PC Connection DEF 14A 2009
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14A INFORMATION
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PC CONNECTION, INC.
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PC CONNECTION, INC.
730 Milford Road
Merrimack, New Hampshire 03054
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 17, 2009
The 2009 Annual Meeting of Stockholders of PC Connection, Inc., a Delaware corporation (the Company), will be held at the Crowne Plaza Hotel, 2 Somerset Parkway (Exit 8 off the Everett Turnpike), Nashua, New Hampshire on Wednesday, June 17, 2009 at 10:00 a.m., Eastern time, to consider and act upon the following matters:
Stockholders of record at the close of business on April 20, 2009 are entitled to notice of and to vote at the meeting or any adjournments thereof. Our stock transfer books will remain open. All stockholders are cordially invited to attend the meeting.
Merrimack, New Hampshire
April 30, 2009
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO ENSURE REPRESENTATION OF YOUR SHARES AT THE MEETING. NO POSTAGE NEED BE AFFIXED IF THE PROXY IS MAILED IN THE UNITED STATES.
PC CONNECTION, INC.
730 Milford Road
Merrimack, New Hampshire 03054
PROXY STATEMENT FOR THE 2009 ANNUAL MEETING OF STOCKHOLDERS
To Be Held On June 17, 2009
This Proxy Statement is furnished in connection with the solicitation of proxies by PC Connection, Inc., a Delaware corporation (the Company, we, us, or our) by our Board of Directors, for our 2009 Annual Meeting of Stockholders, or the Annual Meeting, to be held on Wednesday, June 17, 2009 at 10:00 a.m., Eastern time, at the Crowne Plaza Hotel, 2 Somerset Parkway (Exit 8 off the Everett Turnpike), Nashua, New Hampshire or any adjournment or adjournments of the Annual Meeting. You may obtain directions to the location of the meeting by contacting Investor Relations at 603-683-2322. All proxies will be voted in accordance with the stockholders instructions. If no choice is specified, the proxies will be voted in favor of the matters set forth in the accompanying Notice of Meeting. Any proxy may be revoked by a stockholder at any time before its exercise by delivery of a written revocation or a subsequently dated proxy to our secretary or by voting in person at the Annual Meeting.
The Notice of Meeting, this Proxy Statement, the enclosed proxy, and our Annual Report on Form 10-K for the year ended December 31, 2008 as filed with the Securities and Exchange Commission, or the SEC, and our Annual Report to Stockholders for the year ended December 31, 2008 are being mailed to stockholders on or about May 18, 2009.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be Held on June 17, 2009
This proxy statement, form of proxy, and our 2008 Annual Report to Stockholders for the year ended December 31, 2008 are available at http://ir.pcconnection.com.
Voting Securities and Votes Required
On April 20, 2009, the record date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting, there were outstanding and entitled to vote an aggregate of 26,977,264 shares of our common stock, $.01 par value per share, or the Common Stock. Stockholders are entitled to one vote per share of Common Stock. Our stock record books will remain open for inspection by stockholders of record for ten days prior to the Annual Meeting at our offices at the above address and at the time and place of the Annual Meeting.
The presence, in person or by proxy, of the holders of a majority of the outstanding shares of Common Stock entitled to vote at the Annual Meeting shall be necessary to constitute a quorum for the transaction of business. Abstentions and broker non-votes will be considered as present for purposes of determining whether a quorum is present.
The affirmative vote of the holders of a plurality of the votes cast by the stockholders entitled to vote at the Annual Meeting is required for the election of directors. The affirmative vote of the holders of a majority of the shares of Common Stock present or represented by proxy and voting at the Annual Meeting is required for the approval of Proposals 2, 3, and 4.
Shares that abstain from voting in a particular matter, and shares held in street name by brokers of nominees who indicate on their proxies that they do not have discretionary authority to vote such shares as to a particular matter, will not be counted as votes in favor of such matter and will also not be counted as votes cast or shares voting on such matter. Abstentions and broker non-votes will have no effect on the voting on matters, such as the ones presented for stockholder approval at this Annual Meeting, that require the affirmative vote of a certain percentage of the shares voting on the matter.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 15, 2009, the beneficial ownership of our Common Stock by: (i) persons known by us to own more than 5% of our outstanding shares; (ii) each of our current and nominated directors; (iii) each of our named executive officers in the Summary Compensation Table under the heading Executive Compensation below; and (iv) all our current directors and executive officers as a group.
Except as otherwise set forth below, the street address of each beneficial owner is c/o PC Connection, Inc., 730 Milford Road, Merrimack, New Hampshire 03054.
ELECTION OF DIRECTORS
Directors are to be elected at the Annual Meeting. Our Board of Directors is currently fixed at six members. Our Bylaws provide that our directors will be elected at each annual meeting of our stockholders to serve until the next annual meeting of stockholders or until their successors are duly elected and qualified. Mr. Bruce Barone has informed the Board that he does not intend to stand for re-election following the expiration of his current term of office, which will occur at the Annual Meeting. Until such time, Mr. Barone will continue to serve as a director of our Company and as a member of our Compensation and Audit Committees.
The persons named in the enclosed proxy (Patricia Gallup and David Hall) will vote to elect the six nominees named below as our directors unless authority to vote for the election of any or all of the nominees is withheld by marking the proxy to that effect. Each nominee, other than Ms. Barbara Duckett, is presently serving as a director, and each nominee has consented to being named in this Proxy Statement and to serve, if elected. If for any reason any nominee should be unable to serve, the person acting under the proxy may vote the proxy for the election of a substitute nominee designated by our Board of Directors. It is not presently expected that any of the nominees will be unavailable to serve, if elected.
Our Board of Directors recommends a vote FOR the election of the nominees described below.
Set forth below are the name, age, and length of service as a director for each nominee of our Board of Directors and the positions and offices held by him or her, his or her principal occupation and business experience for at least the past five years, and the names of other publicly-held companies of which he or she serves as a director. Information with respect to the number of shares of Common Stock beneficially owned by each director or nominee, directly or indirectly, as of February 15, 2009, appears under Security Ownership of Certain Beneficial Owners and Management.
Nominees for Election to our Board of Directors
Patricia Gallup, age 55, is our Chairman, President, and Chief Executive Officer. Ms. Gallup is a co-founder of our Company, and has served on our Board of Directors since its inception and as an executive officer since 1982.
David Hall, age 60, is one of our co-founders and has served on our Board of Directors since its inception. Mr. Hall served as Vice Chairman of our Board of Directors from March 1998 to December 2004. Mr. Hall was an executive officer from 1982 to 1997, and since then has served as an analyst for our Company.
Joseph Baute, age 81, has served on our Board of Directors since June 2001. From 1979 to 1993, Mr. Baute served as Chairman and Chief Executive Officer of Markem Corporation, an industrial marking and coding solutions provider. Since 1993, Mr. Baute has worked as an independent consultant. Mr. Baute has served on the board of directors of several public and private companies as well as non-profit organizations, including the Federal Reserve in Boston, State Street Bank, and Houghton-Mifflin Company.
David Beffa-Negrini, age 55, has served on our Board of Directors since September 1994. Mr. Beffa-Negrini served as our Senior Vice President, Corporate Marketing and Creative Services from February 2007 until his retirement effective December 31, 2008. Mr. Beffa-Negrini served as Co-President of our Merrimack Services subsidiary from September 2005 to February 2007 and as our Vice President of Corporate Communications from June 2000 to February 2007. Mr. Beffa-Negrini served in a variety of senior management capacities in the areas of merchandising, marketing, and communications. At the time of his retirement, he had been an employee since 1983.
Barbara Duckett, age 54, has not previously served on our Board of Directors. Since October 2000, Ms. Duckett has served as the President, Chief Executive Officer, and as a member of the board of directors of Home Healthcare, Hospice and Community Services. Ms. Duckett serves as a member of the board of directors of Home Care Association of New Hampshire and has been a director or officer of several other non-profit and privately-held healthcare organizations, at both the local and national level.
Donald Weatherson, age 71, has served on our Board of Directors since June 2005. Mr. Weatherson served on the board of directors of our GovConnection subsidiary from May 2003 to June 2005. Since August 2002, Mr. Weatherson has pursued personal and community interests and served on an interim basis as Chief Executive Officer of GovConnection from November 2003 to May 2004. From April 1994 to July 2002, Mr. Weatherson served in a variety of senior executive positions at Compaq Computer Corporation. Prior to joining Compaq, Mr. Weatherson was Chief Executive Officer of the Navy Exchange System, a retail services company operated by the U.S. Navy. He retired from the Navy as a Rear Admiral in 1993.
No family relationship exists between any of our executive officers or directors.
INFORMATION CONCERNING DIRECTORS, NOMINEES, AND EXECUTIVE OFFICERS
Board Meetings and Attendance
Our Board of Directors met nine times during the year ended December 31, 2008, either in person or by teleconference. During 2008, each director attended at least 75% of the aggregate of the number of Board meetings and the number of meetings held by all committees on which he or she then served. Our Board of Directors does not currently have a policy with regard to the attendance of board members at our annual meeting of stockholders. All board members, except Mr. Hall, attended our 2008 Annual Meeting of Stockholders.
Our Board of Directors has established two standing committees Audit and Compensation. The Audit and Compensation Committees each operate under written charters that have been approved by our Board of Directors. You can request a copy of these documents by writing to Investor Relations, PC Connection, Inc., 730 Milford Road, Merrimack, New Hampshire 03054. We included the charters of the Committees as appendixes to our 2007 Proxy Statement which can be obtained by accessing the website maintained by the SEC at www.sec.gov, by accessing our website at http://ir.pcconnection.com, or by contacting our investor relations department at PC Connection, Inc., 730 Milford Road, Merrimack, New Hampshire 03054.
Our Board of Directors has determined that all of the current members of each of the two standing committees, as well as those members our Board intends to appoint to such committees following and subject to their election at our 2009 Annual Meeting, are independent as defined under the rules of the Nasdaq Stock Market including, in the case of all members of the Audit Committee, the independence requirements contemplated by Rule 10A-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act.
The Audit Committees responsibilities include:
The Audit Committee currently consists of Messrs. Barone, Baute, and Weatherson. Our Board of Directors has determined that each current member of the Audit Committee would qualify as an audit committee financial expert as defined by applicable SEC rules. The Audit Committee met eight times during 2008.
Our Board of Directors expects to appoint Mr. Baute, Mr. Weatherson, and Ms. Duckett, subject to their election at our 2009 Annual Meeting, to serve on our Audit Committee. Our Board of Directors has determined that both Messrs. Baute and Weatherson would qualify as an audit committee financial expert as defined by applicable SEC rules.
Compensation Committee and Subcommittee
The Compensation Committees responsibilities include:
The processes and procedures followed by our Compensation Committee in considering and determining executive and director compensation are described below under the heading Executive and Director Compensation Processes.
The Compensation Committee met three times in 2008. The current members of the Compensation Committee are Messrs. Barone, Baute, and Weatherson. The Compensation Committee has established a subcommittee and delegated to that subcommittee authority to issue equity awards and to determine other qualified performance-based compensation in accordance with the requirements of Section 162(m) of the Internal Revenue Code. The Subcommittee, currently comprised of Messrs. Barone and Baute, who are outside directors under IRS regulations, met three times during 2008 and approved the executive officer bonus payments for fiscal year 2007 and the restricted stock awards made in 2008. Our Board of Directors expects to appoint Mr. Baute, Mr. Weatherson, and Ms. Duckett, subject to their election at our 2009 Annual Meeting, to serve on our Compensation Committee. Ms. Duckett and Mr. Baute, who qualify as outside directors under IRS regulations, will serve on our Subcommittee.
Under applicable NASDAQ rules, a director will only qualify as an independent director if, in the opinion of our Board of Directors, that person does not have a relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Our Board of Directors has determined that none of Messrs. Baute, Barone, or Weatherson, who currently comprise our Audit and Compensation Committees, has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In addition, our Board of Directors expects to appoint Ms. Duckett, subject to her election at our 2009 Annual Meeting, to our Audit and Compensation Committees, and has determined that she does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Each of Messrs. Barone, Baute, and Weatherson, and Ms. Duckett qualify as an independent director as defined under Nasdaq Stock Market Inc. Marketplace Rule 4200(a)(15).
Executive and Director Compensation Processes
The Compensation Committee retained the services of Pearl Meyer & Partners, a national consulting firm, to conduct a competitive assessment in 2005 of our executive compensation for fiscal year 2006. Pearl Meyer & Partners provided to the Compensation Committee three studies as described further in our Compensation Discussion and Analysis. The Pearl Meyer studies compiled individual compensation ranges for each executive position and compared this information to each executives actual salary level. These studies and the related ranges were updated in 2007 and 2008 by our management to reflect current market conditions. The Compensation Committee targeted the median base salary of the survey data and adjusted the executives salary based on evaluation of the executives level of responsibility and experience as well as company-wide performance. The Compensation Committee may, in its discretion, invite the Chief Executive Officer to be present during the approval of, or deliberations with respect to, other executive officer compensation.
Our shareholders approved in 2008 an Executive Bonus Plan for our executive officers. Annual cash bonuses are based on the achievement of company-wide net income and expense leverage goals. Cash bonuses are set as a percentage of the executive officers base salary. Please see our Compensation Discussion and Analysis for a further discussion of our Executive Bonus Plan.
We have generally set our compensation paid to non-officer members of our Board of Directors to be consistent with compensation paid to directors of similar-sized companies. Prior to June 1, 2008, our non-officer directors, consisting of Messrs. Barone, Baute, Hall, and Weatherson, were each entitled to receive a standard annual retainer fee of $36,000 for their service on the Board as well as $1,500 for each Board meeting and Board Committee meeting they attended. Effective June 1, 2008, our non-officer directors are each entitled to receive a standard quarterly retainer fee of $10,000 for their service on the Board as well as $2,500 for each Board meeting and $1,500 for each Board Committee meeting they attend. As executive officers, Mr. Beffa-Negrini and Ms. Gallup did not receive additional compensation in 2008 for their service on our Board of Directors. Subsequent to his retirement as an officer and employee of the Company effective December 31, 2008, Mr. Beffa-Negrini is entitled to receive compensation for his services as a director beginning January 1, 2009.
The Compensation Committee has the authority to retain compensation consultants and other outside advisors to assist in the evaluation of executive officer compensation as evidenced by its retention of Pearl Meyer & Partners. During 2008 the Compensation Committee did not employ a compensation consultant because the Compensation Committee believed the August 2005 Pearl Meyer & Partners study, together with the updated salary information obtained in 2007 and 2008, was sufficient to provide guidance in setting 2008 compensation levels.
Controlled Company Status
We are a Controlled Company as defined in Nasdaq Stock Market Rule 4350(c). Our Board of Directors has based this determination on the fact that approximately 63% of our voting stock is beneficially owned or controlled by Ms. Gallup and Mr. Hall.
We do not have a standing nominating committee, and the functions of evaluating and selecting directors have been performed by our Board of Directors as a whole. We believe that it is not necessary to have a nominating committee because our directors have generally served for extended terms. Our Board of Directors will from time to time evaluate biographical information and background material relating to potential candidates and interview selected candidates. Our Board of Directors does not currently have a charter or written policy with regard to the nomination process. We do not have a written policy due to the extended terms served by our directors.
All of the current members of our Board of Directors have served as directors since 2002, except Mr. Weatherson, who became a director in June 2005 and Ms. Duckett, who has not previously served on our
Board of Directors. Where called for, qualifications for consideration as a director nominee may vary according to the particular areas of expertise being sought as a complement to the existing board composition. Minimum qualifications include high-level leadership experience in business activities, breadth of knowledge about issues affecting us, experience on other boards of directors, preferably public company boards, and time available for meetings and consultation on Company matters. Our Board of Directors desires a diverse group of candidates who possess the background, skills, and expertise to make a significant contribution to our Board of Directors, our Company, and stockholders. In the event of a need for a new or additional director, our Board of Directors would evaluate potential nominees by reviewing their qualifications, results of personal and reference interviews, and such other information as the Board may deem relevant.
We do not currently employ an executive search firm, or pay a fee to any other third party, to locate qualified candidates for director positions.
Our Board of Directors has generally nominated the current directors for re-election at each annual meeting of stockholders. Our Board of Directors has therefore not established special procedures for security holders to submit director recommendations. If we were to receive recommendations of candidates from our security holders, the Board of Directors would consider such recommendations in the same manner as all other candidates.
Communicating with the Independent Directors
We have not implemented a process for our stockholders to send communications to our Board of Directors, other than as set out elsewhere in this proxy. We have not done so primarily due to our status as a controlled company, as discussed earlier.
Code of Business Conduct and Ethics Policy
We have adopted a written Code of Business Conduct and Ethics Policy (the Policy) that applies to our directors, officers, and employees, including our principal executive officer, principal financial and accounting officer, controller, and persons performing similar functions. We have posted our Policy on our website (http://ir.pcconnection.com). In addition, we intend to post on our website all disclosures that are required by law or Nasdaq Stock Market listing standards concerning any amendments to, or waivers from, any provision of the Policy.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers, and holders of more than 10% of our Common Stock to file with the SEC initial reports of ownership and reports of changes in beneficial ownership of our Common Stock. Based solely on our review of copies of reports filed by individuals required to make filings, or Reporting Persons, pursuant to Section 16(a) of the Exchange Act or written representations from certain Reporting Persons, we believe that all such reports required to be filed under Section 16(a) of the Exchange Act for 2008 were timely filed, except that Mr. Baute, a member of the Board, filed a Form 4 on November 26, 2008 to report a November 19, 2008 purchase of 1,000 shares of our Common Stock.
Our non-officer directors are each entitled to receive a standard quarterly retainer fee of $10,000 for their service on the Board as well as $2,500 for each Board meeting and $1,500 for each Board Committee meeting they attend. Our directors who are also officers do not receive any additional compensation for their role as directors. Board members also receive reimbursement for all reasonable expenses incurred in attending Board and committee meetings.
As more fully described below, the following table describes compensation paid to each director not listed as a Named Executive Officer for the year ended December 31, 2008.
Director Compensation for Fiscal Year Ended December 31, 2008
Individual awards reflected in the director compensation table are summarized below:
Compensation Discussion And Analysis
The Compensation Committee of our Board of Directors oversees the design and implementation of our executive compensation program. In this role, the Compensation Committee, which is comprised of three independent directors, evaluates the performance of, and reviews and approves annually all compensation decisions relating to our Chief Executive Officer. Our Chief Executive Officer annually reviews the performance of our other Named Executive Officers and makes recommendations regarding their compensation. Our Compensation Committee may adopt or revise such recommendations in making compensation decisions for our other Named Executive Officers. The Compensation Committee has established a subcommittee, comprised of two of these independent directors, and delegated to that subcommittee authority to issue equity awards and to determine other qualified performance-based compensation in accordance with the requirements of Section 162(m) of the Internal Revenue Code.
Our Compensation Committees primary objectives with respect to executive compensation are to attract, retain, and motivate our executives and to create long-term stockholder value. Additionally, the Committee seeks to ensure that executive compensation is aligned with our corporate strategies and business objectives, and that it promotes the achievement of key strategic and financial performance measures by linking short- and long-term cash and equity incentives to the achievement of measurable company performance goals.
To achieve these objectives, the Compensation Committee evaluates our executive compensation program with the goal of setting compensation at levels the Committee believes are competitive with those of other companies in our industry and our region that compete with us for executive talent. In addition, our executive compensation program ties a substantial portion of each executives overall compensation to managing their respective areas of responsibility and meeting key strategic, financial, and operational goals. These goals include success in (a) demonstrated leadership ability, (b) management development, (c) compliance with our policies, and (d) anticipation of, and response to, changing market and economic conditions that enhance our ability to operate profitably. From time to time, we also provide a portion of our executive compensation in the form of stock options and restricted stock grants that vest over time, which we believe helps to attract new management talent, as well as retain our existing executives. We believe such grants align our executives interests with those of our stockholders by allowing them to participate in the longer-term success of our company as reflected in stock price appreciation.
We compete with many other companies for executive personnel. Accordingly, the Compensation Committee generally targets overall base salary and bonus compensation for executives at or near the midpoint of compensation paid to similarly situated executives of companies analyzed in our survey data, described more fully below. We may vary this general target in certain situations when necessary, due to the experience level of the individual or other market factors.
Components of our Executive Compensation Program
The primary elements of our executive compensation program are:
Allocations between long-term and short-term compensation, cash and non-cash compensation, or the different forms of non-cash compensation vary, depending on our current initiatives and stated goals. Our goals for 2008 were focused on continuing the growth trend in consolidated net sales and net income that we established in prior years and, additionally, achieving a better leveraging of our expense structure by attaining our targeted selling, general and administrative, or SG&A, expenses as a percentage of net sales. Accordingly, our 2008 executive bonus plan was designed to help achieve these two objectives. A total of 60% of the bonus was allocated to the achievement of a net income target of $24.3 million, and 40% was allocated to achievement of an SG&A expense target of 10% of net sales. Each component was then applied to a multiplier based on the degree to which the respective target was met or exceeded, ranging from 0.5 to 1.0 for the expense target and from 0.5 to 1.7 for the net income target. No bonuses were to be paid for performance below $21.9 million of net income or SG&A expenses in excess of 10.6% of net sales.
Our executive officers work together as a team and all executives are assigned the same company-wide net income and expense leverage goals. In 2008, our net income was $10.4 million and SG&A expenses as a percentage of sales were 10.65%. Accordingly, we missed both net income and SG&A targets, and no bonuses under our Executive Bonus Plan were paid for 2008. Individual goals are not assigned.
In 2005 our Compensation Committee retained Pearl Meyer & Partners, a national consulting firm, as its independent compensation consultant to conduct a competitive assessment of our executive compensation and general compensation programs. Pearl Meyer & Partners provided comparative market data on compensation practices and programs based on an analysis of twelve peer companies deemed comparable in terms of product and service offerings and revenue levels. Pearl Meyer & Partners also provided two additional surveys with similar compensation data the 2005 Clark Consulting SC/CHIPS Executive and Senior Management Survey and the 2005 Mercer Benchmark Database. From these three studies, two market composites were calculated, one reflecting the average of the Peer Group and Technology Industry and one reflecting the average of the Peer Group and the general industry survey data for similar size companies. We compiled individual compensation ranges for each executive position based on this information and compared the compensation ranges to actual salary levels. Each year since the initial study, we have updated our compensation ranges to reflect a combination of competitor trend information and consumer price indexes. In 2008, we increased our compensation ranges by 2.6%.
The peer group was used to benchmark executive compensation levels against companies that have executive positions with responsibilities similar in breadth and scope to ours and that compete with us for executive talent. The following companies were included in the peer group for 2005:
An analysis based on available 2005 financial data shows that amongst the peer group we ranked eighth in revenue and ninth in market capitalization as of the date of the Pearl Meyer & Partners study.
The Compensation Committee used the updated survey data to assist it in the review and comparison of each element of base salary and bonus compensation for our executives. With this information, the Compensation Committee analyzed compensation for each executive. The Compensation Committee targeted different compensation levels for each element of compensation as described below.
The median base salary level of the survey data was targeted by the Compensation Committee as the base salaries of our executives. Adjustments to the median base salary level were made based on comparisons to the survey data and evaluation of the executives level of responsibility and experience as well as company-wide performance. The Compensation Committee also considered the executives success in achieving business results and demonstrating leadership.
While each executive is expected to manage his/her area of responsibility successfully, our success is believed to be dependent on the ability of our management group to integrate and work together to meet common goals. Accordingly, executives are not assigned specific individual goals but instead are collectively responsible for meeting company-wide goals.
The compensation levels of our executives are established to recognize the relative level of responsibility of each executive. Our Chief Executive Officers compensation is higher than the levels of our other executives reflecting the generally broader and more significant level of responsibility of our Chief Executive Officer. We have found that compensation survey results generally reflect this pattern for most companies.
Benchmarking and aligning base salaries is especially critical to a competitive compensation program. Other elements of compensation are affected by changes in base salary. Annual incentives are targeted and paid out as a percentage of base salary, and the target levels of long-term incentives are also determined as a percentage of base salary.
Base salaries are reviewed at least annually by the Compensation Committee, and in the case of Named Executive Officers other than our Chief Executive Officer, are based on recommendations of the Chief Executive Officer. These salaries are adjusted from time to time to realign salaries with market levels after taking into account individual responsibilities, performance, experience, and the peer group data. In 2008, the base salary of our Chief Executive Officer was increased significantly by the Compensation Committee as a result of its review and analysis of competitive data, as well as the extent of her individual responsibilities. The base salaries of the remaining executive officers were each increased in 2008, as recommended by the Chief Executive Officer and approved by the Compensation Committee, to a level above the median levels reported for the peer group in recognition of each respective officers increased level of responsibility and experience over comparable officers included in the peer group. In light of the global economic downturn, our executive officers base salaries for 2009 will remain at current 2008 levels.
Executive Bonus Plan
In 2008, we had an executive bonus plan for our executives and other senior management employees. Annual cash bonuses are intended to compensate for the achievement of a company-wide net income goal and an operating expense leverage goal.
Amounts payable under the executive bonus plan are calculated as a percentage of the applicable executives base salary with higher-ranked executives typically being compensated at a higher percentage of base salary. However, our success is believed to be dependent on the ability of the management group to integrate and
work together to meet common company-wide goals. Accordingly, executives are not assigned specific individual goals but instead are collectively responsible for meeting company-wide goals. A consolidated net income goal of $24.3 million was established for 2008, reflecting our growth target for the year. Additionally, an expense leverage goal was established to reduce 2008 consolidated SG&A expenses as a percentage of net sales to 10%, or 20 basis points below our 2007 expense ratio.
Our Compensation Committee works with our Chief Executive Officer to develop corporate goals that they believe can be reasonably achieved over the next year. Our shareholders approved in 2008 the Executive Bonus Plan. For our Chief Executive Officer and Executive Vice Presidents, the target bonus percentage is 100% of base salary. For the other named executive officers it is 50% of base salary. Our compensation program also provides incentives for our executives to reach beyond our target corporate goals. Those who perform above expectations are entitled to receive additional bonus amounts that can result in a total annual bonus of up to 142% of base salary for our Chief Executive Officer and Executive Vice Presidents, and up to 71% of base salary for our other named executive officers. Proportionally lower bonuses are provided for achievement levels between 90% and 100% of respective company-wide targets, and no bonuses are earned by any executive where less than 90% of the respective company-wide target is achieved. In 2008, we did not achieve the performance targets, and accordingly, no bonuses were paid to executive officers.
Our equity award program is a vehicle for offering long-term incentives to our executives. We believe that equity grants help attract management talent and provide a strong link to our long-term performance and help to align the interests of our executives and our stockholders. In addition, the vesting feature of our equity grants furthers our goal of executive retention by providing an incentive to our executives to remain in our employ during the vesting period. In determining the size of equity grants to our executives, the Compensation Committee and the Chief Executive Officer consider comparative share ownership of executives in our compensation peer group, our company-wide performance, the applicable executives performance, the amount of equity previously awarded to the executive, the vesting of such awards, and the recommendation of management. In 2008, our Board of Directors delegated to our Chief Executive Officer the authority to grant equity awards to non-executive officers of up to 15,000 shares per individual per calendar year.
Our equity awards have typically taken the form of stock options and restricted stock awards. The Compensation Committee and our Chief Executive Officer review all components of the executives compensation when determining equity awards to ensure that an executives total compensation conforms to our overall philosophy and objectives.
Typically, the equity awards we grant vest in equal annual installments over four years, although shorter vesting periods may be applied in certain circumstances. Vesting and exercise rights cease shortly after termination of employment except in the case of death or disability. We do not have any equity ownership guidelines for our executives.
In 2008 we granted restricted stock of 100,000 shares to Mr. McGrath, 50,000 shares to Mr. Ferguson, and 20,000 shares each to Messrs. Mousseau and Beffa-Negrini. Mr. Fergusons restricted stock vests annually in two equal installments beginning on May 9, 2009. The restricted stock awarded to Messrs. McGrath and Mousseau vests annually in four equal installments beginning May 9, 2009. The restricted stock awarded to Mr. Beffa-Negrini was scheduled to vest annually in four equal installments beginning May 9, 2009, however the Company accelerated the vesting of the 20,000 shares upon Mr. Beffa-Negrinis retirement on December 31, 2008. We granted the equity awards to align the interests of our executives and our stockholders. We believe that cash compensation using base salaries and annual incentive plan payments is a fair method of compensating our executive officers without equity dilution to our stockholders, although we continue to review long-term incentives as a means to attract and retain key executives.
Benefits and Other Compensation
We maintain broad-based benefits that are provided to all employees, including health and dental insurance, life and disability insurance, and a 401(k) plan. Executives are eligible to participate in all of our employee benefit plans, in each case on the same basis as other employees. We provide a matching contribution equal to 25% of the employees deferral contributions that do not exceed 6% of their qualified compensation.
No executive officer received perquisites aggregating $10,000 or more in 2008.
Pursuant to employment agreements we have entered into with Timothy McGrath, Executive Vice President, PC Connection Enterprises and Bradley Mousseau, Senior Vice President, Human Resources, each executive is entitled to specified benefits in the event of termination of their employment under specified circumstances. In connection with Mr. Beffa-Negrinis retirement on December 31, 2008, we provided Mr. Beffa-Negrini with certain severance benefits as well. We have provided more detailed information about these benefits, along with estimates of their value under various circumstances, under the caption Potential Payments Upon Termination or Change in Control below.
We believe providing these benefits helps us compete for executive talent. After reviewing the practices of companies represented in the compensation peer group, we believe that our severance and change of control benefits are generally in line with severance packages offered to executives by the companies in the peer group.
Tax and Accounting Considerations
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally disallows a tax deduction for compensation in excess of $1.0 million paid to our Chief Executive Officer and the three other officers (other than the chief financial officer) whose compensation is required to be disclosed to our stockholders under the Exchange Act by reason of being among our three other most highly compensated officers. Qualifying performance-based compensation is not subject to the deduction limitation if specified requirements are met. We periodically review the potential consequences of Section 162(m) and we intend to structure the performance-based portion of our executive compensation, where feasible, to comply with exemptions in Section 162(m) so that the compensation remains tax deductible to us. However, the Compensation Committee may, in its judgment, authorize compensation payments that do not comply with the exemptions in Section 162(m) when it believes that such payments are appropriate to attract and retain executive talent.
We account for equity compensation awarded to our employees per the methods prescribed by SFAS 123(R), which require us to recognize compensation expense in our financial statements for all share-based payments based upon an estimate of their fair value over the service period of the award. We record cash compensation as an expense at the time the obligation is accrued. Given our adoption of SFAS 123(R), we believe that the accounting impact of the different forms of equity compensation awards generally reflects their economic impact. Accordingly, the underlying accounting treatment is not a material consideration in determining the specific nature or size of equity awards granted. The tax impact of the awards on the recipient and the effectiveness of the award in retaining executives are more relevant considerations.
Summary Compensation Table
The following table sets forth information for our Chief Executive Officer, Chief Financial Officer, and our three other most highly compensated executive officers who were serving as executive officers as of December 31, 2008, collectively, the Named Executive Officers for the fiscal years indicated.
Summary Compensation Table for Fiscal Years Ended December 31, 2008, 2007, and 2006
Grants of Plan Based Awards
The following table sets forth certain information regarding grants of plan-based awards made to our Named Executive Officers during 2008.
Grants of Plan Based Awards for Fiscal Year Ended December 31, 2008
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth certain information regarding outstanding equity awards held by our Named Executive Officers as of December 31, 2008.
Outstanding Equity Awards at Fiscal Year Ended December 31, 2008
Option Exercises and Stock Vested
The following table sets forth certain information regarding stock options exercised by our Named Executive Officers during 2008.
Option Exercises and Stock Vested for Fiscal Year Ended December 31, 2008
Potential Payments Upon Termination or Change in Control
We entered into a separation agreement with Mr. Beffa-Negrini on October 14, 2008 in connection with his retirement, effective December 31, 2008, pursuant to which he will receive certain severance benefits. Subject to the terms and conditions of his separation agreement, the agreement provides Mr. Beffa-Negrini with the following severance benefits: (1) retirement compensation in an amount equal to Mr. Beffa-Negrinis base salary in 2008, which was $270,000, less all applicable taxes and withholdings, for the period commencing on the date of retirement and continuing for fifty-five weeks plus one year; (2) the acceleration of the vesting of Mr. Beffa-Negrinis 20,000 shares of restricted stock, for a value realized upon vesting of $102,400, and an amount equal to Mr. Beffa-Negrinis personal income tax liability on the taxable value of the subject shares, which was $53,817; and (3) COBRA benefits for the applicable period of eligibility. Mr. Beffa-Negrinis right to receive and retain these benefits are subject to the fulfillment of certain promises and covenants he has made in the separation agreement, including a covenant not to sue, a release and waiver of all actions and causes of action he has or may have against us, and an agreement to keep information about us confidential, including, but not limited to, trade secrets and other proprietary information. In the event he breaches the terms of his separation agreement and we defend or pursue any charges as a result of such breach, Mr. Beffa-Negrini will be liable to us for all damages, attorneys fees, expenses, and costs (including discovery costs) incurred by us in connection with the same.
We have entered into a letter agreement with Mr. Mousseau, providing for severance payments for six months of his then respective annual base salary if we terminate his employment for any reason other than for cause or for a change in control (as defined therein). Under such circumstances, Mr. Mousseaus severance payment would have an aggregate value of $130,000. In the event of termination resulting from a change in control of our Company, Mr. Mousseaus severance payments would extend for a total of twelve months and have an aggregate value of $260,000. We have entered into an employment agreement with Mr. McGrath, providing for severance payments for twelve months, or until such time as he secures other employment (whichever is earlier), of his then respective annual base salary if we terminate his employment for any reason other than for cause. Under such circumstances, Mr. McGraths severance payments would have an aggregate value of $500,000. Such payments are conditioned upon our receipt of a general release of claims from Mr. McGrath. Messrs. McGraths and Mousseaus agreements include certain non-compete obligations that extend for twenty-four and eighteen months, respectively, after termination of employment. We assume, for the purpose of calculating values for all termination events, that the effective date of termination is December 31, 2008.
In the event that we undergo a change in control (referred to as an Acquisition Event in the Amended and Restated 1997 Stock Incentive Plan and a Reorganization Event in the 2007 Stock Incentive Plan) and as a result our Board of Directors accelerates the vesting of all outstanding unvested equity awards, Messrs. McGrath, Ferguson, and Mousseau would realize $512,000, $256,000, and $102,400, respectively, based on the closing price of our Common Stock on December 31, 2008 of $5.12 per share, assuming the vesting and sale by each of their restricted stock awards.
Compensation Committee Report
Our Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with our management. Based on this review and discussion, the Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.
By the Compensation Committee of the Board of Directors of PC Connection:
Donald Weatherson, Chairman
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee are Messrs. Barone, Baute, and Weatherson. Messrs. Barone and Baute were not at any time during 2008, or formerly, an officer or employee of the Company or any of our subsidiaries. Mr. Weatherson was not an officer or employee of the Company at any time during 2008. None of our executive officers has served as a director or member of the Compensation Committee (or other committee serving an equivalent function) of any other entity, one of whose executive officers served as our director or a member of our Compensation Committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We currently have leases for facilities in Marlow and Merrimack, New Hampshire and two facilities in Keene, New Hampshire with Gallup & Hall, or G&H, a partnership owned solely by Patricia Gallup and David Hall, our principal stockholders. The lease for one of the Keene, New Hampshire facilities expires in July 2009 and requires annual rental payments of $141,276. The second facility in Keene is leased on a month-to-month basis requiring monthly rental payments of $1,344. The facility in Marlow, New Hampshire is leased on a month-to-month basis requiring monthly rental payments of $500. These leases also obligate us to pay certain real estate taxes and insurance premiums on the premises. Rent expense under all such leases aggregated $148,444 for the year ended December 31, 2008.
In November 1997 we entered into a fifteen-year lease for a 114,000 square foot corporate headquarters in Merrimack, New Hampshire with G&H Post, L.L.C., an entity owned solely by Patricia Gallup and David Hall. We began occupying the new facility upon completion of construction in late November 1998, and lease payments began in December 1998. Annual lease payments under the terms of the lease are $911,400 for the first five years of the lease, increasing to $1,025,350 for years six through ten and to $1,139,400 for years 11 through 15. The lease is in its eleventh year. The lease requires us to pay our proportionate share of real estate taxes and common area maintenance charges as either additional rent or directly to third-party providers and also to pay insurance premiums for the leased property. We have the option to renew the lease for two additional terms of five years.
In August 2008, we entered into a ten-year lease agreement with Patricia Gallup and David Hall, our principal stockholders, for an office facility adjacent to our corporate headquarters. The lease requires an annual rental payment of $225,432 in year one of the lease and provides us the option to renew for two additional two-year terms. The rent for subsequent years shall be subject to adjustment to reflect increases in a local
consumer price index, but such adjustments shall not exceed an increase of 5.0% per year. The lease requires us to pay our proportionate share of real estate taxes and common area maintenance charges either as additional rent or directly to third-party providers and to pay insurance premiums for the leased property.
During 2008, we provided various facilities management, maintenance, financial, tax, and legal services to certain affiliates in connection with the operation of facilities leased by us from those affiliates. G&H reimbursed us $21,866 during 2008 for those services.
The 1998 PC Connection Voting Trust
In connection with our initial public offering in March 1998, Patricia Gallup and David Hall placed substantially all of the shares of Common Stock that they beneficially owned immediately prior to the public offering into a Voting Trust (the Voting Trust) of which they serve as co-trustees. The Voting Trust is the record holder of 16,338,188 shares of Common Stock as of the record date, April 20, 2009. The terms of the Voting Trust require that both Ms. Gallup and Mr. Hall, as co-trustees, agree as to the manner of voting the shares of our Common Stock held by the Voting Trust in order for the shares to be voted. In the event the co-trustees are deadlocked with respect to the election of directors at a meeting of stockholders, our Board of Directors may require the co-trustees to execute and deliver to our Secretary a proxy representing all shares issued and outstanding in the name of the Voting Trust and entitled to vote in the election of directors. Such proxy shall confer upon the proxyholder authority to attend the meeting for purposes of establishing a quorum and to vote for the directors nominated by our Board of Directors, provided that such nominees are incumbent directors elected with the consent of the co-trustees. Each of Ms. Gallup and Mr. Hall may transfer shares of Common Stock for value to unaffiliated third parties. Any shares so transferred will no longer be subject to the Voting Trust and an equal number of the non-transferring co-trustees shares will be released from the Voting Trust. Transfers by either of Ms. Gallup or Mr. Hall in excess of 75,000 shares in any 90-day period, or that would decrease the shares held by the Voting Trust to less than a majority of the outstanding shares, will be subject to a right of first refusal to the other. The Voting Trust will terminate when it holds less than 10% of the outstanding shares of our Common Stock or at the death of both co-trustees. In addition, in the event of the death or incapacity of either co-trustee, or when either of Ms. Gallup or Mr. Hall holds less than 25% of the beneficial interest held by the other in the Voting Trust, the other will become the sole trustee of the Voting Trust with the right to vote all the shares held by the Voting Trust.
Mr. Hall, one of our directors, is also employed by the Company as an analyst and receives an annual salary of $100,000 for his services. Mr. Hall is entitled to our standard fringe benefits as a full-time employee. He does not serve as an officer of the Company. In addition, his compensation received as an employee is not listed under the director compensation table which is included on page 8 of this Proxy Statement,
POLICIES AND PROCEDURES FOR RELATED PERSON TRANSACTIONS
Our Board of Directors has adopted written policies and procedures for the review of any transaction, arrangement, or relationship in which we are a participant, the amount involved exceeds $120,000, and one of our executive officers, directors, director nominees, or 5% stockholders (or their immediate family members), each of whom we refer to as a related person, has a direct or indirect material interest.
If a related person proposes to enter into such a transaction, arrangement, or relationship, which we refer to as a related person transaction, the related person must report the proposed related person transaction to our Chief Financial Officer. The policy calls for the proposed related person transaction to be reviewed and, if deemed appropriate, approved by our Audit Committee. Whenever practicable, the reporting, review, and approval will occur prior to entry into the transaction. If advance review and approval is not practicable, the Audit Committee will review, and, in its discretion, may ratify the related person transaction. The policy also permits the chairman of the Audit Committee to review and, if deemed appropriate, approve proposed related person transactions that arise between committee meetings, subject to ratification by the Audit Committee at its next meeting. Any related person transactions that are ongoing in nature will be reviewed annually.
A related person transaction reviewed under the policy will be considered approved or ratified if it is authorized by the Audit Committee after full disclosure of the related persons interest in the transaction. As appropriate for the circumstances, the Audit Committee will review and consider:
The Audit Committee may approve or ratify the transaction only if the Audit Committee determines that, under all of the circumstances, the transaction is not inconsistent with our best interests. The Audit Committee may impose any conditions on the related person transaction that it deems appropriate.
In addition to the transactions that are excluded by the instructions to the SECs related person transaction disclosure rule, our Board of Directors has determined that the following transactions do not create a material direct or indirect interest on behalf of related persons and, therefore, are not related person transactions for purposes of this policy:
The policy provides that transactions involving compensation of executive officers shall be reviewed and approved by the Audit Committee in the manner specified in its charter.
Equity Compensation Plan Information
The following table provides information about our Common Stock that may be issued upon exercise of options, warrants, and rights under all of our equity compensation plans as of December 31, 2008, including the Amended and Restated 1997 Stock Incentive Plan and the 2007 Stock Incentive Plan, or the Original 2007 Plan, and our 1997 Amended and Restated Employee Stock Purchase Plan, or the ESPP. Our stockholders have approved all of these plans.
APPROVAL OF AMENDED AND RESTATED 2007 STOCK INCENTIVE PLAN
Equity awards are the principal vehicle used by the Company for the payment of long-term compensation, to provide a stock-based incentive to improve the Companys financial performance and to assist in the recruitment, retention, and motivation of professional, managerial, and other personnel. Under the Original 2007 Plan, the Company is currently authorized to issue a total of 500,000 shares of Common Stock. As of March 31, 2009, there were 87,500 shares available for future grant under the 2007 Plan. On April 30, 2009 the Board of Directors adopted, subject to stockholder approval, an amendment to and restatement of the Original 2007 Plan, to, among other things, (i) increase the number of shares of Common Stock reserved for issuance under the Original 2007 Plan from 500,000 to 700,000, (ii) remove a sub-limit of 50% of the shares available under the Original 2007 Plan that may be granted with respect to awards other than options and stock appreciation rights, and (iii) comply with Section 409A of the Internal Revenue Code.
The Board of Directors believes that the approval of the Amended and Restated 2007 Stock Incentive Plan is in the best interests of the Company and its stockholders and recommends a vote FOR the approval of this proposal.
Description of the Amended and Restated 2007 Stock Incentive Plan
The following is a brief summary of the Amended and Restated 2007 Stock Incentive Plan, or the 2007 Plan, a copy of which is attached as Appendix A to this Proxy Statement.
Types of Awards
The 2007 Plan provides for the grant of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the Code), non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based awards as described below (collectively Awards).
Incentive Stock Options and Non-statutory Stock Options. Optionees receive the right to purchase a specified number of shares of Common Stock at a specified option price and subject to such other terms and conditions as are specified in connection with the option grant. Options must be granted at an exercise price which is equal to or greater than the fair market value of the Common Stock on the date of grant. Under present law, incentive stock options and options intended to qualify as performance-based compensation under Section 162(m) of the Code may not be granted at an exercise price less than 100% of the fair market value of the Common Stock on the date of grant (or less than 110% of the fair market value in the case of incentive stock options granted to optionees holding more than 10% of our voting power). Options may not be granted for a term in excess of ten years. The 2007 Plan permits the following forms of payment of the exercise price of options: (i) payment by cash, check or in connection with a cashless exercise through a broker, (ii) subject to certain conditions, delivery to us of shares of Common Stock, (iii) any other lawful means approved by our Board of Directors, or (iv) any combination of these forms of payment.
Stock Appreciation Rights. A Stock Appreciation Right, or SAR, is an award entitling the holder, upon exercise, to receive an amount in Common Stock determined by reference to appreciation, from and after the date of grant, in the fair market value of a share of Common Stock. SARs may be granted independently or in tandem with an Option.
Restricted Stock Awards. Restricted Stock Awards entitle recipients to acquire shares of Common Stock, subject to our right to repurchase all or a portion of such shares from the recipient in the event that the conditions specified in the applicable Award are not satisfied prior to the end of the applicable restriction period established for such Award.
Restricted Stock Unit Awards. Restricted Stock Unit Awards entitle the recipient to receive shares of Common Stock to be delivered at the time such shares vest pursuant to the terms and conditions established by our Board of Directors.
Other Stock-Based Awards. Under the 2007 Plan, our Board of Directors has the right to grant other Awards based upon our Common Stock having such terms and conditions as our Board of Directors may determine, including the grant of shares based upon certain conditions, the grant of Awards that are valued in whole or in part by reference to, or otherwise based on, shares of Common Stock, and the grant of Awards entitling recipients to receive shares of Common Stock to be delivered in the future.
Performance Conditions. The Compensation Committee may determine, at the time of grant, that a Restricted Stock Award, Restricted Stock Unit Award, or Other Stock-Based Award granted to an officer will vest subject to the achievement of one or more objective performance measures, which shall be based on the relative or absolute attainment of specified levels of one or any combination of the following: (a) net income, (b) earnings before or after discontinued operations, interest, taxes, depreciation and/or amortization, (c) operating profit before or after discontinued operations and/or taxes, (d) sales, (e) sales growth, (f) earnings growth, (g) cash flow or cash position, (h) gross margins, (i) stock price, (j) market share, (k) return on sales, assets, equity or investment, (l) improvement of financial ratings, (m) achievement of balance sheet or income statement objectives or (n) total shareholder return, and may be absolute in their terms or measured against or in relationship to other companies comparably, similarly, or otherwise situated. These performance measures may be absolute in their terms or measured against or in relationship to other companies comparably, similarly, or otherwise situated. Such performance goals may be adjusted to exclude any one or more of (i) extraordinary items, (ii) gains or losses on the dispositions of discontinued operations, (iii) the cumulative effects of changes in accounting principles, (iv) the writedown of any asset, and (v) charges for restructuring and rationalization programs. Such performance goals: (i) may vary by Participant and may be different for different Awards; (ii) may be particular to a Participant or the department, branch, line of business, subsidiary, or other unit in which the Participant works and may cover such period as may be specified by the Compensation Committee; and (iii) will be set by the Compensation Committee within the time period prescribed by, and will otherwise comply with the requirements of, Section 162(m).
Transferability of Awards
Except as our Board of Directors may otherwise determine or provide in an Award, Awards may not be sold, assigned, transferred, pledged, or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution or, other than in the case of an incentive stock option, pursuant to a qualified domestic relations order. During the life of the Participant, Awards are exercisable only by the Participant.
Eligibility to Receive Awards
Our employees, officers, directors, consultants, and advisors, including those of our subsidiaries, are eligible to be granted Awards under the 2007 Plan. Under present law, however, incentive stock options may only be granted to our and our subsidiaries employees.
The maximum number of shares with respect to which Awards may be granted to any participant under the 2007 Plan may not exceed 100,000 shares per calendar year. For purposes of this limit, the combination of an Option in tandem with SAR is treated as a single award.
As of March 31, 2009, approximately 1,500 persons were eligible to receive Awards under the 2007 Plan, including our four executive officers and five non-officer directors. The granting of Awards under the 2007 Plan is discretionary, and we cannot now determine the number or type of Awards to be granted in the future to any particular person or group.
The following table sets forth, as of April 20, 2009, the stock option and restricted stock grants made under the 2007 Plan since its adoption.
The 2007 Plan is administered by our Board of Directors. Our Board of Directors has the authority to adopt, amend, and repeal the administrative rules, guidelines, and practices relating to the 2007 Plan and to interpret the provisions of the 2007 Plan. Pursuant to the terms of the 2007 Plan, our Board of Directors may delegate authority under the 2007 Plan to one or more committees or subcommittees of our Board of Directors.
Subject to any applicable limitations contained in the 2007 Plan, our Board of Directors or any committee to whom our Board of Directors delegates authority, as the case may be, selects the recipients of Awards and determines (i) the number of shares of Common Stock covered by options and the dates upon which such options become exercisable, (ii) the exercise price of options (which may not be less than 100% of fair market value of the Common Stock), (iii) the duration of options (which may not exceed 10 years), and (iv) the number of shares of Common Stock subject to any SAR, restricted stock award, restricted stock unit award, or other stock-based Awards and the terms and conditions of such Awards, including conditions for repurchase, issue price, and repurchase price.
Our Board of Directors is required to make appropriate adjustments in connection with the 2007 Plan and any outstanding Awards to reflect stock splits, stock dividends, recapitalizations, spin-offs, and other similar changes in capitalization. The 2007 Plan also contains provisions addressing the consequences of any Reorganization Event, which is defined as (i) our merger or consolidation with or into another entity as a result of which all of our Common Stock is converted into or exchanged for the right to receive cash, securities, or other property, or is cancelled or (b) any exchange of all of our Common Stock for cash, securities, or other property pursuant to a share exchange transaction or (c) our liquidation or dissolution. In connection with a Reorganization Event, our Board of Directors will take any one or more of the following actions as to all or any outstanding Awards on such terms as our Board of Directors determines: (i) provide that Awards will be assumed, or substantially equivalent Awards will be substituted, by the acquiring or succeeding corporation (or an affiliate thereof), (ii) upon written notice, provide that all unexercised Options or other unexercised Awards will become exercisable in full and will terminate immediately prior to the consummation of such Reorganization Event unless exercised within a specified period following the date of such notice, (iii) provide that outstanding Awards will become exercisable, realizable, or deliverable, or restrictions applicable to an Award will lapse, in whole or in part prior to or upon such Reorganization Event, (iv) in the event of a Reorganization Event under the terms of which holders of Common Stock will receive upon consummation thereof a cash payment for each share surrendered in the Reorganization Event (the Acquisition Price), make or provide for a cash payment to an Award holder equal to (A) the Acquisition Price times the number of shares of Common Stock subject to the holders Awards (to the extent the exercise price does not exceed the Acquisition Price) minus (B) the aggregate exercise price of all the holders outstanding Awards and any applicable tax withholdings, in exchange for the termination of such Awards, (v) provide that, in connection with our liquidation or dissolution, Awards will convert into the right to receive liquidation proceeds (if applicable, net of the exercise price thereof and any applicable tax withholdings) and (vi) any combination of the foregoing.
If any Award expires or is terminated, surrendered, canceled, or forfeited, the unused shares of Common Stock covered by such Award will again be available for grant under the 2007 Plan, subject, however, in the case of incentive stock options, to any limitations under the Code.
In connection with a merger or consolidation of an entity with us or the acquisition by us of property or stock of an entity, our Board of Directors may grant Awards in substitution for any options or other stock or stock-based awards granted by such entity or an affiliate thereof. Substitute Awards may be granted on such terms, as our Board of Directors deems appropriate in the circumstances, notwithstanding any limitations on Awards contained in the 2007 Plan. Substitute Awards will not count against the 2007 Plans overall share limit, except as may be required by the Code.
Provisions for Non U.S. Employees and Authorization of Sub-Plans
Our Board of Directors may modify Awards granted to Participants who are non U.S. citizens or residents employed outside the United States or establish subplans or procedures under the 2007 Plan to recognize differences in local law or tax policy.
Amendment or Termination
No Award may be made under the 2007 Plan after June 17, 2019, but Awards previously granted may extend beyond that date. Our Board of Directors may at any time amend, suspend, or terminate the 2007 Plan.
Federal Income Tax Consequences
The following is a summary of the United States federal income tax consequences that generally will arise with respect to Awards granted under the 2007 Plan. This summary is based on the federal tax laws in effect as of the date of this proxy statement. In addition, this summary assumes that all Awards are exempt from, or comply with, the rules under Section 409A of the Code regarding nonqualified deferred compensation. Changes to these laws could alter the tax consequences described below.
Incentive Stock Options
A participant will not have income upon the grant of an incentive stock option. Also, except as described below, a participant will not have income upon exercise of an incentive stock option if the participant has been employed by us or our corporate parent or 50% or more-owned corporate subsidiary at all times beginning with the option grant date and ending three months before the date the participant exercises the option. If the participant has not been so employed during that time, then the participant will be taxed as described below under Non-statutory Stock Options. The exercise of an incentive stock option may subject the participant to the alternative minimum tax.
A participant will have income upon the sale of the stock acquired under an incentive stock option at a profit (if sales proceeds exceed the exercise price). The type of income will depend on when the participant sells the stock. If a participant sells the stock more than two years after the option was granted and more than one year after the option was exercised, then all of the profit will be long-term capital gain. If a participant sells the stock prior to satisfying these waiting periods, then the participant will have engaged in a disqualifying disposition and a portion of the profit will be ordinary income and a portion may be capital gain. This capital gain will be long-term if the participant has held the stock for more than one year and otherwise will be short-term. If a participant sells the stock at a loss (sales proceeds are less than the exercise price), then the loss will be a capital loss. This capital loss will be long-term if the participant held the stock for more than one year and otherwise will be short-term.
Non-statutory Stock Options
A participant will not have income upon the grant of a non-statutory stock option. A participant will have compensation income upon the exercise of a non-statutory stock option equal to the value of the stock on the day the participant exercised the option less the exercise price. Upon sale of the stock, the participant will have capital gain or loss equal to the difference between the sales proceeds and the value of the stock on the day the option was exercised. This capital gain or loss will be long-term if the participant has held the stock for more than one year and otherwise will be short-term.
Stock Appreciation Rights
A participant will not have income upon the grant of a stock appreciation right. A participant generally will recognize compensation income upon the exercise of a SAR equal to the fair market value of any stock received. Upon the sale of the stock, the participant will have capital gain or loss equal to the difference between the sales proceeds and the value of the stock on the day the SAR was exercised. This capital gain or loss will be long-term if the participant held the stock for more than one year and otherwise will be short-term.
Restricted Stock Awards
A participant will not have income upon the grant of restricted stock unless an election under Section 83(b) of the Code is made within 30 days of the date of grant. If a timely 83(b) election is made, then a participant will have compensation income equal to the value of the stock less the purchase price, if any. When the stock is sold, the participant will have capital gain or loss equal to the difference between the sales proceeds and the value of the stock on the date of grant. If the participant does not make an 83(b) election, then when the stock vests the participant will have compensation income equal to the value of the stock on the vesting date less the purchase price, if any. When the stock is sold, the participant will have capital gain or loss equal to the sales proceeds less the value of the stock on the vesting date. Any capital gain or loss will be long-term if the participant held the stock for more than one year and otherwise will be short-term.
Restricted Stock Units
A participant will not have income upon the grant of a restricted stock unit. A participant is not permitted to make a Section 83(b) election with respect to a restricted stock unit award. When the restricted stock unit vests, the participant will have income on the vesting date in an amount equal to the fair market value of the stock on the vesting date less the purchase price, if any. When the stock is sold, the participant will have capital gain or loss equal to the sales proceeds less the value of the stock on the vesting date. Any capital gain or loss will be long-term if the participant held the stock for more than one year and otherwise will be short-term.
Other Stock-Based Awards
The tax consequences associated with any other stock-based Award granted under the 2007 Plan will vary depending on the specific terms of such Award. Among the relevant factors are whether or not the Award has a readily ascertainable fair market value, whether or not the Award is subject to forfeiture provisions or restrictions on transfer, the nature of the property to be received by the participant under the Award, and the participants holding period and tax basis for the Award or underlying Common Stock.
Tax Consequences to the Company
There will be no tax consequences to the Company except that we will be entitled to a deduction when a participant has compensation income. Any such deduction will be subject to the limitations of Section 162(m) of the Code.
APPROVAL OF AMENDMENT TO 1997 AMENDED AND RESTATED EMPLOYEE STOCK
The Board of Directors believes that the continued growth and profitability of the Company depends, in large part, upon the ability of the Company to maintain a competitive position in attracting and retaining key personnel. Accordingly, in 1997, the Company adopted the ESPP which permits eligible employees to purchase shares of the Companys Common Stock at a discounted price. On April 30, 2009, the Board of Directors adopted resolutions restating our ESPP in its entirety in order to include all previous amendments that received necessary board and stockholder approval and, subject to stockholder approval, the proposed amendment to increase the number of shares reserved for issuance under the plan from 837,500 to 937,500. The additional shares will be needed for future employee purchases.
As of March 31, 2009, 96,669 shares were available for issuance under the ESPP.
The Board of Directors believes that the approval of the amendment to the ESPP is in the best interests of the Company and its stockholders and recommends a vote FOR this proposal and the reservation of 100,000 shares of Common Stock for issuance thereunder.
Summary of the ESPP
The following is a brief summary of the ESPP as amended. The following summary is qualified in its entirety by reference to the ESPP as amended, a copy of which is attached as Appendix B to this Proxy Statement.
Administration and Eligibility
The ESPP is administered by the Board of Directors or the Compensation Committee, which has the authority to make rules and regulations for the administration of the ESPP. Each employee of the Company and its eligible subsidiaries, including any officer or director who is also an employee, is eligible to participate in the ESPP, provided he or she
An employee may not participate in the ESPP if, immediately after the grant, the employee would own stock, and/or hold outstanding options to purchase stock, equal to five percent (5%) or more of the total combined voting power or value of all classes of the Companys stock. Non-employee directors are not eligible to participate in this plan.
The ESPP is implemented through a series of offerings, each of which is six months in length. Offerings will begin each January 1 and July 1, or the first business day thereafter. Participants in an offering purchase shares with funds set aside through payroll withholding.
An employee may elect to have up to 10% of his or her pay withheld for purposes of purchasing shares under the ESPP, subject to certain limitations on the maximum number of shares that may be purchased. In no event may an employees total payroll deductions during a calendar year exceed $20,000.
Purchase of Shares
On the commencement date of each plan period, the Company will grant to each eligible employee who is then a participant in the plan an option to purchase on the last business day of such plan period the largest number of whole shares of Common Stock of the Company as does not exceed the number of shares determined by dividing $12,500 (in the case of a six-month plan period) or $25,000 (in the case of a one-year plan period) by the closing price on the offering commencement date of such plan period. The price of shares purchased pursuant to the ESPP is 95% of the closing price of the Companys Common Stock on the last business day of such plan period.
Adjustments for Changes in Capitalization and Reorganization Events
Appropriate adjustments will be made to the number of shares available under the ESPP and applicable purchase limitations in the event of a stock split, dividend or similar changes in the Companys capitalization.
In the event of a merger, the proposed sale of all or substantially all of the assets of the Company, or the proposed dissolution or liquidation of the Company during a plan period, our Board of Directors or the Compensation Committee is authorized to set a new exercise date before the date of such merger, asset sale, consolidation, dissolution or liquidation, upon which the plan period will end.
Amendment or Termination
The Board of Directors may at any time terminate or amend the ESPP, provided that no amendment may be made without prior approval of the stockholders of the Company if such approval is required by Section 423 of the Code, and in no event may any amendment be made which would cause the ESPP to fail to comply with Section 423 of the Code.
Federal Income Tax Consequences
The following generally summarizes the United States federal income tax consequences that will arise with respect to participation in the ESPP and with respect to the sale of common stock acquired under the ESPP. This summary is based on the tax laws in effect as of the date of this proxy statement. Changes to these laws could alter the tax consequences described below.
A participant will not have income upon enrolling in the ESPP or upon purchasing stock at the end of an offering.
A participant may have both compensation income and a capital gain or loss upon the sale of stock that was acquired under the ESPP. The amount of each type of income and loss will depend on when the participant sells the stock.
If the participant sells the stock more than two years after the commencement of the offering during which the stock was purchased and more than one year after the date that the participant purchased the stock at a profit (the sales proceeds exceed the purchase price), then the participant will have compensation income equal to the lesser of:
Any excess profit will be long-term capital gain. If the participant sells the stock at a loss (if sales proceeds are less than the purchase price) after satisfying these waiting periods, then the loss will be a long-term capital loss.
If the participant sells the stock prior to satisfying these waiting periods, then he or she will have engaged in a disqualifying disposition. Upon a disqualifying disposition, the participant will have compensation income equal to the value of the stock on the day he or she purchased the stock less the purchase price. If the participants profit exceeds the compensation income, then the excess profit will be capital gain. If the participants profit is less than the compensation income, then the participant will have a capital loss equal to the value of the stock on the day he or she purchased the stock less the sales proceeds. This capital gain or loss will be long-term if the participant has held the stock for more than one year and otherwise will be short-term.
Tax Consequences to the Company. There will be no tax consequences to the Company except that we will be entitled to a deduction when a participant has compensation income upon a disqualifying disposition. Any such deduction will be subject to the limitations of Section 162(m) of the Code.
RATIFICATION OF SELECTION OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of our Board of Directors has selected the firm of Deloitte & Touche LLP, an independent registered public accounting firm, to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2009. The ratification of this selection by the Audit Committee is not required under the laws of the State of Delaware, where we are incorporated, but the results of this vote will be
considered by the Audit Committee in selecting our independent registered public accounting firm. Deloitte & Touche LLP has served as our independent registered public accounting firm since 1984. It is expected that a member of Deloitte & Touche LLP will be present at the meeting with the opportunity to make a statement if so desired and will be available to respond to appropriate questions from stockholders.
Our Board of Directors recommends a vote FOR the ratification of the selection by the Audit Committee of Deloitte & Touche LLP as our independent registered public accounting firm.
Principal Accountant Fees and Services
The following table summarizes the fees Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their affiliates billed to us for each of the last two years. The Audit Committee of our Board of Directors believes that the non-audit services described below did not compromise Deloitte & Touches independence.
Pre-Approval Policies and Procedures
Our Audit Committee has adopted policies and procedures relating to the approval of all audit and non-audit services that are to be performed by our independent registered public accounting firm. This policy generally provides that we will not engage an independent registered public accounting firm to render audit or non-audit services unless the service is specifically approved in advance by our Audit Committee or the engagement is entered into pursuant to one of the pre-approval procedures described below.
From time to time, our Audit Committee may pre-approve specified types of services that are expected to be provided to us by our independent registered public accounting firm during the next twelve months. Any such pre-approval is detailed as to the particular service or type of services to be provided and is also generally subject to a maximum dollar amount.
Our Audit Committee may also delegate to each individual member of the Audit Committee the authority to approve any audit or non-audit services to be provided to us by our independent registered public accounting firm. Any approval of services by a member of our Audit Committee pursuant to this delegated authority is reported on at the next meeting of our Audit Committee.
Audit Committee Report
Our Audit Committee has reviewed our audited financial statements for the fiscal year ended December 31, 2008, and discussed them with our management and our registered public accounting firm.
The Audit Committee has also discussed with our registered public accounting firm various communications that our registered public accounting firm is required to provide to the Audit Committee, including the matters required to be discussed by the Statement on Auditing Standards No. 61, or SAS 61, as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. The Audit Committee was satisfied with this discussion.
SAS 61, as amended, requires our registered public accounting firm to discuss with our Audit Committee, among other things, the following:
Our Audit Committee has received the written disclosures and the letter from our registered public accounting firm required by Independence Standards Board Standard No. 1 (Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees), as adopted by the Public Company Accounting Oversight Board in Rule 3600T, and has discussed with our registered public accounting firm their independence. Independence Standards Board Standard No. 1 requires auditors annually to disclose in writing all relationships that in the auditors professional opinion may reasonably be thought to bear on independence, confirm their perceived independence, and engage in a discussion of independence. The Audit Committee concluded that our registered public accounting firm is independent.
Based on the review and discussions referred to above, the Audit Committee recommended to our Board of Directors that our audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2008.
By the Audit Committee of the Board of Directors of PC Connection:
Joseph Baute, Chairman
Matters to be Considered at the Annual Meeting
Our Board of Directors does not know of any other matters which may come before the Annual Meeting. However, if any other matters are properly presented to the Annual Meeting, it is the intention of persons named in the accompanying proxy to vote, or otherwise act, in accordance with their judgment on such matters.
Householding of Annual Meeting Materials
Some banks, brokers, and other nominee record holders may be participating in the practice of householding proxy statements and annual reports. This means that only one copy of the Notice of Internet Availability of Proxy Materials, proxy statement, or annual report may have been sent to multiple stockholders in your household. We will promptly deliver a separate copy of these documents to you if you write or call us at the following address or phone number: PC Connection, Inc., Attention: Investor Relations, 730 Milford Road, Merrimack, New Hampshire 03054 (603-683-2322). If you wish to receive separate copies of the Notice of Internet Availability of Proxy Materials, the annual report, or the proxy statement, as applicable in the future, or if you are receiving multiple copies and would like to receive only one copy for your household, you should contact your bank, broker, or other nominee record holder, or you may contact us at the above address and phone number.
A copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, as filed with the SEC, except for exhibits, will be furnished without charge to any stockholder upon written request to PC Connection, Inc., Attention: Investor Relations, 730 Milford Road, Merrimack, New Hampshire 03054 (603-683-2322).
Solicitation of Proxies
All costs of solicitations of proxies will be borne by us. In addition to solicitations by mail, our directors, officers, and regular employees, without additional remuneration, may solicit proxies by telephone, telegraph, and personal interviews. We will also request brokers, custodians, and fiduciaries to forward proxy soliciting material to the owners of stock held in their names, and we will reimburse them for their out-of-pocket expenses in this regard.
Deadline for Submission of Stockholder Proposals
Proposals of stockholders intended to be presented at the 2010 Annual Meeting of Stockholders must be received by us at our principal office in Merrimack, New Hampshire not later than December 31, 2009, for inclusion in the proxy statement for that meeting.
If a stockholder of our Company who holds less than 40% of the shares of our capital stock issued and outstanding and entitled to vote wishes to present a proposal before the 2009 Annual Meeting but has not complied with the requirements for inclusion of such proposal in our proxy materials pursuant to Rule 14a-8 under the Exchange Act, such stockholder must give timely notice of such proposal to our Secretary at our principal offices. The required notice must be delivered to or mailed and received at our principal executive offices not later than April 18, 2010 nor earlier than March 19, 2010. Notwithstanding the foregoing, if we provide less than 70 days notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder or stockholders to be timely must be delivered or mailed to the Secretary not later than the close of business on the tenth day following the date on which the notice of the meeting was mailed or public disclosure was made, whichever occurs first.
By Order of the Board of Directors,
Chairman of the Board and
Chief Executive Officer
April 30, 2009
OUR BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING. WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN, AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE WILL GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING, AND YOUR COOPERATION WILL BE APPRECIATED.
PC Connection, Inc.
2007 AMENDED AND RESTATED STOCK INCENTIVE PLAN
The purpose of this 2007 Stock Incentive Plan (the Plan) of PC Connection, Inc., a Delaware corporation (the Company), is to advance the interests of the Companys stockholders by enhancing the Companys ability to attract, retain, and motivate persons who are expected to make important contributions to the Company and by providing such persons with equity ownership opportunities and performance-based incentives thereby better aligning the interests of such persons with those of the Companys stockholders. Except where the context otherwise requires, the term Company shall include any of the Companys present or future parent or subsidiary corporations as defined in Sections 424(e) or (f) of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the Code) and any other business venture (including, without limitation, joint venture or limited liability company) in which the Company has a controlling interest, as determined by the Board of Directors of the Company (the Board).
All of the Companys employees, officers, directors, consultants, and advisors are eligible to be granted options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based awards (each, an Award) under the Plan. Each person who is granted an Award under the Plan is deemed a Participant.
Other Awards of shares of Common Stock, and other Awards that are valued in whole or in part by reference to, or are otherwise based on, shares of Common Stock or other property, may be granted hereunder to Participants (Other Stock Based Awards), including without limitation Awards entitling recipients to receive shares of Common Stock to be delivered in the future. Such Other Stock Based Awards shall also be available as a form of payment in the settlement of other Awards granted under the Plan or as payment in lieu of compensation to which a Participant is otherwise entitled. Other Stock Based Awards may be paid in shares of Common Stock or cash, as the Board shall determine. Subject to the provisions of the Plan, the Board shall determine the terms and conditions of each Other Stock Based Award, including any purchase price applicable thereto.
For purposes of clause (i) above, an Option shall be considered assumed if, following consummation of the Reorganization Event, the Option confers the right to purchase, for each share of Common Stock subject to the Option immediately prior to the consummation of the Reorganization Event, the consideration (whether cash, securities or other property) received as a result of the Reorganization Event by holders of Common Stock for each share of Common Stock held immediately prior to the consummation of the Reorganization Event (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if the consideration received as a result of the Reorganization Event is not solely common stock of the acquiring or succeeding corporation (or an affiliate thereof), the Company may, with the consent of the acquiring or succeeding corporation, provide for the consideration to be received upon the exercise of Options to consist solely of common stock of the acquiring or succeeding corporation (or an affiliate thereof) equivalent in value (as determined by the Board) to the per share consideration received by holders of outstanding shares of Common Stock as a result of the Reorganization Event.
The Company makes no representations or warranty and shall have no liability to the Participant or any other person if any provisions of or payments, compensation or other benefits under the Plan are determined to constitute nonqualified deferred compensation subject to Code Section 409A but do not satisfy the conditions of that section.
Amended and Restated 1997 Employee Stock Purchase Plan
The purpose of this Plan is to provide eligible employees of PC Connection, Inc., a Delaware corporation (the Company), and certain of its U.S. subsidiaries with opportunities to purchase shares of the Companys common stock, $.01 par value per share (the Common Stock), commencing on January 1, 1999. Nine Hundred Thirty-Seven Thousand Five Hundred (937,500) shares of Common Stock in the aggregate have been reserved for this purpose.
No employee may be granted an option hereunder if such employee, immediately after the option is granted, owns 5% or more of the total combined voting power or value of the stock of the Company or any subsidiary. For purposes of the preceding sentence, the attribution rules of Section 424(d) of the Code shall apply in determining the stock ownership of an employee, and all stock which the employee has a contractual right to purchase shall be treated as stock owned by the employee.
No employee may be granted an Option (as defined in Section 9) which permits his rights to purchase Common Stock under this Plan and any other employee stock purchase plan (as defined in Section 423(b) of the Code) of the Company and its subsidiaries, to accrue at a rate which exceeds $25,000 of the fair market value of such Common Stock (determined as of the last business day of the Plan Period) for each calendar year in which the Option is outstanding at any time.
The purchase price for each share purchased will be 95% of the closing price of the Common Stock on the Exercise Date. Such closing price shall be (a) the closing price on any national securities exchange on which the Common Stock is listed, (b) the closing price of the Common Stock on the Nasdaq National Market or (c) the average of the closing bid and asked prices in the over-the-counter-market, whichever is applicable, as published in The Wall Street Journal. If no sales of Common Stock were made on such a day, the price of the Common Stock for purposes of clauses (a) and (b) above shall be the reported price for the next preceding day on which sales were made.
Each employee who continues to be a participant in the Plan on the Exercise Date shall be deemed to have exercised his or her Option at the Option Price on such date and shall be deemed to have purchased from the Company the number of full shares of Common Stock reserved for the purpose of the Plan that his or her accumulated payroll deductions on such date will pay for, but not in excess of the maximum number determined in the manner set forth above.
Any balance remaining in an employees payroll deduction account at the end of a Plan Period will be automatically refunded to the employee, except that any balance which is less than the purchase price of one share of Common Stock will be carried forward into the employees payroll deduction account for the following Offering, unless the employee elects not to participate in the following Offering under the Plan, in which case the balance in the employees account shall be refunded.
ANNUAL MEETING OF STOCKHOLDERS OF
PC CONNECTION, INC.
June 17, 2009
Please sign, date, and mail
your proxy card in the
envelope provided as soon
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