scty-def14a_20160607.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

 

Filed by the Registrant x                              Filed by a Party other than the Registrant £

Check the appropriate box:

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 Preliminary Proxy Statement

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 Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

T 

 Definitive Proxy Statement

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 Definitive Additional Materials

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 Soliciting Material Pursuant to §240.14a-12

SolarCity Corporation

(Name of Registrant as Specified In Its Charter)

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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

 

 

 

 

 

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Fee paid previously with preliminary materials.

 

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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

 

(1) 

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Date Filed:

 

 

 

 

 

 

 


SOLARCITY CORPORATION

3055 CLEARVIEW WAY

SAN MATEO, CALIFORNIA 94402

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held at 1:00 p.m. Pacific Daylight Time on Tuesday, June 7, 2016

TO THE HOLDERS OF COMMON STOCK

OF SOLARCITY CORPORATION:

The Annual Meeting of Stockholders (the “Annual Meeting”) of SolarCity Corporation, a Delaware corporation, will be held on Tuesday, June 7, 2016, at 1:00 p.m. Pacific Daylight Time, at the Crowne Plaza Hotel, located at 1221 Chess Drive, Foster City, California 94404, for the following purposes as more fully described in the accompanying Proxy Statement:

 

1.

To elect two Class I directors to serve until the 2019 annual meeting of stockholders or until their successors are duly elected and qualified;

 

2.

To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2016;

 

3.

To approve and ratify our non-employee director compensation program;

 

4.

To approve the amended and restated SolarCity Corporation 2012 Equity Incentive Plan, including approval for purposes of being able to qualify awards as “performance-based compensation” under Section 162(m) of the Internal Revenue Code of 1986, as amended, and to approve a new ten-year term for the Amended and Restated 2012 Equity Incentive Plan;

 

5.

To consider and vote upon a stockholder proposal, if properly presented, to adopt a proxy access bylaw that would permit a shareholder, or group of shareholders, to nominate a candidate for election to the board of directors; and

 

6.

To transact such other business as may properly come before the meeting or any adjournments or postponements thereof.

The board of directors of SolarCity Corporation has fixed the close of business on April 14, 2016 as the record date for the Annual Meeting. Only stockholders of record of our common stock on April 14, 2016 are entitled to notice of and to vote at the meeting. Further information regarding voting rights and the matters to be voted upon is presented in our proxy statement.

SolarCity is pleased to take advantage of SEC rules that allow us to furnish proxy materials to our stockholders on the Internet. These rules enable us to reduce the environmental impact of our Annual Meeting while still providing you with the information that you need. This notice, the Notice of Internet Availability, the 2015 annual report and our proxy statement for our 2016 Annual Meeting and form of proxy are being made available to stockholders on or about April 22, 2016. This proxy statement and our 2015 annual report can also be accessed directly at the following Internet address: http://www.envisionreports.com/SolarCity. You simply need to enter the control number located on your notice and/or proxy card.

YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the Annual Meeting, we urge you to submit your vote via the Internet, telephone or mail.

We appreciate your continued support of SolarCity and look forward to either greeting you personally at the Annual Meeting or receiving your proxy.

 

By order of the Board of Directors,

 

Lyndon Rive

Co-Founder and Chief Executive Officer

San Mateo, California

April 21, 2016

 

 

 

-i-


TABLE OF CONTENTS

 

PROXY STATEMENT FOR 2016 ANNUAL MEETING OF STOCKHOLDERS

 

1

PROPOSAL ONE - ELECTION OF DIRECTORS

 

6

PROPOSAL TWO - RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

9

PROPOSAL THREE - APPROVAL AND RATIFICATION OF OUR NON-EMPLOYEE DIRECTOR COMPENSATION PROGRAM

 

11

PROPOSAL FOUR - APPROVAL OF THE 2012 EQUITY INCENTIVE PLAN (AS AMENDED AND RESTATED)

 

14

PROPOSAL FIVE - STOCKHOLDER PROPOSAL

 

21

CORPORATE GOVERNANCE

 

23

EXECUTIVE OFFICERS

 

29

EXECUTIVE COMPENSATION

 

30

COMPENSATION RISK ASSESSMENT

 

43

2015 Summary Compensation Table

 

44

2015 Grants of Plan-Based Awards Table

 

46

2015 Outstanding Equity Awards at Fiscal Year-End Table

 

47

2015 Option Exercises and Stock Vested

 

49

Securities Authorized for Issuance Under Equity Compensation Plans

 

49

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

50

RELATED PARTY TRANSACTIONS

 

52

REPORT OF THE AUDIT COMMITTEE

 

53

OTHER MATTERS

 

54

SOLARCITY CORPORATION AMENDED AND RESTATED 2012 EQUITY INCENTIVE PLAN

 

A-1

 

 

 

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SOLARCITY CORPORATION

3055 Clearview Way

San Mateo, California 94402

PROXY STATEMENT

FOR 2016 ANNUAL MEETING OF STOCKHOLDERS

to be held on Tuesday, June 7, 2016 at 1:00 p.m. PDT

This proxy statement and the enclosed form of proxy are furnished in connection with solicitation of proxies by our board of directors for use at the annual meeting of stockholders (the “Annual Meeting”) to be held on June 7, 2016, and any postponements, adjournments or continuations thereof. The Annual Meeting will be held at the Crowne Plaza Hotel, located at 1221 Chess Drive, Foster City, California 94404, on Tuesday, June 7, 2016 at 1:00 p.m. PDT. Stockholders may request directions to the Crowne Plaza Hotel in order to attend the Annual Meeting by sending a request to investors@solarcity.com or by visiting the Investor Relations section of our website at http://investors.solarcity.com.

SolarCity is pleased to take advantage of SEC rules that allow us to furnish proxy materials to our stockholders on the Internet. These rules enable us to reduce the environmental impact of our Annual Meeting while still providing you with the information that you need. The Notice of Internet Availability (the “Internet Notice”) was first mailed on or about April 26, 2016 to stockholders of record as of April 14, 2016 and these proxy solicitation materials combined with the annual report for the fiscal year ended December 31, 2015, including our Annual Report on Form 10-K for the year ended December 31, 2015 (the “Form 10-K”) were first made available to you on the Internet, on or about April 21, 2016.

The information provided in the “question and answer” format below is for your convenience only and is merely a summary of the information contained in this proxy statement. You should read this entire proxy statement carefully.

What matters am I voting on?

You will be voting on:

 

·

Proposal One: the election of two Class I directors to hold office until the 2019 annual meeting of stockholders or until their successors are duly elected and qualified;

 

·

Proposal Two: a proposal to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2016;

 

·

Proposal Three: a proposal to approve and ratify our non-employee director compensation program (the “Director Compensation Program”);

 

·

Proposal Four: a proposal to approve  the amended and restated SolarCity Corporation 2012 Equity Incentive Plan, (the “Amended 2012 Plan”) including approval for purposes of being able to qualify awards as “performance based compensation” under Section 162(m) of the Internal Revenue Code of 1986, as amended (“Section 162(m)”) and to approve a new ten-year term for the Amended 2012 Plan;

 

·

Proposal Five: a stockholder proposal, if properly presented, to adopt a proxy access bylaw that would permit a shareholder, or group of shareholders, to nominate a candidate for election to the board of directors; and

 

·

any other business that may properly come before the meeting.

How does the board of directors recommend I vote on these proposals?

The board of directors recommends you vote:

 

·

Proposal One: FOR the nominees for election as Class I directors;

 

·

Proposal Two: FOR the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2016;

 

·

Proposal Three: FOR the approval and ratification of our Director Compensation Program;

 

·

Proposal Four: FOR the approval of the Amended 2012 Plan; and

 

·

Proposal Five: AGAINST the approval of the stockholder proposal.

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Who is entitled to vote?

Holders of our common stock as of the close of business on April 14, 2016, the record date, may vote at the Annual Meeting. As of the record date, 98,310,877 shares of our common stock were outstanding and held of record by approximately 215 stockholders, however, most stockholders hold their shares through a broker or other agent rather than directly in their own names. In deciding all matters at the Annual Meeting, each stockholder will be entitled to one vote for each share of common stock held on the record date. We do not have cumulative voting rights for the election of directors.

Registered Stockholders. If your shares are registered directly in your name with Computershare Trust Company, N.A., our transfer agent, you are considered the stockholder of record with respect to those shares, and the proxy materials were provided to you directly by us. As the stockholder of record, you have the right to grant your voting proxy directly to the individuals listed on the proxy card or to vote in person at the Annual Meeting.

Street Name Stockholders. If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in “street name,” and the proxy materials were forwarded to you by your broker or nominee, who is considered the stockholder of record with respect to those shares. As the beneficial owner, you have the right to direct your broker or nominee how to vote your shares. Beneficial owners are also invited to attend the Annual Meeting. However, since beneficial owners are not the stockholder of record, they may not vote their shares in person at the Annual Meeting without following their broker’s procedures for obtaining a legal proxy. If you request a printed copy of the proxy materials by mail, your broker or nominee will provide a voting instruction card for you to use.

How do I vote?

There are four ways to vote:

 

·

online at http://www.envisionreports.com/SolarCity, available 24 hours a day, seven days a week, until 11:59 p.m. on June 6, 2016 (have your proxy card in hand when you visit the website);

 

·

by toll-free telephone at 1-800-652-VOTE (8683) (have your proxy card in hand when you call);

 

·

by completing and returning your proxy card; or

 

·

by completing a written ballot in person at the Annual Meeting.

Can I change my vote?

Yes. You can change your vote or revoke your proxy any time before the Annual Meeting by:

 

·

entering a new vote online or over the telephone;

 

·

returning a later-dated proxy card;

 

·

notifying the corporate secretary of SolarCity Corporation, in writing, at the address listed on the front page; or

 

·

completing a written ballot in person at the Annual Meeting.

What is the effect of giving a proxy?

Proxies are solicited by and on behalf of our board of directors. The persons named in this proxy statement have been designated as proxies by our board of directors. When a proxy card is properly dated, executed and returned, the shares represented by such proxies will be voted at the Annual Meeting in accordance with the instruction of the stockholder. If no specific instructions are given, however, the shares will be voted in accordance with the recommendations of our board of directors as described above. If any matters not described in the proxy statement are properly presented at the Annual Meeting, the proxy holders will use their own judgment to determine how to vote your shares. If the Annual Meeting is adjourned, the proxy holders can vote your shares on the new meeting date as well, unless you have properly revoked your proxy instructions, as described above.

What is a quorum?

A quorum is the minimum number of shares required to be present at the Annual Meeting for the meeting to be properly held under our bylaws and Delaware law. The presence, in person or by proxy, of a majority of all issued and outstanding shares of common stock entitled to vote at the Annual Meeting will constitute a quorum. A proxy submitted by a stockholder may indicate that all or a portion of the shares represented by the proxy are not being voted (“stockholder withholding”) with respect to a particular matter. Similarly, a broker may not be permitted to vote shares held in street name on a particular matter (“broker non-vote”) in the

-2-


 

absence of instructions from the beneficial owner of the shares. See “How may my brokerage firm or other intermediary vote my shares if I fail to provide timely directions?” The shares subject to a proxy that are not being voted on a particular matter because of either stockholder withholding or a broker non-vote will count for purposes of determining the presence of a quorum. Abstentions are also counted in the determination of a quorum.

How many votes are needed for approval of each matter?

 

·

Proposal One: The election of directors requires a plurality vote of the shares of common stock voted at the meeting. “Plurality” means that the individuals who receive the largest number of votes cast “for” are elected as directors. As a result, any shares not voted “for” a particular nominee (whether as a result of stockholder withholding or a broker non-vote) will not be counted in any nominee’s favor and will have no effect on the outcome of the election. You may vote “for” or “withhold” on each of the nominations for election as a director.

 

·

Proposal Two: The ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2016 must receive the affirmative vote of a majority of the shares present in person or by proxy at the meeting and entitled to vote thereon to be approved. Abstentions are considered votes cast and thus, will have the same effect as a vote “against” the proposal. Broker non-votes will have no effect on the outcome of this proposal.

 

·

Proposal Three: The affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote are required to approve and ratify our Director Compensation Program. Abstentions are considered votes cast and thus, will have the same effect as a vote “against” the proposal. Broker non-votes will have no effect on the outcome of this proposal.

 

·

Proposal Four: The affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote are required to approve our Amended 2012 Plan. Abstentions are considered votes cast and thus, will have the same effect as a vote “against” the proposal. Broker non-votes will have no effect on the outcome of this proposal.

 

·

Proposal Five: The affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote are required to approve the stockholder proposal. Abstentions are considered votes cast and thus, will have the same effect as a vote “against” the proposal. Broker non-votes will have no effect on the outcome of this proposal.

How are proxies solicited for the Annual Meeting?

The board of directors is soliciting proxies for use at the Annual Meeting. We will cover all expenses associated with this solicitation and the distribution of these proxy materials.

How may my brokerage firm or other intermediary vote my shares if I fail to provide timely directions?

Brokerage firms and other intermediaries holding shares of common stock in street name for customers are generally required to vote such shares in the manner directed by their customers. In the absence of timely directions, your broker will have discretion to vote your shares on our sole “routine” matter—the proposal to ratify the appointment of Ernst & Young LLP (Proposal Two). Your broker will not have discretion to vote on “non-routine” matters absent direction from you, such as the election of directors or advisory votes related to executive compensation.

Is my vote confidential?

Proxy instructions, ballots, and voting tabulations that identify individual stockholders are handled in a manner that protects your voting privacy. Your vote will not be publicly disclosed, except as necessary to meet applicable legal requirements, to allow for the tabulation of votes and certification of the vote or to facilitate a successful proxy solicitation.

Where can I find the voting results of the Annual Meeting?

We will announce preliminary voting results at the Annual Meeting. We will also disclose voting results on a Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) within four business days after the Annual Meeting. If final voting results are not available to us in time to file a Form 8-K within four business days, we will file a Form 8-K to publish preliminary results and will provide the final results in an amendment to the Form 8-K as soon as they become available.

-3-


 

Why did I receive a notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials?

Pursuant to rules adopted by the SEC, we have elected to provide access to our proxy materials via the Internet. As a result, we are sending an Internet Notice to our stockholders of record entitled to vote at the Annual Meeting. Instructions on how to access the proxy materials over the Internet or to request a printed copy may be found in the Internet Notice. In addition, the Internet Notice provides information on how stockholders may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis.

We encourage all stockholders to access proxy materials over the Internet in order to assist us in reducing the environmental impact of our annual meetings. If you choose to receive future proxy materials by email, you will receive an email next year with instructions containing a link to those materials and a link to the proxy voting site. If you choose to receive future proxy materials by mail, you will receive a paper copy of those materials, including a form of proxy. Your election to receive proxy materials by mail or email will remain in effect until you notify us that you are changing or terminating your request.

I share an address with another stockholder and we received only one paper copy of the proxy materials. How may I obtain an additional copy of the proxy materials?

We have adopted a procedure called “householding,” which the SEC has approved. Under this procedure, we deliver a single copy of the proxy materials to multiple stockholders who share the same address unless we received contrary instructions from one or more of the stockholders. This procedure reduces our environmental impact, printing and mailing costs and fees. Stockholders who participate in householding will continue to be able to access and receive separate proxy cards. As requested, we will deliver promptly a separate copy of the proxy materials to any stockholder at a shared address to which we delivered a single copy of any of these documents. To receive a separate copy of the proxy materials, stockholders may contact us as follows:

SolarCity Corporation

Attention: Investor Relations

3055 Clearview Way

San Mateo, California 94402

investors@solarcity.com

(650) 963-5920

Stockholders who hold shares in street name may contact their brokerage firm, bank, broker-dealer or other similar organization to request information about householding. Alternatively, if you receive multiple printed copies of the proxy materials, you may request to enroll in householding by contacting us.

What is the deadline to propose actions for consideration at next year’s annual meeting of stockholders or to nominate individuals to serve as directors?

ShareholderProposals

Stockholders may present proper proposals for inclusion in our proxy statement and for consideration at the next annual meeting of stockholders by submitting their proposals in writing to our corporate secretary in a timely manner. For a stockholder proposal to be considered for inclusion in our proxy statement for our 2017 annual meeting of stockholders, our corporate secretary must receive the written proposal at our principal executive offices not later than December 21, 2016. In addition, stockholder proposals must comply with the requirements of Rule 14a-8 regarding the inclusion of stockholder proposals in company-sponsored proxy materials. Proposals should be addressed to:

SolarCity Corporation

Attention: Corporate Secretary

3055 Clearview Way

San Mateo, California 94402

investors@solarcity.com

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Our bylaws also establish an advance notice procedure for stockholders who wish to present a proposal before an annual meeting of stockholders but do not intend for the proposal to be included in our proxy statement. Our bylaws provide that the only business that may be conducted at an annual meeting is business that is (i) specified in our proxy materials with respect to such meeting, (ii) otherwise properly brought before the meeting by or at the direction of our board of directors, or (iii) properly brought before the meeting by a stockholder of record entitled to vote at the annual meeting who has delivered timely written notice to our corporate secretary, which notice must contain the information specified in our bylaws. To be timely for our 2017 annual meeting of stockholders, our corporate secretary must receive the written notice at our principal executive offices:

 

·

no earlier than February 4, 2017; and

 

·

no later than the close of business on March 6, 2017.

 

In the event that we hold our 2017 annual meeting of stockholders more than 30 days before or more than 60 days after the one-year anniversary date of the 2016 annual meeting, then notice of a stockholder proposal that is not intended to be included in our proxy statement must be received no earlier than the close of business on the 120th day before such annual meeting and no later than the close of business on the later of the following two dates:

 

·

the 90th day prior to such annual meeting; or

 

·

the 10th day following the day on which public announcement of the date of such meeting is first made.

If a stockholder who has notified us of his or her intention to present a proposal at an annual meeting does not appear to present his or her proposal at such meeting, we are not required to present the proposal for a vote at such meeting.

Nomination of Director Candidates

You may propose director candidates for consideration by our nominating and corporate governance committee. Any such recommendations should include the nominee’s name and qualifications for membership on our board of directors and should be directed to the corporate secretary of SolarCity at the address set forth above. For additional information regarding stockholder recommendations for director candidates, see “Board of Directors and Corporate Governance—Stockholder Recommendations for Nominations to the Board of Directors.”

In addition, our bylaws permit stockholders to nominate directors for election at an annual meeting of stockholders. To nominate a director, the stockholder must provide the information required by our bylaws. In addition, the stockholder must give timely notice to our corporate secretary in accordance with our bylaws, which, in general, require that the notice be received by our corporate secretary within the time period described above under “Stockholder Proposals” for stockholder proposals that are not intended to be included in our proxy statement.

Availability of Bylaws

A copy of our bylaws may be obtained by accessing SolarCity’s filings on the SEC’s website at www.sec.gov. You may also contact our corporate secretary at our principal executive offices for a copy of the relevant bylaw provisions regarding the requirements for making stockholder proposals and nominating director candidates.

 

 

 

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PROPOSAL ONE

ELECTION OF DIRECTORS

General

Our business affairs are managed under the direction of our board of directors, which is currently composed of eight members. Five of our directors are independent within the meaning of the listing rules of The NASDAQ Stock Market, LLC. Our board of directors is divided into three staggered classes of directors. At each annual meeting of stockholders, a class of directors will be elected for a three-year term to succeed the same class whose term is then expiring.

Each director’s term continues until the election and qualification of his or her successor, or earlier death, resignation, or removal. Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. This classification of our board of directors may have the effect of delaying or preventing changes in control of our company.

Nominees for Class I Directors

Two candidates have been nominated for election as Class I directors at the Annual Meeting for a three-year term expiring in 2019. Upon the recommendation of the Nominating and Corporate Governance Committee, the Board of Directors has nominated Lyndon R. Rive and John H.N. Fisher for re-election as Class I directors. Biographical information about each of the nominees is contained in the following section. A discussion of the qualifications, attributes and skills of each nominee that led our board of directors and the Nominating and Corporate Governance Committee to the conclusion that such person should continue to serve as a director has been added following each of the director and nominee biographies.

If you are a record holder and you sign your proxy card or vote by telephone or the Internet but do not give instructions with respect to the voting of directors, your shares will be voted FOR the re-election of Messrs. Rive and Fisher. We expect that Messrs. Rive and Fisher will accept such nomination; however, in the event that a nominee is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for any nominee who shall be designated by the board of directors to fill such vacancy. If you wish to give specific instructions with respect to the voting of directors, you may do so by indicating your instructions on your proxy card or when you vote by telephone or the Internet. If you hold your shares in street name and you do not give voting instructions to your broker, your broker will leave your shares unvoted on this matter.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THE ELECTION OF EACH OF
LYNDON R. RIVE AND JOHN H.N. FISHER.

 

 

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Information Regarding the Board of Directors and Director Nominees

The names of the proposed director nominees and each continuing member of the board of directors, their respective ages, their positions with SolarCity and other biographical information as of April 21, 2016, are set forth below. Messrs. Lyndon R. Rive and Peter J. Rive are brothers and each is a cousin of Mr. Musk. Apart from these relationships, there are no family relationships among any of our directors or executive officers.

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

 

Director

 

Term

Nominees

 

Class

 

Age

 

 

Position with SolarCity

 

Since

 

Expires

Lyndon R. Rive

 

I

 

 

39

 

 

Co-Founder, Chief Executive Officer and Director

 

2006

 

2016

John H.N. Fisher (2)(3)(6)

 

I

 

 

57

 

 

Director

 

2007

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Directors

 

 

 

 

 

 

 

 

 

 

 

 

Antonio J. Gracias

 

II

 

 

45

 

 

Director

 

2012

 

2017

Nancy E. Pfund (2)(4)(5)

 

II

 

 

60

 

 

Director

 

2007

 

2017

Peter J. Rive

 

II

 

 

42

 

 

Co-Founder, Chief Technology Officer and Director

 

2006

 

2017

Donald R. Kendall, Jr. (1)(4)

 

III

 

 

63

 

 

Director

 

2012

 

2018

Elon Musk

 

III

 

 

44

 

 

Chairman of the Board

 

2006

 

2018

Jeffrey B. Straubel (6)

 

III

 

 

40

 

 

Director

 

2006

 

2018

 

(1)

Chairperson of the audit committee

(2)

Member of the audit committee

(3)

Chairperson of the compensation committee

(4)

Member of the compensation committee

(5)

Chairperson of the nominating and corporate governance committee

(6)

Member of the nominating and corporate governance committee

Nominees for Director

Lyndon R. Rive, one of our founders, has served as our Chief Executive Officer and a member of our board of directors since July 2006. Prior to co-founding SolarCity, from October 1999 to July 2006, Mr. Rive co-founded and served as vice president and a member of the board of directors of Everdream Corporation, a leading provider of distributed computer management software and services acquired by Dell Inc. in 2007. Prior to this, Mr. Rive founded LRS, a distributor of health products in South Africa. Mr. Rive was selected to serve on our board of directors due to his perspective and experience as one of our founders and as our Chief Executive Officer, as well as his extensive background in the solar industry.

John H.N. Fisher has served as a member of our board of directors since August 2007. Mr. Fisher serves as the chairperson of our compensation committee and is also a member of our audit committee and our nominating and corporate governance committee. Mr. Fisher has served as a managing director of Draper Fisher Jurvetson (“DFJ”), a venture capital firm, for over two decades. Mr. Fisher serves on the board of directors of DFJ ePlanet Ventures and on the Investment Committees of DFJ Growth Fund and DFJ New England. Mr. Fisher previously held positions at ABS Ventures, Alex. Brown & Sons Inc., and Bank of America Corporation. Mr. Fisher serves as a Trustee of the California Academy of Sciences and serves on the board of directors of Common Sense Media. Mr. Fisher holds an A.B. degree from Harvard College and a M.B.A. from Harvard Business School. We believe Mr. Fisher possesses specific attributes that qualify him to serve as a member of our board of directors, including his management experience with a nationally recognized venture capital firm and his extensive experience as a venture capital investor and as a board member.

Continuing Directors

Elon Musk has served as the chairman of our board of directors since July 2006. Mr. Musk has served as the chief executive officer of Tesla Motors, Inc., a high-performance electric vehicle developer and manufacturer, since October 2008, and as chairman of the board of directors of Tesla Motors since April 2004. Mr. Musk has also served as chief executive officer, chief technology officer and chairman of Space Exploration Technologies Corporation, a company which is developing and launching advanced rockets for satellite and eventually human transportation, since May 2002. Mr. Musk co-founded PayPal, Inc., an electronic payment system, which was acquired by eBay Inc. in October 2002, and Zip2 Corporation, a provider of internet enterprise software and services, which was acquired by Compaq Computer Corporation in March 1999. Mr. Musk is also the co-chair of OpenAI, a non-profit artificial intelligence research company. Mr. Musk holds a bachelor’s degree in physics from the University of Pennsylvania and a bachelor’s degree in economics from the Wharton School of the University of Pennsylvania. We believe Mr. Musk possesses specific attributes that qualify him to serve as a member of our board of directors, including his extensive experience with technology companies and energy technology companies and the perspective and experience he brings as one of our largest stockholders.

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Antonio J. Gracias has served as a member of our board of directors since February 2012. Mr. Gracias has been chief executive officer of Valor Management Corp., a private equity firm, since 2003. Mr. Gracias holds a joint B.S. and M.S. degree in international finance and economics from the Georgetown University School of Foreign Service and a J.D. from the University of Chicago Law School. Mr. Gracias also serves as a member of the board of directors of Tesla Motors, Inc. and Space Exploration Technologies Corporation. We believe that Mr. Gracias possesses specific attributes that qualify him to serve as a member of our board of directors, including his management experience with a nationally recognized private equity firm and his operations management and supply chain optimization expertise.

Donald R. Kendall, Jr. has served as a member of our board of directors since September 2012. Mr. Kendall also serves as the chairperson of our audit committee and as a member of our compensation committee. Mr. Kendall is CEO of Five Stone Capital, LP, a private investment company. Mr. Kendall has also served as managing director and chief executive officer of Kenmont Capital Partners, an alternative investment firm specializing in power and energy investments, since October 1998. From January 2014 to March 2016, Mr. Kendall served as chief executive officer, president and a member of the board of directors of Blue Earth Capital, Inc., (a wholly-owned capital formation subsidiary of Blue Earth, Inc., a renewable energy and energy efficiency services company).  Previously, Mr. Kendall served as president of Cogen Technologies Capital Company, a power generation firm, and concurrently as chairman and chief executive officer of Palmetto Partners, an investment management firm, from July 1993 to October 1998. Mr. Kendall also serves on the board of directors and the audit committee of American Midstream GP, LLC, which operates as the general partner of American Midstream Partners, LP, an energy company which gathers, processes, transports and stores natural gas. Mr. Kendall holds a bachelor’s degree in economics from Hamilton College and an M.B.A. from the Amos Tuck School of Business Administration at Dartmouth College. We believe Mr. Kendall possesses specific attributes that qualify him to serve as a member of our board of directors, including his extensive experience with power, energy and alternative energy companies, his experience in executive management positions, his experience as a member of several public and private boards of directors, and his extensive financial expertise and prior service as a member of audit committees.

Nancy E. Pfund has served as a member of our board of directors since August 2007. Ms. Pfund serves as the chairperson of our nominating and corporate governance committee is also a member of our audit committee and compensation committee. Ms. Pfund has served as a managing partner of DBL Investors, a venture capital firm, since January 2008. Ms. Pfund previously served as a managing director of JPMorgan & Co., an investment bank, from January 2002 to January 2008. Ms. Pfund also is Chair of the Advisory Council of the Bill Lane Center for the American West at Stanford University; a member of the Advisory Board of the U.C. Davis Center for Energy Efficiency; Lecturer in the Practice of Management at the Yale School of Management; a board member of the California STEM Learning Network; a C3E Ambassador to the U.S. Clean Energy Education and Empowerment Program, led by the U.S. Department of Energy; and is a founding officer and director of ABC2, a foundation aimed at accelerating a cure for brain cancer. Ms. Pfund holds a bachelor’s degree and a master’s degree in anthropology from Stanford University and an M.B.A. from the Yale School of Management. We believe Ms. Pfund possesses specific attributes that qualify her to serve as a member of our board of directors, including her extensive experience as a venture capital investor focusing on technology companies, and as a board member.

Peter J. Rive, one of our founders, has served as our Chief Technology Officer and a member of our board of directors since July 2006. Mr. Rive also served as our Chief Operations Officer from July 2006 until February 2014. Prior to co-founding SolarCity, from April 2001 to June 2006, Mr. Rive served as chief technology officer of Everdream Corporation, a leading provider of distributed computer management software and services acquired by Dell Inc. in 2007. Mr. Rive holds a bachelor’s degree in computer science from Queen’s University, Canada. Mr. Rive was selected to serve on our board of directors due to his perspective and experience as one of our founders and as our Chief Technology Officer, as well as his extensive background in the solar industry.

Jeffrey B. Straubel has served as a member of our board of directors since August 2006. Mr. Straubel is also a member of our nominating and corporate governance committee. Mr. Straubel has served as chief technology officer of Tesla Motors, Inc. since May 2004, and as principal engineer, drive systems, from March 2004 to May 2005. Mr. Straubel served as chief technical officer and co-founder of Volacom Inc., an aerospace firm which designed a specialized high-altitude electric aircraft platform, from January 2002 to May 2004. Mr. Straubel holds a bachelor’s degree in energy systems engineering from Stanford University and a master’s degree in engineering, with an emphasis on energy conversion, from Stanford University. We believe Mr. Straubel possesses specific attributes that qualify him to serve as a member of our board of directors, including his extensive experience with energy technology companies.

See “Corporate Governance” and “Executive Compensation—Compensation of Directors” below for additional information regarding the Board of Directors.

 

 

 

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PROPOSAL TWO

RATIFICATION OF APPOINTMENT OF

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

General

The audit committee of the board of directors has appointed Ernst & Young LLP (“EY”), independent registered public accountants, to audit our financial statements for the year ending December 31, 2016. EY has served as our independent registered public accounting firm since November 2008.

Notwithstanding its selection and even if our stockholders ratify the selection, our audit committee, in its discretion, may appoint another independent registered public accounting firm at any time during the year if the audit committee believes that such a change would be in the best interests of SolarCity and its stockholders. At the Annual Meeting, the stockholders are being asked to ratify the appointment of EY as our independent registered public accounting firm for the year ending December 31, 2016. Our audit committee is submitting the selection of EY to our stockholders because we value our stockholders views on our independent registered public accounting firm and as a matter of good corporate governance. Representatives of EY will be present at the Annual Meeting, and they will have an opportunity to make statements and will be available to respond to appropriate questions from stockholders.

If the stockholders do not ratify the appointment of EY, the board of directors may reconsider the appointment.

Fees Paid to the Independent Registered Public Accounting Firm

The following table presents fees for professional audit services and other services rendered to our company by EY for the fiscal years ended December 31, 2014 and 2015.

 

 

 

2014

 

 

2015

 

Audit Fees (1)

 

$

4,090,082

 

 

$

4,424,136

 

Audit-Related Fees (2)

 

 

318,098

 

 

 

457,608

 

All Other Fees (3)

 

 

192,500

 

 

 

366,112

 

 

 

$

4,600,680

 

 

$

5,247,856

 

 

(1)

Audit Fees consist of professional services rendered in connection with the audit of our consolidated financial statements and review of our quarterly consolidated financial statements. Fees for 2014 include fees associated with our convertible notes offerings completed in September and October 2014, Solar Bonds offerings, and delivery of comfort letters, consents and review of documents filed with the SEC. Fees for 2015 include fees associated with our convertible notes offering completed in December 2015, Solar Bonds offerings, and delivery of comfort letters, consents and review of documents filed with the SEC.

(2)

Audit-Related Fees consist of fees for accounting consultations and professional services rendered in connection with assurance and related services that are not reported under “Audit Fees.”

(3)

All other Fees consisted of fees relating to services performed in connection with securitization transactions and fees relating to tax advisory services.

Auditor Independence

In fiscal 2015, our audit committee reviewed and pre-approved the provision of certain non-audit services to the Company by EY related to identifying and obtaining incentives in connection with our expansion into Salt Lake City, Utah, in exchange for which EY was paid $276,112 in fees and related expenses and is to receive an annual compliance fee of approximately $40,000. There were no other professional services provided by EY that would have required the audit committee to consider their compatibility with maintaining the independence of EY.

Audit Committee Policy on Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm

Consistent with requirements of the SEC and the Public Company Oversight Board, or PCAOB, regarding auditor independence, our audit committee is responsible for the appointment, compensation and oversight of the work of our independent registered public accounting firm. In recognition of this responsibility, our audit committee has established a policy for the pre-approval of all audit and permissible non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services.

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Before engagement of the independent registered public accounting firm for the next year’s audit, the independent registered public accounting firm submits a detailed description of services expected to be rendered during that year for each of the following categories of services to the audit committee for approval:

 

·

Audit services. Audit services include work performed for the audit of our financial statements and the review of financial statements included in our quarterly reports, as well as work that is normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings.

 

·

Audit-related services. Audit-related services are for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not covered above under “audit services.”

 

·

Tax services. Tax services include all services performed by the independent registered public accounting firm’s tax personnel for tax compliance, tax advice and tax planning.

 

·

Other services. Other services are those services not described in the other categories, including services performed in connection with our securitization transactions.

The audit committee pre-approves particular services or categories of services on a case-by-case basis. The fees are budgeted, and the audit committee requires the independent registered public accounting firm and management to report actual fees versus budgeted fees periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval. In those instances, the services must be pre-approved by the audit committee before the independent registered public accounting firm is engaged.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS SOLARCITY’S INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2016.

 

 

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PROPOSAL THREE

APPROVAL AND RATIFICATION OF OUR NON-EMPLOYEE DIRECTOR COMPENSATION PROGRAM

General

We are asking our stockholders to approve and ratify our non-employee director compensation program that became effective on June 2, 2015, under which our non-employee directors receive equity awards and annual cash retainers as compensation for their service on our board of directors (the “Director Compensation Program”).  We believe that the specialized skills, talent, judgment and dedication of our directors are critical factors affecting the long-term value of our company.  The goal of the Director Compensation Program is to attract and retain talented directors for service on our board of directors and to provide appropriate compensation for our directors’ leadership and expertise.  Without this program, it may be difficult for us to retain our current non-employee directors and to recruit additional qualified individuals to serve.

On September 18, 2015, a stockholder derivative action was filed in the Delaware Court of Chancery against the members of our board of directors, purportedly on behalf of the company, alleging that our directors breached their fiduciary duties and committed waste in connection with compensation paid to our non-employee directors under the Director Compensation Program.  The Director Compensation Program was duly adopted by our board of directors following the recommendation of our compensation committee.  Although we are not required to seek stockholder approval or ratification of our director compensation arrangements, we are asking our stockholders to approve this proposal and ratify the Director Compensation Program, so that we can confirm that our stockholders support our continuing to provide competitive levels of compensation to our non-employee directors for their valuable service to us as board members.

Stockholder approval of our Director Compensation Program may also result in the Court applying a more deferential standard when reviewing the compensation at issue in the litigation and as a result may result in a more favorable outcome for the Company.

As described below, the equity awards granted pursuant to the terms of the Director Compensation Program are in the form of nonstatutory stock options.  The stock options are granted with an exercise price equal to the fair market value of our common stock on the date of grant.  Granting our directors stock options aligns their interests with those of our stockholders because stock options only provide an economic benefit if the value of our common stock increases from the date of grant.  During fiscal 2015, we granted stock options under the Director Compensation Program covering an aggregate of 245,000 shares of our common stock to the seven continuing non-employee members of our board of directors with a weighted average exercise price of $62.34 per share, and with exercise prices ranging from $48.81 to $62.51.

We believe that our Director Compensation Program appropriately aligns our compensation program with the interests of our stockholders, particularly since the awards granted during fiscal 2015 under our Director Compensation Program will generally not have any economic value to our board members unless the trading price of our common stock exceeds $62.51 per share.  During the first fiscal quarter of 2016, the trading price of our common stock ranged from $16.31 to $53.61, and as of March 31, 2016, the closing trading price of our common stock was $24.58. Only the 3,000 share option award granted to Mr. Kendall in August 2015 in connection with his appointment to our Compensation Committee has an exercise price less than $62.51 per share. Since their grant date, all other awards granted under our Director Compensation Program in fiscal 2015 have been out-of-the-money (with the exception of a single day on which the closing trading price of our stock exceeded the exercise price of the stock options by $0.08).  To date, none of our directors have exercised any stock options granted under the Director Compensation Program.

Additional information regarding the grant date fair values of the stock option awards granted under our Director Compensation Program in fiscal 2015, as computed in accordance with Financial Accounting Standard Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation, is set forth in “Corporate Governance – Non-Employee Director Compensation” below.

Background of Director Compensation Program

In September 2012 in anticipation of the initial public offering of our common stock, we implemented a director compensation program pursuant to which our non-employee directors were eligible to receive equity awards and annual cash retainers as compensation for service on our board of directors.  Our compensation committee had periodically reviewed the effectiveness of our director compensation program, and in the second quarter of 2015 recommended to the board of directors that we update our program.  The Director Compensation Program that became effective June 2, 2015 replaced the director compensation program in effect at the time of our initial public offering.

Under the previous director compensation program, each individual who joined our board of directors as a non-employee director received a stock option grant to purchase 30,000 shares at the time of initial election or appointment and thereafter was to

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receive an option grant to purchase 15,000 shares every three years, as well as an annual cash retainer of $15,000. No additional compensation was previously provided for committee service.

Our board of directors approved the revised Director Compensation Program because it believes that it provides the appropriate level of cash and equity compensation necessary to attract and retain the type of qualified individuals who it believes are necessary and desirable to serve on our board of directors and its committees and to work in the best interests of the company and our stockholders.

Director Compensation Program

A summary of the material terms of the Director Compensation Program can be found below and in this proxy statement under “Non-Employee Director Compensation”.

Cash Compensation

Annual Cash Retainer

Each non-employee director is paid an annual cash retainer of $20,000 for his or her service on our board of directors.  There are no per‑meeting attendance fees for attending board meetings.

Committee Chairperson and Member Annual Cash Retainer

Each non-employee director who serves as chair or a member of a committee of the board of directors is paid additional annual fees as follows:

 

Board / Committee Position

 

Annual Retainer

($)

 

Chairperson of Audit Committee

 

 

15,000

 

Non-Chair Member of Audit Committee

 

 

5,000

 

Chairperson of Compensation Committee

 

 

5,000

 

Non-Chair Member of Compensation Committee

 

 

3,000

 

Chairperson of Nominating and Corporate Governance Committee

 

 

3,000

 

Non-Chair Member of Nominating and Corporate Governance Committee

 

 

1,000

 

 

Equity Compensation

Initial Equity Award

Upon his or her initial election or appointment to our board of directors, each non-employee director receives a nonstatutory stock option to purchase 33,333 shares of our common stock (the “Initial Option”).  The Initial Option has an exercise price equal to the value of our common stock on the date of grant and is scheduled to vest over four years, with 25% of the shares subject to the Initial Option vesting after one-year and the remaining shares vesting monthly thereafter, subject to continued service as a member of our board of directors through the vesting dates.

Recurring Stock Option Awards

Following the vesting in full of the Initial Option, each non-employee director would receive a grant of a nonstatutory stock option to purchase 30,000 shares of our common stock (the “Recurring Board Service Option”).  The Recurring Board Service Option, if any, would have an exercise price equal to the value of our common stock on the date of grant and would be scheduled to vest monthly over three years, subject to continued service as a member of our board of directors through the vesting dates. After a Recurring Board Service Option has vested in full, successive Recurring Board Service Options would be granted in the same amounts and on the same vesting terms (that is, there is a new Recurring Board Service Option granted every three years subject to continued service as a board member).

Committee Service Option Awards

In addition to the Initial Option and Recurring Board Service Option, upon his or her initial appointment, each non-employee director serving on one of our standing board committees receives one or more grants of nonstatutory stock options in the amounts set forth below (together, the “Committee Service Options”).  Each Committee Service Option has an exercise price equal to the value of our common stock on the date of grant and is scheduled to vest monthly over three years, subject to continued service on such

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committee through the vesting dates.  After a Committee Service Option has vested in full, successive Committee Service Options would be granted in the same amounts and on the same vesting terms (that is, there is a new Committee Service Option granted every three years subject to continued service on such committee).

 

Board / Committee Position

 

Shares Subject to

Option Award

(#)

 

Chairperson of Audit Committee

 

 

10,000

 

Non-Chair Member of Audit Committee

 

 

3,500

 

Chairperson of Compensation Committee

 

 

5,000

 

Non-Chair Member of Compensation Committee

 

 

3,000

 

Chairperson of Nominating and Corporate Governance Committee

 

 

3,000

 

Non-Chair Member of Nominating and Corporate Governance Committee

 

 

1,000

 

 

Attracting and retaining talented and qualified individuals to serve on our board of directors is critical to the company’s long-term success.  The Director Compensation Program is critical for us to be able to accomplish this. Accordingly, we are asking our stockholders to approve this proposal and ratify the Director Compensation Program so that we will be able to continue compensating our non-employee directors fairly for their service on our board of directors.

The Board of Directors Recommends a Vote
“FOR” APPROVAL AND RATIFICATION OF OUR NON-EMPLOYEE DIRECTOR
COMPENSATION PROGRAM.

 

 

 

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PROPOSAL FOUR

APPROVAL OF THE 2012 EQUITY INCENTIVE PLAN (AS AMENDED AND RESTATED)

We are asking our stockholders to approve the SolarCity Corporation 2012 Equity Incentive Plan, as amended and restated (the “Amended 2012 Plan”).  In particular, we are seeking stockholder approval of the material terms of the Amended 2012 Plan for purposes of being able to qualify awards as “performance-based compensation” under Section 162(m) of the Internal Revenue Code of 1986, as amended (“Section 162(m)”).  We are not requesting an increase to the number of shares reserved for issuance under the Amended 2012 Plan.  If our stockholders approve the Amended 2012 Plan, it will replace the current version of the SolarCity Corporation 2012 Equity Incentive Plan and will continue in effect through its new term year of 2026, unless terminated earlier by our board of directors.

The Amended 2012 Plan has been amended to allow us to continue to deduct in full for federal income tax purposes the compensation recognized by our executive officers in connection with certain awards granted under the Amended 2012 Plan. Section 162(m) generally denies a corporate tax deduction for annual compensation exceeding $1 million paid to the chief executive officer and other “covered employees” as determined under Section 162(m) and applicable guidance. However, certain types of compensation, including performance-based compensation, are generally excluded from this deductibility limit. By approving the Amended 2012 Plan, the stockholders will be approving the material terms of the plan, which include, among other things, the eligibility requirements for participation in the Amended 2012 Plan, including the ability of the Chief Executive Officer and three most highly compensated officers (other than the Chief Financial Officer) to receive awards under the Amended 2012 Plan.  Even though the Amended 2012 Plan would permit us to grant awards that qualify as performance-based compensation under Section 162(m), our compensation committee may choose to grant awards that are not intended to qualify as performance-based compensation under Section 162(m) if it determines that doing so would be in our best interests.

Further, we are asking our stockholders to approve a new ten-year term for the Amended 2012 Plan such that, if approved, the Amended 2012 Plan will continue in effect through 2026, unless terminated earlier by our board of directors.

Our compensation committee and board of directors have approved the Amended 2012 Plan subject to the approval of our stockholders at this meeting. Approval of the Amended 2012 Plan requires the affirmative vote of the holders of a majority of votes cast on the proposal. If our stockholders do not approve the Amended 2012 Plan, we will continue to grant equity awards under the existing 2012 Equity Incentive Plan, as amended to date.

The following is a summary of some of the material changes to the Amended 2012 Plan, as amended and restated.  This comparative summary is qualified in its entirety by reference to the actual text of the Amended 2012 Plan, set forth as Appendix A.  The Amended 2012 Plan has been drafted to include limitations to the number of shares that may be granted, on an annual basis, through each type award under the plan, which is necessary to allow us to qualify awards as performance-based compensation under Section 162(m).

 

·

The Amended 2012 Plan has been drafted to include limitations to the number of shares that may be granted, on a fiscal year basis, of each type of award under the plan, which is necessary to allow us to qualify awards as performance-based compensation under Section 162(m).

 

·

Specific performance criteria are included in the Amended 2012 Plan so that certain awards may be granted subject to or conditioned upon the satisfaction of performance objectives, which in turn will allow us to be eligible to receive income tax deductions under Section 162(m).  These performance criteria include: the installation, deployment, placement in service, sale, lease or other construction and delivery of solar energy systems, energy storage systems, energy management systems and related products and services; production of solar modules; customer acquisition; cost reduction levels; cost-based efficiency targets, for example, the Company’s cost per watt and cost of production of solar modules; value created by operations (consistent with the Company’s prior public reporting of “Value of MW”); debt; debt reduction; cost of capital; asset financing (consistent with the Company’s prior public reporting of “Asset Financing in Period”); financing receivables; monetization of solar energy systems, energy storage systems, energy management systems and related products and services; monetization of receivables; system up-times; financial close process and timing; bookings; capital expenditures; cash flow; change in assets; customer retention; customer cancellation rates; customer default rates; customer satisfaction; delivery performance; earnings before interest and taxes; earnings before interest, taxes, depreciation, and amortization; earnings per share, diluted or basic; earnings per share from continuing operations, diluted or basic; economic value added; expense reduction levels; gross or operating margin; inventory turnover; market share; market capitalization; net asset turnover; net bookings; net earnings; net income; net or gross sales; net profit; new product introductions; operating cash flow; operating earnings; operating expenses; pre-tax profit; productivity; profit; profit margin; return on capital; return on equity; return on investment; return on net assets; return on sales; return on total assets; revenue; stock price; total earnings; total stockholder return; and working capital.  The performance goals may differ from participant to participant and from award to award, may be used alone or in combination, may be used to measure our performance as a whole or the performance of one of our business units or

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product lines, may be measured in absolute terms or based on growth and may be measured relative to a peer group or index. 

 

·

The Amended 2012 Plan will have a new ten-year term commencing on the date of the 2016 Annual Meeting.

 

·

The Amended 2012 Plan permits us to grant dividend equivalents and deferred stock units to our employees, consultants and directors.

Additional Information Regarding our Equity Program and the Amended 2012 Plan

 

·

As of March 31, 2016, a maximum of 28,799,357 shares of our common stock were reserved for issuance under the Amended 2012 Plan, of which 16,511,162 shares were subject to outstanding equity awards and 7,319,079 shares remained available for issuance.  We are not requesting an increase to the number of shares reserved for issuance under the Amended 2012 Plan, but the Amended 2012 Plan continues to provide for an annual increase in the number of shares available for issuance as discussed below.

 

·

As of March 31, 2016, we had outstanding stock option awards covering 12,881,841 shares of common stock and 3,629,321 shares of common stock subject to unvested restricted stock unit awards.  Accordingly, the shares subject to outstanding equity awards and shares reserved for future issuance under the Amended 2012 Plan represent approximately 19.5% of our 98,296,422 total outstanding shares of common stock as of March 31, 2016 plus such shares subject to outstanding equity awards and shares reserved for future issuance under the Amended 2012 Plan.

 

·

Our burn rate, calculated as the number of shares subject to equity awards granted during a fiscal year divided by the total common shares outstanding as of the end of such fiscal year, was 5.2% for fiscal 2013, 6.8% for fiscal 2014 and 10.0% for fiscal 2015.  In fiscal 2015, we granted 5,000,000 shares (or approximately 5% of the total shares outstanding in fiscal 2015) subject to performance-based stock option awards to our founders (as described in more detail in “Compensation of our Founders” below).  Excluding the issuance of these founder awards, our burn rate for fiscal 2015 would have been 4.9%.  During this three year period, our employee population grew from approximately 2,500 full-time employees to over 15,000 full-time employees.  We expect that the existing share reserves under our Amended 2012 Plan (including future evergreen increases) will be sufficient for the next three years.

Summary of the Amended 2012 Plan

The following summarizes the principal features of the Amended 2012 Plan and its operation. The summary is qualified in its entirety by reference to the Amended 2012 Plan as set forth in Appendix A.

Authorized Awards/Eligibility.  The Amended 2012 Plan permits the grant of incentive stock options, within the meaning of Code Section 422, to our employees and any of our parent and subsidiary corporations’ employees, and for the grant of nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares, dividend equivalents, and deferred stock units to our employees, directors and consultants and our parent and subsidiary corporations’ employees and consultants.  As of March 31, 2016, over 14,000 employees, directors and consultants were eligible to participate in the Amended 2012 Plan.

Authorized Shares.  The maximum aggregate number of shares that may be issued under the Amended 2012 Plan is currently 28,799,357 shares.  As of March 31, 2016, 16,511,162 shares were subject to outstanding equity awards and 7,319,079 shares remained available for issuance.

As in the current plan, our Amended 2012 Plan provides that the number of shares available for issuance will be annually increased on the first day of each of fiscal year by an amount equal to the least of:

 

·

8,000,000 shares;

 

·

4% of the outstanding shares of our common stock as of the last day of our immediately preceding fiscal year; or

 

·

such other amount as our board of directors may determine.

Shares issued pursuant to awards under the Amended 2012 Plan that we repurchase or that are forfeited, as well as shares used to pay the exercise price of an award or to satisfy the tax withholding obligations related to an award, will become available for future grant under the Amended 2012 Plan. In addition, to the extent that an award is paid out in cash rather than shares, such cash payment will not reduce the number of shares available for issuance under the Amended 2012 Plan.

Plan Administration.  The Amended 2012 Plan is administered by our board of directors and our compensation committee.  Our board of directors believes that each member of our compensation committee meets the requirements for independence under the

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current requirements of The NASDAQ Stock Market, is a nonemployee director as defined by Rule 16b-3 promulgated under the Exchange Act and is an outside director as defined pursuant to Section 162(m) of the Code.

Subject to the provisions of the Amended 2012 Plan, the administrator has the power to determine the terms of awards, including the recipients, the exercise price, if any, the number of shares subject to each award, the fair market value of a share of our common stock, the vesting schedule applicable to the awards, together with any vesting acceleration, the form of consideration, if any, payable upon exercise of the award and the terms of the award agreement for use under the Amended 2012 Plan. The administrator also has the authority, subject to the terms of the Amended 2012 Plan, to institute an exchange program under which the exercise price of an outstanding award is increased or reduced, participants would have the opportunity to transfer outstanding awards to a financial institution or other person or entity selected by the administrator, or outstanding awards may be surrendered or cancelled in exchange for awards that may have different exercise prices and terms and to prescribe rules and to construe and interpret the Amended 2012 Plan and awards granted thereunder. The administrator’s decisions, determinations and interpretations will be final and binding on all participants.

Stock Options.  The administrator may grant incentive and/or nonstatutory stock options under the Amended 2012 Plan; provided that incentive stock options are only granted to employees. The exercise price of all options must equal at least the fair market value of our common stock on the date of grant. The term of an option may not exceed ten years; provided, however, that an incentive stock option held by a participant who owns more than 10% of the total combined voting power of all classes of our stock, or of certain of our parent or subsidiary corporations, may not have a term in excess of five years and must have an exercise price of at least 110% of the fair market value of our common stock on the grant date. The administrator will determine the methods of payment of the exercise price of an option, which may include cash, shares or other form of consideration determined by the administrator. Subject to the provisions of the Amended 2012 Plan, the administrator determines the remaining terms of the options (e.g., vesting). After the termination of service of an employee, director or consultant, the participant may exercise his or her option, to the extent vested as of such date of termination, for the period of time stated in his or her award agreement. Generally, if termination is due to death or disability, the option will remain exercisable for twelve months. The Amended 2012 Plan provides that in all other cases, unless otherwise specified in the award agreement, the option will generally remain exercisable for three months following the termination of service. Award agreements generally provide for a post-termination exercise period of 30 days, and in no event may an option be exercised later than the expiration of its term. The specific terms will be set forth in the award agreement.

Stock Appreciation Rights.  Stock appreciation rights may be granted under the Amended 2012 Plan. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of our common stock between the exercise date and the date of grant. Subject to the provisions of the Amended 2012 Plan, the administrator determines the terms of the stock appreciation rights, including when such rights vest and become exercisable and whether to settle such awards in cash or with shares of our common stock, or a combination thereof, except that the per share exercise price for the shares to be issued pursuant to the exercise of a stock appreciation right will be no less than 100% of the fair market value per share on the grant date. The specific terms will be set forth in an award agreement.

Restricted Stock.  Restricted stock may be granted under the Amended 2012 Plan. Restricted stock awards are grants of shares of our common stock that are subject to various restrictions, including restrictions on transferability and forfeiture provisions. Shares of restricted stock will vest and the restrictions on such shares will lapse, in accordance with terms and conditions the administrator establishes. Such terms may include, among other things, vesting upon the achievement of specific performance goals determined by the administrator and/or continued service to us. The administrator, in its sole discretion, may accelerate the time any restrictions will lapse or be removed. Recipients of restricted stock awards generally will have voting and dividend rights with respect to such shares upon grant without regard to vesting, unless the administrator provides otherwise. Shares of restricted stock that do not vest for any reason will be forfeited by the recipient and will revert to us. The specific terms will be set forth in an award agreement.

Restricted Stock Units.  Restricted stock units may be granted under the Amended 2012 Plan. Each restricted stock unit granted is a bookkeeping entry representing an amount equal to the fair market value of one share of our common stock. The administrator determines the terms and conditions of restricted stock units including the vesting criteria, which may include achievement of specified performance criteria or continued service to us, and the form and timing of payment. The administrator, in its sole discretion, may reduce or waive any vesting criteria that must be met to receive a payout. The administrator determines in its sole discretion whether an award will be settled in stock, cash or a combination of both. The specific terms will be set forth in an award agreement.

Performance Units/Performance Shares.  Performance units and performance shares may be granted under the Amended 2012 Plan. Performance units and performance shares are awards that will result in a payment to a participant only if performance goals established by the administrator are achieved or the awards otherwise vest. The administrator will establish organizational or individual vesting criteria in its discretion, which, depending on the extent to which they are met, will determine the number and/or the value of performance units and performance shares to be paid out to participants. After the grant of a performance unit or performance share, the administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such performance units or performance shares. Performance units shall have an initial value established by the administrator prior to the

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grant date. Performance shares shall have an initial value equal to the fair market value of our common stock on the grant date. The administrator, in its sole discretion, may pay earned performance units or performance shares in the form of cash, in shares or in some combination thereof. The specific terms will be set forth in an award agreement.

Dividend Equivalents.  The administrator, in its discretion, may provide in the award agreement that the participant will be entitled to receive dividend equivalents with respect to the payment of cash dividends on shares having a record date prior to the date on which the awards are settled or forfeited.  The dividend equivalents, if any, will be credited to an award in such manner and subject to such terms and conditions as determined by the administrator in its sole discretion.  Dividend equivalents will be subject to the fiscal year Section 162(m) limits applicable to the underlying award.

Deferred Stock Units.  The administrator will be able to grant deferred stock units, which are awards that consist of a restricted stock, restricted stock unit, performance share, or performance unit award that the administrator, in its sole discretion, permits to be paid out in installments or on a deferred basis, in accordance with rules and procedures established by the administrator. Deferred stock units will be subject to the fiscal year Section 162(m) limits applicable to the underlying award.

Performance Goals. Awards of restricted stock, restricted stock units, performance shares, performance units and other incentives under the Amended 2012 Plan may be made subject to the attainment of performance goals relating to one or more business criteria within the meaning of Section 162(m) and may provide for a targeted level or levels of achievement using one or more of the following measures: the installation, deployment, placement in service, sale, lease or other construction and delivery of solar energy systems, energy storage systems, energy management systems and related products and services; production of solar modules; customer acquisition; cost reduction levels; cost-based efficiency targets, for example, the Company’s cost per watt and cost of production of solar modules; value created by operations (consistent with the Company’s prior public reporting of “Value of MW”); debt; debt reduction; cost of capital; asset financing (consistent with the Company’s prior public reporting of “Asset Financing in Period”); financing receivables; monetization of solar energy systems, energy storage systems, energy management systems and related products and services; monetization of receivables; system up-times; financial close process and timing; bookings; capital expenditures; cash flow; change in assets; customer retention; customer cancellation rates; customer default rates; customer satisfaction; delivery performance; earnings before interest and taxes; earnings before interest, taxes, depreciation, and amortization; earnings per share, diluted or basic; earnings per share from continuing operations, diluted or basic; economic value added; expense reduction levels; gross or operating margin; inventory turnover; market share; market capitalization; net asset turnover; net bookings; net earnings; net income; net or gross sales; net profit; new product introductions; operating cash flow; operating earnings; operating expenses; pre-tax profit; productivity; profit; profit margin; return on capital; return on equity; return on investment; return on net assets; return on sales; return on total assets; revenue; stock price; total earnings; total stockholder return; and working capital.  The performance goals may differ from participant to participant and from award to award, may be used alone or in combination, may be used to measure our performance as a whole or the performance of one of our business units, and may be measured relative to a peer group or index.  

To the extent necessary to comply with the performance-based compensation provisions of Section 162(m), with respect to any award granted subject to performance goals, no later than the latest possible date that will not jeopardize the qualification of an award granted under the Amended 2012 Plan as “performance-based compensation” under Section 162(m), the administrator will, in writing: (i) designate one or more participants to whom an award will be made, (ii) select the performance goals applicable to the performance period, (iii) establish the performance goals, and amounts or methods of computation of such awards, as applicable, which may be earned for such performance period, and (iv) specify the relationship between performance goals and the amounts or methods of computation of such awards, as applicable, to be earned by each participant for such performance period. Following the completion of each performance period, the administrator will certify in writing whether the applicable performance goals have been achieved for such performance period. In determining the amounts earned by a participant, the administrator will have the right to reduce or eliminate (but not to increase) the amount payable at a given level of performance to take into account additional factors that the administrator may deem relevant to the assessment of individual or corporate performance for the performance period. A participant will be eligible to receive payment pursuant to an award for a performance period only if the performance goals for such period are achieved, unless otherwise permitted by Section 162(m) and determined by the administrator.  The compensation committee may in its discretion grant awards that are not intended to qualify as “performance-based compensation” under 162(m), including awards that are based on performance goals or other specific criteria or goals but do not satisfy the requirements of 162(m), if it determines doing so is in the best interests of SolarCity and its stockholders.

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Individual Award Limitations.  The Amended 2012 Plan contains annual grant limits intended to satisfy certain Section 162(m) requirements. Specifically, the maximum number of shares and/or dollars which could be issued to any one individual in any fiscal year pursuant to the Amended 2012 Plan is as follows:

 

Award Type

Annual Number of Shares or Dollar Value

Stock Option

5,000,000 shares

Stock Appreciation Right

5,000,000 shares

Restricted Stock

2,500,000 shares

Restricted Stock Units

2,500,000 shares

Performance Shares

2,500,000 shares

Performance Units

Initial Value of $10,000,000

Deferred Stock Units

Same as fiscal year limits applicable to underlying restricted stock, restricted stock unit, performance share, or performance unit award

Transferability of Awards.  Unless the administrator provides otherwise, the Amended 2012 Plan generally does not allow for the transfer of awards other than by will or by the laws of descent or distribution and awards may be exercised by the participant only during his or her lifetime.

Certain Adjustments.  In the event of certain changes in our capitalization, to prevent diminution or enlargement of the benefits or potential benefits available under the Amended 2012 Plan, the administrator will make adjustments to one or more of the number and class of shares that may be delivered under the plan and/or the number, class and price of shares covered by each outstanding award and the numerical share limits contained in the plan. In the event of our proposed liquidation or dissolution, the administrator will notify participants as soon as practicable prior to the proposed transaction and all awards will terminate immediately prior to the consummation of such proposed transaction.

Merger or Change in Control.  The Amended 2012 Plan provides that in the event of a merger or change in control, as defined under the Amended 2012 Plan, each outstanding award will be treated as the administrator determines, except that if a successor corporation or its parent or subsidiary does not assume or substitute an equivalent award for any outstanding award, then such award will fully vest, all restrictions on such award will lapse, all performance goals or other vesting criteria applicable to such award will be deemed achieved at 100% of target levels and such award will become fully exercisable, if applicable, for a specified period prior to the transaction. The award will then terminate upon the expiration of the specified period of time. If an outside director’s awards are assumed or substituted for and his or her service as an outside director is terminated on or following a change in control, other than pursuant to a voluntary resignation, his or her options and stock appreciation rights, if any, will vest fully and become immediately exercisable, all restrictions on his or her restricted stock and restricted stock units will lapse, and all performance goals or other vesting requirements for his or her performance shares and units will be deemed achieved at 100% of target levels, and all other terms and conditions met.

Plan Amendment; Termination.  Our board of directors has the authority to amend, alter, suspend or terminate the Amended 2012 Plan provided such action does not impair the existing rights of any participant. The Amended 2012 Plan will automatically terminate in 2026, unless we terminate it sooner.

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Participation in Amended 2012 Plan Benefits

The amount and timing of awards granted under the Amended 2012 Plan are determined in the sole discretion of the administrator and therefore cannot be determined in advance. The future awards that would be received under the Amended 2012 Plan by executive officers and other employees are discretionary and are therefore not determinable at this time.  The following table sets forth (i) the aggregate number of shares of common stock subject to options and restricted stock units granted under the Amended 2012 Plan to our Named Executive Officers (“NEOs”) during the last fiscal year and (ii) the average per share exercise price of such options.

 

Name of Individual or Group

Number of Shares

Subject to Stock

Option Awards

Granted

 

Weighted Average

Per Share Exercise

Price of Options ($)

 

Number of Shares

Subject to Restricted

Stock Unit Awards

Granted

 

Lyndon R. Rive

Chief Executive Officer

 

3,000,000

 

 

48.97

 

 

-

 

Peter J. Rive

Chief Technology Officer

 

2,000,000

 

 

48.97

 

 

-

 

Tanguy V. Serra

President and Chief Financial Officer

 

400,000

 

 

40.05

 

 

90,558

 

Hayden D. Barnard

Chief Revenue Officer

 

-

 

 

-

 

 

118,645

 

Brad W. Buss

former Chief Financial Officer

 

-

 

 

-

 

 

-

 

John H.N. Fisher

Non-Employee Member of Board of Directors

 

39,500

 

 

62.51

 

 

-

 

All executive officers, as a group (6 persons)

 

5,510,000

 

 

48.32

 

 

297,477

 

All directors who are not executive officers, as a group (8 persons)

 

245,000

 

 

62.34

 

 

-

 

All employees who are not executive officers, as a group

 

692,794

 

 

55.94

 

 

3,034,507

 

 

U.S. Federal Income Tax Information

Incentive Stock Options. An optionee who is granted an incentive stock option does not recognize taxable income at the time the option is granted or upon its exercise, although the exercise is an adjustment item for alternative minimum tax purposes and may subject the optionee to the alternative minimum tax. Upon a disposition of the shares more than two years after grant of the option and one year after exercise of the option, any gain or loss is treated as long-term capital gain or loss. If these holding periods are not satisfied, the optionee recognizes ordinary income at the time of disposition equal to the difference between the exercise price and the lower of (i) the fair market value of the shares at the date of the option exercise, or (ii) the sale price of the shares. Any gain or loss recognized on such a premature disposition of the shares in excess of the amount treated as ordinary income is treated as long-term or short-term capital gain or loss, depending on the holding period. Unless limited by Section 162(m), we are generally entitled to a deduction in the same amount as the ordinary income recognized by the optionee.

Nonstatutory Stock Options. An optionee does not recognize any taxable income at the time he or she is granted a nonstatutory stock option. Upon exercise, the optionee recognizes taxable income generally measured by the excess of the then fair market value of the shares over the exercise price. Any taxable income recognized in connection with an option exercise by an employee is subject to tax withholding. Unless limited by Section 162(m), we are generally entitled to a deduction in the same amount as the ordinary income recognized by the optionee. Upon a disposition of such shares by the optionee, any difference between the sale price and the optionee’s exercise price, to the extent not recognized as taxable income as provided above, is treated as long-term or short-term capital gain or loss, depending on the holding period.

Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units, and Deferred Stock Units. A participant generally will not have taxable income at the time an award of restricted stock, restricted stock units, performance shares, performance units or deferred stock units, are granted. Instead, he or she will recognize ordinary income in the first taxable year in which his or her interest in the shares underlying the award becomes either (i) freely transferable, or (ii) no longer subject to substantial risk of forfeiture (e.g., vested). However, a holder of a restricted stock award may elect to recognize income at the time he or she receives the award in an amount equal to the fair market value of the shares underlying the award less any amount paid for the shares on the date the award is granted.

SARs. No taxable income is reportable when a SAR is granted to a participant. Upon exercise, the participant will recognize ordinary income in an amount equal to the amount of cash received and the fair market value of any shares received. Any additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss.

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Dividend Equivalents.  A participant will recognize taxable income upon the payout of a dividend equivalent.

Our Tax Impact from Awards. We generally will be entitled to a tax deduction in connection with an award under the Amended 2012 Plan in an amount equal to the ordinary income realized by a participant and at the time the participant recognizes such income (for example, the exercise of a nonstatutory stock option). Special rules limit the deductibility of compensation paid to our named executive officers. Under Section 162(m), the annual compensation paid to certain named executive officers may not be deductible to the extent it exceeds $1,000,000. However, we can preserve the deductibility of certain compensation in excess of $1,000,000 if the conditions of Section 162(m) are met. These conditions include stockholder approval of the Amended 2012 Plan and setting limits on the number of awards that any individual may receive per year. The Amended 2012 Plan has been designed to permit the administrator to grant awards that qualify as performance-based for purposes of satisfying the conditions of Section 162(m), which permits us to continue to receive a federal income tax deduction in connection with such awards.

THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF U.S. FEDERAL INCOME TAXATION WITH RESPECT TO THE GRANT AND EXERCISE OF AWARDS UNDER THE AMENDED 2012 PLAN. IT DOES NOT PURPORT TO BE COMPLETE AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF AN INDIVIDUAL’S DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE, OR FOREIGN COUNTRY IN WHICH ANY ELIGIBLE INDIVIDUAL MAY RESIDE.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE
“FOR” APPROVAL OF THE 2012 EQUITY INCENTIVE PLAN
(AS AMENDED AND RESTATED) ON PROPOSAL FOUR.

 

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PROPOSAL FIVE
STOCKHOLDER PROPOSAL

In accordance with SEC rules, we have set forth below a stockholder proposal from James McRitchie, 9295 Yorkship Court, Elk Grove, California 95758, along with a supporting statement of the proponent. Mr. McRitchie has notified us that he is the beneficial owner of 50 shares of the Company’s common stock and intends to present the following proposal at our 2016 Annual Meeting.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “AGAINST” PROPOSAL FIVE.

Proposal Five - Shareholder Proxy Access

RESOLVED: Shareholders of SolarCity Corporation (the “Company”) ask the board of directors (the “Board”) to adopt, and present for shareholder approval, a “proxy access” bylaw as follows:

Require the Company to include in proxy materials prepared for a shareholder meeting at which directors are to be elected the name, Disclosure and Statement (as defined herein) of any person nominated for election to the board by a shareholder or an unrestricted number of shareholders forming a group (the “Nominator”) that meets the criteria established below.

Allow shareholders to vote on such nominee on the Company’s proxy card.

The number of shareholder-nominated candidates appearing in proxy materials should not exceed one-quarter of the directors then serving or two, whichever is greater. This bylaw should supplement existing rights under Company bylaws, providing that a Nominator must:

 

(a)

have beneficially owned 3% or more of the Company's outstanding common stock, including recallable loaned stock, continuously for at least three years before submitting the nomination;

 

(b)

give the Company, within the time period identified in its bylaws, written notice of the information required by the bylaws and any Securities and Exchange Commission (SEC) rules about (i) the nominee, including consent to being named in proxy materials and to serving as director if elected; and (ii) the Nominator, including proof it owns the required shares (the “Disclosure”); and

 

(c)

certify that (i) it will assume liability stemming from any legal or regulatory violation arising out of the Nominator’s communications with the Company shareholders, including the Disclosure and Statement; (ii) it will comply with all applicable laws and regulations if it uses soliciting material other than the Company's proxy materials; and (iii) to the best of its knowledge, the required shares were acquired in the ordinary course of business, not to change or influence control at the Company.

The Nominator may submit with the Disclosure a statement not exceeding 500 words in support of the nominee (the “Statement”). The Board should adopt procedures for promptly resolving disputes over whether notice of a nomination was timely, whether the Disclosure and Statement satisfy the bylaw and applicable federal regulations, and the priority given to multiple nominations exceeding the one-quarter limit. No additional restrictions that do not apply to other board nominees should be placed on these nominations or re-nominations.

Shareholder Supporting Statement

Long-term shareholders should have a meaningful voice in nominating directors. The SEC’s universal proxy access Rule 14a-11 (https://www.sec.gov/rules/final/2010/33-9136.pdf) was vacated, in part due to inadequate cost-benefit analysis. Proxy Access in the United States (http://www.cfapubs.org/doi/pdf/10.2469/ccb.v2014.n9.1), a cost-benefit analysis by CFA Institute, found proxy access would “benefit both the markets and corporate boardrooms, with little cost or disruption,” raising US market capitalization by up to $140.3 billion. Public Versus Private Provision of Governance (http://ssrn.com/abstract=2635695) found a 0.5 percent average increase in shareholder value for proxy access targeted firms.

Enhance shareholder value. Vote for Shareholder Proxy Access – Proposal Five.

Opposing Statement of the Board of Directors to Proposal Five

The Board of Directors has considered Mr. McRitchie’s proposal and has determined that it is not in the best interests of the Company or its shareholders.

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In 2011, the U.S. Court of Appeals for the D.C. Circuit vacated Rule 14a-11 as an “arbitrary and capricious” exercise of authority.  In its opinion, the Court stated that the SEC had failed “adequately to assess the economic effects” of the rule. In response, the SEC did not seek rehearing of the decision, although then SEC chairperson Mary Schapiro maintained that the SEC was “committed to finding a way to make it easier for shareholders to nominate candidates to corporate boards.” In the meantime, SolarCity and other U.S. issuers await further action and guidance by the SEC and further commentary from issuers and other advisers regarding an appropriate means of providing proxy access to shareholders.

The Board of Directors and executive officers of the Company welcome direct engagement with the Company’s shareholders, and the Company maintains an active shareholder engagement program.  SolarCity has maintained a means for its shareholders to communicate with board members, including for the purpose of recommending candidates for election to the Board of Directors.  To date, none of our shareholders have engaged in this established process to nominate a candidate for consideration.

In considering the composition of the Board of Directors, our directors act within their fiduciary duties to consider characteristics of potential nominees regarding issues of character, integrity, judgment, diversity of experience, independence, area of expertise, corporate experience, length of service, potential conflicts of interest and other commitments. Historically, our shareholders have overwhelmingly supported our board nominees.

In absence of both widespread adoption by U.S. issuers and applicable SEC rules adopted after a comprehensive review and comment period and applied uniformly to all publicly traded issuers, the Company does not believe that its shareholders are better served by following a minority of U.S. issuers in adopting this proposal.

In addition, the Board of Directors believes that the proxy access proposal supported by the proponent could be detrimental to the Company for various reasons, including the increased distraction caused to management and the Board of Directors from proxy contests, the potentially short-term or special interest focus of directors elected through proxy access and the possible increase in Board turnover, which could lead to an inexperienced Board that could hinder the Company from achieving its long-term goals.

The Company will continue to monitor proxy access and other corporate governance trends, including the results of the vote on this proposal, and looks forward to continuing dialogue with its shareholders, future shareholders and advocates for the adoption of clean, renewable solar energy.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE
“AGAINST” PROPOSAL FIVE.

 

 

 

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CORPORATE GOVERNANCE

Code of Business Conduct and Ethics

Our board of directors sets high standards for our employees, officers and directors. We are committed to establishing an operating framework that exercises appropriate oversight of responsibilities at all levels throughout the company and managing its affairs consistent with high principles of business ethics. Accordingly, SolarCity has adopted a Code of Business Conduct and Ethics, which is applicable to SolarCity and its subsidiaries’ directors, officers and employees. The Code of Business Conduct and Ethics is available on the Investor Relations section of our website at http://investors.solarcity.com. We will disclose on our website any amendment to the Code of Business Conduct and Ethics, as well as any waivers of the Code of Business Conduct and Ethics, that are required to be disclosed by the rules of the SEC or The NASDAQ Stock Market LLC.

Director Independence

Our common stock is listed on The NASDAQ Stock Market. Under the listing requirements and rules of The NASDAQ Stock Market, subject to specified exceptions, independent directors must comprise a majority of a listed company’s board of directors. In addition, the rules of The NASDAQ Stock Market require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and governance committees be independent. Under the rules of The NASDAQ Stock Market, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  In order to be considered to be independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee: (1) accept, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries.

Compensation committee members must satisfy the independence criteria of The NASDAQ Stock Market, which requires consideration of all factors specifically relevant to determining whether a director has a relationship to the company which is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member.

Our board of directors undertook a review of the independence of our directors and considered whether any director has a material relationship that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. As a result of this review, our board of directors determined that each of Messrs. Fisher, Gracias, Kendall, and Straubel and Ms. Pfund are “independent directors” as defined under the rules of The NASDAQ Stock Market, constituting a majority of our board of directors. In making this determination, our board of directors considered the relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director.

Leadership Structure

Mr. Musk currently serves as Chairman of our board of directors. Our board of directors believes that the current board leadership structure, coupled with a strong emphasis on board independence, allows our management to focus on our day-to-day business, while allowing the Chairman to lead our board of directors in its fundamental role of providing independent advice to and oversight of management. In addition, as described above, our board has three standing committees, each member of which is an independent director. Our board delegates substantial responsibility to each committee of the board, which reports their activities and actions back to the full board. We believe that the independent committees of our board are an important aspect of the leadership structure of our board. The board reviews its leadership structure at least annually to provide the most effective structure in fulfilling its fiduciary duties and maintaining its commitment to good corporate governance.

Board Meetings and Committees

Including regularly scheduled and special meetings, the full board of directors held five meetings, the audit committee held six meetings, the compensation committee held five meetings and the nominating and corporate governance committee held one meeting during our fiscal year ended December 31, 2015. Our board of directors and committees also regularly act by unanimous written consent, in particular, our compensation committees approves employee equity awards and confirms the vesting of existing performance criteria on a monthly basis. With the exception of Mr. Musk, no director attended fewer than 75% of the total number of meetings of the board of directors and the committees of which he or she was a member.

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Although we do not have a formal policy regarding attendance by members of our board of directors at annual meetings of stockholders, we encourage directors to attend and 44% attended our 2015 Annual Meeting.

Our board of directors has an audit committee, a compensation committee, and a nominating and corporate governance committee, each of which has the composition and responsibilities described below. Members serve on these committees until their resignation or until otherwise determined by our board of directors.

Audit Committee. Our audit committee oversees our corporate accounting and financial reporting processes. Our audit committee generally oversees:

 

·

our accounting and financial reporting processes as well as the audit and integrity of our financial statements;

 

·

the qualifications and independence of our independent registered public accounting firm;

 

·

the performance of our independent registered public accounting firm;

 

·

our compliance with disclosure controls and procedures and internal controls over financial reporting as well as the compliance of our employees, directors and consultants with ethical standards we adopted.

Our audit committee also has certain responsibilities, including without limitation, the following:

 

·

selecting and hiring the independent registered public accounting firm;

 

·

supervising and evaluating the independent registered public accounting firm;

 

·

evaluating the independence of the independent registered public accounting firm;

 

·

approving audit and non-audit services and fees;

 

·

preparing the audit committee report that the SEC requires to be included in our annual proxy statement;

 

·

reviewing financial statements and discussing with management and the independent registered public accounting firm our annual audited and quarterly financial statements, the results of the independent audit and the quarterly reviews, and the reports and certifications regarding internal controls over financial reporting and disclosure controls;

 

·

reviewing reports and communications from the independent registered public accounting firm; and

 

·

overseeing the performance of our director of Sarbanes-Oxley & internal audit function, who reports directly to our audit committee.

Our audit committee is comprised of Messrs. Kendall and Fisher and Ms. Pfund. Mr. Kendall serves as our audit committee chairperson. Our board of directors has determined that each of the directors serving on our audit committee meets the requirements for financial literacy under applicable rules and regulations of the SEC and The NASDAQ Stock Market. In addition, our board of directors has determined that Mr. Kendall meets the requirements of a financial expert as defined under the applicable rules and regulations of the SEC and he has the requisite financial sophistication as defined under the applicable rules and regulations of The NASDAQ Stock Market. Our board of directors has considered the independence and other characteristics of each member of our audit committee, and our board of directors believes that each member meets the independence and other requirements of The NASDAQ Stock Market and the SEC.

The audit committee operates under a written charter that was adopted by our board of directors and satisfies the applicable standards of the SEC and The NASDAQ Stock Market. A copy of the Audit Committee Charter is available on the Investor Relations section of our website at http://investors.solarcity.com.

Compensation Committee. Our compensation committee oversees our corporate compensation policies, plans and benefit programs and is responsible for evaluating, approving and reviewing the compensation arrangements, plans, policies and programs for our executive officers and directors, and overseeing our cash-based and equity-based compensation plans.

The functions of our compensation committee include, among other things:

 

·

overseeing our compensation policies, plans and benefit programs;

 

·

reviewing and approving for our executive officers: the annual base salary, annual incentive bonus, including the specific goals and dollar amount, equity compensation, employment agreements, severance agreements and change in control arrangements, and any other benefits, compensation or arrangements;

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·

preparing the compensation committee report that the SEC requires to be included in our annual proxy statement; and 

 

·

administering our equity compensation plans.

Our compensation committee also has certain authority and responsibilities over compensation consultants and advisors, including without limitation, the following:

 

·

selecting and engaging consultants, legal counsel and other advisers relating to compensation matters;

 

·

overseeing the appointment and compensation of such compensation advisers; and

 

·

evaluating the independence of the such compensation advisers.

Our compensation committee is comprised of Messrs. Fisher and Kendall and Ms. Pfund. Mr. Fisher serves as our compensation committee chairperson. Our board of directors has considered the independence and other characteristics of each member of our compensation committee. Our board of directors believes that each member of our compensation committee meets the requirements for independence under the current requirements of The NASDAQ Stock Market, is a non-employee director as defined by Rule 16b-3 promulgated under the Exchange Act and is an outside director as defined pursuant to Section 162(m) of the Code.

The compensation committee operates under a written charter that was adopted by our board of directors and satisfies the applicable standards of the SEC and The NASDAQ Stock Market. A copy of the Compensation Committee Charter is available on the Investor Relations section of our website at http://investors.solarcity.com.

Compensation Committee Interlocks and Insider Participation

No member of our compensation committee is or was formerly an officer or employee of SolarCity or any of its subsidiaries. No interlocking relationship exists between any member of our compensation committee and the compensation committee of any other company, nor has any such interlocking relationship existed in the past.

 

Nominating and Corporate Governance Committee. The functions of our nominating and corporate governance committee include, among other things:

 

·

assisting our board of directors in identifying prospective director nominees and recommending nominees to the board of directors for each annual meeting of stockholders;

 

·

reviewing developments in corporate governance practices and developing and recommending governance principles applicable to our board of directors;

 

·

reviewing the succession planning for each of our executive officers;

 

·

overseeing the evaluation of our board of directors and management; and

 

·

recommending members for each board committee to our board of directors.

Our nominating and corporate governance committee is comprised of Ms. Pfund and Messrs. Fisher and Straubel. Ms. Pfund serves as our nominating and corporate governance committee chairperson. Our board of directors has considered the independence and other characteristics of each member of our nominating and corporate governance committee. Our board of directors believes that each member of our nominating and corporate governance committee meets the requirements for independence under the current requirements of The NASDAQ Stock Market.

The nominating and corporate governance committee operates under a written charter that was adopted by our board of directors and satisfies the applicable standards of the SEC and The NASDAQ Stock Market. A copy of the Nominating and Corporate Governance Committee Charter is available on the Investor Relations section of our website at http://investors.solarcity.com.

Considerations in Evaluating Director Nominees

The nominating and corporate governance committee uses a variety of methods for identifying and evaluating director nominees. In its evaluation of director candidates, the nominating and corporate governance committee will consider the current size and composition of the board of directors and the needs of the board of directors and the respective committees of the board of directors. Some of the qualifications that the nominating and corporate governance committee considers include, without limitation, issues of character, integrity, judgment, diversity of experience, independence, area of expertise, corporate experience, length of service, potential conflicts of interest and other commitments. Nominees must also have the ability to offer advice and guidance to our chief executive officer based on past experience in positions with a high degree of responsibility and be leaders in the companies or

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institutions with which they are affiliated. Director candidates must have sufficient time available in the judgment of the nominating and corporate governance committee to perform all board of director and committee responsibilities. Members of the board of directors are expected to prepare for, attend, and participate in all board of director and applicable committee meetings. The nominating and corporate governance committee will also seek appropriate input from the chief executive officer from time to time in assessing the needs of the board of directors for relevant background, experience, diversity and skills of its members.  Other than the foregoing, there are no stated minimum criteria for director nominees.

The nominating and corporate governance committee considers these and such other factors as it may deem are in our company and stockholders’ best interests as the committee oversees the composition of our board of directors. Although our board of directors does not maintain a specific policy with respect to board diversity requirements or goals, we believe that our board of directors should consist of a diverse body representing the interests of our stockholders. In making determinations regarding nominations of directors, the nominating and corporate governance committee considers a broad range of backgrounds and experiences, and takes into account the benefits of diverse viewpoints and experiences.

Stockholder Recommendations for Nominations to the Board of Directors

The nominating and corporate governance committee will consider candidates for director recommended by stockholders so long as such recommendations comply with the certificate of incorporation and bylaws of our company and applicable laws, rules and regulations, including those promulgated by the SEC. The committee will evaluate such recommendations in accordance with its charter, our bylaws, our policies and procedures for director candidates, as well as the regular nominee criteria described above. This process is designed to ensure that the board of directors includes members with diverse backgrounds, skills and experience, including appropriate financial and other expertise relevant to our business. Eligible stockholders wishing to recommend a candidate for nomination should contact our corporate secretary in writing. Such recommendations must include the information required by our bylaws, including information about the candidate, a statement of support by the recommending stockholder, evidence of the recommending stockholders ownership of our stock and a signed letter from the candidate confirming willingness to serve on our board of directors. The nominating and corporate governance committee has discretion to decide which individuals to recommend for nomination as directors.

A stockholder of record can nominate a candidate directly for election to the board of directors by complying with the procedures in Section 2.4(ii) of our bylaws. Any eligible stockholder who wishes to submit a nomination should review the requirements in the bylaws on nominations by stockholders. Any nomination should be sent in writing to the Corporate Secretary, SolarCity Corporation, 3055 Clearview Way, San Mateo, California 94402. Notice must be received by us no earlier than February 4, 2017 and no later than March 6, 2017. The notice must state the information required by Section 2.4(ii)(b) of our bylaws and otherwise must comply with applicable federal and state law.

Risk Management

Risk is inherent with every business, and we face a number of risks, including strategic, financial, business and operational, legal and compliance, and reputational. We have designed and implemented processes to manage risk in our operations. Management is responsible for the day-to-day management of risks the company faces, while our board of directors, as a whole and assisted by its committees, has responsibility for the oversight of risk management. In its risk oversight role, our board has the responsibility to satisfy itself that the risk management processes designed and implemented by management are appropriate and functioning as designed.

Our board of directors believes that open communication between management and the board of directors is essential for effective risk management and oversight. Our board meets with our chief executive officer and other members of the senior management team at each board meeting and at other times, where, among other topics, they discuss strategy and risks facing the company.

While our board of directors is ultimately responsible for risk oversight, our board committees assist the board in fulfilling its oversight responsibilities in certain areas of risk. The audit committee assists our board in fulfilling its oversight responsibilities with respect to risk management in the areas of internal control over financial reporting and disclosure controls and procedures, legal and regulatory compliance, and discusses with management and the independent auditor guidelines and policies with respect to risk assessment and risk management. The audit committee also reviews management’s assessment of the key risks facing us, including the key controls it relies on to mitigate those risks. The audit committee also monitors certain key risks at each of its regularly scheduled meetings, such as risk associated with internal control over financial reporting and liquidity risk. The nominating and corporate governance committee assists our board in fulfilling its oversight responsibilities with respect to the management of risk associated with board organization, membership and structure, and corporate governance. The compensation committee assesses risks created by the incentives inherent in our compensation policies. Finally, the full board of directors reviews strategic and operational

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risk in the context of reports from the management team, receives reports on all significant committee activities at each regular meeting, and evaluates the risks inherent in significant transactions.

Non-Employee Director Compensation

Effective as of June 2015, we maintain the following director compensation program, pursuant to which our non-employee directors will receive equity awards and annual cash retainers as follows:

 

·

Non-Statutory Stock Option Awards:

 

o

Initial award (upon initial election or appointment): 33,333 shares, vesting monthly over four years, with a one-year cliff

 

o

Other initial/recurring awards: vesting monthly over three years, refreshed by additional awards on the same terms after an earlier award is fully vested

 

§

Board service: 30,000 shares

 

§

Audit Committee chair/member: 10,000 / 3,500 shares

 

§

Compensation Committee chair/member: 5,000 / 3,000 shares

 

§

Nominating and Corporate Governance Committee chair/member: 3,000 / 1,000 shares

 

o

The vesting of each option shall fully accelerate if a director is terminated in connection with a “change in control” of the Company (as defined in the applicable equity incentive plan)

 

·

Annual Cash Retainers: all amounts paid quarterly

 

§

Board Membership: $20,000

 

§

Audit Committee chair/member: $15,000/ $5,000

 

§

Compensation Committee chair/member: $5,000 / $3,000

 

§

Nominating and Corporate Governance Committee chair/member: $3,000 / $1,000

During 2015, each of our non-employee directors received the following compensation:

 

 

 

Fees Earned or

 

 

Option

 

 

 

 

 

 

 

 

Paid in Cash

 

 

Awards

 

 

 

Total

 

Name

 

($) (1)

 

 

($) (2)

 

 

 

($)

 

Elon Musk

 

 

15,000

 

 

 

1,188,600

 

 

 

$

1,203,600

 

John H.N. Fisher

 

 

23,250

 

 

 

1,564,990

 

 

 

$

1,588,240

 

Antonio J. Gracias

 

 

15,000

 

 

 

1,188,600

 

 

 

$

1,203,600

 

Nancy E. Pfund

 

 

23,250

 

 

 

1,564,990

 

 

 

$

1,588,240

 

Donald R. Kendall, Jr.

 

 

35,250

 

 

 

1,665,558

 

 

 

$

1,700,808

 

Jeffrey B. Straubel

 

 

15,000

 

 

 

1,188,600

 

 

 

$

1,203,600

 

Jonathan K. Shulkin

 

 

7,500

 

 

 

-

 

 

 

$

7,500

 

Bennet van de Bunt (3)

 

 

13,250

 

 

 

1,307,460

 

 

 

$

1,320,710

 

 

(1)

The amount reported in this column represents the annual cash retainer fees paid to our directors in connection with service on our board of directors and committees in 2015.

(2)

The amount reported in this column represents the grant date fair value of the stock options as computed in accordance with Financial Accounting Standard Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation, or ASC 718. The assumptions used in calculating the grant date fair value reported in this column are set forth in the notes to our audited consolidated financial statements included in our annual report on Form 10-K. The amounts reported in this column reflect the accounting cost for these option awards, and do not correspond to the actual economic value that our directors may receive from the awards or that each of these option awards are to vest over a period of three years, subject to continued service on our board (and committees, as applicable).

(3)

The stock option granted to Mr. van de Bunt on May 15, 2015 expired unexercised, and all shares subject to such award were cancelled and returned to the plan following his resignation in July 2015.

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Insider Trading Policy and Rule 10b5-1 Trading Plans

SolarCity has an insider trading policy that, among other things, prohibits short sales, hedging of stock ownership positions, and transactions involving derivative securities and imposes limitations on the ability to pledge shares of SolarCity’s common stock. In addition, as of December 31, 2015, two of SolarCity’s executive officers had entered into a Rule 10b5-1 trading plan.

Contacting the Board of Directors

Any stockholder who desires to contact our non-employee directors may do so electronically at the following website: http://investors.solarcity.com. Such stockholders who desire to contact our non-employee directors by mail may do so by writing SolarCity’s corporate secretary at SolarCity Corporation, 3055 Clearview Way, San Mateo, CA 94402. Our General Counsel receives these communications unfiltered by SolarCity, forwards communications to the appropriate committee of the Board of Directors or non-employee director, and facilitates an appropriate response. Please note that requests for investor relations materials should be sent to investors@solarcity.com.

 

 

 

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EXECUTIVE OFFICERS

The following table identifies certain information about our executive officers as of April 21, 2016. Officers are appointed by the board of directors to hold office until their successors are duly appointed and qualified.

 

Name

 

Age

 

 

Position(s)

Lyndon R. Rive

 

 

39

 

 

Co-Founder, Chief Executive Officer and Director

Peter J. Rive

 

 

42

 

 

Co-Founder, Chief Technology Officer and Director

Tanguy V. Serra

 

 

38

 

 

President and Chief Financial Officer

Hayden D. Barnard

 

 

44

 

 

Chief Revenue Officer

Seth R. Weissman

 

 

47

 

 

Executive Vice President, General Counsel and Secretary

 

For a brief biography of Messrs. Lyndon and Peter Rive, please see “Proposal One—Election of Directors—Information Regarding the Board of Directors and Director Nominees.”

Tanguy V. Serra has served as our President since November 2015 and our Chief Financial Officer since February 2016.  Formerly, Mr. Serra served as our Chief Operations Officer from February 2014 to November 2015 and as our Executive Vice President, Operations from May 2013 to February 2014. Prior to joining SolarCity, Mr. Serra served as chief executive officer and president of Vivint Solar, Inc., a solar energy solutions company, from April 2011 to April 2013, where he oversaw both finance and operations and was responsible for raising the company’s tax equity funds. From April 2004 to September 2011, Mr. Serra served as vice president at TPG Capital, L.P., a private equity investment firm, where he managed a number of the firm’s investments. Prior to TPG Capital, Mr. Serra held financial analyst positions with Morgan Stanley Capital Partners and Merrill Lynch. Mr. Serra holds a bachelor’s degree in accounting from ESCP Europe in Paris.

Hayden D. Barnard has served as our Chief Revenue Officer since September 2013. Prior to joining SolarCity, Mr. Barnard served as founder and CEO of Paramount Equity, LLC, a consumer finance company specializing in mortgage, insurance, and residential solar, from September 2003 until September 2013. Prior to Paramount Equity, Mr. Barnard served as an account manager of Oracle Corporation from 1995 to 2003. Mr. Barnard holds a bachelor’s degree in business management and marketing from the University of Missouri.

Seth R. Weissman has served as our Executive Vice President since May 2013, as our Vice President from September 2008 to May 2013, as our General Counsel since September 2008 and as our Secretary since June 2009. Prior to joining SolarCity, Mr. Weissman served as vice president, general counsel, and chief privacy officer of Coremetrics, Inc., a leading digital marketing company, from June 2004 to August 2008. Mr. Weissman also practiced employment and corporate law at Wilson Sonsini Goodrich & Rosati, Professional Corporation, at Stoneman, Chandler and Miller LLP, and at Hutchins, Wheeler, Dittmar, Professional Corporation. Mr. Weissman holds a bachelor’s degree in political science from The Pennsylvania State University and a J.D. from Boston University School of Law.

 

 

 

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EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION and ANALYSIS

The following discussion and analysis of compensation arrangements of our named executive officers for 2015 should be read together with the compensation tables and related disclosures set forth below. This discussion contains forward-looking statements that are based on our current considerations, expectations, and determinations regarding future compensation programs. The actual amount and form of compensation and the compensation programs that we adopt may differ materially from current or planned programs as summarized in this discussion.

This Compensation Discussion and Analysis provides information regarding the fiscal 2015 compensation program for our Chief Executive Officer, former Chief Financial Officer and the three other executive officers who were serving as the most highly-compensated executive officers of our company at the end of the fiscal year ended December 31, 2015. During fiscal 2015, these individuals were:

 

·

Lyndon R. Rive, our Co-Founder and Chief Executive Officer;

 

·

Peter J. Rive, our Co-Founder and Chief Technology Officer;

 

·

Tanguy V. Serra, our President and Chief Financial Officer;

 

·

Hayden D. Barnard, our Chief Revenue Officer; and

 

·

Brad W. Buss, our former Chief Financial Officer.

We refer to these executive officers collectively in this Compensation Discussion and Analysis and the related compensation tables as the “Named Executive Officers.” We refer to Lyndon Rive, our Chief Executive Officer, and Peter Rive, our Chief Technology Officer, collectively as our “Founders.” In December 2015, Mr. Serra was promoted to our President. In February 2016, Mr. Buss resigned as our Chief Financial Officer and Mr. Serra was appointed as our Chief Financial Officer.

Specifically, this Compensation Discussion and Analysis provides an overview of our executive compensation philosophy, the overall objectives of our executive compensation program, and each material component of compensation that we provide to the Named Executive Officers. In addition, we explain how and why the compensation committee of our board of directors (our “Compensation Committee”) arrived at the specific compensation policies and decisions involving the Named Executive Officers during fiscal 2015.

Executive Summary

SolarCity’s founding vision is to accelerate mass adoption of sustainable energy. We make clean energy available to homeowners, businesses, schools, non-profits, and government organizations typically at a lower cost than they pay for energy generated by burning fossil fuels, such as coal, oil, and natural gas. Our approach is to install systems to the highest engineering standards while making the switch simple for our customers. We are revolutionizing the way energy is delivered by giving customers a cleaner, more affordable alternative to their monthly utility bill.

Fiscal 2015 Operating and Financial Highlights

Our main operating activities include acquiring new customers; designing, installing, operating and maintaining solar energy systems; collecting energy contract payments and additional activities that enable us to offer solar energy and related services to customers.

Our 2015 operational highlights include the follow:

 

·

Megawatts Installed – We installed 870 megawatts in the year ended December 31, 2015, an increase of 73.0% from the year ended December 31, 2014, and installed more solar energy systems than any other company in the United States in 2015.

 

·

Healthy Balance Sheet – We had cash and cash equivalents of $382.5 million as of December 31, 2015.

 

·

Solar Installations – We have installed 232,940 solar energy systems for our customers as of December 31, 2015, an increase of 87.8% from fiscal 2014.

 

·

Total Employees – We grew to 15,273 total employees as of December 31, 2015, an increase of 68.7% from fiscal 2014.

 

·

International Expansion – In 2015, we expanded our solar installation business internationally into Mexico, with our

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acquisition of Ilioss in August 2015. 

 

·

Convertible Note Offerings – We issued $113 million in aggregate principal of zero coupon convertible senior notes due 2020 in a private placement transaction.

 

·

Advancement in Rooftop Solar Panel Efficiency – In the fourth quarter of 2015, we announced that we had begun domestic manufacturing of our high-efficiency rooftop solar panels.

 

·

Worldwide Microgrid Service – We launched GridLogic, a microgrid service that combines distributed energy resources (solar, batteries and controllable load) and can provide dependable, clean power to communities anywhere in the world vulnerable to power outages and high energy costs.

 

·

Service Offering to SMBs – We partnered with Renew Financial to begin offering our energy contracts to small and medium-sized businesses, or SMBs, by allowing them to make payments through their property tax bills.

Fiscal 2015 Executive Compensation Highlights

Consistent with our performance and compensation objectives, our Compensation Committee approved the following compensation for our executive officers, including the Named Executive Officers, for fiscal 2015:

 

·

Maintained base salaries at fiscal 2014 levels for the continuing Named Executive Officers.

 

·

Granted Founder Awards to our Founders, who had not received any new equity incentive awards since 2011, that will vest only upon the achievement of certain performance goals (as described in more detail in “Compensation of our Founders” below).

 

·

Granted promotion and retention equity awards to the other Named Executive Officers continuing in their positions.

 

·

Promoted Mr. Serra to President and granted a long-term equity incentive compensation award to Mr. Serra in the form of a stock option award, which award vests over a period of 4-years.

 

·

Amended performance stock option awards previously granted to Messrs. Serra, Barnard and Buss from a vesting schedule based on cost of customer acquisition to a 6-year vesting schedule with acceleration opportunities based on cumulative gigawatts deployed, these changes were made in part based on lower growth targets and new strategies to reduce customer acquisition costs consistent with our current operating plan (no incremental expense was incurred due to these modifications).

 

Executive Compensation Policies and Practices

We endeavor to maintain sound governance standards consistent with our executive compensation policies and practices. Our Compensation Committee evaluates our executive compensation program on an ongoing basis to ensure that it is consistent with our short-term and long-term goals given the dynamic nature of our business and the market in which we compete for executive talent. The following policies and practices were in effect during fiscal 2015:

 

·

Independent Compensation Committee. Our Compensation Committee is comprised solely of independent directors.

 

·

Independent Compensation Committee Advisor. Our Compensation Committee engaged Compensia, Inc., an independent compensation consultant (“Compensia”), to assist with its fiscal 2015 compensation review, including advice in structuring our Founder Awards. This consultant performed no other consulting or additional services for us.

 

·

Annual Executive Compensation Review. Our Compensation Committee conducts an annual review and approval of our compensation strategy, including a review of our compensation peer group used for comparative purposes.

 

·

Executive Compensation Policies and Practices. Our compensation philosophy and related corporate governance policies and practices are complemented by several specific compensation practices that are designed to align our executive compensation with long-term stockholder interests, including the following:

 

·

No Employment Agreements. We do not have employment agreements with any of our executive officers. All executive officers are employed on an “at will” basis.

 

·

Compensation At-Risk. Our executive compensation program is designed so that a significant portion of compensation is “at risk” based on corporate performance, as well as equity-based to align the interests of our executive officers and stockholders.

 

·

Multi-Year Vesting Requirements for Time-Based Awards. The time-based equity awards granted to our executive officers vest over multi-year periods, consistent with current market practice and our retention objectives.

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·

Significant Corporate Objectives for Performance-Based Awards. The performance-based equity awards granted to certain of our executive officers vest upon the achievement of significant corporate objectives or progress towards significant corporate objectives intended to benefit our stockholders. 

 

·

No Special Retirement Plans. We do not currently offer pension arrangements, retirement plans or nonqualified deferred compensation plans or arrangements to our executive officers, other than a 401(k) plan offered to all employees with no company match.

 

·

Limited Perquisites. We offer only limited perquisites or other personal benefits to certain of our executive officers, such as access to company-leased automobiles.

 

·

No Special Health or Welfare Benefits. Our executive officers participate in broad-based company-sponsored health and welfare benefits programs on the same basis as our other full-time, salaried employees.

 

·

No Post-Employment Compensation Arrangements. We do not provide any post-employment compensation payments or other benefits, including in connection with a change in control, to our executive officers that are not otherwise available on the same basis to our other full-time employees.

 

·

Hedging Prohibited. We prohibit our employees from hedging any SolarCity securities.

 

·

Pledging Limited. We limit the ability of our employees to pledge SolarCity securities.

 

·

Succession Planning. We review the risks associated with key executive officer positions to ensure adequate succession plans are in place.

Compensation Philosophy and Objectives

To successfully grow our business in a dynamic and competitive environment, we need a highly talented and seasoned team of engineering, operations, technical, sales, marketing, and other business professionals. We compete with many other companies to attract and retain a skilled management team. To meet this challenge, we embrace a compensation philosophy of offering our executive officers a competitive total compensation program that recognizes and rewards both individual performance and contributions to our overall success. This allows us to attract, retain and motivate talented executives with the knowledge, skills, and abilities needed to drive our business results.

Our executive compensation program is designed to:

 

·

reward the achievement of our operational objectives;

 

·

develop a business strategy that will be successful over the long-term;

 

·

attract, motivate, reward, and retain the highly-qualified executive officers important to our success; and

 

·

recognize strong performers by offering compensation that rewards individual achievement as well as contributions to our overall success.

In addition, we seek to implement an overarching “pay-for-performance” philosophy by designing our executive compensation program to link a substantial component of our executive officers’ target total direct compensation to the achievement of performance objectives that directly correlate to the creation of stockholder value. To achieve this objective, we believe that the compensation paid to our executive officers should be closely aligned with our corporate performance on both a short-term and long-term basis, linked to specific, measurable results and assist us in motivating and retaining the key executive officers critical to our long-term success.

Compensation Program Design

The compensation of our executive officers, including the Named Executive Officers, consists primarily of base salary, an annual cash bonus and/or commission opportunity, long-term incentive compensation in the form of equity awards, and certain employee welfare benefits.

The key component of our executive compensation program has been equity awards, typically in the form of options to purchase shares of our common stock. Since our incorporation, we have emphasized the use of equity awards to provide incentives for our executive officers to focus on the growth of our overall enterprise value and, correspondingly, to create value for all of our stockholders. We have used and continue to use stock options as our primary equity award vehicle for all of our executive officers. We believe that stock options offer our executive officers a valuable long-term incentive that aligns their interests with the long-term interests of our stockholders. The choice to grant stock options to our executive officers also reflects our belief that they are in a position to create value for our shareholders over the long-term. Furthermore, the majority of stock option grants to our executive

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officers vest only upon achievement of significant corporate objectives or progress towards significant corporate objectives intended to benefit our stockholders.

We also grant restricted stock unit awards to our Named Executive Officers and employees as the Compensation Committee determines appropriate. We believe, consistent with competitive market practices, that restricted stock unit awards can appropriately align the interests of our executive officers with those of our stockholders and provide appropriate retention incentives to our executive officers, particularly during periods of volatility in the market for our common stock.

We also offer cash compensation in the form of base salaries, annual cash bonus opportunities for most of our employees, and commissions for our sales personnel. Typically, we have structured our annual cash bonus opportunities to focus on the achievement of specific short-term financial and strategic objectives that we believe will further our longer-term growth objectives.

Historically, we have used standard industry surveys to assist our board of directors and Compensation Committee in establishing cash compensation levels for our executive officers, with an emphasis on alternative energy and technology companies similar in size, stage of development, and growth potential. Since fiscal 2012, we have also used competitive market data developed from a review of the executive compensation practices of a group of peer companies to inform our executive compensation decisions. Using this information as a guideline, our board of directors and, more recently, our Compensation Committee, has emphasized remaining competitive in our market. Equity awards have been delivered periodically on a discretionary basis with the goal to retain and motivate top talent and align the interests of our executive officers with the long-term interests of our stockholders.

We have not adopted any formal policies or guidelines for allocating compensation between current and long-term compensation, between cash and non-cash compensation or among different forms of non-cash compensation. Instead, our board of directors and our Compensation Committee, as applicable, has reviewed each element of executive compensation separately and considered the value of each executive officer’s compensation package as a whole and its relative size in comparison to our other executive officers and with competitive market reference points.

As we continue to mature as a publicly-traded company, our Compensation Committee will continue to regularly evaluate our executive compensation program design as circumstances require. At a minimum, our Compensation Committee will continue to review our executive compensation program annually. As part of this review, we expect that our Compensation Committee will apply our values and the objectives outlined above, while considering the compensation levels necessary to ensure our executive compensation program remains competitive and effective. Our Compensation Committee will also review the program to ensure we are meeting our retention objectives and the potential cost of replacing a key employee.

Compensation-Setting Process

Role of Compensation Committee

Our Compensation Committee is responsible for evaluating, approving, and reviewing the compensation arrangements, plans, policies, and programs for our executive officers and the non-employee members of our board of directors, and overseeing our cash-based and equity-based compensation plans. For fiscal 2015, our Compensation Committee was comprised of Messrs. Fisher, Van de Bunt (January – July 2015), and Kendall (July – December 2015) and Ms. Pfund, who each qualify as “outside directors” for purposes of Section 162(m) of the Internal Revenue Code (the “Code”), as “non-employee directors” for purposes of Exchange Act Rule 16b-3 and as “independent directors” under the requirements of The NASDAQ Global Market.

At the beginning of each fiscal year, our Compensation Committee reviews our executive compensation program, including any incentive compensation plans to determine whether they are appropriate, properly coordinated, and achieve their intended purposes. Our Compensation Committee also conducts an annual review of our executive compensation strategy to ensure that it is appropriately aligned with our business strategy and achieving our desired objectives. Further, our Compensation Committee reviews market trends and changes in competitive compensation practices, as further described below. Based on its review and assessment, our Compensation Committee, from time to time, makes any modifications to existing plans and arrangements or adopts new plans or arrangements as determined necessary.

Except as noted in the following paragraph, in each fiscal year, our Compensation Committee takes the following actions with respect to the compensation of our executive officers:

 

·

makes decisions with respect to any base salary adjustments;

 

·

consults with management to determine target bonus opportunities;

 

·

makes decisions with respect to equity awards, if any, for the upcoming fiscal year; and

 

·

establishes our corporate performance objectives for performance-based equity awards.

 

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Our Compensation Committee consults with our Chief Executive Officer, our Board and other members of management, as appropriate, when making compensation decisions, although our Chief Executive Officer is not present during voting or deliberations by our Compensation Committee regarding his compensation.

Our Compensation Committee’s authority, duties, and responsibilities are described in its charter, which is reviewed annually and revised and updated as warranted. The charter is available on the Investor Relations section of our website at http://investors.solarcity.com. For additional information on our Compensation Committee, including the scope of its authority, see “Corporate Governance—Board Meetings and Committees—Compensation Committee” elsewhere in this Proxy Statement.

Role of Executive Officers

In carrying out its responsibilities, our Compensation Committee works with members of our management, including our Chief Executive Officer and Senior Vice President of People Empowerment. Typically, our management assists our Compensation Committee by providing information on corporate and individual performance, market data, and management’s perspective and recommendations on compensation matters.

Our Chief Executive Officer makes recommendations to our Compensation Committee regarding executive compensation matters, including providing to our Compensation Committee his assessments of the performance of other executive officers. He also periodically attends Compensation Committee meetings, and engages in discussions with our Compensation Committee regarding his own compensation, although he is not permitted to be present during any voting or deliberations by our Compensation Committee regarding his compensation.

While our Compensation Committee solicits and considers the recommendations and proposals of our Chief Executive Officer and other members of our board of directors on compensation-related matters, our Compensation Committee only uses these recommendations and proposals as one factor in making its compensation decisions.

Role of Compensation Consultant

Pursuant to its charter, our Compensation Committee has the authority to retain the services of external advisors, including compensation consultants, legal counsel, accounting, and other advisors, to assist it in carrying out its duties and responsibilities. During fiscal 2015, our Compensation Committee engaged Compensia as its adviser for certain compensation matters, including the structure of our Founder Awards, the compensation of our executive officers, our broader employee equity program and certain disclosure matters.

Compensia was engaged directly by our Compensation Committee to provide an independent review of our executive compensation program, including an analysis of both the competitive market and the design of the various elements of the program. More specifically, Compensia furnished our Compensation Committee with reports on competitive market practices relating to the following matters:

 

·

annual incentive compensation plan design;

 

·

executive compensation; and

 

·

general executive compensation policies and practices.

As part of its engagement with our Compensation Committee, Compensia evaluated and recommended changes to our compensation peer group, and using this compensation peer group provided competitive market data and analysis relating to the compensation of our executive officers, including the Named Executive Officers, and the structure of our Founder Awards.

Compensia provided no additional consulting services to us or to our board of directors apart from the matters discussed above in fiscal 2015. Our Compensation Committee has considered the independence of Compensia in light of the NASDAQ listing standards on compensation committee independence and the rules of the Securities and Exchange Commission. Based on these standards and rules, our Compensation Committee has concluded that the services performed by Compensia did not raise any conflict of interest.

Competitive Positioning

In arriving at its decisions on the amounts and elements of compensation for our executive officers for fiscal 2015, our Compensation Committee considered, among other factors, competitive market data and analyses prepared by Compensia based on our compensation peer group. In selecting companies for the compensation peer group, our Compensation Committee identified companies that it believed were similar to us from a size, business model and growth perspective or which our Compensation

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Committee believed compete with us for executive talent. In particular, our Compensation Committee approved, the compensation peer group set forth below, which was used during fiscal 2015:

 

·

Fortinet

·

ServiceNow

·

GoPro

·

Splunk

·

Guidewire Software

·

Tableau Software

·

HomeAway

·

Tesla Motors

·

LinkedIn

·

Twitter

·

NetSuite

·

Workday

·

Palo Alto Networks

·

Yelp

·

Pandora Media

·

Zillow

Compensia also recommended, and our Compensation Committee approved, the use of the Radford Global Technology Survey data for other executive positions where there was no or limited disclosure of similar positions in the peer group.

The Role of Stockholder Say-on-Pay Votes

At our 2015 annual meetings of our stockholders, we held our first “say-on-pay” advisory vote on the compensation of our named executive officers for the 2014 fiscal year. Our stockholders overwhelmingly approved the compensation of our named executive officers, with over 94% of stockholder votes cast (excluding broker non-votes) in favor of our compensation policies for our named executive officers. Given this result, and following consideration of it, the Compensation Committee has decided to retain our overall approach to executive compensation. Moreover, we are required to hold a vote at least every six years regarding how often to hold a stockholder advisory vote on the compensation of our named executive officers. We held our first such vote at the 2015 annual meeting of stockholders, and the Board of Directors took into account our stockholders’ preference (over 75% of stockholder votes cast (excluding broker non-votes)) for a triennial vote. Consequently, the Board of Directors determined that we will hold a triennial advisory stockholder vote on the compensation of our named executive officers until they consider the results of our next “say-on-pay” frequency vote, which is anticipated to be held at our 2021 annual meeting.

Compensation of our Founders

In developing compensation recommendations for our Founders, the Compensation Committee has sought both to appropriately reward our Founders’ previous and current contributions and to create incentives for our Founders to continue to contribute significantly to successful results in the future.

Overview — Cash Compensation

Since going public in 2012, our Founders have continued to receive an annual base salary of $275,000 each.

Overview — Equity Compensation

Since option awards granted in May 2011, over a year prior to our initial public offering, our Founders had not received any new equity incentive awards for their services.

Beginning in the first quarter of 2014, our Compensation Committee, other members of our board of directors, our former chief financial officer, and the Committee’s independent compensation consultants worked together to create appropriate incentives for our continued long term success and to further align the compensation paid to our Founders with increases in stockholder value. The Compensation Committee sought to structure performance equity awards that met SolarCity’s compensation philosophy of aligning executive compensation with long-term stockholder interests and appropriately rewarding the achievement of challenging operational goals. After significant discussions and analysis, our Compensation Committee approved new stock option awards to our Founders (the “Founder Awards”). Mr. Lyndon Rive received a stock option to purchase up to 3,000,000 shares of our common stock, and Mr. Peter Rive received a stock option to purchase up to 2,000,000 shares of our common stock.

The Founder Awards were granted effective September 15, 2015 with an exercise price per share of $48.97 and a maximum term of ten (10) years, subject to earlier termination in the event the Founder ceases to be a service provider or the Founder Award terminates pursuant to the terms of the 2012 Equity Incentive Plan (the “Plan”), and will each vest, if at all, in ten equal tranches following both (i) the achievement of a SolarCity Operational Goal (described below) and (ii) the average trading price of SolarCity’s common stock (as quoted on the NASDAQ Global Select Market) over a 90-trading day period reaching or exceeding a Stock Price Target (as defined below).  In each case, both an Operational Goal and Stock Price Target must be met in order for a tranche of the shares subject to the Founder Awards to vest.  Each Founder will forfeit any unvested shares subject to the Founder Awards upon any termination of employment, whether for cause or otherwise.  In addition, any shares subject to the Founder Awards that have not

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vested by the tenth (10th) anniversary of the Grant Date shall expire and the remainder of the Founder Award shall be cancelled. If fully vested and exercised, the Founder Awards would represent approximately an additional 5% of SolarCity’s capital stock.

In the event of a Change in Control (as defined in the Plan), all vesting under the Founder Awards shall cease, after measuring whether any vesting is achieved in connection with such Change in Control, and any unvested portion of the Founder Awards shall expire.  The achievement of a Stock Price Target will be based solely on the fair market value of SolarCity’s common stock as of the effectiveness of such Change in Control rather than the 90-trading day average.  As such, the Founder Awards will not need to be assumed by an acquirer.

The Compensation Committee selected Operational Goals intended to further SolarCity’s founding vision to accelerate the mass adoption of sustainable energy and provide significant additional value to all of SolarCity’s stockholders.  These Operational Goals are long-term aspirational goals of SolarCity, and are not all expected to be achieved during the term of the Founder Awards. To ensure alignment of the Founder Awards with the long-term interests of SolarCity’s stockholders, the achievement of Operational Goals will not trigger any vesting unless the average trading price of SolarCity’s common stock significantly appreciates to meet or exceed the Stock Price Targets.  If the performance criteria and stock price appreciation targets subject to the Founder Awards were fully achieved, SolarCity’s market capitalization would be approximately $40 billion (based on the number of shares outstanding as of March 31, 2016).

Each Operational Goal and Stock Price Target are associated only with the vesting of a single tranche of shares subject to the Founder Awards.  The Operational Goals do not need to be achieved in any particular order.  In addition, an Operational Goal may be determined to have been achieved prior to the average trading price of SolarCity’s common stock reaching the next Stock Price Target.

 

List of Operational Goals:

1

Cost of Production of $0.50/Watt of solar modules with at least 20% efficiency

2

1 million Customers

3

3 million Customers

4

2,000 Cumulative Megawatts Installed

5

6,000 Cumulative Megawatts Installed

6

PowerCo Available Cash of $170 million for Trailing Twelve Months

7

PowerCo Available Cash of $600 million for Trailing Twelve Months

8

Average Total Cost Per Watt of $2.75 as of the end of a fiscal quarter

9

Average Total Cost Per Watt of $2.35 as of the end of a fiscal quarter

10

Average Total Cost Per Watt of $2.05 as of the end of a fiscal quarter

 

Determination of Stock Price Targets

The Stock Price Targets were determined based on step increases distributed between the exercise price per share of the Founder Awards and a final $400.00 per share target.  The Stock Price Targets are set forth in the following table:

 

Tranche

Stock Price Target

 

Percent of Shares

Subject to Founder

Award Eligible to Vest

 

1

$

84.07

 

 

10.0%

 

2

$

119.17

 

 

10.0%

 

3

$

154.27

 

 

10.0%

 

4

$

189.37

 

 

10.0%

 

5

$

224.47

 

 

10.0%

 

6

$

259.57

 

 

10.0%

 

7

$

294.67

 

 

10.0%

 

8

$

329.77

 

 

10.0%

 

9

$

364.87

 

 

10.0%

 

10

$

400.00

 

 

10.0%

 

TOTAL

 

 

 

 

100.0%

 

 

As of the date of this filing, two Operational Goals for the Founder Awards have been achieved – (i) cumulative megawatt installations exceeding 2,000 megawatts during the first quarter of 2016 and (ii) achieving an average total cost per watt of less than $2.75 during the fourth quarter of 2015.  The shares subject to these first two tranches will not vest until corresponding Stock Price Targets are met.

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The Board and the Compensation Committee believe that the continued employment and dedication of the Founders is important to the long-term success of SolarCity, and sought to provide competitive and meaningful compensation packages to the Founders to create incentives for the Founders to continue to contribute significantly to successful results in the future.  In determining the amount of shares to issue pursuant to the Founder Awards, the Compensation Committee reviewed the equity holdings and historic compensation of the Founders.  The Compensation Committee noted that the Founders had not received any equity awards since 2011, and that those awards had vested in full in May 2015.  In addition, the Founders receive below market cash compensation.  The total compensation of the Founders for the 2012, 2013 and 2014 fiscal years is set forth below:

 

 

Total Compensation

(determined in accordance with SEC regulations)

 

 

Fiscal Year 2014

 

Fiscal Year 2013

 

Fiscal Year 2012

 

Lyndon R. Rive

$

275,018

 

$

276,068

 

$

275,023

 

Peter J. Rive

$

275,018

 

$

276,068

 

$

275,023

 

 

 

Compensation Elements

As noted above, during fiscal 2015, the compensation of our executive officers, including the Named Executive Officers, consisted of base salary, an annual cash bonus opportunity (except for our Founders), and long-term incentive compensation in the form of equity awards.

Base Salary

Base salary is the primary fixed cash component of our executive compensation program. We use base salary to provide a consistent level of cash compensation to our executive officers for services rendered during the year, and to ensure that we remain competitive in attracting and retaining executive talent.

Generally, we establish the initial base salaries of our executive officers through arm’s-length negotiations at the time we hire the individual executive officer, taking into account his or her position, qualifications, experience, prior salary level, and the base salaries of our other executive officers.

Thereafter, our board of directors and, more recently, our Compensation Committee reviews the base salary level of each executive officer annually. Our Compensation Committee makes adjustments to base salary as it determines to be reasonable and necessary to reflect the scope of an executive officer’s performance, individual contributions, responsibilities, experience, prior salary level, position (in the case of a promotion), and market conditions.

In January 2015, our Compensation Committee reviewed the compensation structures of our executive officers. Our Compensation Committee determined that no adjustments to the base salaries of our continuing Named Executive Officers were necessary to maintain the competitiveness of their compensation packages.

The annual base salaries of the Named Executive Officers for fiscal 2015 were as follows:

 

 

 

Fiscal 2014

 

 

Fiscal 2015

 

 

 

 

 

 

 

Base Salary

 

 

Base Salary

 

 

Percentage

 

Named Executive Officer

 

($)

 

 

($)

 

 

Increase

 

Lyndon R. Rive

 

 

275,000

 

 

 

275,000

 

 

 

-

 

Peter J. Rive

 

 

275,000

 

 

 

275,000

 

 

 

-

 

Tanguy V. Serra

 

 

250,000

 

 

 

250,000

 

 

 

-

 

Hayden D. Barnard

 

 

250,000

 

 

 

250,000

 

 

 

-

 

Brad W. Buss

 

 

270,000

 

 

 

270,000

 

 

 

-

 

The annual base salaries actually paid to the Named Executive Officers during fiscal 2015 are set forth in the “2015 Summary Compensation Table” below.  The annual base salaries payable to the Named Executive Officers in fiscal 2016 remain the same as those approved for fiscal 2015.

Annual Cash Bonuses

We use cash bonuses to motivate our executive officers to achieve our annual operating plan while also making progress towards our longer-term strategic and growth goals. Generally, our Compensation Committee meets in the first quarter of each year to determine the amount of target bonus opportunities for our executive officers, including the Named Executive Officers, based on the recommendations of our Chief Executive Officer with respect to the individual performance and contributions to our financial and

-37-


 

operating results of our other executive officers during the preceding year. Typically, the amount of the target bonus opportunity is based on an assessment of our Compensation Committee, including consideration of comparative market information and recommendations from our Chief Executive Officer (other than himself). The performance criteria used to determine the achievement of target bonus opportunity for our executive officers is recommended by our Chief Executive Officer (other than for himself), and determined by our Compensation Committee, with an emphasis on our growth, efficiency, and cost reductions for the year and his evaluation of each individual executive officer’s performance and contributions to our financial and operational performance.

Target Bonus Opportunities

For fiscal 2015, the target bonus opportunity and actual amounts paid for each of our Named Executive Officers are set forth in the table below.  In each case, achievement of the target bonus opportunity was subject to achievement of performance criteria mutually established by the Named Executive Officer and our Chief Executive Officer.

Our Founders have declined to be paid any annual cash bonus.

 

 

 

Target

 

 

 

 

 

 

Actual Annual Bonus (as

 

 

 

Annual

 

 

Actual

 

 

a percentage of Target

 

 

 

Bonus

 

 

Annual

 

 

Annual Bonus

 

 

 

Opportunity

 

 

Bonus

 

 

Opportunity (prorated,

 

Named Executive Officer

 

($)

 

 

($)

 

 

as applicable))

 

Lyndon R. Rive

 

N/A

 

 

N/A

 

 

N/A

 

Peter J. Rive

 

N/A

 

 

N/A

 

 

N/A

 

Tanguy V. Serra

 

*

 

 

 

217,886

 

 

N/A

 

Hayden D. Barnard

 

*

 

 

 

217,886

 

 

N/A

 

Brad W. Buss

 

 

230,000

 

 

 

230,000

 

 

 

100

%

 

 

*

Bonus opportunity for fiscal 2015 was based on the number of megawatts deployed by us during the fiscal period, without a specified target, threshold or maximum amount.

The annual cash bonus amounts actually paid to the Named Executive Officers for fiscal 2015 are also set forth in the “2015 Summary Compensation Table” below.

For fiscal 2015, the performance criteria for the Named Executive Officers were as follows:

 

·

Mr. Buss’ performance criteria were based upon continuing improvement of our control environment and financial close process.

 

·

The performance criteria for Messrs. Barnard and Serra were based upon the number of megawatts deployed by us during the fiscal period.

Fiscal 2015 Bonus Decisions

In approving payment of bonus amounts to our Named Executive Officers for fiscal 2015 (other than himself), our Chief Executive Officer evaluated our financial and operating performance for the prior year, confirmed the achievement by each executive officer of his or her performance criteria, and made subjective assessments of each individual’s other achievements and contributions during the year. Our Chief Executive Officer also took into consideration each executive officer’s responsibilities, experience, skills, equity holdings, and current market practice. Based upon the foregoing and the target bonus opportunities approved in consultation with members of our board of directors, our Chief Executive Officer determined the bonus amounts to be paid to our executive officers (other than himself).

The decisions relating to the payment of bonuses and actual bonus amounts paid to our Named Executive Officers in fiscal 2015 were as follows:

 

·

Following the announcement of Mr. Buss’s planned retirement near the end of the 2015 fiscal year, our General Counsel, in consultation with our Chief Executive Officer, engaged in discussions with Mr. Buss regarding his transition.  As part of those discussions, and based upon our Chief Executive Officer’s assessment of the achievements of Mr. Buss and our finance organization during fiscal 2015, it was agreed to pay Mr. Buss 100% of his target annual cash bonus opportunity.

 

·

On a periodic basis throughout fiscal 2015 (and into fiscal 2016), our Chief Executive Officer reviewed our megawatts deployed and approved the bonus amounts payable to Messrs. Serra and Barnard. Based upon this review, Messrs. Serra and Barnard were each paid $217,886.

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Long-Term Incentive Compensation

We believe that continued successful execution of our business strategy will lead to sustained growth in the market price of our common stock over time. Accordingly, we provide long-term incentive compensation to our executive officers.  Historically, we have primarily granted equity awards in the form of options to purchase shares of our common stock. Because stock options granted under our equity incentive plan provide for an economic benefit only in the event that our stock price increases over the exercise price of the option (which exercise price is equal to the fair market value of our common stock as of the date of grant), we believe that these equity awards effectively align the interests of our executive officers with those of our stockholders and provide our executive officers with a significant incentive to manage our company from the perspective of an owner with an equity stake in the business. The choice to grant stock options to our executive officers also reflects our belief that they are in a direct position to influence the market price of our common stock over the long term by creating value for our shareholders. Furthermore, the majority of stock option grants to our executive officers vest only upon achievement of significant corporate objectives or progress towards significant corporate objectives intended to benefit our stockholders. We also believe that these equity awards serve as an important retention tool for our executive officers, as unvested awards are generally forfeited if an officer voluntarily leaves us, and vested awards must be exercised within a short time period following an executive’s departure (generally, thirty days).

We also grant restricted stock unit awards to our Named Executive Officers and employees as the Compensation Committee determines appropriate. In particular, in January 2015, our Compensation Committee granted restricted stock unit awards vesting over a period of four years to several of our executive officers, including Messrs. Serra and Barnard.  These awards were intended to provide meaningful retention incentives, as prolonged volatility in the trading price of our common stock had eroded much of the value of stock option awards granted to such officers in earlier years. We believe, consistent with competitive market practices, that restricted stock unit awards can appropriately align the interests of our executive officers with those of our stockholders and provide appropriate retention incentives to our executive officers. Going forward, as we consider appropriate, we may introduce other forms of stock-based compensation awards into our executive compensation program to offer our executive officers additional types of long-term equity incentives that further this objective.

Historically, the size and form of the initial equity awards for our executive officers have been established through arm’s-length negotiations at the time we hire the individual executive officer. In making these awards, we consider, among other things, the prospective role and responsibility of the individual executive officer, competitive factors, the amount of equity-based compensation held by the executive officer at his or her former employer, the cash compensation received by the executive officer, and the need to create a meaningful opportunity for reward based on the creation of long-term, sustained stockholder value.

In addition, we grant equity awards to our executive officers when our board of directors or, more recently, our Compensation Committee has determined that these awards were necessary or appropriate to recognize corporate and individual performance, to recognize a promotion or to achieve our retention objectives. To date, we have not applied a rigid formula in determining the size of these equity awards. Instead, our board of directors or our Compensation Committee, as applicable, has exercised its judgment to determine the size of such equity awards for an individual executive officer after taking into consideration the recommendations of our Chief Executive Officer, the scope of the executive officer’s performance, contributions, responsibilities and experience, the amount of equity compensation held by the executive officer (including the current economic value of his or her unvested equity and the ability of these unvested holdings to satisfy our retention objectives), available competitive data and other compensation analyses provided by our People Empowerment Department, market conditions, and other criteria. In making its equity award determinations, our board of directors or our Compensation Committee, as applicable, also considers annual share usage and overall stockholder dilution.

The equity awards granted to the Named Executive Officers in fiscal 2015 were as follows:

 

 

 

Time-Based

 

 

 

 

 

 

Performance-

 

 

 

 

Aggregate Fair

 

 

 

Restricted Stock

 

 

Time-Based

 

 

Based Stock

 

 

 

 

Value of Equity

 

 

 

Unit Awards

 

 

Stock Options

 

 

Options

 

 

Company Performance

 

Award

 

Named Executive Officer

 

(#)

 

 

(#)

 

 

(#)

 

 

Objective

 

($)(1)

 

Lyndon R. Rive

 

-

 

 

-

 

 

 

3,000,000

 

 

Founder Awards

 

 

77,043,000

 

Peter J. Rive

 

-

 

 

-

 

 

 

2,000,000

 

 

Founder Awards

 

 

51,362,000

 

Tanguy V. Serra

 

 

111,454

 

 

-

 

 

-

 

 

N/A

 

 

5,417,779

 

Tanguy V. Serra

 

-

 

 

 

400,000

 

 

-

 

 

N/A

 

 

9,392,000

 

Hayden D. Barnard

 

 

146,023

 

 

-

 

 

-

 

 

N/A

 

 

7,098,178

 

 

(1)

For stock option awards, the amount reported in this column represents the grant date fair value of the stock options as computed in accordance with ASC 718, for the awards with market conditions granted to our Founders we use a Monte Carlo simulation to determine the fair value of stock options. The assumptions used in calculating the grant date fair value reported in this column are set forth in the notes to our audited consolidated financial statements included in our annual report on Form 10-K. For restricted

-39-


 

stock unit awards, the amount reported in this column represents the grant date fair value of the restricted stock units based on the closing trading price of our common stock on the grant date. Note that the amounts reported in this column reflect the accounting cost for these equity awards, and do not correspond to the actual economic value that our Named Executive Officers may receive from the awards. 

Additional details of the equity awards granted to the Named Executive Officers in fiscal 2015 are set forth in the “2015 Grants of Plan-Based Awards Table” and “2015 Outstanding Equity Awards at Fiscal Year-End Table” below.  A discussion of the terms of the Founder Awards is set forth in more detail in “Compensation of our Founders” above.

Welfare and Other Employee Benefits

We have established a tax-qualified Section 401(k) retirement plan for all employees who satisfy certain eligibility requirements, including requirements relating to age and length of service. Currently, we do not match any contributions made to the plan by our employees, including executive officers, although we maintain the discretion to do so. We intend the plan to qualify under Section 401(a) of the Code so that contributions by employees to the plan, and income earned on plan contributions, are not taxable to employees until withdrawn from the plan.

In addition, we provide other benefits to our executive officers on the same basis as all of our full-time employees in the country where they reside. These benefits include health, dental, and vision benefits, health and dependent care flexible spending accounts, short-term and long-term disability insurance, accidental death and dismemberment insurance, and basic life insurance coverage.

We design our employee benefits programs to be affordable and competitive in relation to the market, as well as compliant with applicable laws and practices. We adjust our employee benefits programs as needed based upon regular monitoring of applicable laws and practices, the competitive market, and our employees’ needs.

Perquisites and Other Personal Benefits

Currently, we do not view perquisites or other personal benefits as a significant component of our executive compensation program. Accordingly, we do not provide perquisites to our executive officers, except in limited situations where we believe it is appropriate to assist an individual in the performance of his or her duties, to make our executive officers more efficient and effective and for recruitment and retention purposes. For example, we have provided a company-leased automobile to Messrs. Serra and Barnard and limited other members of our management, and in fiscal 2013 and 2014 paid certain housing and relocation expenses for Mr. Barnard in connection with his relocation to the San Francisco Bay Area. The amounts of these perquisites and other personal benefits are set forth in the “Other Compensation” column of and the footnotes to the “2015 Summary Compensation Table” below.

We may provide additional perquisites and other personal benefits to our executive officers in the future, as we determine appropriate to assist an individual executive officer in the performance of his or her duties, to make our executive officers more efficient and effective, and for recruitment, motivation, retention or other purposes. All future practices with respect to perquisites and other personal benefits will be approved and subject to periodic review by our Compensation Committee.

Employment Offer Letters

While we have not entered into employment agreements with any of our executive officers, the initial terms and conditions of employment for each of the Named Executive Officers, other than our Founders, are set forth in written employment offer letters. Each of these arrangements was approved on our behalf by our board of directors or our Compensation Committee. We believe that these employment offer letters were necessary to induce these individuals to forego other employment opportunities for the uncertainty of a demanding position in a new and unfamiliar organization.

In filling these executive positions, our board of directors and Compensation Committee was aware that it would be necessary to recruit candidates with the requisite experience and skills to manage a growing business in a unique market niche. Accordingly, our board of directors and Compensation Committee recognize that competitive compensation packages were necessary to attract qualified candidates in a dynamic and competitive labor market. At the same time, our board of directors and Compensation Committee was sensitive to the need to integrate new executive officers into our executive compensation structure, balancing both competitive and internal equity considerations.

Each of these employment offer letters provided for “at will” employment and sets forth the initial compensation arrangements for the executive officer, including an initial base salary, an annual cash bonus opportunity, and a recommendation for equity awards to acquire shares of our common stock.

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For a summary of the material terms and conditions of the employment offer letters with the Named Executive Officers, see “Employment Arrangements” below.

 

Post-Employment Compensation

Resignation of Mr. Buss

Effective as of February 10, 2016, Mr. Buss resigned as our Chief Financial Officer.  On January 25, 2016, SolarCity entered into a Transition, Retention, Separation Agreement and Release with Mr. Buss (the “Buss Transition Agreement”). The Buss Transition Agreement provided for, among other things, the planned retirement of Mr. Buss and transition of his responsibilities, a mutual release of claims by SolarCity and Mr. Buss, payment to Mr. Buss of 100% of his target bonus opportunity for fiscal 2015, and the acceleration of 14,583 shares under a previously granted restricted stock unit award (representing vesting credit for seven months of service already provided by Mr. Buss).

Other than the consideration paid to Mr. Buss pursuant to the terms of the Buss Transition Agreement, none of our executive officers are eligible to receive any payments or benefits when their employment terminates, including in connection with or following a change in control, except as provided in our equity plans (and described below) applicable to all holders of equity awards.

Our executive officers, including the Named Executive Officers, are eligible to receive any benefits accrued under our broad-based benefit plans and as required by law, in accordance with those plans and policies.

The post-employment payments and benefits which the Named Executive Officers are eligible to receive are described in more detail in “Potential Payments upon Termination or Change in Control” below.

Other Compensation Related Policies

Derivatives Trading and Hedging Policy

Our board of directors has adopted a policy prohibiting the trading of derivatives or the hedging of our equity securities by our employees, including our executive officers, and the non-employee members of our board of directors, and limiting the ability of our directors and employees to pledge our common stock as collateral for loans.

Compensation Recovery Policy

Currently, we have not implemented a policy regarding retroactive adjustments to any cash or equity-based incentive compensation paid to our executive officers and other employees where the payments were predicated upon the achievement of financial results that were subsequently the subject of a financial restatement. We intend to adopt a general compensation recovery, or clawback, policy covering our annual and long-term incentive award plans and arrangements once the SEC adopts final rules implementing the requirement of Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Tax and Accounting Considerations

Deductibility of Executive Compensation

Section 162(m) of the Code generally disallows a deduction for federal income tax purposes to any publicly-traded corporation for any remuneration in excess of $1 million paid in any taxable year to its chief executive officer and each of the three other most highly-compensated executive officers (other than its chief financial officer). Generally, remuneration in excess of $1 million may be deducted if, among other things, it qualifies as “performance-based compensation” within the meaning of the Code. In this regard, the compensation income realized upon the exercise of options to purchase shares of the granting company’s securities granted under a stockholder-approved stock option plan generally will be deductible so long as the options are granted by a committee whose members are outside directors and certain other conditions are satisfied.

Our Compensation Committee generally seeks to qualify the variable compensation paid to the covered executive officers for the “performance-based compensation” exemption from the deduction limit under Section 162(m) when it believes such action is in the best interests of SolarCity. In approving the amount and form of compensation for our executive officers, our Compensation Committee considers all elements of the cost to us of providing such compensation, including the potential impact of the Section 162(m) deduction limit. However, our Compensation Committee reserves its discretion to authorize compensation payments that do not comply with an exemption from the deduction limit when it believes that such payments are appropriate to achieve other goals of our executive compensation program.

-41-


 

Taxation of Nonqualified Deferred Compensation

Section 409A of the Code requires that amounts that qualify as “nonqualified deferred compensation” satisfy requirements with respect to the timing of deferral elections, timing of payments, and certain other matters. Our Compensation Committee intends to administer our executive compensation program and design individual compensation components, as well as the compensation plans and arrangements for our employees generally, so that they are either exempt from, or satisfy the requirements of, Section 409A. From time to time, we may be required to amend some of our compensation plans and arrangements to ensure that they are either exempt from, or compliant with, Section 409A.

Taxation of “Parachute” Payments

Sections 280G and 4999 of the Code provide that executive officers and directors who hold significant equity interests and certain other service providers may be subject to significant additional taxes if they receive payments or benefits in connection with a change in control of the company that exceeds certain prescribed limits, and that the company (or a successor) may forfeit a deduction on the amounts subject to this additional tax. We are not obligated to provide any Named Executive Officer with a “gross-up” or other reimbursement payment for any tax liability that he may owe as a result of the application of Sections 280G or 4999 in the event of a change in control of the company.

Accounting for Stock-Based Compensation

Our Compensation Committee takes accounting considerations into account in designing compensation plans and arrangements for our executive officers and other employees, among other issues and matters of concern. Chief among these is Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC Topic 718”), the standard which governs the accounting treatment of stock-based compensation awards.

ASC Topic 718 requires us to recognize in our consolidated statement of operations all share-based payments to employees, including grants of options to purchase shares of our common stock to our executive officers, based on their fair values. The application of ASC Topic 718 involves significant amounts of judgment in the determination of inputs into the Black-Scholes valuation model that we use to determine the fair value of stock options. These inputs are based upon assumptions as to the volatility of the underlying stock, risk-free interest rates, and the expected life of the options. As required under GAAP, we review our valuation assumptions at each grant date, and, as a result, our valuation assumptions used to value stock options granted in future periods may vary from the valuation assumptions we have used previously. For performance-based stock awards, we also must apply judgment in determining the periods when, and if, the related performance targets become probable of being met. The assumptions used in calculating the grant date fair value pursuant to ASC Topic 718 are set forth in the notes to our audited consolidated financial statements included in our annual report on Form 10-K.

ASC Topic 718 also requires companies to recognize the compensation cost of their share-based payment awards in their income statements over the period that an executive officer is required to render service in exchange for the option or other award (which, generally, will correspond to the award’s vesting schedule).

 

 

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COMPENSATION RISK ASSESSMENT

As part of its oversight of our compensation practices, our Compensation Committee has considered our executive officer and non-executive employee compensation programs as they relate to corporate risk management. Our compensation programs are currently consistent with practices of other companies in our industry, and our Compensation Committee has concluded that our compensation policies and practices are not likely to have a material adverse effect on us, including for the following reasons:

 

·

our Chief Executive Officer’s and our board of directors’ retention of a high degree of discretion with respect to the payment of annual cash bonuses, as well as our consideration of our operating performance and assessments of individual performance during the prior fiscal year to determine the amount of such bonuses, help minimize the risk that the short-term variable component of our executive compensation program might pose; and

 

·

the long-term component of our compensation program, which to date has consisted primarily of stock options, keeps our executive officers and employees appropriately focused on sustained long-term enterprise-level growth through multi-year vesting schedules and by providing value only if we succeed in growing our business in a way that results in appreciation of the value of our common stock over time.

Compensation Committee Report

In 2015, the Compensation Committee of the Board of Directors was comprised of the following non-employee members of the Board of Directors: Mr. Fisher, Ms. Pfund, Mr. Van de Bunt (January 1 – July 20, 2015) and Mr. Kendall (July 28 – December 31, 2015). Each member was determined to be an “outside director” for purposes of Section 162(m) of the Internal Revenue Code and a “non-employee director” for purposes of Rule 16b-3 under the Exchange Act.

The Compensation Committee’s primary responsibility is to review the performance of SolarCity’s management in achieving corporate goals and objectives and to ensure that SolarCity’s management is compensated effectively in a manner consistent with SolarCity’s strategy and competitive practices. Toward that end, the Compensation Committee oversees, reviews and administers all of SolarCity’s compensation, equity and employee benefit plans and programs applicable to executive officers.

The compensation committee has reviewed and discussed the section captioned “Compensation Discussion and Analysis” included in this proxy statement, with our management and, based on such review and discussions, the compensation committee has recommended to our board of directors that this “Compensation Discussion and Analysis” section be included in proxy statement.

Respectfully submitted by the members of the compensation committee of the board of directors:

John H.N. Fisher - Chairman

Nancy E. Pfund

Donald R. Kendall, Jr.

 

 

 

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2015 Summary Compensation Table

The following table presents summary information regarding the total compensation awarded to, earned by, and paid to our Named Executive Officers for 2015.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock

 

 

Option

 

 

Incentive Plan

 

 

All Other

 

 

 

 

 

Name and Principal Position of Named

 

 

 

Salary

 

 

Bonus

 

 

Awards (1)

 

 

Awards (1)

 

 

Compensation

 

 

Compensation (2)

 

 

Total

 

Executive Officers

 

Year

 

($)

 

 

($)

 

 

($)

 

 

($)

 

 

($)

 

 

($)

 

 

($)

 

Lyndon R. Rive,

 

2015

 

 

275,000

 

 

 

-

 

 

 

-

 

 

 

77,043,000

 

 

 

-

 

 

 

16

 

 

 

77,318,016

 

Chief Executive Officer (3)

 

2014

 

 

275,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

18

 

 

 

275,018

 

 

 

2013

 

 

276,058

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

10

 

 

 

276,068

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Peter J. Rive,

 

2015

 

 

275,000

 

 

 

-

 

 

 

-

 

 

 

51,362,000

 

 

 

-

 

 

 

16

 

 

 

51,637,016

 

Chief Technology Officer (3)

 

2014

 

 

275,000

 

 

 

-

 

 

 

-

 

 

 

-