PCMI PCM Inc

PROPOSAL TWO

APPROVAL OF AN AMENDMENT TO THE 2012 EQUITY INCENTIVE PLAN

In June 2012, our stockholders approved the PC Mall, Inc. 2012 Equity Incentive Plan (now called the PCM, Inc. 2012 Equity Incentive Plan or the “2012 Plan”) which had been previously approved by our Board. At the Annual Meeting, we are asking our stockholders to approve an amendment to the 2012 Plan. The amendment to the 2012 Plan was approved by our Board on June 19, 2018, conditioned on and subject to obtaining stockholder approval of the amendment. The proposed amendment would increase the number of shares that may be issued pursuant to awards granted under the 2012 Plan by 1,050,000 shares, as further described below.

The purpose of the 2012 Plan is to attract and retain directors, officers, other employees and consultants and to provide to such persons incentives and rewards for performance and service to the Company. The 2012 Plan authorizes our Board and its Compensation Committee to grant equity-based compensation awards in the form of stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), performance shares, performance units, and other awards for the purpose of providing our directors, officers and other employees incentives and rewards for performance. The 2012 Plan provides the Compensation Committee the ability to design compensatory awards that are responsive to our needs, and includes authorization for a variety of awards designed to advance our interests and long-term success by encouraging stock ownership by our directors, officers and other employees.

The complete text of the 2012 Plan, as amended, is attached as Appendix A to this Proxy Statement. Stockholders are urged to review the 2012 Plan, as amended, together with the following information, which is qualified in its entirety by reference to Appendix A . If there is any inconsistency between this Proposal Two and the 2012 Plan terms, as amended, or if there is any inaccuracy in this Proposal Two, the terms of the 2012 Plan, as amended, shall govern. If our stockholders do not approve the amendment of the 2012 Plan at the Annual Meeting, then the pre-amended 2012 Plan will remain in full force and effect.

Why We Believe You Should Vote for Proposal Two

We currently grant stock-based incentive awards under the 2012 Plan to officers, employees (or persons providing services equivalent to those typically provided by an employee), non-employee directors and consultants of the Company and its subsidiaries. The shares currently available for future grant under the 2012 Plan will provide only enough shares for us to grant equity compensation through the end of fiscal 2018 based on the current scope and structure of our equity incentive programs. Accordingly, our Board has amended the 2012 Plan by increasing the number of shares that may be issued pursuant to awards granted under the 2012 Plan by 1,050,000 shares (the “Amendment”), and we are asking you to approve the Amendment. The Amendment does not otherwise modify the terms of the 2012 Plan.

Having an adequate number of shares available for future grants is necessary to promote our long-term success and the creation of stockholder value by:

The proposed Amendment is intended to provide us with a sufficient number of shares to satisfy our near term equity grant requirements, based on the current scope and structure of our equity incentive programs and the rate at which we expect to grant stock options, restricted stock, stock units and/or other forms of equity compensation. If we do not receive approval of the proposed Amendment at the Annual Meeting, we expect to exhaust the shares we have available for grant before the 2019 annual meeting, which is our next opportunity to request stockholder approval of additional shares. As a result, we would not be able to make our annual equity grants to executives and key employees in 2019. Without the ability to grant equity, we would need to shift our compensation program from a balanced mix of equity and cash compensation to one that is primarily cash-based. We believe this would be detrimental to our goal of aligning executives and employees’ interests with that of stockholders.

Reasonable Plan Cost . As most recently approved by our stockholders in 2015, the 2012 Plan has a maximum share reserve of 3,358,683 shares, which is the sum of the current share reserve of 3,000,000 shares, plus 358,683 shares subject to outstanding awards under our 1994 Stock Incentive Plan (the “1994 Plan”) as of June 15, 2018 if and when such shares would otherwise be poured over from the 1994 Plan. As of June 15, 2018:

Reasonable Grant Practices . We recognize that equity compensation awards dilute stockholder equity. We consider the potential for dilution in designing our equity compensation program. Stockholders should consider the following points regarding our grant practices:

Plan Highlights

Some of the key features of the 2012 Plan that reflect our commitment to effective management of incentive compensation are set forth below and are described more fully under the heading “Summary of the 2012 Plan” and in the 2012 Plan itself.

Administration . The 2012 Plan is administered by the Compensation Committee under delegated authority from the Board. The Board or Compensation Committee may delegate its authority under the 2012 Plan to a subcommittee. The Compensation Committee or the subcommittee may delegate to one or more of its members or to one or more of our officers, or to one or more agents or advisors, administrative duties, and the Compensation Committee may also delegate powers to one or more of our officers to do one or both of the following (subject to certain limitations described in the 2012 Plan):

Plan Limits . Prior to any increased approved by stockholders under this Proposal Two, total awards under the 2012 Plan are limited to 3,000,000 shares of common stock plus the number of shares of common stock subject to awards under our 1994 Plan that expire, are forfeited or are cancelled after April 27, 2012. We are asking stockholders to increase the share reserve by an additional 1,050,000 shares of our common stock in this Proposal Two. The 2012 Plan also provides that the aggregate number of shares of common stock actually issued or transferred upon the exercise of incentive stock options (“ISOs”) will not exceed 1,000,000 shares of common stock.

The 2012 Plan also imposes the following individual grant limits on awards:

Method for Counting Awards . Under the terms of the 2012 Plan, for any award that is not a stock option or a SAR, 1.76 shares will be subtracted from the maximum number of shares of common stock available under the 2012 Plan for every share of common stock issued or transferred under the award. For awards of stock options and SARs, one share is subtracted from the maximum number of shares of common stock available under the 2012 Plan for every share granted under the award.

No Liberal Recycling Provisions . The 2012 Plan provides that only shares with respect to awards granted under the 2012 Plan that expire or are forfeited or cancelled, or shares that were covered by an award the benefit of which is paid in cash instead of shares, will again be available for issuance under the 2012 Plan. The following shares will not be added back to the aggregate Plan limit: (1) shares tendered in payment of the option exercise price; (2) shares withheld by us to satisfy tax withholding obligations in connection with the exercise or settlement of stock options, RSUs or SARs; and (3) shares that are repurchased by us with stock option proceeds. Further, all shares covered by a SAR that is exercised and settled in shares, and whether or not all shares are actually issued to the participant upon exercise of the right, will be considered issued or transferred pursuant to the 2012 Plan.

No Repricing . We have never repriced underwater stock options or SARs, and repricing of options and SARs is prohibited without stockholder approval under the 2012 Plan. The 2012 Plan also provides that no stock options or SARs will be granted with an exercise or base price less than the fair market value of our shares of common stock on the date of grant.

Burn Rate and Dilution

Burn rate is the rate at which a company is granting equity awards. We express our burn rate as the gross number of shares awarded as a percentage of our weighted average shares outstanding. Grants of full-value awards (e.g., restricted stock or stock units) are adjusted in this computation and are multiplied by a factor based on our stock price volatility. Canceled or forfeited equity compensation awards are excluded from this calculation. Our three-year average gross burn rate for fiscal years 2017, 2016, and 2015 was 4.76% versus an industry benchmark of 6.16%, as set forth by Institutional Shareholder Services (“ISS”) for 2018. Additionally, our one-year burn rate was 5.23% using the same methodology. We estimate that based on our projected share usage for fiscal 2018 and 2019, our current year burn rate will remain about the same as the prior year. Therefore, the Board determined that our current and projected rates of equity compensation usage are reasonable.

In addition, with respect to determining by how much to increase the allocation of shares reserved under the 2012 Plan, the Board considered whether the potential dilutive effect to stockholders is reasonable. Dilution is calculated by adding the number of shares subject to outstanding awards plus shares available to grant plus the proposed additional shares, and expressing such sum as a percentage of the total number of diluted outstanding shares. The Board considered that if we were to increase the number of shares available under the 2012 Plan by 1,050,000 shares (which itself represents approximately 8.8% of our total number of currently outstanding shares), then dilution resulting from such increase would be approximately 6.8%. Our full dilution as of June 15, 2018 under the 1994 Plan’s and 2012 Plan’s outstanding awards and unissued shares, before adding in the requested increase of 1,050,000 shares, is 16.0%. This level of full dilution assumes all shares will actually be issued and become outstanding voting common stock following awards and assumes the exercise in full of such awards under the 2012 Plan and the 1994 Plan, including all shares available under the 2012 Plan including shares poured over from the 1994 Plan as well as all awards remaining outstanding as of June 15, 2018 under the 1994 Plan. The 2012 Plan does not permit liberal recycling of shares, as described above. Management, our Board and our Compensation Committee are cognizant of dilution levels and strive to maintain dilution at an appropriate level. The table below provides additional information regarding our outstanding equity compensation awards.

As of June 15, 2018:

Summary of the 2012 Plan

Shares Available Under the 2012 Plan . Subject to adjustment as provided in the 2012 Plan, and prior to any increase approved by stockholders under this Proposal Two, the number of shares of common stock that may be issued or transferred

will not exceed in the aggregate 3,000,000 shares of common stock, plus the number of shares of common stock subject to awards under our 1994 Plan that expire, are forfeited or are cancelled after April 27, 2012. These shares may be shares of original issuance or treasury shares or a combination of the foregoing. For any award granted under the 2012 Plan that is not a stock option or a SAR, 1.76 shares will be subtracted from the maximum number of shares of common stock available under the 2012 Plan for every share of common stock issued or transferred (and, in the case of restricted stock, released from all substantial risks of forfeiture) under the award. For awards of stock options and SARs, however, one share is subtracted from the maximum number of shares of common stock available under the 2012 Plan for every share granted under the award.

Shares of common stock covered by an award granted under the 2012 Plan will not be counted as used unless and until they are actually issued and delivered to a participant. The total number of shares available under the 2012 Plan as of a given date will not be reduced by any shares relating to prior awards that have expired or have been forfeited or cancelled. Upon payment in cash of the benefit provided by any award granted under the 2012 Plan, any shares of common stock that were covered by that award will be available for issue or transfer.

If shares of common stock are tendered or otherwise used in payment of an option exercise price, the total number of shares covered by the stock option being exercised will count against the total number of shares available under the 2012 Plan. Shares of common stock withheld by us to satisfy tax withholding obligations in connection with the exercise or settlement of stock options or SARs will count against the total number of shares available under the 2012 Plan. The number of shares of common stock covered by a SAR that is exercised and settled in shares of common stock, and whether or not all shares are actually issued to the participant upon exercise of the SAR, will be considered issued or transferred pursuant to the 2012 Plan. In the event that we repurchase shares with stock option proceeds, those shares will not be added to the total number of shares available under the 2012 Plan. If, under the 2012 Plan, a participant has elected to give up the right to receive compensation in exchange for shares of common stock based on fair market value, such shares of common stock will not count against the aggregate Plan limit described above.

The 2012 Plan also provides the other following limits:

Eligibility . Our officers, employees and consultants, the officers, employees and consultants of our subsidiaries, non-employee directors, and any person who has agreed to commence serving in any of those capacities within 90 days of the date of grant, may be selected by the Compensation Committee to receive benefits under the 2012 Plan. Any person who provides services to us or a subsidiary that are equivalent to those typically provided by an employee may also be eligible to participate in the 2012 Plan. The Compensation Committee determines which persons will receive awards and the number of shares subject to such awards. As of June 15, 2018, approximately 3,900 employees (including five executive officers) and three non-employee directors are eligible to participate in the 2012 Plan.

Stock Options . We may grant stock options that entitle the optionee to purchase shares of common stock at a price not less than market value per share at the date of grant. The option exercise price is payable

To the extent permitted by law, any grant of a stock option may provide for payment of the option exercise price from the proceeds of a sale through a bank or broker of some or all of the shares of common stock to which the exercise relates.

Stock options will be evidenced by an award agreement containing such terms and provisions, consistent with the 2012 Plan, as the Compensation Committee may approve. No stock option may be exercisable more than seven years from the date of grant. Each grant will specify the period of continuous service with us or any subsidiary that is necessary before the stock options become exercisable. A grant of stock options may provide for the earlier vesting of such stock options in the event of the retirement, death or disability of the participant or in the event of a change of control. Any grant of stock options may specify management objectives (as described below) that must be achieved as a condition to exercising such rights. No dividend equivalents may be paid with respect to stock options under the 2012 Plan.

SARs . A SAR is a right, exercisable by the surrender of a related stock option (if granted in tandem with stock options) or by itself (if granted as a free-standing SAR), to receive from us an amount equal to 100%, or such lesser percentage as the Compensation Committee may determine, of the spread between the base price (or option exercise price if a tandem SAR) and the value of our shares of common stock on the date of exercise. Any grant may specify that the amount payable on exercise of a SAR may be paid by us in cash, in shares of common stock, or in any combination of the two, and may either grant to the participant or retain in the Compensation Committee the right to elect among those alternatives.

SARs will be evidenced by an award agreement containing such terms and provisions, consistent with the 2012 Plan, as the Compensation Committee may approve. Any grant of a tandem SAR will provide that it may be exercised only at a time when the related stock option is also exercisable, at a time when the spread is positive, and by surrender of the related stock option for cancellation. Successive grants of a tandem SAR may be made to the same participant regardless of whether any tandem SARs previously granted to the participant remain unexercised. Each grant will specify in respect of each free-standing SAR a base price that may not be less than the market value per share on the date of grant. Successive grants may be made to the same participant regardless of whether any free-standing SARs previously granted to the participant remain unexercised. No SAR granted under the 2012 Plan may be exercised more than seven years from the date of grant.

Each grant may specify a period of continuous service with us or any subsidiary that is necessary before the SARs or any installments thereof become exercisable. A grant of SARs may provide for the earlier vesting of such SARs in the event of the retirement, death or disability of the participant or the occurrence of a change of control. Any grant of SARs may also specify management objectives that must be achieved as a condition to exercise such rights. No dividend equivalents may be paid with respect to SARs under the 2012 Plan.

Restricted Stock . A grant of restricted stock involves the immediate transfer by us to a participant of ownership of a specific number of shares of common stock in consideration of the performance of services. The participant is entitled immediately to voting, dividend and other ownership rights in such shares. The transfer may be made without additional consideration or in consideration of a payment by the participant that is less than current market value at the date of grant, as the Compensation Committee may determine.

Restricted stock that vests upon the passage of time must be subject to a “substantial risk of forfeiture” within the meaning of Section 83 of the Code for a period to be determined by the Compensation Committee at the date of grant. Each such grant or sale of restricted stock will provide that during or after the period for which such substantial risk of forfeiture is to continue, the transferability of the restricted stock will be prohibited or restricted in the manner and to the extent prescribed by the Compensation Committee at the date of grant (which restrictions may include, without limitation, rights of repurchase or first refusal or provisions subjecting the restricted stock to a continuing substantial risk of forfeiture in the hands of any transferee). The Compensation Committee may provide for a shorter period during which the forfeiture provisions are to apply in the event of the retirement, death or disability of the participant or the occurrence of a change of control.

Any grant of restricted stock may specify management objectives that, if achieved, will result in termination or early termination of the restrictions applicable to such shares. Any grant of restricted stock may also specify, in respect of any applicable management objectives, a minimum acceptable level of achievement and may set forth a formula for determining the number of shares of restricted stock on which restrictions will terminate if performance is at or above the minimum level or threshold level or levels, or is at or above the target level or levels, but falls short of maximum achievement of the specified management objectives.

Grants of restricted stock will be evidenced by an award agreement containing such terms and provisions, consistent with the 2012 Plan, as the Compensation Committee may approve. Any grant or sale of restricted stock must require that any or all dividends or other distributions paid with respect to the restricted stock during the period of restriction be automatically deferred and reinvested in additional shares of restricted stock, which may be subject to the same restrictions and risk of forfeiture as the underlying award.

RSUs . A grant of RSUs constitutes an agreement by us to deliver shares of common stock or cash to the participant in the future in consideration of the performance of services, but subject to the fulfillment of such conditions during the restriction period as the Compensation Committee may specify. During the applicable restriction period, the participant will have no rights of ownership in the shares of common stock deliverable upon payment of the RSUs and will have no right to vote the shares of common stock. The Compensation Committee may, at the date of grant, authorize the payment of dividend equivalents on RSUs on a deferred basis, either in cash or in additional shares of common stock, provided that any such dividend equivalents distributed with respect to RSUs that are subject to management objectives shall be subject to the same restrictions and risk of forfeiture that apply to the RSUs with respect to which such dividend equivalents were distributed.

RSUs will be evidenced by an evidence of award containing such terms and provisions, consistent with the 2012 Plan, as the Compensation Committee may approve. Each grant or sale of RSUs may be made without additional consideration or in consideration of a payment by such participant that is less than the market value per share at the date of grant. Each grant or sale of RSUs will also specify the time and manner of payment of the RSUs that have been earned and will specify that the amount payable with respect to such grant will be paid by us in shares of common stock or cash, or a combination of the two.

Any grant of RSUs may also specify, in respect of any applicable management objectives, a minimum acceptable level of achievement and may set forth a formula for determining the number RSUs for which the restriction period will terminate if performance is at or above the minimum or threshold level or levels, or is at or above the target level or levels, but falls short of maximum achievement of the specified management objectives. The Compensation Committee may provide in any grant or sale of RSUs for the earlier lapse or other modification of the restriction period in the event of the retirement, death or disability of the participant, or the occurrence of a change of control.

Performance Shares and Performance Units . A performance share is the equivalent of one common share and a performance unit is the equivalent of $1.00 or such other value as determined by the Compensation Committee. A participant may be granted any number of performance shares or performance units, subject to the limitations set forth above. The participant will be given one or more management objectives to meet within a specified period of not less than one year (the “Performance Period”), which Performance Period may be subject to earlier lapse or other modification in the event of the retirement, death or disability of the participant or the occurrence of a change of control.

Each grant of performance shares or performance units may specify, in respect of the relevant management objectives, a minimum acceptable level or levels of achievement and will set forth a formula for determining the number of performance shares or performance units that will be earned if performance is at or above the minimum or threshold level or levels, or is at or above the target level or levels, but falls short of maximum achievement of the specified management objectives. Any such grant must specify that the Compensation Committee must determine that the applicable management objectives have been satisfied before the payment of the award.

To the extent earned, performance shares or performance units will be paid to the participant at the time and in the manner determined by the Compensation Committee. Any grant may specify that the amount payable with respect thereto may be paid by us in cash, shares of common stock or any combination thereof. The Compensation Committee may, at the date of grant of performance shares, provide for the payment of dividend equivalents to a participant either in cash or in additional shares of common stock, provided that any dividend equivalents that accrue with respect to unvested performance shares will be paid on a deferred basis only if the participant earns the performance shares to which such dividend equivalents were awarded.

Performance shares and performance units will be evidenced by an award agreement containing such terms and provisions, consistent with the 2012 Plan, as the Compensation Committee may approve. Each grant will specify the amount of performance shares or performance units to which it pertains, which number may be subject to adjustment to reflect changes in compensation or other factors.

Awards to Non-Employee Directors . The Board or Compensation Committee may, from time to time and upon such terms and conditions as it may determine, authorize the granting to non-employee directors of stock options, SARs or other awards and may also authorize the grant or sale of shares of common stock, restricted stock or RSUs to non-employee directors. Each grant of an award to a non-employee director will be upon such terms and conditions as approved by the Board or Compensation Committee. Each grant will specify, in the case of stock option, an option price per share, and, in the case of a free-standing SAR, a base price per share, each of which will not be less than the market value per share on the date of grant. Each stock option and SAR granted under the 2012 Plan to a non-employee director will expire not more than seven years from the date of grant.

Other Awards . The Compensation Committee may, subject to limitations under applicable law, grant to any participant such other awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, shares of common stock or factors that may influence the value of such shares, including, without limitation,

The Compensation Committee will determine the terms and conditions of the other awards. Shares of common stock delivered pursuant to an award in the nature of a purchase right will be purchased for such consideration, paid for at such time, by such methods, and in such forms, including, without limitation, cash, shares of common stock, other awards, notes or other property, as the Compensation Committee will determine. Cash awards, as an element of or supplement to any other award granted under the 2012 Plan, may also be granted as other awards.

The Compensation Committee may grant shares of common stock as a bonus, or may grant other awards in lieu of our obligation or a subsidiary’s obligation to pay cash or deliver other property under the 2012 Plan or under other plans or compensatory arrangements, subject to such terms as will be determined by the Compensation Committee in a manner that complies with Section 409A of the Code.

Internal Revenue Code Section 162(m) and Elimination of Qualified Performance-Based Compensation . Code Section 162(m) generally does not allow a publicly-held corporation to claim a federal income tax deduction for compensation that exceeds $1 million paid in any tax year to a “Covered Employee.” Covered Employees consist of a company’s chief executive officer, chief financial officer and the three other highest paid executive officers in a given year. Prior to 2018, applicable tax laws provided that so-called “qualifying performance-based compensation” paid to Covered Employees would be excluded from counting toward this $1 million limit. However, as a result of passage of the Tax Cuts and Jobs Act in December 2017, this qualifying performance-based exception was eliminated except under very limited transitional circumstances. Thus, effective for 2018 and beyond, annual compensation paid to Covered Employees in excess of this $1 million limit will no longer be deductible by the company even if it could have or would have constituted qualifying performance-based compensation. Certain provisions in the 2012 Plan were intended to enable the payment of qualifying performance-based compensation. While these provisions are still contained within the 2012 Plan, given the change in tax laws, such provisions are no longer applicable and in any event will no longer produce the pre-2018 effect of enabling all of such performance-based compensation to be tax deductible by the Company.

Administration . The Board has delegated administration of the 2012 Plan to the Compensation Committee. The Compensation Committee may from time to time delegate all or any part of its authority under the 2012 Plan to any subcommittee. To the extent of any such delegation, references in the 2012 Plan to the Board will be deemed to be references to the Compensation Committee or such subcommittee, as applicable.

The interpretation and construction by the Compensation Committee of any provision of the 2012 Plan or of any agreement, notification or document evidencing the grant of stock options, SARs, restricted stock, RSUs, performance shares, performance units or other awards and any determination by the Compensation Committee pursuant to any provision of the 2012 Plan or of any such agreement, notification or document will be final and conclusive. No member of the Compensation Committee will be liable for any such action or determination made in good faith.

The Compensation Committee or, to the extent of any delegation, the subcommittee, may delegate to one or more of its members or to one or more of our officers, or to one or more agents or advisors, such administrative duties or powers as it may deem advisable. The Compensation Committee, the subcommittee, or any person to whom duties or powers have been delegated, may employ one or more persons to render advice with respect to any responsibility the Compensation Committee, the subcommittee or such person may have under the 2012 Plan. The Compensation Committee may authorize one or more of our officers to do one or both of the following on the same basis as the Compensation Committee:

However, the Compensation Committee may not delegate such responsibilities to any such officer for awards granted to an employee who is an officer, director, or more than 10% beneficial owner as determined by the Compensation Committee in accordance with Section 16 of the Exchange Act. The resolution providing for such authorization must set forth the total number of shares of common stock any delegated officer may grant and the officer must report periodically to the Compensation Committee regarding the nature and scope of the awards granted pursuant to the delegated authority.

Amendments . Our Board may at any time and from time to time amend the 2012 Plan in whole or in part. However, if an amendment to the 2012 Plan

then such amendment will be subject to stockholder approval and will not be effective until such approval has been obtained.

If permitted by Section 409A of the Code, in the event of a change of control of our company, or in case of termination of the employment of a participant by reason of death, disability or normal or early retirement, or in the case of unforeseeable emergency or other special circumstances, of a participant who holds

the Board or the Compensation Committee may, in its sole discretion, accelerate the time at which

The Compensation Committee may amend the terms of any awards granted under this Plan prospectively or retroactively, provided that except in connection with certain corporate transactions described in the 2012 Plan, no amendment will impair the rights of any participant without his or her consent.

Our Board may, in its discretion, terminate the 2012 Plan at any time. Termination of the 2012 Plan will not affect the rights of participants or their successors under any outstanding awards and not exercised in full on the date of termination.

No Repricing of Stock Options or SARs . Except in connection with certain corporate transactions described in the 2012 Plan, the terms of outstanding awards may not be amended to reduce the option price of outstanding stock options or the base price of outstanding SARs, or cancel outstanding stock options or SARs in exchange for cash, other awards or stock options or SARs with an option price or base price, as applicable, that is less than the option price of the original stock options or base price of the original SARs, as applicable, without stockholder approval. This restriction is intended to prohibit the repricing of “underwater” stock options and SARs and will not be construed to prohibit the adjustments in connection with certain corporate transactions provided for in the 2012 Plan. This prohibition may not be amended without approval by our stockholders.

Transferability . Except as otherwise determined by the Compensation Committee, no stock option, SAR or other derivative security granted under the 2012 Plan will be transferable by the participant except by will or the laws of descent and distribution, and in no event may any such award granted under the 2012 Plan be transferred for value. Except as otherwise determined by the Compensation Committee, stock options and SARs will be exercisable during the participant’s lifetime only by him or her or, in the event of the participant’s legal incapacity to do so, by his or her guardian or legal representative acting on behalf of the participant in a fiduciary capacity under state law and/or court supervision.

The Compensation Committee may provide at the date of grant additional restrictions on transfer for certain shares of common stock earned under the 2012 Plan.

Adjustments . The Board or the Compensation Committee shall make or provide for such adjustments in the numbers of shares of common stock covered by outstanding stock options, SARs, RSUs, performance shares and performance units granted under the 2012 Plan and, if applicable, in the number of shares of common stock covered by other awards, in the option price and base price provided in outstanding stock options and SARs, in the kind of shares covered by such awards as the Board, in its sole discretion, exercised in good faith, may determine is equitably required to prevent dilution or enlargement of the rights of participants or optionees that otherwise would result from:

In the event of any such transaction or event or in the event of a change of control, the Board, in its discretion, may provide in substitution for any or all outstanding awards under the 2012 Plan such alternative consideration (including cash), if any, as it, in good faith, may determine to be equitable in the circumstances and may require the surrender of all awards so replaced in a manner that complies with Section 409A of the Code.

A distribution to our stockholders of all or any portion of the securities of any subsidiary of ours (a “Spinoff Transaction”) will not be deemed to be a change in our common stock for purposes of the foregoing mandatory adjustment provisions of the 2012 Plan. In the event of a Spinoff Transaction, the Board may in its discretion make such adjustments and take such other action as it deems appropriate with respect to outstanding awards granted under the 2012 Plan, including but not limited to the number of shares of common stock covered by such awards, the option price of outstanding stock options, the base price of outstanding SARs, and the kind of shares covered thereby, or the adjustment or termination of outstanding awards granted under the 2012 Plan in exchange for or substitution by, in whole or in part, awards granted to a participant under an equity plan maintained by a spun-off entity. However, the terms of the 2012 Plan do not obligate the Board to make any such adjustments or take any such action in the event of a Spinoff Transaction.

In addition, for each stock option or SAR with an option price or base price greater than the consideration offered in connection with any such termination or event or change of control, the Board may in its sole discretion elect to cancel such stock option or SAR without any payment to the person holding such stock option or SAR. The Board shall also make or provide for such adjustments in the total number of shares available under the 2012 Plan and any other share limits under the 2012 Plan as the Board, in its sole discretion, exercised in good faith, may determine is appropriate to reflect any transaction or event described above.

Forfeiture and Claw-Back Provisions . Any award agreement may provide for the cancellation or forfeiture of an award or the forfeiture and repayment of any gain related to an award, or other provisions intended to have a similar effect, upon terms and conditions determined by the Compensation Committee, including in the event (1) a termination of service occurs prior to a specified date or within a specified time period following receipt or exercise of the award, (2) the participant engages in any activity in competition with the Company, or which is inimical, contrary or harmful to the interests of the Company, or (3) the participant is terminated for “cause” (as such term is defined in the sole discretion of the Board, or as set forth in a written agreement relating to such award).

In addition, any award agreement may provide for the cancellation or forfeiture of an award or the forfeiture and repayment to us of any gain related to an award, or other provisions intended to have a similar effect, to the extent the participant violates any claw-back policy as may be implemented and/or maintained by our company from time-to-time, including, without limitation, any claw-back policy adopted to comply with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder and any applicable rules or regulations promulgated by the SEC or any national securities exchange.

Withholding Taxes . To the extent that we are required to withhold federal, state, local or foreign taxes in connection with any payment made or benefit realized by a participant or other person under the 2012 Plan, and the amounts available to us for such withholding are insufficient, it will be a condition to the receipt of such payment or the realization of such benefit that the participant or such other person make arrangements satisfactory to us for payment of the balance of such taxes required to be withheld, which arrangements (in the discretion of the Compensation Committee) may include relinquishment of a portion of such benefit. In no event shall the market value per share of the shares of common stock to be withheld and delivered to satisfy applicable withholding taxes in connection with the benefit exceed that calculated using the maximum statutory tax rates applicable to such transaction.

Termination . If the 2012 Plan has not been earlier terminated by the Board, then no grants will be made under the 2012 Plan after June 25, 2022, but all grants made on or prior to such date will continue in effect thereafter subject to the terms of the applicable award agreement and the terms of the 2012 Plan.

Federal Income Tax Consequences

The following is a brief summary of some of the federal income tax consequences of certain transactions under the 2012 Plan based on federal income tax laws in effect on June 1, 2018. This summary is not intended to be complete and does not describe state, local or foreign tax consequences.

Income Tax Consequences to Participants

Non-Qualified Stock Options . In general, (1) no income will be recognized by an optionee at the time a non-qualified stock option is granted; (2) at the time of exercise of a non-qualified stock option, ordinary income will be recognized by the optionee in an amount equal to the difference between the option price paid for the shares and the fair market value of the shares, if unrestricted, on the date of exercise; and (3) at the time of sale of shares acquired pursuant to the exercise of a non-qualified stock option, appreciation (or depreciation) in value of the shares after the date of exercise will be treated as either short-term or long-term capital gain (or loss) depending on how long the shares have been held.

Incentive Stock Options . No income generally will be recognized by an optionee upon the grant or exercise of an ISO. The exercise of an ISO, however, may result in (or increase the) alternative minimum tax liability for the optionee. If shares of common stock are issued to the optionee pursuant to the exercise of an ISO, and if no disqualifying disposition of such shares is made by such optionee within two years after the date of grant or within one year after the transfer of such shares to the optionee, then upon the sale of such shares, any amount realized in excess of the option price will be taxed to the optionee as a long-term capital gain and any loss sustained will generally be a long-term capital loss.

If shares of common stock acquired upon the exercise of an ISO are disposed of prior to the expiration of either holding period described above (referred to as a disqualifying disposition), the optionee generally will recognize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of such shares at the time of exercise (or, if less, the amount realized on the disposition of such shares if a sale or exchange) over the option price paid for such shares. Any further gain (or loss) realized by the optionee generally will be taxed as short-term or long-term capital gain (or loss) depending on the holding period.

SARs . No income will be recognized by a participant in connection with the grant of a tandem SAR or a free-standing SAR. When the SAR is exercised, the participant normally will be required to include as taxable ordinary income in the year of exercise an amount equal to the amount of cash received and the fair market value of any unrestricted shares of common stock received on the exercise.

Restricted Stock . The recipient of restricted stock generally will be subject to tax at ordinary income rates on the fair market value of the restricted stock (reduced by any amount paid by the participant for such restricted stock) at such time as the shares are no longer subject to forfeiture or restrictions on transfer for purposes of Section 83 of the Code (“Restrictions”). However, a recipient who so elects under Section 83(b) of the Code within 30 days of the date of transfer of the shares will have taxable ordinary income on the date of transfer of the shares equal to the excess of the fair market value of such shares (determined without regard to the Restrictions) over the purchase price, if any, of such restricted stock.

RSUs . No income generally will be recognized upon the award of RSUs. The recipient of a RSU award generally will be subject to tax at ordinary income rates on the fair market value of unrestricted shares of common stock on the date that such shares are transferred to the participant under the award (reduced by any amount paid by the participant for such RSUs), and the capital gains/loss holding period for such shares will also commence on such date.

Performance Shares and Performance Units . No income generally will be recognized upon the grant of performance shares or performance units. Upon payment in respect of the earn-out of performance shares or performance units, the recipient generally will be required to include as taxable ordinary income in the year of receipt an amount equal to the amount of cash received and the fair market value of any unrestricted shares of common stock received.

Income Tax Consequences to the Company

To the extent that a participant recognizes ordinary income in the circumstances described above, we or the subsidiary for which the participant performs services will be entitled to a corresponding deduction provided that, among other things, the income meets the test of reasonableness, is an ordinary and necessary business expense, is not an “excess parachute payment” within the meaning of Section 280G of the Code and is not disallowed by the $1 million limitation on certain executive compensation paid to Covered Employees under Section 162(m) of the Code.

Internal Revenue Code Section 162(m) . Code Section 162(m) generally does not allow a publicly-held corporation to claim a federal income tax deduction for compensation that exceeds $1 million paid in any tax year to a Covered Employee. Covered Employees consist of a company’s chief executive officer, chief financial officer and the three other highest paid executive officers in a given year. Once a person is a Covered Employee, then he/she will remain a Covered Employee during his/her employment with such company.

Internal Revenue Code Section 409A . Section 409A of the Code governs the federal income taxation of certain types of nonqualified deferred compensation arrangements. A violation of Section 409A of the Code generally results in an acceleration of the recognition of income of amounts intended to be deferred and the imposition of a federal additional tax of 20% on the employee over and above the income tax owed, plus possible penalties and interest. The types of arrangements covered by Section 409A of the Code are broad and may apply to certain awards available under the 2012 Plan (such as restricted stock units). The intent is for the 2012 Plan, including any awards available thereunder, to comply with the requirements of Section 409A of the Code to the extent applicable. As required by Code Section 409A, certain nonqualified deferred compensation payments to specified employees may be delayed to the seventh month after such employee’s separation from service.

Internal Revenue Code Section 280G . For certain employees, if a change in control of the Company causes an award to vest or become newly payable or if the award was granted within one year of a change in control of the Company and the value of such award or vesting or payment, when combined with all other payments in the nature of compensation contingent on such change in control, equals or exceeds the dollar limit provided in Code Section 280G (generally, this dollar limit is equal to three times the five year historical average of the employee’s annual compensation as reported on Form W-2), then the entire amount exceeding the employee’s average annual compensation will be considered to be an excess parachute payment. The recipient of an excess parachute payment must pay a 20% excise tax on this excess amount, for which the Company must withhold, and the Company cannot deduct the excess amount from its taxable income.

New Plan Benefits

It is not possible to determine specific amounts and types of awards that may be awarded in the future under the 2012 Plan because the grant and actual pay-out of awards under the 2012 Plan are discretionary. The 2012 Plan does not mandate set benefits or amounts, and no awards have been granted under the 2012 Plan that are contingent upon approval of this Proposal Two.

Existing Plan Benefits

The following table sets forth the number of shares subject to all stock options granted through June 15, 2018 under the 2012 Plan. These share numbers do not take into account the effect of options that have been exercised or were cancelled or that expired unexercised and do not reflect shares subject to other types of awards that have been granted to participants under the 2012 Plan.

Board Recommendation and Stockholder Vote Required

We are asking stockholders to approve the Amendment to the 2012 Plan. This approval will require the affirmative vote of a majority of the voting power of all outstanding shares of our common stock present or represented by proxy at the Annual Meeting and entitled to be voted on Proposal Two. Abstentions will be included in the number of shares present and entitled to vote on this Proposal Two and, accordingly, will have the effect of a vote “against” Proposal Two. Broker non-votes will not be considered as present and entitled to vote on this Proposal Two. Therefore, a broker non-vote will not be counted and will have no effect on this proposal to approve the Amendment to the 2012 Plan other than to reduce the number of affirmative votes required to approve this proposal. The Board of Directors recommends a vote “FOR” approval of the Amendment of the 2012 Plan.

COMPENSATION DISCUSSION AND ANALYSIS