they will have no effect on the outcome of any proposal other than reducing the number of shares present in person or by proxy and entitled to vote from which a majority is calculated. | |
Q: | Which proposals are considered "routine" or "non-routine?" | |
A: | The ratification of the appointment of KPMG as our independent registered public accounting firm for 2016 (Proposal No. 3) is considered a routine matter under applicable rules. A broker or other nominee may generally vote on routine matters, and therefore no broker non-votes are expected to exist in connection with Proposal No. 3. The election of directors (Proposal No. 1) and the amendment and restatement of the Amended and Restated Certificate of Incorporation (Proposal No. 2) are considered non-routine matters under applicable rules. A broker or other nominee cannot vote without instructions on non-routine matters, and therefore there may be broker non-votes on Proposal No. 1 and Proposal No. 2. | |
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Q: | What is the voting requirement to approve each of the proposals? | |
A: | Nine director nominees have been nominated for election at the annual meeting. Because this is an uncontested election, the director nominees will be elected by a majority of the votes cast in the election of directors at the annual meeting, either in person or represented by a properly authorized proxy. This means that a director nominee will be elected to the Company's Board of Directors if the votes cast "FOR" such director nominee exceed the votes cast "AGAINST" him or her. Abstentions and broker non-votes will have no effect on the outcome of the election of directors. The amendment and restatement of the Amended and Restated Certificate of Incorporation (Proposal No. 2) and the ratification of the appointment of our independent registered public accounting firm (Proposal No. 3) require the affirmative vote of a majority of the votes represented at the annual meeting and entitled to vote on the proposal. In accordance with Delaware law, only votes cast "FOR" a matter constitute affirmative votes. A properly executed proxy marked "ABSTAIN" with respect to the ratification of the appointment of our independent registered public accounting firm will not be voted, although it will be counted for purposes of determining whether there is a quorum. Accordingly, with respect to Proposal No. 2 and Proposal No. 3, abstentions will have the same effect as negative votes or votes "AGAINST" that matter. | |
Q: | What does it mean if I receive more than one proxy or voting instruction card? | |
A: | It means your shares are registered differently or are in more than one account. Please provide voting instructions for all proxy and voting instruction cards you receive. | |
Q: | Who will count the vote? | |
A: | The votes will be counted by the inspector of election appointed for the annual meeting. | |
Q: | Can I revoke my proxy or change my vote? | |
A: | Yes. You may revoke your proxy or change your voting instructions at any time prior to the vote at the annual meeting by: • providing written notice of revocation to the Secretary of the Company at 13085 Hamilton Crossing Boulevard, Carmel, Indiana 46032; • delivering a valid, later-dated proxy or a later-dated vote on the Internet or by telephone; or • attending the annual meeting and voting in person. Please note that your attendance at the annual meeting in person will not cause your previously granted proxy to be revoked unless you vote in person at the annual meeting. If you wish to revoke your proxy, you must do so in sufficient time to permit the necessary examination and tabulation of the subsequent proxy or revocation before the vote is taken. Shares held in street name may be voted in person by you at the annual meeting only if you obtain a signed proxy from the record holder giving you the right to vote the shares. | |
Q: | Who will bear the cost of soliciting votes for the annual meeting? | |
A: | The Board of Directors of the Company is soliciting your proxy to vote your shares of common stock at the annual meeting. KAR Auction Services will pay the entire cost of preparing, assembling, printing, mailing and distributing these proxy materials. In addition to the distribution of these proxy materials, the solicitation of proxies or votes may be made in person, by telephone or by electronic and facsimile transmission by our directors, officers and employees, who will not receive any additional compensation for such solicitation activities. The Company also may reimburse brokerage firms and other persons representing beneficial owners of shares of KAR Auction Services' common stock for their expenses in forwarding solicitation material to such beneficial owners. | |
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Q: | I share an address with another stockholder, and we received only one paper copy of the proxy materials. How may I obtain an additional copy of the proxy materials? | |
A: | The Company has adopted a procedure called "householding" which the SEC has approved. Under this procedure, the Company is delivering a single copy of this proxy statement and the Company's Annual Report to multiple stockholders who share the same address unless the Company has received contrary instructions from one or more of the stockholders. This procedure reduces the Company's costs and reduces our impact on the environment. Stockholders who participate in householding will continue to be able to access and receive separate proxy cards. Upon written or oral request, a separate copy of this proxy statement and the Company's Annual Report will be promptly delivered to any stockholder at a shared address to which the Company delivered a single copy of any of these documents. If you prefer to receive separate copies of the proxy statement or Annual Report, contact Broadridge Financial Solutions, Inc. by calling 1-866-540-7095 or in writing at 51 Mercedes Way, Edgewood, New York 11717, Attention: Householding Department. In addition, if you currently are a stockholder who shares an address with another stockholder and would like to receive only one copy of future notices and proxy materials for your household, you may notify your broker if your shares are held in a brokerage account or you may notify us if you hold registered shares. Registered stockholders may notify us by contacting Broadridge Financial Solutions, Inc. at the above telephone number or address. | |
Q: | Why did I receive a notice regarding the internet availability of the proxy materials instead of a paper copy of the proxy materials? | |
A: | We are making the proxy materials available to stockholders electronically via the Internet under the Notice and Access regulations of the SEC. Most of our stockholders will receive a Notice of Electronic Availability in lieu of receiving a full set of proxy materials in the mail. The notice includes information on how to access and review the proxy materials, and how to vote via the Internet. We believe this method of delivery will decrease costs, expedite distribution of proxy materials to you, and reduce our impact on the environment. Stockholders who receive a notice but would like to receive a printed copy of the proxy materials in the mail should follow the instructions in the notice for requesting such materials. | |
Q: | How can I obtain a copy of KAR Auction Services' Annual Report on Form 10-K? | |
A: | Copies of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015, as filed with the SEC, are available to stockholders free of charge on KAR Auction Services' website atwww.karauctionservices.com or by writing to KAR Auction Services, Inc., Investor Relations, 13085 Hamilton Crossing Boulevard, Carmel, Indiana 46032. | |
Q: | Where can I find the voting results of the annual meeting? | |
A: | KAR Auction Services will announce preliminary voting results at the annual meeting and publish preliminary, or final results if available, in a Current Report on Form 8-K within four business days of the annual meeting. |
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ANNEX I
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
KAR AUCTION SERVICES, INC.2009 OMNIBUS STOCK AND INCENTIVE PLAN,AS AMENDED JUNE 10, 2014
Section 1. Purpose The undersigned, Rebecca C. Polak, certifies that she is the Executive Vice President and, General Counseland Secretary of Plan.
KAR Auction Services, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), and does hereby further certify as follows:
(1) The name of the PlanCorporation is the KAR Auction Services, Inc. 2009 Omnibus Stock
(2) The name under which the Corporation was originally incorporated was KAR Holdings, Inc. and Incentive Plan (as amended, the "Plan"). The purposeoriginalCertificate of Incorporationcertificate of incorporation of the Plan is to provide an additional incentive to selected management employees, directors, independent contractors, and consultantsCorporation was filed with the Secretary of State of the Company or its Affiliates (as hereinafter defined) whose contributions are essentialState of Delaware on November 9, 2006 and amended pursuant to that certificate of amendment filed with the growth and successSecretary of State of the Company's business, in orderState of Delaware on December 19, 2006 (the "Original Certificate of Incorporation"). Pursuant to strengthena certificate of amendment filed with the commitmentSecretary of such persons to the Company and its Subsidiaries, motivate such persons to faithfully and diligently perform their responsibilities and attract and retain competent and dedicated persons whose efforts will result in the long-term growth and profitabilityState of the Company. To accomplish such purposes,State of Delaware on November 3, 2009, the Plan provides thatCorporation changed its name to KAR Auction Services, Inc. On December 9, 2009, the Company may grant Options, Share Appreciation Rights, Restricted Shares, Other Share-Based Awards, Other Cash-Based Awards or any combination of the foregoing.
For purposes of the Plan, the following terms shall be defined as set forth below:
(a) "Administrator" means the Board, or, if and to the extent the Board does not administer the Plan, the Committee in accordance with Section 3 hereof.
(b) "Affiliate" means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified. An entity shall be deemed an Affiliate of the Company for purposes of this definition only for such periods as the requisite ownership or control relationship is maintained.
(c) "Award" means any Option, Share Appreciation Right, Restricted Share, Other Share-Based Award or Other Cash-Based Award granted under the Plan.
(d) "Award Agreement" means any written agreement, contract or other instrument or document evidencing an Award.
(e) "Bylaws" mean theCorporation filed its amended and restated bylawscertificate of incorporation with the Secretary of State of the Company, as may be amended and/or restated from time to time.State of Delaware (the "Certificate of Incorporation").
(f) "Beneficial Owner" (or any variant thereof) has the meaning defined in Rule 13d-3 under the Exchange Act.
(g) "Board" means(3) In lieu ofAt a meeting of the Board of Directors of the Company.Corporation (the "Board of Directors") on February 10, 2016, the Board of Directorshas, by unanimous written consent dated December 9, 2009,authorized the amendment and restatement of theCorporation's OriginalCertificate of Incorporation as set forth herein in accordance withthe provisions ofSections141(f),242 and 245 of the General Corporation Law of the State of Delaware.In lieu of aAt the annual meetingand vote of theof stockholders of the Corporation held on June 8, 2016, the stockholders of the Corporation, the Corporation's sole stockholder has, by unanimous written consent dated December 9, 2009, approved the amendment and restatement of theCorporation's OriginalCertificate of Incorporation as set forth herein in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware, and such consent has been filed with the minutes of the proceedings of stockholders of the Corporation.
(4) This Amended and Restated Certificate of Incorporationrestates and integrates andfurther amendsand restates theOriginalCertificate of Incorporation of the Corporation, as heretofore amended or supplemented.
The text of theOriginalCertificate of Incorporationof the Corporationis hereby amended and restated to read in its entirety, as follows:
(h) "FIRST: The name of the Corporation is KAR Auction Services, Inc. (hereinafter, the "Corporation").
CauseTable of Contents
"SECOND: The address of the registered office of the Corporation in the State of Delaware is 160 Greentree Drive, Suite 101, in the City of Dover, County of Kent. The name of its registered agent at that address is National Registered Agents, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware as set forth in Title 8 of the Delaware Code (the "GCL").
FOURTH:
(1) Each holder of record of shares of Common Stock shall be entitled to perform substantially his or her employment-related duties, (ii) the Participant's personal dishonesty, incompetence, willful misconduct or breachone vote for each share of fiduciary duty, (iii) the Participant's indictment for, conviction of or entering a plea of guilty ornolo contendereCommon Stock held on all matters submitted to a crime constituting a felonyvote of stockholders of the Corporation on which holders of Common Stock are entitled to vote.
(2) The holders of shares of Common Stock shall not have cumulative voting rights (as defined in Section 214 of the GCL).
(3) Subject to the rights of the holders of Preferred Stock, and subject to any other provisions of this Amended and Restated Certificate of Incorporation, as it may be amended from time to time, holders of shares of Common Stock shall be entitled to receive such dividends and other distributions in cash, stock or hisproperty of the Corporation if, as and when declared thereon by the Board of Directors from time to time out of assets or her willful violationfunds of the Corporation legally available therefor.
(4) In the event of any applicable law (other than a traffic violationliquidation, dissolution or other offense or violation outsidewinding up of the course of employment which in no way adversely affectsCorporation, whether voluntary or involuntary, after payment or provision for the Company and its Subsidiaries or their reputation or the abilitypayment of the Participant to perform his or her employment-related duties or to represent the Company or any Subsidiarydebt and liabilities of the Company that employs such Participant), (iv)Corporation and subject to the Participant's failure to reasonably cooperate, following a request to do so by the Company,prior payment in any internal or governmental investigationfull of the Company orpreferential amounts, if any, to which any series of its Subsidiaries or (v)Preferred Stock may be entitled, the Participant'sholders of shares of Common Stock shall be entitled to receive the assets and funds of the Corporation remaining for distribution in proportion to the number of shares held by them, respectively.
material breach (5) No holder of shares of Common Stock shall be entitled to preemptive or subscription rights.
FIFTH: The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its Subsidiaries not to disclose any information pertainingdirectors and stockholders:
(i) "Change in Capitalization" means any (i) merger, consolidation, reclassification, recapitalization, spin-off, spin-out, repurchase or other reorganization or corporate transaction or event, (ii) dividend (whether in the formexact number of cash, Common Stock or other property), stock split or reverse stock split, (iii) combination or exchange of shares, (iv) other change in corporate structure or (v) declaration of a special dividend (including a cash dividend) or other distribution, which in any such case, the Administrator determines, in its sole discretion, affects the Shares such that an adjustment pursuant to Section 5 hereof is appropriate.
(j) "Change in Control" shall be deemedfixed from time to have occurred if an event set forth in any onetime by resolution adopted by the affirmative vote of the following paragraphs shall have occurred:
(1) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or any Affiliate thereof) representing fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities; or
(2) the following individuals cease for any reason to constitute a majority of the entire Board of Directors.
(3) there is consummated a merger or consolidation of the Company or any Subsidiary thereof with any other corporation, other than a merger or consolidation immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the Board of Directors then in office, provided that a quorum is present, and any other vacancy occurring on the entity surviving such mergerBoard of Directors may be filled by a majority of the Board of Directors then in office, even if less than a quorum, or consolidationby a sole remaining director. The right of stockholders to fill vacancies on the Board of Directors is hereby specifically denied. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his or her predecessor.
(4) the shareholdersaffirmative vote of the Company approveholders ofshares representing a plan of complete liquidation or dissolutionmajority of the Company or there is consummated an agreement for the sale or dispositionvotes entitled to be cast by the Company of allVoting Stock;provided,however, that prior to the Trigger Date, a director may be removed with or substantially allwithout cause, such removal to be by the affirmative vote of the Company's assets, other than (A)holders of shares representing a sale or dispositionmajority of the votes entitled to be cast by the Company of all or substantially all of the Company's assets to an entity, Voting Stock.at least fifty percent (50%) of the combineda majority in voting power of the voting securities of which are owned by shareholdersissued and outstanding capital stock of the Company followingCorporation entitled to vote in the completionelection of directors.
(1)"Trigger Date" shall mean the first date on which (x) KAR Holdings II, LLC (or its successor) ceases, or (y) in the event of a liquidation of KAR Holdings II, LLC, the Equity Sponsors (as defined below) and their affiliates, collectively, cease, to beneficially own (directly or indirectly) shares representing thirty-five percent (35%) or more of the Voting Stock (it being understood that the retention of either direct or indirect beneficial ownership of thirty-five percent (35%) or more of the Voting Stock by KAR Holdings II, LLC (or its successor) or the Equity Sponsors and their affiliates, as applicable, shall mean that the Trigger Date has not occurred); and
(2)"Voting Stock" shall mean the shares of the then outstanding capital stock of the Corporation entitled to vote generally in the election of directors.
SIXTH: No director shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the GCL as the same exists or may hereafter be amended. If the GCL is amended hereafter to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent authorized by the GCL, as so amended. Any repeal or modification of this Article SIXTH shall not adversely affect any right or protection of a director of the Corporation existing at the time of such transaction in substantially the same proportions as their ownership of the Company immediatelyrepeal or modification with respect to acts or omissions occurring prior to such salerepeal or (modification.
B)SEVENTH.: The Corporation shall indemnify its directors and officers to the fullest extent authorized or permitted by law, as now or hereafter in effect, and such right to indemnification shall continue as to a saleperson who has ceased to be a director or disposition of all or substantially allofficer of the Company's assets immediately following whichCorporation and shall inure to the individuals who comprisebenefit of his or her heirs, executors and personal and legal representatives; provided, however, that, except for proceedings to enforce rights to indemnification, the Corporation shall not be obligated to indemnify any director or officer (or his or her heirs, executors or personal or legal representatives) in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board immediatelyof Directors. The right to indemnification conferred by this Article SEVENTH shall include the right to be paid by the Corporation the expenses incurred in defending or otherwise participating in any proceeding in advance of its final disposition.
The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article SEVENTH to directors and officers of the Corporation.
The rights to indemnification and to the advance of expenses conferred in this Article SEVENTH shall not be exclusive of any other right which any person may have or hereafter acquire under this Amended and Restated Certificate of Incorporation, the By-Laws of the Corporation, any statute or other law, by agreement, vote of stockholders or approval of the directors of the Corporation or otherwise.
Any repeal or modification of this Article SEVENTH shall not adversely affect any rights to indemnification and to the advancement of expenses of a director or officer of the Corporation existing at the time of such repeal or modification with respect to any acts or omissions occurring prior thereto constituteto such repeal or modification.
EIGHTH.: Any action required or permitted to be taken by the stockholders of the Corporation may be effected only at leasta duly called annual or special meeting of the stockholders of the Corporation;provided that, prior to the Trigger Date, any action required or permitted to be taken by the stockholders of the Corporation may be effected by a consent in writing signed by the holders of shares representing the lowest requisite number of votes entitled to be cast by the Voting Stock that are permitted to approve any action by written consent under the GCL (provided that, prior to the Trigger Date, in no event shall stockholders holding less than a majority of the . The ability of stockholders of the boardshares of directorsVoting Stock be permitted to act by written consent)entityCorporation to consent in writing to the taking of any action is hereby specifically denied from and after the Trigger Date.
NINTH.: Meetings of stockholders may be held within or without the State of Delaware, as the By-Lawsof the Corporation may provide. The books of the Corporation may be kept (subject to any provision contained in the GCL) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws of the Corporation.
TENTH.: Except as otherwise required by law, special meetings of stockholders of the Corporation for any purpose or purposes may be called at any time only by (i) the Chief Executive Officer of the Corporation,or (ii) the Board of Directors pursuant to a resolution duly adopted by a majority of the total number of authorized directors then in office which states the purpose or purposes thereof, or (iii) any stockholders who beneficially own thirty-five percent (35%) or more of the Voting Stock. Other than as set forth in clause (iii) of the preceding sentence, any. Any power of the stockholders to call a special meeting of stockholders is hereby specifically denied. No business other than that stated in the notice of such assetsmeeting (or any supplement thereto) shall be transacted at any special meeting.
ELEVENTH:
For each Award that constitutes deferred compensation under Code Section 409A,Corporation, such business opportunity is expressly offered to such director or officer in writing solely in his or her capacity as a Changedirector or officer of the Corporation. Any person purchasing or otherwise acquiring any interest in Controlany shares of stock of the Corporation shall be deemed to have occurred undernotice of and consented to the Planprovisions of this Article ELEVENTH. Neither the alteration, amendment or repeal of this Article ELEVENTH nor the adoption of any provision of this Amended and Restated Certificate of Incorporation inconsistent with this Article ELEVENTH shall eliminate or reduce the effect of this Article ELEVENTH in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article ELEVENTH, would accrue or arise, prior to such Award only if a changealteration, amendment, repeal or adoption. Nothing in the ownershipthis Article ELEVENTH shall in any way alter, modify or effective controlotherwise amend any of the Company or a change in ownershipprovisions of a substantial portionSection 3.8 of the assetsSecond Amended and Restated Limited Liability Company Agreement of KAR Holdings II, LLC.
(1)The term "Corporation" shall mean the CompanyCorporation and its subsidiaries; and
(2)The term "the Equity Sponsors" shall also be deemed to have occurred under Code Section 409A.mean each of GS Capital Partners VI Fund, L.P., GS Capital Partners VI Parallel, L.P., GS Capital Partners VI GmbH & Co. KG, GS Capital Partners VI Offshore Fund, L.P., Kelso Investment Associates VII, L.P., KEP VI, LLC, Axle Holdings II, LLC, ValueAct Capital Master Fund, L.P. and PCap KAR LLC and their respective affiliates and subsidiaries (other than the Corporation and its subsidiaries).
Notwithstanding the foregoing, a "Change in Control" shallTWELFTH.ELEVENTH: The Corporation expressly elects not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the holders of Common Stock immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions.
(k) "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto.
(l) "Committee" means any committee or subcommittee the Board may appoint to administer the Plan. Subject to the discretion of the Board, the Committee shall be composed entirely of individuals who meet the qualifications of a "non-employee director" within the meaning of Rule 16b-3 under the Exchange Act and any other qualifications required by the applicable stock exchange on which the Common Stock is traded. With respect to the approval and payment of any Award intended to be "qualified performance-based compensation" under Code Section 162(m), the Committee shall be composed entirely of individuals who meet the qualifications of an "outside director" within the meaning of Code Section 162(m). If at any time or to any extent the Board shall not administer the Plan, then the functions of the Administrator specified in the Plan shall be exercised by the Committee. Except as otherwise provided in the Articles of Incorporation or Bylaws, any action of the Committee with respect to the administration of the Plan shall be taken by a majority vote at a meeting at which a quorum is duly constituted or unanimous written consent of the Committee's members.
(m) "Common Stock" means the common stock, par value $.01 per share, of the Company.
(n) "Company" means KAR Auction Services, Inc., a Delaware corporation (or any successor corporation, except as the term "Company" is used in the definition of "Change in Control" above).
(o) "Covered Employee" shall have the meaning set forth in Code Section 162(m).
(p) "Disability" shall have the meaning assigned to such term in any individual employment or severance agreement or Award Agreement with the Participant or, if no such agreement exists or the agreement does not define "Disability," Disability means, with respect to any Participant, that such Participant (i) as determined by the Administrator in its sole discretion, is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than six (6) months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than six (6) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company or an Affiliate thereof.
(q) "Effective Date" shall have the meaning set forth in Article 17 of the Plan.
(r) "Eligible Recipient" means an employee, director, independent contractor or consultant of the Company or any Affiliate of the Company who has been selected as an eligible participant by the Administrator; provided, however, to the extent required to avoid the imposition of additional taxes under Code Section 409A, an Eligible Recipient means an employee, director, independent contractor or consultant of the Company or any Subsidiary of the Company who has been selected as an eligible participant by the Administrator.
(s) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time.
(t) "Exercise Price" means, with respect to any Award under which the holder may purchase Shares, the price per share at which a holder of such Award granted hereunder may purchase Shares issuable upon exercise of such Award.
(u) "Fair Market Value" as of a particular date shall mean the fair market value of a share of Common Stock as determined by the Administrator in its sole discretion;provided,however, that (i) if the Common Stock is admitted to trading on a national securities exchange, the fair market value of a share of Common Stock on any date shall be the closing sale price reported for such share on such exchange on such date or, if no sale was reported on such date, on the last day preceding such date on which a sale was reported, or (ii) if the shares of Common Stock are not then listed on the New York Stock Exchange, the average of the highest reported bid and lowest reported asked prices for the shares of Common Stock as reported by the National Association of Securities Dealers, Inc. Automated Quotations System for the last preceding date on which there was a sale of such stock in such market, or (3) if the shares of Common Stock are not then listed on a national securities exchange or traded in an over-the-counter market or the value of such shares is not otherwise determinable, such value as determined by the Committee in good faith and in accordance with Code Section 409A.
(v) "Option" means an option to purchase shares of Common Stock granted pursuant to Section 7 hereof.
(w) "Other Cash-Based Award" means a cash Award granted to a Participant under Section 10 hereof, including cash awarded as a bonus or upon the attainment of Performance Goals or otherwise as permitted under the Plan.
(x) "Other Share-Based Award" means a right or other interest granted to a Participant under the Plan that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Common Stock, including, but not limited to, unrestricted Shares, restricted stock units, dividend equivalents or performance units, each of which may be subject to the attainment of Performance Goals or a period of continued employment or other terms or conditions as permitted under the Plan.
(y) "Participant" means any Eligible Recipient selected by the Administrator, pursuant to the Administrator's authority provided for in Section 3 below, to receive grants of Options, Share Appreciation Rights, Restricted Shares, Other Share-Based Awards, Other Cash-Based Awards or any combination of the foregoing, and, upon his or her death, his or her successors, heirs, executors and administrators, as the case may be.
(z) "Performance Goals" means performance goals based on one or more of the following criteria: (i) earnings, including one or more of operating income, earnings before or after taxes, earnings before or after interest, depreciation, amortization, adjusted EBITDA, economic earnings, or extraordinary or special items or book value per share (which may exclude nonrecurring items); (ii) pre-tax income or after-tax income; (iii) earnings per Share (basic or diluted); (iv) operating profit; (v) revenue, revenue growth or rate of revenue growth; (vi) return on assets (gross or net), return on investment, return on capital, or return on equity; (vii) returns on sales or revenues; (viii) operating expenses; (ix) stock price appreciation (including total stockholder return, on an absolute basis or relative to a peer group or other index selected by the Committee); (x) cash flow, free cash flow, cash flow return on investment (discounted or otherwise), net cash provided by operations, or cash flow in excess of cost of capital; (xi) implementation or completion of critical projects or processes; (xii) cumulative earnings per share growth; (xiii) operating margin or profit margin; (xiv) cost targets, reductions and savings, productivity and efficiencies; (xv) strategic business criteria, consisting of one or more objectively determinable objectives based on meeting specified market penetration, geographic business expansion, customer satisfaction, employee satisfaction, human resources management, supervision of litigation, information technology, and goals relating to acquisitions, divestitures, joint ventures and similar transactions, and budget
comparisons; (xvi) objectively determinable personal professional objectives, including any of the foregoing performance goals, the implementation of policies and plans, the negotiation of transactions, the development of long term business goals, formation of joint ventures, research or development collaborations, and the completion of other corporate transactions; and (xvii) any combination of, or a specified increase in, any of the foregoing. Where applicable, the Performance Goals may be expressed in terms of attaining a specified level of the particular criteria or the attainment of a percentage increase or decrease in the particular criteria, and may be applied to one or more of the Company or Affiliate thereof, or a division or strategic business unit of the Company, or may be applied to the performance of the Company relative to a market index, a group of other companies or a combination thereof, all as determined by the Committee. The Performance Goals may include a threshold level of performance below which no payment shall be made (or no vesting shall occur), levels of performance at which specified payments shall be made (or specified vesting shall occur), and a maximum level of performance above which no additional payment shall be made (or at which full vesting shall occur). Each of the foregoing Performance Goals shall be subject to certification by the Committee;provided, that the Committee may specify any reasonable definition of the Performance Goals it uses. Such definitions may provide for equitable adjustments to the Performance Goals in recognition of unusual or non-recurring events affecting the Company or any Affiliate thereof or the financial statements of the Company or any Affiliate thereof, in response to changes in applicable laws or regulations, or to account for items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a segment of a business or related to a change in accounting principles (in each case, to the extent not inconsistent with Section 162(m) of the Code, if applicable).
(aa) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any Subsidiary thereof, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary thereof, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company.
(bb) "Restricted Shares" means Shares granted pursuant to Section 9 below subject to certain restrictions that lapse at the end of a specified period or periods.
(cc) "Retirement" means a termination of a Participant's employment, other than for Cause, on or after the attainment of age 65.
(dd) "Shares" means shares of Common Stock reserved for issuance under the Plan, as adjusted pursuant to the Plan, and any successor (pursuant to a merger, consolidation or other reorganization) security.
(ee) "Share Appreciation Right" means the right pursuant to an Award granted under Section 8 below to receive an amount equal to the excess, if any, of (i) the aggregate Fair Market Value, as of the date such Award or portion thereof is surrendered, of the Shares covered by such Award or such portion thereof, over (ii) the aggregate Exercise Price of such Award or such portion thereof.
(ff) "Subsidiary" means, with respect to any Person, as of any date of determination, any other Person as to which such first Person owns or otherwise controls, directly or indirectly, more than 50% of the voting shares or other similar interests or a sole general partner interest or managing member or similar interest of such other Person. An entity shall be deemed a Subsidiary of the Company for purposes of this definition only for such periods as the requisite ownership or control relationship is maintained.
(a) The Plan shall be administered by the Administrator and shall be administered in accordance with the requirements of Code Section 162(m) (but only to the extent necessary and desirable to maintain qualification of Awards under the Plan under Code Section 162(m)) and, to the extent applicable, Rule 16b-3 under the Exchange Act ("Rule 16b-3"). The Plan is intended to comply, and shall be administered in a manner that is intended to comply, with Code Section 409A and shall be construed and interpreted in accordance with such intent. To the extent that an Award, issuance and/or payment is subject to Code Section 409A, it shall be awarded and/or issued or paid in a manner that will comply with Code Section 409A, including any applicable regulations or guidance issued by the Secretary of the Treasury and the Internal Revenue Service with respect thereto.
(b) Pursuant to the terms of the Plan, the Administrator, subject, in the case of any Committee, to any restrictions on the authority delegated to it by the Board, shall have the power and authority, without limitation:
(1) to select those Eligible Recipients who shall be Participants;
(2) to determine whether and to what extent Options, Share Appreciation Rights, Restricted Shares, Other Share-Based Awards, Other Cash-Based Awards or a combination of any of the foregoing, are to be granted hereunder to Participants;
(3) to determine the number of Shares to be covered by each Award granted hereunder;
(4) to determine the terms and conditions, not inconsistent with the terms of the Plan, of each Award granted hereunder (including, but not limited to, (i) the restrictions applicable to Restricted Shares and the conditions under which restrictions applicable to such Restricted Shares shall lapse, (ii) the Performance Goals and periods applicable to Awards (if any), (iii) the Exercise Price of each Award, (iv) the vesting schedule applicable to each Award, (v) the number of Shares subject to each Award and (vi) subject to the requirements of Code Section 409A (to the extent applicable), any amendments to the terms and conditions of outstanding Awards, including, but not limited to, extending the exercise period of such Awards and accelerating the vesting schedule of such Awards;
(5) to determine the terms and conditions, not inconsistent with the terms of the Plan, which shall govern all written instruments evidencing Options, Share Appreciation Rights, Restricted Shares or Other Share-Based Awards, Other Cash-Based Awards or any combination of the foregoing granted hereunder;
(6) to determine the Fair Market Value;
(7) to determine the duration and purpose of leaves of absence which may be granted to a Participant without constituting termination of the Participant's employment for purposes of Awards granted under the Plan;
(8) to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall from time to time deem advisable; and
(9) to construe and interpret the terms and provisions of the Plan and any Award issued under the Plan (and any Award Agreement relating thereto), and to otherwise supervise the administration of the Plan and to exercise all powers and authorities either specifically granted under the Plan or necessary and advisable in the administration of the Plan.
(c) All decisions made by the Administrator pursuant to the provisions of the Plan shall be final, conclusive and binding on all persons, including the Company and the Participants. No member of the Board or the Committee, nor any officer or employee of the Company or any Subsidiary thereof acting on behalf of the Board or the Committee, shall be personally liable for
any action, omission, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company and of any Subsidiary thereof acting on their behalf shall, to the maximum extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, omission, determination or interpretation.
Section 4. Shares Reserved for Issuance Under the Plan.
(a) Subject to Section 5 hereof, the number of shares of Common Stock that are reserved and available for issuance pursuant to Awards granted under the Plan is 12,492,683 shares. The aggregate Awards granted during any fiscal year to any single individual shall not exceed, subject to adjustment as provided in Section 5 herein: (i) 600,000 shares subject to Options or Share Appreciation Rights, (ii) 300,000 shares subject to Restricted Shares or Other Share-Based Awards (other than Stock Appreciation Rights) and (iii) $5,000,000 with respect to Other Cash-Based Awards.
(b) Shares issued under the Plan may, in whole or in part, be authorized but unissued Shares or Shares that shall have been or may be reacquired by the Company in the open market, in private transactions or otherwise. Any Shares subject to an Award under the Plan that, after the Effective Date, are forfeited, canceled, settled or otherwise terminated without a distribution of Shares to a Participant will thereafter be deemed to be available for Awards. In applying the immediately preceding sentence, if (i) Shares otherwise issuable or issued in respect of, or as part of, any Award other than Options and Share Appreciation Rights are withheld to cover taxes, such Shares shall not be treated as having been issued under the Plan and shall again be available for issuance under the Plan, (ii) Shares otherwise issuable or issued in respect of, or as part of, any Award of Options or Share Appreciation Rights are withheld to cover taxes or the Exercise Price, such Shares shall be treated as having been issued under the Plan and shall not be available for issuance under the Plan, and (iii) any Share-settled Share Appreciation Rights are exercised, the aggregate number of Shares subject to such Share Appreciation Rights shall be deemed issued under the Plan and shall not be available for issuance under the Plan. In addition, Shares tendered to exercise outstanding Options or other Awards or to cover applicable taxes on Awards of Options and Share Appreciation Rights shall not be available for issuance under the Plan, but Shares tendered to cover applicable taxes on Awards other than Options and Share Appreciation Rights shall be available for issuance under the Plan.
Section 5. Equitable Adjustments.
In the event of any Change in Capitalization, an equitable substitution or proportionate adjustment shall be made, in each case, as may be determined by the Administrator, in its sole discretion, in (i) the aggregate number of shares of Common Stock reserved for issuance under the Plan and the maximum number of Shares that may be subject to Awards granted to any Participant in any calendar or fiscal year, (ii) the kind, number and Exercise Price subject to outstanding Options and Share Appreciation Rights granted under the Plan, and (iii) the kind, number and purchase price of Shares subject to outstanding Restricted Shares or Other Share-Based Awards granted under the Plan, in each case as may be determined by the Administrator, in its sole discretion,provided,however, that any fractional shares resulting from the adjustment shall be eliminated. Such other equitable substitutions or adjustments shall be made as may be determined by the Administrator, in its sole discretion. Without limiting the generality of the foregoing, in connection with a Change in Capitalization, the Administrator may provide, in its sole discretion, for the cancellation of any outstanding Award granted hereunder in exchange for payment in cash or other property having an aggregate Fair Market Value of the Shares covered by such Award, reduced by the aggregate Exercise Price or purchase price thereof, if any. The Administrator's determinations pursuant to this Section 5 shall be final, binding and conclusive.
The Participants under the Plan shall be selected from time to time by the Administrator, in its sole discretion, from among Eligible Recipients.
(a) General. Each Participant who is granted an Option shall enter into an Award Agreement with the Company, containing such terms and conditions as the Administrator shall determine, in its sole discretion, which Award Agreement shall set forth, among other things, the Exercise Price of the Option, the term of the Option and provisions regarding exercisability of the Option granted thereunder. The provisions of each Option need not be the same with respect to each Participant. More than one Option may be granted to the same Participant and be outstanding concurrently hereunder. Options granted under the Plan shall be subject to the terms and conditions set forth in this Section 7 and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable and set forth in the applicable Award Agreement. Each Option granted hereunder is intended to be a non-qualified Option and is not intended to qualify as an "incentive stock option" within the meaning of Code Section 422.
(b) Exercise Price. The Exercise Price of Shares purchasable under an Option shall be determined by the Administrator in its sole discretion at the time of grant, but in no event shall the Exercise Price of an Option be less than one hundred percent (100%) of the Fair Market Value of the Common Stock on the date of grant.
(c) Option Term. The maximum term of each Option shall be fixed by the Administrator, but no Option shall be exercisable more than ten (10) years after the date such Option is granted. Each Option's term is subject to earlier expiration pursuant to the applicable provisions in the Plan and the Award Agreement. Notwithstanding the foregoing, the Administrator shall have the authority to accelerate the exercisability of any outstanding Option at such time and under such circumstances as the Administrator, in its sole discretion, deems appropriate.
(d) Exercisability. Each Option shall be exercisable at such time or times and subject to such terms and conditions, including the attainment of preestablished Performance Goals, as shall be determined by the Administrator in the applicable Award Agreement. The Administrator may also provide that any Option shall be exercisable only in installments, and the Administrator may waive such installment exercise provisions at any time, in whole or in part, based on such factors as the Administrator may determine in its sole discretion. Notwithstanding anything to the contrary contained herein, an Option may not be exercised for a fraction of a share.
(e) Method of Exercise. Options may be exercised in whole or in part by giving written notice of exercise to the Company specifying the number of Shares to be purchased, accompanied by payment in full of the aggregate Exercise Price of the Shares so purchased in cash or its equivalent, as determined by the Administrator. As determined by the Administrator, in its sole discretion, with respect to any Option or category of Options, payment in whole or in part may also be made (i) by means of consideration received under any cashless exercise procedure approved by the Administrator (including the withholding of Shares otherwise issuable upon exercise), (ii) in the form of unrestricted Shares already owned by the Participant which have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Shares as to which such Option shall be exercised, (iii) any other form of consideration approved by the Administrator and permitted by applicable law or (iv) any combination of the foregoing.
(f) Rights as Shareholder. A Participant shall have no rights to dividends or any other rights of a shareholder with respect to the Shares subject to an Option until the Participant has given written
notice of the exercise thereof, has paid in full for such Shares and has satisfied the requirements of Section 14 hereof.
(g) Termination of Employment or Service.
(1) Unless the applicable Award Agreement provides otherwise, in the event that the employment or service of a Participant with the Company and all Affiliates thereof shall terminate for any reason other than Cause, Retirement, Disability, or death, (A) Options granted to such Participant, to the extent that they are exercisable at the time of such termination, shall remain exercisable until the date that is ninety (90) days after such termination, on which date they shall expire, and (B) Options granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination. The ninety (90) day period described in this Section 7(g)(1) shall be extended to one (1) year after the date of such termination in the event of the Participant's death during such ninety (90) day period. Notwithstanding the foregoing, no Option shall be exercisable after the expiration of its term.
(2) Unless the applicable Award Agreement provides otherwise, in the event that the employment or service of a Participant with the Company and all Affiliates thereof shall terminate on account of Retirement, Disability or the death of the Participant, (A) Options granted to such Participant, to the extent that they were exercisable at the time of such termination, shall remain exercisable until the date that is one (1) year after such termination, on which date they shall expire and (B) Options granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination. Notwithstanding the foregoing, no Option shall be exercisable after the expiration of its term.
(3) In the event of the termination of a Participant's employment or service for Cause, all outstanding Options granted to such Participant shall expire at the commencement of business on the date of such termination.
(h) Other Change in Employment Status. An Option shall be affected, both with regard to vesting schedule and termination, by leaves of absence, changes from full-time to part-time employment, partial disability or other changes in the employment status of an Participant, in the discretion of the Administrator.
Section 8. Share Appreciation Rights.
(a) General. Share Appreciation Rights may be granted either alone ("Free Standing Rights") or in conjunction with all or part of any Option granted under the Plan ("Related Rights"). Related Rights may be granted either at or after the time of the grant of such Option. The Administrator shall determine the Eligible Recipients to whom, and the time or times at which, grants of Share Appreciation Rights shall be made, the number of Shares to be awarded, the price per Share, and all other conditions of Share Appreciation Rights. Notwithstanding the foregoing, no Related Right may be granted for more Shares than are subject to the Option to which it relates and any Share Appreciation Right must be granted with an Exercise Price not less than the Fair Market Value of Common Stock on the date of grant. The provisions of Share Appreciation Rights need not be the same with respect to each Participant. Share Appreciation Rights granted under the Plan shall be subject to the following terms and conditions set forth in this Section 8 and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable, as set forth in the applicable Award Agreement.
(b) Awards; Rights as Shareholder. The prospective recipient of a Share Appreciation Right shall not have any rights with respect to such Award, unless and until such recipient has executed an Award Agreement and delivered a fully executed copy thereof to the Company, within a period of sixty
(60) days (or such other period as the Administrator may specify) after the award date. Participants who are granted Share Appreciation Rights shall have no rights as shareholders of the Company with respect to the grant or exercise of such rights.
(c) Exercisability.
(1) Share Appreciation Rights that are Free Standing Rights shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Administrator in the applicable Award Agreement.
(2) Share Appreciation Rights that are Related Rights shall be exercisable only at such time or times and to the extent that the Options to which they relate shall be exercisable in accordance with the provisions of Section 7 above and this Section 8 of the Plan.
(d) Payment Upon Exercise.
(1) Upon the exercise of a Free Standing Right, the Participant shall be entitled to receive up to, but not more than, that number of Shares equal in value to the excess of the Fair Market Value as of the date of exercise over the price per share specified in the Free Standing Right multiplied by the number of Shares in respect of which the Free Standing Right is being exercised, with the Administrator having the right to determine the form of payment.
(2) A Related Right may be exercised by a Participant by surrendering the applicable portion of the related Option. Upon such exercise and surrender, the Participant shall be entitled to receive up to, but not more than, that number of Shares equal in value to the excess of the Fair Market Value as of the date of exercise over the Exercise Price specified in the related Option multiplied by the number of Shares in respect of which the Related Right is being exercised, with the Administrator having the right to determine the form of payment. Options which have been so surrendered, in whole or in part, shall no longer be exercisable to the extent the Related Rights have been so exercised.
(3) Notwithstanding the foregoing, the Administrator may determine to settle the exercise of a Share Appreciation Right in cash (or in any combination of Shares and cash).
(e) Termination of Employment or Service.
(1) In the event of the termination of employment or service with the Company and all Affiliates thereof of a Participant who has been granted one or more Free Standing Rights, such rights shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Administrator in the applicable Award Agreement.
(2) In the event of the termination of employment or service with the Company and all Affiliates thereof of a Participant who has been granted one or more Related Rights, such rights shall be exercisable at such time or times and subject to such terms and conditions as set forth in the related Options.
(f) Term.
(1) The term of each Free Standing Right shall be fixed by the Administrator, but no Free Standing Right shall be exercisable more than ten (10) years after the date such right is granted.
(2) The term of each Related Right shall be the term of the Option to which it relates, but no Related Right shall be exercisable more than ten (10) years after the date such right is granted.
(a) General. Restricted Shares may be issued either alone or in addition to other Awards granted under the Plan. The Administrator shall determine the Eligible Recipients to whom, and the
time or times at which, Restricted Shares shall be made; the number of Shares to be awarded; the price, if any, to be paid by the Participant for the acquisition of Restricted Shares; the Restricted Period (as defined in paragraph (c) of this Section 9), if any, applicable to Restricted Shares; the Performance Goals (if any) applicable to Restricted Shares; and all other conditions of the Restricted Shares. If the restrictions, Performance Goals and/or conditions established by the Administrator are not attained, a Participant shall forfeit his or her Restricted Shares in accordance with the terms of the grant. The provisions of the Restricted Shares need not be the same with respect to each Participant.
(b) Awards and Certificates. The prospective recipient of Restricted Shares shall not have any rights with respect to any such Award, unless and until such recipient has executed an Award Agreement and delivered a fully executed copy thereof to the Company, within a period of sixty (60) days (or such other period as the Administrator may specify) after the award date. Except as otherwise provided below in Section 9(c), (i) each Participant who is granted an award of Restricted Shares may, in the Company's sole discretion, be issued a stock certificate in respect of such Restricted Shares; and (ii) any such certificate so issued shall be registered in the name of the Participant, and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to any such Award.
The Company may require that the stock certificates, if any, evidencing Restricted Shares granted hereunder be held in the custody of the Company until the restrictions thereon shall have lapsed, and that, as a condition of any award of Restricted Shares, the Participant shall have delivered a stock power, endorsed in blank, relating to the Shares covered by such Award.
Notwithstanding anything in the Plan to the contrary, any Restricted Shares (whether before or after any vesting conditions have been satisfied) may, in the Company's sole discretion, be issued in uncertificated form pursuant to the customary arrangements for issuing shares in such form.
(c) Restrictions and Conditions. The Restricted Shares granted pursuant to this Section 9 shall be subject to the following restrictions and conditions and any additional restrictions or conditions as determined by the Administrator at the time of grant or, subject to Code Section 409A, thereafter:
(1) The Administrator may, in its sole discretion, provide for the lapse of restrictions in installments and may accelerate or waive such restrictions in whole or in part based on such factors and such circumstances as the Administrator may determine, in its sole discretion, including, but not limited to, the attainment of certain Performance Goals, the Participant's termination of employment or service as a director, independent contractor or consultant to the Company or any Affiliate thereof, or the Participant's death or Disability;provided,however, that this sentence shall not apply to any Award which is intended to qualify as "performance-based compensation" under Code Section 162(m). Notwithstanding the foregoing, upon a Change in Control, the outstanding Awards shall be subject to Section 11 hereof.
(2) Except as provided in Section 15 or in the Award Agreement, the Participant shall generally have the rights of a shareholder of the Company with respect to Restricted Shares during the Restricted Period. Certificates for Shares of unrestricted Common Stock may, in the Company's sole discretion, be delivered to the Participant only after the Restricted Period has expired without forfeiture in respect of such Restricted Shares, except as the Administrator, in its sole discretion, shall otherwise determine.
(3) The rights of Participants granted Restricted Shares upon termination of employment or service as a director, independent contractor, or consultant to the Company or to any Affiliate thereof terminates for any reason during the Restricted Period shall be set forth in the Award Agreement.
Section 10. Other Share-Based or Cash-Based Awards.
(a) The Administrator is authorized to grant Awards to Participants in the form of Other Share-Based Awards or Other Cash-Based Awards, as deemed by the Administrator to be consistent with the purposes of the Plan and as evidenced by an Award Agreement. The Administrator shall determine the terms and conditions of such Awards, consistent with the terms of the Plan, at the date of grant or thereafter, including any Performance Goals and performance periods. Common Stock or other securities or property delivered pursuant to an Award in the nature of a purchase right granted under this Section 10 shall be purchased for such consideration, paid for at such times, by such methods, and in such forms, including, without limitation, Shares, other Awards, notes or other property, as the Administrator shall determine, subject to any required corporate action.
(b) With respect to Awards that are intended to be "qualified performance-based compensation" under Code Section 162(m), no payment shall be made to a Participant that is or is likely to become a Covered Employee prior to the certification by the Committee that the Performance Goals have been attained. The Committee may establish other rules applicable to the Other Share- Based Awards and the Other Cash-Based Awards,provided,however, that such rules shall be in compliance with Code Section 162(m) to the extent applicable to any Covered Employee.
Section 11. Accelerated Vesting In Connection With a Change in Control.
(a) Unless otherwise determined by the Administrator or as evidenced in an Award Agreement and except as provided in Section 11(b) below, in the event that a Change in Control occurs, then:
(1) any unvested or unexercisable portion of any Award carrying a right to exercise shall become fully vested and exercisable; and
(2) the restrictions, deferral limitations, payment conditions and forfeiture conditions applicable to an Award granted under the Plan shall lapse and such Awards shall be deemed fully vested and any performance conditions imposed with respect to such Awards shall be deemed to be fully achieved.
Upon a Change in Control, the Committee may provide for the cancellation of all Awards then outstanding. Upon such cancellation, the Company shall make, in exchange for each such Award, a payment either in (i) cash, (ii) shares of the successor entity, or (iii) a combination of cash or shares, at the discretion of the Committee, and in each case as the Committee shall, in its sole discretion determine, in an amount per share subject to such Award equal to the excess, if any, of the Fair Market Value of a share of Common Stock as of the date of the Change in Control over the per share Exercise Price, if any, of such Award.
(b) Notwithstanding anything to the contrary contained herein, unless otherwise determined by the Administrator or as evidenced in an Award Agreement or other agreement between the Company and a Participant, with respect to each Other Cash-Based Award granted to a Participant pursuant to the Company's annual incentive plan or program, in the event that a Change in Control occurs during an annual performance period, each Participant shall be entitled to receive on the date of the Change in Control a payment with respect to such annual incentive award calculated based on the actual performance of the applicable performance goals through the date of the Change in Control, as determined by the Administrator in its discretion, pro-rated based on the number of days of the annual performance period that have elapsed prior to and including the date of the Change in Control.
Section 12. Amendment and Termination.
The Board or the Committee may amend, alter or terminate the Plan, but no amendment, alteration, or termination shall be made that would impair the rights of a Participant under any Award theretofore granted without such Participant's consent. Approval of the Company's shareholders shall
be obtained for any amendment that would require such approval in order to satisfy the requirements of Code Section 162(m), any rules of the stock exchange on which the Common Stock is traded or other applicable law.
Subject to the terms and conditions of the Plan, the Administrator may modify, extend or renew outstanding Awards under the Plan, or accept the surrender of outstanding Awards (to the extent not already exercised) and grant new Awards in substitution of them (to the extent not already exercised). Except as provided in Section 5, the Administrator will not, however, modify any outstanding Option or Share Appreciation Right so as to specify a lower Exercise Price or grant price (and will not cancel an Option or Share Appreciation Right and substitute for it an Option or Share Appreciation Right with a lower Exercise Price or grant price), without the approval of the Company's shareholders. In addition, except as provided in Section 5, the Administrator may not cancel an outstanding Option or Share Appreciation Right whose Exercise Price or grant price is equal to or greater than the current Fair Market Value of a Share and substitute for it another Award or cash payment without the prior approval of the Company's shareholders. Notwithstanding the foregoing, no alteration, modification or termination of an Award will, without the prior written consent of the Participant, adversely alter or impair any rights or obligations under any Award already granted under the Plan.
Section 13. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive compensation. With respect to any payments not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company.
Section 14. Withholding Taxes.
Each Participant shall, no later than the date as of which the value of an Award first becomes includible in the gross income of such Participant for federal and/or state income tax purposes, pay to the Company, or make arrangements satisfactory to the Administrator regarding payment of, any federal, state, or local taxes of any kind required by law to be withheld with respect to the Award. The obligations of the Company under the Plan shall be conditional on the making of such payments or arrangements, and the Company shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to such Participant. Whenever cash is to be paid pursuant to an Award granted hereunder, the Company shall have the right to deduct therefrom an amount sufficient to satisfy any federal, state and local withholding tax requirements related thereto. Whenever Shares are to be delivered pursuant to an Award, the Company shall have the right to require the Participant to remit to the Company in cash an amount sufficient to satisfy any related federal, state and local taxes to be withheld and applied to the tax obligations. With the approval of the Administrator, a Participant may satisfy the foregoing requirement by electing to have the Company withhold from delivery of Shares or by delivering already owned unrestricted shares of Common Stock, in each case, having a value not exceeding the federal, state and local taxes to be withheld and applied to the tax obligations. Such Shares shall be valued at their Fair Market Value on the date of which the amount of tax to be withheld is determined. Fractional share amounts shall be settled in cash. Such an election may be made with respect to all or any portion of the Shares to be delivered pursuant to an Award. The Company may also use any other method of obtaining the necessary payment or proceeds, as permitted by law, to satisfy its withholding obligation with respect to any Option or other Award.
Section 15. Transfer of Awards.
Until such time as the Awards are fully vested and/or exercisable in accordance with the Plan or an Award Agreement, no purported sale, assignment, mortgage, hypothecation, transfer, charge, pledge, encumbrance, gift, transfer in trust (voting or other) or other disposition of, or creation of a security interest in or lien on, any Award or any agreement or commitment to do any of the foregoing (each, a
"Transfer") by any holder thereof in violation of the provisions of the Plan or an Award Agreement will be valid, except with the prior written consent of the Administrator, which consent may be granted or withheld in the sole discretion of the Administrator. Any purported Transfer of an Award or any economic benefit or interest therein in violation of the Plan or an Award Agreement shall be null and voidab initio, and shall not create any obligation or liability of the Company, and any person purportedly acquiring any Award or any economic benefit or interest therein transferred in violation of the Plan or an Award Agreement shall not be entitled to be recognized as a holder of such Shares. Unless otherwise determined by the Administrator in accordance with the provisions of the immediately preceding sentence, an Option may be exercised, during the lifetime of the Participant, only by the Participant or, during any period during which the Participant is under a legal disability, by the Participant's guardian or legal representative.
Section 16. Continued Employment.
The adoption of the Plan shall not confer upon any Eligible Recipient any right to continued employment or service with the Company or any Affiliate thereof, as the case may be, nor shall it interfere in any way with the right of the Company or any Affiliate thereof to terminate the employment or service of any of its Eligible Recipients at any time.
The Effective Date of the Plan, as amended, is June 10, 2014.
No Award shall be granted pursuant to the Plan on or after the tenth anniversary of the Effective Date, but Awards theretofore granted may remain outstanding beyond that date.
Section 19. Code Section 409A.
The intent of the parties is that payments and benefits under the Plan comply with Code Section 409A to the extent subject thereto, and, accordingly, to the maximum extent permitted, the Plan shall be interpreted and be administered to be in compliance therewith. Any payments described in the Plan that are due within the "short-term deferral period" as defined in Code Section 409A shall not be treated as deferred compensation unless applicable law requires otherwise. Notwithstanding anything to the contrary in the Plan, to the extent required in order to avoid accelerated taxation and/or tax penalties under Code Section 409A, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to the Plan during the six (6) month period immediately following the Participant's termination of employment shall instead be paid on the first business day after the date that is six (6) months following the Participant's separation from service (or upon the Participant's death, if earlier). In addition, for purposes of the Plan, each amount to be paid or benefit to be provided to the Participant pursuant to the Plan, which constitute deferred compensation subject to Code Section 409A, shall be construed as a separate identified payment for purposes of Code Section 409A.
Section 20. Code Section 162(m).
The Committee may not delegate its authority to establish Performance Goals, certify performance against the Performance Goals or take other actions with respect to awards that are intended to be "qualified performance-based compensation" under Code Section 162(m). Performance Goals shall be established in writing before the earlier of (i) the 90th day of the performance period or (ii) the date that 25% of the performance period has elapsed. The payment of Awards under the Plan that are subject to the achievement of Performance Goals (including any prorated Awards) shall occur no later
than March 15 of the calendar year following the year in which the performance period ends. With respect to Awards intended to be "qualified performance-based compensation" under Code Section 162(m), the Committee shall not have the discretion to pay in excess of the amount earned based on the attainment of the Performance Goals as certified by the Committee.
Section 21. Erroneously Awarded Compensation.
The Plan and all Awards issued hereunder shall be subject to any compensation recovery policy adopted by the Company to comply with applicable law, including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or to comport with good corporate governances practices, as such policy may be amended from time to time.
The Plan shall be governed by Section 203 of the GCL.
THIRTEENTH.TWELFTH: In furtherance and construednot in accordance withlimitation of the powers conferred upon it by the laws of the State of Delaware, the Board of Directors shall have the power without giving effectthe assent or vote of the stockholders to principlesadopt, amend, alter or repeal the By-Laws of conflictsthe Corporation. The affirmative vote of lawat least a majority of the entire Board of Directors shall be required to adopt, amend, alter or repeal the By-Laws of the Corporation.
FOURTEENTH.THIRTEENTH: If any provision or provisions of this Amended and Restated Certificate of Incorporation shall be held to be invalid, illegal or unenforceable as applied to any circumstance for any reason whatsoever: (i) the validity, legality and enforceability of such state.provisions in any other circumstance and of the remaining provisions of this Amended and Restated Certificate of Incorporation (including, without limitation, each portion of any paragraph of this Amended and Restated Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and (ii) to the fullest extent possible, the provisions of this Amended and Restated Certificate of Incorporation (including, without limitation, each such portion of any paragraph of this Amended and Restated Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to permit the Corporation to protect its directors, officers, employees and agents from personal liability in respect of their good faith service to or for the benefit of the Corporation to the fullest extent permitted by law).
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of Incorporation to be executed on its behalf this9thday ofDecemberJune,20092016.
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KAR AUCTION SERVICES, INC. | ||||||
By: | ||||||
Name: | Rebecca C. Polak | |||||
Title: | Executive Vice President General Counsel and |
*** Exercise Your Right to Vote *** Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on June 08, 2016 KAR AUCTION SERVICES INC Date: June 08, 2016 Time: 9:00 AM EDT 50 West Washington Street You are receiving this communication because you hold shares in the above named company. This is not a ballot. You cannot use this notice to vote these shares. This communication presents only an overview of the more complete proxy materials that are available to you on the Internet. You may view the proxy materials online at www.proxyvote.com or easily request a paper copy (see reverse side). We encourage you to access and review all of the important information contained in the proxy materials before voting. 1234567 1234567 Envelope # # of # Sequence # 1 OF 2 12 15 0000283475_1 R1.0.1.25 Broadridge Internal Use Only Job # Sequence # See the reverse side of this notice to obtain proxy materials and voting instructions. KAR AUCTION SERVICES, INC. 13085 HAMILTON CROSSING BLVD. CARMEL, IN 46032 Investor Address Line 1 Investor Address Line 2 Investor Address Line 3 Investor Address Line 4 Investor Address Line 5 John Sample 1234 ANYWHERE STREET ANY CITY, ON A1A 1A1 1234567 1234567 1234567 234567 Meeting Information Meeting Type: Annual Meeting For holders as of: April 13, 2016 Location: The Conrad Indianapolis Indianapolis, Indiana 46204 B A R C O D E
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Before You Vote How to Access the Proxy Materials Proxy Materials Available to VIEW or RECEIVE: Have the information that is printed in the box marked by the arrow (located on the by the arrow (located on the following page) in the subject line. How To Vote Please Choose One of the Following Voting Methods marked by the arrow available and follow the instructions. Only 0000283475_2 R1.0.1.25 Vote In Person: Many stockholder meetings have attendance requirements including, but not limited to, the possession of an attendance ticket issued by the entity holding the meeting. Please check the meeting materials for any special requirements for meeting attendance. At the meeting, you will need to request a ballot to vote these shares. Vote By Internet: To vote now by Internet, go to www.proxyvote.com. Have the information that is printed in the box Vote By Mail: You can vote by mail by requesting a paper copy of the materials, which will include a proxy card. Internal Use 1. Combined Document How to View Online: following page) and visit: www.proxyvote.com. How to Request and Receive a PAPER or E-MAIL Copy: If you want to receive a paper or e-mail copy of these documents, you must request one. There is NO charge for requesting a copy. Please choose one of the following methods to make your request: 1) BY INTERNET:www.proxyvote.com 2) BY TELEPHONE:1-800-579-1639 3) BY E-MAIL*:sendmaterial@proxyvote.com * If requesting materials by e-mail, please send a blank e-mail with the information that is printed in the box marked Requests, instructions and other inquiries sent to this e-mail address will NOT be forwarded to your investment advisor. Please make the request as instructed above on or before May 25, 2016 to facilitate timely delivery.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES AND "FOR" PROPOSALS 2 and 3. 1. Election of Directors Nominees Todd F. Bourell To ratify the Audit Committee's appointment of KPMG LLP as the Company's independent registered public accounting firm for 2016. 3. 1A 1B Donna R. Ecton 1C James P. Hallett 1D Mark E. Hill 1E J. Mark Howell 1F Lynn Jolliffe 1G Michael T. Kestner 1H John P. Larson 1I Stephen E. Smith 2. To approve the amendment and restatement of the Company's Amended and Restated Certificate of Incorporation to provide that the Company's Stockholders may remove any director from office, with or without cause, and other ministerial changes. xxxxxxxxxx Job # Sequence # 0000283475_3 R1.0.1.25 Broadridge Internal Use Only xxxxxxxxxx Cusip Envelope # # of # Sequence # B A R C O D E 23456789012 2 2 2 2 12345678901 12345678901 12345678901 12345678901 12345678901 12345678901 12345678901 12345678901 12345678901 12345678901 Voting items
THE COMPANY NAME INC. - CLASS A THE COMPANY NAME INC. - CLASS C 123,456,789,012.12345 123,456,789,012.12345 THE COMPANY NAME INC. - CLASS F 123,456,789,012.12345 Envelope # # of # Sequence # 0000283475_4 R1.0.1.25 Broadridge Internal Use Only THIS SPACE RESERVED FOR SIGNATURES IF APPLICABLE Job # Sequence # NAME THE COMPANY NAME INC. - COMMON 123,456,789,012.12345 THE COMPANY NAME INC. - CLASS B123,456,789,012.12345 THE COMPANY NAME INC. - CLASS D123,456,789,012.12345 THE COMPANY NAME INC. - CLASS E123,456,789,012.12345 THE COMPANY NAME INC. - 401 K123,456,789,012.12345 Reserved for Broadridge Internal Control Information |
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If you would like to reduce the costs incurred by our company in mailing proxy 1234567 VOTE BY MAIL 123,456,789,012.12345 TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES AND "FOR" PROPOSALS 2 and 3. 1. Election of Directors Nominees Todd F. Bourell For 0 0 0 0 0 0 0 0 Yes 0 Against 0 0 0 0 0 0 0 0 No 0 Abstain 0 0 0 0 0 0 0 0 0 1A For 0 For 0 Against 0 Against 0 Abstain 0 Abstain 0 1B Donna R. Ecton 1I Stephen E. Smith 1C James P. Hallett 1D Mark E. Hill 2. To approve the amendment and restatement of the Company's Amended and Restated Certificate of Incorporation to provide that the Company's Stockholders may remove any director from office, with or without cause, and other ministerial changes. 1E J. Mark Howell 1F Lynn Jolliffe 0 0 0 1G Michael T. Kestner 3. To ratify the Audit Committee's appointment of KPMG LLP as the Company's independent registered public accounting firm for 2016. 1H John P. Larson For address change/comments, mark here. (see reverse for instructions) Please indicate if you plan to attend this meeting Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date 02 0000000000 1 OF 1 1 2 0000283476_1 R1.0.1.25 SHARES CUSIP # JOB #SEQUENCE # VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 John Sample 234567P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. 1234567 Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. NAME THE COMPANY NAME INC. - COMMON THE COMPANY NAME INC. - CLASS A THE COMPANY NAME INC. - CLASS B THE COMPANY NAME INC. - CLASS C THE COMPANY NAME INC. - CLASS D THE COMPANY NAME INC. - CLASS E THE COMPANY NAME INC. - CLASS F THE COMPA N Y NAME INC. - 401 K CONTROL # SHARES123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 x PAGE1 OF 2 KAR AUCTION SERVICES, INC. 13085 HAMILTON CROSSING BLVD. CARMEL, IN 46032 Investor Address Line 1 Investor Address Line 2 Investor Address Line 3 Investor Address Line 4 Investor Address Line 5 8 8 8 1 1234 ANYWHERE STREET ANY CITY, ON A1A 1A1 234567 234567 234567 234567
PROXY KAR AUCTION SERVICES, INC. ANNUAL MEETING OF STOCKHOLDERS - JUNE 8, 2016 PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Eric M. Loughmiller and Rebecca C. Polak, and each of them, as true and lawful agents and proxies with full power of substitution in each, to attend and represent the undersigned on all matters to come before the Annual Meeting of Stockholders and to vote as designated on the reverse side, all the shares of common stock of KAR Auction Services, Inc., held of record by the undersigned on April 13, 2016, during or at any adjournment or postponement of the Annual Meeting of Stockholders to be held at 9:00 a.m., EDT, at the Conrad Indianapolis, 50 West Washington Street, Indianapolis, Indiana 46204 on Wednesday, June 8, 2016. I hereby acknowledge receipt of the Notice of Annual Meeting of Stockholders and the accompanying Proxy Statement, the terms of which are incorporated by reference, and revoke any proxy previously given by me with respect to such meeting. This proxy will be voted as directed, or if no direction is indicated, the proxy holders will vote the shares represented by this proxy "FOR"each of the nominees listed in Proposal 1 and "FOR" Proposals 2 and 3, and in the discretion of the proxy holders on any other matter that may properly come before the meeting. Address change/comments: (If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) Continued and to be signed on reverse side 0000283476_2 R1.0.1.25 |
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