BBBB Blackboard (MM)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

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BLACKBOARD INC.

 

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BLACKBOARD INC.
650 Massachusetts Ave., NW, 6th Floor
Washington, D.C. 20001

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held On June 4, 2010

 

 

 

 

The Annual Meeting of Stockholders of Blackboard Inc. will be held at the company’s corporate headquarters, 650 Massachusetts Avenue, NW, First Floor, Washington, District of Columbia 20001, on Friday, June 4, 2010 at 11:00 a.m., Eastern time, to consider and act upon the following matters:

 

1. To elect the three nominees for director named herein to Class III of our Board of Directors, each to serve for a term expiring at our 2013 annual meeting or until his or her successor is duly elected and qualified or until his or her earlier resignation or removal;

 

2. To approve Amendment No. 5 to the Amended and Restated 2004 Stock Incentive Plan to increase the number of shares authorized for issuance under the plan from 10,500,000 to 12,000,000 and make other specified changes;

 

3. To ratify the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2010; and

 

4. To transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

 

Only stockholders of record at the close of business on April 13, 2010, the record date fixed by the Board of Directors, are entitled to notice of and to vote at the meeting and any adjournment or postponement thereof.

 

To ensure that your vote is recorded promptly, please vote by proxy as soon as possible, whether or not you plan to attend the annual meeting.

 

Most stockholders have three options for submitting their vote by proxy: (1) via the Internet, (2) by phone or (3) by mail. For further details, see the discussion on page 1 of the enclosed proxy statement. If you have Internet access, we encourage you to record your vote on the Internet.

 

By Order of the Board of Directors

 

 

Matthew H. Small

Chief Business Officer, Chief Legal Officer and
Secretary

 

Washington, D.C.

April 21, 2010

 

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on June 4, 2010 at 11:00 a.m. Eastern time at 650 Massachusetts Avenue, NW, First Floor, Washington, District of Columbia 20001.

 

The proxy statement and annual report to stockholders are available at
http://investor.blackboard.com/phoenix.zhtml?c=177018&p=proxy.

BLACKBOARD INC.
650 Massachusetts Ave., NW, 6th Floor
Washington, D.C. 20001

 

 

 

 

PROXY STATEMENT

 

This proxy statement is furnished to stockholders of Blackboard Inc. in connection with the solicitation of proxies by our Board of Directors (the “Board” or “Board of Directors”) for use at our annual meeting of stockholders to be held at 650 Massachusetts Avenue, NW, First Floor, Washington, District of Columbia 20001, at 11:00 a.m., Eastern time on Friday, June 4, 2010, and at any adjournments or postponements of the meeting (the “Annual Meeting”). Directions to the annual meeting may be found at http://www.blackboard.com/resources/company/DCDirections.pdf. The 2010 annual report to stockholders, containing our audited consolidated financial statements for the fiscal year ended December 31, 2009, is being mailed together with this proxy statement to all stockholders entitled to vote at the Annual Meeting. Except where the context otherwise requires, references to “Blackboard,” “we,” “us,” “our” and similar terms refer to Blackboard Inc.

 

Only stockholders of record at the close of business on April 13, 2010 (the “Record Date”) will be entitled to receive notice of and to vote at the Annual Meeting. This proxy statement and the accompanying notice and form of proxy will be first mailed to stockholders on or about April 28, 2010. As of the Record Date, 34,025,087 shares of our common stock, $0.01 par value per share, were issued and outstanding and entitled to vote. The holders of common stock are entitled to one vote per share on any proposal presented at the Annual Meeting.

 

Voting by Stockholder of Record.   If your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, you are considered, with respect to those shares, the stockholder of record. As the stockholder of record, you may vote in one of the following three ways whether or not you plan to attend the Annual Meeting: (1) by completing, signing and dating the accompanying proxy card and returning it in the postage-prepaid envelope enclosed for that purpose, (2) by completing your proxy using the toll-free telephone number listed on the proxy card, or (3) by completing your proxy on the Internet at the address listed on the proxy card. If you attend the meeting, you may vote in person even if you have previously returned your proxy card or voted by phone or on the Internet. Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before it is voted. Proxies may be revoked by (1) filing with our corporate secretary, before the taking of the vote at the Annual Meeting, a written notice of revocation bearing a later date than the proxy, (2) duly completing a later-dated proxy relating to the same shares and delivering it to our corporate secretary before the taking of the vote at the Annual Meeting or granting a subsequent proxy by phone or on the Internet, or (3) attending the Annual Meeting and voting in person (although attendance at the Annual Meeting will not in and of itself constitute a revocation of a proxy). Any written notice of revocation or subsequent proxy should be sent so as to be delivered to Blackboard Inc., 650 Massachusetts Avenue NW, 6th Floor, Washington, DC 20001, Attention: Matthew H. Small, Corporate Secretary, at or before the taking of the vote at the Annual Meeting.

 

Voting by 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, bank, or nominee which 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 and are also invited to attend the meeting. However, because you are not the stockholder of record, you may not vote these shares in person at the meeting unless you obtain a signed proxy from the record holder giving you the right to vote the shares. Your broker, bank, or nominee has enclosed or provided a voting instruction card for you to use in directing the broker or nominee how to vote your shares. If you do not provide the stockholder of record with voting instructions, your shares may constitute broker non-votes. The effect of broker non-votes is more specifically described below. If you wish to change your vote after submitting your proxy, you should follow the instructions provided by your broker or bank.

 

The representation in person or by proxy of at least a majority of the outstanding shares of common stock entitled to vote at the Annual Meeting is necessary to constitute a quorum for the transaction of business. Votes withheld from any nominee, abstentions and broker “non-votes” are counted as present or represented for purposes of determining the presence or absence of a quorum for the Annual Meeting. A “non-vote” occurs when a nominee

holding shares for a beneficial owner has not received instructions from the beneficial owner as to how to vote on matters deemed non-routine. Generally, if shares are held by a broker or nominee, the beneficial owner of the shares is entitled to give voting instructions to the broker or nominee holding the shares. If the beneficial owner does not provide voting instructions, the broker or nominee can still vote the shares with respect to matters that are considered to be routine, but not with respect to non-routine matters.

 

In the election of Class III directors, the three nominees receiving the highest number of affirmative votes of the shares present or represented and entitled to vote at the Annual Meeting will be elected as directors. Only votes “For” or “Withheld” will affect the outcome. On all other matters being submitted to stockholders, an affirmative vote of a majority of the shares present, in person or represented by proxy, and voting on each such matter is required for approval. An automated system administered by our transfer agent tabulates the votes. The vote on each matter submitted to stockholders is tabulated separately. Abstentions are included in the number of shares present or represented and voting on each matter and therefore have the same effect as votes against. Broker “non-votes” are not considered voted for the particular matter and have the effect of reducing the number of affirmative votes required to achieve a majority for such matter by reducing the total number of shares from which the majority is calculated. The persons named as attorneys-in-fact in the proxies, Matthew H. Small and John E. Kinzer, were selected by the Board of Directors and are executive officers of Blackboard. All properly executed proxies returned in time to be counted at the Annual Meeting will be voted by such persons at the Annual Meeting. Where a choice has been specified on the proxy with respect to the foregoing matters, the shares represented by the proxy will be voted in accordance with the specifications. If no such specifications are indicated, such proxies will be voted FOR the election of all three nominees for director and FOR the other proposals described in this proxy statement.

 

Aside from the matters described in this proxy statement, the Board of Directors knows of no other matters to be presented at the Annual Meeting. If any other matter should be presented at the Annual Meeting upon which a vote properly may be taken, shares represented by all proxies received by the Board of Directors will be voted with respect thereto in accordance with the judgment of the persons named as attorneys-in-fact in the proxies.

 

Preliminary voting results will be announced at the Annual Meeting. Final voting results will be published in a current report on Form 8-K that we expect to file with the SEC within four business days after the Annual Meeting. If final voting results are not available to us in time to file a Form 8-K within four business days after the meeting, we intend to file a Form 8-K to publish preliminary results and, within four business days after the final results are known to us, file an additional Form 8-K to publish the final results.

 

Table of Contents

 

 

The following table sets forth as of March 31, 2010 except where indicated, information regarding beneficial ownership of our common stock (i) by each person known to us who beneficially owned more than 5% of the shares of our common stock outstanding at such date; (ii) by each director; (iii) by each executive officer identified in the Summary Compensation Table; and (iv) by all directors and executive officers as a group.

 

 

 

 

Our Board of Directors currently consists of eight members. Our fourth amended and restated certificate of incorporation divides the Board of Directors into three classes. One class is elected each year for a term of three years. Upon the recommendation of the Nominating and Corporate Governance Committee, the Board of Directors has nominated Matthew L. Pittinsky, Frank R. Gatti, and Beth Kaplan for re-election to the Board of Directors as Class III directors, each to hold office until the annual meeting of stockholders to be held in the year 2013 and until his or her successor has been duly elected and qualified or until his or her earlier resignation or removal.

 

Dr. Pittinsky, Mr. Gatti and Ms. Kaplan are Class III directors whose terms expire at this Annual Meeting and are each a nominee for re-election as directors. The Board of Directors is also composed of (i) three Class I directors, whose terms expire upon the election and qualification of directors at the annual meeting of stockholders to be held in 2011 and (ii) two Class II directors, whose terms expire upon the election and qualification of directors at the annual meeting of stockholders to be held in the year 2012.

 

The Board of Directors knows of no reason why any of the nominees would be unable or unwilling to serve, but if any nominee should for any reason be unable or unwilling to serve, the proxies will be voted for the election of such other person for the office of director as the Board of Directors may recommend in the place of such nominee.

 

Unless otherwise instructed, the proxy holders will vote the proxies received by them for the nominees named above.

 

Required Vote

 

Directors are elected by a plurality of votes cast. The three nominees receiving the highest number of affirmative votes will be elected. Votes withheld and broker non-votes are not counted toward a nominee’s total.

 

The Board of Directors recommends a vote FOR the election of

each of the nominated directors.

The following table lists the nominees to be elected at the Annual Meeting and the continuing directors. Also listed are the positions currently held by each nominee and continuing director, the committees of the Board on which each nominee or continuing director serves as of the date of this proxy statement, the year each nominee’s or continuing director’s current term will expire and the class of director of each nominee and continuing director.

 

 

We seek to assemble a Board of Directors that, as a whole, possesses the appropriate balance of professional and industry knowledge, financial expertise and high-level management experience necessary to oversee and direct our business. Our Nominating and Corporate Governance Committee identifies and selects potential nominees by using the principles and criteria described in the corporate governance guidelines adopted by our Board, including factors such as business experience, independence requirements, diversity, the nominee’s reputation for integrity, honesty and adherence to high ethical standards, the existence of real or perceived conflicts of interest, diversity and the nominee’s ability to devote the time necessary to fulfill his or her responsibilities as a director. To that end, each director nominee has been identified and evaluated in the broader context of the Board’s overall composition, with the goal of including members who complement and strengthen the skills of other members and who also exhibit integrity, collegiality, sound business judgment and other qualities that are critical to the effective functioning of the board. The brief biographies below include each nominee or continuing director’s age as of March 31, 2010, the year he or she was first elected to the Board, and certain information, as of the date of this proxy statement, regarding the specific and particular experience, qualifications, attributes or skills of each nominee or continuing director.

 

Nominees for Class III Directors

 

Frank R. Gatti , 63, has served as a director since April 2004. Since November 1997, Mr. Gatti has been the chief financial officer of ETS, a global assessment, licensure and certification company with over one billion dollars in annual revenue. Before joining ETS, Mr. Gatti served as vice president of financial management at The New York Times Company beginning in 1996, and prior to that served as corporate vice president/corporate controller beginning in 1988. He also served as a certified public accountant at Deloitte & Touche, an international public accounting firm. He is a member of the Board of Directors of the Princeton Chamber of Commerce, a member of the Advisory Board for the Master’s of Science in Publishing Program at Pace University, and a member of the Financial Advisory Board at Rutgers Business School. Mr. Gatti also chairs The Conference Board’s CFO Council, and is a member of CFO Magazine ’s Advisory Board. Mr. Gatti’s years of experience in financial management and accounting, as well

as his advisory roles at various educational institutions and business organizations, give him a wide range of financial and executive management experience and skills, which add valuable expertise and insight to the Board. Mr. Gatti, a Certified Public Accountant, received a BBA degree from Baruch College and an MBA degree from the Rutgers Business School.

 

Beth Kaplan , 52, has served as a director since April 2007. Since January 2008, Ms. Kaplan has served as president and chief merchandising and marketing officer of General Nutrition Centers, Inc., and has served as a member of its Board of Directors since February 2008. From March 2005 to December 2007, Ms. Kaplan served as the managing member of Axcel Partners, LLC, a venture capital firm. From June 2002 to March 2005, Ms. Kaplan was executive vice president of Bath & Body Works and previously served as senior executive vice president for marketing and merchandising with Rite Aid and as vice president for the U.S. cosmetics and fragrance business at Procter & Gamble. Ms. Kaplan currently serves on the Board of Directors of the Baltimore Symphony Orchestra and the Wharton Board of Overseers. Ms. Kaplan previously served as a director of Blackboard from June 2000 to August 2001. Her skills and expertise in marketing as well as her professional experiences in a variety of executive leadership roles provide a unique and valuable perspective to the Board. Ms. Kaplan received BS and MBA degrees from the University of Pennsylvania’s Wharton School.

 

Matthew L. Pittinsky , Ph.D., 37, has served as chairman of the Board of Directors since our founding in 1997. Since January 1, 2009, Dr. Pittinsky has served as an Assistant Professor at Arizona State University. On March 1, 2008, Dr. Pittinsky resigned as an executive officer of Blackboard and now serves as a non-employee chairman of the Board. From June 1997 to November 1998, Dr. Pittinsky also served as our chief executive officer. Before co-founding Blackboard, from July 1995 to June 1997 Dr. Pittinsky was a consultant with KPMG Consulting (now BearingPoint, Inc.) serving colleges and universities. Dr. Pittinsky is the editor of The Wired Tower, a book published in June 2002 analyzing the Internet’s impact on higher education, as well as a variety of scholarly research articles in the fields of sociology and education. As our chairman and co-founder, Dr. Pittinsky has a unique insight into and deep understanding of the education technology industry, and has continued to demonstrate vision and leadership. His experience and knowledge of our business as well as his perspective as a professor and educator add valuable insight to the Board. Dr. Pittinsky received a B.A. degree from American University, an Ed.M degree from Harvard University Graduate School of Education, and M.Phil and Ph.D. degrees from Columbia University Teachers College.

 

Continuing Class I Directors

 

Joseph L. Cowan , 61, has served as a director since April 2007. Since June 2009, Mr. Cowan has served as a consultant with Vector Capital, a venture capital investment firm. Mr. Cowan served as chief executive officer and a member of the Board of Directors of Interwoven Inc., a provider of content management software, from April 2007 until its acquisition by Autonomy, Inc. in March 2009. He served as chief executive officer and a director of Manugistics Group, Inc., a provider of supply chain management software, from July 2004 to July 2006. From November 2002 to December 2003, Mr. Cowan served as president and chief executive officer of EXE Technologies, Inc., a provider of supply chain execution and warehouse management systems. From April 2001 to November 2002, he served as president and chief executive officer of Invensys Automation & Information Systems. From July 2000 to April 2001, Mr. Cowan served as president and chief executive officer of Wonderware, a business unit of Invensys plc, and from April 1998 to July 2000 he served as senior vice president, sales and marketing, of Wonderware. Mr. Cowan’s business experience in the technology industry and his executive management experience and skills are a valuable contribution to the Board’s function. Mr. Cowan received a BS degree from Auburn University and an MS degree from Arizona State University.

 

E. Rogers Novak, Jr. , 61, has served as a director since September 1998. Since April 1996, Mr. Novak has been a managing member of the general partnership of Novak Biddle Venture Partners, L.P., a venture capital investment firm. Prior to co-founding Novak Biddle, Mr. Novak served as general partner of Grotech Partners, a private investment company. He also led investment banking and served on the executive committee at Baker, Watts & Co. Currently, Mr. Novak serves on the boards of a number of private companies, and serves as a board member, executive committee member, and treasurer of the National Venture Capital Association. He also serves on the advisory boards of a venture fund and the U.S. Department of Homeland Security’s PREDICT (Protected

Repository for the Defense of Infrastructure Against Cyber Threats), and is a member of the Office of the Secretary of Defense DeVenCI program. Mr. Novak’s range of business and board experience, his knowledge of Blackboard’s corporate history and operations, and his expertise in financial matters and venture capital investing bring valuable expertise and insight to the Board. Mr. Novak received a BA degree from Kenyon College.

 

William Raduchel , Ph.D., 63, has served as a director since February 2005. Since January 2009, Dr. Raduchel has been an adjunct professor at the McDonough School of Business at Georgetown University. From May 2004 to February 2006, Dr. Raduchel served as chairman and chief executive officer of Ruckus Network Inc., a digital entertainment service for students at colleges and universities over the university network. Through December 2002, Dr. Raduchel was executive vice president and chief technology officer at AOL Time Warner, Inc. He joined America Online, Inc., in September 1999 as senior vice president and chief technology officer. Until September 1999, Dr. Raduchel was chief strategy officer and a member of the executive committee of Sun Microsystems, Inc. In his eleven years at Sun Microsystems, Dr. Raduchel also served as chief information officer, chief financial officer, acting vice president of human resources and vice president of corporate planning and development. Dr. Raduchel serves on the Board of Directors and the compensation and corporate development committees of Silicon Image, Inc. and serves as the Chairman of the Board of Directors and on the governance committee of Opera Software ASA. Dr. Raduchel’s career as an educator, information technologist and senior corporate executive and his years of experience serving on boards of both public and private companies give him a wide range of knowledge on topics important to the business and that contribute to the Board’s function. Dr. Raduchel received a BA degree from Michigan State University, AM and Ph.D. degrees from Harvard University and an honorary doctorate from Michigan Technological University.

 

Continuing Class II Directors

 

Michael L. Chasen , 38, has served as chief executive officer since January 2001, as president since February 2004 and as a director since our founding in 1997. Prior to serving as CEO, Mr. Chasen served as president from June 1997 to January 2001. Before co-founding Blackboard, from May 1996 to June 1997, Mr. Chasen was a consultant with KPMG Consulting (now BearingPoint, Inc.) serving the college and university marketplace. As our CEO and co-founder, Mr. Chasen has demonstrated vision and leadership, and has a deep understanding of our operations and business strategy. His dedication to Blackboard as well as his experience and knowledge in the education technology industry make him uniquely qualified to serve on our Board. Mr. Chasen received a BS degree in computer science from American University and an MBA degree from Georgetown University School of Business.

 

Thomas Kalinske , 65, has served as a director since April 2007. Since July 2009, Mr. Kalinske has been Executive Chairman and a member of the Board of Directors of Moonshoot US, a company developing online video games that helps teach English to children. He currently serves as a member of the Board of Directors of Cambium Learning Group, Inc., a company that provides research-based education solutions for K-12 students and programs for struggling learners, and on the Board of Kidzui, a private company offering a web browser, applications and a search engine to allow children to safely surf the web. From March 2008 until May 2009, Mr. Kalinske served as the chief executive officer and a member of the Board of Directors of CFares, Inc., an online travel search engine. Mr. Kalinske also currently serves as vice chairman of the board of Leapfrog Enterprises Inc., a maker of educational toys and games, and has served as a director of Leapfrog since 1997. From September 1997 to July 2006, Mr. Kalinske served as CEO of Leapfrog and was the Chairman of the Board of Directors of Leapfrog from September 1997 to February 2004. From 1996 to February 2004, Mr. Kalinske served as the president of Knowledge Universe LLC (now renamed Krest LLC), an education company. From 1990 to 1996, he served as president and chief executive officer of Sega of America, a computer game company. From 1987 to 1990, he was president and chief executive officer of the Universal Matchbox Group, a toy maker. From 1985 to 1987, he served as president and co-chief executive officer of Mattel, Inc. Mr. Kalinske served in other senior management positions at Mattel from 1972 to 1985. Mr. Kalinske’s business experience in the educational technology industry in particular as well as with children’s toys and entertainment companies, along with his general executive management experience and insight, bring a valuable perspective to the Board. Mr. Kalinske received a BS degree from the University of Wisconsin and an MBA degree from the University of Arizona.

 

Our Board of Directors believes that good corporate governance is important to ensure that Blackboard is managed for the long-term benefit of stockholders. This section describes key corporate governance guidelines and practices that our Board has adopted. Complete copies of our corporate governance guidelines, committee charters and code of conduct are available on the corporate governance section of our website, http://investor.blackboard.com. Alternatively, you can request a copy of any of these documents by writing to Investor Relations, Blackboard Inc., 650 Massachusetts Avenue NW, 6th Floor, Washington, DC 20001.

 

Corporate Governance Guidelines

 

Our Board has adopted corporate governance guidelines to assist in the exercise of its duties and responsibilities and to serve the best interests of Blackboard and our stockholders. These guidelines, which provide a framework for the conduct of the Board’s business, provide that:

 

 

Board of Directors

 

The Board of Directors met seven times during fiscal year 2009. Each of the directors attended at least 75% of the total number of meetings of the Board of Directors and all committees of the Board of Directors on which he or she served during 2009. The Board of Directors has separately designated standing Audit, Compensation and Nominating and Corporate Governance Committees. Each committee has a charter that has been approved by the Board of Directors.

 

As a policy, we encourage our directors to attend our annual stockholder meetings. Our 2009 annual meeting was attended by Mr. Chasen, Mr. Novak and Dr. Raduchel.

 

Board Leadership Structure

 

We separate the roles of CEO and Chairman of the Board in recognition of the differences between the two roles. The CEO is responsible for setting the strategic direction for our company and the day to day management and performance of our business, while the Chairman of the Board provides advice and guidance to the CEO. Our CEO, Mr. Chasen, and our Chairman, Dr. Pittinsky, co-founded Blackboard in 1997 and both have remained involved in different respects. Dr. Pittinsky has served as Chairman of the Board since the founding of Blackboard, continuing to demonstrate leadership and now bringing his perspective as a professor and educator to the Board. Mr. Chasen has been a member of the Board of Directors since our founding, and has served as CEO since 2001, providing strategic and tactical direction to the business as well as working with the Chairman and the rest of the Board to develop and implement the Company’s vision and overall business strategy. In addition, the Board has designated Mr. Novak as its lead independent director, relying on his experience, oversight and expertise from outside the Company. In this role, he is responsible for coordinating the activities of the independent directors, and serves as a liaison between the senior management of the Company and the independent directors.

Board Role in Risk Oversight

 

Our Board has an active role, as a whole and at the committee level, in overseeing management of risk. The Board regularly reviews information regarding our financial position, governance and operations, as well as the risks associated with each. The Compensation Committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements. The Audit Committee oversees management of financial and reporting risks. The Nominating Committee oversees the management of risks associated with the independence of the Board of Directors and potential conflicts of interest. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board of Directors is regularly informed through committee reports about such risks. Accordingly, the Board has not chosen to establish a separately designated risk committee. The full Board also participates in risk oversight in the course of their other responsibilities such as operational discussions with management, review and approval of the annual operating plan, and review and approval of merger and acquisition transactions.

 

Board Determination of Independence

 

NASDAQ Stock Market listing standards require that a majority of the members of a listed company’s board of directors must qualify as “independent.” Under applicable NASDAQ listing rules, a director will only qualify as an “independent director” if, in the opinion of our Board, that person does not have a relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

 

Our Board has determined that none of Mr. Cowan, Mr. Gatti, Mr. Kalinske, Mr. Novak, Dr. Raduchel or Ms. Kaplan has a relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is an “independent director” as defined under applicable NASDAQ listing rules.

 

Audit Committee

 

The Audit Committee oversees our accounting and financial reporting processes and the audits of our consolidated financial statements. The Audit Committee assists the Board of Directors in fulfilling its responsibilities by:

 

 

The Audit Committee met seven times during 2009. Messrs. Gatti, Kalinske, and Novak currently serve on the Audit Committee and Mr. Gatti serves as chairperson. The Board has determined that all members of the Audit Committee are “independent” as that term is defined in applicable NASDAQ listing rules and satisfy the other independence standards for audit committee members set forth in the NASDAQ listing rules. The Board has determined that all members of the Audit Committee are independent for purposes of applicable rules under the Securities Exchange Act of 1934, as amended. The Board has further determined that Mr. Gatti is an “audit committee financial expert” as defined by rules under the Exchange Act. The Audit Committee operates under a written charter adopted by the Board of Directors, which is available on our website at http://investor.blackboard.com.

Compensation Committee

 

The Compensation Committee is responsible for determining and making recommendations with respect to all forms of compensation to be granted to our executive officers and producing an annual report of the Compensation Committee on executive compensation for inclusion in our proxy statement for our annual meeting of stockholders in accordance with applicable rules and regulations. The Compensation Committee also:

 

 

The Compensation Committee met four times during 2009. Ms. Kaplan, Mr. Cowan and Dr. Raduchel currently serve on the Compensation Committee and Dr. Raduchel serves as chairperson. The Board has determined that all members of the Compensation Committee are independent directors under applicable NASDAQ listing rules.

 

The Compensation Committee operates under a written charter adopted by the Board of Directors, which is available on our website at http://investor.blackboard.com.

 

Nominating and Corporate Governance Committee

 

The Nominating and Corporate Governance Committee is responsible for assisting the Board of Directors in fulfilling its responsibilities by:

 

 

Consideration of new Board nominee candidates typically involves a series of internal discussions, review of information concerning candidates and interviews with selected candidates. The Nominating and Corporate Governance Committee may also retain external advisors, to identify or evaluate potential nominees to be considered for election to the Board of Directors. The Nominating and Corporate Governance Committee may, in its discretion, consider nominees recommended by stockholders. Candidates proposed by stockholders are evaluated using the same criteria as for other candidates. A stockholder seeking to recommend a prospective nominee for consideration by the Nominating and Corporate Governance Committee should submit the candidate’s name, biographical data, qualifications and business experience for at least the previous five years, a document indicating the candidate’s willingness to act if elected and evidence of the nominating stockholder’s ownership of our common stock at least 120 days prior to the anniversary of the mailing date of our proxy statement for the previous annual meeting to the Nominating and Corporate Governance Committee, c/o Matthew H. Small, Corporate Secretary, Blackboard Inc., 650 Massachusetts Avenue NW, 6th Floor, Washington, DC 20001. Stockholders also have the right under our bylaws to directly nominate director candidates, without any action or recommendation on the part of the Nominating and Corporate Governance Committee or the Board, by following the procedures set forth herein under “Stockholder Proposals.”

 

In accordance with the corporate governance guidelines adopted by the Board, the Nominating and Corporate Governance Committee identifies and selects potential nominees by using the principles and criteria described in

the corporate governance guidelines, including the consideration of the following factors: compliance with the independence requirements under the NASDAQ listing rules and applicable law, the candidate’s reputation for integrity, honesty and adherence to high ethical standards, the candidate’s business acumen and experience, the existence of real or perceived conflicts of interest, diversity and the candidate’s ability to devote the time necessary to discharge his or her responsibilities as a director. While the Board has not established term limits, director membership is reviewed annually by the Nominating and Corporate Governance Committee and the Board has established a general policy that any director who reaches the age of 70 is expected to retire from the Board effective at the end of his or her term. Potential nominees should generally be able to serve for at least five years before reaching the age of 70.

 

The Nominating and Corporate Governance Committee met one time during 2009. Ms. Kaplan and Messrs. Novak and Gatti currently serve on the Nominating and Corporate Governance Committee and Mr. Novak serves as chairperson. The Board has determined that all members of the Nominating and Corporate Governance Committee are independent directors under applicable NASDAQ listing rules.

 

The Nominating and Corporate Governance Committee operates under a written charter adopted by the Board of Directors, which is available on our website at http://investor.blackboard.com.

 

Our Board will give appropriate attention to written communications that are submitted by stockholders, and will respond if and as appropriate. The lead independent director, with the assistance of our chief legal officer, is primarily responsible for monitoring communications from stockholders and for providing copies or summaries to the other directors as he or she considers appropriate.

 

Any stockholder wishing to communicate with any of our directors may write to the director, c/o Matthew H. Small, Corporate Secretary, Blackboard Inc., 650 Massachusetts Avenue NW, 6th Floor, Washington, DC 20001. The corporate secretary will forward these communications directly to the director(s) specified or, if none is specified, to the chairman of the Board.

 

2009 DIRECTOR COMPENSATION

 

The following table provides information about the compensation of our non-employee directors for 2009.

 

 

 

 

Under our outside director compensation policy, each non-employee director will be paid an annual retainer of $50,000. The chairperson of each of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee will each be paid an additional annual retainer of $20,000. Non-chair members of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee will be paid an annual retainer of $5,000 for each committee on which they serve. A non-executive chairman of the Board will be paid an additional annual retainer of $20,000, $4,000 per meeting day for in-person meetings of the Board and $2,000 per telephonic meeting of the Board. The cash retainers are paid quarterly in arrears, and new board members receive a pro-rated amount for the quarter in which they are first elected or appointed. Upon election or nomination to our Board of Directors, new non-employee directors will receive an option grant to purchase 12,000 shares of our common stock with a three-year vesting period. On June 15 of each year, each non-employee director who has served for at least six months will receive an option grant to purchase 6,000 shares of our common stock which vests in full on May 1 of the following year. The exercise price of the option grants will be equal to the fair market value of our common stock on the date of the grant.

 

The Audit Committee oversees Blackboard’s financial reporting process on behalf of the Board of Directors. As described more fully in its charter, the purpose of the Audit Committee is to assist the Board in its general oversight of Blackboard’s financial reporting, internal controls and audit functions. A copy of the charter is available on our website at http://investor.blackboard.com. Management is responsible for the preparation, presentation and integrity of Blackboard’s consolidated financial statements; accounting and financial reporting principles; internal controls; and procedures designed to reasonably assure compliance with accounting standards, applicable laws and regulations. Ernst & Young LLP (“E&Y”), Blackboard’s independent registered public accounting firm, is responsible for performing independent audits of the consolidated financial statements and internal controls over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”). The Audit Committee has reviewed Blackboard’s audited consolidated financial statements for the year ended December 31, 2009 and has discussed these consolidated financial statements with Blackboard’s management and E&Y.

 

The Audit Committee has discussed with E&Y the matters required to be discussed by Statement on Auditing Standards 61, The Auditor’s Communication with Those Charged with Governance , as adopted by the PCAOB, which include, among other items, matters related to the conduct of the audit of Blackboard’s consolidated financial statements. The Audit Committee discussed with Blackboard’s management and independent registered public accounting firm the overall scope and plans for their respective audits. The Audit Committee reviewed with E&Y its judgments as to the quality, not merely the acceptability, of Blackboard’s accounting principles, the reasonableness of significant estimates and judgments and the clarity of disclosure in Blackboard’s consolidated financial statements and such other matters as are required to be discussed with the Audit Committee in accordance with the standards of the PCAOB. The Audit Committee met with E&Y, with and without management present, to discuss the results of their examinations, their evaluations of Blackboard’s internal controls, and the overall quality of Blackboard’s financial reporting.

 

In addition, the Audit Committee has discussed with E&Y its independence from management and Blackboard and considered the compatibility of non-audit services with E&Y’s independence. The Audit Committee has also received the written disclosures and the letter from E&Y required by the standards of the PCAOB regarding the independent registered public accounting firm’s communications with the audit committee concerning independence. In accordance with Audit Committee policy and the requirements of applicable law, all services to be provided by E&Y are pre-approved by the Audit Committee including audit services, audit-related services, tax services and other services.

 

Based on these reviews and discussions, the Audit Committee recommended to the Board, and the Board approved, that the audited consolidated financial statements be included in Blackboard’s Annual Report on Form 10-K for the year ended December 31, 2009 as filed with the Securities and Exchange Commission.

 

Respectfully submitted by the Audit Committee.

 

AUDIT COMMITTEE

 

Frank R. Gatti, Chair
Thomas Kalinske
E. Rogers Novak, Jr.

 

Executive Compensation Objectives

 

The objectives of Blackboard’s executive compensation program are to:

 

 

Role of the Compensation Committee and Management in Executive Compensation

 

The Compensation Committee of our Board of Directors determines the total compensation of our chief executive officer (CEO), all other executive officers and selected operations executives, as chosen by the Compensation Committee, and is responsible for:

 

 

Members of the Compensation Committee are appointed by our Board of Directors. The Compensation Committee currently consists entirely of independent directors within the meaning of SEC and NASDAQ stock exchange listing rules, none of whom have ever been employees of the company. The Compensation Committee chair regularly reports on Committee actions and recommendations at Board meetings. The Compensation Committee has a written charter that it follows in carrying out its responsibilities which is available on our website at http://investor.blackboard.com.

 

The Compensation Committee meets annually to review the performance of the company and its executives and to assess the executive compensation strategy for the coming year. As part of its annual review, which typically occurs at the end of each fiscal year, the Compensation Committee may decide to adjust one or more elements of an executive officer’s total compensation, and determines the amount of any adjustments to base salary, annual incentive opportunities and long-term incentives, the criteria for achieving annual and long-term incentives and the payout of incentive awards for prior periods based on the attainment of previously established objectives.

 

The Compensation Committee may consider changes to our executive compensation structure at other times during the year and has the discretion to adjust compensation outside of annual reviews, including performance measure targets, as it deems appropriate. On occasion, the Compensation Committee may grant equity incentives to executives at other times during the year.

 

As part of its deliberations each year, the Compensation Committee may review and consider materials such as our financial reports and projections, operational data, tax and accounting information, stock ownership information, data relating to historical changes in our stock price, analyses of historical executive compensation levels and company-wide compensation levels, and the recommendations of the CEO and other members of the Board of Directors, as well as the Compensation Committee’s independent compensation consultant.

Outside Advisors

 

The Compensation Committee has the authority to retain outside advisors to assist it in evaluating actual and proposed compensation for our executive officers. In connection with making its recommendations for executive compensation for 2009 and 2010, the Compensation Committee engaged Hewitt Associates as its independent compensation consultant to advise on executive compensation matters generally. The Compensation Committee also engaged Towers Perrin to advise specifically on CEO compensation matters.

 

As described below under “Compensation Analysis — Competitive Benchmarking,” the Compensation Committee uses the independent compensation consultant to review and provide recommendations on the composition of a peer group of comparable companies in the enterprise software industry, as well as to provide data for similarly situated executive officers at those peer group companies.

 

Role of Management

 

For executive officers other than the CEO, the Compensation Committee solicits and considers the performance evaluations and compensation recommendations of the CEO, including with respect to salary adjustments and the setting of annual bonus targets and long-term compensation awards. In the case of the CEO, the Compensation Committee evaluates his performance and determines whether to make any adjustments to his compensation.

 

The CEO meets periodically with the Compensation Committee to review compensation policies and specific levels of compensation paid to executive officers and other key personnel. During Compensation Committee meetings, management may present topical issues for discussion and education as well as specific recommendations for the Compensation Committee’s review. Our CEO and our chief legal officer attend a portion of most regularly scheduled Compensation Committee meetings, excluding executive sessions, and provide input from management including legal, finance and human resources considerations, but the Compensation Committee also meets without management present. Decisions in the annual compensation review are made by the Compensation Committee in executive session in consultation with the independent consultant but without management present.

 

Delegation of Authority

 

The Compensation Committee has delegated to the CEO the authority to periodically grant stock options and restricted stock to employees who are not executive officers or direct reports of the CEO. These grants are generally for new hires, promotions, or annual grants and are subject to caps on the number of stock options and shares of restricted stock which may be granted to any one individual. Grants to non-executive officers who are senior vice presidents or higher are reported to the Compensation Committee for review prior to the grant date. Other grants issued pursuant to this delegation of authority are periodically reported to the Compensation Committee. The grant dates for such awards are determined by policy and are not discretionary.

 

Executive Compensation Program Summary

 

General

 

To help us achieve our executive compensation objectives, we strive to offer our executive officers compensation and benefits that are attractive and competitive in the marketplace for talent. The key components of compensation provided to our executive officers are:

 

 

In addition, in prior years our CEO was eligible for a long-term cash incentive bonus tied to long-term organic revenue growth, but that program was cancelled in 2009, as described in further detail below. Total compensation for executive officers is reviewed annually and may be considered at other times in the discretion of the Compensation Committee.

 

Factors Considered

 

In determining the amount and form of compensation elements, the Compensation Committee assesses both company performance factors and individual factors as they apply to each executive officer. The Compensation Committee believes that it is important to consider both company performance relative to the performance of comparable companies and each officer’s individual circumstances.

 

Company performance factors considered by the Compensation Committee have historically included widely available financial metrics that provide comparability across companies, such as:

 

 

Individual compensation factors considered by the Compensation Committee take into account each officer’s individual circumstances, and have typically included items such as:

 

 

The Compensation Committee does not assign relative weights or rankings to these factors, but instead makes a subjective determination based upon the consideration of all of these factors.

 

2009 and 2010 Considerations

 

In 2009, due to the global economic slowdown and disruptions in financial markets, the company adopted a number of cost-saving measures. In its February 2009 compensation review, the Compensation Committee acknowledged the broader economic conditions and, although the company’s 2008 financial performance across various metrics was generally favorable compared to the peer group, this was outweighed by the need for the company to manage its expense levels in light of the market disruptions and the potential effect on the company’s financial performance in 2009. Accordingly, the Compensation Committee determined that it was appropriate to maintain salary levels at their 2008 levels for executive officers and employees generally across the company. In addition, the company suspended the employee 401(k) matching program at the beginning of the year but at the end of 2009, due to the company’s better than expected financial performance, the company reinstated the company match retroactive to the beginning of 2009.

 

For 2009 annual long-term equity incentives, in addition to the considerations described above, the Compensation Committee also considered the value of the equity holdings of the executive officers, and decided to

generally keep the value of equity compensation granted in 2009 at approximately the same levels as in 2008, calculated in accordance with applicable accounting rules, while shifting the mix in equity awards more towards restricted stock. The Compensation Committee considered these factors in its deliberations about executive compensation for 2010 in addition to the factors discussed below.

 

In making compensation decisions for 2010, the Compensation Committee considered market conditions; the company’s performance relative to its budget and relative to the companies in the selected peer group; that the company had generally exceeded its operating plan for 2009; and that over the past several years, the company’s financial performance had generally been in the top half or top quartile of the relevant financial metrics evaluated. The Compensation Committee also took into consideration that there had been no increase in compensation levels between 2008 and 2009. Finally, the Committee observed with respect to total stockholder return in 2009 that due to stock market volatility, the company’s ranking varied anywhere between the top quartile and the bottom quartile depending on the measurement date. Overall, the company’s consistent financial performance over multiple years and during a difficult economic period was a significant factor in its determination that it was appropriate to generally target total direct compensation for 2010 to be in the top quartile of the peer group, with adjustments according to each executive’s individual circumstances.

 

Compensation Analysis

 

Competitive Benchmarking

 

The peer group companies referenced by the Compensation Committee have consisted primarily of software companies with revenues and market capitalizations comparable to Blackboard’s. The Compensation Committee, in consultation with its independent consultant, periodically determines whether it would be appropriate to adjust the peer group in order to maintain comparability with Blackboard. This process is designed to keep the peer group generally stable but also to reflect changes in (1) some peer group companies’ revenue, market capitalization and/or status as independent publicly-traded companies and (2) Blackboard’s growth in revenue and market capitalization. The independent consultant to the Compensation Committee performs this benchmarking and provides the data to the Compensation Committee which then shares it with management. Management also provides data to the Compensation Committee.

 

In the fall of 2008, with the assistance of Hewitt Associates, the Compensation Committee established a peer group consisting of the following 21 companies for the purpose of benchmarking executive compensation to be established for 2009:

 

 

This group represented publicly-traded enterprise software companies with annual revenues generally in the range of $150 million to $650 million and market capitalizations generally in the range of $300 million to $3.9 billion.

 

In the fall of 2009, following a review by the Compensation Committee and in consultation with Hewitt Associates, the determination was made to maintain the composition of the existing peer group, with the exception of SPSS, Inc., which was removed to due to its acquisition by IBM during 2009. The remaining 20 companies constituted the peer group for the 2010 compensation review, with reported annual revenues generally in the range of $175 to $790 million and market capitalizations generally in the range of $340 million to $3.6 billion.

 

To supplement the peer group benchmarks, and for positions where the peer group data was insufficient to establish a benchmark, the Compensation Committee also obtained data from two proprietary sources for both the 2009 and 2010 analyses: a database maintained by Culpepper and Associates, Inc., a compensation advisory firm

focused on high-tech companies, and a survey by, Radford (a division of Aon Corporation), a human capital consulting firm. The Culpepper database consists of compensation data from over 750 companies. Blackboard also uses the Culpepper database to set compensation benchmarks for its U.S. employee population. Benchmarks for the executive officers were established using the same methodology as is used for general employee salary benchmarking and consisted of data from companies in the Culpepper database with revenues comparable to Blackboard. The Radford Executive Survey provides additional market data for technology companies. The Compensation Committee considers the broader information provided by these sources as a frame of reference for the information provided in the peer group data for companies with annual revenues generally within a range of $100 million to $500 million.

 

While the supplemental published survey data is an important additional source of information for confirming the adequacy and accuracy of its benchmarking analysis, the Compensation Committee relies more heavily on the publicly traded peer group data. The Compensation Committee is generally able to obtain financial performance information for our publicly traded peer group companies, which enables the Compensation Committee to consider the compensation levels of the peer group executive officers relative to the actual financial performance of their respective companies. As the Compensation Committee desires to align executive compensation with Blackboard’s financial performance, the Compensation Committee believes that publicly traded peer group data provides the most useful and relevant information on market conditions for the Compensation Committee to consider.

 

The Compensation Committee believes that there are inherent challenges in any effort to evaluate executive compensation in comparison to other companies. Benchmarking alone does not provide a definitive answer to setting compensation levels. Compensation can include a mixture of annual, one-time, periodic, promotional and new-hire awards, and may vary with an executive’s tenure in the position, and thus compensation levels may not be directly comparable between or among companies. Equity awards are valued at different dates and may reflect very different conditions in the public equity markets. In setting the executive compensation for a coming fiscal year, the Compensation Committee relies on benchmarking data from the prior fiscal year and as a result must make a determination as to the impact of these timing differences, in consultation with its independent compensation consultant.

 

Company performance factors

 

The Compensation Committee has historically considered the changes in revenue, market capitalization and non-GAAP earnings for its comparisons as they are widely available metrics which provide the greatest level of comparability across companies, and can provide a consistent basis for comparison during periods of disruption in the financial markets and the global economy. In both the 2009 and 2010 reviews, the Compensation Committee assessed the company’s stock performance in the prior year compared to the stock performance of the other companies in its peer group and determined that Blackboard generally performed favorably compared to the peer group although due to market volatility in 2009 Blackboard’s stock performance versus the peer group in 2009 varied significantly depending on the measurement date.

 

The Compensation Committee believes that if Blackboard can outperform the peer group median in financial performance, the executive officers should receive compensation above the estimated median level of total compensation paid by the peer group companies to executive officers performing comparable functions. In addition, the Compensation Committee believes that the competition for executive talent in our industry is significant and that the cost to replace executive officers is substantial thus reinforcing the importance of retaining our executive officers. Finally, as the perceived ultimate value of equity incentives can fluctuate significantly with changes in market conditions, the Compensation Committee believes that it is appropriate to ensure that the cash component of total compensation remains competitive.

 

As part of its 2009 compensation review, the Compensation Committee took note of the fact that Blackboard’s financial performance was in the top half or top quartile of the relevant metrics. However, the Compensation Committee primarily considered the need to manage company expenses in light of the market disruptions and worldwide economic slowdown at the time and the potential effect on the company’s financial performance. The Compensation Committee also took into account the tone that would be set across all of Blackboard by the Compensation Committee’s decision, and the fact that company management had recommended that salaries for

executive officers and non-executive employees for 2009 be maintained at their 2008 levels. As a result, the Compensation Committee believed it was appropriate to keep 2009 cash compensation more or less at 2008 levels.

 

During its 2010 compensation review, the Compensation Committee considered a number of factors, including its compensation decisions in the prior year and the economic and market conditions. The Compensation Committee also considered the company’s financial performance for 2009 as measured against its budget and expectations, as well as in relation to the financial performance of comparable peer group companies. The Compensation Committee took note of the fact that over the past years, Blackboard’s financial performance has generally been in the top half or top quartile of the relevant metrics and that the company generally exceeded its operating plans for 2009. Finally, it noted that with respect to total shareholder returns in 2009, due to the volatility of the stock markets, Blackboard’s rank varied from the first quartile to the fourth quartile depending on the measurement date. Overall, Blackboard’s consistent financial performance both in past years and during a difficult macroeconomic period in recent years, and the importance of retaining the company’s executive team, were significant factors in the Compensation Committee’s decision to set 2010 executive compensation generally in the top quartile of comparable companies.

 

Individual compensation determinations

 

The following table presents the 2009 and 2010 cash compensation approved for our named executive officers:

 

 

 

 

Cash Compensation.   Cash compensation consists of an executive officer’s base salary and a target annual incentive bonus. Until 2009, the CEO also received additional long-term cash incentive grants each year based on long-term company performance. As described in more detail below, the long-term cash incentive opportunity was cancelled for future years in connection with the CEO’s revised employment agreement and the concurrent grant of restricted stock units. The Compensation Committee seeks to ensure that total target cash compensation is competitive for each executive officer and may also be affected by individual negotiations with executives, particularly in connection with their initial compensation package. Base salary is generally set with reference to the market practice for comparable positions at the surveyed peer companies and the factors described above. The balance is delivered through an annual bonus incentive tied to both company and individual goals. To ensure a strong link between executive pay and Blackboard’s performance, the annual target bonus incentive will generally be a significant proportion of an executive officer’s total target cash compensation.

2009 Cash Compensation

 

In reviewing the peer group for the 2009 compensation review, the average total compensation levels of the 2009 peer group increased over those of the 2008 peer group; however, as discussed above, the Compensation Committee determined that it was appropriate to maintain the 2009 target total cash compensation levels, including base salary and target incentives, of Blackboard’s executive officers at their 2008 levels. Accordingly, the salary and target bonus opportunities for each of Mr. Chasen, Mr. Beach, Mr. Small and Mr. Walsh were maintained at their 2008 levels. In May 2008, Mr. Small was promoted to the role of chief business officer (CBO), at which point, in addition to his role as the company’s chief legal officer, he assumed certain operating responsibilities for the company. In its 2009 compensation review, the Compensation Committee considered various factors including the company’s positive financial performance within the peer group, the increased compensation benchmarks, and Mr. Small’s expanded responsibility as CBO. However, in light of the global economic slowdown and taking into account the need to conservatively manage company expenses and the other considerations described above, the Compensation Committee determined that it was appropriate to maintain the target cash compensation levels for all executives at their 2008 levels.

 

2010 Target Cash Compensation

 

In reviewing the peer group benchmark data for the 2010 compensation review, the Compensation Committee established a general objective of compensating our executive officers competitively in comparison with our peer group for total compensation. Based on the company’s positive financial performance over multiple years, increased compensation benchmarks among the peer group companies, and taking into consideration the fact that no changes were made to compensation levels from 2008 to 2009, in February 2010 the Compensation Committee approved increases to the target 2010 cash compensation of the company’s executive officers. Accordingly, Mr. Chasen, Mr. Beach and Mr. Small received increases in their base salary of 4% to 4.5% from their 2009 salary levels. Mr. Walsh’s base salary was increased by 15% due to the importance of his position as the company’s principal accounting officer. In February 2009, Ms. Verses was designated an officer of the company by the Board of Directors. In July 2009, she was promoted to the role of chief client officer (CCO) and president of sales and marketing. In its 2010 compensation review, the Compensation Committee considered the company’s performance as well as Ms. Verses’ expanded responsibility during 2009 and the fact that Ms. Verses’ cash compensation level was below the median for comparable positions within the peer group. As a result, the Compensation Committee increased Ms. Verses’ base salary by 7.7% to a level that is between the median and the 75 ^th percentile of the comparable positions in the peer group.

 

In addition to the changes in base salary described above, the Compensation Committee increased the target bonus opportunity for Mr. Beach and Mr. Small from 50% to 65% in recognition of the importance of their roles and for Ms. Verses from 50% to 75% due to her ability to affect the company’s performance as Blackboard’s senior sales executive.

 

Structure of Annual Incentive Bonus.   Blackboard’s annual incentive bonus program is designed to motivate and reward executives for their contribution to Blackboard’s performance. In 2009 and 2010, the Compensation Committee established that the annual incentive bonus awards would be based on (1) company performance measures, and (2) for executive officers other than the CEO, certain individual performance goals. The Compensation Committee believes that it is appropriate to make the CEO’s annual cash bonus entirely dependent upon the achievement of company performance goals in order to reinforce his role in driving the company’s operating plan and strategy. In 2009, the company performance measures were total revenues (50%) and adjusted non-GAAP earnings excluding amortization of acquired intangibles, stock-based compensation expense, non-cash interest expense, and non-cash patent related impairment expense, all net of taxes, (50%). These company performance measures were utilized because the Compensation Committee believes that they are metrics which directly drive shareholder value and are viewed by our investors as key measures of our performance. The bonus attributable to the company performance measures could be awarded at between 0% and 200% of the target depending on our actual financial performance and is calculated using a formula established by the Compensation Committee. Mr. Beach’s and Mr. Small’s target bonuses were weighted 75% on company performance to align their incentives to overall performance and 25% on individual performance measures to reflect their contributions in their specific areas of responsibility. The Compensation Committee utilizes the individual goals to ensure that the executive officers are

focused on department- or function-specific objectives in addition to company objectives. The annual incentive bonus for Mr. Walsh, our principal accounting officer, is based entirely on individual performance goals because the Compensation Committee believes that Mr. Walsh’s performance should be measured on his compliance activities in that role rather than the financial performance of the company.

 

For 2010, the Compensation Committee approved an annual incentive bonus program which is substantially similar in structure as the 2009 program. As was the case in 2009, each officer’s target bonus is comprised of a company performance portion and an individual performance goal portion, except for Mr. Walsh whose target bonus is based entirely on the achievement of individual performance goals and Mr. Chasen whose target is based entirely on company performance goals. The 2010 company performance measures will be based on total revenues (25%) and a non-GAAP earnings metric of net income excluding amortization of acquired intangibles, stock-based compensation expense, and certain defined non-cash items, such as non-cash interest expense, all net of taxes (75%). This non-GAAP earnings measure was chosen because it is a financial metric which is reported by the company publicly to investors and is a measure which directly drives shareholder value. The bonus attributable to the company performance can be awarded at between 0% and 200% of each executive officer’s target bonus depending on our actual financial performance against the plan. The portion of each executive’s bonus related to company performance will be paid out at 100% of the target amount if we achieve the financial targets set forth in the 2010 budget approved by our Board of Directors, which the Compensation Committee believes helps to ensure that management is aligned with the company’s operating plans. At the end of the fiscal year, the level of attainment of each of the two financial metrics described above will be determined and then each appropriately weighted to calculate a composite attainment percentage. The composite attainment percentage will then be used to calculate the dollar amount payable to each officer with a company performance component. The company performance portion of each officer’s bonus can be paid out at above or below 100% of the target amount on a sliding scale if we achieve a level above or below our 2010 targets. Adjustments for over- or under-performance in each measure are calculated according to the scale set forth in the following table, which is the same scale used in both 2009 and 2010.

 

Attainment of Company Performance Portion of Annual Incentive Bonus

 

 

To earn the maximum payout of 200% of the target bonus, the company would need to over-perform in both the revenue and non-GAAP earnings metrics by at least 20% over the 2010 budget amounts. The Compensation Committee believes that it would be very difficult to achieve the financial performance corresponding to a payout of 200% of the company performance bonus. For comparison, the Compensation Committee believes that the financial targets for 2009 and 2010 were set at a similar level of difficulty. The financial targets for 2009 were $370 million for total company revenues and $42.3 million for non-GAAP earnings after adjustment following the ANGEL Learning, Inc. acquisition which was completed in May 2009. The revenue metric was achieved at 102% and the non-GAAP earnings metric was achieved at 110%, resulting in a total company performance attainment of 130% of target. Therefore, the company performance component of each executive officer’s target bonus for 2009 was paid out in 2010 at 130% of the target bonus amount for that component. In 2010, the company performance targets are $431 million in revenue and $63.7 million in non-GAAP earnings excluding stock-based compensation, amortization of acquired intangibles and non-cash interest expense, all net of taxes, each of which are based on the company’s 2010 budget, and remain subject to adjustments as may be determined by the Compensation Committee in its discretion.

 

CEO Long-term Cash Incentive Bonus.   Beginning in 2007, the Compensation Committee introduced an additional long-term cash incentive component to the CEO’s compensation, in addition to the annual cash incentive plan available to all executive officers, to provide a specific incentive relating to organic revenue growth and to make a meaningful component of the CEO’s compensation be based on the financial performance of the company over a three-year period. The Compensation Committee believed that providing compensation to the CEO based on

this longer-term performance measure provided appropriate incentives to ensure that Blackboard’s strategic and operational plans were being designed to encourage long-term success in addition to short-term performance.

 

Under this additional long-term cash incentive plan, Mr. Chasen was eligible to earn between 0% and 300% of the long-term target bonus depending on our revenue performance in reference to the target revenue levels. Adjustments for over- or under-performance were calculated as follows:

 

Attainment of CEO Long-Term Cash Incentive Bonus

 

 

In determining the attainment levels for this incentive, the Compensation Committee excluded growth from acquisitions and certain other factors that it believed were not part of our organic revenue growth. We believed that the target revenue levels for each future year would be reasonably attainable and would result in a revenue growth rate that would be beneficial for our stockholders. However, we believe that it would be very difficult for Mr. Chasen to earn the maximum bonus which would have required outperformance by at least 10% above the target revenue levels.

 

In fiscal year 2009, Mr. Chasen was eligible for a target long-term cash incentive bonus of $525,000 based on the 2007 and 2008 CEO long-term cash incentive awards from those previous years. Based on attainment of 95% of the target measure for the 2007 incentive and 96% of the target measure for the 2008 incentive, Mr. Chasen earned 77% of his target bonus, or $403,566.

 

In February 2009, Mr. Chasen was provided a new long-term target cash incentive opportunity of $550,000, equal to 100% of his 2009 base salary, payable in two tranches based on performance: 50% based on revenue performance in 2010 and 50% based on revenue performance in 2011. Similar to the prior year long-term incentive plans, the Compensation Committee set target revenue levels, as well as minimum and maximum attainment levels, for each of the years of 2010 and 2011. In connection with the revisions in Mr. Chasen’s employment arrangements with the company in September 2009, however, the Compensation Committee canceled the awards previously granted relating to fiscal years 2010 and 2011 and thus the long-term cash incentive is no longer outstanding. The Compensation Committee felt that cancellation of these cash awards in favor of a longer term employment award linked to shareholder value, in combination with the holding requirement, is a better way to keep the CEO’s long-term incentive opportunity aligned with shareholder growth. For more detail, see the section below entitled CEO Employment Agreement Grant .

 

Long-Term Equity Incentive Awards.   The Compensation Committee believes that equity participation by the executive officers aligns the interests of executive officers with those of our stockholders by directly linking compensation and stockholder value, gives executive officers a significant, long-term interest in Blackboard’s success and helps retain key executives in a competitive market for executive talent. The Compensation Committee reviews the long-term equity incentive program from time-to-time and makes adjustments as it deems appropriate taking into account corporate and market trends and overall economic conditions, tax and accounting considerations and company compensation objectives. As with cash incentive opportunities, in determining the equity opportunity for each executive, the Compensation Committee believes that the incentive opportunity should make up a larger portion of the executive’s target total compensation as the officer’s level of responsibility increases. Long-term incentive compensation for executive officers in 2009 and 2010 consisted of grants of stock options and restricted stock, and, for the CEO, a grant of restricted stock units.

Each stock option represents the right to purchase a specified number of shares of our common stock at a set exercise price subject to the terms and conditions of an option agreement and our Amended and Restated 2004 Stock Incentive Plan, which we refer to as our 2004 Plan. The 2004 Plan also permits the grant of shares of restricted stock. We have a policy of granting stock options and restricted stock only on established grant dates and consequently, grants are made effective on the next scheduled grant date. Currently, we make equity grants on the first trading day on or after the 15th of each calendar month. Annual equity grants to executive officers are made on the first trading day on or after February 15th of each year. The exercise price of the stock options we grant is equal to the fair market value of Blackboard’s common stock based on the closing price of our common stock on the date of grant. As a result, any value that an executive receives from a stock option is solely the result of increases in the value of Blackboard stock which benefits all of our stockholders.

 

The Compensation Committee generally grants an initial equity award to executive officers at the time they commence employment, and the Compensation Committee may make additional equity grants from time to time, as it deems appropriate, typically on an annual basis. When establishing equity grant levels, the Compensation Committee generally considers (i) the executive’s experience and level of current and potential job responsibility, (ii) the equity grants awarded by the peer group companies to executives in similar positions; (iii) the importance of long-term retention of the executive; (iv) the CEO’s recommendations, except with respect to his own stock option grants; (v) the retention value in existing long-term equity for that executive;(vi) the total compensation paid to that executive; and (vii) the company’s burn rate and shareholder dilution.

 

Beginning in 2008, the Compensation Committee granted a portion of the executive officers’ long-term equity incentives in restricted stock. Previously, the Compensation Committee had granted only stock options. The shift toward granting restricted stock was made due to a variety of considerations. In volatile market conditions, restricted stock was seen by the Compensation Committee as an effective retention tool that also aligns the interests of the executives with the interests of the company’s shareholders and makes them more sensitive to stock price declines. The use of restricted stock reduces the impact of share dilution due to the fact that it requires fewer shares than otherwise would be required if stock options of equivalent value were granted. In 2009, the Compensation Committee shifted the mix of equity incentive awards towards restricted stock, because the Compensation Committee judged that it was the most effective use of these awards for retention and incentive purposes given the highly volatile stock market and the fact that the executive officers’ previously granted stock options were largely out-of-the-money. In addition, the Compensation Committee approved a grant of restricted stock units to Mr. Chasen in October 2009 in conjunction with his new employment agreement — the use of restricted stock units allowed the Compensation Committee to separate the vesting and delivery of the earned shares in the manner described below. In 2010, the Compensation Committee granted both stock options and restricted stock for the above reasons with a shift in value towards stock options. The Compensation Committee will continue to evaluate the appropriate mix between stock options and other equity grants based on the market environment and legal and tax considerations and other factors as it deems appropriate.

 

2009 Annual Incentive Grants

 

In February 2009, the Compensation Committee approved grants of stock options and restricted stock for Mr. Chasen, Mr. Beach, Mr. Small, Ms. Verses and Mr. Walsh as follows.

 

 

In determining the 2009 equity grant levels, the Compensation Committee considered the level of grants made by the 2009 peer group companies in 2008 and overall economic conditions, as well as Blackboard’s performance, the need for executive retention, and the value of the executive officers’ existing equity holdings. The Compensation

Committee recognizes that the value of long-term equity incentives is often the most volatile component of an executive’s total compensation package, due to fluctuations in the company’s stock price, and that the value of our executives’ long-term incentive grants relative to the value of grants made by our peer group may vary significantly from year to year. Other factors considered by the Compensation Committee included the fact that no changes were being made to compensation levels for 2009 and the decreased retention value of the executive officers’ existing equity holdings. The 2009 annual equity grants described above were generally below the 75 ^th percentile but above the median of the peer group for comparable positions based on the Black-Scholes fair value of the grants and were generally equivalent in value to those granted in 2008, but such Black-Scholes fair value is only one estimate of value considered by the Compensation Committee.

 

The stock options granted to executive officers in February 2009 vest over a four-year period with 25% vesting on the first anniversary and 75% vesting in equal monthly installments over the following three years. The restricted stock awards to executive officers in February 2009 vest 25% on each of the first four anniversaries of the vesting commencement date.

 

CEO Employment Agreement Grant

 

In connection with Mr. Chasen’s new employment agreement, Mr. Chasen received a grant of 120,000 restricted stock units, or RSUs, representing the right to receive 120,000 shares of our common stock pursuant to a restricted stock unit agreement, or RSU Agreement. The RSUs vest on June 30, 2013, or, if earlier, upon a change in control event as defined in the RSU Agreement. However, the vested shares are not delivered to him until his separation from service from the company or, if earlier, upon a 409A change in control event, both as detailed in the RSU Agreement. Mr. Chasen opted to receive half of any vested but undelivered shares on December 31, 2015 pursuant to an option for him to do so under the RSU Agreement. If, prior to June 30, 2013, we terminate Mr. Chasen’s employment without cause, or Mr. Chasen terminates his employment with good reason, dies or incurs a disability, each as defined in the RSU Agreement, a portion of the RSUs will vest, with the amount being determined by a sliding scale calculation weighted heavily towards the latter half of the vesting period. In granting these RSUs to Mr. Chasen, the Compensation Committee believes that it is providing an appropriate long-term and retention incentive for Mr. Chasen, our founder, CEO and the key management executive of the company, and incentives which are linked to shareholder value through the holding period which is generally for the duration of Mr. Chasen’s employment with Blackboard, other than those shares of which Mr. Chasen has opted to receive delivery on December 31, 2015. By delaying the delivery of any vested shares as described above, Mr. Chasen will have a long-term financial holding which the Compensation Committee also believes provides continued alignment with stockholder interest through stock ownership.

 

December 2009 Retention Grants

 

In December 2009, the Compensation Committee approved grants of restricted stock for Mr. Beach, Mr. Small, and Ms. Verses as follows:

 

 

These officers were identified by the CEO as individuals who were critical to retain and the Compensation Committee believed it was in the company’s best interests to provide long-term incentives to these key employees. These additional grants of restricted stock made in December 2009 have a four-year vesting schedule designed to reflect retention: 25% of the shares vest after two years, with an additional 33% vesting after three years and 41.67% vesting at the end of the four year vesting period. The retention grants support the Compensation Committee’s goal of creating a long-term incentive aligned with the interests of the company’s shareholders by back-end loading the vesting of these grants.

2010 Annual Incentive Grants

 

In February 2010, the Compensation Committee approved grants of stock options and restricted stock for Mr. Chasen, Mr. Small, Ms. Verses and Mr. Walsh as follows.

 

 

In determining the 2010 annual equity grant levels, the Compensation Committee considered the level of grants made by the 2010 peer group companies in 2009, as well as Blackboard’s performance, the need for executive retention, and the value of the executive officers’ existing equity holdings and compensation arrangements. The Compensation Committee recognizes that the value of long-term equity incentives is often the most volatile component of an executive’s total compensation package, due to fluctuations in the company’s stock price, and that the value of our executives’ long-term incentive grants relative to the value of grants made by our peer group may vary significantly from year to year. The stock options and restricted stock awards granted in February 2010 have the same vesting schedules as the option grants and restricted stock awards made in February 2009.

 

Stock Ownership

 

At this time, the Compensation Committee has not adopted specific ownership requirements or guidelines for our directors and executive officers. The RSU grant to Mr. Chasen was structured to require holding of the vested shares in certain circumstances described in the RSU agreement. Our Board of Directors has adopted an insider trading policy which prohibits executive officers and directors from short sales of our stock and from transactions in put or call options in our securities for speculative purposes.

 

Employee Benefits and Perquisites.   In addition to the cash and equity components of our compensation packages described above, we provide our executive officers with certain personal benefits and perquisites, which have been reviewed and approved by the Compensation Committee. While the Compensation Committee does not consider these perquisites to be a significant component of executive compensation, it recognizes that they are an important factor in attracting and retaining talented executives. During 2009, the company provided supplemental long-term disability insurance premiums for our executive officers, as well as reimbursement of up to $6,000 for health and fitness expenses such as gym memberships, and reimbursement of cell phone usage and equipment costs. The Compensation Committee believes these benefits help to recruit and retain key talent at a minimal cost to the company.

 

Executive officers are eligible under the same plans as all other U.S. employees for medical, dental, vision, disability and basic life insurance. The executive officers may also participate in our 401(k) plan under the same rules that apply to other U.S. employees. In January 2009, the 401(k) match for all employees, including our executive officers, was suspended due to the potential impact to the company’s financial performance given the global economic slowdown and the associated financial uncertainty. During 2009, the company achieved better than expected financial performance and accordingly was able to fund a 401(k) match for eligible employees for 2009 retroactive to the beginning of 2009. In February 2010, the Board of Directors approved matching contributions to the 401(k) plan for 2010. Participants in our 401(k) plan are eligible for a matching contribution from us of 33% of the participant’s contributions, up to a total of 6% of the participant’s pay. These benefits are intended to be competitive with benefits offered by comparable companies.

 

Components of 2010 Compensation by Percentage

 

While the Compensation Committee believes that it is important to pay competitive base salaries, it believes that the majority of executive compensation should take the form of variable pay. The two primary forms of variable pay are: (i) the annual incentive bonus which is dependent on company financial performance and/or individual performance; and (ii) equity incentive grants for which value is dependent on the company’s stock price

performance. The table below summarizes the percentage of each compensation type that comprises each named executive officer’s estimated 2010 compensation.

 

 

 

 

Executive Severance and Change-in-Control Agreements

 

We have change-in-control provisions in our 2004 Plan and these provisions apply equally to all participants, including our executive officers. The change-in-control provisions were adopted to ensure that in the event we are considering a change-in-control transaction, the transaction is neutral to the employees’ economic interests as the employees would likely not be in a position to influence performance and may not be in a position to vest in their equity awards following a change-in-control. The 2004 Plan provides that the vesting of outstanding stock option grants and restricted stock grants to employees will be accelerated by one year in the event of a change-in-control, unless other provision is made by our Board of Directors. A small portion of grants remain outstanding under our 1998 Amended and Restated Stock Incentive Plan, which does not provide for automatic acceleration of vesting in the event of a change-in-control. In addition, certain of our executive officers’ and other key employees’ stock option agreements and restricted stock agreements provide for 12 to 24 additional months acceleration of vesting subsequent to a change-in-control in the event that such person is terminated or constructively terminated during the first year following the change-in-control. Mr. Chasen’s RSU grant described above provides for full acceleration upon a change-in-control.

 

We have entered into employment agreements with some of our named executive officers under which they are eligible to receive severance benefits and acceleration of vesting of their equity awards in the event of termination of their employment with us in certain situations and, in some cases, upon a change in control of our company. These agreements reflect the negotiations between the company and each of our executives, and provide for severance of one year salary or less, certain bonus amounts and certain other benefits such as payment of health insurance premiums. The Compensation Committee considers these severance benefits critical to attracting and retaining high-caliber executives.

 

The stock option agreements and restricted stock agreements approved by the Compensation Committee for our executive officers provide for 12 months’ acceleration of vesting in the event of a change-in-control. In addition, our CEO and CBO are entitled to: (1) 24 additional months’ acceleration of vesting in the event that they are terminated or constructively terminated within 12 months of a change-in-control; and (2) 12 months’ acceleration of vesting if, other than in connection with a change-in-control, their employment is terminated without cause or due to death or disability. The Committee also believes that change-in-control and severance benefits, if structured properly, can minimize the distractions to an executive and reduce the risk that an executive officer may depart the company before a change-in-control transaction is consummated. We believe that our existing arrangements allow our executive officers to focus on continuing normal business operations and, in the case of change-in-control benefits, on the success of a potential business combination, rather than worrying about how business decisions that may be in the best interests of the company will impact their own financial security. For more information, please read the section “Potential Payments Upon Termination or Change-In-Control” below.

 

Tax Considerations

 

Section 162(m)

 

Section 162(m) of the Internal Revenue Code, as amended, or the Code, generally disallows a tax deduction for compensation in excess of $1 million paid to the CEO and certain other highly compensated officers. Certain compensation, including qualified performance-based compensation, as defined in the Code, will not be subject to the deduction limit if certain requirements are met. In general, Blackboard structures and administers its equity grants in a manner intended to comply with the performance-based exception to Section 162(m). Nevertheless, there can be no assurance that compensation attributable to all awards granted under Blackboard’s stock incentive plans will be treated as qualified performance-based compensation under Section 162(m). For example, because the vesting of the shares of restricted stock are not subject to the achievement of specified performance objectives, our current restricted stock awards do not qualify as performance-based compensation, accordingly the compensation expense related to such awards to our named executive officers count toward the $1 million limit on deductibility. In addition, the Compensation Committee reserves the right to use its judgment to authorize compensation payments that may be subject to the limit when the Compensation Committee believes such payments are appropriate and in the best interests of Blackboard and its stockholders, after taking into consideration company performance and business conditions.

 

Section 409A

 

If an executive is entitled to nonqualified deferred compensation benefits that are subject to Section 409A, and such benefits do not comply with that section, the executive would be subject to adverse tax treatment, including accelerated income recognition in the first year that benefits are no longer subject to a substantial risk of forfeiture and a 20% penalty tax. With respect to equity and cash compensation, we generally seek to structure such awards so that they do not constitute “deferred compensation” under Section 409A of the Code, thereby avoiding penalties and taxes on such compensation applicable to deferred compensation.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

 

During 2009, the members of the Compensation Committee were Dr. Raduchel, Mr. Cowan, and Ms. Kaplan, none of whom is a current or former officer or employee of Blackboard and none of whom had a direct or indirect material interest in any related person transaction involving Blackboard. No interlocking relationships exist between the Board of Directors or the Compensation Committee and the board of directors or the compensation committee of any other entity. None of our executive officers serves, or in the past year has served, 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 Compensation Committee.

REPORT OF THE COMPENSATION COMMITTEE

 

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K. Based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into our Annual Report on Form 10-K for the year ended December 31, 2009.

 

Respectfully submitted by the Compensation Committee.

 

THE COMPENSATION COMMITTEE

 

William Raduchel, Chair
Joseph L. Cowan
Beth Kaplan

 

The following table provides certain summary information concerning compensation for the fiscal years ended December 31, 2009, 2008, and 2007 that we paid to our principal executive officer, principal financial officer, and our three other named executive officers at December 31, 2009.

SUMMARY COMPENSATION TABLE

 

 

 

 

2009 GRANTS OF PLAN-BASED AWARDS

 

The following table sets forth grants of stock options during the fiscal year ended December 31, 2009 to each of the named executive officers.

 

 

 

 

Until September 2009, Mr. Chasen, our chief executive officer and president, served pursuant to the terms of an employment agreement dated November 14, 2005 (“2005 Chasen Agreement”). Mr. Chasen’s agreement was amended as of October 21, 2008 in order to comply with the terms of Section 409A of the U.S. Internal Revenue Code of 1986, as amended. The initial term of the 2005 Chasen Agreement began on November 14, 2005, and automatically renewed for successive one-year periods unless either we or Mr. Chasen provided notice of non-renewal within 30 days of the applicable renewal term. Under the 2005 Chasen Agreement, Mr. Chasen’s annual base salary was subject to periodic review and adjustment by our Board of Directors, and he participated in our annual cash incentive bonus plan and a separate long-term cash incentive bonus plan as described above under “Compensation Discussion and Analysis — Compensation Analysis.” If we terminated Mr. Chasen’s employment without cause (as defined in the 2005 Chasen Agreement), or Mr. Chasen terminated his employment with good reason (as defined in the 2005 Chasen Agreement), then we would have been required to pay him a lump-sum amount equal to $999,999 less applicable taxes and withholdings. During his employment with us and for one year following the termination of his employment under the 2005 Chasen Agreement, Mr. Chasen was subject to certain non-solicitation and non-competition restrictions.

 

On September 25, 2009, we entered into a new employment agreement (“2009 Chasen Agreement”) with Mr. Chasen which superseded the 2005 Chasen Agreement. The initial term of Mr. Chasen’s new agreement began on September 25, 2009 and continues until June 30, 2013. The 2009 Chasen Agreement automatically renews unless terminated in accordance with its terms. Under the 2009 Chasen Agreement, Mr. Chasen’s base salary is subject to periodic review and adjustment by the Compensation Committee of the Board of Directors. He also participates in our annual cash incentive bonus plan as described above under “Compensation Discussion and Analysis — Compensation Analysis.” If we terminate Mr. Chasen’s employment without cause (as defined in the 2009 Chasen Agreement), or Mr. Chasen terminates his employment with good reason (as defined in the 2009 Chasen Agreement), then we would be required to pay him a lump-sum amount equal to $999,999 less applicable taxes and withholdings within 30 days following the effective date of termination and additional payments of $999,999 less applicable taxes and withholdings on each of the next two succeeding anniversaries of the date of his termination. During his employment with us and for three years following the termination of his employment, Mr. Chasen will be subject to certain non-solicitation and non-competition restrictions.

 

Mr. Beach, our former chief financial officer and treasurer, served until February 28, 2010 pursuant to the terms of an employment agreement dated September 1, 2006. Mr. Beach’s agreement was amended as of October 23, 2008 in order to comply with the terms of Section 409A of the U.S. Internal Revenue Code of 1986, as amended. The initial term of Mr. Beach’s agreement was one year and automatically renewed for successive one-year periods unless either we or Mr. Beach provided notice of non-renewal within 30 days of the applicable renewal term. Under the agreement, Mr. Beach’s annual base salary was subject to periodic review and adjustment by our Board of Directors. He also participated in our annual cash incentive bonus plan as described above under “Compensation Discussion and Analysis — Compensation Analysis.” If we terminated Mr. Beach’s employment without cause (as defined in the agreement), or Mr. Beach terminated his employment with good reason (as defined in the agreement), then we would have been required to pay to Mr. Beach his then-current annual base salary for 12 months and pay for up to 12 months’ COBRA premiums. Although Mr. Beach resigned from the Company, he remains subject to certain non-solicitation and non-competition restrictions for one year following the termination of his employment.

 

Mr. Small, our chief business officer, chief legal officer and secretary, serves pursuant to the terms of an employment agreement dated January 26, 2004. Mr. Small’s agreement was amended as of October 18, 2008 in order to comply with the terms of Section 409A of the U.S. Internal Revenue Code of 1986, as amended. The initial term of the agreement was two years, and unless terminated pursuant to its terms, the agreement renews automatically for additional one-year terms unless either we or Mr. Small provides notice of non-renewal within 30 days of the applicable renewal term. Under the agreement, Mr. Small’s annual base salary is subject to periodic review and adjustment by our Board of Directors. He will also be eligible to receive an annual bonus based on performance targets set by our Board of Directors. He also participates in our annual cash incentive bonus plan as described above under “Compensation Discussion and Analysis — Compensation Analysis.” If we terminate Mr. Small’s employment without cause (as defined in the agreement), he terminates his employment for good

reason (as defined in the agreement) or his employment agreement is not renewed, then Mr. Small would be entitled to a cash payment equal to one year of his annual base salary, plus any earned bonus through the end of the then-current quarter, expense reimbursements and fringe benefits, in a lump sum or in accordance with normal payroll practices, at our election. He would be further entitled, at our cost, to continue to participate in all group insurance, life insurance, health and accident, disability and other employee benefit plans, programs and arrangements, other than bonus plans or stock option plans, for a period of 12 months.

 

Ms. Verses, our chief client officer and president of sales and marketing, serves pursuant to the terms of an employment agreement dated July 2, 2008. Ms. Verses’ agreement was amended as of November 18, 2008 in order to comply with the terms of Section 409A of the U.S. Internal Revenue Code of 1986, as amended. The initial term of Ms. Verses’ agreement was one year and the agreement automatically renews for successive one-year periods unless either we or Ms. Verses provides notice of non-renewal within 30 days of the applicable renewal term. Under the agreement, Ms. Verses’ annual base salary is subject to periodic review and adjustment. She also participates in our annual cash incentive bonus plan as described above under “Compensation Discussion and Analysis — Compensation Analysis.” If we terminate Ms. Verses’ employment without cause (as defined in the agreement), or Ms. Verses terminates her employment with good reason (as defined in the agreement), then we would be required to pay to Ms. Verses her then-current annual base salary for 6 months and pay for up to 6 months’ COBRA premiums, plus she would be entitled to any earned bonus for a completed calendar year if Ms. Verses is terminated without cause or terminates her employment for good reason after the end of a calendar year but prior to receiving her earned bonus for such completed calendar year.

 

2009 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

The following table sets forth the outstanding equity awards held by each of our named executive officers as of December 31, 2009.

 

 

 

 

2009 OPTION EXERCISES AND STOCK VESTED

 

The following table sets forth, for each of the named executive officers, information with respect to the exercise of stock options during the year ended December 31, 2009. No shares of restricted stock held by the named executive officers vested during 2009.

 

 

Potential Payments Upon Termination or Change-in-Control

 

Our named executive officers would be entitled to certain benefits and/or payments in the event of the termination of their employment with us in certain circumstances, a change-in-control of Blackboard or a termination of their employment within one year following a change-in-control. As described above, Messrs. Chasen, Beach and Small and Ms. Verses have entered into employment agreements with us that provide for severance payments and other benefits in certain situations.

 

Stock options held by our named executive officers are subject to the terms of the plans pursuant to which they were issued. All outstanding stock options held by our named executive officers that were issued under our 1998 Amended and Restated Stock Incentive Plan, or the 1998 Plan, are fully vested. Under our Amended and Restated 2004 Stock Incentive Plan (“2004 Plan”), in the event of a change-in-control, the vesting of outstanding stock options would be accelerated by one year. A change-in-control under the 2004 Plan generally includes the following events: (i) the acquisition of 25% of our outstanding common stock or 25% of the voting power of our outstanding securities entitled to vote generally in the election of directors by an individual, entity or group, subject to specified exceptions, (ii) such time as the continuing directors, as defined in the 2004 Plan, do not constitute a majority of the Board of Directors, and (iii) consummation of a merger, consolidation, reorganization, recapitalization or share exchange involving us or a sale or other disposition of all or substantially all of the our assets, unless our stockholders immediately prior to such transaction beneficially own, directly or indirectly, a majority of the outstanding shares of common stock or a majority of the voting power of the then-outstanding securities following the transaction in substantially the same proportions as their ownership prior to the transaction. The 1998 Amended and Restated Stock Incentive Plan (the “1998 Plan”) does not provide for automatic acceleration upon a change-in-control. Under certain of the named executive officers’ stock option agreements, the executive officers are entitled to an additional year of acceleration following a change-in-control if they are terminated without cause or constructively terminated, as such terms are defined in the agreements, within one year following the change-in-control. Beginning with the option grants made in February 2007, Messrs. Chasen, Beach and Small are entitled to two years of additional acceleration following a change-in-control if they are terminated without cause or constructively terminated within one year following the change-in-control. In addition, in 2006, Messrs. Chasen and Small received a long-term retention grant of stock options which vest over a three-year period beginning on the 4th anniversary of grant; in the event of a change-in-control, a portion of the shares underlying these options will vest, equal to 20% of the original number of shares under the option plus an additional 12.5% for each year following the grant date.

The following descriptions provide estimates of the amounts payable to Messrs. Chasen, Beach, Small and Walsh, and Ms. Verses, in the event of their termination or a change-in-control assuming that such event occurred on December 31, 2009, based on the stock option holdings, the fair market value of our stock and the salaries of the executive officers as of such date.

 

Michael L. Chasen.   Upon a termination of his employment by us without cause or by Mr. Chasen with good reason, as each term is defined under his employment agreement, as amended, Mr. Chasen would have been entitled to a lump-sum severance payment of $999,999, less applicable taxes and withholdings, within 30 days following the effective date of termination and two additional payments of $999,999, less applicable taxes and withholdings, on each of the first two succeeding anniversaries thereafter. Following such termination, Mr. Chasen would be prohibited from soliciting or hiring our employees for a period of six months, soliciting our clients for 12 months and competing against us for six months. Mr. Chasen’s stock options, restricted stock and restricted stock units generally provide for acceleration of vesting upon a change-in-control. In the event of a change-in-control occurring on December 31, 2009, vesting of certain stock options, restricted stock and restricted stock units held by Mr. Chasen would have accelerated resulting in a gain in the value of Mr. Chasen’s exercisable stock options and restricted stock of $14,040,485.

 

Michael J. Beach.   Upon a termination of his employment by us without cause or by Mr. Beach with good reason, as each term is defined under his employment agreement, as amended, Mr. Beach would have been entitled to a payment of approximately $375,000 representing one year of his base salary and payment of 12 months’ COBRA premiums with an estimated cost to us of $16,360. Following such termination, Mr. Beach would be prohibited from soliciting or hiring our employees for a period of six months, soliciting our clients for 12 months and competing against us for six months. Mr. Beach’s stock options and restricted stock generally provide for acceleration of vesting upon a change-in-control. In the event of a change-in-control occurring on December 31, 2009, vesting of certain stock options and restricted stock held by Mr. Beach would have accelerated resulting in a gain in the value of Mr. Beach’s exercisable stock options and restricted stock of $928,398.

 

Matthew H. Small.   Upon a termination of his employment by us without cause or by Mr. Small with good reason, as each term is defined under his employment agreement, as amended, or upon non-renewal of his employment agreement, Mr. Small would have been entitled to a payment of approximately $375,000 representing one year of his base salary and 12 months’ coverage under company benefit plans in which Mr. Small was entitled to participate at the time of his termination with an estimated cost to us of $16,810. In addition, Mr. Small would be entitled to payment of his earned but unpaid bonus which as of December 31, 2009 was $175,954. Mr. Small’s stock options and restricted stock generally provide for acceleration of vesting upon a change-in-control. In the event of a change-in-control occurring on December 31, 2009, vesting of certain stock options and restricted stock held by Mr. Small would have accelerated resulting in a gain in the value of Mr. Small’s exercisable stock options and restricted stock of $3,330,671.

 

Judy K. Verses.   Upon a termination of her employment by us without cause or by Ms. Verses with good reason, as each term is defined under her employment agreement, as amended, Ms. Verses would have been entitled to a payment of approximately $162,500 representing six months of her base salary. Following such termination, for a period of one year, Ms. Verses would be prohibited from soliciting or hiring our employees, soliciting our clients, and competing against us. Ms. Verses’ stock options and restricted stock generally provide for acceleration of vesting upon a change-in-control. In the event of a change-in-control occurring on December 31, 2009, vesting of certain stock options and restricted stock held by Ms. Verses would have accelerated resulting in a gain in the value of Ms. Verses’ exercisable stock options and restricted stock agreements of $666,463.

 

Jonathan R. Walsh.   Mr. Walsh’s stock options and restricted stock generally provide for acceleration of vesting upon a change-in-control. In the event of a change-in-control occurring on December 31, 2009, vesting of certain stock options and restricted stock held by Mr. Walsh would have accelerated resulting in a gain in the value of Mr. Walsh’s exercisable stock options and restricted stock of $679,398.

Equity Compensation Plan Information

 

The following table provides information as of December 31, 2009 about the securities authorized for issuance to our employees, directors and other eligible participants under our equity compensation plans, consisting of the 1998 Plan and the 2004 Plan.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Our Board has adopted written policies and procedures for the review of any transaction, arrangement or relationship in which Blackboard is a participant, the amount involved exceeds $120,000, and one of our executive officers, directors, director nominees or 5% stockholders (or their immediate family members), each of whom we refer to as a “related person,” has a direct or indirect material interest. The Audit Committee charter adopted by the Board of Directors provides that the Audit Committee shall review all related party transactions on an ongoing basis, and all such transactions must be approved by the Audit Committee. If a related person proposes to enter into such a transaction, arrangement or relationship, which we refer to as a “related person transaction,” the related person must report the proposed related person transaction to our chief legal officer, who then communicates the proposed transaction to the Audit Committee. The policy calls for the proposed related person transaction to be reviewed and, if deemed appropriate, approved by the Audit Committee. Any proposed related person transactions would be evaluated by the Audit Committee based on the specific facts and circumstances of each transaction. Relevant facts to be considered include the nature and size of the transaction, the risks, costs and benefits of the transaction to Blackboard, the related person’s interest in the transaction, any potential conflicts of interest under Blackboard’s policies, and whether the transaction is on terms no less favorable to our company than could be obtained from independent third parties under the same or similar circumstances, and are otherwise in, or are not inconsistent with, the best interests of our company and our stockholders. Other considerations may include customary industry practices, whether comparable services or products are available from an independent third party, accounting consequences of the transaction under generally accepted accounting principles, and whether additional costs or expenses to us, such as costs for separate financial, legal or other advisors, may be involved. In the event a director, a member of a director’s immediate family or an entity with which a director is affiliated has an interest in the proposed transaction, the director must recuse himself or herself from the deliberations and approval and the Audit Committee will consider the impact of the transaction on such director’s independence. Whenever practicable, the reporting, review and approval will occur prior to entry into the transaction. If advance review and approval is not practicable, the Audit Committee will review, and, in its discretion, may ratify the related person transaction. Since January 1, 2009, Blackboard has not entered into any related person transactions required to be disclosed under SEC rules.

 

PROPOSAL NO. 2

 

We have two equity incentive plans, the Amended and Restated 2004 Stock Incentive Plan (the “2004 Plan”), and the 1998 Amended and Restated Stock Incentive Plan (the “1998 Plan”). When we adopted the 2004 Plan, the Board of Directors determined that no additional grants would be made under the 1998 Plan.

On February 16, 2010, our Board of Directors approved, subject to stockholder approval, Amendment No. 5 (the “Amendment”) to the 2004 Plan to increase the number of shares authorized for issuance under the plan from 10,500,000 to 12,000,000 and to make other changes as specified below.

 

The summary of the 2004 Plan, as amended by the Amendment (collectively, the “Amended 2004 Plan”), presented in this proxy statement is qualified in its entirety by the Amended 2004 Plan, which is included in this proxy statement as Appendix A.

 

As of April 6, 2010, 4,555,891 shares were subject to options currently outstanding under the 2004 Plan and the 1998 Plan with an average exercise price of $32.41 and an average remaining term of 6.0 years. In addition, 598,863 shares of restricted stock were outstanding and subject to forfeiture conditions. As of April 6, 2010, 3,270,751 shares of our common stock remained available for future grant under the original 2004 Plan and no shares are available for grant under the 1998 Plan.

 

The maximum number of shares with respect to which awards other than options and Gross-Counted SARs (as defined below) may be granted is currently 700,000 of which 38,450 shares remain available for grant as of April 6, 2010. The Amendment would increase this sub-limit by 1,250,000 shares.

 

As of the close of business on the Record Date, we had 34,025,087 shares of common stock outstanding and the closing price of our common stock was $43.56 per share.

 

In conjunction with the approval of the Amended 2004 Plan, our Board of Directors has adopted a policy committing to maintain our three-year average annual burn rate for fiscal years 2010, 2011 and 2012 below 6.11%, which is the average of the RiskMetrics 2009 and 2010 burn rate thresholds for Russell 3000 software companies. While we may exceed the burn rate target in a given year, the policy would require that the three-year average not exceed the burn rate target. The annual burn rate for a given year will be calculated by dividing (A) the sum of (i) the number of stock options and Gross-Counted SARs (as defined below) granted in such year and (ii) 2.5 times the number of restricted stock, restricted stock units and other full value shares granted in such year by (B) the weighted average common shares outstanding in such year. All such calculations would be equitably adjusted to reflect any stock splits, stock dividends or similar transactions which occur during the three-year period. Awards that are settled in cash, awards assumed in business combination transactions and awards issued to replace awards assumed in business combinations will be excluded from the burn rate calculation.

 

Description of the Amended 2004 Plan

 

The following is a brief summary of the Amended 2004 Plan.

 

Following the Amendment, the number of shares of our common stock for which awards under the Amended 2004 Plan may be issued would be 12,000,000 shares, subject to adjustment for stock splits, combinations and similar events.

 

Types of Awards

 

The Amended 2004 Plan provides for the grant of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards as described below (collectively, “Awards”).

 

Incentive Stock Options and Nonstatutory Stock Options.   Optionees receive the right to purchase a specified number of shares of common stock at a specified option price and subject to such other terms and conditions as are specified in connection with the option grant. Options may be granted only at an exercise price that is equal to or greater than 100% of the fair market value of the common stock on the date of grant. Under present law, incentive stock options and options intended to qualify as performance-based compensation under Section 162(m) of the Code may not be granted at an exercise price less than 100% of the fair market value of the common stock on the date of grant (or less than 110% of the fair market value in the case of incentive stock options granted to optionees holding more than 10% of the voting power of our capital stock). Options granted after March 1, 2005 may not have a term in excess of eight years. Subject to adjustments for stock splits, combinations and similar events or pursuant

to stockholder approval, options may not be amended to reduce the exercise price per share thereof and we may not implement an option exchange program pursuant to which an option could be exchanged for a new option with a lower exercise price per share.

 

Stock Appreciation Rights.   A stock appreciation right, or SAR, is an award entitling the holder, upon exercise, to receive an amount in common stock determined by reference to appreciation, from and after the date of grant, in the fair market value of a share of common stock. The base price from which such appreciation is measured shall not be less than 100% of the fair market value on the date of grant. SARs may be granted independently or in tandem with an option. SARs granted after March 1, 2005 may not have a term in excess of eight years.

 

Restricted Stock Awards.   Restricted stock awards entitle recipients to acquire shares of common stock, subject to our right to repurchase all or part of such shares from the recipient in the event that the conditions specified in the applicable Award are not satisfied prior to the end of the applicable restriction period established for such Award.

 

Restricted Stock Unit Awards.   Restricted stock unit awards entitle the recipient to receive shares of common stock to be delivered at the time such shares vest pursuant to the terms and conditions established by the Board of Directors.

 

Other Stock-Based Awards.   Under the Amended 2004 Plan, the Board of Directors has the right to grant other Awards based upon the common stock having such terms and conditions as the Board of Directors may determine, including the grant of shares based upon certain conditions, the grant of Awards that are valued in whole or in part by reference to, or otherwise based on, shares of common stock, and the grant of Awards entitling recipients to receive shares of common stock to be delivered in the future.

 

Performance Conditions.   The Compensation Committee may determine, at the time of grant, that a restricted stock award, restricted stock unit award or other stock-based award granted to an officer will vest solely upon the achievement of specified performance criteria designed to qualify for deduction under Section 162(m) of the Code. The performance criteria for each such Award will be based on one or more of the following measures: (a) earnings per share, (b) return on average equity or average assets with respect to a pre-determined peer group, (c) earnings, (d) earnings growth, (e) revenues, (f) expenses, (g) stock price, (h) market share, (i) return on sales, assets, equity or investment, (j) regulatory compliance, (k) improvement of financial ratings, (l) achievement of balance sheet or income statement objectives, (m) total shareholder return, (n) net operating profit after tax, (o) pre-tax or after-tax income, (p) cash flow or (q) such other objective goals established by the Board of Directors. These performance measures may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated. Such performance goals may be adjusted to exclude any one or more of (i) extraordinary items, (ii) gains or losses on the dispositions of discontinued operations, (iii) the cumulative effects of changes in accounting principles, (iv) the writedown of any asset, and (v) charges for restructuring and rationalization programs. Such performance goals: (i) may vary by participant and may be different for different Awards; (ii) may be particular to a participant or the department, branch, line of business, subsidiary or other unit in which the participant works and may cover such period as may be specified by the Compensation Committee; and (iii) will be set by the Compensation Committee within the time period prescribed by, and will otherwise comply with the requirements of, Section 162(m). The Compensation Committee may not waive the achievement of the applicable performance goals except in the case of the death or disability of the participant.

 

Transferability of Awards

 

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

Eligibility to Receive Awards

 

Our employees, officers, directors, consultants and advisors and those of our subsidiaries are eligible to be granted Awards under the Amended 2004 Plan. Under present law, however, incentive stock options may only be granted to our employees and the employees of our subsidiaries.

 

The maximum number of shares with respect to which Awards may be granted to any participant under the Amended 2004 Plan may not exceed 471,923 shares per calendar year. For purposes of this limit, the combination of an option in tandem with a SAR is treated as a single award.

 

Plan Benefits

 

As of the date of this proxy statement, no stock options or other awards had been granted, and no shares or other stock-based awards had been issued, under the Amended 2004 Plan on the basis of the share increase contemplated by the Amendment or other changes proposed to be effected by the Amendment described in this proxy statement. Approximately 1,104 persons are currently eligible to receive Awards under the Amended 2004 Plan, including our executive officers and seven non-employee directors, except those who are not eligible due to local laws. The granting of Awards under the Amended 2004 Plan is discretionary, and we cannot now determine the number or type of Awards to be granted in the future to any particular person or group.

 

Administration

 

The Amended 2004 Plan is administered by the Board of Directors. The Board of Directors has the authority to adopt, amend and repeal the administrative rules, guidelines, policies and practices relating to the Amended 2004 Plan and to interpret the provisions of the Amended 2004 Plan and administer the granting of Awards to eligible participants. Pursuant to the terms of the Amended 2004 Plan, the Board of Directors may delegate authority under the Amended 2004 Plan to one or more committees or subcommittees of the Board of Directors or to one or more of our executive officers. The Board of Directors has authorized the Compensation Committee to administer certain aspects of the Amended 2004 Plan, including the granting of options to executive officers. In addition, the Amended 2004 Plan provides that any grants to non-employee directors must be approved by a committee of independent directors. As described in this proxy statement under “Compensation Discussion and Analysis — Role of the Compensation Committee and Management in Executive Compensation — Delegation of Authority,” each year, the Compensation Committee delegates equity award granting authority to our CEO, subject to certain limitations, including a limitation that the CEO may not make grants of equity awards to our employees who are Section 16 officers.

 

The Board of Directors is required to make appropriate adjustments in connection with the Amended 2004 Plan and any outstanding Awards to reflect stock splits, stock dividends, recapitalizations, spin-offs and other similar changes in capitalization. The Amended 2004 Plan also contains provisions addressing the consequences of certain reorganization events such as a merger or consolidation of Blackboard, an exchange involving all of our common stock or our liquidation or dissolution. In such event, the Board may provide that (i) outstanding Awards be assumed by the acquiring or succeeding entity, (ii) all unexercised options become exercisable in full and will terminate immediately prior to the consummation of such reorganization event, (iii) outstanding Awards will become realizable or deliverable in whole or in part prior to or upon such reorganization event, (iv) cash payment be made to holders of Awards calculated in reference to the amount received per share of common stock by holders of our common stock in the reorganization event, (v) in connection with our liquidation or dissolution, Awards will convert into the right to receive liquidation proceeds or (vi) any combination of the foregoing.

 

Upon the occurrence of certain events involving a change-in-control, such as a merger or sale of substantially all of our assets, the acquisition by a person, entity or group of 25% or more of our outstanding stock or a change in a majority of the members of the Board of Directors, the vesting of Awards outstanding at such time shall be accelerated by 12 months.

 

If any Award expires or is terminated, surrendered, canceled or forfeited, the unused shares of common stock covered by such Award will again be available for grant under the Amended 2004 Plan, subject, however, in the case of incentive stock options, to any limitations under the Code. Upon exercise of a SAR, the Board of Directors may count such SAR against the common stock available for grant either (i) with respect to the total number of shares

subject to such SAR (“Gross-Counted SARs”) or (ii) with respect only to the number of shares actually issued pursuant to such exercise (“Net-Counted SARs”), provided however that Net-Counted SARs will also be counted against the sub-limit set forth in the following sentence. The maximum number of shares with respect to which awards other than options and Gross-Counted SARs may be granted is currently 700,000. As of the Record Date, 38,450 shares remain available under this sub-limit. Our Board of Directors has approved an increase in this limit by 1,250,000 shares to a total of 1,950,000 shares. Therefore, if this Amendment is approved by our stockholders, the total number of shares available under this sub-limit will be increased by 1,250,000 shares.

 

Substitute Options

 

In connection with a merger or consolidation of an entity with us, or the acquisition by us of property or stock of an entity, the Board of Directors may grant options in substitution for any options or other stock or stock-based awards granted by such entity or an affiliate thereof. Substitute options may be granted on such terms, as the Board deems appropriate in the circumstances, notwithstanding any limitations on options contained in the Amended 2004 Plan. Substitute options will not count against the Amended 2004 Plan’s overall share limit, except as may be required by the Code.

 

Provisions for Foreign Participants

 

The Board of Directors or the Compensation Committee may modify Awards granted to participants who are foreign nationals or employed outside the U.S. or establish subplans or procedures under the Amended 2004 Plan to recognize differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters.

 

Amendment or Termination

 

No Award may be made under the Amended 2004 Plan after March 3, 2014, but Awards previously granted may extend beyond that date. The Board of Directors may at any time amend, suspend or terminate the Amended 2004 Plan; provided that, to the extent determined by the Board, no amendment requiring stockholder approval under any applicable legal, regulatory or listing requirement will become effective until such stockholder approval is obtained.

 

If our stockholders do not approve the adoption of the Amendment, the 2004 Plan will remain in effect, and we will continue to grant Awards under the 2004 Plan, subject to the existing limit of 10,500,000 shares authorized for issuance under the 2004 Plan, with a maximum of 700,000 shares with respect to which awards other than options and Gross-Counted SARs may be granted. In such event, the Board of Directors will consider whether to adopt alternative arrangements based on its assessment of our needs.

 

Federal Income Tax Consequences

 

The following is a summary of the U.S. federal income tax consequences that generally will arise with respect to Awards granted under the Amended 2004 Plan. This summary is based on the federal tax laws in effect as of the date of this proxy statement. In addition, this summary assumes that all Awards are exempt from, or comply with, the rules under Section 409A of the Code regarding nonqualified deferred compensation. The plan provides that no Award will provide for deferral of compensation that does not comply with Section 409A of the Code, unless the Board, at the time of grant, specifically provides that the Award is not intended to comply with Section 409A. Changes to these laws could alter the tax consequences described below.

 

Incentive Stock Options

 

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

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

 

Nonstatutory Stock Options

 

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

 

Stock Appreciation Rights

 

A participant will not have income upon the grant of a stock appreciation right. A participant generally will recognize taxable compensation income upon the exercise of an SAR equal to the amount of the cash and the fair market value of any stock received. Upon the sale of the stock received upon exercise of the SAR, the participant will have capital gain or loss equal to the difference between the sales proceeds and the amount previously included in income plus any amount paid for the stock. This capital gain or loss will be long-term if the participant held the stock for more than one year and otherwise will be short-term.

 

Restricted Stock Awards

 

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

 

Restricted Stock Units

 

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

 

Other Stock-Based Awards

 

The tax consequences associated with any other stock-based Award granted under the Amended 2004 Plan will vary depending on the specific terms of such Award. Among the relevant factors are whether or not the Award has a

readily ascertainable fair market value, whether or not the Award is subject to forfeiture provisions or restrictions on transfer, the nature of the property to be received by the participant under the Award and the participant’s holding period and tax basis for the Award or underlying common stock.

 

Tax Consequences to Us

 

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

 

Required Vote and Board Recommendation

 

Approval of the Amendment requires the affirmative vote of a majority of the shares present and entitled to vote, either in person or by proxy. Abstentions and broker non-votes will be counted as present for purposes of determining whether a quorum is present, and broker non-votes will not be treated as entitled to vote on this matter at the Annual Meeting. Should such approval not be obtained, the 2004 Plan will remain in effect and we will continue to grant equity awards under the 2004 Plan, subject to the existing limit of 10,500,000 shares authorized for issuance under the 2004 Plan, with a maximum of 700,000 shares with respect to which awards other than options and Gross-Counted SARs may be granted.

 

The Board of Directors recommends a vote FOR the Amendment.

 

PROPOSAL NO. 3

 

RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Audit Committee of the Board of Directors has selected the firm of Ernst & Young LLP as our independent registered public accounting firm for the 2010 fiscal year and the Board has directed the submission of the selection of Ernst & Young LLP for ratification by our stockholders at the Annual Meeting. Ernst & Young LLP has served as our independent registered public accounting firm since 2000. Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting. They will have the opportunity to make a statement if they desire to do so and will also be available to respond to appropriate questions from stockholders.

 

Principal Accounting Fees and Services

 

The following table sets forth approximate aggregate fees billed to us for fiscal years 2008 and 2009 by Ernst &Young LLP:

 

APPROXIMATE AGGREGATE FEES BILLED TO US
FOR FISCAL YEARS 2008 AND 2009 BY ERNST &YOUNG LLP