DEFA14A: Stem Inc. Reduces Proposed Share Reserve Increase for 2025 Equity Incentive Plan

Stem Inc. announces a reduction in the proposed share reserve increase under the 2025 Restatement of its Equity Incentive Plan from 7,500,000 shares to 4,000,000 shares.

Summary

• Stem Inc. is supplementing its proxy statement for the 2025 Annual Meeting of Stockholders to reflect a reduction in the proposed share reserve increase under the 2025 Restatement of the Stem, Inc. 2024 Equity Incentive Plan.
• The Board of Directors approved a reduction from 7,500,000 shares to 4,000,000 shares on May 1, 2025, subject to stockholder approval.
• This change updates disclosures in Proposal 2, the proxy card, and the Notice of Internet Availability of Proxy Materials.
• The total share reserve is reduced from 13,074,979 to 9,574,979 shares.
• The company's three-year average burn rate was approximately 6.4% (4.5% in 2022, 5.8% in 2023, and 8.9% in 2024).
• Excluding shares granted in lieu of cash bonuses, the 3-year average share utilization would have been 5.8%.
• As of March 31, 2025, the company's fully-diluted overhang was 11.4%, and it would increase to 13.2% if the 2025 Restatement is approved.
• The Board believes the reduced share reserve increase represents a reasonable amount of potential equity dilution.
• The Annual Meeting will be held virtually on June 4, 2025.
• The Board continues to recommend voting FOR Proposal 2.

Sentiment

Score: 7

Explanation: The document is factual and informative, presenting a change in a proposed equity plan. The reduction in the share reserve increase is a positive sign for shareholders, but the increasing burn rate and potential dilution are concerns. Overall, the sentiment is neutral to slightly positive.

Positives

• The Board is mindful of the potential dilutive effect of equity awards and is reducing the proposed share reserve increase.
• The reduced share reserve increase is considered a reasonable amount of potential equity dilution by the Board.
• The company is providing additional transparency regarding its burn rate and fully-diluted overhang.

Negatives

• The company's burn rate increased from 4.5% in 2022 to 8.9% in 2024.
• The fully-diluted overhang is projected to increase from 11.4% to 13.2% if the restatement is approved, indicating further dilution for existing shareholders.

Risks

• Failure to approve the 2025 Restatement could limit the company's ability to grant equity awards, which are considered an important component of the overall compensation plan.
• Increased equity dilution could negatively impact the value of existing shares.
• A high burn rate could signal inefficient use of equity compensation.

Future Outlook

The company anticipates that the reduced share reserve will allow it to continue granting equity awards during the remainder of 2025 and in 2026.

Management Comments

• The Board believes that the Additional Shares represent a reasonable amount of potential equity dilution and would allow the Company to continue granting equity awards, which is an important component of the Company's overall compensation plan.
• Your vote is important to us. We encourage you to vote in accordance with the Board's recommendations.

Industry Context

Equity compensation is a common practice in the technology industry to attract and retain talent. Companies often use equity to align employee incentives with shareholder value. Monitoring burn rate and overhang is crucial to managing dilution and ensuring responsible equity usage.

Comparison to Industry Standards

• Burn rates vary significantly across industries and company stages.
• A 6.4% three-year average burn rate may be considered high compared to mature companies but could be typical for a growth-stage technology company.
• Companies like Tesla and SolarEdge also use equity compensation extensively, but their specific burn rates and overhang would need to be compared directly to provide a more precise benchmark.
• Fully-diluted overhang is also company specific, but generally, investors prefer lower overhang as it indicates less potential dilution.

Stakeholder Impact

• Shareholders will experience less potential dilution with the reduced share reserve increase.
• Employees may be affected by the company's ability to grant equity awards if the restatement is not approved.
• The company's long-term growth and success depend on its ability to attract and retain talent through competitive compensation packages.

Next Steps

• Stockholders are urged to vote on Proposal 2, considering the reduced share reserve increase.
• The company will hold its Annual Meeting on June 4, 2025, to vote on the restated equity plan.

Key Dates

Keywords

equity incentive plan, share reserve, burn rate, overhang, proxy statement, stock options, RSUs, PSUs, dilution, compensation