July 16, 2009
BY ELECTRONIC SUBMISSION
United States Securities and Exchange Commission
Division of Corporation Finance
Mail Stop 4561
100 F Street, N.E.
Washington, D.C. 20549-4561
Attention: Evan S. Jacobson
RE: PAR Technology Corporation
Form 10-K for Fiscal Year Ended December 31, 2008
Filed March 16, 2009
Form 10-Q for Fiscal Quarter Ended March 31, 2009
Filed May 11, 2009
File No. 001-09720
Ladies and Gentlemen:
PAR Technology Corporation, a Delaware corporation ("PAR" or the "Company"), is
transmitting for filing with the Securities and Exchange Commission (the
"Commission"), this letter reflecting PAR's responses to the written comments
communicated by Ms. Maryse Mills-Apenteng, Special Counsel, to John W. Sammon,
Jr., Chairman of the Board and President of PAR, by letter dated July 1, 2009.
The responses set forth below have been organized in the same manner in which
the comments were presented in Ms. Mills-Apenteng's letter.
Form 10-K for Fiscal Year Ended December 31, 2008
Item 11. Executive Compensation (Incorporated by Reference From Definitive Proxy
Statement Filed April 21, 2009)
Compensation Discussion and Analysis
Elements of Executive Compensation
Incentive Compensation
Comment:
1. We note your response to prior comment 7 and we reissue the comment.
With respect to the targets to be achieved in order for your executive
officers to earn their annual performance bonuses, please disclose the
performance target levels for each of the factors you use to determine
incentive compensation. In this regard, we note that in addition to
pretax income from operations, revenue, inventory turnover, and
collection of accounts receivable, you also relied upon accounts
receivable days sales outstanding (as indicated in your response to
prior comment 8). If you are relying on Instruction 4 to item 402 (b)
of regulation S-K to omit the target information, please provide us
with a detailed legal analysis demonstrating that disclose of such
target levels would result in competitive harm.
Response:
The Company supplementally clarifies for the Staff that the Company has
determined that, pursuant to Instruction 4 to Item 402(b) of Regulation S-K, it
is not required to disclose the performance target levels factors used to
determine executive incentive compensation by the Company (collectively, the
"Target Levels") for the reasons set forth below and, accordingly, respectfully
declines to provide such additional disclosure.
Legal Standard
Instruction 4 to Item 402 of Regulation S-K provides that the Company is
"not required to disclose target levels with respect to specific quantitative or
qualitative performance-related factors considered by the compensation committee
or the board of directors, or any other factors or criteria involving
confidential trade secrets or confidential commercial or financial information,
the disclosure of which would result in competitive harm for the registrant." 17
C.F.R. ss.229.402(b), Instruction 4. Pursuant to Instruction 4 of Item 402(b),
the standard used to determine whether disclosure of such quantitative or
qualitative performance-related factors, or any other factors or criteria
involving confidential trade secrets or confidential commercial or financial
information, would cause competitive harm is the same standard that would apply
if the Company requested confidential treatment of confidential trade secrets or
confidential commercial or financial information pursuant to Securities Act Rule
406 and Exchange Act Rule 24b-2, each of which incorporates the criteria for
non-disclosure when relying upon Exemption 4 of the Freedom of Information Act
("FOIA") (5 U.S.C. ss.552(b)(4)) and Rule 80(b)(4) (17 CFR ss.200.80(b)(4))
thereunder. Id; see also 17 C.F.R. ss.230.406 and 17 C.F.R. ss.240.24b-2. As
discussed below, the Company has determined that the Target Levels constitute
confidential trade secrets or confidential commercial or financial information
of the Company and, under the applicable standard, the disclosure of the Target
Levels would result in competitive harm to the Company.
Legal Analysis
The Target Levels constitute specific quantitative or qualitative
performance-related factors determined by the Company to involve confidential
trade secrets or confidential commercial or financial information of the
Company,(1) the disclosure of which would result in competitive harm to the
Company. The Company has determined that public disclosure of the Target Levels
would (i) compromise the ability of the Company to attract and retain key
personnel on favorable terms in the future and (ii) provide competitors with
sensitive information which could be used to the detriment of the Company.
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(1) The SEC and the federal courts have stated that the terms "commercial" and
"financial" should be given their ordinary meanings. In re: Freedom of
Information Act Appeal of the Board of Trade of the City of Chicago, SEC FOIA
Release No. 119 (July 17, 1989); Public Citizen Health Research Group v. FDA,
704 F.2d 1280, 1290 (D.C. Cir 1983). In addition, the precise terms of an
agreement negotiated by two parties engaged in commercial enterprises constitute
such commercial information. See In re Freedom of Information Act Appeal of
William C. Hou, SEC FOIA Release No. 102 (January 23, 1989). The Target Levels
constitute commercial and financial information based on the ordinary meanings
of such terms, since the components of the Target Levels consist of information
about income from operations, revenue, inventory turnover, accounts receivable
and other business terms.
Either such result is likely to cause substantial harm to the competitive
position of the Company. As noted above, the standard to use to determine
whether disclosure of factors involving confidential trade secrets or
confidential commercial or financial information would cause competitive harm is
the same standard that would apply if the Company requested confidential
treatment pursuant to Securities Act Rule 406 and Exchange Act Rule 24b-2, each
of which incorporates the criteria for non-disclosure when relying upon
Exemption 4 of FOIA (the "Exemption").
The Company considers the Target Levels to constitute confidential and
proprietary information protected pursuant to subsection (i) of the Exemption.
See 17 C.F.R. ss. 200.80(b)(4)(i). Under the Exemption and relevant case law,
for the information to be confidential, it must have the effect of causing
substantial competitive harm to the person from whom it was obtained. Charles
River Park "A", Inc. v. Department of Housing and Urban Development, 519 F.2d
935, 940 (D.C. Cir. 1975); see also National Parks and Conservation Ass'n v.
Morton, 498 F.2d 765, 770 (D.C. Cir. 1974). Furthermore, in Gulf & Western
Industries, Inc. v. United States, 615 F.2d 527, 530 (D.C. Cir. 1979), the court
stated that "[i]nformation is privileged or confidential if it is not the type
usually released to the public and is of the type that, if released to the
public, would cause substantial competitive harm to the person from whom it was
obtained."
The Gulf & Western definition sets forth two tests that information such as
the Target Levels must meet in order to be considered confidential under the
Exemption. The first test is that the information not actually be released to
the public. The Target Levels have not been disclosed to the public by the
Company and constitute information of a type normally not disclosed to the
public in the industries in which the Company competes. The Target Levels are
based on the Company's determinations of potential levels of business activity,
potential profit opportunities and potential business process improvements
within Company-defined subdivisions within the segments of the Company's
business as to which the Company provides public disclosure, and the Target
Levels are weighted, based on the Company's perceived priorities, among these
subdivisions. The precise definitions of these subdivisions, the level of
business activity anticipated for such subdivisions, and the desired business
process improvements that the Target Levels are designed to incent are highly
confidential. No quantified information regarding results of operations and
other business activity of these subdivisions is publicly disseminated by the
Company.
Because of concern over possible competitive injury, the Company has not
made public any of the Target Levels and has maintained strict confidentiality
with respect to the confidential components of the Target Levels. The Target
Levels have been carefully safeguarded by the Company, and attorneys,
accountants and other third parties who have reviewed the Target Levels in the
course of performing services for the Company have done so only under the
strictures of confidentiality. The Company does not know of any manner in which
its competitors would obtain this information unless informed by the Company.
The second Gulf & Western test is that the release of the information would
likely cause substantial competitive harm. This is a two-part test. The first
part of this test is satisfied if actual competition is shown. Each of the
several segments in which the Company operates, and each subdivision within each
of those segments, is highly competitive. The Company faces substantial
competition within those segments generally and particularly with respect to
attracting and retaining key personnel, an area which is actually and directly
affected by the composition and application of the Target Levels in the context
of the Company's employee compensation. In addition, revelation of the Target
Levels would necessarily reveal the Company's own analysis of the strengths,
weaknesses and opportunities for improvement within each of these subdivisions.
Competitors necessarily could use such information to their advantage and to the
disadvantage of the Company.
The second part of this test requires a showing of likelihood of
substantial competitive injury. The Target Levels constitute specific
performance criteria used to determine employee incentive compensation and
bonuses and disclosure of such information would permit the Company's
competitors a substantial advantage in competing for key personnel who are vital
to the Company's competitiveness. In addition, the Target Levels identify
specific priorities of the Company, as well as its areas of concern and areas of
desired improvement, all of which are unique to the Company and integral to its
success in its various industries. Disclosure of such information would permit
the Company's competitors to identify these priorities and areas of interest and
exploit this information in competing for customers and key personnel, thereby
substantially harming the Company's ability to compete.
The Company supplementally emphasizes to the Staff that the Company
competes in two industry segments, which are highly competitive and in which
success is dependent on the development, prowess and retention of key personnel
among other factors. The criteria contained in the Target Levels are in some
cases based on reporting units subsumed within these industry segments and are
of such a nature as to substantially inform and provide insight to competitors
into the Company's strategies across the segments in which it competes.
Disclosing the Target Levels in these subdivisions, in which competitors
generally are not required to disclose such information, is likely to provide
the Company's competitors with competitive information of such granularity that
substantial harm will be unavoidable and may substantially damage each segment
of the Company's diversified businesses.
Although the information contained in the Target Levels may require some
consideration and interpretation in order to reveal competitively damaging
information, the long-term competitive importance of the confidential
information contained therein must not be overlooked. Courts have recognized
that isolated items of information have cumulative and overall significance in
helping competitors. See Braintree Electric Light Dep't v. Dep't of Energy, 494
F.Supp. 287, 290 (D.D.C. 1980) (each piece of information has significance --
"release of separate pieces of this financial puzzle would enable competitors,
who may somehow have gathered other pieces, to complete the picture."); Timken,
491 F.Supp. at 560 (D.D.C. 1980) (outdated and incomplete financial data could
nonetheless be used together with independently obtained information to
"complete a financial picture"). Competitors can take advantage of information
that is less than comprehensive. In Braintree, the court took pains to note that
in attempting to underbid "all information concerning a competitor's pricing
mechanism becomes helpful," and that each piece of information has significance
as a piece of the puzzle. 494 F. Supp. at 290; accord Timken, 491 F. Supp. at
560.
Disclosure of the confidential and proprietary information contained in the
Target Levels would be competitively harmful and is therefore protected against
disclosure under the Gulf & Western standard. The above described reasons are
appropriate for the Company to consider confidential the commercial and
financial information represented by the Target Levels and their constituent
components. See Public Citizen Health Res. Group v. Food and Drug
Administration, 539 F. Supp. 1320, 1330 (D.D.C. 1982) (sales and marketing data
is commercial information and exempt from disclosure under ss. 552, Exemption
4.); see also Timken Company v. United States Customs Service, 491 F. Supp. 557,
559 (D.D.C. 1980) (disclosure of price and quantity data would allow competitors
to estimate the company's profit margin and production costs, thereby giving
competitors insight into the company's competitive strengths and weaknesses).
Protection of the Company's Investors
The purpose of the Compensation Discussion and Analysis (the "CDA")
provided for by Item 402(b) is, in the context of the report or other disclosure
vehicle in which it is included (the "Report"), to provide to investors
"material information that is necessary to an understanding of the [Company's]
compensation policies and decisions regarding its named executive officers." See
17 C.F.R. ss.229.402(b), Instruction 1. The Company has determined that the
specific components of the Target Levels are not necessary to permit the
Company's investors to understand the Company's compensation policies generally
or specifically with respect the named executive officers, nor is the disclosure
of such information otherwise necessary for the protection of investors. With
respect to the CDA, the Company believes the tabular and surrounding textual
information, taken together with the Company's disclosures in the Report, make
it possible for the Company's stockholders to understand the Company's
compensation policies. The Company understands that full disclosure should
always be the goal when communicating to its stockholders. In this case,
however, the Company believes that its stockholders are more likely to be harmed
by full disclosure of the Target Levels than they will from the Company's
limited disclosure.
Achievement of Performance Goals
Pursuant to Item 402(b), Instruction 4, once the Company has determined
that the disclosure would cause competitive harm, the Company is required to
disclose and discuss how difficult it will be for the executive or how likely it
will be for the Company to achieve the undisclosed Target Levels or other
factors. See 17 C.F.R. ss.229.402(b), Instruction 4. As noted in the Company's
prior response dated June 12, 2009 to Comment 7 of the Staff's comment letter
dated May 20, 2009, the established performance goals are set with a reasonably
high probability of being achieved. In the last five completed fiscal years,
"target" performance has been reached approximately 40% of the time. Incentive
compensation begins to be awarded when more than 80% of the target objective has
been satisfied (except for the revenue target which begins when more than 90% of
the target has been achieved). Bonuses are awarded only to the extent that
performance exceeds the minimum percentage and are computed on a linear
basis--for example, incentive compensation in respect of a business unit's
revenue performance, if revenues equaled 92% of the Target Level for such
business unit, would equal 20% of the target bonus if 100% of the Target Level
had been attained. Over the prior five years, incentive compensation in respect
of a particular business unit's performance, on a weighted basis, in respect of
all criteria on which such business unit's performance is measured, has ranged
from 0% of targeted bonus paid to 133% of target bonus paid. In respect of the
corporate officers whose incentive compensation is based on all reporting
business units' performance, only in two years of the five have those officers
received the full amount of the targeted bonus. The Company will undertake in
future filings to provide the information that gives definition to the degree of
difficulty involved for the Company to meet the Target Levels for bonuses.
Accordingly, while noting that any number of economic, business and cultural
factors may vary anticipated results, the Company anticipates that the
achievement of the Target Levels necessary to trigger payment of some level of
incentive compensation are likely to be achieved by the named executive and the
Company, respectively.
Comment:
2. Please tell is whether you have used non-GAAP measures in calculating
inventory turnover or any of the performance measurements used to
determine compensation. Note that it should be clear from your
financial statements how financial measures, such as "accounts
receivable days sales outstanding" are calculated. See Instruction 5
to item 402 (b) of Regulation S-K.
Response:
The Company supplementally informs the Staff that the Company has not used
non-GAAP measures in calculating inventory turnover or any of the performance
measurements used to determine compensation. The inventory turnover and accounts
receivable days sales outstanding objectives are based on a rolling 6 month
average and a rolling 3 month average respectively.
Comment:
3. We note your response to prior comment 8 and we reissue the comment.
It is not clear from your response how you determined the amount of
incentive compensation to be paid to each of your named executive
officers in light of how the company's actual performance compared to
the pre-established target performance levels. Your statement, for
example, that 85% of the total award for Messrs. Sammon, Casciano, and
Constantino was based on pretax income and revenue targets, and 15%
was associated with inventory and collections performance targets does
not provide the individualized, detailed disclosure that explains why
each executive officer was awarded the specific amount of compensation
he or she received. Please discuss whether you achieved or exceeded
each of the performance targets, and explain how your company's
performance against each target impacted the amount of bonus awarded.
In addition, please tell us whether discretion was used in awarding
incentive compensation for the most recent fiscal year covered.
Response:
The Company supplementally informs the Staff that the amount of incentive
compensation paid to each named executive officer was derived as a percentage of
the named executive officer's base salary (noting that the percentage of the
named executive's base salary was variable based on the level of involvement in
the incentive compensation plan), based on the achievement of performance
objectives (namely revenue, pretax income, inventory turnover and collections of
accounts receivable (measured using days sales outstanding as referred to in
comment #1). The performance objectives were established and evaluated by the
Company at a reporting unit level (as defined within FASB statement No's 131 and
142), noting the three reporting units used by the Company are: Restaurant,
Hotel/Spa, and Government.
The incentive compensation awards (assuming that each of the four
aforementioned performance objectives were achieved at 100%) that could have
been paid to Mssrs. Sammon, Casciano, and Constantino, as a percentage of base
salary were 65%, 44%, and 42% respectively.
The incentive compensation awards for Mssrs. Sammon, Casciano, and
Constantino were based on the performance objectives of the Corporation's
consolidated results, which includes the combined performance of all three
reporting units. The results of each performance objective and the impact on the
amount of incentive compensation awarded to the aforementioned executive
officers during the most recent fiscal year covered were as follows:
Revenue (represented 45% of the total incentive award) - For fiscal year
2008, the revenue objective was achieved by the Government reporting unit,
but was not achieved by the Restaurant or Hotel / Spa reporting units. This
resulted in a partial factor applied to the incentive compensation award
(based on the proportionate share of the target government revenue goal in
relation to the Company's consolidated revenue goal).
Pretax Income (represented 40% of the total incentive award) - For fiscal
year 2008, the pretax income objective was partially achieved by the Hotel
/ Spa reporting unit (although they did not meet their goal completely,
their actual results were greater than 80% of the goal, thereby earning a
partial award), and was fully achieved by the Government reporting unit.
This goal was not achieved by the Restaurant reporting unit. This resulted
in a partial factor applied to the incentive compensation award (based on
the proportionate share of the pretax income goal for the Hotel / Spa and
Government reporting units in relation to the Company's consolidated pretax
income goal).
Inventory Turnover (represented 5% of the total incentive award) - For
fiscal year 2008, the inventory turnover objective was not met by the
Restaurant reporting unit and therefore was not factored in the calculation
of the incentive award. This objective does not apply to the Hotel / Spa or
Government reporting units as the reporting units do not have any
inventory.
Accounts Receivable (represented 10% of the total incentive award) - For
fiscal year 2008, the accounts receivable objective was partially achieved
by the Government reporting unit but was not achieved by the Restaurant or
Hotel / Spa reporting units. This resulted in a partial factor applied to
the incentive compensation award (based on the proportionate share of the
target accounts receivable goal in relation to the Company's consolidated
accounts receivable goal).
The incentive compensation award (assuming that each of the four
aforementioned performance objectives were achieved at 100%) that could have
been paid to Mr. Cortese as a percentage of his base salary was 53%.
The incentive compensation award for Mr. Cortese was based on the
performance objectives of the Restaurant and Hotel / Spa reporting units. The
results of each performance objective and the impact on the amount of incentive
compensation awarded to Mr. Cortese during the most recent fiscal year covered
was as follows:
Revenue (represented 45% of the total incentive award) - For fiscal year
2008, the revenue objective was not achieved by the Restaurant or Hotel /
Spa reporting units and therefore did not factor in the calculation of the
incentive award.
Pretax Income (represented 40% of the total incentive award) - For fiscal
year 2008, the pretax income objective was partially achieved by the Hotel
/ Spa reporting unit (although they did not meet their goal completely
their actual results were greater than 80% of the goal, thereby earning a
partial award), and was not achieved by the Restaurant reporting unit. This
resulted in a partial factor applied to the incentive compensation award
(based on the proportionate share of the pretax income goal for the Hotel /
Spa reporting unit in relation to the Company's consolidated pretax income
goal).
Inventory Turnover (represented 5% of the total incentive award) - For
fiscal year 2008, the inventory turnover objective was not met by the
Restaurant reporting unit and therefore did not factor in the calculation
of the incentive award. This objective does not apply to the Hotel / Spa
reporting unit as the reporting unit does not have significant inventory.
Accounts Receivable (represented 10% of the total incentive award) - For
fiscal year 2008, the accounts receivable objective was not achieved by the
Restaurant or Hotel / Spa reporting units and therefore did not factor in
the calculation of the incentive award.
The incentive compensation award (assuming that each of the three
aforementioned performance objectives applicable to the Government reporting
unit were achieved at 100%) that could have been paid to Mr. Lynch as a
percentage of his base salary was 53%.
The incentive compensation award for Mr. Lynch was based on the performance
objectives of the Government reporting unit. The results of each performance
objective and the impact on the amount of incentive compensation awarded to Mr.
Lynch during the most recent fiscal year covered was as follows:
Revenue (represented 45% of the total incentive award) - For fiscal year
2008, the revenue objective was exceeded by the Government reporting unit
and resulted in more than 100% consideration in the determination of Mr.
Lynch's incentive compensation award.
Pretax Income (represented 40% of the total incentive award) - For fiscal
year 2008, the pretax income objective was exceeded by the Government
reporting unit and resulted in more than 100% consideration of Mr. Lynch's
incentive compensation award.
Inventory Turnover (represented 0% of the total incentive award) - The
inventory turnover objective does not apply to the Government reporting
unit as this reporting unit does not carry any inventory.
Accounts Receivable (represented 15% of the total incentive award) - For
fiscal year 2008, the accounts receivable objective was partially achieved
by the Government reporting unit thereby resulting in a partial factor
applied to the incentive compensation award (based on the proportionate
share of the target accounts receivable goal in relation to the Company's
consolidated accounts receivable goal)
Given that the revenue and pretax income objectives were exceeded by the
Government reporting unit, Mr. Lynch's incentive compensation award was
approximately 71% of his base salary; which is in excess of the 53% of base
salary award that would have been provided had all objectives been achieved at
100%. Such award was in accordance with the pre-defined calculation for those
metrics in excess of the performance objective, which was pre-approved by the
Company's Board of Directors.
The Company further wishes to clarify that the Company did not use any
discretion in awarding incentive compensation for the most recent fiscal year
covered. Rather, the incentive compensation awards were based and calculated on
performance objectives pre-approved by the Company's Board of Directors.
PAR hereby reaffirms its prior acknowledgements as follows:
1. PAR is responsible for the adequacy and accuracy of the disclosures
included in its filings;
2. PAR understands that Staff comments or changes to disclosures in
response to Staff comments do not foreclose the Commission from taking
any action with respect to PAR's filings; and
3. PAR understands that it may not assert Staff comments as a defense in
any proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
Please contact the undersigned at 800-448-6505, extension 273, should you
require additional information or have questions regarding this letter.
Very truly yours,
PAR Technology Corporation
By: /s/Ronald J. Casciano
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Ronald J. Casciano, Vice President,
Chief Financial Officer, Treasurer
and Chief Accounting Officer