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. )
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Preliminary Proxy Statement | ||
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Definitive Proxy Statement | ||
Definitive Additional Materials | ||
Soliciting Material Pursuant to §240.14a-12 |
ADTRAN, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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NOTICE OF 20162018 ANNUAL MEETING
AND
PROXY STATEMENT
Corporate Office | U.S. Mail | Toll Free: 1 800 9ADTRAN | ||||||
901 Explorer Blvd. | P.O. Box 140000 | Telephone: 256 963.8000 | ||||||
Huntsville, AL 35806 | Huntsville, AL 35814-4000 | http://www.adtran.com |
April 4, 20162018
Dear Stockholder:
You are cordially invited to attend the 20162018 Annual Meeting of Stockholders of ADTRAN, Inc. to be held at ADTRAN’s headquarters at 901 Explorer Boulevard, Huntsville, Alabama, on Wednesday, May 11, 2016,9, 2018, at 10:30 a.m., local time. The meeting will be held in the East Tower on the second floor.
The attached Notice of Annual Meeting and Proxy Statement describes the formal business to be transacted at the meeting. During the meeting, we also will report on ADTRAN’s operations during the past year and our plans for the future. Our directors and officers, as well as representatives from our independent registered public accounting firm, PricewaterhouseCoopers LLP, will be present to respond to appropriate questions from stockholders.
Please mark, date, sign and return your proxy card in the enclosed envelope, or vote by telephone or over the Internet as directed on the enclosed proxy card, at your earliest convenience. This will assure that your shares will be represented and voted at the meeting, even if you do not attend.
For ease of voting, stockholders are encouraged to vote using the Internet. If you would like to reduce the costs incurred by ADTRAN, Inc. in mailing proxy materials, you can consent to receive all future proxy statements, proxy cards, and annual reports electronically. To sign up for electronic delivery, please vote using the Internet and, when prompted, indicate that you agree to receive or access stockholder communications electronically in future years.
Sincerely, |
THOMAS R. STANTON |
Chairman of the Board |
ADTRAN, INC.
901 EXPLORER BOULEVARD
HUNTSVILLE, ALABAMA 35806
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 11, 20169, 2018
NOTICE HEREBY IS GIVEN that the 20162018 Annual Meeting of Stockholders of ADTRAN, Inc. will be held at ADTRAN’s headquarters at 901 Explorer Boulevard, Huntsville, Alabama, on the second floor of the East Tower, on Wednesday, May 11, 2016,9, 2018, at 10:30 a.m., local time, for the purposes of considering and voting upon:
1. | A proposal to elect |
2. | An advisory proposal with respect to |
“RESOLVED, that the stockholders approve the overall executive compensation policies and procedures employed by the Company as well as the compensation of the named executive officers, all as described in the Compensation Discussion and Analysis and the tabular disclosure regarding named executive officer compensation in this Proxy Statement.”
3. | A proposal to ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm of ADTRAN, Inc. for the fiscal year ending December 31, |
4. | Such other business as properly may come before the Annual Meeting or any adjournments thereof. The Board of Directors is not aware of any other business to be presented to a vote of the stockholders at the Annual Meeting. |
Information relating to the above matters is set forth in the attached Proxy Statement. Stockholders of record at the close of business on March 14, 201612, 2018, are entitled to receive notice of and to vote at the Annual Meeting and any adjournments thereof.
By Order of the Board of Directors. |
ROGER D. SHANNON |
Senior Vice President of Finance, Chief Financial Officer, |
Corporate Secretary and Treasurer |
Huntsville, Alabama
April 4, 20162018
Important Notice Regarding the Availability of Proxy Materials for the
Annual Meeting of Stockholders to be Held on May 11, 2016:9, 2018:
This Notice, the Proxy Statement and the 20152017 Annual Report to Stockholders of ADTRAN, Inc. are
available at www.proxyvote.com.
PLEASE READ THE ATTACHED PROXY STATEMENT AND THEN PROMPTLY COMPLETE, EXECUTE AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE OR VOTE BY TELEPHONE OR OVER THE INTERNET AS INSTRUCTED ON THE ENCLOSED PROXY CARD.
ADTRAN, INC.
901 EXPLORER BOULEVARD
HUNTSVILLE, ALABAMA 35806
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 11, 20169, 2018
We are providing this Proxy Statement to the stockholders of ADTRAN, Inc. in connection with the solicitation of proxies by our Board of Directors to be voted at the 20162018 Annual Meeting of Stockholders and at any adjournments of that meeting. The Annual Meeting will be held at ADTRAN’s headquarters, 901 Explorer Boulevard, Huntsville, Alabama, on Wednesday, May 11, 2016,9, 2018, at 10:30 a.m., local time. The meeting will be held in the East Tower on the second floor. When used in this Proxy Statement, the terms “we,” “us,” “our” and “ADTRAN” refer to ADTRAN, Inc.
The approximate date on which this Proxy Statement and form of proxy card are first being sent or given to stockholders is April 4, 2016.2018.
This Proxy Statement, the attached Notice of Annual Meeting and our 20152017 Annual Report to Stockholders are available at www.proxyvote.com.
VOTING
General
The securities that can be voted at the Annual Meeting consist of our common stock, $0.01 par value per share, with each share entitling its owner to one vote on each matter submitted to the stockholders. The record date for determining the holders of common stock who are entitled to receive notice of and to vote at the Annual Meeting is March 14, 2016.12, 2018. On the record date, 48,989,61647,904,092 shares of common stock were outstanding and eligible to be voted at the Annual Meeting.
Quorum and Vote Required
The presence, in person or by proxy, of a majority of the outstanding shares of our common stock is necessary to constitute a quorum at the Annual Meeting. In counting the votes to determine whether a quorum exists at the Annual Meeting, we will use the proposal receiving the greatest number of all votes “for” or “against” and abstentions, including instructions to withhold authority to vote.
In voting with regard to Proposal 1, the election of directors, stockholders may vote in favor of all nominees, withhold their votes as to all nominees or withhold their votes as to specific nominees. The vote required to approve Proposal 1 is governed by the Bylaws of the Company and is a majority of the votes cast by the holders of shares represented and entitled to vote at the Annual Meeting, provided a quorum is present. As a result, abstentions will be considered in determining whether a quorum is present and the number of votes required to obtain the necessary majority vote for the nominees and, therefore, will have the same legal effect as voting against the proposal.
In voting with regard to Proposal 2, an advisory vote to approve the Company’s executive compensation, stockholders may vote in favor of the proposal or against the proposal or may abstain from voting. As the vote is advisory only and not binding, there is no required vote. In determining the results of the vote, however, abstentions will have the same legal effect as voting against the proposal.
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In voting with regard to Proposal 3, the ratification of the appointment of the independent registered public accounting firm, stockholders may vote in favor of the proposal or against the proposal or may abstain from voting. The vote required to approve of Proposal 3 is governed by Delaware law and is the affirmative vote of the holders of a majority of the shares represented and entitled to vote on the proposals at the Annual Meeting, provided a quorum is present. As a result, abstentions will be considered in determining whether a quorum is present and the number of votes required to obtain the necessary majority vote for each proposal and, therefore, will have the same legal effect as voting against the proposal.
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Under the rules of the national stock exchanges that govern most domestic stock brokerage firms, member firms that hold shares in street name for beneficial owners may, to the extent that those beneficial owners do not furnish voting instructions with respect to any or all proposals submitted for stockholder action, vote in their discretion upon proposals that are considered “discretionary” proposals under the rules of the exchanges. These votes by brokers are considered as votes cast in determining the outcome of any discretionary proposal. We believe that Proposal 3 is discretionary. Member brokerage firms that have received no instructions from their clients as to “non-discretionary”“non-discretionary” proposals do not have the discretion to vote on these proposals. If the brokerage firm returns a proxy card without voting on anon-discretionary proposal because it received no instructions, this is referred to as a “brokernon-vote” on the proposal. “Brokernon-votes” are considered in determining whether a quorum exists at the Annual Meeting, but “brokernon-votes” are not considered as votes cast in determining the outcome of anynon-discretionary proposal. We believe Proposals 1 and 2 arenon-discretionary.
As of March 14, 2016,12, 2018, the record date for the Annual Meeting, our directors and executive officers beneficially owned or controlled approximately 1,483,3891,235,907 shares of our common stock, constituting approximately 2.96%2.53 % of the outstanding common stock. We believe that these holders will vote all of their shares of common stock in favor of each of the proposals.
Proxies
You should specify your choices with regard to each of the proposals (1) by telephone as directed on the enclosed proxy card, (2) over the Internet as directed on the enclosed proxy card, or (3) on the enclosed proxy card by signing, dating and returning it in the accompanying postage paid envelope. All properly executed proxy cards delivered by stockholders to ADTRAN in time to be voted at the Annual Meeting and not revoked will be voted at the Annual Meeting in accordance with the directions noted on the proxy card.In the absence of such instructions, the shares represented by a signed and dated proxy card will be voted “FOR” the election of all director nominees, “FOR” approval of a shareholder advisory vote on executive compensation and “FOR” the ratification of the appointment of the independent registered public accounting firm.If any other matters properly come before the Annual Meeting, the persons named as proxies will vote upon those matters according to their judgment.
Any stockholder delivering a proxy has the power to revoke it at any time before it is voted by:
Please note, however, that under the rules of the national stock exchanges, any beneficial owner of our common stock whose shares are held in street name by a member brokerage firm may revoke his proxy and vote his shares in person at the Annual Meeting only in accordance with applicable rules and procedures of the exchanges, as employed by the beneficial owner’s brokerage firm.
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In addition to soliciting proxies through the mail, we may solicit proxies through our directors, officers and employees in person and by telephone or facsimile. We have hired Georgeson Inc. to assist in the solicitation of proxies from stockholders at a fee of approximately $9,000 plus reasonableout-of-pocket expenses. We will pay all expenses incurred in connection with the solicitation of proxies. We may also request that brokerage firms, nominees, custodians and fiduciaries forward proxy materials to the beneficial owners of shares held of record by them. We will also reimburse such brokerage firms and other nominees for their reasonable expenses in forwarding proxy materials to beneficial owners of our common stock.
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SHARE OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of our common stock as of March 14, 2016,12, 2018, by (1) each of our directors and director emeritus, (2) each of our executive officers named in the Summary Compensation Table in this Proxy Statement and (3) all of our directors and executive officers as a group, based in each case on information furnished to us by these persons. We believe that each of the named individuals and each director and executive officer included in the group has sole voting and investment power with regard to the shares shown except as otherwise noted.
Common Stock Beneficially Owned (1) (2) | ||||||||
Name and Relationship to Company | Number of Shares | Percent of Class | ||||||
Thomas R. Stanton | ||||||||
Chairman of the Board, Chief Executive Officer and Director | 646,350 | 1.31 | % | |||||
James E. Matthews (3) | ||||||||
Former Senior Vice President – Finance, Chief Financial Officer, Treasurer and Secretary | — | * | ||||||
Roger D. Shannon (3) | ||||||||
Senior Vice President of Finance, Chief Financial Officer, Corporate Treasurer and Secretary | — | * | ||||||
Raymond R. Schansman | ||||||||
Senior Vice President of Global OperationsandSupport | 140,711 | * | ||||||
James D. Wilson, Jr. | ||||||||
Senior Vice President of Technology andStrategy | 94,982 | * | ||||||
Michael Foliano (3) | ||||||||
Senior Vice President – Global Operations | 113,522 | * | ||||||
Roy J. Nichols | ||||||||
Director | 82,486 | * | ||||||
William L. Marks | ||||||||
Director | 67,841 | * | ||||||
H. Fenwick Huss | ||||||||
Director | 39,225 | * | ||||||
Balan Nair | ||||||||
Director | 45,225 | * | ||||||
Kathryn A. Walker | ||||||||
Director | 12,148 | * | ||||||
Anthony J. Melone | ||||||||
Director | 2,187 | * | ||||||
All directors and executive officers as a group (15 persons) | 1,483,389 | 2.96 | % |
Common Stock Beneficially Owned (1) (2) | ||||||||
Name and Relationship to Company | Number of Shares | Percent of Class | ||||||
Thomas R. Stanton | 665,999 | 1.37% | ||||||
Roger D. Shannon | 16,254 | * | ||||||
Michael Foliano | 113,428 | * | ||||||
James D. Wilson, Jr. | 109,741 | * | ||||||
Eduard Scheiterer | 36,648 | * | ||||||
H. Fenwick Huss | 33,410 | * | ||||||
William L. Marks | 62,026 | * | ||||||
Gregory J. McCray | 2,222 | * | ||||||
Anthony J. Melone | 6,323 | * | ||||||
Balan Nair | 34,410 | * | ||||||
Roy J. Nichols | 72,671 | * | ||||||
Jacqueline H. Rice | 6,322 | * | ||||||
Kathryn A. Walker | 16,333 | * | ||||||
All directors, director emeritus and executive officers as a group (15 persons) | 1,235,907 | 2.53% |
* Represents less than one percent of the outstanding shares of our common stock.
4
(1) | Beneficial ownership as reported in the table has been determined in accordance with Securities and Exchange Commission (“SEC”) regulations and includes (i) shares of our common stock that may be issued upon the exercise of stock options that are exercisable within 60 days of March |
(2) | The shares shown include: as to Mr. |
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The following table sets forth information regarding the beneficial ownership of our common stock as of the date indicated for each person, other than the officers or directors of ADTRAN, known to us to be the beneficial owner of more than 5% of our outstanding common stock.
Common Stock Beneficially Owned | Common Stock Beneficially Owned | |||||||||||||||
Name and Address of Beneficial Owner | Number of Shares | Percent of Class | Number of Shares | Percent of Class | ||||||||||||
T. Rowe Price Associates, Inc. | 7,194,208 | (1) | 14.69 | % | ||||||||||||
BlackRock, Inc. | 4,694,581 | (2) | 9.58 | % | ||||||||||||
BlackRock, Inc. | 6,219,111 | (1) | 12.98 | % | ||||||||||||
The Vanguard Group | 3,822,443 | (3) | 7.80 | % | 4,629,272 | (2) | 9.66 | % | ||||||||
Victory Capital Management Inc. | 3,068,431 | (3) | 6.41 | % | ||||||||||||
Dimensional Fund Advisors LP | 3,027,170 | (4) | 6.32 | % | ||||||||||||
Fuller & Thaler Asset Management, Inc. | 2,785,369 | (5) | 5.81 | % |
(1) | The amount shown and the following information |
The amount shown and the following information |
(3) | The amount shown and the following information are derived from Amendment No. 1 to the Schedule 13G filed by Victory Capital Management Inc., reporting beneficial ownership as of December 31, 2017. According to the Schedule 13G, Victory Capital Management Inc. is the beneficial owner of all of the shares and has sole voting power over 2,998,331 shares and sole dispositive power as to 3,068,431 shares. The Schedule 13G indicates various persons have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of the shares; however, no one person’s interest in the shares is more than five percent (5%) of the total shares, except the Victory Sycamore Small Company Opportunity Fund an investment company registered under the Investment Company Act of 1940, which has an interest of 5.38% of the class. |
(4) | The amount shown and the following information are derived from Amendment No. 1 to the Schedule 13G filed by Dimensional Fund Advisors LP, reporting beneficial ownership as of December 31, 2016. According to the Schedule 13G, Dimensional Fund Advisors LP is the beneficial owner of all of the shares, and has sole voting power over 2,781,084 shares and sole dispositive power as to all of the shares. The Schedule 13G indicates various funds, for which Dimensional Fund Advisors LP acts as an investment advisor have the right to receive or the power to direct the receipt of dividends from or the proceeds from the sale of the shares; however, to the knowledge of Dimensional Fund Advisors LP or its subsidiaries, no one fund’s interest in the shares is more than five percent (5%) of the total shares. |
(5) | The amount shown and the following information are derived from Amendment No. 2 to the Schedule 13G filed by Fuller & Thaler Asset Management, Inc., reporting beneficial ownership as of December 31, 2017. According to the Schedule 13G, Fuller & Thaler Asset Management, Inc. is the beneficial owner of all of the shares and has sole voting power over 2,732,340 shares and sole dispositive power as to all of the shares. The Schedule 13G indicates various persons have the right to receive or the power to direct the receipt of dividends from or the proceeds from the sale of the shares. |
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PROPOSAL 1 – ELECTION OF DIRECTORS
Nominees
The Board of Directors currently consists of seveneight members. Also, Roy J. Nichols, who was a Board member until his resignation in August 2016, currently serves as a director emeritus of ADTRAN. Each of Thomas R. Stanton, H. Fenwick Huss, William L. Marks, Anthony J. Melone, Balan Nair, Roy J. NicholsJacqueline H. Rice, and Kathryn A. Walker were elected at the 20152017 Annual Meeting. AnthonyOn May 11, 2017, Gregory J. MeloneMcCray was appointed as a director by the Board on February 8, 2016,of ADTRAN to fill a previously existing vacancy.newly created Directorship resulting from the Board’s increase in the authorized number of Directors.
The Board of Directors has nominated Thomas R. Stanton, H. Fenwick Huss, William L. Marks, Gregory J. McCray, Anthony J. Melone, Balan Nair, Roy J. NicholsJacqueline H. Rice and Kathryn A. Walker for election as directors at the 20162018 Annual Meeting. If elected as a director at the Annual Meeting, each of the nominees would serve aone-year term expiring at the 20172019 Annual Meeting of Stockholders and until his or her successor has been duly elected and qualified. There are no family relationships among the directors, director nominees or the executive officers.
Each of the nominees has consented to serve his term as a director if elected. If any of the nominees should be unavailable to serve for any reason (which is not anticipated), the Board of Directors may designate a substitute nominee or nominees (in which event the persons named on the enclosed proxy card will vote the shares represented by all valid proxies for the election of the substitute nominee or nominees), allow the vacancies to remain open until a suitable candidate or candidates are located, or by resolution provide for a lesser number of directors.
Our products and our success in our markets depend on our ability to stay abreast of and respond to developments in communications and information technologies. We have also grown profitably; in order to protect and enhance our growth and profitability, it is important for us to understand the financial environments which impact us and the risks in those environments as well as the tools of corporate finance available to us to navigate and manage those risks. We also have a significant number of employees and numerous locations. In selecting directors, we are concerned to have a diverse group of directors so that our board has an effective mix of technical, financial, operating and management experience in our directors. We have a long-standing policy of keeping our board relatively small. We also believe that our Board should be comprised predominantly of independent directors from diverse backgrounds external to the company but should nevertheless include the insight and judgment of our senior management; sixseven of our seveneight directors are not employees.
The Board of Directors unanimously recommends that the stockholders vote “FOR” the proposal to elect Thomas R. Stanton, H. Fenwick Huss, William L. Marks, Gregory J. McCray, Anthony J. Melone, Balan Nair, Roy J. NicholsJacqueline H. Rice and Kathryn A. Walker as directors for a one year term expiring at the 20172019 Annual Meeting of Stockholders and until their successors have been duly elected and qualified.
7
Information Regarding Nominees for Director
Set forth below is certain information as of January 31, 20162018 regarding the seveneight nominees for director, including their ages and principal occupations.
THOMAS R. STANTON has served as our Chief Executive Officer and a director since September 2005, and as our Chairman of the Board since April 2007. Prior toBefore becoming our Chief Executive Officer, Mr. Stanton served as our Senior Vice President and General Manager – Carrier Networks from 2001 to September 2005, Vice President and General Manager – Carrier Networks from 1999 to 2001, and Vice President – Carrier Networks Marketing from 1995 to 1999. Before joining ADTRAN, Mr. Stanton served as Vice President – Marketing & Engineering for Transcrypt International, Inc. in 1995. He also served as Director, Marketing and then Senior Director, Marketing, for the E.F. Johnson Company from 1993 until joining Transcrypt in 1995. Mr. Stanton has served on the board of directors for a number of technology companies, the Chamber of Commerce of Huntsville/Madison County, as Chairman for the Federal Reserve Bank of Atlanta’s Birmingham Branch and currently serves as Chairman for the Telecommunications Industry Association (TIA). He is also a board member for the Economic Development Partnership of Alabama (EDPA). Mr. Stanton has been selected as a nominee for director because he is our Chief Executive Officer and has extensive knowledge of all facets of our company and extensive experience in all aspects of our industry. Mr. Stanton is 51.53.
H. FENWICK HUSS has served as the Willem Kooyker Dean of the Zicklin School of Business at Baruch College, a senior college of The City University of New York since July 1, 2014. He is also a tenured Professor in Baruch’s Stan Ross Department of Accountancy. He previously served as Dean of the J. Mack Robinson College of Business at Georgia State University from 2004 to 2014. Prior to his appointment as Dean, Dr. Huss was Associate Dean from 1998 to 2004 and Director of the School of Accountancy at Georgia State from 1996 to 1998, and on the faculty since 1989. He also served on the faculty of the University of Maryland as an assistant professor from 1983 to 1989 and is a visiting professor at the Université Paris 1 Pantheon-Sorbonne. Dr. Huss has been a member of our Board of Directors since October 2002 and has served as our lead director since May 2015. Dr. Huss also currently serves as a member of our Audit, Compensation and Nominating and Corporate Governance Committees. Dr. Huss has been selected as a nominee for director because he brings the point of view of academia and in particular the information and new concepts that develop in the business school environment, because he has extensive experience and knowledge of financial accounting and corporate finance and because he has management experience in the academic environment. Dr. Huss is 65.67.
5
WILLIAM L. MARKS served as Chairman of the Board and Chief Executive Officer of Whitney Holding Corp., the holding company for Whitney National Bank of New Orleans, from 1990 to his retirement in March 2008, and served in various executive and management capacities with AmSouth Bank, N.A. from 1977 to 1990. Mr. Marks currently servesserved as a director of CLECO Corporation and CLECO Power, LLC.,LLC from 2001 to April 2016, and as a Life Trustee of Wake Forest University. Mr. Marks has served as a director of ADTRAN since 1993 and currently serves as a member of our Audit Compensation and Nominating and Corporate Governance Committees. Mr. Marks has been selected as a nominee for director because of his career in finance and financial services, because of his expertise in banking and corporate finance and because of his extensive experience as an executive and senior manager in the course of his career. Mr. Marks is 72.74.
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GREGORY MCCRAY is an experienced executive with 30 years of business, marketing, sales, engineering, operations, M&A, management and international experience in the communications and technology industries. Currently, Mr. McCray is the President of McCray Consulting providing technical, management and business consulting to technology companies and investors. He also operated this firm in 2016 with clients that included software, cyber security, clean technology, telecom, systems integration and data networking companies. In 2017 he was the Chief Executive Officer of Alphabet’s Access/Google Fiber/Wireless Internet company that provides 1Gbps internet, TV, and phone service in several markets across the United States. Prior to that, from 2013 through 2015, Mr. McCray served as Chief Executive Officer of Aero Communications Inc., which provides installation, construction, engineering and support services to the communications industry. From 2003 through 2012, he was Chief Executive Officer and Board Chair of Antenova Limited, a global company that developed antenna components and RF modules for mobile devices and then sold to Microsoft. Previous to Antenova, he was the Chairman and CEO of PipingHot Networks from 2000 to 2002, which brought broadband fixed wireless access equipment to market and eventual acquisition by Motorola. In 1997 to 2000, Mr. McCray was Senior VP of Customer Operations at Lucent Technologies for Europe, Middle East, and Africa. He preceded this by leading sales operations for the Eastern Region of the United States for Lucent from 1994 to 1997. Earlier in his career, he held engineering, product management and other managerial roles at AT&T, Bell Laboratories, and IBM. From 2005 to February 2017, he was on the Board of Directors of CenturyLink, Inc. (NYSE:CTL), where he was Chairman of the Cyber Security & Risk Committee, member of the Compensation Committee and the Nominating & Corporate Governance Committee. Greg holds a B.S. in Computer Engineering from Iowa State University, an M.S. in Industrial & Systems Engineering from Purdue University, and Executive Business Programs at the University of Illinois, Harvard, and INSEAD. Mr. McCray has been selected as a nominee for director because of his extensive experience as an executive and senior manager in the telecommunications and technology industries during the course of his career. Mr. McCray serves as a member of our Audit Committee. Mr. McCray is 54.
ANTHONY J. MELONE has over 3230 years of experience in the telecommunications industry, including having served as Executive Vice President and Chief Technology Officer for Verizon Communications from December 2010 to April 2015. In addition, Mr. Melone served in a variety of positions with Verizon Wireless from 2000 to December 2010, including as Senior Vice President and Chief Technical Officer from 2007 to December 2010. Over his 32 year career with Verizon and its predecessor, Bell Atlantic, he also has served as Vice President of Network Operations and Staff Vice President of Network Planning and Administration. Since 2008, he has servedMr. Melone also serves as Chief Technology Officer and Senior Vice Presidenta director of Rural Cellular Corporation.Crown Castle International Corp. Mr. Melone received a Bachelor of Science degree in electrical engineering from Villanova University and a Master of Science degree in engineering from the University of Pennsylvania. Mr. Melone currently serves as a member of our Audit Compensation and Nominating and Corporate Governance Committees. Mr. Melone has been selected as a nominee for director because of his extensive experience as an executive and senior manager in the telecommunications industry. Mr. Melone is 55.57.
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BALAN NAIR is president and Chief Executive Officer of Liberty Latin America. Liberty Latin America is an integrated telecommunications company, focused on the Caribbean Islands and Latin America. Balan is an experienced and proven business executive with more than 20 years in the telecommunications industry. He has been a part of the Liberty family of companies since 2007 when he joined Liberty Global as its Senior Vice President and Chief Technology Officer. He most recently served as Executive Vice President and Chief Technology Officer for Liberty Global, Inc., a telecommunications company.and Innovation Officer. In this capacityrole, he iswas responsible for overseeing the globalLiberty Global’s worldwide network, as well as Technology and technologyInnovation operations, which span three continentsincluding Product Development, IT, Network Operations, Mobile Operations and over 33 million homes.Global Supply Chain functions. He iswas also responsible for new product development, oversees global procurement functionsCorporate Strategy and leads Liberty Global’s Technology Investment Venture group. Mr. Nair isinvestments. Balan was an executive officer of Liberty Global and sitssat on the company’sLiberty Global’s Executive Management CommitteeLeadership Team and the Investment Committee. Prior toBefore joining Liberty Global, in July of 2007, Mr. NairBalan served as AOL’s chief technology officer overseeing the company’s network operationsChief Technology Officer and back-office systems. After joiningExecutive Vice President for AOL in 2006, Mr. Nair led the Technology Operations organization in creating synergies, improving productivity, and increasing efficiencies.LLC, a global web services company, from 2006. Prior to his role at AOL Mr. NairLLC, he spent more than 12 years at Qwest Communications International Inc. (Qwest), most recently as Chief Information Officer (CIO). As CIO, he was responsible for supporting Qwest’s internal and external applications, legacy systems including maintenance, internal network operations, data centers,Chief Technology Officer. Balan has a long history of working in the telco industry, the web world and help desknow the cable and desktop support functions.media industry. He also headed Qwest’s technology management operations that included technical aspects of the company’s product rollouts in broadband, video, call center technology, VoIP, and wireless, among other offerings. As Qwest’s Chief Technology Officer from 2003 to 2005, he spoke often in public forums on technology and strategic topics in the telecommunications industry. Mr. Nair sits on the boardboards of Charter Communications, a leading cable operator in the United States, and on the BoardLiberty Latin America. He graduated from Iowa State University, with a Masters in Business Administration and a Bachelor of Telenet Group Holding NV, Liberty Global’s Belgium subsidiary.Science in Electrical Engineering. He holds a patent in systems development and is a Licensed Professional Engineer in Colorado. Mr. Nair holds a Masters of Business Administration and a Bachelor of Science in electrical engineering, both from Iowa State University. Mr. Nair is alsocurrently serves as a member of our Audit, Compensation and Nominating and Corporate Governance Committees.Committee. Mr. Nair has been selected as a nominee for director because he has extensive experience with the technologies that influence our industry and our markets and because he has management experience, particularly managing technical personnel. Mr. Nair is 49.51.
ROY J. NICHOLS foundedJACQUELINE (JACKIE) RICEhas more than 20 years of legal, risk and compliance experience. From 2014 to 2017, she served as the Executive Vice President and Chief Risk and Compliance Officer for Target and a member of Nichols Research Corporation,its executive team. She was responsible for the centralized oversight of enterprise risk management, compliance and ethics, vendor management, food safety and corporate security. She led a defenseteam focused on evolving and information systems company, enhancing enterprise risk and compliance standards to protect Target and its stakeholders, including guests, team members, and vendors. Prior to her work at Target, she served as Chief Compliance Officer and Senior Legal Counsel for General Motors from 2010 to 2014,where he workedshe led a global team of lawyers and compliance professionals to develop programs focused on global compliance. From 1997 to 2009, Ms. Rice served as counsel to various GM business units. Ms. Rice graduated from 1976 until its merger with Computer Sciences Corporationthe University of Detroit Mercy School of Law, where she wasEditor-in-Chief of the Law Review. She obtained her undergraduate degree from James Madison College at Michigan State University. Ms. Rice joined the board in November 1999. Mr. Nichols currently2016. Ms. Rice serves as a director of Blue Creek Investments and the Hudson Alpha Institute of Biotechnology. Mr. Nichols has served as a director of ADTRAN since 1994, and previously served as our lead director from October 2006 through May 2015. Mr. Nichols is also a member of our Audit and Compensation and Nominating and Corporate Governance Committees. Mr. Nichols has been selected as a nominee for director because he has extensive experience with leadership, risk assessment, information technologies and extensive knowledge of and history with our company. Mr. NicholsMs. Rice is 77.46.
KATHRYN A. WALKER has more than 30 years of experience in the communications industry. Since 2009, she has served as a managing director for OpenAir Equity Partners, a venture capital firm focusing on the wireless, communications and mobile Internet sectors. Prior to joining OpenAir, Ms. Walker worked in a variety of roles at various subsidiaries of Sprint Corporation from 1985 to 2009, culminating in the position of Chief Information and Chief Network Officer at Sprint Nextel Corporation. She currently serves on the board of directors for SmartHome Ventures, Zubie, on the Council of Trustees at South Dakota State University, and as a member of the Board of Trustees at Missouri University of Science and Technology.Technology and as a member of the board of directors of the Heartland Chapter of the National Association of Corporate Directors. Ms.��Walker currently serves as a director of ADTRAN and is a member of our Audit, Compensation and Nominating and Corporate Governance Committees. Ms. Walker has been selected as a nominee for director because she has extensive experience with the technologies that influence our industry and our markets and because she has management experience, particularly managing technical personnel. Ms. Walker is 56.58.
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Information Regarding Director Emeritus
Set forth below is certain information as of January 31, 2018, regarding our director emeritus, including his age and principal occupation.
ROY J. NICHOLS founded and served as President of Nichols Research Corporation, a defense and information systems company, where he worked from 1976 until its merger with Computer Sciences Corporation in November 1999. Mr. Nichols currently serves as a director of Blue Creek Investments and the Hudson Alpha Institute of Biotechnology. Mr. Nichols currently serves as a director emeritus of ADTRAN and served as a director from 1994 to August 2016, including as our lead director from October 2006 through May 2015. Mr. Nichols has been asked to remain as a director emeritus because he has extensive experience with leadership, risk assessment, information technologies and extensive knowledge of and history with our company. Mr. Nichols is 79.
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CORPORATE GOVERNANCE
Board Structure– Independent Directors
The Nominating and Corporate Governance Committee and the Board of Directors have determined that Messrs. Marks, McCray, Melone, Nair and Nichols,Nair, Dr. Huss, Ms. Rice and Ms. Walker do not have any relationships that would interfere with the exercise of independent judgment in carrying out their responsibilities as directors and are independent in accordance with Rule 4200(a)(15) of the NASDAQ Marketplace Rules. The incumbent independent directors also constitute all of the members of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. Prior to each regularly scheduled Audit Committee meeting, these directors convene and hold a separate executive session as the independent directors of the Board. Dr. Huss, our independent lead director, presides over these meetings, coordinates the activities of the independent directors and serves as liaison between the independent directors and our Chief Executive Officer and senior management. We believe this structure facilitates the development of a productive relationship with our Chief Executive Officer and ensures effective communication between our Chief Executive Officer and the independent directors.
Mr. Stanton is both our Chief Executive Officer and our Chairman; his predecessor, Mark Smith, one of our founders, also held both of these positions and we believe that having our Chief Executive Officer also holding the position of Chairman is important in underscoring his authority to our customers, our vendors and our employees and in our markets generally. We believe that this structure enhances ourday-to-day operating effectiveness and does not undercut the benefits available to the Board of having separated these functions because we have established a lead director whose role is extensive and who in relationship to the other directors performs many of the functions that might otherwise be performed by a board chairman.
Meetings of the Board of Directors and its Committees
The Board of Directors conducts its business through meetings of the full Board and through committees of the Board, consisting of an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. During the fiscal year ended December 31, 2015,2017, the Board of Directors held seven meetings, the Audit Committee held eight meetings, the Compensation Committee held sixfive meetings, and the Nominating and Corporate Governance Committee held three meetings. All members of the Board of Directors attended at least 75% of the aggregate of meetings of the Board of Directors and of the committees of which he or she is a member. Five of the incumbent directors attended the 20152017 Annual Meeting of Stockholders on May 13, 2015.10, 2017.
Audit Committee
The Audit Committee is responsible for assisting the Board of Directors in fulfilling its oversight responsibilities with respect to: (1) the financial reports and other financial information provided by us to the public or any governmental body; (2) our compliance with legal and regulatory requirements; (3) our systems of internal controls regarding finance, accounting and legal compliance that have been established by management and the Board; (4) the qualifications and independence of our independent registered public accounting firm; (5) the performance of our internal audit function and the independent registered public accounting firm; and (6) our auditing, accounting and financial reporting processes generally. The Audit Committee has been established in accordance with Section 3(a)(58)(A) of the Exchange Act. In connection with its responsibilities, the Board has delegated to the Audit Committee the authority to select and hire our independent registered public accounting firm and determine their fees and retention terms. The Audit Committee operates under a charter approved by the Board. The charter is posted on our website atwww.adtran.com. The Audit Committee is composed of H. Fenwick Huss, William L. Marks, Gregory J. McCray, Anthony J. Melone Balan Nair, Roy J. Nichols and Kathryn A. Walker,Jacqueline H. Rice, each of whom is independent under NASDAQ listing standards. William L. Marks is the Chair of the Audit Committee. The Board has determined that Dr. Huss is an audit committee financial expert.
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Compensation Committee
The Compensation Committee is responsible for setting the compensation of our Chief Executive Officer and assisting the Board in discharging its responsibilities regarding the compensation of our other executive officers. In addition,Also, the Compensation Committee is responsible for administering our 2015 Employee Stock Incentive Plan, our 2010 Directors Stock Plan, our Variable Incentive Compensation Plan and our Deferred Compensation Plan. The Compensation Committee operates under a charter approved by the Board. The charter is posted on our website atwww.adtran.com.The Compensation Committee is composed of H. Fenwick Huss, William L. Marks, Anthony J. Melone, Balan Nair, Roy J. NicholsJacqueline H. Rice and Kathryn A. Walker, each of whom is independent under NASDAQ listing standards. Mr. Nair is the Chair of the Compensation Committee.
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Compensation Committee Process
Under our Compensation Committee’s charter, the Committee has the power and duty to discharge our Board’s responsibilities related to compensation of our executive officers, within guidelines established by the Board. Generally, the Compensation Committee reviews and approves all compensation, including base salary, annual incentive awards and equity awards, for the Chief Executive Officer and our other officers. The Compensation Committee also makes recommendations to the Board regarding our incentive compensation plans and equity plans and approves equity grants. The Committee has authority to review and approve annual performance goals and objectives for our Chief Executive Officer, to evaluate his performance and to set his compensation based on the evaluation. The Committee is also responsible for reviewing and approving executive officers’ compensation and establishing performance goals related to their compensation within 90 days of the beginning of each fiscal year.compensation. The Committee oversees our benefit plans and evaluates any proposed new retirement or executive benefit plans. The Committee also advises the Board on trends in compensation programs fornon-employee directors. The Compensation Committee has the authority to delegate its duties to subcommittees, but to date has not done so. In accordance with Delaware law, in November 20152017 the Compensation Committee also delegated to the Chief Executive Officer the authority to approve individual incentiverestricted stock optionunit awards to employees of ADTRAN who are not officers, subject to a maximum aggregate limit of 979,660282,501 restricted stock options,units andpre-approved terms and conditions.
At the beginning of each calendar year, our Compensation Committee reviews the variable incentive cash compensation (“VICC”) program results from the prior year and approves any payouts thereunder, establishes the performance goals for the current year, considers and establishes any other incentive compensation programs and the goals of such programs as well as the standards for measuring achievement of those goals, approves any increases in executive salaries or other compensation, recommends plan changes, if any, for submission to our stockholders at the annual meeting, and approves the Compensation Committee’s report for our proxy statement.Mid-year, the Compensation Committee generally reviews our compensation programs and makes recommendations to the Board regarding outside director compensation and, as necessary throughout the year, approves any equity awards and/or compensation for newly hired or promoted executives. Our Compensation Committee generally meets in the latter part of each calendar year to determine and approve annual equity awards.
Our Compensation Committee generally receives proposals and information from our Chief Executive Officer for its consideration regarding executive and director compensation. Our Chief Executive Officer makes recommendations regarding salary increases, annual cash incentives and equity awards for all of our executive officers other than himself. In doing so, he consults with our Chief Financial Officer.
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Our Compensation Committee has authority to retain and terminate any outside advisors, such as compensation consultants. Though our CompensationThe Committee has not historically employed compensation consultants to assist it in designing our compensation programs, theprograms. The Committee did engagehas, however, periodically engaged Willis Towers Watson, in 2008 and again in 2011as an independent compensation consultant, to provide information and analysis of our executive compensation in the context of the telecom industry and our peer companies in the industry and to present this information with possible modifications to our compensation of executives and directors for the Committee’s consideration. This methodology,The Committee engaged Willis Towers Watson in 2016 to evaluate the competitiveness of the base salaries, annual bonuses and long-term incentives awarded to the company’s executive officers, to provide competitive market data on new compensation arrangements and to evaluate the continued appropriateness of existing arrangements. The results of this consultation, in combination with our own research and analysis, remainswere a part of the process the Compensation Committee undertakes each yearundertook in determining the compensation packages (including the grants of incentive awards in 2016 and 2017, as well as the finalization of the VICC awards for 2016 and 2017, of our executives and directors.directors). See “Executive Compensation – Compensation Discussion and Analysis – Overview and Philosophy.Executive Summary.”
Compensation Committee Interlocks and Insider Participation
None of our executive officers or directors serves as a member of the board of directors or compensation committee of any entity that has one or more of its executive officers serving as a member of our Board of Directors or Compensation Committee.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee is responsible for assisting the Board in identifying and attracting highly qualified individuals to serve as directors of ADTRAN, selecting director nominees and recommending them to the Board for election at annual meetings of stockholders. The Nominating and Corporate Governance Committee operates under a charter approved by the Board. The charter is posted on our website atwww.adtran.com.The.The Nominating and Corporate Governance Committee is composed of H. Fenwick Huss, William L. Marks, Anthony J. Melone, Balan Nair Roy J. Nichols and Kathryn A. Walker, each of whom is independent under NASDAQ listing standards. Ms. Walker is the Chair of the Nominating and Corporate Governance Committee.
Consideration of Director Nominees
The Nominating and Corporate Governance Committee seeks to create a Board that as a whole is strong in its collective knowledge of, and has a diversity of skills and experience with respect to, accounting and finance, management and leadership, vision and strategy, business operations, business judgment, crisis management, risk assessment, industry knowledge, corporate governance and global markets. When the Committee reviews a potential new candidate, the Committee looks specifically at the candidate’s qualifications in light of the needs of the Board and ADTRAN at that time given the then current mix of director attributes.
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In accordance with NASDAQ listing standards, we ensure that at least a majority of our Board is independent under the NASDAQ definition of independence and that the members of the Board as a group maintain the requisite qualifications under NASDAQ listing standards for populating the Audit, Compensation and Nominating and Corporate Governance Committees. The Board has adopted Corporate Governance Principles that set forth the principles that guide us and the Board on matters of corporate governance. The Corporate Governance Principles are posted on our website atwww.adtran.com.
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As provided in its charter, the Nominating and Corporate Governance Committee will consider nominations submitted by stockholders. To recommend a nominee, a stockholder should write to the Nominating and Corporate Governance Committee, care of Roger D. Shannon, Secretary of ADTRAN, at 901 Explorer Boulevard, Huntsville, Alabama 35806 (for overnight delivery) or at P.O. Box 140000, Huntsville, Alabama 35814-4000 (for mail delivery). Any recommendation must include:
To be considered by the Nominating and Corporate Governance Committee for nomination and inclusion in our proxy statement for the 20172019 Annual Meeting, stockholder recommendations for director must be received by us no later than December 5, 2016.2018. Once we receive the recommendation, we will deliver a questionnaire to the candidate that requests additional information about the candidate’s independence, qualifications and other information that would assist the Nominating and Corporate Governance Committee in evaluating the candidate, as well as certain information that must be disclosed about the candidate in the proxy statement, if nominated. Candidates must complete and return the questionnaire within the time frame provided to be considered for nomination by the Committee.
All of the current nominees for director recommended by the Board for election by the stockholders at the 20162018 Annual Meeting are current members of the Board. In evaluating candidates for director, the Committee uses the qualifications described above and evaluates stockholder candidates in the same manner as candidates from all other sources. Based on the Committee’s evaluation of each nominee’s satisfaction of the qualifications described above and his or her prior performance as a director, the Committee determined to recommend each incumbent director forre-election.The Committee has not received any nominations from stockholders for the 20162018 Annual Meeting.
Communications with the Board of Directors
The Board has established a process for stockholders to communicate with members of the Board. If you have any concern, question or complaint regarding any accounting, auditing or internal controls matter, as well as any issues arising under our Code of Conduct or other matters that you wish to communicate to ADTRAN’s Audit Committee or Board of Directors, you can reach the ADTRAN Board of Directors through our Corporate Governance Hotline by email at hotline@adtran.com, by mail at ADTRAN, Inc. Hotline, P.O. Box 5765, Huntsville, Alabama 35814, or by calling the hotline at1-888-723-8726(1-888-7ADTRAN). Information about the Corporate Governance Hotline can be found on our website atwww.adtran.com under the links “Investor Relations – Corporate Governance.”
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EXECUTIVE COMPENSATION
Compensation Discussion and AnalysisCOMPENSATION DISCUSSION AND ANALYSIS
Executive Summary
Overview and Philosophy
The goals of our executive compensation program are to:
We design our executive compensation programspackages in a manner to help us achieve these goals. For instance,More specifically, in any given year we consider retentionevaluate the compensation packages in the context of a number of considerations, including:
We believe that retention involves two interrelated components – maintainingalso maintain a positive working environment that provides intangible benefits to our executives and encourages longevity and providing total compensation that is generally competitive within our industry and among companies of comparable size and complexity. Augmentinglongevity. Combining compensation with a desirable working environment enablesallows us to maintain a compensation program that generally provides overall compensation to our executive officers that is approximately at the median when compared to companies with which we compete for talent, but still remains competitive with those companies.
BeginningEach year we consider the messages we receive from our shareholders regarding our compensation packages, principles, and process, including the annual votes on Say on Pay. At the 2017 annual meeting over 97% of the votes cast voted to approve the Company’s executive compensation policies and the compensation of the company’s named executive officers. Since 2011, all Say on Pay votes have been favorable, by percentages ranging from 96.28% to 99.48%. We believe that the strong shareholder vote results in the past indicate that shareholders are supportive of the Company’s executive compensation programs.
2017 Compensation
Our compensation packages are comprised of base salary and incentive opportunities which can be both annual and long-term and paid in cash or equity. In designing incentive compensation packages, we use performance measures related to company financial goals as well as the Company’s TSR, all with an in-depth reviewthe goal of increasing shareholder return. We use TSR in 2008,comparison with the Boardcompanies comprising the NASDAQ Telecommunications Index. We also individualize certain performance measures for individual executives.
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Executive compensation for 2017 was comprised of Directors,Base Compensation, Annual Cash Incentive Awards, and Long Term Incentive Awards, and reflects a number of considerations and factors:
��� | Resulting from work in 2016 with Willis Towers Watson, the Committee gathered market data from industry and peers that supported an increase in the long-term incentive program to make sure that equity compensation for our executives is aligned with the market. |
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• | We use TSR as the metric against which our long-termperformance-based equity awards are measured. The program allows executives to earn performance equity awards based upon our three-year TSR performance against an industry peer group (the NASDAQ Telecommunications Index). The target number of shares are awarded to executives in November of each year, but shares vest only on the three year anniversary of the grant. The program adds an additional element of rigor to our overall executive compensation program as the ultimate award is dependent on our performance as well as that of the industry and the peer group. Achievement of the target share awards is based on a 50th percentile ranking versus the peer companies comprising the NASDAQ Telecommunications Index. In November 2015, for example, 75.26% of the shares from the 2012 grant vested; in November 2016, the yield from the 2013 grant was 102.72%, and in November 2017, the yield from the 2014 grant was 130.28%, each based on the Company’s relative ranking in the peer index. |
Total compensation levels for 2017 were also set with consideration of market information obtained from a 2016 comprehensive review of our executive compensation program as well as considerations for the individual executives.
2016 Compensation Market Evaluation
In 2016, the Compensation Committee, with the assistance of Willis Towers Watson, undertook a comprehensive review of our executive compensation program to further align our program design with the best market practices. With the level of success achievedto-date of our strategic initiatives, both domestically and internationally, the Committee retainedalso wanted to ensure that our compensation levels remained competitive and aligned with the peer group median to ensure continuity of the executive team. The executive packages developed for 2017 put a stronger emphasis on “at risk” compensation consulting firmthat is based on achievement of Towers Watsonpreset performance hurdles and included the components described below and in more detail in the discussion of Executive Compensation which follows:
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The Committee believed the resulting packages would properly align our executives’ expectations and incentives with respect to the telecom industry and to our peer companies within the industry.shareholder return. The Committee also considered information collected by senior managementbelieved that the changes in the executive compensation packages were necessary to bring the Company’s executive compensation (in particular that of the CEO) in line with median industry, peer and the Committee from industry and other sources, surveys and databases, including publicly available compensation information of othercompetitor groups when compared to companies both those with which we compete and those within our geographic labor market, to gauge the competitiveness of our compensation programs. Having determined at the time of these studies that our compensation levels for some senior managers were not competitive within the telecom industry or among our peers, the Committee recommended that compensationtalent.
Considerations for these positions should be increased toward a more competitive level in multiple steps over a reasonable time period. The Board concurred, and each year the Committee continues to guide executive and director compensation to achieve this goal.Individuals
The Compensation Committee awards equity compensation after taking into account the Company’s absolute and relative performance, in addition to the industry and peer group compensation benchmarks. The compensation decisions made in 2015 for senior managers continue the theme and represent another step toward attaining more competitive levels of compensation.
In addition to the analysis with Towers Watson conducted in each of 2008 and 2011, as described above, in 2010, the Compensation Committee undertook a review of the compensation of certain officers and management employees. As a result of this review, the Compensation Committee determined that, to better incentivize officers and managers and to attract and retain qualified executives, the Board, among other things, should consider increasing the maximum performance award that may be granted in a plan year. To effectuate this change, effective January 1, 2011, the Company revised its VICC program for executives under the ADTRAN, Inc. Variable Incentive Compensation Plan (the “Variable Incentive Compensation Plan”) and adopted a group of VICC programs designed to encourage and reward growth in pretax income, and in various categories of revenue. The Variable Incentive Compensation Plan was then approved by the Company’s stockholders and adopted by the Company at the 2011 annual meeting. Under the Variable Incentive Compensation Plan as adopted by the Company, the maximum performance award that may be granted to any recipient for any plan year was increased to $3,000,000.
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The Compensation Committee also focuses on to establishing and maintaining a compensation structure that is internally consistent and provides appropriate compensation for our executives in relation to one another. Consequently, the Compensation Committee does not focus on any particular benchmark to set executive compensation. Instead, we believe that a successful compensation program requires the application of judgment and subjective determinations based on the consideration of a number of factors. These factors include the following:
The Compensation Committee does not assign relative weights or rankings to these factors. Our allocation of compensation between cash and equity awards, our two principal forms of compensation, is based upon our historical practice and our evaluation of the cost of equity awards, as discussed in more detail below. An important part of this evaluation is the Committee’s consideration of the goals of the several initiatives undertaken in the execution of the company’s business plan and the progress made in achieving those goals at the time of setting base compensation and performance targets for executive compensation packages.
Our Chief Executive Officer works closely with the Compensation Committee to maintain an open dialogue regarding the Compensation Committee’s goals, progress towards achievement of those goals and expectations for future performance. The Chief Executive Officer updates the Compensation Committee regularly on results and compensation issues. Our Chief Executive Officer also provides the Compensation Committee, and in particular, the Committee Chair, with recommendations regarding compensation for our executive officers other than himself. In part because the Chief Executive Officer works closely with the Compensation Committee and its several members throughout the year, the Compensation Committee is in a position to evaluate his performance and make its own determinations regarding appropriate levels of compensation for the Chief Executive Officer.
AppointmentDiscussion of New Chief Financial OfficerResults Relative to Compensation
In 2015,Aligning executive compensation with stockholder interests is a primary consideration in determining our executive compensation program. As a result, we appointed Roger D. Shannon asbelieve that Company performance and shareholder returns are important factors to consider when making executive compensation decisions. We use TSR, measured over rolling three-year periods relative to a broad-based industry peer group, to determine our new Chief Financial Officer. In connection with Mr. Shannon’s hiring, hisperformance-based equity compensation. Additionally, we believe that achievement of performance measurement targets used in our annual incentive compensation includes a base salaryprogram leads to positive shareholder returns. Below are some of $365,000, a make-whole bonus as discussed below, provision for incentive awards, as discussed below, and reimbursement for certain relocation expenses, which relocation expenses must be repaid if he voluntarily leaves the Company, other than for Good Reason, or does not relocate his family, in each case, within the first twelve months of employment. In his prior employment, Mr. Shannon was a participant in a bonus program and to compensate him for amounts he would be foregoing to join the Company, we designed the one-time make-whole bonuses described below. We agreed to pay Mr. Shannon the make-whole bonus, structured as follows: (i) a one-time payment of $220,000, payable in the first quarter of 2016, which he must repay if he voluntarily leaves the Company, other than for Good Reason, or does not relocate his family, in each case, within the first twelve months of employment; and (ii) a one-time payment of $109,500, payable in the first quarter of 2017, which will be reduced on a dollar-for-dollar basis by any amount that Mr. Shannon earns for 2016 under the Company’s VICC program, and which he will only be entitled to receive if he is still employedkey performance measures considered by the CompanyCompensation Committee in 2017.
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Mr. Shannon’s offer letter also included the following long-term incentive equity awards: (1) An initial stock option grant of 30,000 options with an annual ratable four-year vesting term and (2) an initial performance restricted stock unit award of 5,200 shares, all of which-vest atexpectations. Despite this, our TSR remained positive throughout 2017 until near the end of the three-yearfourth quarter, and we believe the negative impact near the end of the fourth quarter reflects the unique circumstances described above and not any diminished incentive or effort by the executives participating in the programs.
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ComponentsDiscussion of Executive Compensation Components
Our executive compensation program consists of base salary, commissions for sales executives, an annual VICC program under our Variable Incentive Compensation Plan (which, if earned, is paid in cash), and long-term equity incentives in the form of both restricted stock optionsunits (“RSUs”) and performance-based restricted stock units.units (“Performance Shares”). In 2017, as a continuation of the practice begun in 2016, the Compensation Committee decided to grant equity in the form of RSUs that vest over time (in addition to performance-based restricted stock units) in lieu of stock option grants. Executive officers also are eligible to participate in a nonqualified deferred compensation program (and the Board approved the inclusion of directors in this program beginning in 2010) and in certain benefit programs that are generally available to all of our employees, such as medical insurance programs, life insurance programs and our 401(k) plan. The Compensation Committee of our Board of Directors oversees our executive compensation program. Additionally, in January of 2017, the Compensation Committee made aone-time grant of performance shares that vest over a three year performance period (Three-Year Award).
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Base Salary and Commissions.
Base salaries are the most basic form of compensation and are integral to any competitive employment arrangement. At the beginning of each fiscal year, the Compensation Committee establishes an annual base salary for our executive officers as well as commission structures for our sales executives, based on recommendations made by our Chief Executive Officer, in consultation with our Chief Financial Officer. Consistent with our compensation objectives and philosophy described above, the Compensation Committee attempts to setsets base salary compensation, and adjustadjusts it when warranted, based on company financial performance, the individual’s position and responsibility within our company and performance in that position, the importance of the executive’s position to our business, and the compensation of other executive officers of ADTRAN with comparable qualifications, experience and responsibilities. The Committee also generally takes into account its perceived range of salaries of executive officers with comparable qualifications, experience, and responsibilities at other companies with which we compete for executive talent.
For our sales executives, commissions are an important element of cash compensation because they tie the executive’s pay directly to his success in his area of responsibility. Our sales executives generally receive half of their cash compensation (not including annual VICC, if any) in salary and half in commissions, which is consistent with our historical practice and our understanding of the standard practice in the market for sales executives. The Committee also reviews historical salary and commission information for each of the executive officers as part of its analysis in setting base salaries and commission structures. The Committee uses this information to review historical progression of each executive officer’s compensation and to identify variations in compensation levels among the executive officers.
In January 2015,2017, the Compensation Committee reviewed the base salaries of our executive officers, taking into account the considerations described above. TheUsing a standard of up to 4%, the Committee approved salary increases for each of the named executive officers which areas reflected in the following table:
Named Executive Officer | 2014 Base Salary | 2015 Base Salary | ||||||
Thomas R. Stanton | $ | 576,800 | $ | 595,000 | ||||
James E. Matthews | $ | 330,358 | $ | 340,269 | ||||
James D. Wilson, Jr. | $ | 300,000 | $ | 309,000 | ||||
Raymond R. Schansman | $ | 300,000 | $ | 309,000 | ||||
Michael Foliano | $ | 295,000 | $ | 303,850 |
Additionally, in November, 2015, Roger D. Shannon joined the Company as our Senior Vice President of Finance and Chief Financial Officer, replacing Mr. Matthews who resigned in March, 2015. In connection with Mr. Shannon’s hiring, the Committee approved an annual salary for Mr. Shannon of $365,000. Mr. Matthews’ resignation became effective on March 16, 2015, and Mr. Foliano served as Interim Chief Financial Officer until Mr. Shannon assumed that position.
Named Executive Officer | 2016 Base Salary | 2017 Base Salary | ||||||
Thomas R. Stanton | 612,850 | $ | 637,364 | |||||
Roger D. Shannon | 365,000 | $ | 372,300 | |||||
James D. Wilson, Jr. | 317,961 | $ | 330,679 | |||||
Michael Foliano | 313,269 | $ | 325,800 | |||||
Eduard Scheiterer | 282,975 | $ | 291,464 |
Annual Cash Incentive Compensation.Compensation
We provide our executives the opportunity to earn annual VICCincentive compensation under our Variable Incentive Compensation Plan, which is designed to motivate and reward executives for their contribution to ADTRAN’s performance during the fiscal year. A significant portion of the total cash compensation that our executive officers could receive each year is paid through this program, and thus is dependent upon our corporate performance. The Variable Incentive Compensation Plan was approved by the Company’s stockholders and adopted by the Company at the Company’s 2011 annual stockholders’ meeting. Under the Variable Incentive Compensation Plan as adopted by the Company, the maximum performance award that may be granted to any recipient for any plan year was increased to $3,000,000. VICC available for 20152017 was determined by a formula based on designated performance measures for total company operating income, total company revenue, Carrier Network performance, Enterprise Network performance and certain other subcategories of revenue, as well as personal goal elements for some participants, as described in the narrative above in the Executive Summary and following the Summary Compensation Table and the Grants of Plan-Based Awards table. We use these performance measures for our annual incentive awards because we consider them as the most appropriate drivers of stockholder value. Total company operating income and total company revenue performance measures required a growth rate of at least 2.5%1% in that measure over the prior year’s performance for officers to receive any VICC. While the minimum threshold was set at 1% over the prior year’s performance, the attainment of a significant amount of VICC required performance against progressively challenging performance levels which were aligned with the Company’s own internal goals. As a matter of policy, we do not disclose specific target information either for the general program or specific programs for each individual. In establishing these performance goals, the Committee considered the performance goals for prior years and the anticipated growth in geographic markets the company had entered and in products the company had introduced, and also considered that the pace of growth in those years had not matched expectations. The Committee further considered that the results in prior years in executing the growth in the several initiatives had been positive and had also laid the groundwork for more expansive growth. The Committee also determined that the VICC program was a critical motivating element of each participating officer’s compensation package, as it is intended. In consequence, the committee established performance goals that were designed to stimulate executives to intensify their efforts to exploit more fully the growth drivers and overcome any market or industry conditions which might impede growth and also capped the maximum payout any officer could receive under the program to avoid an excessive payout should the results significantly exceed the expectations on which the several participating officers’ programs were based.
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The Committee does not have the discretion under the Variable Incentive Compensation Plan to grant a VICC award absent attainment of the minimum performance measures. The Committee has the discretion to decrease a VICC payout under the plan even if performance measures are met, but the Committee does not have any discretion under the plan to increase a VICC payout above the amount determined pursuant to the established VICC formula.
In January 2018, the Committee finalized the awards of the amounts earned under the VICC program for 2017. The Committee considered the performance in 2017 compared to stated measurement objectives as noted above together with the elements of performance for prior years described above and decided not to exercise its discretionary authority to reduce the awards otherwise earned at their achieved amounts.12
ForAlthough there were no payouts under the VICC for 2015, the Company did not meetexceeded the minimum performance measures established for the 2015 program under the Variable Incentive Compensation Plan.Plan for each of the 2016 and 2017 programs. Consequently, our executives did not earn any bonusesearned annual incentive compensation for 2015 performanceeach of 2016 and 2017 under that plan. The 2017 awards were recommended by the Compensation Committee and approved by the Board of Directors at its January 16, 2018, meeting.
As a result, our named executive officers were awarded the following amounts for 2017:
Named Executive Officer | 2017 Award | |||
Thomas R. Stanton | $ | 450,275 | ||
Roger D. Shannon | $ | 140,386 | ||
James D. Wilson, Jr. | $ | 124,692 | ||
Michael Foliano | $ | 73,813 | ||
Eduard Scheiterer | $ | 82,428 |
Long-Term Incentive Awards.Awards
Summary Information
We compensate our executive officers in part with annual grants of stock optionequity awards under our 2015 Employee Stock Incentive Plan, which isare described in detail in the narrative following the Summary Compensation Table and the Grants of Plan-Based Awards table. Our annual long-term equity incentive awards are timed to occur in the latter part of each year, to coincide with an open trading window under our insider trading policy. In November 2017, the Compensation Committee approved RSU awards to our executive officers that vest over a four year period, with 25% vesting on each anniversary of the grant date. In addition, in November 2017, the Committee approvedperformance-based equity awards to the Chief Executive Officer and the Senior Vice Presidents, as discussed above, and in January 2017, the Committee approvedone-timeperformance-based equity awards, which, unlike the annual November grants, would vest based on achievement ofpre-defined levels of the Company’s CAGR of Adjusted EBIT (as defined above in the Executive Summary) over a three year period. The total awards to the named executive officers in 2017 were as follows, and are described in the narrative below the Grants of Plan-Based Awards table at “Equity Compensation”:
Named Executive Officer | 2017 RSU Award | 2017 Performance Share Award | 2017 One- Time Stock Award (3 Year Award) | |||||||||
Thomas R. Stanton | 27,295 | 27,295 | 134,832 | |||||||||
Roger D. Shannon | 6,615 | 6,615 | 44,944 | |||||||||
James D. Wilson, Jr. | 5,875 | 5,875 | 44,944 | |||||||||
Michael Foliano | 4,453 | 4,453 | 44,944 | |||||||||
Eduard Scheiterer | 3,984 | 3,984 | 44,944 |
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In determining the amount of these incentive equity awards, the Compensation Committee began by deciding on an overall pool amount for the company, taking into account the estimated expense to us of the awards and the earnings per share impact of that expense. We typically establish an internal target for the aggregate expense from company-wide equity awards, which, based on our review of industry data as discussed above, we believe is at the low end of the expense levels incurred by our competitors. The Committee established a pool of up to 338,103 RSUs (of which, 55,602 were allocated to executive officers) and 55,602 performance shares for the 2017 annual grant, as compared to a pool of up to 360,000 RSUs (of which 62,790 were allocated to executive officers) and 62,790 performance shares for the 2016 annual grant. The Committee allocated the pool of RSUs and performance shares among the different functions throughout the company based on the importance and performance of the function and considerations such as retention and competitive compensation levels. The Compensation Committee then set each executive’s individual award from the amount allocated to the function in which the individual serves, based on the recommendation of our Chief Executive Officer (other than with respect to his own award). In determining the amount of the RSU awards and performance shares for the named executive officers, the Committee considered the conclusions of its 2016 compensation review described above.
The Company did not include performance measures in the grant of RSUs in 2017 because we believe that performance of the Company is an implicit feature of every RSU and that the RSUs themselves provide significant incentive to each employee who receives such an award (including our executives) to perform his or her job tasks optimally for the overall performance of his or her group and the Company as a whole. Prior to 2016, the Company typically granted options instead of RSUs; however, RSU grants are typically not more than 40% of the number of shares that would previously have been granted under options. We do, however, include a TSR performance metric as the sole measure for the performance-based restricted stock units (or “performance shares”) program described below and at “Grants of Plan-Based Awards in 2017 – Equity Compensation” at page 30.
RSU Program
Prior to 2016, we granted stock options every year because the Compensation Committee determined that these awards are consistent with our compensation goals of aligning executives’ interests with those of our stockholders in the long term and because these awards are a standard form of compensation among the companies with which we compete for executive talent. In 2016, however, the Compensation Committee determined that annual equity awards to our executive officers would be in the form of RSUs that would vest over a period of time. The Compensation Committee believes that stock optionRSU awards are an especially valuable tool in linking the personal interests of executives to those of our stockholders because, executives’ compensation under these awardswith an RSU, the officer receives assurance of some value from the time of grant and the value increase experienced is directly linked to our stock price.the same as that of stockholders. These awards give executive officers a significant, long-term interest in ADTRAN’s success. In addition, they can provide beneficial tax treatment that executives value due to the fact that we have typically granted incentive stock options to our executives to the maximum extent permitted under the tax laws. Moreover, the vesting component of our stock optionRSU awards provides a valuable retention tool, and retention is a significant consideration in making these awards.
Performance Shares Program
As discussed above, under “Overview and Philosophy,” in 2008 the Compensation Committee, based on discussions with the Chief Executive Officer and after considering information received from Towers Watsonthe compensation consulting firm and other industry surveys and databases, determined to allow for performance-based restricted stock units, referred to as “performanceperformance shares,” in addition to other equity-based awards for the Chief Executive Officer and the Senior Vice Presidents.named executive officers. The Committee chose this form of award to further implement our executive compensation goals of better aligning the interests of these executives, who can most directly impact our overall financial performance, with the interests of our stockholders and of our Company by making the awards dependent on corporate performance, and allocated a portion of the long-term incentive awards for these executive officers accordingly. The number of performance shares earned by the executive officers is based on our relative total shareholder return, or “TSR,” against a peer group over a three-year performance period. For 2015,2017, the Compensation Committee selected as a peer group allthe companies in the NASDAQ Telecommunications Index.Index as the peer group for TSR measurement purposes. The Committee chose this index based on the fact that it contains a significant number of companies and is a broad sample of our industry.
We believe that TSR is an important tool in aligning our business goals with our executive compensation program, and ADTRAN is committed to delivering strong total shareholder return. Our 2015 TSR was negatively impacted by a significant decline in the value of the euro compared to the U.S. dollar, and the cancellation of a project with a major tier 1 service provider in the U.S. Although U.S. sales growth in 2015 was 10%, the resulting revenue and operating income we believe negatively impacted our resulting TSR. During the course of 2015, the company has taken steps to reduce operating expense by consolidating facilities and believes this, in combination with market share gains and improving environment should lead to better TSR performance in the future. To this end, we believe our executive compensation programs provide significant incentive to our management to work towards long-term TSR growth.
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As discussed in more detail below at “Equity Compensation” (following the “Grants of Plan-Based Awards” table), depending on our relative TSR over the performance period, the executive officers may earn from 0% of the number of target performance shares if the relative TSR performance is not at least equal to the 20th20th percentile of the peer group to 150% of the number of target performance shares if relative TSR performance equals or exceeds the 80th80th percentile of the peer group, based on the sliding scale as shown below.in that discussion.
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SharesPerformance shares earned are distributed at the end of the three-year performance period. Under the award agreements, a portion of the granted performance shares also vest and become deliverable upon the death or disability of a recipient or upon a change of control of ADTRAN, as discussed in more detail below under the heading “Potential Payments Upon Termination or Change of Control.” The recipients of the performance shares under the award agreements receive dividend credits based on the shares of common stock underlying the performance shares. The dividend credits are paid in cash upon vesting of those shares under the applicable awards.
The 20122014 grant of performance shares vested on November 3, 201514, 2017, and the Compensation Committee certified in November 20152017 that the TSR relative to its peer group over the performance period was 40.1%68.3%. As a result, as indicated in the table below at “Equity Compensation” (following the “Grants of Plan-Based Awards” table), the recipients earned 75.26%130.28% of the performance shares originally granted and payment, in cash, of the dividend credits accrued on such earned performance shares.
Our long-term equity incentive awards are timed to occur in the latter part of each year, to coincide with an open trading window under our insider trading policy. One-Time Performance Share CAGR Awards (Three-Year Award)
In November 2015,January 2017, the Compensation Committee approved stock option awards to ourawarded executive officers that vest over a four year period, with 25% vesting on each anniversary of the grant date. In addition, in November 2015, the Committee approvedCompany aone-time performance share awardsgrant under our 2015 Employee Stock Incentive Plan. Under thisone-time grant, the performance shares would vest after a three-year performance period if the CAGR of the Company’s Adjusted EBIT (defined as the Company’s earnings before interest and tax, determined based on the Company’s audited financial results, and adjusted to remove any restructuring charges, equity compensation and amortization of acquisition-related expenses) was at least 22.2%. If the CAGR of Adjusted EBIT over the three-year performance period is at least 22.2%, but less than 25%, the recipients would receive 100% of the awarded performance shares; if the CAGR of Adjusted EBIT is at least 25%, but less than 27.8%, the executives would receive 121.4% of the awarded performance shares; if the CAGR of Adjusted EBIT is 27.8% or more, then the recipients would receive 142.9% of the awarded performance shares. The Compensation Committee determined that, if the performance measures set for theone-time performance share grants were met, the Company would have provided significant value to its shareholders, thereby aligning the executives’ performance with shareholder return. In determining to use the growth (CAGR) of Adjusted EBIT, the Compensation Committee selected a challenging performance metric that it believes is closely aligned with an increase in the equity price of the company, and therefore in an increase in TSR. After the first year of the three-year performance period, the CAGR of the Company’s Adjusted EBIT was 5%, which is well below the 22.2% three year threshold and below plan for 2017 due to the Chief Executive Officermerger and acquisition activity at one of our Tier 1 North American CSPs (further discussed below) that resulted in our full year falling short of original expectations.
Employment Agreements
Mr. Scheiterer is employed pursuant to a Secondment Agreement with ADTRAN, Inc., dated January 1, 2016. The Secondment Agreement contemplates that Mr. Scheiterer’s secondment from ADTRAN GmbH will last until December 31, 2019. During this time, his employment agreement with ADTRAN GmbH is suspended. If and when his secondment terminates, his employment agreement with ADTRAN GmbH will reactivate; however, if Mr. Scheiterer remains in the Senior Vice Presidents, as discussed above, including Roger D. Shannon, uponU.S. after five years, he will convert to a localized, ADTRAN, Inc. employee and both the Secondment Agreement and his appointmentemployment agreement with ADTRAN GmbH will terminate.
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Pursuant to the Secondment Agreement, Mr. Scheiterer will serve as Senior Vice President of FinanceGlobal Research and Chief Financial Officer ofDevelopment for ADTRAN. During the Companysecondment, he will continue to participate in November 2015. The total awardsthe ADTRAN GmbH retirement savings plan and will, to the named executive officersextent permissible, continue to be covered under ADTRAN GmbH’s life and disability insurance plans, although he will be entitled to participate in 2015 were as follows,ADTRAN’s U.S. health and are describedwelfare plans, the VICC plan and equity incentive plans. ADTRAN will reimburse Mr. Scheiterer for all income taxes due in the narrative below the GrantsU.S. and Germany; however, his compensation will be reduced by his hypothetical German tax liability. Mr. Scheiterer is entitled to tax advice and tax return preparation services as well as 30 days of Plan-Based Awards table:
Named Executive Officer | 2015 Stock Option Award | 2015 Performance Share Award | ||||||
Thomas R. Stanton | 94,207 | 13,547 | ||||||
Roger D. Shannon | 30,000 | 5,200 | ||||||
James E. Matthews | — | — | ||||||
James D. Wilson, Jr. | 25,043 | 3,100 | ||||||
Raymond R. Schansman | 20,000 | 3,100 | ||||||
Michael Foliano | 22,578 | 3,100 |
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In determining the amountvacation annually and certain expatriate allowances, including a housing allowance of these incentive equity awards, the Compensation Committee began by deciding on an overall pool amount$2,850 per month, relocation allowance equal to one month’s base salary, reimbursement for the company, taking into account the estimated expense to us of the awards and the earnings per share impact of that expense. We typically establish an internal target for the aggregate expense from company-wide option awards and performance shares, which, based on our review of industry data as discussed above, we believe is at the low end of the expense levels incurred by our competitors. The Committee established a pool of up to 1,181,488 stock options4 home leaves for Mr. Scheiterer and 34,247 performance shares for the 2015 annual grant, as compared to a pool ofhis spouse and up to 1,197,595 stock optionstwo home leave visits per year for his children, and 29,947 performance sharesan allowance of $5,000 for the 2014 annual grant. The Committee allocated the pool of options and performance shares among the different functions throughout the company, based on the importance and performance of the function and considerations such as retention and competitive compensation levels. The Compensation Committee then set each executive’s individual award from the amount allocated to the functionmaintenance costs for Mr. Scheiterer’s home in which he serves, based on the recommendation of our Chief Executive Officer (other than with respect to his own award) with input from our Chief Financial Officer. In determining the amount of the options awards and performance shares for the named executive officers, the Committee considered the conclusions of its 2015 compensation review described above.
The Company has not historically included a performance measure as a component of vesting of stock options for executive officers because we believe that performance of the Company is an implicit feature of every stock option and that the option itself provides significant incentive to each employee who receives an option (including our executives) to perform his or her job tasks optimally for the overall performance of his or her group and the Company as a whole. It does include performance metrics as the sole measure for the performance-based restricted stock units (or “performance shares”) program described below at “Grants of Plan-Based Awards in 2015 – Equity Compensation” at page 20.Germany.
Other Compensation.Compensation
We maintain general broad-based employee benefit plans in which our executives participate, such as a health insurance plan and a 401(k) plan. These benefits are provided as part of the basic conditions of employment for all of our employees, and therefore providing them to our executive officers does not represent a significant incremental cost to us. In addition, we believe that providing these basic benefits is necessary for us to attract talented executives. We also maintain a nonqualified deferred compensation plan, which is described under the Nonqualified Deferred Compensation table below. This plan permits executives and directors to voluntarily defer a portion of their income and performance shares and save money for retirement on atax-deferred basis. Although the plan permits discretionary employer contributions, to date we have not made any contributions to this plan. Therefore, this plan provides a valuable benefit to executives and directors at virtually no cash cost to us.
As described in more detail under “Potential Payments Upon Termination or Change of Control” below, we provide limited benefits to participants upon a change of control or upon termination of employment for specified reasons (provided, in some cases, that termination must be a “separation from service” as defined in Section 409A of the Internal Revenue Code) including the named executive officers, in our equity incentive plans and our Variable Incentive Compensation Plan. All of these benefits are consistent with the basic benefits provided by the companies with which we compete for executive talent and help us to attract valuable executives. These benefits help to provide additional security that executives may need and reward loyal service in situations that create insecurity and present special challenges for executives. We provide the limited change of control benefits to encourage our executives to seek out and pursue business transactions that could be beneficial to ADTRAN and its stockholders.
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Tax Considerations
Section 162(m) of the Internal Revenue Code limitslimited ADTRAN’s tax deduction for compensation over $1,000,000 paid to the Chief Executive Officer or to certain other executive officers. CompensationFor 2017, compensation that meets the requirements for qualified performance-based compensation or certain other exceptions under the Internal Revenue Code is not included in this limit. Except for certain contractual incentive compensation grants made prior to November 2, 2017, this performance-based compensation exclusion is eliminated for 2018 and future years as a result of the Tax Cuts and Jobs Act enacted in December 2017. Generally, the Compensation Committee desires to maintain the tax deductibility of compensation for executive officers to the extent it is feasible and consistent with the objectives of our compensation programs. To that end, our 2015 Employee Stock Incentive Plan and our Variable Incentive Compensation Plan were originally designed to meet the requirements so that awards and annual VICC under those plans willwould be performance-based compensation for Section 162(m) purposes. However, in the past, our executives’ compensation has not been high enough to make Section 162(m) a critical issue for ADTRAN.ADTRAN other than for our CEO. With the elimination of the Section 162(m) performance-based compensation deductibility limit exclusion resulting from the Tax Cuts and Jobs Act enacted in December 2017, it is no longer possible to deduct performance-based compensation in excess of $1 million after 2017, other than for certain eligible performance-based incentive compensation plans enacted prior to November 2, 2017. We believe that the one time performance share CAGR awards previously described meet the deductibility requirements of Section 162(m), but that any incentive compensation granted in 2018 or beyond does not. Therefore, deductibility under Section 162(m) is only onewill no longer be a consideration in determining executive compensation after 2017, and the Compensation Committee may approve compensation that is not deductible in order to compensate executive officers in a manner consistent with performance and our need for executive talent.
Risk Assessment
We have evaluated our compensation program and each element of the program to ensure that our policies and practices do not create risks that are reasonably likely to have a material adverse effect on ADTRAN. The Compensation Committee has attempted to create a compensation system that values current goals along with long-term growth. While the use of annual cash incentive opportunities creates the potential for short termshort-term risk taking, we believe the risk is more than offset by the fact that an annual cash incentive is only one of three primary elements of our overall compensation program; and the Compensation Committee has the ability to utilize discretion to reduce the amount of annual cash incentive awards if an executive officer takes unnecessary risks.
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We believe the two other primary elements of our total compensation program – base salaries and long term equity awards – are either risk neutral or help lower risk. The Compensation Committee determines the annual base salaries based on numerous factors, as discussed above. These factors lend themselves to an overall evaluation that emphasizes improvement of ADTRAN and its operations rather than taking risks for short termshort-term gain. Our equity incentive awards vest or are earned over several years, so while the potential compensation an executive can receive through equity incentive awards is tied directly to the appreciation of our stock price or other performance metrics,metrics. Consequently, taking excessive risk for a short termshort-term gain is incompatible with an executive officer maximizing the value of equity incentive awards over the long term.
Clawback Policy
The Board has adopted a policy providing that, in the event the Company is required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement under the securities laws, the Company will recover incentive-based compensation paid to current or former executive officers of the Company during the three years prior to the date as of which the accounting restatement is required, to the extent that any of that compensation was based upon the erroneous data that made the restatement necessary. Under this policy, incentive-based compensation includes stock options, performance shares, and other monetary or equity-based compensation awards. To implement this policy, the Board has entered into a current agreement with each of the named executive officers providing for their agreement to such repayment.
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Policy Against Hedging Instruments and Pledging
Under the Company’s Insider Trading Policy, employees and directors of the Company and any designee of any employee or director, are prohibited from purchasing financial instruments (including, but not limited to, prepaid variable forward contracts, equity swaps, collars, exchange funds, and options) that are designed to hedge or offset any decrease in the market value of equity securities of the Company held directly or indirectly by the employee or director. Additionally, employeeemployees and directors are prohibited from holding Company securities in a margin accountaccounts or pledging Company securities as collateral for a loan.
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Compensation Committee Report
The following report is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to the SEC’s proxy rules or the liabilities of Section 18 of the Exchange Act, and the report shall not be deemed to be incorporated by reference into any prior or subsequent filing by us under the Securities Act of 1933, as amended, or the Exchange Act.
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis included in this proxy statement.statement with management. Based on this review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
COMPENSATION COMMITTEE |
Balan Nair, Chairman |
H. Fenwick Huss
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Jacqueline H. Rice |
Kathryn A. Walker |
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Summary Compensation Table
The following table sets forth, for the fiscal years ended December 31, 2015,2017, December 31, 20142016, and December 31, 20132015, the total compensation earned by our Chief Executive Officer, Chief Financial Officer, including our former Chief Financial Officer, and each of our three other most highly compensated executive officers who were serving as executive officers as of December 31, 20152017 (collectively referred to as the “named executive officers”).
Name and Principal Position | Year | Salary ($) (1) | Bonus ($) | Stock Awards ($) (2) | Option Awards ($) (3) | Non-Equity Incentive Plan Compensation ($) (4) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) (5) (6) | Total ($) | |||||||||||||||||||||||||||
Thomas R. Stanton | 2015 | $ | 595,000 | — | $ | 238,969 | $ | 406,347 | — | — | $ | 15,491 | $ | 1,255,807 | ||||||||||||||||||||||
Chief Executive Officer | 2014 | $ | 576,800 | — | $ | 299,524 | $ | 598,900 | — | — | $ | 18,806 | $ | 1,494,030 | ||||||||||||||||||||||
2013 | $ | 560,000 | — | $ | 375,523 | $ | 631,911 | — | — | $ | 21,711 | $ | 1,589,145 | |||||||||||||||||||||||
Roger D. Shannon (7) | 2015 | $ | 37,904 | $ | 220,000 | (8) | $ | 91,728 | $ | 129,400 | — | — | $ | 3,568 | $ | 482,600 | ||||||||||||||||||||
Senior Vice President of Finance, Chief Financial Officer, Corporate Treasurerand Secretary | ||||||||||||||||||||||||||||||||||||
James E. Matthews (7) | 2015 | $ | 86,714 | — | — | — | — | — | $ | 25,439 | $ | 112,153 | ||||||||||||||||||||||||
Former Senior Vice President — Finance, Chief Financial Officer, Treasurer and Secretary |
| 2014 2013 |
| $ $ | 330,358 321,360 |
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| $ $ | 88,440 110,880 |
| $ $ | 174,367 183,974 |
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| $ $ | 13,031 13,571 |
| $ $ | 606,196 629,785 |
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James D. Wilson, Jr. | 2015 | $ | 309,000 | — | $ | 54,684 | $ | 108,019 | — | — | $ | 11,565 | $ | 483,268 | ||||||||||||||||||||||
Senior Vice President of Technology and Strategy |
| 2014 2013 |
| $ $ | 300,000 292,114 |
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| — — |
| $ $ | 68,541 85,932 |
| $ $ | 159,205 167,976 |
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| $ $ | 12,439 12,812 |
| $ $ | 540,185 558,834 |
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Raymond R. Schansman | 2015 | $ | 309,000 | — | $ | 54,684 | $ | 86,267 | — | — | $ | 11,565 | $ | 461,516 | ||||||||||||||||||||||
Senior Vice President of GlobalServices and Support |
| 2014 2013 |
| $ $ | 300,000 290,578 |
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| — — |
| $ $ | 68,541 85,932 |
| $ $ | 159,205 167,976 |
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| — — |
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| — — |
| $ $ | 12,439 12,812 |
| $ $ | 540,185 557,298 |
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Michael Foliano | 2015 | $ | 303,850 | $ | 50,000 | (9) | $ | 54,684 | $ | 97,387 | — | — | $ | 11,565 | $ | 517,486 | ||||||||||||||||||||
Senior Vice President — Global Operations |
| 2014 2013 |
| $ $ | 295,000 285,171 |
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| — — |
| $ $ | 68,541 85,932 |
| $ $ | 143,535 151,442 |
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| — — |
| $ $ | 12,439 12,812 |
| $ $ | 519,515 535,357 |
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Name and Principal Position | Year | Salary ($) (1) | Bonus ($) | Stock Awards ($) | ||||||||||||||||||||||||||||||||||||
Annual Stock Award (2(a)) | One- Time Stock Award (3 Year Award) (2(b)) | Option Awards ($) (3) | Non-Equity Incentive Plan Compensation ($) (4) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) (5) (6) | Total ($) | ||||||||||||||||||||||||||||||||||
Thomas R. Stanton Chief Executive Officer | 2017 2016 2015 | $ $ $ | 637,364 612,850 595,000 | — — — | $ $ $ | 1,223,362 1,264,589 238,969 | 2,100,000 — — | — — $ 406,347 | $ $ | 450,275 1,660,945 — | — — — | $ $ $ | 28,527 25,187 15,491 | $ $ $ | 4,439,528 3,563,571 1,255,807 | |||||||||||||||||||||||||
Roger D. Shannon (7) Senior Vice President of Finance, Chief Financial Officer, Corporate Treasurer and Secretary | 2017 2016 2015 | $ $ $ | 372,300 365,000 37,904 | — — $ 220,000 | (8) | $ $ $ | 296,484 322,814 91,728 | 699,985 — — | — — $ 129,400 | $ $ | 140,386 438,000 — | — — — | $ $ $ | 13,332 155,382 3,568 | $ $ $ | 1,522,487 1,281,196 482,600 | ||||||||||||||||||||||||
James D Wilson, Jr. Senior Vice President of Technology and Strategy | 2017 2016 2015 | $ $ $ | 330,679 317,961 309,000 | — — — | $ $ $ | 263,318 281,141 54,684 | 699,985 — — | — — $ 108,019 | $ $ | 124,692 328,688 — | — — — | $ $ $ | 14,821 4,072 11,565 | $ $ $ | 1,433,495 931,862 483,268 | |||||||||||||||||||||||||
Michael Foliano Senior Vice President – Operations | 2017 2016 2015 | $ $ $ | 325,800 313,269 303,850 | — — |
| $ $ $ | 199,583 221,633 54,684 | 699,985 — — | — — $ 97,387 | $ $ | 73,813 229,171 — | — — — | $ $ $ | 14,566 13,938 11,565 | $ $ $ | 1,313,747 778,011 517,486 | ||||||||||||||||||||||||
Eduard Scheiterer Senior Vice President – Research and Development | 2017 2016 2015 | $ $ $ | 291,464 282,975 237,004 | (10) | — — — | $ $ $ | 178,563 200,231 54,684 | 699,985 — — | — $ — | $ $ $ | 82,428 210,533 24,025 | — — — | $ $ | 466,784 458,294 — | $ $ $ | 1,719,224 1,152,033 400,653 |
(1) | Includes amounts deferred at the election of the executive officers pursuant to our Section 401(k) retirement plan and our nonqualified deferred compensation plan. |
(2) | (a) Represents the aggregate grant date fair value of annual stock awards made during 2017, 2016 and 2015, |
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(b) Represents the aggregate grant date fair value of theone-time performance share awards made in 2017, which awards vest over a three year performance period (Three-Year Award) if the Company achieves at least a 22.2% compounded annual growth rate of Adjusted EBIT (the Three-Year Plan is discussed in more detail under “Equity Compensation” below), computed in accordance with the Stock Compensation Topic of the FASB ASC, based on the market price of our common stock on the date of grant. For a description of the assumptions used to determine these amounts, see Note 3 in the Notes to the Consolidated Financial Statements in our Annual Reports on Form10-K for the fiscal year ended December 31, 2017, except that, as required by SEC regulations, the amounts in the table above do not reflect any assumed forfeitures. For the 12 month period ended December 31, 2017, the Company had achieved a 5% compounded annual growth rate of Adjusted EBIT. The maximum values of the performance share awards, assuming the highest level of performance conditions is probable, are: for Mr. Stanton $2,999,990, for Mr. Shannon $999,960, for Mr. Wilson $999,960; for Mr. Foliano $999,960, and for Mr. Scheiterer $999,960.
(3) | Represents the aggregate grant date fair value of option awards made during 2015 |
(4) | No amounts were earned for 2015 |
(5) | Consists of: |
(a) | ADTRAN’s contributions to the executive officers’ Section 401(k) retirement plan accounts. In |
18
(b) | Accrued dividend credits on restricted stock awards, which are paid in cash upon vesting of those shares under the applicable awards. The amounts included for 2017 are the value of the dividend credits accrued on the basis of the number of performance shares that would have been issued under the applicable grants at the performance targets achieved as of December 31, 2017. The amounts included for 2016 are the value of the dividend credits accrued on the basis of the number of performance shares that would have been issued under the applicable grants at the performance targets achieved as of December 31, 2016. The amounts included for 2015 are the value of the dividend credits accrued on the basis of the number of performance shares that would have been issued under the applicable grants at the performance targets achieved as of December 31, 2015. The |
(c) |
Payments for relocation expenses paid to Mr. Shannon in the amount of |
(d) | For Mr. Scheiterer, payments in 2017 and 2016 for foreign pension of $28,363 and $29,930, respectively; housing, tax, and other allowances related to his U.S. assignment of $104,611 and $126,332, respectively; and jurisdictional tax equalization of $333,810 and $300,373, respectively. |
(6) | Amounts shown with respect to |
(7) |
(8) | Represents theone-time signing bonus awarded to Mr. Shannon as part of a make-whole bonus upon the commencement of his employment with the Company payable in the first quarter of 2016. |
(9) |
(10) | Salary paid to Mr. |
1929
Grants of Plan-Based Awards in 20152017
Name | Grant Date | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (2) | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards | Grant Date | Estimated Possible Payouts UnderNon-Equity Incentive Plan Awards (2) | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or | All Other Option Awards: Number of Securities Underlying | Exercise or Base Price of Option | Grant Date Fair Value of Stock and | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | Units (#) | Options (#) | Awards ($/Sh) | Option Awards | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Thomas R. Stanton | 11/14/2015 | (1) | 94,207 | $ | 15.33 | $ | 406,347 | (4) | 1/17/2017 | (1) | 94,382 | 94,382 | 134,832 | $ | 2,100,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
— | $ | 154,807 | $ | 806,284 | $ | 1,612,568 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/14/2015 | (3) | 3,387 | 13,547 | 20,321 | $ | 238,969 | (5) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
James E. Matthews | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/11/2017 | (3) | 27,295 | $ | 563,642 | (4) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
— | $ | 84,769 | $ | 892,310 | $ | 1,784,620 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/11/2017 | (1) | 6,824 | 27,295 | 40,943 | $ | 659,720 | (5) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Roger D. Shannon | 11/14/2015 | (1) | 30,000 | 15.33 | $ | 129,400 | (4) | 1/17/2017 | (1) | 31,460 | 31,460 | 44,944 | $ | 699,985 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/14/2015 | (3) | 1,300 | 5,200 | 7,800 | $ | 91,728 | (5) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/11/2017 | (3) | 6,615 | $ | 136,600 | (4) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
— | $ | 15,916 | $ | 223,380 | $ | 446,760 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/11/2017 | (1) | 1,654 | 6,615 | 9,923 | $ | 159,885 | (5) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
James D. Wilson, Jr. | 11/14/2015 | (1) | 25,043 | $ | 15.33 | $ | 108,019 | (4) | 1/17/2017 | (1) | 31,460 | 31,460 | 44,944 | $ | 699,985 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
— | $ | 17,053 | $ | 170,360 | $ | 340,720 | 11/11/2017 | (3) | 5,875 | $ | 121,319 | (4) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/14/2015 | (3) | 775 | 3,100 | 4,650 | $ | 54,684 | (5) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Raymond R. Schansman | 11/14/2015 | (1) | 20,000 | $ | 15.33 | $ | 86,267 | (4) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
— | $ | 23,490 | $ | 171,085 | $ | 342,170 | — | $ | 14,137 | $ | 198,408 | $ | 396,816 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/14/2015 | (3) | 775 | 3,100 | 4,650 | $ | 54,684 | (5) | 11/11/2017 | (1) | 1,469 | 5,875 | 8,813 | $ | 141,999 | (5) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Michael Foliano | 11/14/2015 | (1) | 22,578 | $ | 15.33 | $ | 97,387 | (4) | 1/17/2017 | (1) | 31,460 | 31,460 | 44,944 | $ | 699,985 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
— | $ | 10,669 | $ | 111,140 | $ | 222,280 | 11/11/2017 | (3) | 4,453 | $ | 91,954 | (4) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/14/2015 | (3) | 775 | 3,100 | 4,650 | $ | 54,684 | (5) | — | $ | 10,446 | $ | 146,610 | $ | 293,220 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/11/2017 | (1) | 1,114 | 4,453 | 6,680 | $ | 107,629 | (5) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Eduard Scheiterer | 1/17/2017 | (1) | 31,460 | 31,460 | 44,944 | $ | 699,985 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/11/2017 | (3) | 3,984 | $ | 82,270 | (4) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
— | $ | 9,345 | $ | 131,159 | $ | 262,318 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/11/2017 | (1) | 996 | 3,984 | 5,976 | $ | 96,293 | (5) |
(1) | Grants of |
(2) | Reflects the possible annual VICC for |
(3) | Grants of |
(4) | Represents the grant date fair value of |
(5) | Represents the grant date fair value of performance shares granted in |
2030
Annual Cash Incentive Awards
We provide our named executive officers with the opportunity to earn annual VICCincentive compensation under our Variable Incentive Compensation Plan. Under the Variable Incentive Compensation Plan, within 90 days of the beginning of each year, our Compensation Committee establishes corporate goals to determine the eligibility for, and amount of, any annual incentive compensation for our executives. The Compensation Committee also determines the eligible individuals to receive awards and establishes the terms and conditions of all awards under the Variable Incentive Compensation Plan.
In January 2015,2017, our Compensation Committee established a group of VICC programs under the Variable Incentive Compensation Plan to determine 2015 amounts and designated each executive as a participant in a particular program. Each program was designed to encourage growth in company pretaxoperating income and company revenue including international revenue, carrier networks revenue and enterprise networks revenue.which is believed to lead to greater shareholder returns. The participants could earn VICC was available under each program only if both of certain minimumtotal company operating income and total company revenue thresholds were achieved.grew by at least 1% over the prior year. If these minimum thresholdstwo threshold growth measures were both achieved, they could earn VICC was availablefor growth in multiple categories (no more than four categories for any participant):one or both of total company operating income or total company revenue, carrier network revenue, enterprise network revenueeach of which comprises 50% of the total companyperformance-based VICC opportunity and certain other subcategories of revenue. Additionally, some participants could earn up to fifty percent of their target VICC through achievement of personal goal elements. For the categories other than personal goal elements, VICC wasis scaled depending upon the amount of growth the company experienced in excess of the minimum threshold in any category.threshold. In order to measure the value of each possible VICC award, the programs assigned to each participating executive a numbermonetary amount identified as the target VICC. VICC available in each category was expressed as percentages of the target VICC and ranged from a small percentage if the required threshold was reached through the possibility of as much as 200% of the target VICC.VICC for maximum performance in each category. Additionally, Messrs. Shannon, Wilson, Foliano, and Scheiterer could earn up to twenty-five percent of their target VICC through achievement of personal goal elements that are approved by our CEO, Mr. Stanton, during the first 90 days of the year based on opportunities where these individuals can directly influence the Company’s financial performance. Mr. Stanton’s VICC opportunity is based entirely on the achievement of the Company’s performance metrics discussed above. The personal goal elements were not scaled but rather were based on achieving or not achieving the goal. In no event could any executive receive more than 200% of the target VICC in any combination of VICC awards for all categories, including any personal goals. In determining the target VICC for each executive, the Compensation Committee considered, among other things, the executive’s responsibilities and opportunity to influence the outcomes in the several categories under which VICC could be earned, as well as the executive’s prior contributions to company performance.
UnderFor 2017, the program in which Messrs. Stanton, FolianoCompany exceeded the minimum performance measures established under the Variable Incentive Compensation Plan, and prior to his resignation, Matthews, participated, they could earn VICC only if each of total company operating income and total company revenue grew by at least 2.5% over the prior year. If these two threshold growth measures were both achieved, they couldour executives did earn VICC for growth in any one of total company operating income or total company revenue. Additionally, Mr. Foliano and, prior to his resignation, Mr. Matthews, could earn half of their target VICC by achievement of certain personal goal elements.
Under the program in which Mr. Schansman participated, he could earn VICC only if each of total company operating income and total enterprise networks revenue grew by at least 2.5% over the prior year. If these two threshold growth measures2017 performance under that plan. These awards were both achieved, he could earn VICC for growth in any one of total company operating income, total company revenue, total enterprise networks operating income as a percentage of total enterprise networks revenue or total enterprise networks revenue. Additionally, Mr. Schansman, could earn half of his target VICC by achievement of certain personal goal elements.
Under the program in which Mr. Wilson participated, he could earn VICC only if each of total company pretax income and total carrier networks revenue grew by at least 2.5% over the prior year. If these two threshold growth measures were both achieved, he could earn VICC for growth in any one of total company operating income, total company revenue, total carrier networks operating income as a percentage of carrier network revenue or total domestic and Americas carrier networks revenue. Additionally, Mr. Wilson, could earn half of his target VICC by achievement of certain personal goal elements.
None of the threshold growth targets establishedrecommended by the Compensation Committee was achieved. Consequently, as shownand approved by the Board of Directors at its January 16, 2018, meeting. Actual VICC amounts awarded to our named executive officers for 2017 under the Variable Incentive Compensation Plan are included in the “Non-Equity“Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table above, no VICC was awarded to our named executive officers for 2015 under the Variable Incentive Compensation Plan.above.
Additionally, in connection with Mr. Shannon’s employment with the Company, the Committee awarded Mr. Shannon a one-time signing bonus of $220,000, which is payable in the first quarter of 2016, as part of a make-whole bonus, as described above in “Compensation Discussion and Analysis – Appointment of New Chief Financial Officer”, which amount must be repaid if Mr. Shannon voluntarily leaves the Company, other than for Good Reason (as such term is described above in “Compensation Discussion and Analysis – Appointment of New Chief Financial Officer”), or does not relocate his family, in each case, within the first twelve months of employment. Additionally, in recognition of Mr. Foliano’s service to the Company as interim Chief Financial Officer, the Committee awarded Mr. Foliano a one-time discretionary bonus of $50,000.
21
Equity Compensation
We granted stock optionsRSUs and performance-based restricted stock units, or “performance shares,“Performance Shares,” during 20152017 to our named executive officers under the ADTRAN, Inc. 2015 Employee Stock Incentive Plan. The Stock Incentive Plan permits awards of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock and restricted stock units. Our Compensation Committee administers the Stock Incentive Plan, determines who will receive awards and establishes the terms and conditions of all awards. Awards of restricted stock or restricted stock units granted under the plan will reduce the number of authorized shares available by 2.5 shares of our common stock for each share underlying the award. The total number of remaining shares authorized for grant for awards other than options under all equity compensation plansthe ADTRAN, Inc. 2015 Employee Stock Incentive Plan at December 31, 20152017, was 6,680,6393,204,391 shares.
The per share exercise price of the options we granted to our named executive officers during 2015 was equal to the fair market value of a share of our common stock on the date of grant. Fair market value is defined in the Stock Incentive Plan as the closing price of our common stock on the business day immediately before the date of grant. The option price may be paid in cash, in shares of our common stock, by broker-assisted cashless exercise (if permitted by applicable laws and regulations), or by any other method permitted by the Committee.
The optionsRSUs we granted in 20152017 to our named executive officers will become exercisablevest with respect to 25% of the shares on each of the first four anniversaries of the grant date. The optionsRSUs become immediately vested and exercisable upon the executive’s death or disability, andor upon a change of control. The options may be exercised for one year after termination due to the executive’s death, disability or retirement, or for 90 days after termination for any other reason other than for cause, in which case the options immediately terminate. In addition,Also, the Compensation Committee, in its discretion, may accelerate the vesting at any time. The provisions regarding acceleration of the optionsRSUs are described in more detail in the section on the Stock Incentive Plan below under the heading entitled “Potential Payments Upon Termination or Change of Control.”
31
The number of performance shares earned by the executive officers under the 20152017 annual grant is based on our relative total shareholder return, or “TSR,” against a peer group over a three-year performance period. The peer group is set forth above in “Compensation Discussion and Analysis – Components of Executive Compensation – Long-Term Incentive Awards.”the companies comprising the NASDAQ Telecommunications Index. Depending on our relative TSR over the performance period, the executive officers may earn shares of common stock on a sliding scale from 0% to 150% of the performance shares (approximately 2.5% of the grant for each 1 percentile increase up to 100% of the grant and then approximately 1.67% of the grant for each 1 percentile increase up to 150% of the grant) granted depending on our relative TSR performance against the peer group, as shown below:
ADTRAN’s TSR Performance Relative to its Peer
percentile) | Granted Performance Shares Earned (expressed as a percentage) | |||
Less than | % | |||
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| % | |||
| % | |||
| % | |||
| % | |||
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Shares earned are distributed at the end of the three-year performance period, and after that time there is no additional holding period for the shares. Under the award agreements, a portion of the granted performance shares also vest and become deliverable upon the death or disability of a recipient or upon a change of control of ADTRAN, as discussed in more detail below under the heading “Potential Payments Upon Termination or Change of Control.” The recipients of the performance shares under the award agreements receive dividend credits based on the shares of common stock underlying the performance shares. The dividend credits are vested, earned and distributed in cash upon vesting of the performance shares. Recipients may choose to defer shares under the Deferred Compensation Plan instead of receiving the shares at the time they are entitled to distribution of the shares.
The 2014 grant of performance shares vested on November 14, 2017, and the Compensation Committee certified in November 2017 that the TSR relative to its peer group over the performance period was 68.3%. As a result, as indicated in the table above, the recipients earned 130.28% of the performance shares originally granted and payment, in cash, of the dividend credits accrued on such earned performance shares.
In addition to the performance share awards typically awarded in November of each year, the Compensation Committee also made aone-time grant of performance shares in January, 2017 that would vest after a three-year performance period if the CAGR of the Company’s Adjusted EBIT (defined as the Company’s earnings before interest and tax, determined based on the Company’s audited financial results, and adjusted to remove any restructuring charges, equity compensation and amortization of acquisition-related expenses) was at least 22.2% (Three-Year Award). If the CAGR of Adjusted EBIT during the performance period is at least 22.2%, but less than 25%, the recipients will receive 100% of the awarded performance shares; if the CAGR of Adjusted EBIT is at least 25%, but less than 27.8%, the executives will receive 121.4% of the awarded performance shares; if the CAGR of Adjusted EBIT is 27.8% or more, then the recipients will receive 142.9% of the awarded performance shares.
2232
Outstanding Equity Awards at 20152017 FiscalYear-End
The following table sets forth information regarding all outstanding equity awards held by the named executive officers aton December 31, 2015.2017.
Option Awards | Stock Awards | Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (12) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (16) | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (12) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (16) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Thomas R. Stanton | 50,000 | (1) | — | — | $ | 22.53 | 11/3/2016 | — | — | — | — | | 79,000 79,000 71,225 75,366 75,366 75,366 70,656 47,104 — — — — — | (1) (2) (3) (4) (5) (6) (7) (8)
| | — — — — — — 47,103 — — — — — |
(8)
| | — — — — — — — — — — — — — |
| $ $ $ $ $ $ $ $
| 15.29 23.46 33.70 30.36 16.97 23.64 18.97 15.33 — — — — — |
| | 11/6/2018 11/7/2019 11/6/2020 8/31/2021 11/3/2022 11/2/2023 11/14/2024 11/14/2025 — — — — — |
| | — — — — — — — — 21,804 27,295 — — — |
(10) (11)
| | — — — — — — — — $ 421,907 $ 528,158 — — — |
(10) (11)
| | — — — — — — — — — — 14,850 19,361 — |
(13) (14) (15) | $ $ $ | — — — — — — — — — — 287,348 374,635 — |
(13) (14) (15) | ||||||||||||||||||||||||||||||||||
60,000 | (2) | — | — | $ | 23.02 | 11/5/2017 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
79,000 | (3) | — | — | $ | 15.29 | 11/6/2018 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
79,000 | (4) | — | — | $ | 23.46 | 11/7/2019 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
71,225 | (5) | — | — | $ | 33.70 | 11/6/2020 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
75,366 | (6) | — | — | $ | 30.36 | 8/31/2021 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
56,525 | (7) | 18,841 | (7) | — | $ | 16.97 | 11/3/2022 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
37,683 | (8) | 37,683 | (8) | — | $ | 23.64 | 11/2/2023 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
23,552 | (9) | 70,655 | (9) | — | $ | 18.97 | 11/14/2024 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
— | 94,207 | (10) | — | $ | 15.33 | 11/14/2025 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
— | — | — | — | — | — | — | 10,512 | (13) | $ | 181,017 | (13) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
— | — | — | — | — | — | — | 12,572 | (14) | $ | 216,490 | (14) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
— | — | — | — | — | — | — | 20,321 | (15) | $ | 349,928 | (15) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Roger D. Shannon | — | 30,000 | (10) | — | $ | 15.33 | 11/14/2025 | — | — | — | — | | 15,000 — — — — — | (8)
| | 15,000 — — — — — | (8)
| | — — — — — — |
| $
| 15.33 — — — — — |
| | 11/14/2025 — — — — — |
| | — 5,566 6,615 — — — | (10) (11)
| | — $ 107,702 $ 128,000 — — — | (10) (11)
| | — — — 5,700 4,942 — |
(13) (14) (15) | $ $ $ | — — — 110,295 95,628 — |
(13) (14) (15) | ||||||||||||||||||||||||||||||||||
— | — | — | — | — | — | — | 7,800 | (15) | $ | 134,316 | (15) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
James E. Matthews | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
James D. Wilson, Jr. | 21,000 | (4) | — | — | $ | 23.46 | 11/7/2019 | — | — | — | — | | 21,000 18,933 20,034 20,034 18,783 6,261 — — — — — | (2) (3) (4) (6) (7) (8)
| | — — — — 6,260 12,521 — — — — — |
(7) (8)
| | — — — — — — — — — — — |
| $ $ $ $ $ $
| 23.46 33.70 30.36 23.64 18.97 15.33 — — — — — |
| | 11/7/2019 11/6/2020 8/31/2021 11/2/2023 11/14/2024 11/14/2025 — — — — — |
| | — — — — — — 4,848 5,875 — — — |
(10) (11)
| | — — — — — — $ 93,809 $ 113,681 — — — |
(10) (11)
| | — — — — — — — — 3,398 4,304 — |
(13) (14) (15) | $ $ $ | — — — — — — — — 65,751 83,282 — |
(13) (14) (15) | ||||||||||||||||||||||||||||||||||
18,933 | (5) | — | — | $ | 33.70 | 11/6/2020 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
20,034 | (6) | — | — | $ | 30.36 | 8/31/2021 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
15,026 | (7) | 5,008 | (7) | — | $ | 16.97 | 11/3/2022 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10,017 | (8) | 10,017 | (8) | — | $ | 23.64 | 11/2/2023 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
6,261 | (9) | 18,782 | (9) | — | $ | 18.97 | 11/14/2024 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
— | 25,043 | (10) | — | $ | 15.33 | 11/14/2025 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
— | — | — | — | — | — | — | 2,406 | (13) | $ | 41,431 | (13) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
— | — | — | — | — | — | — | 2,877 | (14) | $ | 49,542 | (14) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
— | — | — | — | — | — | — | 4,650 | (15) | $ | 80,073 | (15) |
2333
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (12) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (16) | |||||||||||||||||||||||||||
Raymond R. Schansman | 4,543 | (1) | — | — | $ | 22.53 | 11/3/2016 | — | — | — | — | |||||||||||||||||||||||||
24,000 | (2) | — | — | $ | 23.02 | 11/5/2017 | — | — | — | — | ||||||||||||||||||||||||||
10,500 | (3) | — | — | $ | 15.29 | 11/6/2018 | — | — | — | — | ||||||||||||||||||||||||||
21,000 | (4) | — | — | $ | 23.46 | 11/7/2019 | — | — | — | — | ||||||||||||||||||||||||||
18,933 | (5) | — | — | $ | 33.70 | 11/6/2020 | — | — | — | — | ||||||||||||||||||||||||||
20,034 | (6) | — | — | $ | 30.36 | 8/31/2021 | — | — | — | — | ||||||||||||||||||||||||||
15,026 | (7) | 5,008 | (7) | — | $ | 16.97 | 11/3/2022 | — | — | — | — | |||||||||||||||||||||||||
10,017 | (8) | 10,017 | (8) | — | $ | 23.64 | 11/2/2023 | — | — | — | — | |||||||||||||||||||||||||
6,261 | (9) | 18,782 | (9) | — | $ | 18.97 | 11/14/2024 | — | — | — | — | |||||||||||||||||||||||||
— | 20,000 | (10) | — | $ | 15.33 | 11/14/2025 | — | — | — | — | ||||||||||||||||||||||||||
— | — | — | — | — | — | — | 2,406 | (13) | $ | 41,431 | (13) | |||||||||||||||||||||||||
— | — | — | — | — | — | — | 2,877 | (14) | $ | 49,542 | (14) | |||||||||||||||||||||||||
— | — | — | — | — | — | — | 4,650 | (15) | $ | 80,073 | (15) | |||||||||||||||||||||||||
Michael Foliano | 5,000 | (1) | — | — | $ | 22.53 | 11/3/2016 | — | — | — | — | |||||||||||||||||||||||||
5,000 | (11) | — | — | $ | 27.17 | 7/16/2017 | — | — | — | — | ||||||||||||||||||||||||||
13,000 | (2) | — | — | $ | 23.02 | 11/5/2017 | — | — | — | — | ||||||||||||||||||||||||||
11,000 | (3) | — | — | $ | 15.29 | 11/6/2018 | — | — | — | — | ||||||||||||||||||||||||||
11,000 | (4) | — | — | $ | 23.46 | 11/7/2019 | — | — | — | — | ||||||||||||||||||||||||||
18,933 | (5) | — | — | $ | 33.70 | 11/6/2020 | — | — | — | — | ||||||||||||||||||||||||||
18,062 | (6) | — | — | $ | 30.36 | 8/31/2021 | — | — | — | — | ||||||||||||||||||||||||||
13,547 | (7) | 4,515 | (7) | — | $ | 16.97 | 11/3/2022 | — | — | — | — | |||||||||||||||||||||||||
9,031 | (8) | 9,031 | (8) | — | $ | 23.64 | 11/2/2023 | — | — | — | — | |||||||||||||||||||||||||
5,645 | (9) | 16,933 | (9) | — | $ | 18.97 | 11/14/2024 | — | — | — | — | |||||||||||||||||||||||||
— | 22,578 | (10) | — | $ | 15.33 | 11/14/2025 | — | — | — | — | ||||||||||||||||||||||||||
— | — | — | — | — | — | — | 2,406 | (13) | $ | 41,431 | (13) | |||||||||||||||||||||||||
— | — | — | — | — | — | — | 2,877 | (14) | $ | 49,542 | (14) | |||||||||||||||||||||||||
— | — | — | — | — | — | — | 4,650 | (15) | $ | 80,073 | (15) |
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (12) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (16) | |||||||||||||||||||||||||||
Michael Foliano | 11,000 18,933 18,062 18,062 18,062 16,934 11,290 — — — — — | (2) (3) (4) (5) (6) (7) (8) | — — — — — 5,644 11,288 — — — — — | (7) (8) | — — — — — — — — — — — — | $ $ $ $ $ $ $ | 23.46 33.70 30.36 16.97 23.64 18.97 15.33 — — — — — | 11/7/2019 11/6/2020 8/31/2021 11/3/2022 11/2/2023 11/14/2024 11/14/2025 — — — — — | — — — — — — — 3,822 4,453 — — — | (10) (11) | — — — — — — — $ 73,956 $ 86,166 — — — | (10) (11) | — — — — — — — — — 3,398 3,393 — | (13) (14) (15) | $ $ $ | — — — — — — — — — 65,751 65,655 — | (13) (14) (15) | |||||||||||||||||||
Eduard Scheiterer | 13,900 4,550 7,500 9,980 — — — — — | (9) (6) (7) (8) | — — 2,500 10,000 — — — — — | (7) (8) | — — — — — — — — — | $ $ $ $ | 27.75 23.64 18.97 15.33 — — — — — | 7/10/2022 11/2/2023 11/14/2024 11/14/2025 — — — — — | — — — — 3,453 3,984 — — — | (10) (11) | — — — — $ 66,816 $ 77,090 — — — | (10) (11) | — — — — — — 3,398 3,066 — | (13) (14) (15) | $ $ $ | — — — — — — 65,751 59,327 — | (13) (14) (15) |
(1) |
The options vested 25% on each of the first four anniversaries of 11/06/2008, the date of grant. |
The options vested 25% on each of the first four anniversaries of 11/07/2009, the date of grant. |
The options vested 25% on each of the first four anniversaries of 11/06/2010, the date of grant. |
The options |
The options |
The options vest 25% on each of the first four anniversaries of 11/2/2013, the date of grant. |
The options vest 25% on each of the first four anniversaries of 11/14/2014, the date of grant. |
The options vest 25% on each of the first four anniversaries of 11/14/2015, the date of grant. |
The options vested 25% on each of the first four anniversaries of 7/ |
(10) | The grant of restricted stock units vests 25% on each of the first four anniversaries of 11/12/2016, the date of grant. |
(11) | The grant of restricted stock units vests 25% on each of the first four anniversaries of 11/11/2017, the date of grant. |
(12) | The amounts in this column equal the number of performance shares granted under the |
(13) | These amounts reflect the number of performance shares granted on November |
(14) | These amounts reflect the number of performance shares granted on November |
(15) | These amounts reflect the number of performance shares granted on November |
(16) | These amounts reflect the closing price of |
2434
Option Exercises in 20152017
The following table sets forth information regarding all exercises of stock options by the named executive officers during the 20152017 fiscal year.
Option Awards | Option Awards | |||||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | ||||||||||||
Thomas R. Stanton | — | — | — | — | ||||||||||||
Roger D. Shannon | — | — | — | — | ||||||||||||
James E. Matthews | 33,971 | $ | 22,927 | |||||||||||||
James D. Wilson, Jr. | — | — | — | — | ||||||||||||
Raymond R. Schansman | — | — | ||||||||||||||
Michael Foliano | — | — | 24,000 | 103,038 | ||||||||||||
Eduard Scheiterer | 20 | 122 |
Nonqualified Deferred Compensation in 20152017
The following table sets forth information regarding the deferred compensation arrangements in which our named executive officers participated in 2015.2017.
Name | Executive Contributions in Last FY ($)(1) | Registrant Contributions in Last FY ($) | Aggregate Earnings in Last FY ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($) | Executive Contributions in Last FY ($)(1) | Registrant Contributions in Last FY ($) | Aggregate Earnings in Last FY ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($) | ||||||||||||||||||||||||||||||
Thomas R. Stanton | $ | 307,588 | — | $ | 33,117 | — | $ | 8,224,385 | $ | 2,142,085 | — | $ | 1,915,261 | — | $ | 13,568,884 | ||||||||||||||||||||||||
James E. Matthews | $ | 25,314 | — | ($ | 159,544 | ) | ($ | 2,679,397 | ) | — | ||||||||||||||||||||||||||||||
Roger D. Shannon | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
James D. Wilson, Jr. | $ | 36,348 | — | ($ | 12,115 | ) | — | $ | 111,963 | $ | 83,385 | — | $ | (29,438 | ) | — | $ | 271,870 | ||||||||||||||||||||||
Raymond R. Schansman | $ | 36,348 | — | ($ | 31,136 | ) | — | $ | 667,861 | |||||||||||||||||||||||||||||||
Michael Foliano | $ | 36,348 | — | ($ | 31,118 | ) | — | $ | 597,189 | $ | 295,333 | — | $ | 35,220 | — | $ | 1,115,867 | |||||||||||||||||||||||
Eduard Scheiterer | — | — �� | — | — | — |
(1) | Includes cash contributions and the value of contributions of restricted stock awards. The cash contribution amounts are included in the “Salary” column of the Summary Compensation Table for |
We maintain the ADTRAN, Inc. Deferred Compensation Plan for Employees, the ADTRAN, Inc. Deferred Compensation Plan for Directors, the ADTRAN, Inc. Equity Deferral Program and the ADTRAN, Inc. Equity Deferral Program for Directors. These four plans were originally a single Deferred Compensation Plan,Plan; however, for administrative purposes, we restated that single plan into four separate plans which we refer to herein, collectively, as a single Deferred Compensation Plan. This plan is offered as a supplement to ourtax-qualified 401(k) plan and is available to our officers and directors who have been duly appointed or elected by our Board of Directors.Directors or stockholders. The deferred compensation plan allows participants to defer a portion of their salaries and all or a portion of their annual VICC and performance shares and any other equity grants (e.g., restricted stock awards granted to our directors), and permits us to make matching contributions on a discretionary basis, without the limitations that apply to the 401(k) plan.To date, we have not made any matching contributions under this plan. All contributions are unfunded and are credited to bookkeeping accounts for the participants, although we have set aside assets in a rabbi trust to pay for the benefits under this plan. Each participant’s account is credited with earnings as if the account were invested as elected by the participant amongpre-approved mutual funds. Benefits are usually distributed or begin to be distributed on the 1st1st day of the month following the six month anniversary of the participant’s separation from service. Benefits will be paid in a single lump sum cash payment, and any deferred stock awards will be paid in whole shares of ADTRAN common stock with fractional shares paid in cash; provided thathowever, a participant may, in some cases, elect to receive a portion of his or her benefit in installments paid over 3 or 10 years.
2535
Potential Payments Upon Termination or Change of Control
This section describes the limited benefits that would be provided to our named executive officers under our executive compensation plans upon a change of control of ADTRAN or following termination of employment (provided, in some cases further described below, the termination must be a “separation from service” as defined in Section 409A of the Internal Revenue Code). We also provide a table below showing the potential benefits payable to each of our named executive officers upon a change of control of ADTRAN or following termination of employment as of December 31, 2015.2017.
Variable Incentive Compensation Plan
Under the ADTRAN, Inc. Variable Incentive Compensation Plan, ina plan participant must be employed by the Company through the date that payment of an award is scheduled to be made for a plan year to be eligible to receive any award for such year. In the event of a change of control of ADTRAN, each executive will receive an immediate lump sum cash payment of the then-applicable annual VICC, but only if the performance measures set by the Compensation Committee for the relevant fiscal year have been attained as of the date of the change of control. The amount of the performance award would be consistent with the minimum, target or maximum level of performance measures actually achieved as of the change of control and would be for a proportionate share of the annualized amount for the part-year period ending on the change of control event. If there had been a change of control of ADTRAN on December 31, 2015, our executive officers would not have received any payment under this provision, because the minimum levels required under the 2015 performance measures were not attained.
Under the plan, a change of control would occur if:
(1) | any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) acquires more than 50% of the total fair market value or total voting power of our stock; |
(2) | any person or group acquires (or has acquired during the12-month period ending on the date of the most recent acquisition by such person or persons) ownership of 35% or more of the total voting power of our stock; |
(3) | a majority of our Board members is replaced during any12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board; or |
(4) | any person or group acquires (or has acquired during the12-month period ending on the date of the most recent acquisition by such person or persons) at least 40% of the total gross fair market value of all of our assets. |
Deferred Compensation Plan
Under the ADTRAN Inc. Deferred Compensation Plan, participants are entitled to receive their benefits upon termination of employment (provided the termination is a “separation from service” as defined in Section 409A of the Internal Revenue Code). The amount they receive is based on their account balance, which would consist of their contributions to the plan and any earnings as described above in the Nonqualified Deferred Compensation table and its accompanying narrative. Benefits are not payable from the plan until the 1stfirst day of the month following the six month anniversary of the participant’s separation from service.
36
2015 Employee Stock Incentive Plan
Under our 2015 Employee Stock Incentive Plan, upon a corporate transaction, including a change of control, the Compensation Committee may make appropriate adjustments to the shares available for, and the exercise price and/or base value of, awards and other actions it deems appropriate including, without limitation, providing that awards will be: (i) substituted for equivalent awards; (ii) upon reasonable prior written notice, terminated without payment if not exercised within a certain period (for stock options and SARs)stock appreciation rights) or terminated if not accepted within a certain period (for restricted stock and RSUs); (iii) terminated in exchange for payment; (iv) fully vested and exercisable; and/or (v) with respect to performance-based awards, settled based on the higher of the actual attainment of the performance targets or the grantee’s target award (but if the award is intended to comply with Code Section 162(m), it will be settled in a manner that complies with Code Section 162(m)). A change of control is defined as:
(1) the acquisition by one person, or more than one person acting as a group, of ownership of stock of the Company that, together with stock held by such person or group, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Company;
(2) when one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company possessing thirty-five percent (35%) or more of the total voting power of the stock of the Company or a majority of members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election; or
(1) | the acquisition by one person, or more than one person acting as a group, of ownership of stock of the Company that, together with stock held by such person or group, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Company; |
(2) | when one person, or more than one person acting as a group, acquires (or has acquired during the12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company possessing thirty-five percent (35%) or more of the total voting power of the stock of the Company or a majority of members of the Board is replaced during any12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election; or |
26
(3) the acquisition by one person, or more than one person acting as a group, assets from the Company that have a total gross fair market value equal to or more than forty percent (40%) of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions.
(3) | the acquisition by one person, or more than one person acting as a group, assets from the Company that have a total gross fair market value equal to or more than forty percent (40%) of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions. |
Unless the Compensation Committee decides otherwise, all awards (or portions thereof) that remain unexercisable or unvested upon a participant’s termination of employment for any reason, other than as a result of death, disability or Changechange of Control,control, shall be forfeited by the participant immediately upon the date of such termination. If such termination is the result of the death or disability of the participant or if there is a Changechange of Control,control, then any outstanding Awardsawards shall immediately become fully exercisable or vested, except that if an outstanding award of restricted stock or RSUs remains subject to any other type of vesting schedule or requirement (e.g., a performance-based schedule), then upon one of the above events, a proportion of the shares subject to such award shall become vested and nonforfeitable, equal to the proportion of the time completed through the date of the applicable event to the performance measurement period for the award, with target performance level deemed to be achieved as of the date of the applicable event, and in the event the restricted stock or RSU award was originally scheduled without a designated target performance level (e.g., a single performance level or minimum and maximum performance levels), then the performance level that, if met, would have resulted in the least number of shares becoming vested shall be treated as the target level.
2006 Employee Stock Incentive Plan
Under our 2006 Employee Stock Incentive Plan, the options we have granted will become immediately vested and exercisable upon the executive’s death or disability, or upon a change of control. Upon termination of employment for cause, all outstanding options immediately terminate. Options may be exercised for one year upon termination due to the executive’s death, disability or retirement, or for 90 days after termination for any other reason other(other than for cause.cause). Under the award agreements, with respect to the performance shares granted under our 2006 Employee Stock Incentive Plan, a portion of the performance shares become immediately vested and earned in the event of death, disability, or upon a change of control. The number of such vested performance shares equals 25% of the total performance shares granted multiplied by a fraction, the numerator of which equals the number of days elapsed from the date of grant to the date of the applicable acceleration event and the denominator of which equals the days in the performance period.
37
Under the 2006 Employee Stock Incentive Plan, change of control is defined as:
(1) | the acquisition of beneficial ownership of 50% or more of either our outstanding shares of common stock or the combined voting power of our securities, except for any acquisition directly from us, any acquisition by us or our affiliates, or any acquisition by any of our employee benefit plans; |
(2) | during any12-month period, a majority of the Board is no longer comprised of individuals who, as of the beginning of that period, constituted our Board and individuals whose nomination for election was approved by the Board; |
(3) | a reorganization, merger or consolidation, where substantially all of the owners, respectively, of our outstanding shares of common stock or the combined voting power of our securities immediately before the transaction beneficially own less than 50% of, respectively, the common stock and the combined voting power of the securities of the resulting corporation, in substantially the same proportions as their ownership immediately prior to the transaction; or |
(4) | the sale or other disposition of all or substantially all of our assets. |
An executive is considered retired under the 2006 Employee Stock Incentive Plan if he terminates employment after age 65. Disability is defined as eligibility to receive long-term disability benefits or, if we do not have a long-term disability plan, an executive’s inability to engage in the essential functions of his or her duties due to a medically-determinable physical or mental impairment, illness or injury, which can be expected to result in death or to be of long-continued and indefinite duration. Cause means the executive’s willful and continued failure to perform his duties within 15 days after receipt of written demand for such performance; unlawful or willful misconduct which is economically injurious to us or our affiliates; conviction of, or a plea of guilty or nolo contendere to, a felony charge (other than a traffic violation); habitual drug or alcohol abuse that impairs the executive’s ability to perform his duties; embezzlement or fraud; competition with our business; or the executive’s breach of his employment contract, if any. Currently, none of our executives have employment contracts. Stock options will expire on theone-year anniversary of the participant’s termination of employment with the Company due to death, disability or retirement, or such shorter period as determined by the Compensation Committee and set forth in an award agreement. Upon a termination of employment, other than as a result of death, disability or retirement, options shall expire on the date that is three (3) months following the date of the participant’s termination of employment or such shorter period as determined by the CompensationCommitteeCompensation Committee and set forth in an award agreement.
2738
Employment Agreement
Pursuant to Roger D. Shannon’s employment agreement, the Mr. Shannon is entitled to receive a hiring bonus of $220,000, payable in the first quarter of 2016, regardless of whether Mr. Shannon’s employment was terminated prior to December 31, 2015. Additionally, in the event Mr. Shannon terminates his employment with the Company during the first 12 months of his hire date other than for “Good Reason” he must reimburse the Company for the full amount of the hiring bonus. Pursuant to the agreement, “Good Reason” includes a significant decrease in Mr. Shannon’s base compensation, a decrease in Mr. Shannon’s title and/or responsibilities, a change in Mr. Shannon’s reporting position other than to the CEO, or a requirement that Mr. Shannon move to a work location more than 25 miles from the Company’s current headquarters.
The following table sets forth the potential benefits payable to our named executive officers pursuant to the arrangements described above, assuming termination of employment or a change of control had occurred on December 31, 2015.2017.
| Thomas R. Stanton | Roger D. Shannon | James E. Matthews (10) | James D. Wilson, Jr. | Raymond R. Schansman | Michael Foliano | Thomas R. Stanton | Roger D. Shannon | James D. Wilson, Jr. | Michael Foliano | Eduard Scheiterer | |||||||||||||||||||||||||||||||||
Stock Options (1) | $ | 182,761 | $ | 56,700 | — | $ | 48,583 | $ | 39,052 | $ | 43,801 | $ | 198,303 | $ | 60,300 | $ | 52,713 | $ | 47,522 | $ | 41,150 | |||||||||||||||||||||||
Performance Shares (2) | $ | 108,552 | $ | 21,426 | — | $ | 24,840 | $ | 24,840 | $ | 24,840 | $ | 232,491 | $ | 60,165 | $ | 50,919 | $ | 40,238 | $ | 36,593 | |||||||||||||||||||||||
Variable Incentive Compensation Plan (3) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Deferred Compensation Plan (4) | $ | 8,224,385 | — | $ | 2,806,204 | $ | 111,963 | $ | 667,861 | $ | 597,189 | |||||||||||||||||||||||||||||||||
Hiring Bonus (5) | — | $ | 220,000 | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Restricted Stock Units (3) | $ | 950,066 | $ | 235,702 | $ | 207,490 | $ | 160,121 | $ | 143,906 | ||||||||||||||||||||||||||||||||||
Variable Incentive Compensation Plan (4) | $ | 450,275 | $ | 140,386 | $ | 124,692 | $ | 73,813 | $ | 82,428 | ||||||||||||||||||||||||||||||||||
Deferred Compensation Plan (5) | $ | 13,568,884 | — | $ | 271,870 | $ | 1,115,867 | — | ||||||||||||||||||||||||||||||||||||
Total value upon a change of control (6) | $ | 291,313 | $ | 78,126 | — | $ | 73,423 | $ | 63,892 | $ | 68,641 | $ | 1,831,135 | $ | 496,553 | $ | 435,814 | $ | 321,694 | $ | 304,077 | |||||||||||||||||||||||
Total value upon termination of employment due to death or disability (7) | $ | 8,515,698 | $ | 298,126 | — | $ | 185,386 | $ | 731,753 | $ | 665,830 | $ | 14,949,744 | $ | 356,167 | $ | 582,992 | $ | 1,363,748 | $ | 221,649 | |||||||||||||||||||||||
Total value upon termination of employment for any other reason (8) | $ | 8,224,385 | $ | 298,126 | $ | 2,806,204 | $ | 111,963 | $ | 667,861 | $ | 597,189 | $ | 13,568,884 | — | $ | 271,870 | $ | 1,115,867 | — | ||||||||||||||||||||||||
Potential payments upon Termination or Change of Control as a Multiple of Salary and VICC (9) | 0.49 | 1.16 | — | 0.24 | 0.21 | 0.23 | 1.68 | 0.97 | 0.96 | 0.81 | 0.81 |
(1) | Amounts represent the potential value of unvested stock options held by the named executive officers under the 2015 Stock Incentive Plan and the 2006 Stock Incentive Plan that would have vested upon a change of control or upon termination of employment by reason of death or disability on December 31, |
(2) | Amounts represent the potential value of unvested performance shares that would have vested upon a change of control or upon termination of employment by reason of death or disability on December 31, |
(3) | Amounts represent the potential value of unvested restricted stock units that would have vested upon a change of control or upon termination of employment by reason of death or disability on December 31, 2017, based on a price of $19.35 per share, the closing price of our common stock on December 31, 2017. |
(4) | Represents the amount of the annual VICC that would have been payable to each participant upon a change of control on December 31, |
Represents the amount payable under the Deferred Compensation Plan upon a termination of employment (provided the termination is a “separation from service” as defined in Section 409A of the Internal Revenue Code), including a termination by reason of death or disability, to each participant on December 31, |
(6) | Reflects the sum of (1) the value of accelerated vesting of stock options; (2) the value of shares of common stock received upon partial vesting of unvested performance shares; (3) the value of shares of common stock received upon vesting of restricted stock units and |
(7) | Reflects the sum of (1) the value of accelerated vesting of stock options; (2) the value of shares of common stock received upon partial vesting of unvested performance shares; (3) the value of shares of common stock received upon vesting of restricted stock units; and (4) amounts payable under the Deferred Compensation Plan, in each case as of December 31, |
(8) | Represents amounts payable to each participant under the Deferred Compensation Plan upon termination of employment for any reason (provided the termination is a “separation from service” as defined in Section 409A of the Internal Revenue Code) on December 31, |
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(9) | Amounts represent the sum of the potential value of unvested stock options as described in Footnote 1 above, the potential value of unvested performance shares as described in Footnote 2 above, the potential value of unvested restricted stock units as described in Footnote 3 above, and the amount of the annual VICC that would have been payable as described in Footnote |
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CEO PAY RATIO
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of RegulationS-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of Mr. Stanton, our CEO:
For 2017, our last completed fiscal year:
Salary | Annual Stock Award | One-Time Stock Award (Three- Year Award) | Non-Equity Incentive Plan Compensation | All Other Compensation (1) | Total | |||||||||||||||
$637,364 | $ | 1,223,362 | $ | 2,100,000 | $ | 450,275 | $ | 39,686 | $ | 4,450,686 |
(1) |
Based on this information, for 2017, the ratio of the annual total compensation of our CEO to the median of the annual total compensation of all employees was 54 to 1.
To identify the median of the annual total compensation of all our employees, as well as to determine the annual total compensation of the median employee, below is a description of the methodology and the material assumptions, adjustments, and estimates that we used. We believe that this information is useful to put into context the ratio comparing the annual total compensation of the median employee in our company with the annual total compensation of our CEO.
We determined that, as of December 31, 2017, our employee population consisted of approximately 2,060 individuals working at the Company and our consolidated subsidiaries. Given our global business, our workforce is distributed among a number of countries and regions. Of those, approximately 71% of these employees are located in the United States.
We measured compensation using the12-month period ending December 31, 2017. Our compensation programs vary from region to region and among our various consolidated subsidiaries in each region, from country to country. Our employees are compensated on either a salaried basis or an hourly basis. In addition, some employees receive stock incentive awards, commissions and/or bonuses. We included salary or hourly wages, as applicable, as well any stock incentive awards granted, bonuses and commissions earned for 2017 in our measurement to determine the median of the annual total compensation of all our employees.
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Our workforce includes a number of part-time employees and temporary employees. In making our determination of the median employee, we did not annualize the compensation of part-time employees, temporary employees, or employees who were hired in 2017 but did not work for us or our consolidated subsidiaries for the entire fiscal year. We also did not make anycost-of-living adjustments in identifying the median employee. For purposes of this disclosure, we applied foreign currency to U.S. dollar exchange rates using the rate of exchange of each applicable currency as of December 31, 2017.
Using this methodology, we determined that the median employee was a full-time, salaried employee located in the United States. With respect to the annual total compensation of the median employee, we identified and calculated the elements of such employee’s compensation for 2017 in accordance with the requirements of Item 402(c)(2)(x) of RegulationS-K and added an estimated amount for estimate for health and welfare benefits, resulting in annual total compensation of $82,417. With respect to the annual total compensation of our CEO, we used the amount reported in the “Total” column (column (j)) of our 2017 Summary Compensation Table included in this Proxy Statement and added an estimate for health and welfare benefits.
DIRECTOR COMPENSATION
The table below sets forth information regarding compensation paid to ournon-employee directors (including our director emeritus) for 2015.2017.
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) (1) | Option Awards ($) (2) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation ($) | Total ($) | Fees Earned or Paid in Cash ($) | Stock Awards ($) (1) | Option Awards ($) (2) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation ($) | Total ($) | ||||||||||||||||||||||||||||||||||||||||||
H. Fenwick Huss | $ | 92,500 | $ | 80,000 | — | — | — | — | $ | 172,500 | $ | 105,000 | $ | 89,997 | — | — | — | — | $ | 194,997 | ||||||||||||||||||||||||||||||||||||
William L. Marks | $ | 88,750 | $ | 80,000 | — | — | — | — | $ | 168,750 | $ | 100,000 | $ | 89,997 | — | — | — | — | $ | 189,997 | ||||||||||||||||||||||||||||||||||||
Gregory McCray | $ | 45,000 | $ | 134,992 | — | — | — | — | $ | 179,992 | ||||||||||||||||||||||||||||||||||||||||||||||
Anthony Melone | $ | 90,000 | $ | 89,997 | — | — | — | — | $ | 179,997 | ||||||||||||||||||||||||||||||||||||||||||||||
Balan Nair | $ | 86,250 | $ | 80,000 | — | — | — | — | $ | 166,250 | $ | 97,500 | $ | 89,997 | — | — | — | — | $ | 187,497 | ||||||||||||||||||||||||||||||||||||
Roy J. Nichols | $ | 87,500 | $ | 80,000 | — | — | — | — | $ | 167,500 | $ | 90,000 | $ | 89,997 | — | — | — | — | $ | 179,997 | ||||||||||||||||||||||||||||||||||||
Jacqueline H. Rice | $ | 90,000 | $ | 89,997 | — | — | — | — | $ | 179,997 | ||||||||||||||||||||||||||||||||||||||||||||||
Kathryn A. Walker | $ | 82,500 | $ | 80,000 | — | — | — | — | $ | 162,500 | $ | 95,000 | $ | 89,997 | — | — | — | — | $ | 184,997 |
(1) | Represents the aggregate grant date fair value of stock awards made during |
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(2) | The aggregate number of option awards outstanding for each of thenon-employee directors at December 31, |
Name | Options | |||
H. Fenwick Huss | ||||
William L. Marks | ||||
Gregory McCray | — | |||
Anthony Melone | — | |||
Balan Nair | ||||
Roy J. Nichols | ||||
Jacqueline H. Rice | — | |||
Kathryn A. Walker | — |
Non-employee directors of ADTRAN were paid an annual fee of $80,000,$90,000, plus an annual retainer of $5,000 paid to the Nominating and Corporate Governance Committee chairperson, plus an annual retainer of $10,000 paid to the Audit Committee chairperson, plus an annual retainer of $7,500 paid to the Compensation Committee chairperson. The Board previously approved the payment of an annual fee of $15,000 to the director serving as lead director. This annual fee is in addition to all other fees received for services as a director or as a member or chairman of a committee of the Board. Directors who are employees of ADTRAN receive no directors’ fees. All directors are reimbursed for their reasonable expenses in connection with the performance of their duties.
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Ournon-employee directors are entitled to participate in our 2010 Directors Stock Option Plan, which our stockholders approved at the 2010 annual meeting of stockholders on May 5, 2010. As of December 31, 2015,2017, there were a total of 500,000 shares reserved for issuance under the 2010 Directors Stock Option Plan, ofPlan. Of this number, 100,00055,000 shares were subject to outstanding options (including options held by a former director, but not including options that have been exercised), 104,661178,961 were the subject of restricted stock awards and 284,044266,039 shares were available for future awards after accounting for shares issued upon exercise of options and shares issued as accrued dividends on restricted stock awards. The 2010 Directors Stock Option Plan provides for automatic equity grants to directors who are not otherwise employees of ADTRAN. Under the 2010 Directors Stock Option Plan, newly-elected directors may receive an initial grant and an annual grant in the same calendar year. As of December 31, 2015,2017, there were fiveseven directors and one director emeritus eligible to participate in the 2010 Directors Stock Option Plan. The 2010 Directors Stock Option Plan is administered by the Compensation Committee. Subject to the terms of the 2010 Directors Stock Option Plan, the Compensation Committee has the authority to determine the terms and provisions of the option agreements, to interpret the provisions of the plan, to prescribe, amend and rescind any rules and regulations relating to the plan, and to make all determinations necessary or advisable for the administration of the plan.
Equity grants (nonqualified stock options, restricted stock or restricted stock units) under the 2010 Directors Stock Option Plan have a fixed dollar value determined by reference to a percentage of the Directors’directors’ total remuneration. The annual equity grant has a value equal to 50% of the Directors’directors’ total remuneration for the calendar year (which includes the award under the 2010 Directors Stock Option Plan and excludes any compensation for serving as a committee chair or lead director or any additional meeting fees), or a lesser amount as determined in the discretion of our Board. In no event shall any annual equity award have a fair market value greater than $120,000. In addition, upon initially joining the Board, a new Directordirector will receive an initial award equal to 50% of the value of the annual grant (detailed above) that was granted in the calendar year prior to the calendar year in which the new Directordirector joins the Board or a lesser amount as determined in the discretion of our Board. The initial grant will be in addition to any annual grant. Grants under the 2010 Directors Stock Option Plan are in the form of restricted stock unless our Board (upon recommendation from the Compensation Committee) determines to grant awards in the form of restricted stock units or nonqualified stock options.
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Awards granted under the 2010 Directors Stock Option Plan (whether in the form of restricted stock, nonqualified stock options or restricted stock units) vest in full on the first anniversary of the grant date, unless the vesting schedule is varied by the Compensation Committee in the Director’sdirector’s award agreement. Awards vest earlier if there is a change of control of ADTRAN or if the Directordirector terminates service due to death or disability. The term of any nonqualified stock option is ten years from the date of grant. The Compensation Committee is given the discretion under the 2010 Directors Stock Option Plan to extend this exercise period for outstanding options to the extent permitted by Section 409A of the Internal Revenue Code. The purchase price of the common stock underlying each nonqualified stock option granted under the 2010 Directors Stock Option Plan is 100% of the fair market value of the common stock on the date the option is granted. There is no purchase price for an award of restricted stock or restricted stock units.
If a Director’sdirector’s service with ADTRAN is terminated for cause, all nonqualified stock options will terminate immediately. Upon termination of a Director’sdirector’s service due to disability, the nonqualified stock options may be exercised for one year. Upon termination of a Director’sdirector’s service other than due to death, disability or cause, the nonqualified stock options may be exercised for three months. In addition, if a Directordirector dies whileduring service, or during a period following termination of service when his nonqualified stock options remain exercisable, hishave not yet terminated as provided above, the director’s beneficiary (as determined under the 2010 Directors Stock Option Plan) maycan exercise the options for up to one year after the date of death.the director’s death (or the expiration of the option, if earlier). However, in no case will any option remain exercisable beyond its term. Under the 2010 Directors Stock Option Plan, “cause” is defined as an act or acts by an individual involving personal dishonesty, incompetence, willful misconduct, moral turpitude, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses), the use for profit or disclosure to unauthorized persons of our confidential information or trade secrets, the breach of any contract with us, the unlawful trading in our securities or the securities of another corporation based on information gained as a result of the performance of services for us, a felony conviction or the failure to contest prosecution for a felony, embezzlement, fraud, deceit or civil rights violations, any of which acts cause us liability or loss, as determined by the Compensation Committee in its sole discretion. Under the plan, “disability” means the total and permanent disability of an individual as determined by the Compensation Committee in its sole discretion. In addition, if a director dies during service, or during a period following termination of service when his options have not yet terminated as provided above, the director’s beneficiary can exercise the options for up to one year after the date of the director’s death (or the expiration of the option, if earlier). If an individual ceases to be a Director,director, his rights with regard to allnon-vested restricted stock and restricted stock units granted under the 2010 Directors Stock Option Plan cease immediately.
On December 31, 2015,2017, in accordance with the terms of the 2010 Directors Stock Option Plan, 4,6464,651 shares of restricted stock were granted to each of Messrs. Marks, McCray, Melone, Nair and Nichols, Dr. Huss, Ms. Rice and Ms. Walker.
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EQUITY COMPENSATION PLAN INFORMATION
The following table gives information about our common stock that may be issued under all of our existing equity compensation plans as of December 31, 2015,2017, which include the following:
Each of these plans has been approved by our stockholders.
Plan Category | (a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | (b) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | (a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights | (b) Weighted Average Exercise Price of Outstanding Options, Warrants, and Rights | (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | ||||||||||||||||||
Equity Compensation Plans Approved by Stockholders | 7,255,345 | $ | 21.95 | 6,680,639 | 6,672,532 | $ | 22.38 | 3,470,430 | ||||||||||||||||
Equity Compensation Plans Not Approved by Stockholders | — | — | — | — | — | — | ||||||||||||||||||
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|
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TOTAL | 7,255,345 | (1) | $ | 21.95 | 6,700,639 | (1)(2) | 6,672,532 | (1) | $ | 22.38 | 3,470,430 | (1)(2) |
(1) | Amounts include the number of securities to be issued or to remain available upon achievement of maximum performance in connection with the outstanding performance shares. |
(2) | Awards of restricted stock or restricted stock units granted under the ADTRAN, Inc. 2015 Employee Stock Incentive Plan will reduce the number of authorized shares available by 2.5 shares of our common stock for each share underlying the award. |
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Policies and Procedures For Review and Approval of Related Person Transactions
We believe that business decisions and actions taken by our officers, directors, and employees should be based on the best interests of ADTRAN, and must not be motivated by personal considerations or relationships. We attempt to analyze all transactions in which ADTRAN participates and in which a related person may have a direct or indirect material interest, both due to the potential for a conflict of interest and to determine whether disclosure of the transaction is required under applicable SEC rules and regulations.
Related persons include any of our directors or executive officers, certain of our stockholders and their immediate family members. A conflict of interest occurs when an individual’s private interest interferes or appears to interfere in any way with the interests of ADTRAN. Our Code of Business Conduct and Ethics requires all directors, officers, and employees who may have a potential or apparent conflict of interest to fully disclose all the relevant facts to either a personnel supervisor, if applicable, or the Director of Internal Audit. Once a personnel supervisor receives notice of a conflict of interest, he or she will report the relevant facts to the Director of Internal Audit. The Director of Internal Audit will then generally consult with the Audit Committee, and a determination will be made as to whether the activity is permissible. A copy of our Code of Business Conduct and Ethics is available on our website atwww.adtran.comunder the links “Investor“About—Investor Relations – Corporate Governance – Governance Documents—Code of Conduct.Business Conduct & Ethics.”
In addition to the reporting requirements under the Code of Conduct, each year our directors and officers complete Directors’ and Officers’ Questionnaires identifying any transactions with us in which the officer or director or their family members have an interest. A list is then maintained by us of all companies known to ADTRAN that are affiliated with a related person. Any potential transactions with such companies or other related party transactions are reviewed by the Chief Financial Officer and brought to the attention of the Audit Committee as appropriate. Our Audit Committee is responsible for reviewing and approving all material transactions with any related person.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, and regulations of the SEC thereunder, require our directors, officers and persons who own more than 10% of our common stock, as well as certain affiliates of those persons, to file with the SEC initial reports of their ownership of our common stock and subsequent reports of changes in that ownership. Directors, officers and persons owning more than 10% of our common stock are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based solely on our review of the copies of these reports received by us and on information provided by the reporting persons, we believe that, during the fiscal year ended December 31, 2015,2017, our directors, officers and owners of more than 10% of our common stock complied with all applicable filing requirements, except as described below.
On January 21, 2016,February 28, 2017, each of Michael Foliano, Raymond R. Schansman, Thomas R. StantonRoy Nichols, H. Fenwick Huss, William L. Marks, Anthony J. Melone, Balan Nair, Jacqueline H. Rice and James D. WilsonKathryn A. Walker filed Forms 4 disclosing the acquisition of phantomdividend equivalent rights effective on February 16, 2017, and Anthony Melone also reported the disposition of dividend equivalent rights and related acquisitions of common stock effective February 8, 2017 and February 16, 2017, upon settlement of dividend equivalent rights in connection with lapse of restriction on November 14, 2015. The phantomrestricted stock, acquisitions should have been reported on Form 4 within two daysall of the acquisition date. On November 17, 2015, James D. Wilson reported the acquisition of phantom stock on November 12, 2015, which should have been reported on Form 4 within two days of the acquisition date.
On December 14, 2015, Roger D. ShannonMarch 3, 2017, each of Thomas Stanton, Michael Foliano, James Wilson and Raymond Schansman, ADTRAN’s former Senior Vice President – Global Services & Support, reported the acquisition of stock options,dividend equivalent rights effective on February 16, 2017, which were grantedacquisitions should have been reported on Form 4 within two days of the acquisition date.
On March 23, 2017, Charles Marsh filed a Form 3 indicating that he became a reporting person subject to himSection 16, which Form 3 should have been filed within 10 days after his appointment as Senior Vice President—Sales on February 16, 2017.
On October 25, 2017, Raymond Schansman, filed a Form 4 disclosing numerous option exercises and a sale of the acquired shares effective on October 20, 2017. The option exercises and sale of shares should have been reported on Form 4 within two days of the transaction date.
On November 22, 2017, each of Roy J. Nichols, H. Fenwick Huss, William L. Marks, Gregory J. McCray, Anthony J. Melone, Balan Nair, Jacqueline H. Rice and Kathryn A. Walker filed Forms 4 disclosing the acquisition of dividend equivalent rights effective on November 14, 2015.15, 2017. The dividend equivalent rights acquisitions should have been reported on Form 4 within two days of the acquisition date.
On November 22, 2017, each of Kevin Heering, Charles Marsh, Eduard Scheiterer, Roger D. Shannon, Thomas R. Stanton, Michael Foliano and James D. Wilson reported the acquisition of shares of common stock optionon November 11, 2017 pursuant to a grant of restricted stock units, which grants should have been reported on Form 4 within two days of the grantacquisition date. OnAlso on November 20, 2015,22, 2017, (i) Kevin Heering reported the acquisition of shares upon vesting of performance share awards effective on November 17, 2017, and (ii) each of Michael Foliano, Kevin Heering, Raymond R. Schansman, Eduard Scheiterer, Kevin Schneider, Thomas R. Stanton, Michael Foliano and James D. Wilson reported the acquisition, of stock options, which were granted to themeffective on November 14, 2015. The17, 2017, of phantom stock option grantsupon vesting of performance share awards, which awards were subject to deferral elections, and which acquisitions should have been reported on Form 4 within two days of the grant date.
Kathryn A. Walker filed a Form 4 on November 18, 2015, disclosing (i)acquisition date, and (iii) each of Thomas R. Stanton, Michael Foliano and James D. Wilson reported the acquisition of dividend equivalent rightsphantom stock, effective November 15, 2017, upon the accrual of dividends on August 14, 2014, November 13, 2014, May 21, 2015, August 13, 2015 and November 12, 2015,shares of phantom stock held in the Company’s Deferred Compensation Plan, which accrued on grantsshares of restrictedphantom stock previously granted to Ms. Walker in accordance with the terms of the 2010 Directors Stock Option Plan and (ii) the settlement of certain of the dividend equivalent rights for stock and cash in accordance with the terms of the 2010 Directors Stock Option Plan on May 14, 2015. The acquisition of the dividend equivalent rights and the settlement of the dividend equivalent rights should have been reported on FormsForm 4 at the time of eachwithin two days of the accruals and settlement, as applicable. On January 5, 2015, Ms. Walker filed a Form 4 reporting the acquisition of dividend equivalent rights on each of August 14, 2014 and November 13, 2014, that had accrued on previous grants of restricted stock. The acquisition of the dividend equivalent rights should have been reported on Forms 4 at the time of each of the accruals and settlement, as applicable.date.
Audit Committee Report
The Audit Committee assists the Board of Directors in fulfilling its oversight responsibilities relating to the accuracy and integrity of ADTRAN’s financial reporting. Our Board of Directors has adopted an Audit Committee Charter, which sets forth the responsibilities of the Audit Committee. A copy of the Audit Committee Charter is available on our website atwww.adtran.com.
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The Audit Committee held eight meetings during the fiscal year ended December 31, 2015.2017. Representatives of PricewaterhouseCoopers LLP, our independent registered public accounting firm, attended each meeting. The Audit Committee reviewed and discussed with management and PricewaterhouseCoopers LLP our audited financial statements for the fiscal year ended December 31, 20152017, and our unaudited quarterly financial statements for the quarters ended March 31, June 30 and September 30, 2015.2017. The Audit Committee also discussed with PricewaterhouseCoopers LLP the matters required under Statement on Auditing Standards No. 61 and No. 90 (Codification of Statements on Auditing Standards, AU § 380), as amended or superseded.
In addition to the review of annual and interim financial statements, the Audit Committee continued its focus on functions and risks which could adversely impact ADTRAN’s financial position. Audit Committee meetings included overviews of the status of testing of key internal controls over financial reporting. The Audit Committee has actively reviewed management’s assessment of the effectiveness of ADTRAN’s internal control over financial reporting (including management’s evaluation of identified control deficiencies and management’s program for remediation of those deficiencies) and PricewaterhouseCoopers LLP’s report thereon, both of which are included in the Annual Report on Form10-K for the year ended December 31, 2015.2017.
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The Audit Committee also received the written disclosures and the letter from PricewaterhouseCoopers LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding the communication of PricewaterhouseCoopers LLP with the Audit Committee concerning independence and has discussed with PricewaterhouseCoopers LLP its independence. The Audit Committee reviewed the audit andnon-audit services provided by PricewaterhouseCoopers LLP for the fiscal year ended December 31, 20152017, and determined to engage PricewaterhouseCoopers LLP as the independent registered public accounting firm of ADTRAN for the fiscal year ending December 31, 2016.2018.
Based upon the Audit Committee’s review of the audited financial statements and the discussions noted above, the Audit Committee recommended that the Board of Directors include the audited financial statements in our Annual Report on Form10-K for the year ended December 31, 20152017, for filing with the SEC.
AUDIT COMMITTEE
William L. Marks, Chairman
H. Fenwick Huss
Anthony J. Melone
Balan Nair
Roy J. Nichols
Kathryn A. Walker
AUDIT COMMITTEE |
William L. Marks, Chairman |
H. Fenwick Huss |
Gregory J. McCray |
Anthony J. Melone |
Jacqueline H. Rice |
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PROPOSAL 2 -– ADVISORY VOTE TO APPROVEREGARDING EXECUTIVE COMPENSATION
Advisory Vote on Executive Compensation.
We believe that our compensation policies and procedures, which include the pay for performance components that have been described previously in this Proxy Statement, are strongly aligned with the long-term interests of our shareholders. This advisory Shareholder resolution is commonly known as “Say-on-Pay.“Say-on-Pay.” The Board has determined to present this resolution for consideration annually. This resolution is included to provide shareholders the opportunity to endorse or not endorse our executive pay program and policies, and the compensation of our named executive officers, as disclosed pursuant to Item 402 of Regulation S—K, through the following advisory proposal:
“RESOLVED, that the shareholders approve the overall executive compensation policies and procedures employed by the Company as well as the compensation of the named executive officers, all as described in the Compensation Discussion and Analysis and the tabular disclosure regarding named executive officer compensation in this Proxy Statement.”
Because your vote is advisory, it will not be binding upon the Board or the Compensation Committee.
The Board of Directors unanimously recommends a vote “For” approval of the “Say-on-Pay”“Say-on-Pay” proposal.
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PROPOSAL 3 —– RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Audit Committee of our Board of Directors, in accordance with its charter and authority delegated to it by the Board, has appointed the firm of PricewaterhouseCoopers LLP to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2016,2018, and the Board of Directors has directed that such appointment be submitted to our stockholders for ratification at the Annual Meeting. PricewaterhouseCoopers LLP has served as our independent registered public accounting firm since 1986 and is considered by our Audit Committee to be well qualified. If the stockholders do not ratify the appointment of PricewaterhouseCoopers LLP, the Audit Committee will reconsider the appointment.
Representatives of PricewaterhouseCoopers LLP will be present at the Annual Meeting and will have an opportunity to make a statement if they desire to do so. They also will be available to respond to appropriate questions from stockholders.
The Audit Committee of the Board of Directors and the Board unanimously recommend that the stockholders vote “FOR” the proposal to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm.
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PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit andNon-Audit Fees
Aggregate fees and expenses for professional services rendered for us by PricewaterhouseCoopers LLP as of or for the fiscal years ended December 31, 20152017, and 20142016 are set forth below. The aggregate fees and expenses included in the Audit category are fees and expenses billed for the fiscal years for the integrated audit of our annual financial statements and review of our interim financial statements and statutory and regulatory filings. The aggregate fees and expenses included in each of the other categories are fees and expenses billed in the fiscal years.
Fiscal Year 2015 | Fiscal Year 2014 | Fiscal Year 2017 | Fiscal Year 2016 | |||||||||||||
Audit Fees | $ | 1,196,979 | $ | 1,217,905 | $ | 1,271,453 | $ | 1,215,220 | ||||||||
Audit-Related Fees | $ | 55,588 | $ | 49,362 | 52,587 | 56,000 | ||||||||||
Tax Fees | — | — | 451,250 | 261,000 | ||||||||||||
All Other Fees | — | — | — | — | ||||||||||||
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|
| |||||||||||||
Total | $ | 1,252,567 | $ | 1,267,267 | $ | 1,775,290 | $ | 1,532,220 |
Audit Feesfor the fiscal years ended December 31, 20152017, and 20142016 were for professional services rendered for the integrated audits of our annual consolidated financial statements and of our internal control over financial reporting and quarterly review of the financial statements included in our Quarterly Reports on Form10-Q.
Audit-Related Feesas of the fiscal years ended December 31, 20152017, and 20142016 were for services associated with the audit of our 401(k) plan and various consultations related to accounting matters.
Tax Fees.FeesThere were no fees in this category foras of the fiscal yearsyear ended December 31, 20152017, and 2014.2016 were for services related to research and development tax studies.
All Other Fees. There were no fees in this category for the fiscal years ended December 31, 20152017, and 2014.2016.
We did not rely on the de minimus exception provided by Rule2-01(c)(7)(i)(C) under RegulationS-X for the authorization of any of the services described above.
Policy on Audit CommitteePre-Approval of Audit and PermissibleNon-Audit Services of the Independent Registered Public Accounting Firm
The Audit Committee has adopted apre-approval policy that provides guidelines for the audit, audit-related, tax and othernon-audit services that may be provided to us by PricewaterhouseCoopers LLP. The policy: (1) identifies the guiding principles that must be considered by the Audit Committee in approving services to ensure that PricewaterhouseCoopers LLP’s independence is not impaired; (2) describes the audit, audit-related, tax and other services that may be provided and thenon-audit services that may not be performed; and (3) sets forthpre-approval requirements for all permitted services.
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Under the policy, a schedule is presented annually to the Audit Committee outlining the types of audit-related, tax and other services (other than audit services) that are likely to be performed during the year. The Audit Committee, based upon the guidelines in the policy, selects the services from that schedule that will be generallypre-approved services and attaches the list as an appendix to the policy. The Audit Committee then sets an annual aggregate fee limitation for all of these generallypre-approved services. For fiscal year 2015,2017, that limit was set at $60,000.at$60,000. Any fees for the generallypre-approved services that exceed this aggregate fee limit must be specificallypre-approved. In addition, any services not on the list of generalpre-approved services must be specificallypre-approved.
Each member of the Audit Committee has been delegated the authority to provide any necessary specificpre-approval, in the event that the full Audit Committee is not available. Any member of the Audit Committee who provides specificpre-approval must report such approval to the Audit Committee at its next meeting. To ensure compliance with the policy, a detailed report outlining all fees incurredyear-to-date for services provided by PricewaterhouseCoopers LLP is presented to the Audit Committee on a quarterly basis.
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STOCKHOLDERS’ PROPOSALS FOR 20172019 ANNUAL MEETING
Proposals of stockholders, including nominations for the Board of Directors, intended to be presented at the 20172019 Annual Meeting of Stockholders should be submitted by certified mail, return receipt requested, and must be received by us at our executive offices in Huntsville, Alabama, on or before December 5, 20163, 2018 to be eligible for inclusion in our proxy statement and form of proxy relating to that meeting and to be introduced for action at the meeting. Any stockholder proposal must be in writing, must comply with Rule14a-8 under the Exchange Act and must set forth (1) a description of the business desired to be brought before the meeting and the reasons for conducting the business at the meeting, (2) the name and address, as they appear on our books, of the stockholder submitting the proposal, (3) the class and number of shares that are beneficially owned by such stockholder, (4) the dates on which the stockholder acquired the shares, (5) documentary support for any claim of beneficial ownership as required by Rule14a-8, (6) any material interest of the stockholder in the proposal, (7) a statement in support of the proposal and (8) any other information required by the rules and regulations of the SEC. Stockholder nominations must comply with the procedures set forth above under “Nomination of Directors.”
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OTHER MATTERS THAT MAY COME BEFORE THE ANNUAL MEETING
Our Board of Directors knows of no matters other than those referred to in the accompanying Notice of Annual Meeting of Stockholders that may properly come before the Annual Meeting. However, if any other matter should be properly presented for consideration and voting at the Annual Meeting or any adjournments of the Annual Meeting, the persons named as proxies on the enclosed form of proxy card intend to vote the shares represented by all valid proxies in accordance with their judgment of what is in the best interest of ADTRAN.
By Order of the Board of Directors. |
Thomas R. Stanton |
Chairman of the Board |
Huntsville, Alabama
April 4, 20162018
Our 20152017 Annual Report, which includes audited financial statements, has been mailed to our stockholders with these proxy materials. The Annual Report does not form any part of the material for the solicitation of proxies.
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ADTRAN INC. 901 EXPLORER BOULEVARD HUNTSVILLE, AL 35806 | VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time on May
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically viae-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE -1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time May
VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. |
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | ||
KEEP THIS PORTION FOR YOUR RECORDS — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.DETACH AND RETURN THIS PORTION ONLY |
For All | Withhold All | For All Except | To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below.
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The Board of Directors recommends you vote FOR the following: | ||||||||||||||||||||||||||||||||||||
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Election of Directors |
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Nominees | ||||||||||||||||||||||||||||||||||||
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Thomas R. Stanton 02 H. Fenwick Huss 03 William L. Marks 04 Gregory J. McCray 05 Anthony J. Melone | |||||||||||||||||||||||||||||||||||
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The Board of Directors recommends you vote FOR | For
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2. |
Say-on-Pay |
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3. |
Ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm of ADTRAN for the fiscal year ending December 31, |
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NOTE:Such other business as may properly come before the meeting or any adjournment thereof. | ||||||||||||||||||||||||||||||||||||
For address change/comments, mark here. |
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(see reverse for instructions) | Yes | No | ||||||||||||||||||||||||||||||||||
Please indicate if you plan to attend this meeting |
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Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer. | ||||||||||||||||||||||||||||||||||||
Signature [PLEASE SIGN WITHIN BOX] | Date | Signature (Joint Owners) | Date |
ANNUAL MEETING OF STOCKHOLDERS OF
ADTRAN, INC.
May 11, 20169, 2018
Please contact Investor Relations at256-963-8220 for information on how to attend the meeting and
vote in person.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:The Notice & Proxy Statement for the 20162018 Annual Meeting of Stockholders, and the 20152017 Annual Report are avalibleavailable atwww.proxyvote.com
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ADTRAN, INC. THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE
The undersigned hereby appoints Thomas R. Stanton and Roger D. Shannon, and each of them, proxies, with full power of substitution, to act for and in the name of the undersigned to vote all shares of common stock of ADTRAN, Inc. (“ADTRAN”) which the undersigned is entitled to vote at the
This proxy card will be voted as directed.If no instructions are specified, this proxy card will be voted “FOR ALL” in Proposal 1 and “FOR” each of Proposal 2 and Proposal 3. If any other business is presented at the Annual Meeting, this proxy card will be voted by the proxies in their best judgment.At the present time, the Board of Directors knows of no other business to be presented at the Annual Meeting.
The undersigned may elect to withdraw this proxy card at any time prior to its use by giving written notice to Roger D. Shannon, Secretary of ADTRAN, by executing and delivering to Mr. Shannon a duly executed proxy card bearing a later date, by subsequently voting by telephone or Internet, or by appearing at the Annual Meeting and voting in person.
Address | ||||||
(If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.)
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Continued and to be signed on reverse side
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