Meet (MEET) 10-K/A2019 FY Annual report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

100 Union Square Drive, New Hope, Pennsylvania 18938

THE MEET GROUP, INC. AND SUBSIDIARIES

TABLE OF CONTENTS  

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A (“Amendment”) amends the Annual Report on Form 10-K of The Meet Group, Inc., a Delaware corporation (“Company,” “The Meet Group,” “Registrant,” “we,” “us” or “our”) for the year ended December 31, 2019 that was originally filed with the U.S. Securities and Exchange Commission (“SEC”) on March 12, 2020 (“Original Filing”) and is being filed primarily to provide the information required by Items 10, 11, 12, 13 and 14 of Part III. This information was previously omitted from the Original Filing in reliance on General Instruction G(3) to Form 10-K, which permits the information in the above-referenced items to be incorporated in the Form 10-K by reference from a definitive proxy statement if such statement is filed no later than 120 days after our fiscal year end. We are filing this Amendment to include Part III information in our Form 10-K because we do not expect to file our definitive proxy statement containing this information before that date. The reference on the cover of the Original Filing to the incorporation by reference to portions of our definitive proxy statement into Part III of the Original Filing has been deleted. Except for the addition of the Part III information, the update to the cover page and the filing of related currently-dated certifications, this Amendment does not amend or otherwise update any other information in the Original Filing. Accordingly, this Amendment should be read in conjunction with the Original Filing and with our filings with the SEC subsequent to the Original Filing.

PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Board of Directors

All of the members of our Board of Directors (“Board”) serve as a director of the Company until the next Annual Meeting of the Stockholders of the Company.

The following table sets forth our Board as of April 28, 2020:

Executive Officers

The following table sets forth our executive officers as of April 28, 2020:

Corporate Governance

 

The Board oversees, counsels and directs management in the long-term interest of The Meet Group and its stockholders. The Board’s responsibilities include establishing broad corporate policies, monitoring risk and reviewing the overall performance of The Meet Group.

The Board and its committees meet throughout the year on a set schedule, hold special meetings and act by written consent from time to time as appropriate. The Board delegates various responsibilities and authority to its Board committees. Committees regularly report on their activities and actions to the Board. The Board currently has and appoints the members of the Audit Committee, the Compensation Committee, the Investor Relations Committee and the Nominating and Governance Committee, which we refer to as the “Governance Committee.” The Audit Committee, the Compensation Committee, the Investor Relations Committee and the Governance Committee each have a written charter approved by the Board. We post each charter on our website at http://ir.themeetgroup.com/CustomPage/Index?KeyGenPage=1073752493.

The following table sets forth our Board and Board committee members as of April 28, 2020:

The Board held 16 meetings in 2019. The Meet Group does not have a policy with regard to directors’ attendance at annual meetings. One director attended the 2019 Annual Meeting. In 2019, the Audit Committee held eight meetings, the Compensation Committee held two meetings, the Investor Relations Committee held one meeting and the Governance Committee held five meetings.

Audit Committee

The Audit Committee assists the Board in its general oversight of our financial reporting, internal control and audit functions, and is responsible for the appointment, retention, compensation and oversight of the work of our independent registered public accounting firm. Our Board has determined that each Audit Committee member has sufficient knowledge in reading and understanding our financial statements to serve on the Audit Committee.

The Board has determined that Ms. Clifton is qualified as an “audit committee financial expert,” as that term is defined by the applicable rules of the SEC and NASDAQ and in compliance with the Sarbanes-Oxley Act of 2002. This designation does not impose any duties, obligations or liabilities that are greater than the duties, obligations and liabilities imposed by being a member of the Audit Committee or of the Board.

Compensation Committee

The Compensation Committee assists the Board in meeting its responsibilities with regard to oversight and determination of executive compensation. Among other things, the Compensation Committee reviews, recommends and annually approves salaries and other compensation of the Company’s executive officers, and administers the Company’s equity incentive plans (including reviewing, recommending and approving stock option and other equity incentive grants to executive officers). The Compensation Committee is also responsible for reviewing and recommending possible changes in Board composition, diversity, qualifications and other aspects of Board membership.

Investor Relations Committee

The Investor Relations Committee assists the Board in monitoring and assisting The Meet Group’s management with the strategic direction and overall status of its investor relations and public relations programs, conducting regular informal meetings with The Meet Group’s senior management regarding investor relations and public relations matters, providing oversight and guidance regarding all material investor relations and public relations issues, among other general related functions specifically delegated to the Investor Relations Committee by the Board. The Investor Relations Committee also encourages the development of contacts with significant investors, including funds (index, quantitative and active) and long-term investors.

Nominating and Governance Committee

The Governance Committee assists the Board in: determining the desired experience, mix of skills and other qualities to assure appropriate Board composition; identifying highly-qualified individuals meeting those criteria to serve on the Board; proposing to the Board a slate of nominees for election by the stockholders at the Annual Meeting of Stockholders; reviewing candidates nominated by stockholders for election to the Board; developing plans regarding the size and composition of the Board and its committees; developing and recommending to the Board a set of corporate governance principles applicable to the Company; and reviewing such principles at least annually.

 

In fulfilling its responsibilities, the Governance Committee considers the following factors in reviewing possible candidates for nomination as a director of The Meet Group:

The Governance Committee periodically reviews and monitors The Meet Group’s corporate governance guidelines to assure that they reflect best practices and are appropriate for The Meet Group and to assist the Board in achieving such best practice. Additionally, the Governance Committee periodically reviews and monitors, with the assistance of management and outside counsel, applicable regulatory requirements relevant to The Meet Group’s corporate governance guidelines to assure compliance therewith.

As required by the NASDAQ rules, a majority of the members of our Board must qualify as “independent,” as affirmatively determined by our Board. Our Board consults with our General Counsel and Executive Vice President, Business Affairs to ensure that its determinations are consistent with all relevant securities and other laws and regulations regarding the definition of “independent,” including those set forth in the applicable NASDAQ rules. The Board has determined Ms. Clifton, and Messrs. Fralic, Richman, Rhodes, Singh and Whitt, are independent directors in accordance with the listing rules of NASDAQ. The Board has determined that each of the members of the Audit Committee, Ms. Clifton and Messrs. Singh and Whitt, are independent in accordance with the independence standards for audit committees under the NASDAQ listing rules and Rule 10A-3 of the Securities Exchange Act of 1934 (“Exchange Act”). The Board has determined that each of the members of the Compensation Committee, Mr. Fralic and Ms. Clifton, are independent in accordance with the independence standards for compensation committees under the NASDAQ listing rules and Rule 10C-1 of the Exchange Act.

Majority Voting in the Election of Directors

In an uncontested election, each nominee for election as a director must be elected by majority vote. In such an election, our Bylaws provide that, if a quorum is present, each nominee for director shall be elected to the Board if the votes cast for such nominee’s election exceed the votes cast against such nominee’s election.

In such an election, if the nominee who does not receive the vote of at least the majority of the votes cast is an incumbent director nominated for re-election, then our Bylaws require that such incumbent director promptly tender his or her irrevocable resignation to the Board. Our Governance Committee will then make a recommendation to the Board on whether to accept or reject such tendered resignation, or whether other action should be taken. The Board will act on the tendered resignation, taking into account the Governance Committee’s recommendation, and publicly disclose (by a press release, a filing with the SEC or other broadly-disseminated means of communication) its decision regarding the tendered resignation and the rationale behind the decision within 90 days from the date of the certification of the election results. Our Bylaws permit the Governance Committee in making its recommendation, and the Board in making its decision, to consider any factors or other information that the Board or Governance Committee, as applicable, considers appropriate and relevant. A director who tenders his or her resignation is not permitted to participate in the recommendation of the Governance Committee or the decision of the Board with respect to his or her resignation. If a director’s resignation is not accepted by the Board, such director will continue to serve until the next annual meeting and until his or her successor is duly elected, or his or her earlier resignation or removal. If a director’s resignation is accepted by the Board, then the Board, in its sole discretion, may fill any resulting vacancy or may decrease the size of the Board, in each case in accordance with our Bylaws.

While we do not have a formal policy on diversity, the Governance Committee considers diversity as one of the factors in evaluating the composition of our Board, in addition to the skill set, background, reputation, type and length of business experience of our Board members as well as a particular nominee’s contributions to that mix. Although there are many other factors, the Governance Committee seeks to attract individuals with social media and Internet experience. Additionally, we seek individuals with experience on public company boards, finance, marketing expertise and international backgrounds.

The Meet Group has chosen not to combine the Chief Executive Officer and Chairman of the Board positions. The Board believes that it is prudent governance to separate these two functions so that the Chairman of the Board can serve as a check and balance to the Chief Executive Officer and so that the Board can exercise a strong, independent oversight function.

The Board is actively involved in the oversight of risks that could affect The Meet Group. This oversight is conducted primarily through the Audit Committee, but the full Board has retained responsibility for general oversight of risks. The Audit Committee considers and reviews with our independent registered public accounting firm and management the adequacy of our internal controls, including the processes for identifying significant risks and exposures, and elicits recommendations for the improvements of such procedures where desirable. In addition to the Audit Committee’s role, the full Board is involved in oversight and administration of risk and risk management practices by overseeing members of senior management in their risk management capacities. Members of our senior management have day-to-day responsibility for risk management and establishing risk management practices, and members of management are expected to report matters relating specifically to the Audit Committee directly thereto, and to report all other matters directly to the Board as a whole. Members of our senior management have an open line of communication to the Board and have the discretion to raise issues from time to time in any manner they deem appropriate, and management’s reporting on issues relating to risk management typically occurs through direct communication with directors or committee members as matters requiring attention arise. Members of our senior management regularly attend all or portions of the Board’s regularly-scheduled meetings, and make presentations to the Board on financial and operational matters, which presentations often include a discussion of risks related to our business.

Presently, the primary risks affecting The Meet Group are our ability to attract and retain users and to monetize those users. The Board focuses on these key risks at each meeting and actively interfaces with management on seeking solutions.

Our executive compensation program is structured to avoid excessive risk taking by our executives and to avoid taking risks that are reasonably likely to have a material adverse effect on The Meet Group. Our executive compensation program has the following risk-limiting characteristics:

Although we do not have a formal policy regarding communications with the Board, stockholders may communicate with the Board by writing to us at The Meet Group, Inc., Attention: Corporate Secretary, 100 Union Square Drive, New Hope, Pennsylvania 18938, or by visiting The Meet Group’s website at http://ir.themeetgroup.com/CustomPage/Index?KeyGenPage=1073752493. Stockholders who would like their submission directed to a member of the Board may so specify, and the communication will be forwarded, as appropriate.

Code of Conduct and Ethics

 

We have adopted a Code of Conduct and Ethics that applies to all of our directors and employees which is posted on our website at http://ir.themeetgroup.com/CustomPage/Index?KeyGenPage=1073752493. The corporate website is not incorporated into this Amendment.

ITEM 11.    EXECUTIVE COMPENSATION.

Compensation Discussion and Analysis

Overview

The following discussion provides an overview and analysis of our Compensation Committee’s philosophy and objectives in designing compensation programs as well as the compensation determinations and the rationale for those determinations relating to our Chief Executive Officer, Geoffrey Cook, our Chief Financial Officer, James Bugden, and each of our two next most highly-compensated executive officers serving at the end of 2019 whose compensation exceeded $100,000, to whom we refer to collectively as our “Named Executive Officers.” Our Named Executive Officers for 2019 were Messrs. Cook and Bugden, Frederic Beckley, our General Counsel and Executive Vice President, Business Affairs and Michael Johnson, our Senior Vice President, Strategic Planning and Treasury. In August 2019, Mr. Johnson transitioned into the newly-created position of Senior Vice President, Strategic Planning and Treasury, and no longer served as our Chief Accounting Officer.

Executive Summary

2019 Business Performance

In 2019, we delivered solid results across our business while executing on our vision to create meaningful connections for our users through a powerful live video platform (“Live”). Our 2019 results reflect the meaningful progress we have made transforming our business, including the following accomplishments:

Adjusted EBITDA, non-GAAP net income and free cash flow are non-GAAP financial measures. See the appendix to this Amendment for important discussion about the presentation of non-GAAP financial measures, and a reconciliation to their most directly-comparable GAAP financial measures.

The principal objective of our executive compensation programs is to attract, retain and motivate individuals who possess superior knowledge, experience and skills that we believe are important to the advancement of our business. Specifically, our executive compensation programs are designed to attract and retain individuals with exceptional ability and managerial experience and align our Named Executive Officers’ incentives with our corporate strategies, business objectives and the long-term interests of our stockholders.

The components of our compensation programs include base salary, annual performance-based bonuses, long-term equity compensation, severance and change of control benefits. We utilize base salary and annual performance bonuses to incentivize Company and individual performance in relation to competitive market conditions. Equity awards are primarily used to promote long-term stockholder value and employee retention through the use of multi-year vesting schedules that provide an incentive to the executive to remain in the employ of the Company through the end of the vesting period and an incentive to increase the value of our Company over time. Severance and change of control benefits are used to help ensure we retain our executive talent. We believe that our executive compensation practices provide an appropriate mix of short and long-term incentives, minimize risk-taking among our executives and promote achievement of strategic objectives.

In June 2019, we held a stockholder advisory vote on the compensation of our Named Executive Officers, commonly referred to as a “say-on-pay vote.” We had significant support from our stockholders with respect to the compensation of our Named Executive Officers (favorable vote of approximately 94%), which is higher than the support we received with respect to the compensation of our Named Executive Officers in 2018. As we continued to evaluate our Named Executive Officer compensation programs throughout 2019, our Compensation Committee took into account the significant support from our stockholders as evidenced by the favorable stockholder vote in 2019. We will continue to assess our executive compensation programs to ensure that they appropriately reflect stockholder value creation.

We conducted outreach to stockholders during the course of 2019, including around the timing of the 2019 Annual Meeting and the Company’s adoption of that certain Section 382 Tax Benefits Preservation Plan, dated as of October 4, 2019. As part of this outreach, we solicited stockholder feedback on governance and operational topics that were of interest to stockholders. Stockholders did not raise any concerns with our executive compensation programs.

On March 5, 2020, the Company entered into an Agreement and Plan of Merger (“Merger Agreement”) with eHarmony Holding, Inc., a Delaware corporation (“Buyer”) and a wholly-owned subsidiary of Parship Group, GmbH, which is a platform company of ProSiebenSat.1 Media SE’s and General Atlantic Coöperatif U.A.’s jointly-held company NCG - NUCOM GROUP SE (“NuCom”), and Holly Merger Sub, Inc., a wholly-owned subsidiary of Buyer and NuCom solely for the purpose of guaranteeing Buyer’s obligations under the Merger Agreement as set forth therein.

In contemplation of entering into the Merger Agreement, and contingent upon entering into the Merger Agreement, the Compensation Committee approved full-vesting acceleration of the outstanding restricted stock awards held by the Named Executive Officers, members of the Board and other employees and service providers to occur immediately prior to the consummation of the transactions contemplated by the Merger Agreement.

The Compensation Committee also approved transaction bonus payments for the Named Executive Officers, other than Mr. Cook, and certain other employees, which transaction bonuses shall be paid on the closing of the transactions contemplated in the Merger Agreement, subject to continued employment at the time of payment. Messrs. Bugden, Beckley and Johnson will receive a transaction bonus equal to 50% of his base salary in effect at that time, if he remains employed with the Company until the date the transaction bonuses are payable.

In connection with the transactions contemplated by the Merger Agreement and subject to their consummation, the Company and Mr. Cook entered into two amendments to his employment agreement and an amendment to his performance-based stock unit award agreements, as further discussed below.

In April 2019, our Compensation Committee commissioned F. W. Cook & Co. (“F.W. Cook”), a compensation consulting firm, to conduct an independent analysis of our executive compensation programs. The purpose of the review was to provide a competitive reference on pay levels, performance alignment, incentive design and stockholder considerations. The 2019 peer group represents the same companies as it did in 2018 and consists of 15 U.S.-based media and software companies with the Company’s market capitalization near the group median. In general, all of the companies in our peer group represent companies with which we compete for our executive talent, business and investment. We may replace some of the companies in our peer group with others from time to time as market positions change, suggesting more representative peer companies.

The 2019 comparator companies consist of the following:

In 2019, we used the F.W. Cook independent executive compensation analysis and consulted with F. W. Cook in connection with all compensation actions taken for our Named Executive Officers.

When determining our executive compensation policies in 2019, our Compensation Committee considered recommendations from our Chief Executive Officer, Mr. Cook, regarding the compensation for Named Executive Officers other than himself. Our Compensation Committee has the final authority regarding the overall compensation structure for our Named Executive Officers. As our Chief Executive Officer, Mr. Cook will continue to recommend compensation for our Named Executive Officers other than himself. Mr. Cook does not participate in determining his own compensation.

We believe that our executive compensation programs are structured to avoid excessive risk taking by our executives or taking risks that are reasonably likely to have a material adverse effect on The Meet Group. Our executive compensation programs have the following risk-limiting characteristics:

Our executive compensation model emphasizes long-term equity compensation over short-term cash compensation, and performance-based cash compensation over base salaries. The amount of fixed cash compensation (base salary) was approximately 23% of our Named Executive Officers’ target total direct compensation for 2019 and the amount of target total cash compensation was approximately 58% of our Named Executive Officers’ target total direct compensation for 2019. Our Named Executive Officers’ (other than the Chief Executive Officer) target total direct compensation and target total cash compensation for 2019 was below the peer median in the aggregate.

Base Salaries

Our Compensation Committee generally establishes base salaries for our Named Executive Officers based on the scope of their responsibilities and the amount and type of work experience prior to joining us, taking into account competitive market compensation paid by other companies to individuals in similar positions. Due to the fact that there were no base salary increases for our Named Executive Officers in 2018 and to better align their cash compensation with the comparator group median, our Named Executive Officers’ base salaries were increased by 10% in 2019, upon recommendations by F.W. Cook. Following the base salary increases effective May 1, 2019 and based on our comparator group, Mr. Cook’s base salary was 25% below the median, while base salaries for Messrs. Bugden, Beckley and Johnson were between 1% and 14% below the median.

The following table sets forth the base salaries of our Named Executive Officers for the year ended December 31, 2019:

Performance-based Bonuses

The Company has a Management Bonus Plan (“Bonus Plan”) that was established to promote the interests of the Company by creating an annual incentive program to (i) attract and retain key employees who will strive for excellence, and (ii) motivate those individuals to set and achieve above-average objectives by providing them with rewards for contributions to the financial performance of the Company. The Compensation Committee believes annual performance-based compensation is an effective tool to incentivize key employees.

The individual bonus awards payable to the participants in the Bonus Plan for a plan year is based on criteria determined by the Compensation Committee. Under the Bonus Plan, the criteria include (i) the Company’s achievement of specified Revenue (defined below) goals determined by the Compensation Committee in its sole discretion and (ii) the Company’s achievement of specified Adjusted EBITDA (defined below) goals determined by the Compensation Committee in its sole discretion. The Compensation Committee determines the target goals and relative weighting of the goals in its sole discretion.

In choosing the performance criteria for the 2019 bonuses, the Compensation Committee determined that Revenue and Adjusted EBITDA were the best indicators of the Company’s success in 2019. For our Named Executive Officers, 50% of the bonus was based on achievement of the Revenue target and 50% was based on achievement of the Adjusted EBITDA target. Upon partial achievement of the applicable Revenue and Adjusted EBITDA goals, and provided that threshold performance was met, the bonus amounts would be pro-rated in accordance with the formulas determined by the Compensation Committee.

In 2019, we had total Revenue of $211.7 million, a 19% increase from 2018 total Revenue of $178.6 million. The Company’s Adjusted EBITDA in 2019 was $42.2 million, compared with $32.0 million in 2018. 2019 Revenue resulted in 98% of the applicable weighted portion of each executive’s bonus being paid and the 2019 Adjusted EBITDA resulted in approximately 86% of the applicable weighted portion of each executive’s bonus being paid, for a total payout under the plan at 93% of target for our Named Executive Officers.

In February 2019, the Compensation Committee set performance-based annual bonus targets and paid performance-based bonuses in the following amounts in February 2020, based on actual 2019 performance results:

“Revenue,” for purposes of the Bonus Plan, generally means the total dollar amount of revenue generated by the Company for products sold or services provided during a specified plan year in accordance with GAAP. “Adjusted EBITDA,” for purposes of the Bonus Plan, generally means net income (or loss) before interest expense, benefit from or provision for income taxes, depreciation and amortization expense, stock-based compensation expense, non-recurring acquisition, restructuring or other expenses, gain or loss on foreign currency transactions, gain or loss on sale of disposal of assets, bad debt expense outside the normal range and goodwill and long-lived asset impairment charges. In determining whether the Company has achieved an Adjusted EBITDA target, certain bonus accruals under the Bonus Plan are included, and certain costs, as well as revenue and Adjusted EBITDA from acquired entities, and all items of gain, loss or expense for such fiscal year determined to be extraordinary or unusual in nature or infrequent in occurrence, or related to the disposal of a segment of a business, are excluded.

Equity Compensation

We maintain The Meet Group, Inc. 2018 Omnibus Incentive Plan (“2018 Plan”), which permits the Compensation Committee to award various types of equity-based awards. We also maintain The Meet Group, Inc. 2012 Omnibus Incentive Plan, which was adopted in June 2012 and amended and restated in August 2014 and December 2016 (“2012 Omnibus Incentive Plan”). No new awards have been or may be granted under the 2012 Omnibus Incentive Plan following the effective date of the 2018 Plan, which was June 1, 2018. Equity incentives form an integral part of the compensation paid to our Named Executive Officers.

In April 2019, we granted restricted stock awards to our Named Executive Officers. The restricted stock awards vest over three years in three equal, annual installments on the first, second and third anniversaries of the date of grant.

Based on grant date fair value, approximately 50% of the annual equity compensation granted to Mr. Cook was in the form of restricted stock awards and 50% was in the form of performance-based stock unit awards. Annual equity compensation granted in the form of restricted stock awards and performance-based stock unit awards were split 60% and 40%, respectively, for Messrs. Bugden, Beckley and Johnson, to align with peer practices for the Chief Executive Officer’s direct reports. We believe restricted stock awards and performance-based stock unit awards provide a strong incentive to increase stockholder value because they directly align our Named Executive Officer’s interests with those of stockholders. We believe our executive compensation programs provide a real incentive to our executive officers to create long-term stockholder value.

F.W. Cook recommended modest equity grant increases to better align target total direct compensation closer to near the median of our comparator group. The actual restricted stock awards and performance-based stock unit awards granted to our Named Executive Officers in 2019 are set forth in the table below:

Each of our Named Executive Officers, other than Mr. Cook, is a party to a vesting agreement that provides enhanced vesting terms for cash and equity awards (“Vesting Agreement”). With the exception of the performance-based stock unit awards granted in 2018 and 2019, the terms of the Vesting Agreement supersede any contrary provisions less favorable to the executive contained in any compensation or benefit plan, grant agreement relating to the equity-based awards and cash-based awards or other agreement between the executive and the Company or its successor. As more fully explained below under “Vesting Agreement,” the Vesting Agreement implements double-trigger vesting with respect to the Named Executive Officers’ outstanding equity awards and cash-based awards, and provides certain protections in the event awards assumed by the Company’s successor in a change of control lose value following the change of control. The Compensation Committee believes the Vesting Agreement is in the best interest of the Company and its stockholders. The Vesting Agreement was implemented in 2016 in order to incentivize the Named Executive Officers to continue providing services in the event of a change of control or anticipated change of control of the Company.

We have employment agreements with Messrs. Cook, Bugden, Beckley and Johnson, each of which provides for severance and other benefits upon certain types of employment termination events. We enter into employment agreements with our key executives, including the Named Executive Officers, as part of a competitive compensation and retention package. The employment agreements are more fully explained below under “Potential Payments upon Termination or Change-In-Control.”

We do not have programs for providing personal benefit perquisites to Named Executive Officers.

Our Named Executive Officers are eligible to participate in our broad-based group health, dental, life and disability plans and 401(k) savings plan offered to all full time employees of the Company. There was a matching contribution provided by the Company during 2019. The following table sets forth these amounts for our Named Executive Officers in 2019:

Stock Ownership Guidelines

The Board adopted a stock ownership policy, effective December 20, 2016 (“Ownership Policy”). The Ownership Policy provides that the members of the Board and executive officers of the Company are expected to own shares of Company common stock pursuant to the following valuation requirements:

Individuals subject to the Ownership Policy have a five-year period in which to comply with the relevant ownership requirement. When evaluating compliance, fully-owned shares, shares held in trust, shares held in retirement accounts and time-vested restricted stock awards (both vested and unvested) will be counted; performance-contingent equity awards and options to purchase Company common stock will not be counted.

If an individual subject to the Ownership Policy is not in compliance after five years, he or she should retain 50% of after-tax profit shares following option exercises and restricted stock vesting until in compliance with the Ownership Policy, after which this retention requirement will cease. If such individual falls out of compliance after achieving it, the retention requirement will thereafter apply until compliance is again achieved. There are no sanctions for non-compliance, and an affected individual will not be required to purchase shares of Company common stock in the open market. As of the date of this Amendment, all executive officers and members of the Board are in compliance with the Ownership Policy.

Pursuant to the Company’s insider trading policy, the Company prohibits any employees, officers, directors or other individuals who are aware of material non-public information from buying or selling puts or calls of our stock (i.e., entering into a hedging transaction) and from pledging our stock as collateral for a loan (i.e., entering into a pledging transaction).

In April 2018, the Company adopted a formal clawback policy. The policy provides that in the event of a material restatement of the Company’s financial statements, the Board (or a committee designated by the Board) will review the incentive compensation (including cash and equity compensation awards) that was paid or awarded with respect to the period to which the restatement relates, to the Company’s current and former executive officers (including Named Executive Officers) who engaged in fraud or other misconduct that resulted in the restatement. To the extent the Board or designated committee deems appropriate, the Board or such committee may seek the recoupment or forfeiture of such incentive-based compensation (including all types of cash and equity compensation awards) paid or awarded to the officer in excess of the amount that would have been paid or awarded to the officer under the Company’s restated financial statements. The demand for recoupment or forfeiture must be made not later than three years following the payment or award, as applicable, of the incentive compensation.

The Compensation Committee worked directly with F. W. Cook to conduct a review of the Company’s compensation programs. F. W. Cook reported directly to the Compensation Committee and all work conducted by F.W. Cook for the Company is on behalf, and under the direction and the authority, of the Compensation Committee.

The Compensation Committee engaged F. W. Cook to provide executive compensation analyses using peer group proxy data. F. W. Cook provides no services to the Company other than the foregoing consulting services and has no other direct or indirect business relationships with the Company or any of its affiliates. After examining whether there was a conflict of interest present between the Company and F. W. Cook, the Compensation Committee concluded that F. W. Cook had no conflicts of interest during 2019. In reaching this conclusion, the Compensation Committee considered the six independence factors relating to committee advisers that are specified in SEC Rule 10C-1.

Tax Considerations

For the 2019 year, Section 162(m) of the Internal Revenue Code (“IRC”) generally disallows a publicly-held corporation’s tax deduction for compensation in excess of $1.0 million in any year paid to its Chief Executive Officer, Chief Financial Officer, the next three most highly-compensated executive officers and any such “covered employee” for a year after 2016. As in prior years, while deductibility of executive compensation for U.S. federal income tax purposes is among the factors the Compensation Committee considers when structuring our executive compensation arrangements, it is not the sole or primary factor considered. We continue to retain the flexibility to authorize compensation that may not be deductible if we believe it is in the best interests of the Company.

Compensation Committee Report

The Compensation Committee reviewed and discussed with management the “Compensation Discussion and Analysis” required by SEC regulations. Based on its review and discussions, the Compensation Committee recommended to the Board that the “Compensation Discussion and Analysis” be included in this Amendment.

Compensation Tables

The following tables set forth the compensation paid to our Chief Executive Officer and our Chief Financial Officer during 2019 and our two next most highly-compensated executive officers serving at the end of the last fiscal year whose compensation exceeded $100,000, and who we refer to as our Named Executive Officers for 2019:

The following table sets forth the total compensation earned by or granted to our Named Executive Officers in 2019, 2018 and 2017:

Grants of Plan Based Awards in 2019

The following table sets forth details regarding plan-based awards granted to our Named Executive Officers in 2019:

Outstanding Equity Awards at 2019 Fiscal Year End

Listed below is information with respect to unexercised options and restricted stock awards that have not vested with respect to equity incentive awards granted to each of our Named Executive Officers as of December 31, 2019. All equity incentive awards granted prior to June 1, 2018 were granted under the 2012 Omnibus Incentive Plan. All equity incentive awards granted after June 1, 2018 were granted under the 2018 Plan. Such information as of December 31, 2019 is set forth in the following table:

Option Exercises and Stock Vested in 2019

The following table sets forth information regarding option exercises and stock award vesting for our Named Executive Officers in 2019:

Item 402(u) of Regulation S-K requires us to disclose the annual total compensation of Geoffrey Cook, our Chief Executive Officer, the annual total compensation of a median employee, and their ratio to each other (i.e., our Chief Executive Officer pay ratio). For our 2019 fiscal year, we estimate that these amounts were as follows:

For purposes of this calculation, Mr. Cook’s annual total compensation is the total of salary, stock awards, option awards and non-incentive plan compensation as shown in the Summary Compensation Table and the annual total compensation of our median employee was determined in the same manner. To determine our median employee, we took into account the following compensation elements, which we determined are the most commonly used elements of compensation for our employees worldwide:

Our calculation of the median employee included all employees, including full-time, part-time, and foreign employees, employed by us and our subsidiaries as of December 31, 2019. The compensation of permanent employees who were not employed for the entire year, such as new hires, was annualized. We applied a currency exchange rate for employees not paid in U.S. dollars using a 12-month average. We determined the compensation of our median employee by (i) calculating the annual compensation described above for each of our employees and (ii) ranking the annual compensation of all employees except for the Chief Executive Officer from lowest to highest.

The Company does not provide pension benefits.

Non-qualified Deferred Compensation

The Company does not have non-qualified deferred compensation plans in which our Named Executive Officers participate.

Potential Payments upon Termination or Change of Control

We have employment agreements with each of our Named Executive Officers, each of which provides for severance and other benefits upon certain types of employment termination events. We enter into employment agreements with our key executives, including the Named Executive Officers, as part of a competitive compensation and retention package. The employment agreements are more fully explained below under each Named Executive Officers’ employment agreement.

Effective as of July 19, 2011, we entered into an employment agreement with our then Chief Operating Officer and President of the Consumer Internet Division, Geoffrey Cook. The employment agreement was amended effective March 6, 2013, effective August 8, 2013, and again effective November 11, 2016. In connection with the transactions contemplated by the Merger Agreement, and subject to the consummation of such transactions, the employment agreement was further amended in March 2020 as described below. Mr. Cook was promoted to Chief Executive Officer of the Company, effective March 11, 2013.

In addition to the base salary and performance-based bonus described above in the “Compensation Discussion and Analysis,” during the term of the employment agreement, Mr. Cook is entitled to participate in all health, life, disability, insurance and other benefit programs that the Company may offer to other key executives of the Company from time to time. Mr. Cook is entitled to six weeks of paid time off per calendar year (in addition to holidays), provided that no more than two weeks of paid time off can be used in any calendar month.

The employment agreement provides that in the event that the Company terminates Mr. Cook’s employment without cause (other than on account of death, disability or retirement) or Mr. Cook terminates his employment for good reason, in either case, whether before or after a change of control, then the Company is obligated to pay or provide Mr. Cook (i) a lump sum amount equal to all compensation payable for services rendered to the Company, including unused vacation time and earned bonus, that was accrued and unpaid as of the date of termination of employment, (ii) a lump sum amount equal to two times Mr. Cook’s base salary, plus two times his target bonus, as each is in effect as of the date of termination, (iii) full vesting and exercisability of all stock options, restricted stock awards, restricted stock units, stock appreciation rights or other share-based awards granted to Mr. Cook by the Company, which such exercisable awards shall remain exercisable for two years following such termination and (iv) 12 months of continued benefits for Mr. Cook and his dependents under the Company’s life, health, accident and disability plans, if permitted under those plans, on the same cost-sharing basis as was applicable immediately before termination of employment (or, if not permitted under the applicable plans, or if the benefits under the applicable plans are materially reduced, six months of substantially similar benefits for Mr. Cook and his dependents), provided that such continued benefits will cease if Mr. Cook becomes eligible for benefits with a subsequent employer. The employment agreement provides that if the payments and benefits otherwise payable to Mr. Cook would constitute excess parachute payments within the meaning of Section 280G of the IRC, then the Company will reduce such payments and benefits to an amount that would avoid any excise taxes under Section 4999 of the IRC, if such reduction would provide Mr. Cook with a greater net after-tax benefit than would no reduction; if not, then no reduction applies.

If Mr. Cook’s employment is terminated by the Company without cause or by Mr. Cook for good reason, then Mr. Cook will be subject to non-competition and non-solicitation of customers and employees covenants for six months following termination. In connection with the transactions contemplated by the Merger Agreement and subject to their consummation, Mr. Cook’s employment agreement was amended to provide that in the event Mr. Cook’s employment is terminated by the Company without cause or by Mr. Cook for good reason following the consummation of the transactions, Mr. Cook will be subject to non-competition and non-solicitation covenants for 18 months following such termination. In the event Mr. Cook violates such covenants and does not cure any such violation, all severance payments under the employment agreement will cease and Mr. Cook will be required to repay any severance already paid to him.

The employment agreement provides that in the event that Mr. Cook’s employment is terminated on account of death, the Company is obligated to pay or provide Mr. Cook’s estate (a) a lump sum amount equal to the sum of all earned but unpaid base salary, three months of Mr. Cook’s base salary and bonus payments and a pro-rata portion of his target bonus as in effect immediately prior to termination, (b) full vesting and exercisability of all stock options, restricted stock awards, restricted stock units, stock appreciation rights or other share-based awards granted to Mr. Cook by the Company, which exercisable awards shall remain exercisable for two years following such termination and (c) three months of continued benefits under the Company’s health, accident and disability plans, if permitted under those plans, on the same cost-sharing basis as was applicable immediately before termination of employment for Mr. Cook’s eligible dependents. If Mr. Cook’s employment is terminated on account of Mr. Cook’s disability, the Company is obligated to pay or provide Mr. Cook with (1) a lump sum amount equal to the sum of all earned but unpaid base salary, (2) full vesting and exercisability of all stock options, restricted stock awards, restricted stock units, stock appreciation rights or other share-based awards granted to Mr. Cook by the Company, which exercisable awards shall remain exercisable for two years following such termination and (3) 12 months of continued benefits for Mr. Cook and his dependents under the Company’s life, health, accident and disability plans, if permitted under those plans, on the same cost-sharing basis as was applicable immediately before termination of employment. Mr. Cook will be subject to the Company’s non-competition and non-solicitation of employees and customers policies under the employment agreement for a period of 12 months following termination on account of disability.

If Mr. Cook’s employment is terminated by the Company for cause or by Mr. Cook without good reason, Mr. Cook is only entitled to a lump sum of all compensation payable for services rendered to the Company, including unused vacation time and earned bonus, that was accrued and unpaid as of the date of termination of employment, unless the Company provides Mr. Cook with notice that it will impose the non-competition and non-solicitation covenants in the employment agreement for up to six months post-termination. If the Company provides such notice and enforces such covenants, Mr. Cook will be entitled to receive, in periodic installments, an amount equal to (x) Mr. Cook’s base salary and target bonus in effect immediately prior to termination, multiplied by (y) the number of months that the Company enforces the covenants (not greater than six), divided by (z) 12.

For purposes of the employment agreement for Mr. Cook, “cause” generally means the executive’s (i) willful misconduct or gross negligence that is not cured within 60 days following notice, (ii) conviction of a felony involving moral turpitude or (iii) a material act of dishonesty or breach of trust resulting or intended to result directly or indirectly in personal gain or enrichment at the expense of the Company, and “good reason” generally means (a) the Company materially breaches the employment agreement, (b) a material diminution in base compensation (other than an across-the-board reduction), (c) a material diminution in executive’s authority, duties or responsibilities or (d) the Company requires the executive, without his consent, to relocate his office more than 75 miles from the current location.

In connection with the transactions contemplated by the Merger Agreement and subject to their consummation, Mr. Cook’s employment agreement was further amended to clarify that good reason shall not include the fact of the Company’s equity ceasing to be publicly traded following the consummation of the transactions or any attendant changes to the Mr. Cook’s duties or responsibilities solely and directly resulting from the Company ceasing to be a publicly-traded company. Additionally, the definition of good reason in Mr. Cook’s employment agreement was amended to provide that good reason shall not include the fact of Mr. Cook reporting to the board of directors of an entity other than the Buyer as set forth in the Merger Agreement.

The following table sets forth information regarding potential payments upon termination of employment or a change of control estimated as of December 31, 2019 for Mr. Cook under the terms of his amended employment agreement and applicable equity award agreements, assuming that the Company does not pay severance to enforce the restrictive covenants following a termination for cause or without good reason:

James Bugden’s Employment Agreement

Mr. Bugden is a party to the Company’s standard Confidential Information and Invention Assignment Agreement, which provides, among standard confidentially and invention assignment restrictions, a 12-month non-solicitation of employees and customers covenant. Mr. Bugden is also subject to a non-competition covenant during his employment with the Company and for the period of 12 months after Mr. Bugden’s termination of employment for any reason.

The following table sets forth information regarding potential payments upon termination of employment or a change of control estimated as of December 31, 2019 for Mr. Bugden under the terms of his employment agreement, the Vesting Agreement and applicable equity award agreements:

Frederic Beckley’s Employment Agreement

The following table sets forth information regarding potential payments upon termination of employment or a change of control estimated as of December 31, 2019 for Mr. Beckley under the terms of his employment agreement, the Vesting Agreement and applicable equity award agreements:

 

The following table sets forth information regarding potential payments upon termination of employment or a change of control estimated as of December 31, 2019 for Mr. Johnson under the terms of his employment agreement, the Vesting Agreement and applicable equity award agreements:

Each of our Named Executive Officers, other than Mr. Cook, is a party to a vesting agreement that was implemented in 2016 and provides enhanced vesting terms for cash and equity awards (“Vesting Agreement”). With the exception of the performance-based stock unit awards granted in 2018 and 2019, the terms of the Vesting Agreement supersede any contrary provisions less favorable to the executive contained in any compensation or benefit plan, grant agreement relating to the equity-based awards and cash-based awards or other agreement between the executive and the Company or its successor. The Compensation Committee believes that the Vesting Agreement is in the best interest of the Company and its stockholders and it was implemented in order to incentivize the Named Executive Officers to continue providing services in the event of a change of control or anticipated change of control of the Company.

The Vesting Agreement provides that if, during the period beginning on the first to occur of (i) six months prior to the consummation of a change of control or (ii) the date upon which a change of control was initiated (as evidenced by a written letter of intent (whether or not binding) or other understanding), and ending on the first to occur of (x) formal cessation of interactions with respect to the anticipated change of control (which may result from failure to achieve the closing of the change of control) or (y) the second anniversary of the consummation of the change of control (such period, the “Vesting Period”), the executive’s employment is terminated by the Company or its successor other than on account of death, disability or cause (as defined in the Vesting Agreement) or by the executive for good reason (as defined in the Vesting Agreement) (such termination of employment, a “Qualifying Termination”), then all outstanding equity-based and cash-based awards held by the executive shall accelerate and become fully vested. The executive will have the right to exercise any options or other exercisable rights for one year following the employment termination date, but not longer than the original term of the option or other exercisable right. Any equity-based and cash-based awards that vest as described above will be paid at the date specified in the applicable award agreement.

If an executive incurs a Qualifying Termination during the Vesting Period and within two years prior to the consummation of the change of control, and if any equity-based awards that are outstanding on the date of termination of employment terminate before the consummation of the change of control on account of the Qualifying Termination, the Company or its successors will pay to the executive a lump sum payment equal to the cash value of the awards that terminated during the Vesting Period prior to the consummation of the change of control by reason of such Qualifying Termination. The lump sum payment will be paid within 30 days following the consummation of the change of control, consistent with the requirements of Section 409A of the IRC or an exception.

In the event a change of control occurs in which some or all of an executive’s equity-based awards are assumed by the acquirer or an affiliate of the acquiror, and the executive subsequently has a Qualifying Termination during the Vesting Period, the executive shall be paid an amount in cash equal to the following for each assumed equity-based award that the executive holds at the date of the Qualifying Termination the excess (if any) of (1) the cash value of the equity-based award at the consummation of the change of control, minus (2) the value of the equity-based award on the executive’s termination date. The cash amount shall be paid in a lump sum payment within 60 days following the executive’s termination date, consistent with the requirements of Section 409A of the IRC or an exception. The cash amount shall be paid in addition to any severance benefit to which executive may be entitled under any employment or severance agreement or plan.

For purposes of the Vesting Agreement:

Director Compensation

In April 2019, the Board commissioned F. W. Cook to conduct a non-employee director compensation review based on our peer group (as identified below in the section on “Executive Compensation” under “Determination of Compensation Elements”). The study concluded that the additional compensation paid to the Board chair is competitive, the use of restricted stock awards with a short vesting period aligns with market practice and avoids entrenchment and our Board stock ownership guideline set at four times the Board’s annual cash retainer supports shareholder alignment. F. W. Cook suggested we keep Board cash compensation as-is and increase the annual equity award value from $90,000 to $110,000, which still results in below-median non-employee director total compensation among our peer group. F.W. Cook also suggested increasing the Audit Committee and Governance Committee chairperson retainers from $6,000 to $10,000 and from $2,000 to $5,000, respectively, to be in-line with the median of our peer group.

Acting on F. W. Cook’s recommendation, in 2019 our Board adopted the following director compensation program for our non-employee directors, which consists of the following elements:

We do not provide our non-employee directors with initial inducement awards when they first join the board other than the regular annual equity award granted to our existing directors.

The following table sets forth the total compensation for each non-employee director in 2019, including expense reimbursement of travel expenses related to attending Board and Committee meetings.

Compensation Committee Interlocks and Insider Participation

The members of the Company’s Compensation Committee during the last completed fiscal year are Christopher Fralic and Jean Clifton. Neither of these individuals has ever been an officer or employee of the Company or any of its subsidiaries.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Securities Authorized for Issuance under Equity Compensation Plans

The following table discloses, as of December 31, 2019, the number of outstanding options and other rights granted by the Company to participants in equity compensation plans, as well as the number of securities remaining available for future issuance under these plans. The table provides this information separately for equity compensation plans that have and have not been approved by stockholders.

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information with respect to the beneficial ownership of Company common stock as of April 24, 2020, by:

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Related Person Transactions

 

We have engaged in certain transactions in which some of our directors, executive officers and 5% stockholders had a direct or indirect material interest, in which the amount involved exceeded the lesser of $120,000 or 1% of the average of our total assets for the last two completed fiscal years (not including employment agreements with our management). These transactions are described below. On January 29, 2007, our management adopted the Related Party Transactions Policy. The Related Party Transactions Policy applies to certain transactions between our Company and a “related party.” Under the Related Party Transaction Policy, management must present to the Audit Committee any such related party transactions that it is proposing to enter into. Any such transactions must be on terms comparable to those obtainable in arm’s length dealing with unrelated third parties and must be approved by the Audit Committee. Under the Related Party Transactions Policy, we must include disclosure of such transactions in its applicable filings made with the SEC.

The following table sets forth our related party transactions for the year ended December 31, 2019:

Board Independence

 

The information included under “Board Independence” in “Part III, Item 10 — Directors, Executive Officers and Corporate Governance” of this Part III is incorporated herein by reference.

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES.

Audit Committee’s Pre-approval Policy

The Audit Committee pre-approves all audit and permissible non-audit services on a case-by-case basis. In its review of non-audit services, the Audit Committee considers whether the engagement could compromise the independence of our independent registered public accounting firm, and whether the reasons of efficiency or convenience is in our best interest to engage our independent registered public accounting firm to perform the services.

Principal Accounting Fees and Services

All of the services provided and fees charged by RSM US LLP and affiliated entities, our independent registered public accounting firm for the fiscal years ended December 31, 2019 and 2018, were approved by our Audit Committee. The following table shows the fees paid to RSM US LLP and affiliated entities.

PART IV

(a) Financial Statements and Schedules:

(b) Exhibit Index