UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENTSCHEDULE 14a INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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UTSTARCOM, INC. | ||||
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant) | ||||
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April 30, 2009
Dear Stockholder:
You are cordially invited to attend the 20082009 annual meeting of stockholders of UTStarcom, Inc. (the "Company"), to be held at the offices of the Company, 1275 Harbor Bay Parkway, Alameda, California 94502, on Friday,Thursday, June 27, 200825, 2009 at 1 p.m., local time. Enclosed are a notice of annual meeting of stockholders, a proxy statement describing the business to be transacted at the meeting and a proxy card for use in voting at the meeting.
At the annual meeting, you will be asked to vote on the important matters described in detail in the notice of annual meeting of stockholders and proxy statement accompanying this letter. You will also have an opportunity to ask questions and receive information about the Company's business.
Included with the proxy statement is a copy of the Company's Annual Report to stockholders.Stockholders. We encourage you to read the Annual Report. It includes information on the Company's operations as well as the Company's audited financial statements.
Please take this opportunity to participate in the affairs of the Company by voting on the business to come before this meeting.WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, YOU ARE URGED TO SUBMIT YOUR PROXY AND VOTING INSTRUCTIONS OVER THE INTERNET OR BY TELEPHONE, OR COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
We look forward to seeing you at the meeting.
Sincerely, | ||
/s/ Chief Executive Officer and President |
UTSTARCOM, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held June 27, 200825, 2009
To our Stockholders:
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders (the "Annual Meeting") of UTStarcom, Inc. (the "Company"), will be held on Friday,Thursday, June 27, 200825, 2009 at 1 p.m., local time, at the offices of the Company, 1275 Harbor Bay Parkway, Alameda, California 94502, for the following purposes:
The foregoing items of business are more fully described in the proxy statement accompanying this notice. Only stockholders of record at the close of business on April 29, 20082009 are entitled to notice of, and to vote at, the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in person. However, to assure your representation at the Annual Meeting, you are urged to submit your proxy and voting instructions over the Internet or by telephone, or complete, sign, date and return the enclosed proxy card as promptly as possible in the postage-paid envelope enclosed for that purpose. Any stockholder of record attending the Annual Meeting may vote in person even if he or she returned a proxy.
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on June 27, 2008:25, 2009: The Proxy Statement and Annual Report to Stockholders for the fiscal year ended December 31, 20072008 are available free of charge at [ ]. www.edocumentview.com/utsi.
By Order of the Board of Directors | ||
/s/ |
Alameda, California[ ], 2008April 30, 2009
To assure your representation at the Annual Meeting, you are asked to submit your proxy and voting instructions over the Internet or by telephone, or complete, sign and date the enclosed proxy as promptly as possible and return it in the enclosed postage-paid envelope, which requires no postage if mailed in the United States.
UTSTARCOM, INC.
PROXY STATEMENT
INFORMATION ABOUT THE PROXY STATEMENT AND
VOTING AT THE ANNUAL MEETING
The Board of Directors (the "Board" or "Board of Directors") of UTStarcom, Inc. (the "Company" or "UTStarcom") is providing this proxy statement (the "Proxy Statement") prepared in connection with the Company's annual meeting of stockholders, which will take place on Friday,Thursday, June 27, 200825, 2009 at 1 p.m., local time (the "Annual Meeting" or "20082009 Annual Meeting") at the offices of the Company, 1275 Harbor Bay Parkway, Alameda, California 94502. The Company's telephone number at that location is (510) 864-8800. As a stockholder, you are invited to attend the Annual Meeting and are asked to vote on the proposals described in this Proxy Statement.
Only stockholders of record at the close of business on April 29, 20082009 (the "Record Date") are entitled to notice of, and to vote at, the Annual Meeting. As of the Record Date, [ ]127,916,953 shares of the Company's common stock, par value $0.00125 per share (the "Common Stock"), were issued and outstanding. No shares of the Company's preferred stock, par value $0.00125 per share, were issued and outstanding. The stock transfer books will not be closed between the Record Date and the date of the Annual Meeting.
These proxy solicitation materials and the Company's Annual Report to stockholders for the year ended December 31, 20072008 were mailed on or about [ ], 2008May 15, 2009 to all stockholders entitled to vote at the Annual Meeting.
Each proxy also gives each of the proxy holders discretionary authority to vote your shares in accordance with his or her judgment with respect to all additional matters that might come before the Annual Meeting.
Registered Stockholders. If your shares are registered directly in your name with UTStarcom's transfer agent, you are considered, with respect to those shares, the stockholder of record, and these proxy materials are being provided to you directly by UTStarcom. As the stockholder of
record, you have the right to grant your voting proxy directly to the individuals listed on the proxy card, or to vote in person at the Annual Meeting.
Street Name Stockholders. If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in "street name." These proxy materials are being forwarded to you by your broker, bank or other nominee, who is considered, with respect to those shares, the record holder. As the beneficial owner, you have the right to direct your broker, bank or other nominee how to vote, and you are also invited to attend the Annual Meeting. However, since you are not the record holder, you may not vote these shares in person at the Annual Meeting unless you follow your broker, bank or other nominee's procedures for obtaining a legal proxy. Your broker, bank or other nominee has provided a voting instruction card for you to use.
Corporate Secretary
UTStarcom, Inc.
1275 Harbor Bay Parkway
Alameda, California 94502
510-864-8800
The Company will promptly mail a separate copy of this Proxy Statement upon such request, but any such request should be made as soon as possible to ensure timely delivery.
Stockholders who share an address and received multiple copies of this Proxy Statement may also request that a single copy of future proxy statements be delivered by filling out the applicable section of the voter instruction card for the Annual Meeting.
Meeting, we recommend that you also submit your proxy or voting instructions as described below so that your vote will be counted if you later decide not to attend the meeting.
card or, for shares held beneficially in street name, the voting instruction card provided by your broker, bank or other nominee.
By Internet: Stockholders of record with Internet access may submit proxies by following the "Vote by Internet" instructions on their proxy cards until 1:00 a.m., Central Time, on June 27, 2008.25, 2009. Most stockholders who hold shares beneficially in street name may vote by accessing the web site specified on the voting instruction cards provided by their brokers, banks or other nominees. Please check the voting instruction card for Internet voting availability.
By Telephone: Stockholders of record who live in the United States, Canada or Puerto Rico may submit proxies by following the "Vote by telephone" instructions on their proxy cards until 1:00 a.m., Central Time, on June 27, 2008.25, 2009. Most stockholders who hold shares beneficially in street name may vote by phone by calling the number specified on the voting instruction cards provided by their brokers, banks or other nominees. Please check the voting instruction card for telephone voting availability.
By Mail: Stockholders of record may submit proxies by completing, signing and dating their proxy cards and mailing them in the accompanying pre-addressed envelopes. Proxy cards submitted by mail must be received by the time of the meeting in order for your shares to be voted. Stockholders who hold shares beneficially in street name may vote by mail by completing, signing and dating the voting instruction cards provided by their brokers, banks or other nominees and mailing them in the accompanying pre-addressed envelopes.
entitled to vote at the Annual Meeting, as of the Record Date, must be present in person or represented by proxy. Both abstentions and broker non-votes (described below) are counted for the purpose of determining the presence of a quorum.
votes for election, he or she is required to tender his or her resignation to the Board. In such a case, the Nominating and Corporate Governance Committee of the Board has the option of accepting or declining such resignation, considering any factors that the Committee deems relevant.
The proposalsproposal to (i) ratify the appointment of PricewaterhouseCoopers LLP as the Company's independent registered public accounting firm and (ii) approve the stock option exchange program for employees described in this Proxy Statement, each requirerequires the affirmative "FOR" vote of a majority of the total number of shares present in person or represented by proxy and entitled to vote on the proposal at the Annual Meeting.
For the proposalsproposal to (i) ratify the appointment of PricewaterhouseCoopers LLP as the Company's independent registered public accounting firm, and (ii) approve a stock option exchange program for employees described in this Proxy Statement, you may vote "FOR," "AGAINST" or "ABSTAIN."
If you elect to "ABSTAIN," the abstention has the same effect as a vote "AGAINST" such proposal.
If you provide specific instructions with regard to certain proposals, your shares will be voted as you instruct on such proposals.
telephone, facsimile or electronic mail. No additional compensation will be paid to these persons for such services.
Under Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for a stockholder proposal to be considered for inclusion in the proxy statement for the 20092010 annual stockholders meeting (the "20092010 Annual Meeting"), the Secretary of the Company would have to receive the written proposal by a stockholder at the Company's principal executive offices no later than , 2009.January 15, 2010. Such proposals also must comply with the other provisions of Rule 14a-8 and additional applicable Securities and Exchange Commission ("SEC") rules regarding the inclusion of stockholder proposals in company-sponsored proxy materials. Notice of such proposals should be addressed to:
Corporate Secretary
UTStarcom, Inc.
1275 Harbor Bay Parkway
Alameda, California 94502
If, however, the date of our 20092010 annual meeting is more than 30 days before or after the anniversary of the 20082009 Annual Meeting, then for a stockholder proposal under Rule 14a-8 to be considered for inclusion in the proxy statement for the 20092010 Annual Meeting, the Secretary of the Company must receive the written proposal by such stockholder at the Company's principal executive offices within a reasonable time before the Company begins to print and mail its proxy materials for the 20092010 Annual Meeting.
For a stockholder proposal that is not intended to be included in the Company's proxy statement under Rule 14a-8, the stockholder must, (i) provide the information required by the Bylaws of the Company and (ii) give timely notice to the Corporate Secretary in accordance with the Bylaws, which generally require that the notice be received by the Corporate Secretary of the Company prior to , 2009.April 1, 2010.
However, if the date of the 20092010 Annual Meeting (the "20092010 Annual Meeting Date") is more than 30 days before or after the anniversary of the 20082009 Annual Meeting, then the Board shall determine an appropriate date by which notice of a stockholder proposal that is not intended to be included in the Company's proxy statement must be received by the Company (the "Notice Deadline"). The Company will publicize the Notice Deadline at least ten (10) days prior to the Notice Deadline by either a filing pursuant to the Securities Exchange Act of 1934, as amended; or by a press release.
Nomination of Director Candidates: The Company's Bylaws permit stockholders to nominate directors for election at an annual stockholder meeting. To nominate a director, a stockholder must provide the information required by the Bylaws. To nominate directors for election at the 20092010 Annual Meeting, the stockholder making such nomination must give timely notice to the Corporate Secretary in accordance with the Bylaws, which must be received by the Corporate Secretary not less than one hundred twenty (120) days prior to the date of the 20092010 Annual Meeting.
However, in the event the Company fails to publicize the 20092010 Annual Meeting Date at least one hundred thirty (130) days prior to the 20092010 Annual Meeting, notice by a stockholder must be received by the Corporate Secretary within ten (10) days of:
As noted above, weWe currently expect our 20092010 Annual Meeting will be held on or around , 2009.June 24, 2010. As such, a stockholder must provide notice to the Corporate Secretary of a director nomination by , 2009.February 24, 2010.
Copy of Company Bylaws: Copies of the provisions of the Bylaws governing the form and delivery requirements of stockholder nominations or proposals may be obtained by sending an email request to the Company's investor relations department at investorrelations@utstar.com. A copy of the entire Bylaws is available via the link entitled "Corporate Governance" on the Company's website athttp://investorrelations.utstar.com/governance.governance.cfm.
This Proxy Statement contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on our current expectations and involve risks and uncertainties, which may cause results to differ materially from those set forth in the statements. The forward-looking statements may include statements regarding actions to be taken by us. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. Forward-looking statements should be evaluated together with the many uncertainties that affect our business, particularly those mentioned in the section on forward-looking statements and in the risk factors in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2007,2008, and in our periodic reports on Form 10-Q and current reports on Form 8-K.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
General
The authorized number of directors of the Company is currently set at seven.six. The Company's Bylaws provide that the Board of Directors may set the number of directors at a minimum of six and a maximum of eight members. The Company's Certificate of Incorporation provides that directors shall be divided into three classes, with the classes serving for staggered, three-year terms (or less if they are filling a vacancy). Currently the Board is comprised of two Class I directors, two Class II directors and threetwo Class III directors. The Company's Class I Directors, Thomas J. Toy and Bruce J. Ryan, will hold office until the 2010 annual meetingAnnual Meeting or until the Class I Director's successor has been duly elected and qualified, and each of the threetwo Class IIIII Directors, Francis P. Barton, Jeff ClarkePeter Blackmore and Hong Liang Lu,Allen Lenzmeier, will hold office until the 20092011 annual meeting or until the Class IIIII Director's successor has been duly elected and qualified.
Nominees
The Company's nominees for election as the Class IIIII Directors at this Annual Meeting are the current Class IIIII Directors, Larry D. HornerJeff Clarke and Allen Lenzmeier.Hong Liang Lu. The Nominating and Corporate Governance Committee has recommended, and the Board of Directors has approved, the nomination of these nominees.
Nominees
The Board had anticipated that Mr. Horner, the Chairman of our Audit Committee, would retire from the Board of Directors after eight years of service but the Board has asked him to stand for re-election and remain on the Board to assist the Audit Committee during its leadership transition. The Board believes it is important that Mr. Horner be re-elected at this time in order to assure an effective transition of Audit Committee leadership.
Unless otherwise instructed, the proxy holders will vote the proxies received by them for the Company's nominees for the Class IIIII Directors, Larry D. HornerJeff Clarke and Allen Lenzmeier,Hong Liang Lu, who will hold office until the 20112012 annual meeting or until their successors have been duly elected and qualified. The Company expects that the nominees for election as Class IIIII Directors at the Annual Meeting will be able to serve if elected.
In the event that either nominee of the Company becomes unable or declines to serve as a director at the time of the Annual Meeting, the proxy holders will vote the proxies for any substitute nominee who is designated by the current Board to fill the vacancy.
Biographical Information for Director Nominees
Larry D. Horner has served as a director since January 2000. Mr. Horner currently serves on the board of directors of Atlantis Plastics, Inc., Clinical Data Inc., TOUSA, Inc. and several private companies. From 1994 until 2001, Mr. Horner served as Chairman of Pacific USA Holdings Corp., and from 1997 to 2001 he served as Chairman and Chief Executive Officer of Asia Pacific Wire & Cable Corporation Limited. Mr. Horner formerly served as Chairman and Chief Executive Officer of KPMG from 1984 to 1990. Mr. Horner, a Certified Public Accountant, holds a B.S. from the University of Kansas and is a graduate of the Stanford Executive Program.
Allen Lenzmeier has served as a director since March 2005. Mr. Lenzmeier has served as the Vice Chairman of Best Buy Co. Inc. since December 2004. From 2002 to 2004, Mr. Lenzmeier served as the President and Chief Operating Officer of Best Buy Co. Inc. Mr. Lenzmeier served as the President of Best Buy Retail from 2001 to 2002. From 1991 to 2001 Mr. Lenzmeier served as the Executive Vice President and Chief Financial Officer of Best Buy Co. Inc. and began his employment with the company in 1984. Mr. Lenzmeier serves on the board of directors of several private companies. Mr. Lenzmeier holds a B.S. from Minnesota State University Mankato.
Required Vote
The two nominees receivingEach director must be elected by a majority of the highestvotes cast, meaning that the number of shares entitled to vote on the election of directors and represented in person or by proxy at the Annual Meeting casting their vote "FOR" a director must exceed the number of votes "AGAINST" a director. Abstention votes with respect to the election of the shares entitled to be voted for such nominees shall be elected as Class II Directors. Votes withheld from any nomineedirectors will be counted for purposes of determining the presence or absence of a quorum for the transaction of business at the Annual Meeting but will have no other legal effect upon election of directors underdirectors. You may not cumulate your votes for the Delaware General Corporation Law.election of directors. If a nominee for director fails to receive the required number of votes for election, he or she is required to tender his or her resignation to the Board. In such a case, the Nominating and Corporate Governance Committee of the Board has the option of accepting or declining such resignation, considering any factors that the Committee deems relevant.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS VOTING
"FOR" THE NOMINEES SET FORTH HEREIN.
INFORMATION ABOUT OUR BOARD OF DIRECTORS
Our Directors and Nominees
The names of the current Class I and Class IIIII directors with unexpired terms and the Class IIIII nominees, their ages as of April 30, 20082009 and certain other information are set forth below:
Name of Director | Age | Position | Director Since | Term Expires | Age | Position | Director Since | Term Expires | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Class I Directors: | ||||||||||||||||||||
Thomas J. Toy | 53 | Chairman of the Board | 1995 | 2010 | 54 | Lead Director | 1995 | 2010 | ||||||||||||
Bruce J. Ryan* | 64 | Director | 2008 | 2010 | ||||||||||||||||
Class II Nominees: | ||||||||||||||||||||
Larry D. Horner | 74 | Director | 2000 | 2008 | ||||||||||||||||
Bruce J. Ryan | 65 | Director | 2008 | 2010 | ||||||||||||||||
Class II Directors: | ||||||||||||||||||||
Peter Blackmore | 62 | Director, Chief Executive Officer and President | 2008 | 2011 | ||||||||||||||||
Allen Lenzmeier | 64 | Director | 2005 | 2008 | 65 | Director | 2005 | 2011 | ||||||||||||
Class III Directors: | ||||||||||||||||||||
Francis P. Barton | 61 | Director, Executive Vice President and Chief Financial Officer | 2006 | 2009 | ||||||||||||||||
Class III Nominees: | ||||||||||||||||||||
Jeff Clarke | 46 | Director | 2005 | 2009 | 47 | Director | 2005 | 2009 | ||||||||||||
Hong Liang Lu | 53 | Director, Chief Executive Officer | 1991 | 2009 | 54 | Chairman of the Board | 1991 | 2009 |
Except as set forth below, each nominee or incumbent director has been engaged in his principal occupation described below during the past five years. There are no family relationships between any of our directors or executive officers.
Francis P. BartonPeter Blackmore has served as our Chief Executive ViceOfficer and President and Chief Financial Officer since August 2005 and as a director since October 2006.July 2008, and served as our President and Chief Operating Officer from July 2007 to June 2008. From May 2003 to July 2005 until he joined the Company, Mr. Barton wasBlackmore served as Executive Vice President in charge of worldwide sales, marketing and Chief Financial Officer of Atmeltechnology at Unisys Corporation. From May 2001Prior to May 2003, Mr. Barton wasjoining Unisys in 2005, he served as Executive Vice President of the Customer Solutions Group at Hewlett-Packard Company from 2004 and Chief Financial Officer of BroadVision Inc. From 1998 to 2001, Mr. Barton was Senioras Executive Vice President and Chief Financial Officer of Advanced Micro Devices, Inc.the Enterprise Systems Group from 2002 through 2004. From 1996 to 1998,1991 until its acquisition by Hewlett-Packard in 2002, Mr. Barton wasBlackmore served in a number of senior management positions with Compaq Computer Corporation, most recently as its Executive Vice President of worldwide sales and Chief Financial Officerservices from 2000 through 2002. Mr. Blackmore serves on the board of Amdahl Corporation. From 1974 to 1996, Mr. Barton worked at Digital Equipment Corporation, beginning his career as a financial analyst and moving his way up through various financial roles to Vice President and Chief Financial Officer of Digital Equipment Corporation's Personal Computer Division. Mr. Barton currently serves as a director of ON Semiconductor Corporation.MEMC Electronic Materials Inc. He holds a B.S.an M.A. in Chemical EngineeringEconomics from Worcester Polytechnic Institute and an M.B.A. with a focus in finance from Northeastern University.Trinity College, Cambridge, U.K.
Jeff Clarke has served as a director since January 2005. Since May 2006, Mr. Clarke has served as Chief Executive Officer and President and a director of Travelport Incorporated, a private company. From April 2004 to April 2006, Mr. Clarke served as the Chief Operating Officer of CA, Inc., a global provider of management software. From 2002 to 2004, Mr. Clarke was Executive Vice President of Global Operations of Hewlett-Packard Company, and prior to that he was the Chief Financial Officer of Compaq Computer Corporation. Mr. Clarke serves as Chairman of the Board of Orbitz Worldwide, Inc. and as a director of Orbitz Worldwide,Red Hat, Inc. He holds a B.A. in Economics from the State University of New York at Geneseo and an M.B.A. from Northeastern University.
Larry D. Horner has served as a director since January 2000. Mr. Horner currently serves on the board of directors of Atlantis Plastics, Inc., Clinical Data Inc., TOUSA, Inc. and several private
companies. From 1994 until 2001, Mr. Horner served as Chairman of Pacific USA Holdings Corp., and from 1997 to 2001 he served as Chairman and Chief Executive Officer of Asia Pacific Wire & Cable Corporation Limited. Mr. Horner formerly served as Chairman and Chief Executive Officer of KPMG from 1984 to 1990. Mr. Horner, a Certified Public Accountant, holds a B.S. from the University of Kansas and is a graduate of the Stanford Executive Program.
Allen Lenzmeier has served as a director since March 2005. Mr. Lenzmeier has served as the Vice Chairman of Best Buy Co. Inc. since December 2004. From 2002 to 2004, Mr. Lenzmeier served as the President and Chief Operating Officer of Best Buy Co. Inc. Mr. Lenzmeier served as the President of Best Buy Retail from 2001 to 2002. From 1991 to 2001 Mr. Lenzmeier served as the Executive Vice President and Chief Financial Officer of Best Buy Co. Inc. and began his employment with the company in 1984. Mr. Lenzmeier serves on the board of directors of several private companies. Mr. Lenzmeier holds a B.S. from Minnesota State University Mankato.
Hong Liang Lu became our Chairman in July 2008, and has served as oura director since June 1991. Mr. Lu served as President and Chief Executive Officer and as a director from June 1991 through December 2006,to July 2007 and as Chief Executive Officer from July 2007 to July 2008. Mr. Lu also served as our Chairman of the Board from March 2003 to December 2006. On January 1, 2007, he assumed the title of Chief Executive Officer. In June 1991, Mr. Lu co-founded UTStarcom, Inc. under its prior name, Unitech Telecom, Inc., which subsequently acquired StarCom Network Systems, Inc. in September 1995. From 1986 through December 1990, Mr. Lu served as President and Chief Executive Officer of Kyocera Unison, a majority-owned subsidiary of Kyocera International, Inc. Mr. Lu served as President and Chief Executive Officer of Unison World, Inc., a software development company from 1983 until its merger with Kyocera in 1986. From 1979 to 1983, Mr. Lu served as Vice President and Chief Operating Officer of Unison World, Inc. Mr. Lu holds a B.S. in Civil Engineering from the University of California at Berkeley.
Bruce J. Ryan has served as a director since April 2008. Mr. Ryan is currently a private consultant. From February 1998 to November 2002, he served as Executive Vice President and Chief Financial Officer of Global Knowledge Network, a provider of information technology and computer software training programs and certifications. From 1994 to 1997, he1998, Mr. Ryan served as the Executive Vice President and Chief Financial Officer of Amdahl Corporation, a provider of information technology solutions. Mr. Ryan previously had a 25-year career at Digital Equipment Corporation, where he served in various executive positions, including Senior Vice President of the financial services, government and professional services business group. Mr. Ryan also serves as a director of KVH Industries, Inc., IONA Technologies PLC and severaltwo private companies. HeMr. Ryan holds a B.S. in business administration from Boston College and an M.B.A. from Suffolk University.
Thomas J. Toy has served as a director since February 1995 and asbecame our Lead Director in July 2008. He was our Chairman of the Board sincefrom January 2007.2007 to July 2008. Since March 1999, Mr. Toy has served as Managing Director of PacRim Venture Partners, a professional venture capital firm specializing in investments in the information technology sector. Since 2005, Mr. Toy has served as a partner of SmartForest Ventures, a professional venture firm specializing in the information technology sector. From 1987 until 1992, Mr. Toy was employed as a Vice President at Technology Funding and was a partner there from 1992 until 1999. Mr. Toy also serves as a director of White Electronic Designs Corporation, Solarfun Power Holdings and several private companies. Mr. Toy holds B.A. and M.M. degrees from Northwestern University.
The Company's Director Nomination Process
The Board's process for identifying and evaluating nominees for director consists mainly of evaluating candidates who are recommended by the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee identifies and recommends nominees for election or reelection to the Board, or for appointment to fill any vacancy that is anticipated or has arisen on the Board, in accordance with the criteria, policies and principles set forth in the Nominating and Corporate Governance Committee Charter and the Company's Corporate Governance Principles, as set forth below, or otherwise approved by the
Board. In evaluating candidates to determine if they are qualified to become members of our board of directors, the Nominating and Corporate Governance Committee looks for the following attributes, among others: the candidate's judgment, skill, diversity and experience with other organizations of comparable purpose, complexity and size; the interplay of the candidate's experience with the experience of other Board members; the extent to which the candidate would be a desirable addition to the Board; whether or not the candidate has any relationships that might impair his or her independence; and the candidate's experience, perspective, skills and knowledge of our industry. In addition, qualities sought in directors include high ethical standards, sound integrity, an inquisitive nature, a strong commitment to make decisions and take actions guarding the long term interests of shareholders, seasoned judgment, a record of outstanding skills and accomplishments in their personal careers, and the ability and desire to communicate and participate actively in board and committee sessions. Although the
Nominating and Corporate Governance Committee uses these and other criteria to evaluate potential nominees, there are no stated minimum criteria for nominees.
The Board may also, on a periodic basis, solicit ideas for possible candidates from a number of sources, including current members of the Board, senior Company executives, individuals personally known to members of the Board, stockholders and one or more third-party search firms.
The Nominating and Corporate Governance Committee's policy is that stockholder nominations of director candidates will be given the same consideration and evaluated with the same criteria as any other candidate. For more information on stockholder nominations of director candidates, please see the section entitled "Nomination of Director Candidates" under "Deadlines for Submission of Stockholder Proposals for 20092010 Annual Meeting" in this Proxy Statement. The form and delivery requirements of such stockholder nominations must comply with the relevant provisions of the Company's Bylaws, a copy of which may be obtained by sending an email to the Company's investor relations department at investorrelations@utstar.com. A complete copy of the Bylaws is also available on the Company's website in the "Corporate Governance" section.
Stockholder Communications with the Board of Directors
The Board of Directors has established a process for stockholders to communicate with members of the Board. All concerns, questions or complaints regarding the Company's compliance with any policy or law, or any other Board-related communication, should be directed to the Board via the link entitled "Email Board of Directors" athttp://investorrelations.utstar.com/governancegovernance.cfm.. All substantive and appropriate communications received from stockholders will be received and reviewed by one or more independent directors, or officers acting under their direction, who will forward such communications to the Board or particular Board committees, as appropriate.
Board Attendance, Director Independence and Financial Sophistication
The Board held a total of 1816 meetings during the fiscal year ended December 31, 2007.2008. During fiscal year 2007,2008, each of the directors (other than former director Ying Wu who resigned from the Board on July 24, 2007) attended 75% or more of the aggregate number of meetings of the Board and the committees of the Board on which the director served subsequent to becoming a director or a member of such committee. The Board's policy is to encourage directors to attend the Annual Meeting. ThreeFour directors attended the 20072008 annual meeting of stockholders.
Of the Company's incumbent directors standing for reelection and those with continuing terms, Messrs. Clarke, Horner, Lenzmeier, Ryan and Toy have been determined by the Board to be independent as set forth in Rule 4200(a)(15) of the NASDAQ Marketplace Rules, the listing standards of NASDAQ Stock Market, as currently in effect. In addition, the Board has also determined that Messrs. Clarke, Horner, Lenzmeier and Ryan possess the attributes to be considered financially sophisticated for purposes of applicable NASDAQ Marketplace Rules and each has the background to be considered an "audit committee financial expert" as defined by the rules and regulations of the SEC and required by the NASDAQ Marketplace Rules.
The Board has not established categorical standards or guidelines to make director independence determinations, but considers all relevant facts and circumstances. The Board based its determinations
primarily on a review of the responses of the directors to questions regarding employment and compensation history, affiliations, family and other relationships, and on discussions with our directors.
In making its independence determinations, the Board considered transactions between the Company and entities associated with the directors or members of their immediate family. All identified transactions that appear to relate to the Company and a person or entity with a known connection to a director are presented to the Board for consideration. In making its determination that each non-employee director is independent, the Board considered the transactions in the context of the NASDAQ standards, the standards established by the SEC for members of audit committees, and the
SEC and Internal Revenue Service standards for compensation committee members. The Board's independence determinations included a review of the status of certain executive officers as limited partners of an investment fund managed by Mr. Toy. In each case, the Board determined that, because of the nature of each of these relationships and/or amounts involved, the relationships did not impair Mr. Toy's independence.
Board Committees and Related Functions
The principal standing committees of the Board are the Audit Committee, the Nominating and Corporate Governance Committee, and the Compensation Committee eachand the Corporate Technology Strategy Committee. Each of whichcommittees, other than the Corporate Technology Strategy Committee, consists solely of non-employee, independent directors. From time to time, the Board may form a special committee or subcommittee of a standing committee to focus on specific matters.
Audit Committee
The Audit Committee of the Board is a separately-designated, standing committee of the Board of Directors and currently consists of fivethree members of the Board of Directors, all of whom: (1) meet the criteria for "independence" set forth in rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended, and the listing standards of the NASDAQ Stock Market; (2) have not participated in the preparation of the financial statements of the Company or any of its current subsidiaries at any time during the past three years; and (3) are able to read and understand fundamental financial statements, including a company's balance sheet, income statement and cash flow statement. The members of the Audit Committee are Mr. Horner,Ryan, who chairs the committee, and Messrs. Clarke, Lenzmeier Ryan and Toy. Mr. Ryan was appointed as a member of the Committee effective April 25, 2008. The Audit Committee held 2219 meetings during the 2007 fiscal year.2008. Messrs. Clarke, Horner, Lenzmeier and Ryan have been determined by the Board to qualify as "audit committee financial experts" under applicable SEC and NASDAQ rules.
The Audit Committee, among other duties and responsibilities, (i) reviews and approves the annual appointment of the Company's independent registered public accounting firm;firm, (ii) discusses and reviews in advance the scope and fees of the annual audit;audit, (iii) reviews the results of the audit with the independent registered public accounting firm and discusses the foregoing with the Company's management;management, (iv) reviews and approves non-audit services of the independent registered public accounting firm;firm, (v) reviews compliance with the Company's existing major accounting and financial reporting policies;policies, (vi) reviews and approves all related-party transactions that would require disclosure pursuant to the rules of the SEC and the policies and procedures related to such transactions;transactions, and (vii) provides oversight and monitoring of the Company's management and their activities with respect to the Company's financial reporting process. In connection with the execution of the responsibilities of the Audit Committee, including the review of the Company's quarterly earnings reports prior to public release, Audit Committee members communicated throughout 20072008 with the Company's management and the independent registered public accounting firm.
The Board has approved an Audit Committee Charter which is reviewed at least annually, periodically revised (most recently on July 26, 2007), and is available on the Company's website athttp://investorrelations.utstar.com/governancegovernance.cfm..
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee currently consists of fourthree members of the Board of Directors, all of whom are "independent" in accordance with the rules of the NASDAQ Stock Market. The current members of the Committee are Mr. Clarke, who chairs the committee, and Messrs. Horner, LenzmeierRyan and Toy. Mr. Ryan was appointed as a member of the Committee effective February 18, 2009. The Nominating and Corporate Governance Committee held 9 meetings during the 2007 fiscal year.2008.
The Nominating and Corporate Governance Committee's responsibilities include the selection of director nominees for the Board and the development and annual review of the Company's governance principles. The Nominating and Corporate Governance Committee also (i) assists the Board by actively identifying individuals qualified to become Board members;members, (ii) recommends director nominees to the Board for election at the next annual meeting of stockholders;stockholders, (iii) recommends chairs and members of each committee to the Board, (iv) monitors significant developments in the law and practice of corporate governance and of the duties and responsibilities of directors of public companies; (iv)companies, (v) leads the Board in its annual performance self-evaluation, including establishing criteria to be used in connection with such evaluation; (v)evaluation, (vi) reviews Board compensation and recommends to the Board any changes in Board compensation, (vii) oversees compliance with the Company's Code of Business Conduct and Ethics;Ethics, and (vi)(viii) develops and recommends to the Board and administers the corporate governance guidelines of the Company, including appropriate stock ownership guidelines for officers and directors.Company.
The Nominating and Corporate Governance Committee is also responsible for reviewing with the Board, from time to time, the appropriate skills and characteristics required of Board members in the context of the current composition of the Board. This assessment includes issues of diversity in numerous factors, including independence, operational experience as a senior executive, business judgment, age, understanding of the industry, willingness to mentor, personal network, and international perspective. Additional criteria include a candidate's personal and professional credibility, integrity and prestige, and his or her ability to blend with the Company's Board dynamics, as well as his or her willingness to devote sufficient time to attend meetings of the Board. The Nominating and Corporate Governance Committee reviews these factors and others deemed useful in the context of an assessment of the perceived needs of the Board at a particular point in time. As a result, the priorities and emphasis of the Nominating and Corporate Governance Committee and of the Board may change from time to time to take into account changes in business and other trends, in addition to the portfolio of skills and experience of current and prospective directors.
The Board has adopted a charter of the Nominating and Corporate Governance Committee, addressing the nominations process and such related matters as may be required under federal securities laws and NASDAQ Marketplace Rule 4350(c)(4)(B). A copy of the Nominating and Corporate Governance Committee Charter, which is reviewed at least annually and is periodically revised (most recently on April 10, 2008)February 18, 2009), is available on the Company's website athttp://investorrelations.utstar.com/governancegovernance.cfm..
Compensation Committee
The Compensation Committee currently consists of fourthree members of the Board of Directors, Mr. Lenzmeier, who chairs the committee, and Messrs. Clarke Horner and Toy, all of whom are non-employee, outside directors in addition to being "independent directors" as defined under the rules of the NASDAQ Stock Market. The Compensation Committee met 1220 times during fiscal year 2007 and acted twice by written consent. Messrs. Horner, Lenzmeier and Toy served on the Committee
throughout fiscal year 2007. Mr. Toy served as Chairman until April 27, 2007 when Mr. Lenzmeier succeeded him as Chairman. Mr. Clarke was appointed a member of the Committee on April 27, 2007.2008.
The purpose of the Compensation Committee is to (i) approve and oversee the total compensation package for the Company's executives, including their base salaries, incentives, deferred compensation, equity-based compensation, benefits and perquisites;perquisites, (ii) review and approve corporate goals and objectives relevant to the compensation of the Company's Chief Executive Officer (the "CEO"), evaluate CEO performance, and determine CEO compensation based on this evaluation;evaluation, (iii) review the CEO's performance evaluation of all executive officers and approve pay decisions;decisions, and (iv) review periodically and make recommendations to the Board regarding any equity or long-term compensation plans, and administer these plans.
The Compensation Committee operates according to a charter that details its specific duties and responsibilities. The charter is reviewed at least annually, periodically revised (most recently on October 25, 2007)December 16, 2008) by the Compensation Committee, and is available on the Company's website athttp://investorrelations.utstar.com/governancegovernance.cfm. The charter generally provides the membership
requirements, authority and duties of the Compensation Committee. The Compensation Committee is to consist of no fewer than three members, all of whom (i) meet the independence requirements of the NASDAQ Marketplace Rules, (ii) are "non-employee directors" under the definition of Rule 16b-3 promulgated under Section 16 of the Exchange Act, and (iii) are "outside directors" for purposes of the regulations promulgated under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). During the fiscal year ended December 31, 2007,2008, all members of the Compensation Committee met these criteria.
UTStarcom's Human Resources department supports the Compensation Committee in its work. The Compensation Committee also has the authority to engage the services of outside advisers,advisors, experts and others for assistance. From time to time, the Compensation Committee may direct an external advisor to work with the Human Resources department to support management and the Compensation Committee in matters such as (i) peer group development, (ii) executive officer benchmarking, including pay-for-performance analyses and tally sheet preparation, and (iii) advising on pay levels and/or pay program design. In May 2007, the Compensation Committee retained Compensia, Inc. as its independent outside compensation consultant. For a further description of the role of the compensation consultant in our compensation process, please see the section entitled "Engagement of and Role of Independent Compensation Consultant" in the Compensation Discussion and Analysis contained in this Proxy Statement.
SpecialCorporate Technology Strategy Committee
In May 2006,February 2009, the Board of Directors formed a special committee (the "Special Committee")Corporate Technology Strategy Committee to consider strategic alternatives availablereview the scope, direction, quality, investment level and execution of the Company's corporate technology strategies and make recommendations to the Company.Board. Mr. Toy was designated the Chairman of the Special Committee and Messrs. Clarke, HornerBlackmore and LenzmeierLu were appointed as members. The Specialcharter for the Committee completed its work in May 2007.was approved by the Board and is available on the Company's website athttp://investorrelations.utstar.com/governance.cfm.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consisted of Messrs. Clarke, Horner, Lenzmeier and Toy during the 2007 fiscal year. All members of the Compensation Committee during 20072008 were independent directors in accordance with the applicable independence requirements of the NASDAQ Marketplace Rules, and none were employees or officers or former employees of the Company. During 2007,2008, no executive officer of the Company served on the compensation committee (or equivalent) or board of directors of another entity whose executive officer(s) served on the Company's Compensation Committee or Board.
Director Compensation for Fiscal Year 20072008
Directors who are our employees receive no additional compensation for serving on the Board of Directors. In fiscal year 2007,2008, our non-employee directors received both cash and equity compensation as described below. In addition, we reimburse all directors for travel and other related expenses incurred in connection with our business, including attending stockholder meetings and meetings of the Board or any Board committee.
The following table sets forth information concerning compensation paid or accrued for services rendered to us in all capacities by our non-employee directors (other than Mr. Ryan who was appointed to the Board in April 2008) for the fiscal year ended December 31, 2007.2008.
Name | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2) | Option Awards ($)(3) | Total ($) | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | Option Awards ($)(2) | All Other Compensation ($) | Total ($) | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jeff Clarke | 133,000 | 24,686 | (4) | 200,814 | (5) | 358,500 | 63,875 | 78,230 | (3) | 250,976 | (4) | 14,064 | (13) | 407,145 | ||||||||||
Larry D. Horner | 153,500 | 25,695 | (6) | 28,062 | (7) | 207,257 | ||||||||||||||||||
Larry D. Horner* | 67,375 | 86,657 | (5) | 85,728 | (6) | 12,744 | (13) | 252,504 | ||||||||||||||||
Allen Lenzmeier | 127,000 | 24,778 | (8) | 160,312 | (9) | 312,090 | 62,875 | 75,165 | (7) | 207,779 | (8) | — | 345,819 | |||||||||||
Bruce J. Ryan** | 55,325 | 10,693 | (9) | 30,374 | (10) | — | 96,392 | |||||||||||||||||
Thomas J. Toy | 496,434 | 24,582 | (10) | 26,851 | (11) | 547,867 | 194,875 | 122,376 | (11) | 113,393 | (12) | 10,394 | (13) | 441,038 |
Cash Compensation
Approximately one-third of the compensation paid to our non-employee directors is comprised of cash. During 2007,2008, the non-employee directors' cash compensation was comprised of the following elements:
Type of Payment | Amount | Amount | |||||
---|---|---|---|---|---|---|---|
Chairman of the Board (pro-rated and paid quarterly) | $ | 250,000 | |||||
Non-Executive Chairman of the Board (pro-rated and paid quarterly) | $ | 250,000 | (1) | ||||
Director Retainer (pro-rated and paid quarterly) | $ | 50,000 | $ | 50,000 | (2) | ||
Lead Director Fee | $ | 20,000 | |||||
Audit Committee Chair Fee | $ | 12,500 | $ | 12,500 | |||
Compensation Committee Chair Fee | $ | 7,500 | $ | 7,500 | |||
Nominating and Governance Committee Chair Fee | $ | 7,500 | $ | 7,500 | |||
Audit Committee Member Fee | $ | 5,000 | $ | 5,000 | |||
Compensation Committee Member Fee | $ | 4,500 | $ | 4,500 | |||
Nominating and Governance Committee Member Fee | $ | 3,500 | $ | 3,500 | |||
Credit towards Company Products | $ | 1,000 | $ | 1,000 |
For 2009, the chair of the Corporate Technology Strategy Committee will receive a fee of $7,500 and the non-employee members of the Committee will receive a fee of $3,500. No other changes have been made to cash compensation as set forth above for non-employee directors for fiscal year 2008.2009.
In addition to the compensation set forth above, members of the Special Committee of the Board of Directors (see description above) were eligible to receive the following cash payments through May 2007 when the Special Committee concluded its work:
Special Committee Compensation | May 2006-May 2007 | ||
---|---|---|---|
Chairman Fee (per month) | $ | 15,000 | |
Chairman Meeting Fee (per meeting) | $ | 2,000 | |
Member Fee (per month) | $ | 10,000 | |
Member Meeting Fee (per meeting) | $ | 1,000 |
Equity Compensation
Approximately two-thirds of the compensation paid to our non-employee directors is comprised of equity: one-third of the aggregate value in stock options, and one-third of the aggregate value in restricted stock. The number of options and shares of restricted stock granted to each non-employee director (other than Mr. Ryan who was appointed to the Board in April 2008) during fiscal year 20072008 is set forth below:
Name | Stock Options Granted (#) | Restricted Stock Granted (#) | Stock Options Granted (#) | Restricted Stock Granted (#) | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Jeff Clarke | 43,103 | 21,552 | 49,703 | 24,852 | |||||||
Larry D. Horner | 48,621 | 24,310 | 52,300 | 26,150 | |||||||
Allen Lenzmeier | 41,034 | 20,517 | 48,961 | 24,481 | |||||||
Bruce Ryan | 105,385 | (1) | 12,692 | ||||||||
Thomas J. Toy | 45,517 | 22,759 | 146,884 | 73,442 |
Each stock option has an exercise price of $2.90$3.37 per share, equal to the closing price of the Company's Common Stock on the NASDAQ Stock Market on NovemberSeptember 30, 2007,2008, the date of grant. The options and restricted stock vest in equal, monthly installments over a 12-month period beginning on NovemberSeptember 30, 2007.2008. The grants were made pursuant to the Company's 2006 Equity Incentive Plan (the "2006 Plan") and are subject to the standard terms and conditions of the forms of restricted stock award and stock option agreements previously approved for use with the 2006 Plan and filed with the SEC.
For further discussionEach newly-elected or appointed non-employee director is eligible to receive an option award under the 2006 Plan to purchase 80,000 shares of Common Stock which would vest in equal installments of 25% per year on each of the four anniversaries of the date of grant. Any such grant would be made in accordance with respect to the Company's policyEquity Award Grant Policy and procedures relating to equity award grants that apply to non-employee directorsProcedures more fully described in the Compensation Discussion and other service providers, please seeAnalysis under the section entitled "Compensation Discussion and Analysis—Other Considerations—Equity"Equity Grant Practices" contained in this Proxy Statement.
For further discussion with respect to change of control arrangements applicable to outstanding equity awards, please see the section entitled "Change of Control Provisions in the Equity Compensation Plans" under "Potential Payments upon Termination and Change of Control" contained in this Proxy Statement.
For further discussion with respect to modifications made to certain outstanding equity awards held by non-employee directors, please see the section entitled "Executive Compensation—Modifications to Outstanding Equity Awards" contained in this Proxy Statement.
Indemnification Agreements
All of our directors other than Mr. Ryan are currently party to indemnification agreements with the Company. The form of indemnification agreement is filed as Exhibit 10.1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.2008.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to beneficial ownership of our Common Stock as of April 1, 2008 (except as otherwise indicated), by:2009 by (i) each person who is known to us to own beneficially more than 5% of our Common Stock;Stock, (ii) each director of UTStarcom;UTStarcom, (iii) each Named Executive Officer;Officer, and (iv) all of our current directors and executive officers as a group. Calculations are based on 125,099,129127,916,671 shares of Common Stock issued and outstanding as of April 1, 2008.2009.
Name and Address of Beneficial Owner(1) | Shares Beneficially Owned(2) | Percent of Total Outstanding(2) | |||
---|---|---|---|---|---|
Entities affiliated with SOFTBANK CORP.(3) | 14,651,630 | 11.7 | % | ||
Brandes Investment Partners, L.P.(4) | 8,094,233 | 6.5 | % | ||
Barclays Global Investors, N.A.(5) | 7,552,347 | 6.0 | % | ||
Hong Liang Lu(6) | 4,783,382 | 3.8 | % | ||
Francis P. Barton(7) | 1,554,848 | 1.2 | % | ||
Peter Blackmore | 900,000 | * | |||
Philip Christopher(8) | 305,812 | * | |||
David King(9) | 148,511 | * | |||
Ying Wu(10) | 4,720,801 | 3.8 | % | ||
Jeff Clarke(11) | 159,604 | * | |||
Larry D. Horner(12) | 294,447 | * | |||
Allen Lenzmeier(13) | 208,085 | * | |||
Bruce J. Ryan** | 0 | * | |||
Thomas J. Toy(14) | 230,460 | * | |||
All current directors and executive officers as a group (12 persons)(15) | 8,530,705 | 6.8 | % |
Name of Beneficial Owner(1) | Shares Beneficially Owned(2) | Percent of Total Outstanding(2) | |||||
---|---|---|---|---|---|---|---|
Entities affiliated with SOFTBANK CORP.(3) | 14,651,630 | 11.5 | % | ||||
Barclays Global Investors, N.A.(4) | 7,178,138 | 5.6 | % | ||||
Hong Liang Lu(5) | 4,898,092 | 3.8 | % | ||||
Francis P. Barton(6) | 392,000 | * | |||||
Peter Blackmore(7) | 1,373,261 | 1.1 | % | ||||
Philip Christopher(8) | 26,123 | * | |||||
Jeff Clarke(9) | 259,142 | * | |||||
Mark Green(10) | 123,648 | * | |||||
Allen Lenzmeier(11) | 305,724 | * | |||||
Viraj Patel(12) | 211,629 | * | |||||
Bruce J. Ryan(13) | 49,615 | * | |||||
Thomas J. Toy(14) | 424,583 | * | |||||
All current directors and executive officers as a group (9 persons)(15) | 7,737,168 | 5.9 | % |
Japanese corporation. SoftbankSOFTBANK America Inc. has sole power to vote or direct the voting of 14,651,630 shares and sole dispositive power over 14,651,630 shares. The business address for these entities is c/o SOFTBANK CORP., Tokyo Shiodome Blvd., 1-9-1, Higashi-shimbashi, Minato-ku, Tokyo 105-7303 Japan.
2008. Mr. Wu's employment as our Executive Vice President and Chairman and Chief Executive Officer of our subsidiary, UTStarcom China Co., Ltd., terminated on June 1, 2007 and Mr. Wu resigned from the Board of Directors on July 24, 2007. As of June 1, 2007, Mr. Wu was vested in options to purchase 780,000 shares of the Company's Common Stock, and those options are exercisable for twelve months from the date of his termination of employment.
Our current executive officers and their ages as of April 30, 20082009 are as follows:
Name | Age | Position | |||
---|---|---|---|---|---|
Hong Liang Lu | 54 | Chairman | |||
Peter Blackmore | 62 | Chief Executive Officer and President | |||
Mark Green | |||||
Senior Vice President, Global Human Resources and Real Estate | |||||
Susan Marsch | 52 | Senior Vice President, | |||
Viraj Patel | 46 | Interim Chief Financial Officer, Vice President, Corporate Controller and Chief Accounting Officer |
Hong Liang Lu became our Chairman in July 2008, and has served as oura director since June 1991. Mr. Lu served as President and Chief Executive Officer and as a director from June 1991 though December 2006,to July 2007 and as Chief Executive Officer from July 2007 to July 2008. Mr. Lu also served as our Chairman of the Board from March 2003 to December 2006. On January 1, 2007, he assumed the title of Chief Executive Officer. In June 1991, Mr. Lu co-founded UTStarcom, Inc. under its prior name, Unitech Telecom, Inc., which subsequently acquired StarCom Network Systems, Inc. in September 1995. From 1986 through December 1990, Mr. Lu served as President and Chief Executive Officer of Kyocera Unison, a majority-owned subsidiary of Kyocera International, Inc. Mr. Lu served as President and Chief Executive Officer of Unison World, Inc., a software development company from 1983 until its merger with Kyocera in 1986. From 1979 to 1983, Mr. Lu served as Vice President and Chief Operating Officer of Unison World, Inc. Mr. Lu holds a B.S. in Civil Engineering from the University of California at Berkeley.
Peter Blackmore has served as our Chief Executive Officer and President and as a director since July 2008, and served as our President and Chief Operating Officer sincefrom July 2007.2007 to June 2008. From 2005 until he joined the Company, Mr. Blackmore served as Executive Vice President in charge of world-wideworldwide sales, marketing and technology at Unisys Corporation. Prior to joining Unisys in 2005, he served as Executive Vice President of the Customer Solutions Group at Hewlett-Packard Company from 2004 and as Executive Vice President of the Enterprise Systems Group from 2002 through 2004. From 1991 until its acquisition by Hewlett-Packard in 2002, Mr. Blackmore served in a number of senior management positions with Compaq Computer Corporation, most recently as its Executive Vice President of worldwide sales and services from 2000 through 2002. Mr. Blackmore serves on the board of MEMC Electronic Materials Inc. He holds an M.A. in Economics from Trinity College, Cambridge, U.K.
Francis P. Barton has served as our Executive Vice President and Chief Financial Officer since August 2005 and as a director since October 2006. From May 2003 to July 2005, Mr. Barton was Executive Vice President and Chief Financial Officer of Atmel Corporation. From May 2001 to May 2003, Mr. Barton was Executive Vice President and Chief Financial Officer of BroadVision Inc. From 1998 to 2001, Mr. Barton was Senior Vice President and Chief Financial Officer of Advanced Micro Devices, Inc. From 1996 to 1998, Mr. Barton was Vice President and Chief Financial Officer of Amdahl Corporation. From 1974 to 1996, Mr. Barton worked at Digital Equipment Corporation, beginning his career as a financial analyst and moving his way up through various financial roles to Vice President and Chief Financial Officer of Digital Equipment Corporation's Personal Computer Division. Mr. Barton currently serves on the board of directors of ON Semiconductor Corporation. He holds a B.S. in Chemical Engineering from Worcester Polytechnic Institute and an M.B.A. with a focus in finance from Northeastern University
Philip Christopher has served as President of UTStarcom Personal Communications LLC, one of our wholly owned subsidiaries, since June 2004. Prior to joining us, Mr. Christopher was President and CEO of Audiovox Communications Corporation and Executive Vice President of Audiovox Corporation. Prior to our acquisition of Audiovox Communications Corporation, Mr. Christopher had been employed with Audiovox Corporation since 1970 and was elected to the company's board of directors in 1987. Mr. Christopher was a member of the White House Economic Council, and also serves on the board of directors of the Cellular Telecommunications Industry Association. Mr. Christopher is also the recipient of numerous industry and humanitarian awards and honors, including the prestigious Ellis Island Medal of Honor.
Mark Green has served as our Senior Vice President of Global Human Resources and Real Estate since February 2007, and served as our Vice President of Human Resources from January 2006 to January 2007. Prior to joining us, Mr. Green was at Verisign Inc. from June 2005 as the Human Resources Director of Verisign Security Services. From 1992 to 2005, Mr. Green was at Nortel, where he joined their Human Resources Leadership Development Program, rotating through multiple Human Resources areas in the U.K. and the U.S. He then moved to Hong Kong, as International Human Resources Services Manager for the APAC region, returning to the U.S. as Senior Human Resources Business Partner for the Clarify eBusiness-Software Applications Division, then Human Resources Director of Nortel's Enterprise Division. Mr. Green received his BEng(Hons)B.Eng in Electrical and Electronic Engineering from Leeds University, U.K., and MSc(econ)MSc in Human Resources Management and Industrial Relations from the London School of Economics. He is also a graduate of the Institute of Personnel and Development, U.K.
David KingSusan Marsch has served as our Senior Vice President, Sales,General Counsel, Secretary and Marketing & ServicesChief Ethics Officer since March 2006.April 2007. Prior to joining us, Mr. KingMs. Marsch was the Chief Executive Officer for Visual Wireless ABGeneral Counsel, Corporate Secretary and Vice President of Firefly Mobile, Inc. from 2004January 2006 to July 2006. From 1999September
2003 to 2004, Mr. KingDecember 2005, she was with Ericsson AB, initiallythe General Counsel, Corporate Secretary and Vice President at Redback Networks, Inc. Prior to joining Redback Networks, Ms. Marsch was the General Counsel, Corporate Secretary and Vice President of AltaVista Company from December 2001 to August 2003. She also served as General Counsel, Corporate Secretary and Vice President of Beatnik, Inc. from January 2000 to September 2001 and as Vice President, SalesAssociate General Counsel at The TCW Group, Inc. from February 1998 to January 2000. Ms. Marsch began her legal career at the law firm of Latham and Marketing for Wireline Systems, then as Vice President, Product Management & MarketingWatkins LLP in October 1993. She received a J.D. and held the position of Vice President and General Manager, Wireline Systems from 2002 to 2004. From 1996 through 1999 Mr. King was with PriceWaterhouse as a principal consultant and from 1992 to 1996 Mr. King was a senior consultant with Omega Partners. Mr. King was Chairman and non-executive board director for Ascade AB, Stockholm from 2001 to 2004. Mr. King served as an officer in the Royal Marines from 1985 to 1989. He holds a BSc in Electrical Engineering from Liverpool University, and an MBABBA from the London Business School.University of Michigan, and is a Certified Public Accountant.
Viraj Patel has served as our Interim Chief Financial Officer, Vice President, Corporate Controller and Chief Accounting Officer since August 2008, and served as our Vice President, Corporate Controller and Chief Accounting Officer sincefrom November 2005.2005 to August 2008. Prior to joining us, Mr. Patel was Vice President of Finance for Celera Group from July 2005 to October 2005. Mr. Patel also served as Vice President of Finance for Nektar Therapeutics from March 2004 until June 2005. From November 2003 to March 2004, Mr. Patel served as an interim Corporate Controller for Extreme Networks. From 1999 to 2002, Mr. Patel was the Chief Financial Officer of AvantiAvant! Corporation. Prior to joining AvantiAvant! Corporation Mr. Patel worked for Pall
Corporation from 1989 through 1999 where he served as the Chief Accounting Officer. Mr. Patel began his career at PricewaterhouseCoopersPricewaterhouse (now PwC) in 1982. Mr. Patel holds a BBA from Pace University, New York. He is a Certified Public Accountant from the State of New York and is a member of the New York State Society of CPAs and a member of the American Institute of Certified Public Accountants.
COMPENSATION DISCUSSION AND ANALYSIS
Governance of Executive Officer Compensation Program
Role and Members of the Compensation Committee
The Compensation Committee of the Board of Directors (the "Compensation Committee" or the "Committee") determines compensation for the Company's executive officers. The Committee is currently comprised of fourthree members of the Board of Directors, Messrs. Clarke, Horner, Lenzmeier and Toy, all of whom are independent (as defined under the rules of the NASDAQ Stock Market), non-employee directors. Mr. ToyLenzmeier has acted as chairpersonchairmen of the Committee through April 27, 2007, at which time Mr. Lenzmeier assumed the role. Mr. Clarke was appointed to the Committee onsince April 27, 2007.
The Committee is responsible for:
The Compensation Committee operates according to a charter that details its specific duties and responsibilities. For additional information with respect to the Compensation Committee, please refer to the section entitled "Compensation Committee" at page 1312 of this Proxy Statement.
In 2007, the Compensation Committee delegated authority to a designated management committee (the "Awards Committee") to review and approve equity awards to certain employees and service providers below the corporate vice-president level, in accordance with the Company's Equity Award Granting Policy and Procedures discussed below.
Named Executive Officers
Our The individuals who served as the Company's principal executive officer ouror principal financial officer and our three most highly compensated executive officers (other than our principal executive officer and principal financial officer) forduring fiscal year 2007 (our "Named2008 as well as the other individuals listed below are referred to in this Proxy Statement as the "Named Executive Officers"Officers" or "NEOs."
Peter Blackmore | Chief Executive Officer and President | |
Hong Liang Lu | Chairman of the Board | |
Mark Green | Senior Vice President, Global Human Resources & Real Estate | |
Viraj Patel | Interim Chief Financial Officer, Vice President, Chief Accounting Officer & Corporate Controller | |
| Former Executive Vice President and Chief Financial Officer | |
Philip Christopher | Former President, Personal Communications Division |
Francis P. Barton, our former Executive Vice President and Chief Financial Officer; Peter Blackmore, PresidentOfficer, left the Company on August 31, 2008; and Chief Operating Officer; Philip Christopher, former President of UTStarcomUTStarcom's Personal Communications LLC; and David King, Senior Vice President, International Sales and Marketing. In addition, Ying Wu, our former Chairman and Chief Executive Officer of our China subsidiary, is considered an NEO for 2007 since he would have otherwise been named an NEO based on his total compensation in 2007 but for the fact that he was not serving as an executive officer ofDivision, left the Company at the end of fiscal year 2007. Mr. Wu's employment with us terminated on June 1, 2007.30, 2008.
Process for Evaluating Named Executive Officer Performance and Compensation
The Compensation Committee generally holds at least four scheduled meetings during the year and holds additional meetings periodically to review and discuss executive compensation issues. The Compensation Committee may also consider and take action by written consent. In 2007, the Compensation Committee met twelve times and acted twice by written consent.
In the first quarter of each fiscal year, generally in February, the Compensation Committee (i) considers any changes to executive officer base salaries, (ii) makes a determination whether any bonuses will be paid to our executive officers for the prior year's performance and to what extent, if any, (iii) reviews and approves annual equity grants for our executive officers in accordance with the Company's Equity Award Grant Policy (as defined below), and (iv) reviews the level of perquisites and benefits provided to each executive officer. As part of its annual process, the Compensation Committee meets to review and evaluate (i) Company performance, (ii) individual performance of each executive officer, and (iii) data related to market practices for executive compensation for each of our executive officers. During these meetings, our CEO reviews and discusses with the Committee the performance and contribution of each executive officer other than himself and the Chairman. He discusses each executive officer's achievement of strategic operational and financial goals. Our Chairman reviews and discusses with the Committee the performance and contribution of our CEO. While the Compensation Committee may discuss our CEO'sthe performance and compensation package of our CEO and Chairman with him,each of them, it meets in executive sessionsessions without him presentthem to determine histheir compensation. The Committee also has the opportunity to meet with each executive officer to discuss his or her performance during the prior fiscal year as well as goals for the current year.
The Company's Human Resources department supports the Compensation Committee in its work. TheAdditionally, the Compensation Committee also hasengages a compensation consulting firm, whose services are described in further detail in the authority to engage the services of outside advisors, experts and others for assistance. The Compensation Committee did not retain an outside advisor prior to April 2007.following section.
Engagement of and Role of Independent Compensation Consultant
In April 2007, the The Compensation Committee engaged an independentengages a compensation consulting firm, Compensia, Inc. ("Compensia"), to advise the Compensation Committee and the Board on executive and equity compensation matters. The consulting firm reports directly to the Compensation Committee, and the Compensation Committee has sole authority to hire, fire and direct the work of the advisor. Compensia Inc.performs no other work for the Company, other than in support of work relating to the Compensation Committee.
In 2008, Compensia assisted the Compensation Committee in selecting an appropriate peer group to assess executive pay levels, developed compensation "tally sheets" for each NEO, conducted a market pay assessment for each officer, and provided input to the Committee on equity compensation and market trends. Representatives from Compensia attend Compensation Committee meetings at the Committee's invitation.
The "tally sheets" prepared by Compensia in 2008 provided a comprehensive summary of each Named Executive Officer's compensation, including: (i) an estimate of projected compensation for fiscal 2008, including total target cash compensation and the total estimated value of long-term equity incentive awards, to be received by each Named Executive Officer, (ii) a summary of the intrinsic value of all outstanding vested and unvested equity awards held by each Named Executive Officer at current stock prices; and (iii) the potential benefits in the event of involuntary severance or a change of control. These "tally sheets" provided the Compensation Committee with context for the decisions they made concerning total direct compensation and individual compensation elements. Although they did not necessarily drive decision-making with regard to specific elements of the Company's executive compensation program, the "tally sheets" enabled the Compensation Committee to assess total direct compensation and the relationship of various compensation elements to each other. These "tally sheets" also provided context to the Compensation Committee's views on a variety of issues, such as changes to severance plans and employment contracts, special equity grants to promote retention, or changes in long-term variable equity incentives.
Role of Executive Management in Compensation Evaluation Process
Our Chief Executive OfficerCEO plays a significant role in the compensation setting process. Our CEO generally attends and participates in all Compensation Committee meetings; however, he does not attend executive sessions of the Compensation Committee or discussions involving decisions around his compensation. The key aspects of our Chief Executive Officer's role include (i) evaluating employee performance; (ii) assisting in the establishment of business performance targets and objectives; and (iii) recommending salary levels and equity awards other than for himself.himself and the Chairman. The Compensation Committee considers, but is not bound to and does not always accept, our Chief Executive Officer's recommendations with respect to executive compensation. The Compensation Committee typically follows the Chief Executive Officer's recommendations which are based on the same measurements the Compensation Committee uses for all executives (i.e., market data and individual performance objectives). Our Chief Executive Officer rarely recommends extraordinary adjustments for his direct reports.
While the Compensation Committee seeks input primarily from our Chief Executive Officer, the Committee consults with other executives, including our Chief Financial Officer andChairman, our Senior Vice President, Global Human Resources, and our Chief Financial Officer, to obtain recommendations with respect to Company compensation programs, practices, and packages for executives and other employees. The Compensation
Committee also has the opportunity to meet with each executive officer and discuss his or her individual performance, upon request. Other than participating in an annual evaluation process with our Chief Executive Officer and discussions with the Compensation Committee if and as requested, the other NEOs do not play a role in their own compensation determinations.
Executive Compensation Philosophy and Framework
Compensation Objectives
UTStarcom'sThe Company's compensation program is designed to achieve three primary objectives:
Target Pay PositionRole of Market Data in Compensation Evaluation Process
We use three primary pay components to support our compensation objectives: (i) base salary, (ii) an annual cash incentive/incentive ("bonus") and (iii) equity. Each is discussedequity awards (collectively, these components constitute the "direct compensation" of our executive officers). As described above, in greater detail below under "Evaluationconducting its annual compensation review at the beginning of Named Executive Officer Compensation." For each of these elements,fiscal year, the Compensation Committee examines peer groupis provided with an analysis of the compensation practices and targetsof one or more groups of peer companies. Typically, the Compensation Committee uses this analysis to compare the direct compensation including base salary, incentive bonusof our executive officers against the competitive market for executive talent (which, at the beginning of 2008 and equity,in prior years, the Committee generally set at approximately the 50th percentile of our primary peer group (as defined below)).
In making equity award decisions in February 2009, the Compensation Committee adjusted downward its version of the competitive market to reflect both the lag in current market data on equity awards as a result of the global economic downturn and the significant reduction in the "Compensation Benchmarking" section below). These target pay positions areCompany's revenues due primarily to the samedivestiture of the Personal Communications Division and other non-core businesses over the preceding 12 months. To account for all employeesthe lag in market data, the Company. While equity compensation is generally targeted at 50% ofCompensation Committee adjusted the market value duringof the equity awards reported by the median stock price decline (57%) of the primary peer group companies. In addition, as described in more detail under "Competitive Positioning" below, the Committee approved a new primary peer group for 2009 which is comprised of companies more comparable in scope to the Company's Februaryreduced size. As a result, while our pay had been set in 2008 equity grant process the decreased value of shares of our Common Stock affected our ability to targetbe approximately at the 50th percentile of market in value without substantially depletingagainst our older (and larger revenue company) peer groups, our executive pay levels are now more generally aligned at the pool of shares available for grant to all employees under the 2006 Equity Incentive Plan. Targeting the 50th75%
percentile would have also negatively impacted our equity burn rate. For these reasons, the value of our equity grants for fiscal year 2008 was generally between the 25th and 50th percentile of market practices.
newer (smaller revenue company) peer group. The Compensation Committee believes that this positioning is reasonable, appropriate and necessary to address recruiting and retention concerns in the current uncertain economic environment.
While typically the Compensation Committee has approvedset the target compensation levels for our executive officers aboverelative to the competitive market for comparable positions, ultimately, and below the target pay position,consistent with our "pay-for-performance" philosophy, actual earned compensation amounts are based on Company and individual and Company performance, to ensure an appropriate pay-for-performance alignment.performance. This pay-for-performance alignmentapproach is further supportedenhanced by the Compensation Committee's decision to weight the majority of our use ofexecutive officers' direct compensation towards variable, or at-risk, compensation,"at-risk," pay components, which isare designed to provide that executivesexecutive officers receive target or above-targetabove-market total compensation only to the extent that Company and individual performance objectives have been achieved or exceeded.
WhileNotwithstanding our pay-for-performance"pay-for-performance" philosophy, remains a central part of our compensation objectives, the Company's continuing lack of profitability over a number of years has led to increased the Compensation Committee's concern about our ability to recruit and retain qualified senior management personnelexecutives to lead our return to profitability. As a result, the Compensation Committee has taken into consideration recruiting and retention concerns as well as pay-for-performance during its evaluation of"pay-for-performance" in setting executive compensation levels in fiscal years 20072008 and 2008.2009.
Compensation BenchmarkingCompetitive Positioning
We usehave developed two groups of peer groupscompanies to assess the competitiveness of executive officerthe compensation practices and levels of our executive officers, as described below. We assessThe first peer group, the compensation levelsdata for which was obtained from publicly-available sources, is used to establish the competitive market for our Chief Executive Officer and Chief Financial Officer positions (the "Primary Peer Group"). Because of the difficulty in identifying comparable positions at these peer group companies for our NEOs and other executive officersofficer positions, the other peer group is comprised of a select group of technology companies from the annual Radford High-Technology Executive Survey (the "Secondary Peer Group"). The Compensation Committee compares its compensation decisions against market practice as reflected by both peer groups when determining the compensation of our Chief Executive Officer and we useChief Financial Officer and against market practice as reflected by the secondary peer group to assessSecondary Peer Group when determining the compensation levels of all otherour executives officers and employees.
for whom a direct comparison with the pay practices of the Primary Peer Group is not possible.
During fiscal year 2007, our "primary" peer group included For purposes of its annual compensation review at the beginning of 2008, the Compensation Committee established the Primary Peer Group to consist of the following 21 companies, which were selected on the basis of being in related businesses and having comparable revenues (~$200M-$3.3B) and a comparable market capitalization (~$300M-$6B):
ADC Telecommunications | Brocade Comm. Systems, Inc. | JDS Uniphase | ||
Adaptec, Inc. | Cohu, Inc. | LSI Logic Corporation | ||
Altera Corporation | Cypress Semiconductor Corp. | NetGear | ||
Andrew Corporation | EMS Technologies, Inc. | TEKELEC | ||
Atmel Corporation | Extreme Networks Inc. | Tellabs, Inc. | ||
Black Box Network Services | Harmonic, Inc. | Viasat, Inc. | ||
Brightpoint, Inc. | Harris Stratex Networks | Xilinx, Inc. |
The Compensation Committee also established the Secondary Peer Group to consist of 107 high technology companies included in the annual Radford High-Technology Executive Survey with revenues between $1 billion and $3 billionbillion. The identities of these companies are listed in revenue, as reportedAppendix A of this Proxy Statement.
For purposes of its annual compensation review at the beginning of 2009, and to reflect the reduction in Radford's High-Technology Executive Survey. The profile of the primary peer group aligned with UTStarcom in terms of size. Our "secondary" peer group included 21 telecom companies with more than $1 billion in annualCompany's revenue and was likewise pulled frommarket capitalization over the Radford High-Technology Executive Survey. The secondary peer group was used as an additional reference point, and is composedpreceding 12 months, the
Compensation Committee revised the Primary Peer Group to consist of the following companies:15 companies, which were selected on the basis of being in related businesses and having comparable revenues (~$300M-$1.7B) and a comparable market capitalization (~$60M-$660M):
ADC Telecommunications | ||||
Agilysis | ||||
Avocent | ||||
In October 2007, the Compensation Committee conducted its annual review of the Company's peer groups and made certain adjustments to ensure that the peer groups continued to reflect the market in which UTStarcom competes for talent. For fiscal year 2008, the Compensation Committee determined that, rather than using components of the Radford High-Technology Executive Survey as our primary peer group, our primary peer group would be composed of 21 companies with similar revenue (~0.5x-2.0x) and similar market capitalization (~0.5x-2.0x) as UTStarcom, as set forth below:
Black Box Network Services | ||||
Ciena |
TheSimilarly, the Compensation Committee then determined that our secondary peer group for fiscal year 2008 would be composedalso revised the Secondary Peer Group to consist of 115 high97 technology companies with between $1 billion and $3 billionincluded in revenue, as reported in Radford'sthe annual Radford High-Technology Executive Survey.Survey with revenues between $500 million and $1 billion. The identities of these companies: are listed in Appendix B of this Proxy Statement.
Evaluation of Named Executive Officer Compensation
The charts below display the distribution of the primary components in the overall pay mix for our CEO and other Named Executive Officers. The CEO chart below represents Mr. Lu's compensation as he was CEO at the time that equity grants were made in February 2008. The other Named Executive Officers included in the second chart are Messrs. Barton, Christopher, Green and Patel. The percentages are based on 2008 base salary, target cash bonus and target long term incentives and perquisites.
Base Salary
Base salary is the primary fixed compensation in our executive pay program and is used to attract, motivate and retain highly qualified executives. An individual's initial base salary is determined by his or her levels of expertise, experience and responsibility, as well as competitive conditions in the industry. Annual base salary increases, if any, are a reflection of the executive's performance for the preceding year, anticipated future contributions and pay level relative to similar positions in our peer group.groups. We also take into consideration internal equity with respect to the entire executive team and competitive conditions in the industry, as measured against our peer groups.
2007 Base Salary Actions
In February and March of 2007, and as part of its annual process, the Compensation Committee met to evaluate Company performance, individual performance and data related to market practices for executive compensation for each of our executive officers (other than Mr. Blackmore who joined the Company on July 2, 2007 and thus was not part of the 2007 base salary evaluation process). During these meetings, our CEO presented to the Committee his recommendations with respect to executive base salaries other than his own. The base salaries for 2007 as approved by the Compensation
Committee, the percentage increase from 2006 (if any) and the effective date of each increase is as follows:
Named Executive Officer | 2006 Base Salary | 2007 Base Salary | % Increase from 2006 | Effective date | ||||||
---|---|---|---|---|---|---|---|---|---|---|
Hong Liang Lu | $ | 700,000 | $ | 700,000 | 0 | % | N/A | |||
Francis P. Barton | $ | 500,000 | $ | 750,000 | 50 | % | January 1, 2007 | |||
Philip Christopher | $ | 530,000 | $ | 550,000 | 3.6 | % | March 1, 2007 | |||
David King | $ | 340,000 | $ | 355,000 | 4.2 | % | March 1, 2007 | |||
Ying Wu* | $ | 500,000 | $ | 550,000 | 10 | % | February 1, 2007 |
After a review of Company performance and our peer group market data, the Committee did not increase Mr. Lu's base salary for 2007. Mr. Barton's base salary was increased by 50% in light of (i) his assumption of substantially greater duties, including responsibility for the Legal and Business Development departments and (ii) the Compensation Committee's assessment of his criticality to ongoing Company success. Mr. King and Mr. Christopher received merit increases which reflected market data for their positions as well as recognition of their individual performance against targets set forth them in 2006. Mr. King's base salary increase was within budgeted base salary increase guidelines and kept him at the 50th percentile of the market. While Mr. Christopher's base salary increase brought him near the 75th percentile of the market, his increase was in recognition of sustained performance and his Division's contributions to the Company. Mr. Wu's salary was increased to align his compensation with that paid to executives with similar responsibilities who are employed by peer companies with revenue comparable to ours. This increase placed Mr. Wu's cash compensation between the 50th and 75th percentile of our primary peer group for 2007, but below the 50th percentile of our secondary peer group for 2007.
In May 2007, the Compensation Committee reviewed and considered compensation arrangements for a Chief Operating Officer candidate, taking into consideration the Company's current management structure and the probability that the Chief Operating Officer candidate would be considered as a successor to Hong Liang Lu, the Company's current Chief Executive Officer. In crafting the offer, the Committee considered the appropriate initial base salary level, whether or not a signing bonus would be an incentive to increase the candidate's interest in the position, a restricted cash award since the Company was not able to issue equity at that time, the appropriate performance bonus target as a percentage of annual salary and proposed terms of a change of control agreement. Subsequently, on May 27, 2007, the Company entered into an offer letter agreement with Mr. Peter Blackmore (the "Blackmore Agreement"), pursuant to which Mr. Blackmore was offered the position of President and Chief Operating Officer of the Company. Mr. Blackmore's salary was initially set at $800,000 per year and his target bonus was set at 100% of his base salary. The Compensation Committee took into consideration the probability that Mr. Blackmore would succeed Mr. Lu as CEO of the Company when it established his initial base salary at a level that was over the 75th percentile of our peer group for a COO candidate but was between the 50th and 75th percentile for a CEO candidate. In addition, the Company entered into a Change of Control/Involuntary Termination Severance Agreement with Mr. Blackmore, effective July 2, 2007 (the "Blackmore Severance Agreement"). See "Employment Contracts and Severance Agreements with Named Executive Officers" in the "Potential Payments Upon Termination and Change of Control" section of this Proxy Statement for a description of the material terms of the Blackmore Agreement and the Blackmore Severance Agreement.
2008 Base Salary Actions
Similar toMr. Lu, who was our CEO at the process undertaken for 2007, our CEOtime, presented to the Compensation Committee his 2008 base salary recommendations for the NEOs otherour executive officers (other than himselfwith respect to his own base salary) in February 2008. After a
review of individual and Company performance, as well as market practices for executive compensation within our peer groups, the Compensation Committee made no adjustments to base salaries for several of our NEOs other than for Mr. King, whose base salary was increased from $355,000 to $366,000 per year (an increase of 3.1% from 2007), effective March 1, 2008, in order to maintain his targeted market position relative to our peer groups.executive officers. During its deliberations, the Committee proposed an
increase to Mr. Lu's base salary in light of its review of our peer group compensation data and taking into consideration the fact that Mr. Lu had not had an increase in base salary since 2004. Mr. Lu subsequently declined any increase in his base salary in light of the Company's financial performance and management's implementation of an effective cost-reduction strategy. In making its other salary assessments, the Committee determined that the base salaries for Messrs. Barton and Christopher were aligned with the compensation of executives with similar responsibilities within our peer groups and that, in light of his recent hire date, Mr. Blackmore's base salary would not be adjusted in connection with this review. Messrs. Green and Patel received increases as outlined in the following table:
Name | Title (at time of action) | 2007 base | % Change | 2008 base | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Peter Blackmore | President and COO | $ | 800,000 | 0.0 | % | $ | 800,000 | |||||
Hong Liang Lu | Chief Executive Officer | $ | 700,000 | 0.0 | % | $ | 700,000 | |||||
Mark Green | SVP, Global HR & Real Estate | $ | 350,000 | 5.0 | % | $ | 367,500 | |||||
Viraj Patel | VP, CAO & Corp. Controller | $ | 275,000 | 5.0 | % | $ | 288,750 | |||||
Fran Barton | EVP and CFO | $ | 750,000 | 0.0 | % | $ | 750,000 | |||||
Philip Christopher | President, PCD | $ | 550,000 | 0.0 | % | $ | 550,000 |
BonusAnnual Cash Incentive Plan
Discretionary Bonus Program
UTStarcom's During 2008, each of our executive officers was eligible to earn an annual bonus program is a discretionary, variable cash incentive program designedaward equal to reward executives (as well as all employees) for achieving key operational goals. The use of a discretionary bonus program provides the Compensation Committee with the flexibility needed to address pay-for-performance goals as well as recruiting and retention concerns in a "turnaround" environment. The target annual incentive percentage for each executive represents thespecific percentage of his or her base salary that may be paid if the Company's actual performance equals an income target established at the beginning of the year. Once the Committee establishes that payouts will occur, as determined by actual company performance at year-end, the Committee may apply negative or positive discretion to adjust the actual award. In addition, at the beginning of each fiscal year, the Compensation Committee approves specific goals for each executive officer that reflect the process of "management by objective" (the "MBOs") and which are also used to measure performancereflected in the upcoming year for the purpose of determining bonus and equity awards. MBO goals include financial performance goals with a focus on returning the Company to profitability, as well as other operating goals for each executive. Metrics for non-CEO executive officers are set by the CEO and approved by the Compensation Committee.following table:
Non-Discretionary Bonus Awards
Several of our executive officers have bonus arrangements that are set forth in employment or other agreements with the executive officer.
Name | Position | Bonus Target | |||||
---|---|---|---|---|---|---|---|
Peter Blackmore | Chief Executive Officer | 100% | |||||
Hong Liang Lu | Chairman of the Board | 100% | |||||
Mark Green | SVP, Global HR & Real Estate | 65% | |||||
Viraj Patel | Interim CFO /VP, CAO& Corporate Controller | 50% | |||||
Francis P. Barton | Former EVP and CFO | 100% | |||||
Philip Christopher | Former President, PCD | Non discretionary | * |
Consistent with our "pay-for-performance" philosophy, annual cash incentive awards are based on performance against one or more pre-established corporate and individual performance objectives. In April of each year, the Compensation Table.Committee generally establishes and approves the corporate performance objectives for the annual cash incentive award program for that year based on recommendations made to the Committee by our Chief Executive Officer. The individual performance objectives for our executive officers, with the exception of the Chairman of the Board, are jointly developed by each executive officer and our Chief Executive Officer. These individual performance objectives vary from executive to executive, depending on the roles and responsibilities of each executive officer at the Company. Typically, these individual performance objectives include, for example, quantitative and qualitative goals for corporate acquisitions and divestitures, compliance, technology innovations, customer relations, improving market position and cost management. These individual performance objectives are reviewed and approved by the Compensation Committee.
Award payouts can range from 0% to 125% of target performance levels, depending on the degree to which each pre-established corporate and individual performance objective is met. In the case of corporate performance objectives, if target performance for a specific metric is achieved, 100% of the
target award payout opportunity applicable to that metric will be payable. If threshold performance for that metric is achieved, 75% of the target award payout opportunity applicable to that metric will be payable. If maximum performance for the metric is achieved or exceeded, 125% of the target award payout opportunity applicable to that metric will be payable. For performance between the relevant threshold, target and maximum levels, an interpolated multiplier is used to calculate the amount payable with respect to each metric. If threshold performance is not achieved, none of the target award payout opportunity applicable to that metric will be payable.
2008 Bonus Payouts for 2007 Performance
In February 2008, Mr. Lu, After the end of the fiscal year, each executive officer's performance against his or her performance objectives is assessed by our CEO, presentedChief Executive Officer. Our Chief Executive Officer then makes recommendations to the Compensation Committee for bonus paymentsas to the NEOspayout to be made for this individual performance component for executives other than himself,the Chairman. While the Compensation Committee considers these recommendations in deciding award payouts, it determines the payouts for each executive officer based on operatingits own evaluation of each executive's performance, and its consideration of one or more subjective factors such as its consideration of our "pay-for-performance" philosophy as well as recruiting and retention concerns.
For 2008, the pre-established corporate performance objectives were annual revenue, annual bookings and annual improvement in net income, results and his assessment of their performance during the 2007 fiscal year.adjusted for certain one-time costs. The Compensation Committee believed that the attainment of the target levels established for these performance metrics were realistic but not easily achieved, and, therefore, would drive the achievement of the Company's short-term financial goals.
In the case of our Chief Executive Officer, Chief Financial Officer, and Chairman of the Board, 50% of each annual cash incentive award opportunity was allocated to the achievement of corporate performance objectives. However, even if the target corporate performance objectives were achieved in full, the Compensation Committee reserves the right, in its sole discretion, to decrease the award payout applicable to that metric. This discretion may be applied to corporate as well as individual achievement. Similarly, the Compensation Committee has retained the authorityright, in its sole discretion, to assessmake award payouts for any corporate performance metric or metrics in the event that significant and unanticipated external events prevent the Company from meeting one or more pre-established corporate performance objectives.
2008 Bonus Program
The following table sets forth the 2008 corporate performance objectives component as approved by the Compensation Committee:
Company Financial Metric | 75% threshold (in millions) | 100% target (in millions) | 125% maximum (in millions) | Weighting | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Annual Revenue | $ | 1,454.25 | $ | 1,939.00 | $ | 2,423.75 | 1/3 | ||||||
Annual Bookings | $ | 1,545.75 | $ | 2,061.00 | $ | 2,576.25 | 1/3 | ||||||
Annual Net Income | $ | (68.00 | ) | $ | (47.20 | ) | $ | (40.80 | ) | 1/3 |
For Mr. Lu'sBlackmore, our CEO, 50% of his bonus opportunity was to be based on the Company financial performance in connectionobjectives described above; 40% was to be based on several strategic/operational initiatives (including a successful strategy review with the bonus payout process. Fifty percentBoard of Mr. Lu's MBOs areDirectors, successful execution of identified divestitures, compliance, benchmarking costs for business functions and setting the ethics tone for the organization); and 10% was to be based on people development, including building a high performance team, and establishing a succession plan.
For Mr. Lu, our Chairman, 50% of his meeting or exceeding targets for profit, bookings, revenue, gross margin, cash flowbonus opportunity was to be based on the Company financial performance objectives described above; and inventory turns, and his remaining MBOs involve corporate level and role specific goals. Eighty percent of Mr. Barton's MBOs relates50% was to his oversight of the finance, legal, compliance, treasury and internal audit functions, and the remaining MBOs are corporate andbe based on several
strategic/operational initiatives (including a successful CEO transition, a successful strategy review with the Board of Directors, successful execution of identified divestitures, identifying new business opportunities and setting the ethics tone for the organization).
For Mr. Green, 35% of his bonus opportunity was to be based on the Company financial performance objectives described above and company human resources and real estate department expense results; 45% was to be based on several strategic/operational initiatives (including leadership development, specific goals. Fifty percentstrategic staffing, supporting organizational restructuring and setting the ethics tone for the organization); and 20% was to be based on people development, including improving the performance management process and launching an employee engagement survey.
For Mr. Patel, 40% of Mr. King's targethis bonus is contingent upon his achievement of MBOs which are discussed belowopportunity was to be based on the Company financial performance objectives described above and the remainder is comprised of sales commissions. Messrs. Blackmoredepartmental expense results; 55% was to be based on several strategic/operational initiatives (including timely filings, compliance, and Christopher did not participate in the discretionary bonus program during 2007, as discussed below.benchmarking departmental costs); and 5% was to be based on people development, including team development.
In connectionDecember 2008, Mr. Blackmore, our CEO, met with this review, the Compensation Committee to evaluate the Company's preliminary financial results for 2008. At such time, Mr. Blackmore and the other Named Executive Officers recommended to the Committee that irrespective of achievement of individual performance objectives, no bonuses be paid in light of the Company's financial performance.
In view of the Company's actual performance against the pre-established financial performance metrics and the NEO's recommendation with respect to payout on the individual performance objectives, the Compensation Committee decided not to pay any bonuses for 2008 performance to our executive officers, including the Named Executive Officers.
2007 Supplemental Discretionary Bonus Program
The Compensation Committee determined during the last quarter of 2007, that, based on the Company's projected financial performance for 2007, no bonuses would be paid with respect to the NEOs for 2007, other than bonuses that were nondiscretionary. Mr. Wu was not eligible to receive a bonus for fiscal year 2007 since he was not employed by the Company at the endcorporate financial objectives portion of the fiscal year. The amounts paid as nondiscretionary bonuses are as follows:
Named Executive Officer | 2007 Annual Bonus Target as a Percent of Base Salary (unless otherwise noted) | 2007 Bonus Paid | Bonus Paid as Percentage of Target | ||||
---|---|---|---|---|---|---|---|
Peter Blackmore | 100% | $ | 400,000 | (1) | Per offer letter agreement (see discussion below) | ||
Philip Christopher | 2% of Personal Communications Division profit | $ | 821,181 | (2) | 100% | ||
David King | 33.5% of annual salary as sales commission | $ | 72,234 | (3) | 61% |
Based on the Company's financial performance for 2007, the Compensation Committee determined that no bonuses would be paid to the executive officers for 2007, other than as set forth above. Instead,opportunity as part of the Company's strategic recovery plan,plan. These bonuses were to be payable in the discretion of the Compensation Committee restructured thebased on its evaluation of each executive officer's performance against a series of pre-established corporate financial objectives.
The supplemental bonus program to provideopportunities for a bonus payable to Mr. KingMessrs. Patel and Green were structured as follows: (i)
supplemental bonus opportunity would be subject to the application of a multiplier maythat would operate as follows: the amount payable would be applied to Mr. King'sdetermined by multiplying (i) 50% the executive officer's applicable target bonus calculation. For example, if Mr. King meets 80%as a percentage of his goalsannual base salary by (ii) his actual performance as a percentage of his specific performance objectives for the first three fiscal quarters of 2008 by (iii) the Company's actual operating income for the first three fiscal quarters of 2008 as a percentage of its budgeted operating income target as of the end of the third fiscal quarter of 2008. (For example, if Mr. Patel met 80% of his performance objectives for the first three fiscal quarters of 2008 and the Company exceeds its budgeted operating income target as of the end of the third fiscal quarter of 2008 by 20% (i.e.,(that is, actual operating income was 120% of target), his bonus for this programportion of the supplemental bonus opportunity would be calculated as follows: bonus payment = base(base salary × applicable target bonus as percentage of annual salary50% × 80% × 120% × 50%. Participants in this bonus program include certain executive officers)/2. If Mr. Green met 80% of his performance objectives for the first three fiscal quarters of 2008 and vice-presidentsthe Company exceeds its budgeted operating income target as of the Company.end of the third fiscal quarter of 2008 by 20% (that is, actual operating income was 120% of target), his bonus for this portion of the supplemental bonus opportunity would be calculated as follows: bonus payment = (base salary × 65% × 80% × 120%)/2.)
In FebruaryOctober 2008, the Compensation Committee assessed Mr. King'sevaluated Messrs. Patel and Green's performance against histheir strategic operating goalsobjectives for the fourthfirst three fiscal quarters of 2008, and after taking into consideration input from our Chief Executive Officer as to their performance, determined that Mr. Patel had achieved 75% of his objectives for the period and Mr. Green had achieved 100% of his objectives for the period. In addition, the Committee assessed the Company's financial results as of the conclusion of the third quarter of 20072008 and determined that he wouldthe Company had met 86% of its budgeted operating income target for the first nine months of the year. Based on these considerations, the Committee determined, in its discretion, that Messrs. Patel and Green should be paid $59,108 (50%$46,251 (equating to a performance factor of 64%) and $102,716 (equating to a performance factor of 86%), respectively, for this portion of the overall bonus opportunity. The Committee based this decision on the following factors: Mr. Patel did not meet 100% achievement on his metrics for the first three fiscal quarters of 2008; Mr. Green achieved 100% of his target percentage, or 17%metrics for the first three fiscal quarters of his base salary) based on his achievement of those strategic operating goals. The Compensation Committee plans to evaluate achievement of the 2008 strategic operating goals as soon as practicable upon the completion of the last measurement period.2008.
Equity Compensation
Equity compensation is the largesta significant component of UTStarcom'sour executive officer compensation program. We believe this is an effective way to align the interests of our executive officers with those of our stockholders in order to achieve long-term stockholder value. In designing the equity program, we take into account stockholder concerns about stock usage and dilution. The Compensation Committee limits annual net issuances of stock-based awards, subject to extraordinary events (e.g., acquisitions). The Compensation Committee adjusts this target rate year-to-year based on performance and retention issues,objectives, also taking into account market practices. Officers and other employees of the Company are eligible to participate in the 2006 Plan, which was adopted by the Board of Directors and approved by the stockholders in July of 2006. They are also eligible to participate in the Company's Employee Stock Purchase Plan, as described below.
Both time and performance-based stock awards were granted to the NEOs in 2007 and 2008 based on Company and individual performance. Performance for equity awards is generally measured against the same criteria as discussed in the "Bonus" section above.
2007 Focal Awards
On November 30, 2007, in connection with the Company's annual focal award process for 2007 which had been postponed from February 2007 due to the Company's failure to timely file periodic reports with the Securities and Exchange Commission, the Compensation Committee granted certain of the NEOs shares of restricted stock and RSUs under the Company's 2006 Plan, as set forth below. Certain of the awards vest over time, as noted below, but the performance-based awards vest over a period of two years, with the additional requirement of achieving predetermined performance metrics as described below.
Except as noted above, the time-based awards vest over four years as follows: 25% on each of February 29, 2008, February 27, 2009, February 26, 2010, and February 28, 2011, subject to the NEO remaining a service provider (as defined in the 2006 Plan) through each such date. The number of shares to be earned by each NEO with respect to the performance-based awards was to be determined by the Compensation Committee as soon as practicable following the 2007 fiscal year end, based on
each executive's achievement of certain management performance objectives including (i) achievement of corporate financial measures such as bookings, gross margin, revenue, operating profit, cash flow, inventory turns, contribution margin, cost reduction and cash collections, (ii) achievement of certain corporate objectives, and (iii) achievement by such NEO of additional individualized performance objectives reviewed and approved by the Compensation Committee. Mr. Blackmore did not participate in the program for 2007 because he had received an equity grant in connection with his initial employment and was not an employee for all of fiscal year 2007. Mr. Wu was not eligible to participate in this program since he was not an employee at the time of grant of the performance-based RSUs.
At its meeting on February 26, 2008, the Committee measured each NEO's performance against the objectives established in November 2007 as described above and determined that the number of performance-based RSUs earned by each NEO was as follows:
Named Executive Officer | Actual RSU Award | Percentage of Actual Award versus Target | |||
---|---|---|---|---|---|
Hong Liang Lu | 133,543 | 50 | % | ||
Francis P. Barton | 67,172 | 75 | % | ||
Peter Blackmore | — | — | |||
Philip Christopher | 71,429 | 100 | % | ||
David King | 206,897 | 90 | % |
The earned RSUs will vest 50% on each of February 29, 2008 and February 27, 2009, subject to the NEO being a service provider (as defined in the 2006 Plan) on each such date. The RSUs that were not earned were forfeited.
2008 Focal Awards
In February and March 2008, and in connection with the Company's annual focal award process, the Compensation Committee granted certain of the NEOs shares of restricted stock, restricted stock units ("RSUs") and performance shares under the Company's 2006 Plan, as set forth below. Certain of the awards vest over time, as noted below, but vesting of a majority of the awards is performance-based. Performance for equity awards is generally measured against the same criteria as discussed in the "Annual Cash Incentive Plan" section above, but discretion is used by the Compensation Committee with respect to any reduction in performance shares. The number of shares to be earned by each NEO with respect to the performance-based awards is to bewas determined by the Compensation
Committee as soon as practicable followingat the conclusion of the 2008 fiscal year end, based on each executive's achievement of certain managementthe same performance objectives established and determined for the Annual Cash Incentive Plan as described below.under "Annual Cash Incentive Plan" above.
Name | Type of Award | Number of Shares | Target Performance Share Award | Performance Share Award Granted | Vesting Schedule | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Peter Blackmore | RSUs | 85,000 | — | — | 4-year time based | ||||||||
RSUs | — | 170,000 | 85,000 | Performance based | |||||||||
Hong Liang Lu | RSUs | 200,000 | — | — | 4-year time based | ||||||||
RSUs | 33,333 | — | — | 100% on February 27, 2009 | |||||||||
Performance Shares | — | 100,000 | 50,000 | Performance/time based | |||||||||
Restricted Stock | — | 300,000 | 150,000 | Performance based | |||||||||
Mark Green | RSUs | 55,000 | — | — | 4-year time based | ||||||||
RSUs | — | 110,000 | 82,500 | Performance based | |||||||||
Viraj Patel | RSUs | 30,000 | — | — | 4-year time based | ||||||||
RSUs | — | 60,000 | 60,000 | Performance based | |||||||||
Francis P. Barton | RSUs | 61,667 | — | — | 4-year time based | ||||||||
RSUs | — | 123,333 | 0 | Performance based | |||||||||
Philip Christopher | RSUs | 50,000 | — | — | 4-year time based | ||||||||
RSUs | — | 100,000 | 0 | Performance based |
Except as noted above, the time-based awards vest over four years as follows: 25% on each of February 29, 2009, February 26, 2010, February 28, 2011, and February 29, 2012, subject to the NEO remaining a service provider (as defined in the 2006 Plan) through each such date.
The performance-basedperformance based awards will be earned with respect to each NEO based on management performance objectives established and tailored for each NEO by the Committee for the Company's 2008 fiscal year, including (i) achievement of corporate financial measures such as bookings, gross margin, revenue, operating profit, net income, cash flow, inventory turns, contribution margin, cost reduction and cash collections, and (ii) achievement by such NEO of additional individualized performance objectives reviewed and approved by the Committee. Performance will be measured against the established objectives and, to the extent the established objectives have been achieved, the number of performance-based RSUs, performance shares or shares of restricted stock earned by each NEO shall be determined by the Committee, in its sole discretion, provided that such NEO remains a service provider (as defined in the 2006 Plan)vest as follows: 50% of the Companyearned awards vested on February 27, 2009 and the date of determination. Following the determination of the number of RSUs, performance shares or shares of restricted stock earned by each NEO,remaining 50% of the earned awards shall vest on each of February 27, 2009 and February 26, 2010, provided that such NEO remains a service provider of the Company (as defined in the 2006 Plan) on those dates. Performance-based awards that are not earned will be forfeited.
Retention Program/Equity Incentive for Our Chief Financial Officer
In November 2007, the Compensation Committee approved the terms of a retention plan for our CFO, Francis P. Barton, after taking into consideration: (i) Mr. Barton's performance during a challenging year, including completing the Company's previously disclosed stock option and historical sales contract investigations, bringing the Company current in its SEC filings and improving the Company's Section 404 compliance process; (ii) the critical nature of Mr. Barton's current and future role in light of anticipated management transitions in fiscal year 2008; and (iii) increasing competition in the market for experienced financial professionals. The Committee also determined that, while the retention incentive described below could be awarded in equity and/or cash, the Committee's intent was to grant equity to the extent possible under the terms of the 2006 Plan in order to increase Mr. Barton's incentive as an owner and shareholder to drive the Company toward profitability.
The agreement between Mr. Barton and the Company (the "Barton Retention Agreement") provides that the Company will provide a retention incentive to Mr. Barton with a total value of $10,000,000 (the "Retention Incentive"), consisting of a combination of restricted stock, RSUs, performance shares and performance units (together, "Equity") to be granted under the 2006 Plan and/or cash, in the sole discretion of the Compensation Committee. Each installment of the Retention Incentive will be awarded in a combination of Equity, in the Committee's sole discretion, up to the annual maximum amounts permitted under the 2006 Plan after taking into account Mr. Barton's focal awards for each particular year. Because of limits on the maximum amount of Equity that can be granted to an individual in any calendar year under the 2006 Plan, the Committee expects that the Retention Incentive will be awarded over a number of years so that as much of the Retention Incentive can be awarded under the 2006 Plan as possible. Please see the section entitled "Employment Contracts and Severance Agreements with Named Executive Officers" in the "Potential Payments Upon Termination and Change of Control" section of this Proxy Statement for a description of the material terms of the Barton Retention Agreement.
Employee Stock Purchase Plan
Our executive officers are eligible to participate in the Company's Employee Stock Purchase Plan to the same extent as all employees. The ESPP allows employees to purchase UTStarcom stock at a 15% discount. Up to 15% of an employee's annual base salary, but not more than $25,000, may be allocated to the purchase of the Company's Common Stock under this plan. All of our executive officers other than Mr. Christopher currently participate in the ESPP.
Benefits, Perquisites and Other Compensation
We provide medical and other benefits to executives that are generally available to other full-time employees, including group term life insurance, expatriate remuneration for those employees who are assigned overseas and who qualify under the terms of our expatriate remuneration plan, tuition reimbursement and a 401(k) plan. The 401(k) plan is a defined contribution plan and, after one year of service, employees are eligible to receive a matching contribution from the Company of up to $5,500. Our NEOs other than Messrs. Blackmore and King participated in our 401(k) plan during 2007 and received matching contributions.
We also provide the NEOs and certain other executives with additional perquisites, including financial planning services, (including, in some instances, a tax gross-up with respect thereto), tax assistance payments in connection with our tax equalization policy whereby we provide qualified employees with tax assistance to mitigate the tax differential arising from an employee's international work assignment, business travel accident insurance, a housing allowance, car/transportation allowances and relocation expenses for certain executives who have been asked to relocate to conduct business on behalf of the Company and disability insurance and car/transportation allowances.insurance. In addition, in accordance with the terms of Mr. Christopher's initial employment with us, we paypaid premiums on a term life insurance policy for his benefit.
The Compensation Committee reviews the perquisites provided to executive officers as part of its overall review of executive compensation. In December 2008, the Compensation Committee adopted a policy against providing tax gross-ups to executives. Pursuant to this policy, the Company eliminated tax gross-ups in connection with the Company's financial planning services benefit. The Compensation Committee has determined the type and amount paid in perquisites to be within the appropriate range of competitive compensation practices. Details about the NEO'sNEOs' perquisites, including the fiscal year 2007
2008 cost to the Company, are shown in the Summary Compensation Table under the "All Other Compensation" column and the accompanying footnotes.
2009 Compensation Decisions
Base Salaries
Similar to the process undertaken for 2008, Mr. Blackmore, our CEO, presented to the Compensation Committee his 2009 base salary for our executive officers, including the Named Executive Officers (other than himself and the Chairman of the Board) in February 2009. After a review of Company and individual performance, as well as market practices for executive compensation within our peer groups, the Compensation Committee determined that it would make no adjustments to the base salaries for any of our executive officers, including the Named Executive Officers, for 2009.
In March 2009, Mr. Lu, our Chairman of the Board, and Mr. Blackmore, our Chief Executive Officer and President, agreed to voluntary and temporary base salary reductions of twenty percent (20%) for a one year period.
Equity Compensation
In February 2009, and in connection with the Company's annual focal award process, the Compensation Committee granted certain NEOs RSU awards under the Company's 2006 Plan, as set forth below. While some of these awards vest over time, as noted below, the vesting of a majority of the awards is performance-based. The number of shares to be earned by each NEO with respect to his performance-based award will be determined by the Compensation Committee at the conclusion of fiscal 2009, based on the NEO's achievement of one or more specified performance objectives. While these objectives may be similar to the performance objectives used by the Compensation Committee to determine payments under the 2008 annual cash incentive plan, the Committee will set the actual objectives and has not set the objectives as of the time of the filing of this Proxy Statement.
The following RSUs were granted:
Name | Type of Award | Number of Shares | Target Performance Share Award | Vesting Schedule | ||||||
---|---|---|---|---|---|---|---|---|---|---|
Peter Blackmore | RSUs | 112,364 | — | 4-year time based | ||||||
RSUs | — | 224,727 | Performance based | |||||||
Hong Liang Lu | RSUs | 88,061 | — | 4-year time based | ||||||
RSUs | — | 176121 | Performance based | |||||||
Mark Green | RSUs | 60,889 | — | 4-year time based | ||||||
RSUs | — | 121,778 | Performance based | |||||||
Viraj Patel | RSUs | 18,646 | — | 4-year time based | ||||||
RSUs | — | 37,293 | Performance based |
The time-based awards vest over four years as follows: 25% on each of February 26, 2010, February 28, 2011, February 29, 2012, and February 28, 2013, subject to the NEO remaining a service provider (as defined in the 2006 Plan) through each such date. The performance-based awards if earned vest as follows: 50% of the earned RSUs shall vest on each of February 26, 2010 and February 28, 2011, provided that the executive officer remains a service provider of the Company through those dates.
Benefits
In February 2009, the Compensation Committee determined that it was in the best interest of the Company and its stockholders to suspend the Employee Stock Purchase Plan (the "ESPP") so that no further offering periods would commence until the Board of Directors or Compensation Committee provide otherwise and that all offering periods currently in effect would terminate on May 14, 2009, the next exercise date to occur under the ESPP.
At the same time, the Compensation Committee further determined that it was in the best interest of the Company and its stockholders to suspend, until further declaration, making employer matching contributions on behalf of eligible participants in the Company's 401(k) plan. This decision took effect March 1, 2009.
Other Compensation Considerations
Post-Employment ObligationsCompensation
During 2007,2008, the Company was party to change of control and involuntary termination severance agreements with certain of its NEOs, and had in place involuntary termination severance plans for the other NEOs. For a description of the material terms of these agreements, please see "Employment Contracts and Severance Agreements with Named Executive Officers" in the section entitled "Potential Payments Upon Termination and Change on Control" included in this Proxy Statement. The Compensation Committee believes these agreements are in the best interest of the Company's stockholders. As with any public company, the possibility of change of control exists for UTStarcom.the Company. Such a change of control typically means a degree of ambiguity for executives about the stability of their employment. The Compensation Committee believes these agreements help to ensure that executives will remain focused on, and committed to, the interests of the business throughout the process of exploring and/or executing a change of control.
In June 2006, the Compensation Committee adopted the Executive Involuntary Termination Severance Pay Plan (the "Executive Severance Plan"), which extends certain change of control and severance benefits to some of the Company's executive officers, including Mr. King, who do not have individual agreements with the Company. Please see "Employment Agreements and Change of Control Arrangements with Executive Officers Other Than Named Executive Officers" in this Proxy Statement for a description of the material terms of the plan. The Compensation Committee believes that the plan is in the best interests of the Company and its stockholders in that the plan, like the agreements with certain of our NEOs described above, helps to ensure the focus and commitment of our executive team during the process of exploring and/or executing a change of control.
Reasonableness of Compensation
The Compensation Committee believes it is fulfilling UTStarcom's compensation objectives and in particular, rewarding executive officers in a manner that supports our strong pay-for-performance
philosophy. Executive compensation is tied to our performance and is structured to ensure that there is an appropriate balance between our long-term and short-term performance, and also a balance between our operational performance and stockholder return. On average, the target total direct pay position for the NEOs in 2007 was between the 50th and 75th percentile of the primary peer group. The Compensation Committee believes the average target pay position relative to market and pay mix are reasonable and appropriate and are necessary to address recruiting and retention concerns in a "turnaround" environment. Mr. Barton's base salary remains high relative to our peer group; however as discussed earlier, his salary reflects (i) his assumption of substantially greater duties, including responsibility for the Legal and Business Development departments after the departure of the Company's previous Chief Financial Officer, (ii) the Compensation Committee's assessment of his criticality to ongoing Company success and (iii) Mr. Barton's extensive senior finance experience.
Other Considerations
Equity Grant Practices
The Compensation Committee approves all equity grants to our executive officers. During fiscal year 2007, the Company's equity award pool for awards (including new hire grants and any merit or focal awards) to be made during that period was approved by the Board of Directors. A percentage of this total approved pool was designated for distribution to the company executives. Functional Vice Presidents recommended annual equity grants to their supervised employees based on individual performance, with our Chief Executive Officer making recommendations for his direct reports. The Company's Human Resources department then compiled the list of recommendations and presented those recommendations to the Compensation Committee for approval. Any recommendation with respect to equity grants for our Chief Executive Officer was made by the Compensation Committee.
On April 10, 2007, the Compensation Committeehas adopted the UTStarcom, Inc. Equity Award Grant Policy and Procedures (the "Equity Award Grant Policy"), which applies to all equity awards from that date forward. In accordance with the Company's equity award grant policy,Equity Award Grant Policy, equity awards to executive officers are considered and approved as follows:
Compensation Committee meetings may be held at any time to consider the approval of equity awards proposed to be provided to new executive officers (including new executive officers resulting from either new hires or promotions, but other than annual focal awards, as described below), but equity awards granted by the Compensation Committee shall become effective as of the last trading day of the month of grant.
Compensation Committee meetings to consider the approval of annual focal awards to executive officers shall be held during the last two weeks of February of each year, if reasonably practicable, and
subject to compliance with applicable laws, rules and regulations. If a meeting cannot be held and/or equity awards cannot be granted in accordance with applicable laws, rules and regulations during this time period, the Compensation Committee shall determine the meeting date for the consideration and
approval of focal awards. The Compensation Committee shall meet to approve focal equity awards during an open trading window as such term is defined in the Company's Insider Trading Policy.Policy, if the meeting is not held during the last two weeks of February.
Equity grants made to employees who are not executive officers or corporate vice presidents may be made by the Awards Committee, a management committee duly formed and authorized by the Compensation Committee and consisting of the Company's Chief Financial Officer, Senior Vice President of Human Resources, General Counsel and Chief Accounting Officer. The Awards Committee may grant stock options or restricted stock units and only then in accordance with specific guidelines set by the Compensation Committee. Any award grants approved by the Awards Committee are effective as of the last trading day of the month of grant. Equity grants are made subject to an annual equity pool approved by the Compensation Committee. The approval pool to be awarded by the Awards Committee consisted of 1,000,000 shares in 2007 and will consist of 2,000,000 shares in 2008. This increase to the equity pool reflects the additional authority granted by the Compensation Committee to the Awards Committee to review and award all focal and new hire awards to employees and service providers below the corporate vice president level and within certain established guidelines. The Human Resources Department provides quarterly updates to the Compensation Committee regarding equity usage.
Tax ConsiderationsBurn Rate Policy
The Board of Directors has adopted a burn rate policy committing the Company to limit the number of shares of our Common Stock that we may use for equity compensation during fiscal years 2008, 2009 and 2010. For this three-year period, the policy limits the number of shares that we grant subject to equity awards to an average of 4.80% of our outstanding Common Stock. Thus, while we may exceed the 4.80% burn rate in a given year, the policy requires that our three-year average not exceed 4.80%. Awards that are settled in cash, awards sold under the ESPP, awards assumed in acquisitions and any awards granted in connection with our option exchange program will be excluded from our burn rate calculation. For purposes of our calculation, each share subject to a full value award (such as a restricted stock unit, performance share, performance unit and any other award that does not have an exercise price per share equal to the per share fair market value of our common stock on the grant date) will be counted as 1.5 shares.
Section 162(m) of the Internal Revenue Code
Section 162(m) of the Internal Revenue Code statesprovides that public companies cannot deduct compensation paid to certain of its topsenior executive officers in excess of $1 million per officer per year, but excludes from the calculation of the $1 million limitthis limitation certain elements of compensation, including performance-based"performance-based compensation," provided that certain requirements are met. We believe it is in our best interest, to the extent practical, to have executive officer compensation be fully deductible under Section 162(m). However, theThe Compensation Committee alsotakes compliance with Section 162(m) into account while making compensation decisions and retains the discretion for competitive reasons, to providepay compensation that mayis not be fully deductible. In a few instances, a portion of our annual bonus payments to certain of our executive officers does not currently qualify as deductible under Section 162(m). The Compensation Committee will continue to evaluate whether it is in the Company's best interest to qualify future incentive awards under Section 162(m). While stock options granted under our 1997 Stock Plan (the "1997 Plan") did not meet the requirements of Section 162(m), future equity awards will be granted under our 2006 Plan, which was approved by our stockholders, and therefore meetsmeet the requirements underof the "performance-based compensation" exception of Section 162(m).
Section 409A of the Internal Revenue Code
Section 409A of the Internal Revenue Code imposes additional significant taxes in the event an NEO, director or other service provider receives "deferred compensation" that does not satisfy the requirements of Section 409A. Although we do not maintain a traditional nonqualified deferred compensation plan, Section 409A applies to certain severance arrangements and equity awards. Consequently, to assist in avoiding additional tax under 409A, we developed the severance arrangements described above in "Post-Employment Obligations"Compensation" in a manner intended to either avoid the application of Section 409A or, to the extent doing so is not possible, comply with the applicable Section 409A requirements.
Stock Ownership Guidelines
Effective January 1, 2006, by the decisionCompany adopted stock ownership guidelines (the "Guidelines") for non-employee directors and certain executive officers.
Each executive officer and non-employee director is expected to acquire and hold the number of shares of the Company's Common Stock specified below before the later of four years after (i) January 1, 2006 or (ii) the executive officer's appointment to such position or a non-employee director's appointment to the Board.
Position | Minimum Share Ownership Requirements | |||
---|---|---|---|---|
Chief Executive Officer and President | 50,000 | |||
Executive Vice Presidents | 25,000 | |||
Senior Vice Presidents/Division Presidents | 10,000 | |||
Non-Employee Directors | 10,000 |
The Company reviews compliance with the Guidelines annually. Failure to comply with the Guidelines may result in a reduction in future long-term incentive award and/or payment of future annual and/or long-term incentive payouts made in the form of shares of the Company's Common Stock. The Nominating and Corporate Governance Committee has the discretion to waive the Guidelines if compliance would create severe personal hardship for an executive officer or non-employee director or prevent an executive officer or non-employee director from complying with a court order. The Nominating and Governance Committee of the Board, the Company imposed minimum stock ownership guidelines for certain executive officers as well as non-executive directors of the Company. Each executive officer is expected to acquire the required number of shares of Common Stock as set forth by the guidelines (which range from 10,000 shares to 50,000 shares, depending on the level of responsibility of the officer) before the later of (i) four years after the effective date of the guidelines or (ii) four years after an officer's appointment toexpects that such executive office.instances will be rare. All executives requiredsubject to comply with these guidelinesthe Guidelines have currently meetsatisfied the ownershipminimum requirements for 2008.
requirements. See the section entitled "Stock Ownership Guidelines" in this Proxy Statement for additional information with respect to this program.
REPORT OF THE COMPENSATION COMMITTEE
The following is the report of the Compensation Committee. The information contained in this report shall not be deemed to be "soliciting material" or to be "filed" with the SEC, or subject to Regulation 14A or 14C or to the liabilities of Section 18 of the Securities Exchange Act, except to the extent that the Company specifically requests that such information be treated as soliciting material or specifically incorporates the information by reference in any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
The Compensation Committee of the Board of UTStarcom Inc. was established on January 31, 1997 and is currently comprised of fourthree members: Messrs. Clarke, Horner, Lenzmeier and Toy. Mr. Lenzmeier, the Chairman of the Compensation Committee, and Messrs. HornerClarke and Toy served on the Committee throughout 2007. Mr. Clarke was appointed to serve on the Compensation Committee on April 27, 2007.2008.
During 2007,2008, the Compensation Committee was comprised solely of non-employee directors who were each: (i) independent as defined under the NASDAQ Marketplace Rules, (ii) a non-employee director for purposes of Rule 16b-3 of the Securities Exchange Act of 1934, as amended, and (iii) an "outside director" for purposes of Section 162(m) of the Internal Revenue Code. During 2008,2009, the Compensation Committee will continue to be comprised of directors who meet these same standards.
The Compensation Committee has reviewed and discussed the "Compensation Discussion and Analysis" section of this Proxy Statement with management, including UTStarcom's Chairman of the Board, Chief Executive Officer and Interim Chief Financial Officer. Based on this review and discussion, the Compensation Committee recommended to the Board that the "Compensation Discussion and Analysis" section be included in this Proxy Statement.
The Compensation Committee | ||
Allen Lenzmeier, Chairman Thomas J. Toy |
Summary Compensation Table for Fiscal Year 20072008
The following table presents information concerning the total compensation of (i) our principal executive officer, (ii) our principal financial officer, (iii) our three most highly compensated executive officers,the individuals who served as the Company's CEO, CFO and other than our principal executive officer and principal financial officer, who were serving as executive officers at the end of our 2007 fiscal year, and (iv) a former executive officer for whom disclosure would have been provided but for the fact that he was not serving as an executive officer at the end of the 2007 fiscal year (the "Named Executive Officers"). during 2008. No disclosure is provided for fiscal year2007 and 2006 for those persons who were not Named Executive Officers in 2006.2007 and/or 2006
Name and principal position | Year | Salary ($) | Bonus ($)(1) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($) | Total ($) | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Hong Liang Lu Chief Executive Officer | 2007 2006 | 700,000 700,000 | 0 315,000 | 312,010 930,549 | (2) (3) | 295,238 1,376,655 | (4) (5) | — — | 198,567 18,345 | (6) (7) | 1,505,815 3,340,549 | |||||
Francis P. Barton Executive Vice President and Chief Financial Officer | 2007 2006 | 750,000 500,000 | 0 750,000 | 3,039,375 586,326 | (2) (3) | 538,592 823,294 | (4) (5) | — — | 84,983 101,769 | (8) (9) | 4,412,950 2,761,389 | |||||
Peter Blackmore* President and Chief Operating Officer | 2007 | 400,000 | 500,000 | (15) | 500,000 | (2) | 150,000 | (4) | — | — | 1,550,000 | |||||
Philip Christopher** President, Personal Communications Division | 2007 | 548,333 | 0 | 48,106 | (2) | 531,469 | (4) | 821,181 | 84,864 | (10) | 2,033,953 | |||||
David King*** Senior Vice President, International Sales and Marketing | 2007 | 358,742 | 59,108 | 257,625 | (2) | 41,764 | (4) | 72,246 | 29,797 | (11) | 819,282 | |||||
Ying Wu**** Former Executive Vice President and Chairman | 2007 2006 | 346,175 500,000 | 0 320,000 | (318,136 318,136 | )(14) (3) | (316,092 604,808 | )(14) (5) | — — | 1,504,639 290,038 | (12) (13) | 1,216,586 2,032,982 |
Name and principal position | Year | Salary ($) | Bonus ($)(1) | Stock Awards ($)(2) | Option Awards ($)(3) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($) | Total ($) | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Peter Blackmore | 2008 | 800,000 | 0 | 1,463,451 | 300,000 | — | 802 | (5) | 2,564,253 | |||||||||||||||||
Chief Executive Officer | 2007 | 400,000 | 500,000 | (4) | 500,000 | 150,000 | — | — | 1,550,000 | |||||||||||||||||
and President | ||||||||||||||||||||||||||
Hong Liang Lu | 2008 | 700,000 | 0 | 898,490 | 0 | — | 550,347 | (6) | 2,148,837 | |||||||||||||||||
Chairman of the Board | 2007 | 700,000 | 0 | 312,010 | 295,238 | — | 198,567 | (7) | 1,505,815 | |||||||||||||||||
2006 | 700,000 | 315,000 | 930,549 | 1,376,655 | — | 18,345 | (8) | 3,340,549 | ||||||||||||||||||
Mark Green | 2008 | 364,583 | 216,466 | 773,045 | 0 | — | 14,601 | (9) | 1,368,695 | |||||||||||||||||
SVP, Global HR & | — | |||||||||||||||||||||||||
Real Estate | ||||||||||||||||||||||||||
Viraj Patel | 2008 | 286,458 | 115,001 | 541,870 | 65,784 | — | 8,252 | (10) | 1,017,365 | |||||||||||||||||
Interim CFO /VP, CAO& | — | |||||||||||||||||||||||||
Corporate Controller | ||||||||||||||||||||||||||
Francis P. Barton* | 2008 | 586,449 | 0 | 2,816,280 | 313,109 | — | 380,000 | (11) | 4,095,838 | |||||||||||||||||
Former EVP and | 2007 | 750,000 | 0 | 3,039,375 | 538,592 | — | 84,983 | (12) | 4,412,950 | |||||||||||||||||
Chief Financial Officer | 2006 | 500,000 | 750,000 | 586,326 | 823,294 | — | 101,769 | (13) | 2,761,389 | |||||||||||||||||
Philip Christopher** | 2008 | 275,000 | 0 | 84,572 | 217,637 | 1,071,081 | 1,600,749 | (14) | 3,249,139 | |||||||||||||||||
Former President, Personal | 2007 | 548,333 | 0 | 48,106 | 531,469 | 821,181 | 84,864 | (15) | 2,033,953 | |||||||||||||||||
Communications Division |
Amounts reported for 2007 do not reflect compensation actually received by the NEOs. Instead, amounts shown are the dollar amounts recognized for financial statement reporting purposes for the fiscal year ended December 31, 2007 in accordance with SFAS 123(R), including amounts for stock awards granted in and prior to 2007. Pursuant to SEC regulations, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. Except for Mr. Blackmore, certain amounts include awards with performance-based vesting conditions, with compensation initially measured under SFAS 123(R) at grant date fair value and re-measured at each financial statement reporting date. The cumulative
compensation cost for such awards is adjusted to reflect the fair value at the time the Compensation Committee determines the ultimate number of awards earned. For a discussion on the Compensation Committee's final award determinations based upon the performance-based vesting conditions and the cumulative dollar amount recognized for financial statement reporting in accordance with SFAS 123(R), please see footnotes 1 and 3 to the table entitled "Grants of Plan-Based Awards in Fiscal year 2007" contained in this Proxy Statement. A discussion of the valuation assumptions used for purposes of the SFAS 123(R) calculation is included under Note 14 to our 2007 Consolidated Financial Statements that are part of our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
Amounts shown for 2006 do not reflect compensation actually received by the Named Executive Officers.NEOs. Instead, amounts shown are the dollar amounts recognized for financial statement reporting purposes for the fiscal year ended
December 31, 2006 in accordance with SFAS 123(R), including amounts for stock awards granted in and prior to 2006. Pursuant to SEC regulations, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. The amounts include awards with performance-based vesting conditions, with compensation initially measured under SFAS 123(R) at grant date fair value and re-measured at each financial statement reporting date. The cumulative compensation cost for such awards is adjusted to reflect the fair value at the time the Compensation Committee determines the ultimate number of awards earned. A discussion of the valuation assumptions used for purposes of the SFAS 123(R) calculation is included under Note 2 to our 2006 Consolidated Financial Statements that are part of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006.
Amounts shown for 2007 do not reflect compensation actually received by the NEOs. Instead, amounts shown are the dollar amounts recognized for financial statement reporting purposes for the fiscal year ended December 31, 2007 in accordance with SFAS 123(R), including amounts for stock option awards granted in and prior to 2007. Pursuant to SEC regulations, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. A discussion of the valuation assumptions used for purposes of the SFAS 123(R) calculation is included under Note 14 to our 2007 Consolidated Financial Statements that are part of our Annual Report on Form 10-K for the fiscal year ended December 31, 2007. The exercise price of certain stock options granted under option agreements executed in February 2002 was increased from $20.25 per share to $22.93 per share, and the exercise price of certain stock options granted under option agreements executed in July 2002 was increased from $15.72 per share to $20.82 per share. The incremental fair value, computed as of the modification date in accordance with SFAS 123(R), with respect to each such modified award is $0. For a discussion of modifications made to outstanding equity awards held by certain Named Executive Officers, please see the section entitled "Executive Compensation—Modifications to Outstanding Equity Awards" contained in this Proxy Statement.
Amounts shown for 2006 do not reflect compensation actually received by the Named Executive Officers.NEOs. Instead, amounts shown are the dollar amounts recognized for financial statement reporting purposes for the fiscal year ended December 31, 2006 in accordance with SFAS 123(R), including amounts for stock option awards granted in and prior to 2006. Pursuant to SEC regulations, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. The amounts include awards with performance-based vesting conditions, with compensation initially measured under SFAS 123(R) at grant date fair value and re-measured at each financial statement reporting date. The cumulative compensation cost for such awards is adjusted to reflect the fair value at the time the Compensation Committee determines the ultimate number of awards earned. A discussion of the valuation assumptions used for purposes of the SFAS 123(R) calculation is included under Note 2 to our 2006 Consolidated Financial Statements that are part of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006. The exercise price of certain stock options granted under option agreements executed
Mr. Blackmore's annual base salary for fiscal years 2007 and 2008 is currently set at $800,000 per year. Please see "2008 Base Salary Actions" in the Compensation Discussion and Analysis included in this Proxy Statement for a description of the actions taken by the Compensation Committee with respect to salaries of our Named Executive Officers for fiscal year 2008.
For a description of the Company's process for determining the payment of discretionary bonuses to certain of its executive officers and the payment of long-term, non-equity incentive compensation to Messrs. Christopher and King, please see the section entitled "Bonus" in the Compensation Discussion and Analysis included in this Proxy Statement.
From time to time, we enter into offer letters and other agreements with our executive officers. For a description of the material terms of such offer letter agreements, and a description of severance and change of control agreements entered into with certain of our executive officers, please see the section entitled "Employment Contracts and Severance Agreements with Named Executive Officers" in the "Potential Payments Upon Termination and Change of Control" section included in this Proxy Statement.
For a description of material modifications made to certain of the Named Executive Officers' outstanding equity awards, please see the section entitled "Modifications to Outstanding Equity Awards" included in this Proxy Statement.
Grants of Plan-Based Awards
The following table presents information concerning grants of plan-based awards to each of the Named Executive Officers during the fiscal year ended December 31, 2007.2008.
GRANTS OF PLAN-BASED AWARDS IN FISCAL YEAR 20072008
| | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Sh) | | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Grant Date Fair Value of Stock and Option Awards ($) | |||||||||||||||||||||
Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#)(4) | Target (#) | Maximum (#) | ||||||||||||||||
Hong Liang Lu | 11/30/2007 11/30/2007 11/30/2007 | 0 | — — 267,086 | (1) | — — 267,086 | (1) | 40,000 133,543 — | (7) (7) | 116,000 387,275 774,549 | (3) | |||||||||||||
Francis P. Barton | 11/30/2007 11/30/2007 11/30/2007 11/30/2007 11/30/2007 11/30/2007 | 0 | — — — — — 89,562 | (1) | — — — — — 89,562 | (1) | 44,781 165,657 254,000 300,000 689,655 — | (8) (9) (9) (9) (9) | 129,865 480,405 736,600 870,000 2,000,000 259,730 | (3) | |||||||||||||
Peter Blackmore | 10/31/2007 10/31/2007 10/31/2007 | 900,000 — 350,000 | (10) (10) | — 750,000 — | (2)(10) | — 3.20 — | 2,880,000 1,200,000 1,120,000 | ||||||||||||||||
Philip Christopher | — 11/30/2007 11/30/2007 | 0 | 821,121 | (5) | 821,121 | (5) | 0 | — 71,429 | (1) | — 71,429 | (1) | 35,714 — | (11) | 103,571 207,144 | (3) | ||||||||
David King | — 11/30/2007 11/30/2007 | 0 | 118,925 | (6) | 118,925 | (6) | 0 | — 229,885 | (1) | — 229,885 | (1) | 114,943 — | (12) | 333,335 666,667 | (3) | ||||||||
Ying Wu* | — | — | — | — | — | — |
| | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards(1) | All Other Stock Awards: Number of Shares of Stock | All Other Option Awards: Number of Securities Underlying | Exercise or Base Price of Option | Grant Date Fair Value of Stock and | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#)(3) | Target (#) | Maximum (#) | or Units (#) | Options (#) | Awards ($/Sh) | Option Awards | |||||||||||||||||||||||
Peter Blackmore | 2/29/2008 | 85,000 | (2) | 239,700 | ||||||||||||||||||||||||||||||
2/29/2008 | 0 | 170,000 | (1) | 170,000 | (1) | — | 479,400 | (8) | ||||||||||||||||||||||||||
7/31/2008 | 115,000 | (4) | 542,800 | |||||||||||||||||||||||||||||||
7/31/2008 | 57,500 | (5) | 271,400 | |||||||||||||||||||||||||||||||
Hong Liang Lu | 2/29/2008 | 200,000 | (2) | 564,000 | ||||||||||||||||||||||||||||||
2/29/2008 | 33,333 | (6) | 93,999 | |||||||||||||||||||||||||||||||
3/31/2008 | 0 | 300,000 | (1) | 300,000 | (1) | 300,000 | 852,000 | (8) | ||||||||||||||||||||||||||
3/31/2008 | 0 | 100,000 | (1) | 100,000 | (1) | 100,000 | 284,000 | (8) | ||||||||||||||||||||||||||
Viraj Patel | 2/29/2008 | 60,000 | (1) | — | 169,200 | (8) | ||||||||||||||||||||||||||||
2/29/2008 | 30,000 | (2) | 84,600 | |||||||||||||||||||||||||||||||
Mark Green | 2/29/2008 | 110,000 | (1) | — | 310,200 | (8) | ||||||||||||||||||||||||||||
2/29/2008 | 55,000 | (2) | 155,100 | |||||||||||||||||||||||||||||||
Francis P. Barton* | 1/31/2008 | 722,022 | (7) | 2,000,001 | ||||||||||||||||||||||||||||||
1/31/2008 | 300,000 | (7) | 831,000 | |||||||||||||||||||||||||||||||
1/31/2008 | 300,000 | (7) | 831,000 | |||||||||||||||||||||||||||||||
1/31/2008 | 115,000 | (2) | 318,550 | |||||||||||||||||||||||||||||||
2/29/2008 | 61,667 | (2) | 173,901 | |||||||||||||||||||||||||||||||
2/29/2008 | 0 | 123,333 | (1) | 123,333 | (1) | — | 347,799 | (8) | ||||||||||||||||||||||||||
Philip Christopher** | ||||||||||||||||||||||||||||||||||
0 | 1,071,081 | (9) | 1,071,081 | (9) | ||||||||||||||||||||||||||||||
2/29/2008 | 0 | 100,000 | (1) | 100,000 | (1) | — | 282,000 | (8) | ||||||||||||||||||||||||||
2/29/2008 | 50,000 | (2) | 141,000 |
Pension Benefits for Fiscal year 20072008
The Named Executive OfficersNEOs did not receive any benefits from the Company under defined pension or defined contribution plans, other than our tax-qualified 401(k) Plan, during the fiscal year ended December 31, 2007.
Nonqualified Deferred Compensation for Fiscal year 20072008
The Company does not have any non-qualified deferred compensation plan that allows the Named Executive OfficersNEOs to defer their compensation.
Outstanding Equity Awards at Fiscal Year-End 20072008
The following table sets forth the outstanding equity awards for each Named Executive OfficerNEO as of December 31, 2007.2008.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 20072008
| 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 ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($)(1) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(1) ($) | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | 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 ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(1) ($) | ||||||||||||||||||||||||||||
Hong Liang Lu | 400,000 150,000 100,000 100,000 150,000 75,000 120,000 250,000 234,000 — | — — — — — — — — — — | — — — — — — — — — — | 4.50 13.00 15.00 12.50 22.93 20.82 19.04 37.46 6.25 — | (2) (3) | 8/31/2009 2/3/2010 10/17/2010 12/20/2010 2/27/2012 7/24/2012 2/2/2013 1/19/2014 2/27/2016 — | — — — — — — — — — 40,000 133,543 | (10) (11) | — — — — — — — — — 110,000 367,243 | — — — — — — — — — — — 267,086 | (20) | — — — — — — — — — — — 734,487 | 400,000 | — | — | 4.50 | 8/31/2009 | — | — | — | — | |||||||||||||||||||||||||
150,000 | — | — | 13.00 | 2/3/2010 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
89,999 | — | — | 15.00 | 10/17/2010 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
90,000 | — | — | 12.50 | 12/20/2010 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
134,999 | — | — | 25.25 | (2) | 2/27/2012 | — | — | — | — | |||||||||||||||||||||||||||||||||||||
67,500 | — | — | 20.82 | (3) | 7/24/2012 | — | — | — | — | |||||||||||||||||||||||||||||||||||||
108,000 | — | — | 19.04 | 2/2/2013 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
224,999 | — | — | 37.46 | 1/19/2014 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
210,599 | — | — | 6.25 | 2/27/2016 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
— | — | — | — | — | 66,772 | (7) | 123,528 | — | — | |||||||||||||||||||||||||||||||||||||
100,157 | (8) | 185,290 | — | — | ||||||||||||||||||||||||||||||||||||||||||
200,000 | (9) | 370,000 | — | — | ||||||||||||||||||||||||||||||||||||||||||
33,333 | (10) | 61,666 | — | — | ||||||||||||||||||||||||||||||||||||||||||
300,000 | (24) | 555,000 | ||||||||||||||||||||||||||||||||||||||||||||
100,000 | (24) | 185,000 | ||||||||||||||||||||||||||||||||||||||||||||
Francis P. Barton | 233,334 92,000 — — | 166,666 — — | (4) | — — — | 8.82 6.25 — | 7/31/2015 2/27/2016 — | — — 50,000 44,781 127,586 254,000 165,657 | (12) (13) (14) (15) (16) | — — 137,500 123,148 350,862 698,500 455,557 | — — — — — — — 89,562 | (20) | — — — — — — — 246,296 | 300,000 | (4) | — | — | 8.82 | 7/31/2015 | — | — | — | — | ||||||||||||||||||||||||
92,000 | — | — | 6.25 | 2/27/2016 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Peter Blackmore | — | 750,000 | (5) | — | 3.20 | 10/31/2014 | — 900,000 350,000 | (17) (18) | — 2,475,000 962,500 | — — | — — | 265,625 | (5) | 484,375 | — | 3.20 | 10/31/2014 | — | — | — | — | |||||||||||||||||||||||||
Phillip Christopher | 154,167 52,084 34,375 | 45,833 47,916 40,625 | (6) (7) (8) | — — — | 17.87 6.61 6.25 | 11/4/2014 11/7/2015 2/27/2016 | — — — — 35,714 — | (13) | — — — — 98,214 — | — — — — — 71,429 | (20) | — — — — — 196,430 | ||||||||||||||||||||||||||||||||||
David King | 20,834 | 29,166 | (9) | 6.92 | 4/6/2016 | — 37,500 114,943 | (19) (13) | — 103,125 316,093 | — 229,885 | (20) | — — — 632,184 | |||||||||||||||||||||||||||||||||||
Ying Wu* | 80,000 75,000 55,000 55,000 100,000 50,000 85,000 200,000 80,000 | — — — — — — — — — | — — — — — — — — — | 4.50 13.00 15.00 12.50 22.93 20.82 19.04 37.46 6.25 | (2) (3) | 4/25/2009 2/3/2010 10/17/2010 12/20/2010 2/27/2012 7/24/2012 2/2/2013 1/19/2014 2/27/2016 | — — — — — — — — — | — — — — — — — — — | — — — — — — — — — | — — — — — — — — — | ||||||||||||||||||||||||||||||||||||
675,000 | (11) | 1,248,750 | — | — | ||||||||||||||||||||||||||||||||||||||||||
262,500 | (12) | 485,625 | — | — | ||||||||||||||||||||||||||||||||||||||||||
57,500 | (13) | 106,375 | — | — | ||||||||||||||||||||||||||||||||||||||||||
115,000 | (14) | 212,750 | — | — | ||||||||||||||||||||||||||||||||||||||||||
85,000 | (15) | 157,250 | — | — | ||||||||||||||||||||||||||||||||||||||||||
170,000 | (24) | 314,500 | ||||||||||||||||||||||||||||||||||||||||||||
Viraj Patel | 38,542 | (6) | 11,458 | 7.53 | 11/17/2015 | — | — | |||||||||||||||||||||||||||||||||||||||
17,709 | 7,291 | 6.25 | 2/27/2016 | — | — | |||||||||||||||||||||||||||||||||||||||||
12,500 | (16) | 23,109 | — | — | ||||||||||||||||||||||||||||||||||||||||||
45,535 | (17) | 84,240 | — | — | ||||||||||||||||||||||||||||||||||||||||||
60,715 | (18) | 112,323 | — | — | ||||||||||||||||||||||||||||||||||||||||||
30,000 | (19) | 55,500 | — | — | ||||||||||||||||||||||||||||||||||||||||||
60,000 | (24) | 111,000 | ||||||||||||||||||||||||||||||||||||||||||||
Mark Green | — | — | — | — | 12,500 | (20) | 23,109 | — | — | |||||||||||||||||||||||||||||||||||||
68,571 | (21) | 126,856 | — | — | ||||||||||||||||||||||||||||||||||||||||||
91,429 | (22) | 169,144 | — | — | ||||||||||||||||||||||||||||||||||||||||||
55,000 | (23) | 101,750 | — | — | ||||||||||||||||||||||||||||||||||||||||||
110,000 | (24) | 203,500 | ||||||||||||||||||||||||||||||||||||||||||||
Philip Christopher | — | — | — | — | — | — | — | — | — |
exercisable for a period of 12 months following Mr. Wu's last day of employment of June 1, 2007 (but in no event will an option be exercisable for a longer period than the original term of the option).
Option Exercises and Stock Vested in Fiscal year 20072008
The following table presentssets forth all stock options exercised and value realized upon exercise, and all stock awards vested and value realized upon vesting, by the Named Executive OfficersNEOs during the fiscal year ended December 31, 2007.2008.
OPTION EXERCISES AND STOCK VESTED IN FISCAL YEAR 20072008
| OPTION AWARDS | STOCK AWARDS | OPTION AWARDS | STOCK AWARDS | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($)(1) | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($)(1) | |||||||||||||
Hong Liang Lu | — | — | 117,000 | 339,300 | — | — | 140,157 | 358,443 | |||||||||||||
Francis P. Barton | — | — | 933,069 | 2,722,119 | — | — | 946,625 | 3,104,263 | |||||||||||||
Peter Blackmore | — | — | — | — | — | — | 312,500 | 1,475,000 | |||||||||||||
Mark Green | — | — | 126,786 | 341,646 | |||||||||||||||||
Philip Christopher | — | — | — | — | — | — | 44,643 | 125,893 | |||||||||||||
David King | — | — | 12,500 | 42,234 | |||||||||||||||||
Ying Wu | — | — | — | — | |||||||||||||||||
Viraj Patel | — | — | 88,393 | 238,753 |
Modifications to Outstanding Equity Awards
In connection with our voluntary review of our historical equity award grant practices, each of our independent directors Messrs.at such time, including continuing directors Clark, Horner, Lenzmeier and Toy, elected to amend any of his previously granted stock options that may in the future be determined to be discounted stock options under Section 409A of the Internal Revenue Code of 1986, as amended ("Section 409A"), by executing a Stock Option Amendment Election Form in December 2006. In the event any such previously granted stock option is determined to be a discounted stock option under Section 409A, the affected stock option agreement will be automatically amended to provide for an exercise price not less than the fair market value of the Common Stock subject to option on the effective date of grant.
Additionally, in December 2006 certain of our Named Executive Officers, including Messrs. Lu Barton and Wu,Barton, executed a Protective Amendment Election Form that amends any stock option agreements previously entered into by and between us and each of Messrs. Lu Barton and Wu,Barton, in the event any such stock option agreements may in the future be determined to have resulted in the above individuals holding discounted stock options under Section 409A. In the event any such previously granted stock option is determined to be a discounted stock option under Section 409A, the affected stock option agreement will be automatically amended to provide for an exercise price not less than the fair market value of the Common Stock subject to option on the effective date of grant.
Each of Messrs.Also in December 2006, Mr. Lu and Wu also executed an Amendment Election Form that amends the terms of various stock option agreements entered into by and between us and Messrs.Mr. Lu and Wu in February and July of 2002. Each Amendment Election Form provides for an adjustment to the exercise price of the applicable stock options, to the extent such options remained unexercised at the time of the election and may constitute discounted stock options under Section 409A, based on preliminary estimates made solely for tax purposes in order to avoid potential adverse tax consequences to Messrs.Mr. Lu and Wu and usthe
Company associated with discounted stock options under Section 409A. The exercise price of applicable stock options granted under the Option Agreements executed in February 2002 was
increased from $20.25 per share to $22.93 per share, and the exercise price of grants under the Option Agreements executed in July 2002 was increased from $15.72 per share to $20.82 per share. In January 2009 Mr. Lu by mutual agreement with the Company had 102,904 options cancelled. He received no cash as consideration for the cancellation.
POTENTIAL PAYMENTS UPON TERMINATION AND CHANGE OF CONTROL
Employment Contracts and Severance Agreements with Named Executive Officers
Hong Liang Lu. On November 30, 2007, we entered into an Amended and Restated Change of Control/Involuntary Termination Severance Agreement with Hong Liang Lu, the Company's Chief Executive Officer (the "Lu Severance Agreement"), which was subsequently amended and restated on January 30, 2008 to bring the agreement into compliance with Section 409A. The Lu Severance Agreement, as amended and restated, amends Mr. Lu's previous Change of Control Severance Agreement with the Company dated January 17, 2003, as previously filed with the SEC. The Lu Severance Agreement has a term of three (3) years from January 30, 2008. Following the expiration of the three (3)-year term, Mr. Lu and the Company may, but are not obligated to, enter into a new agreement. If Mr. Lu's employment continues following the expiration of the three (3)-year term and the Company and Mr. Lu do not enter into a new agreement, Mr. Lu's then current benefits arrangements shall continue in accordance with the terms of the Lu Severance Agreement until the parties agree otherwise.
The Lu Severance Agreement provides that if Mr. Lu's employment with the Company is terminated as a result of an "involuntary termination" by the Company or terminated by Mr. Lu for "good reason" (as both terms are defined in the Lu Severance Agreement) at any time within eighteen (18) months after a change of control, he shall be entitled to the following severance benefits: (i) twenty-four (24) months of base salary as in effect as of the date of such termination, (ii) two hundred percent (200%) of his full annual performance target bonus for the year in which termination occurs, less applicable withholding, (iii) all equity awards including, without limitation, option grants, restricted stock and stock purchase rights, granted to Mr. Lu prior to the change of control will become fully vested or released from the Company's repurchase right (if any shares of stock purchased by or granted to Mr. Lu prior to the change of control remain subject to that repurchase right) and exercisable as of the date of termination to the extent such equity awards are outstanding and unexercisable or unreleased at the time of such termination, (iv) such equity awards shall be exercisable until the earliest of (a) twelve (12) months from Mr. Lu's date of termination, (b) the latest date the equity award could have expired by its original terms under any circumstances, (c) the tenth (10th) anniversary of the original date of grant of the equity award, or (d) the date provided for under the equity plan under which the award was granted, and (v) an amount equal to twelve (12) months of health insurance premiums for continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), at the same level of health (i.e., medical, vision and dental) coverage and benefits in effect for Mr. Lu on the day preceding the date of his termination of employment.
The Lu Severance Agreement also provides that if Mr. Lu's employment with the Company is terminated as a result of an "involuntary termination" by the Company or terminated by Mr. Lu for "good reason" (both as defined in the Lu Severance Agreement) during the term of the Lu Severance Agreement, apart from a change of control, he shall be entitled to the following severance benefits: (i) twenty-four (24) months of base salary as in effect as of the date of such termination, (ii) one hundred percent (100%) of his full annual performance target bonus for the year in which termination occurs, less applicable withholding, (iii) all equity awards, including without limitation option grants, restricted stock and stock purchase rights, granted to Mr. Lu will become fully vested or released from the Company's repurchase right (if any shares of stock purchased by or granted to Mr. Lu remain subject to such repurchase right) and exercisable to the extent such equity awards are outstanding and unexercisable or unreleased at the time of such termination, (iv) such equity awards shall be exercisable until the earliest of (a) twelve (12) months from his date of termination, (b) the latest date the equity
award could have expired by its original terms under any circumstances, (c) the tenth (10th) anniversary of the original date of grant of the equity award, or (d) the date provided for under the equity plan under which the award was granted, and (v) an amount equal to twelve (12) months of health insurance premiums for continuation coverage pursuant to COBRA, at the same level of health (i.e., medical, vision and dental) coverage and benefits in effect for Mr. Lu on the day preceding the date of his termination of employment.
Severance benefits payable under the terms of the Lu Severance Agreement are payable in a lump sum within thirty (30) days of the date of termination; however, if Mr. Lu is a "specified employee" ("Specified Employee") within the meaning of Section 409A at the time of his termination, then the severance and benefits payable to Mr. Lu pursuant to the Agreement (other than due to death), if any, and any other severance payments or separation benefits which may be considered deferred compensation under Section 409A (together, the "Deferred Compensation Separation Benefits") and which are otherwise due to Mr. Lu on or within the six (6) month period following Mr. Lu's termination will accrue during such six (6) month period and will become payable in a lump sum on the date six (6) months and one (1) day following the date of his termination of employment or the date of his death, if earlier. All subsequent Deferred Compensation Separation Benefits, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit. As a condition to receiving severance benefits as described above, Mr. Lu is required to sign a waiver and release of all claims arising out of his termination of employment and a nondisparagement agreement.
Francis P. Barton. On July 29, 2005, we entered into an agreement with Francis P. Barton, our Executive Vice President and Chief Financial Officer of the Company (the "Barton Agreement") in connection with his initial employment. The Barton Agreement provides that Mr. Barton shall initially receive an annual salary of $500,000, a signing bonus of $250,000, an annual bonus for the 2005 calendar year of up to $250,000, an option to purchase 400,000 shares of Common Stock of the Company at fair market value on the date of grant and a share purchase right for the purchase of 100,000 shares of Common Stock of the Company at par value. Twenty-five percent of the shares subject to the option vested one year after the date of grant, with the remaining 75% vesting on a monthly basis thereafter, subject to Mr. Barton remaining a service provider of the Company (as defined in the 2006 Plan) through each such date. The shares subject to the share purchase right vest in equal installments of 25% per year on each of the first four anniversaries of the date of grant, subject to Mr. Barton remaining a service provider of the Company (as defined in the 2006 Plan) through each such date.
We entered into an Amended and Restated Change of Control Severance/Involuntary Termination Agreement with Mr. Barton dated August 23, 2006 (the "Barton Severance Agreement") which was subsequently amended and restated on January 30, 2008 to bring the agreement into compliance with Section 409A. The Barton Severance Agreement has a term of three (3) years from January 30, 2008. Following the expiration of the three (3)-year term, Mr. Barton and the Company may, but are not obligated to, enter into a new agreement. If Mr. Barton's employment continues following the expiration of the three (3)-year term and the Company and Mr. Barton do not enter into a new agreement, Mr. Barton's then current benefits arrangements shall continue in accordance with the terms of the Barton Severance Agreement until the parties agree otherwise.
The Barton Severance Agreement provides that if Mr. Barton's employment with the Company terminates as a result of an "involuntary termination" (as defined in the Barton Severance Agreement) at any time within eighteen (18) months after a change of control during the term of the Barton Severance Agreement, he shall be entitled to the following severance benefits: (i) twenty-four (24) months of base salary as in effect as of the date of such termination, (ii) one hundred percent (100%) of the bonus for the year in which termination occurs, (iii) all equity awards, including without limitation option grants, restricted stock and stock purchase rights, granted to Mr. Barton prior to the change of control will become fully vested and/or exercisable to the extent such equity awards are
outstanding and/or unexercisable at the time of such termination, (iv) such equity awards shall be exercisable until the earliest of (a) twelve (12) months from Mr. Barton's date of termination, (b) the latest date the equity award could have expired by its original terms under any circumstances, (c) the tenth (10th) anniversary of the original date of grant of the equity award, or (d) the date provided for under the equity plan under which the award was granted, and (v) an amount equal to twelve (12) months of health insurance premiums for continuation coverage under COBRA at the same level of health (i.e., medical, vision and dental) coverage and benefits as in effect for Mr. Barton on the day immediately preceding the day of his termination of employment.
The Barton Severance Agreement also provides that if Mr. Barton's employment with the Company terminates as a result of a "regular involuntary termination" (as defined in the Barton Severance Agreement) during the term of the Barton Severance Agreement apart from a change of control, he shall be entitled to the following severance benefits: (i) twenty-four (24) months of base salary as in effect as of the date of such termination, (ii) one hundred percent (100%) of the bonus for the year in which termination occurs, (iii) all equity awards, including without limitation option grants, restricted stock and stock purchase rights, granted to Mr. Barton will become fully vested and/or exercisable to the extent such equity awards are outstanding and/or unexercisable at the time of such termination, (iv) such equity awards shall be exercisable until the earliest of (a) twelve (12) months from Mr. Barton's date of termination, (b) the latest date the equity award could have expired by its original terms under any circumstances, (c) the tenth (10th) anniversary of the original date of grant of the equity award, or (d) the date provided for under the equity plan under which the award was granted, and (v) an amount equal to twelve (12) months of health insurance premiums for continuation coverage under COBRA at the same level of health (i.e., medical, vision and dental) coverage and benefits as in effect for Mr. Barton on the day immediately preceding the day of his termination of employment.
Severance benefits payable under the terms of the Barton Severance Agreement are payable in a lump sum within thirty (30) days of the date of termination; however, if Mr. Barton is a Specified Employee within the meaning of Section 409A at the time of his termination, then the severance and benefits payable to Mr. Barton pursuant to the Barton Severance Agreement (other than due to death), if any, and any other severance payments or separation benefits which may be considered Deferred Compensation Separation Benefits and which are otherwise due to Mr. Barton on or within the six (6) month period following Mr. Barton's termination will accrue during such six (6) month period and will become payable in a lump sum on the date six (6) months and one (1) day following the date of his termination of employment or the date of his death, if earlier. All subsequent Deferred Compensation Separation Benefits, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit. As a condition to receiving benefits as described above, Mr. Barton is required to sign a waiver and release of all claims arising out of his termination of employment and a nondisparagement agreement.
On November 30, 2007, we entered into a retention plan with Mr. Barton, effective November 30, 2007 (the "Barton Retention Agreement"). The Barton Retention Agreement provides that the Company will provide a retention incentive to Mr. Barton with a total value of $10 million (the "Retention Incentive"), consisting of a combination of restricted stock, RSUs, performance shares and performance units (together, "Equity") to be granted under the 2006 Plan and/or cash, in the sole discretion of the Compensation Committee. Each installment of the Retention Incentive will be awarded in a combination of Equity, in the Committee's sole discretion, up to the annual maximum amounts permitted under the 2006 Plan after taking into account Mr. Barton's focal awards for each particular year. The first installment was awarded effective November 30, 2007, the second installment was awarded effective January 29, 2008, and the remaining installments are expected to be awarded each January thereafter. Because of limits on the maximum amount of Equity that can be granted to an individual in any calendar year under the 2006 Plan, the Company expects that the Retention
Incentive will be awarded over a number of years, so that as much of the Retention Incentive can be awarded under the 2006 Plan as possible. For purposes of determining the vested value, the value of Equity to vest will be based on the Fair Market Value (as defined in the 2006 Plan) of the Company's common stock on the applicable date of grant.
In the event Mr. Barton's employment with the Company terminates in a manner that would trigger the payment of severance benefits under the Barton Severance Agreement, or as a result of his death or "disability" (as defined in the 2006 Plan), Mr. Barton would be entitled to a cash payment equal to the amount of the Retention Incentive that had not been granted in Equity as of the date of such termination of employment. The vesting of any Equity granted as part of the Retention Incentive may also accelerate pursuant to the terms of the Barton Severance Agreement. In addition, if Mr. Barton's employment with the Company terminates as a result of his death or "disability" (as defined in the 2006 Plan), any Equity granted pursuant to the Barton Retention Agreement will vest in full as of the date of termination.
Peter Blackmore. On May 27, 2007, we entered into an offer letter agreement with Mr. Peter Blackmore (the "Blackmore Agreement"), pursuant to which Mr. Blackmore was offered the position of President and Chief Operating Officer of the Company. The Blackmore Agreement was subsequently amended by the Compensation Committee on October 25, 2007 and provides that Mr. Blackmore shall receive (i) an annual salary of $800,000, which shall never be reduced below the current level, (ii) a signing bonus of $100,000, (iii) an annual bonus equal to 100% of Mr. Blackmore's annual salary, based upon the Company's performance and achievement of mutually agreed upon performance objectives (an annual bonus for the 2007 calendar year of 50% of Mr. Blackmore's annual salary is guaranteed), and (iv) upon approval of the Board of Directors of the Company, a grant of (a) shares of restricted stock and RSUs (subject to the limitations of the Company's 2006 Equity Incentive Plan) with an aggregate value of $4 million on the date of grant and which will vest as follows: one quarter (25%) of the shares will vest on each annual anniversary of his start date, subject to his continuing to provide services to the Company through each applicable vesting date, and (b) options to purchase shares of common stock of the Company with a value of $1.2 million on the date of grant which will vest as follows: one quarter (25%) of the options will vest on the first anniversary of the date of grant, and the remaining options will vest in equal installments of 1/36th each month thereafter, subject to his continuing to provide services to the Company through each applicable vesting date. In the event of Mr. Blackmore's death or disability, the vesting of his restricted stock, RSUs and stock options will accelerate in full.
We entered into a Change of Control/Involuntary Termination Severance Agreement with Mr. Blackmore, effective July 2, 2007 (the "Blackmore Severance Agreement") which was subsequently amended and restated on January 30, 2008 to bring the agreement into compliance with Section 409A. It was amended again on December 17, 2008 for Section 409A compliance. The Blackmore Severance Agreement has a term of three (3) years from January 30, 2008. Following the expiration of the three (3)-year term, Mr. Blackmore and the Company may, but are not obligated to, enter into a new agreement. If Mr. Blackmore's employment continues following the expiration of the three (3)-year term and the Company and Mr. Blackmore do not enter into a new agreement, Mr. Blackmore's then current benefits arrangements shall continue in accordance with the terms of the Blackmore Severance Agreement until the parties agree otherwise.
The Blackmore Severance Agreement provides that if Mr. Blackmore remains employed withBlackmore's employment is terminated by the Company through July 2, 2008 (the "Trigger Date") and he is not offered the position of Chief Executive Officer of the Company on or before the Trigger Date, he shall be entitled to the following benefits: (i) twelve (12) months of base salary as in effect as of the Trigger Date, less applicable withholding, payable in a lump sum within thirty (30) days of the Trigger Date; (ii) one hundred percent (100%) of his full annual performance target bonus for the year of the Trigger Date, payable in a lump sum within thirty (30) days of the Trigger Date; (iii) all equity awards, including without limitation stock option grants, restricted stock and stock purchase rights, granted to him by the
Company shall become fully vested, or, as applicable, released from the Company's repurchase right and exercisable as of the Trigger Date to the extent such equity awards are outstanding and unexercisable or unreleased at such date; and (iv) all Mr. Blackmore's outstanding restricted cash awards shall become fully vested, and payable in a lump sum within thirty (30) days of the Trigger Date. The Board and Mr. Blackmore may mutually agree in writing to extend the Trigger Date; provided, however, the Trigger Date cannot be extended beyond February 13, 2009.
The Blackmore Severance Agreement further provides that if Mr. Blackmore's employment with the Company is terminated as a result of an "involuntary termination" by the Companycause or terminated by Mr. Blackmore for "good reason" (as both terms are defined in the Blackmore Severance Agreement)good reason at any time within eighteen (18) months after a change of control, he shall be entitled to the following severance benefits: (i) twenty-four (24) months of base salary as in effect as of the date of such termination, less applicable withholding, (ii) two hundred percent (200%) of his full annual performance target bonus and a monthly pro rated amount of his full annual performance bonus for the year in which the termination occurs, (iii) all equity awards, including without limitation stock option grants, restricted stock and stock purchase rights, granted to him by the Company prior to the change of control shall become fully vested, or, as applicable, released from the Company's repurchase right and exercisable as of the date of the termination to the extent such equity awards are outstanding and unexercisable or unreleased at the time of such termination, (iv) such equity awards shall be exercisable until the earliest of (a) twelve (12) months from his date of termination, (b) the latest date the equity award could have expired by its original terms under any circumstances, (c) the tenth (10th) anniversary of the original date of grant of the equity award, or (d) the date provided for under the equity plan under which the award was granted, (v) all Mr. Blackmore's outstanding restricted cash awards shall become fully vested, and (vi) an amount equal to twelve (12) months of health insurance premiums for continuation coverage under Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") at the same level of health (i.e., medical, vision and dental) coverage and benefits as in effect for Mr. Blackmore on the day immediately preceding the day of his termination of employment.
A "change in control" is defined in Mr. Blackmore's agreement to generally include any of the following:
In addition, the Blackmore Severance Agreement provides that if Mr. Blackmore's employment withis terminated by the Company is terminated as a result of an "involuntary termination" by the Companywithout cause or terminated by Mr. Blackmore for "good reason" (as both terms are defined in the Blackmore Severance Agreement)good reason during the term of the Blackmore Severance Agreement apart from a change of control, he shall be entitled to the following severance benefits: (i) twelve (12) months of base salary as in effect as of the date of such termination, less applicable withholding, (ii) one hundred percent (100%) of his full annual performance target bonus for the year in which the termination occurs, (iii) all equity awards, including without limitation stock option grants, restricted stock and stock purchase rights, granted to him by the Company shall become fully vested, or, as applicable, released from the Company's repurchase right and exercisable as of the date of the termination to the extent such equity awards are outstanding and unexercisable or unreleased at the time of such termination, (iv) such equity awards shall be exercisable until the earliest of (a) twelve (12) months from his date of termination, (b) the latest date the equity award could have expired by its original terms under any circumstances, (c) the tenth (10th) anniversary of the original date of grant of the equity award, or (d) the date provided for under the equity plan under which the award was granted, (v) all Mr. Blackmore's outstanding restricted cash awards shall become fully vested, and (vi) an amount equal to twelve (12) months of health insurance premiums for continuation coverage under COBRA at the same level of health (i.e., medical, vision and dental) coverage and benefits as in effect for Mr. Blackmore on the day immediately preceding the day of his termination of employment.
Severance benefits payable under the terms of the Blackmore Severance Agreement are payable in a lump sum within thirty (30) days of the date of termination; provided, however, that if Mr. Blackmore is a "specified employee" ("Specified Employee") within the meaning of Section 409A at the time of his termination, then the severance and benefits payable to Mr. Blackmore pursuant to the Blackmore
Severance Agreement (other than due to death), if any, and any other severance payments or separation benefits which may be considered deferred compensation separation benefits under Section 409A (together, the "Deferred Compensation Separation Benefits") and which are otherwise due to Mr. Blackmore on or within the six (6)-month period following Mr. Blackmore's termination will accrue during such six (6)-month period and will become payable in a lump sum on the date six (6) months and one (1) day following the date of his termination of employment or the date of his death, if earlier. All subsequent Deferred Compensation Separation Benefits, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit. As a condition to receiving severance benefits as described above, Mr. Blackmore is required to sign a waiver and release of all claims arising out of his termination of employment and a nondisparagement agreement.
The terms "cause" and "good reason" are each defined in the Blackmore Severance Agreement.
Termination of Mr. Blackmore for "cause" generally requires:
A termination by Mr. Blackmore for "good reason" would generally require:
David King. Mr. King is a Covered Employee under the Company's Executive Involuntary Termination Severance Pay Plan. Please see the description of the plan set forth below for the material terms of Mr. King's severance benefits in the event of his termination of employment other than for "cause," death or "disability."
Ying Wu.Hong Liang Lu. On November 14, 2006,30, 2007, we entered into an Amended and Restated Change of Control/Involuntary Termination Severance Agreement with Ying Wu, our then Executive Vice President, Vice Chairman ofHong Liang Lu, the Board and Chairman andCompany's Chief Executive Officer of our subsidiary, UTStarcom China Co., Ltd. (the "WuLu Severance Agreement")., which was subsequently amended and restated on January 30, 2008 to bring the agreement into compliance with Section 409A. It was amended again on December 17, 2008 for Section 409A compliance. The WuLu Severance Agreement, providedas amended and restated, amends Mr. Lu's previous Change of Control Severance Agreement with the Company dated January 17, 2003, as previously filed with the SEC. The Lu Severance Agreement has a term of three (3) years from January 30, 2008. Following the expiration of the three (3)-year term, Mr. Lu and the Company may, but are not obligated to, enter into a new agreement. If Mr. Lu's employment continues following the expiration of the three (3)-year term and the Company and Mr. Lu do not enter into a new agreement, Mr. Lu's then current benefits arrangements shall continue in accordance with the terms of the Lu Severance Agreement until the parties agree otherwise.
The Lu Severance Agreement provides that if Mr. Wu'sLu's employment with usthe Company is terminated as a result of an involuntary terminationby the Company without cause or terminated by Mr. Lu for good reason at any time within 18eighteen (18) months after a change of control, (i) Mr. Wu wouldhe shall be entitled to 24the following severance benefits: (i) twenty-four (24) months of base salary as in effect as of the date of such termination, payable in a lump sum within 30 days(ii) two hundred percent (200%) of termination, and 100% of thehis full annual performance target bonus for the year in which termination occurred, (ii)occurs, less applicable withholding, (iii) all equity awards including, without limitation, option grants, restricted stock and stock purchase rights, granted to Mr. WuLu prior to the change of control wouldwill become fully vested and/or released from the Company's repurchase right (if any shares of stock purchased by or granted to Mr. Lu prior to the change of control remain subject to that repurchase right) and exercisable as of the date of termination to the extent such equity awards wereare outstanding and/and unexercisable or unexercisableunreleased at the time of such termination, (iii) Mr. Wu would be permitted to exercise(iv) such vested equity awards forshall be exercisable until the shorter periodearliest of (a) 12twelve (12) months from theMr. Lu's date of termination, and (b) the remaining termlatest date the equity award could have expired by its original terms under any circumstances, (c) the tenth (10th) anniversary of the respectiveoriginal date of grant of the equity awards,award, or (d) the date provided for under the equity plan under which the award was granted, and (iv) we would continue(v) an amount equal to provide Mr. Wutwelve (12) months of health insurance premiums for continuation coverage pursuant to the COBRA, at the same level of health (i.e., medical, vision and dental) coverage asand benefits in effect for Mr. Lu on the day immediately preceding the date of his termination date untilof employment. The term "change in control" is defined in the earlierLu Severerance Agreement and is substantially similar to the definition of the date he is no longer eligible to receive continuation coverage pursuant to COBRA, or 12 months from the termination date.change in control set forth in Mr. Blackmore's agreement and summarized above.
The WuLu Severance Agreement also providedprovides that if Mr. Wu'sLu's employment with usthe Company is terminated as a result of a regular involuntary terminationby the Company without cause or terminated by Mr. Lu for good reason during the periodterm of employmentthe Lu Severance Agreement, apart from a change of control, (i) Mr. Wu wouldhe shall be entitled to 12the following severance benefits: (i) twenty-four (24) months of base salary as in effect as of the date of such termination, payable in a lump sum within 30 days(ii) one hundred percent (100%) of termination, and 100% of thehis full annual performance target bonus for the year in which termination occurred, (ii)occurs, less applicable withholding, (iii) all equity awards, including without limitation option grants, restricted stock and stock purchase rights, granted to Mr. Wu wouldLu will become fully vested and/or released from the Company's repurchase right (if any shares of stock purchased by or granted to Mr. Lu remain subject to such repurchase right) and exercisable to the extent such equity awards wereare outstanding and/and unexercisable or unexercisableunreleased at the time of such termination, (iii) Mr. Wu would be permitted to exercise(iv) such vested equity awards forshall be exercisable until the shorter periodearliest of (a) 12twelve (12) months from thehis date of termination, and (b) the remaining termlatest date the equity award could have expired by its original terms under any circumstances, (c) the tenth (10th) anniversary of the respective
original date of grant of the equity awards,award, or (d) the date provided for under the equity plan under which the award was granted, and (iv) we would continue(v) an amount equal to provide Mr. Wutwelve (12) months of health insurance premiums for continuation coverage pursuant to COBRA, at the same level of health (i.e., medical, vision and dental) coverage asand benefits in effect for Mr. Lu on the day immediately preceding the date of his termination date untilof employment.
Severance benefits payable under the earlierterms of the Lu Severance Agreement are payable in a lump sum within thirty (30) days of the date heof termination; however, if Mr. Lu is no longer eligiblea Specified Employee within the meaning of Section 409A at the time of his termination, then the severance and benefits payable to receive continuation coverageMr. Lu pursuant to COBRAthe Agreement (other than due to death), if any, and any other severance payments or 12separation benefits which may be considered Deferred Compensation Separation Benefits and which are otherwise due to Mr. Lu on or within the six (6) month period following Mr. Lu's termination will accrue during such six (6) month period and will become payable in a lump sum on the date six (6) months and one (1) day following the date of his termination of employment or the date of his death, if earlier. All subsequent Deferred Compensation Separation Benefits, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit. As a condition to receiving severance benefits as described above, Mr. Lu is required to sign a waiver and release of all claims arising out of his termination of employment and a nondisparagement agreement. The terms "cause" and "good reason" are defined in the Lu Severance Agreement and are substantially similar to the definitions of cause and good reason set forth in Mr. Blackmore's agreement and summarized above.
Francis P. Barton. On August 26, 2008, Francis P. Barton notified the Company of his intention to retire as Executive Vice President and Chief Financial Officer and as a member of the Board of Directors, effective as of August 31, 2008. In connection with Mr. Barton's retirement, the Compensation Committee approved a package to Mr. Barton which included: (i) a payment in the amount of $380,000, less applicable withholding; and (ii) acceleration of vesting of a total of 876,844 shares of restricted stock and restricted stock units granted to Mr. Barton pursuant to the terms of the Retention Agreement entered into between Mr. Barton and the Company on November 30, 2007. The shares subject to acceleration of vesting are those shares of restricted stock and restricted stock units that would have otherwise vested on November 30, 2008 pursuant to the terms of the Retention Agreement had Mr. Barton remained employed by the Company through that date.
Prior to his decision to retire, Mr. Barton had entered into a Change of Control Severance/Involuntary Termination Agreement (the "Barton Severance Agreement") which had a term of three (3) years from the termination date. IfJanuary 30, 2008. The Barton Severance Agreement provided that if Mr. Wu'sBarton's employment with usthe Company terminated other than as a result of a change of control or otheran involuntary termination Mr. Wuhe would not be entitled to receivethe following severance or other benefitspayments: (i) twenty-four (24) months of base salary (ii) one hundred percent (100%) of his bonus, (iii) accelerated vesting of all equity awards, and (v) an amount equal to twelve (12) months of health insurance premiums for continuation coverage under COBRA.
Additionally, Mr. Barton, entered into a retention agreement, that provided a retention incentive to Mr. Barton with a total value of $10 million. This agreement also provided that if Mr. Barton's employment was terminated as a result of an involuntary termination, the Wuvesting of any equity granted as part of the retention incentive would accelerate pursuant to the terms of the Barton Severance Agreement.
Philip Christopher. Mr. Wu'sChristopher's employment with the Company and its subsidiaries terminated oneffective June 1, 2007.30, 2008. In connection with hisMr. Christopher's termination of employment, Mr. Wu was paid severance benefits for involuntary termination without a change in control in accordance with the termsCompensation Committee of the Wu Severance Agreement as described above,Board recommended, and the Board approved, payment of a bonus of $1,000,000, equivalent to approximately 2% of PCD earnings ($48.7M through Q2 2008 before taxes of our Personal Communications Division), and an additional severance payment of $535,714. The Company also agreed to pay a premium in the amount of $998,768.83 (comprised of $550,000 in base salary, $440,000 in bonus, subject to applicable withholding, and $8,768.83$52,221 on a term life insurance policy for the balance of his health care premiums).
Employment Agreements and Change of Control Arrangements with Executive Officers Other Than Named Executive OfficersMr. Christopher's benefit.
Executive Involuntary Termination Severance Pay Plan.Mark Green and Viraj Patel. Effective June 20, 2006, the Compensation Committee of the Board of Directors adopted the Executive Involuntary Termination Severance Pay Plan which was subsequently amended and restated on January 30,December 17, 2008 to bring the plan into compliance with Section 409A (the "Executive Plan"). It was amended and restated again on February 26, 2009 to clarify the terms around modification or termination of the Executive Plan. The Executive Plan extends certain change of control and severance benefits to certain of the Company's executive officers, including Mr. King,Messrs Green and Patel who do not have separate agreements with the Company. The Executive Plan is filed as Exhibit 10.30 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
2008. The following description of the Executive Plan is qualified in its entirety by the actual language of the plan:plan.
The Executive Plan, as amended and restated effective January 30, 2008, provides for the paymentpurpose of severance benefits to certain eligible employees, as defined in the Executive Plan (each a "Covered Employee"). Covered Employees underis to (a) assure that the Executive Plan are designated byCompany will have continued dedication and objectivity of its employees, and (b) provide the Executive Plan administrator, but generally are Senior Vice President level or above.Company's employees with an incentive to continue their employment and to motivate its employees to maximize the value of the Company for the benefit of its stockholders.
The Executive Plan provides that if the Company (or any parent or subsidiary of the Company) terminates a Covered Employee'sthe employment of an employee covered by the Executive Plan (a "Covered Employee") for other than "cause,"cause, death or "disability,"disability, or a Covered Employee terminates his or her employment with the Company for "good reason" (as such terms are defined in the Executive Plan),good reason, the Covered Employee shall receive the following severance benefits: (i) a lump sum cash payment equal to one (1) year of base pay plus one hundred percent (100%) of the Covered Employee's target bonus for the year of termination, (ii) an amount equal to twelve (12) months of the premiums for continuation coverage under COBRA of each Covered Employee (and any eligible dependents) under the Company's medical, dental and vision plans at the same level of coverage in effect on the severance date of termination, (iii) the Covered Employee shall fully vest in and, if applicable, have the right to exercise, all of his or her outstanding and unvested equity compensation awards, and (iv) all such equity awards (including awards that vest as a result of the Executive Plan) shall be exercisable until the earliest of (a) twelve (12) months from the Covered Employee's date of termination, (b) the latest date the equity award could have expired by its original terms under any circumstances, (c) the tenth (10th) anniversary of the original date of grant of the equity award, or (d) the date provided for under the equity plan under which the award was granted. The terms "cause" and "good reason" are defined in the Executive Plan and are substantially similar to the definitions of cause and good reason set forth in Mr. Blackmore's agreement and summarized above.
Severance benefits payable under the terms of the Executive Plan are payable in a lump sum within thirty (30) days of the date of termination; however, if the Covered Employee is a Specified Employee within the meaning of Section 409A at the time of such termination, then the severance and benefits payable to the Covered Employee pursuant to the Executive Plan (other than due to death), if any, and any other severance payments or separation benefits which may be considered Deferred Compensation Separation Benefits, which are otherwise due to the Covered Employee on or within the
six (6) month-month period following the Covered Employee's termination will accrue during such six (6)month period and will become payable in a lump sum on the date six (6) months and one (1) day following the date of the Covered Employee's termination of employment or the date of the Covered Employee's death, if earlier. All subsequent Deferred Compensation Separation Benefits, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit. As a condition to receiving benefits under the Executive Plan, the Covered Employee is required to sign and not revoke a waiver and release of all claims arising out of the Covered Employee's termination of employment and a nondisparagement agreement. The benefits provided under the Executive Plan are in lieu of any other severance or retention plan benefits available to the Covered Employee and shall be reduced by any severance paid to a Covered Employee under any other plan or arrangement.
Change of Control Provisions in the Company's Equity Compensation Plans
The 1997 Stock Plan. Our 1997 Plan provides that, in the event of our proposed dissolution or liquidation, the Board must notify each participant under the 1997 Plan as soon as practicable prior to the effective date of such proposed dissolution or liquidation. The Board has the discretion to allow the participant to exercise his or her option or stock purchase right until 15 days prior to the effective date of such dissolution or liquidation. In the event of our merger with or into another corporation, or the sale of substantially all of our assets, each outstanding option or stock purchase right under the 1997 Plan will be assumed or substituted by the successor corporation. In case the successor corporation refuses to assume or substitute the outstanding option or stock purchase right, such outstanding option or stock purchase right will become fully exercisable for a period of 15 days from the date the participant is notified of such refusal by the Board.
In addition, the 1997 Plan provides, in general, that a participant whose status as a Service Provider (as defined in the 1997 Plan) is terminated is entitled to exercise his or her option, to the extent such option has vested as of the date of termination, until the earlier of (i) expiration of the option according to its terms, (ii) expiration of a period of 3 months following termination, or (iii) expiration of a period of 12 months following termination as a result of death or disability. The 1997 Plan allows the post-termination exercise period to extend beyond the default term, if the stock option agreement entered into by usthe Company and the participant pursuant to the 1997 Plan provides for a longer term.
Under the Officer and Director Option Agreement approved for use under the 1997 Plan in connection with awards to our directors and officers beginning in December of 2005, if the participant's status as a Service Provider or director is terminated following a change of control, the participant shall be entitled to exercise his or her option, to the extent such option has vested as of the date of such termination, until the earlier of (i) expiration of the option according to its terms, or (ii) expiration of a period of 12 months following the termination of the participant's status as a Service Provider or director.
The 1997 Plan was terminated in July 2006 effective upon stockholder approval of our 2006 Plan.
The 2006 Equity Incentive Plan. Our 2006 Plan provides that in the event a participant in the 2006 Plan terminates service with us and our affiliates, any options which have become exercisable prior to the time of termination will remain exercisable for three months from the date of termination, unless a shorter or longer period of time is determined by the 2006 Plan administrator. If termination was
caused by death or disability, any options which have become exercisable prior to the time of termination will remain exercisable for 12 months from the date of termination, unless a shorter or longer period of time is determined by the 2006 Plan administrator. In no event may a participant exercise the option after the expiration date of the option.
In the event of our change of control, each outstanding award will be assumed or substituted by the successor corporation. In the event the successor corporation refuses to assume or substitute awards
granted under the 2006 Plan, all options and stock appreciation rights will fully vest and become exercisable, all restrictions on restricted stock will lapse, and, with respect to restricted stock units, performance shares, and performance units, all performance goals or other vesting criteria will be deemed achieved at target levels and all other terms and conditions met. In addition, if an option or stock appreciation right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a change of control, the 2006 Plan administrator will notify the participant in writing or electronically that the option or stock appreciation right will be fully vested and exercisable for a period of time determined by the 2006 Plan administrator in its sole discretion, and the option or stock appreciation right will terminate upon the expiration of such period.
The change of control provisions in the 1997 Plan and 2006 Plan apply to all executive officers.
Estimated Post-Employment Payments and Benefits
Assuming the termination of employment of the Named Executive OfficersNEOs took place on December 31, 2007,2008, and based upon the price per share of our Common Stock of $2.75,$1.85, the closing market price as of December 31, 2007,2008, the estimated payments and benefits that each of the Named Executive OfficersNEOs would be eligible to receive under various circumstances are set forth in the following charts. Please see the section above entitled "Employment Contracts and Severance Agreements Withwith Named Executive Officers" under "Potential Post-Employment Payments upon Termination and Change of Control" contained in this Proxy Statement for detailed descriptions of the agreements with each of the Named Executive OfficersNEOs that govern post-employment payments and benefits. No payments are due in the event of voluntary termination of employment without good reason or termination of employment for "Cause" as defined in the agreements described above.cause.
Hong Liang LuPeter Blackmore
| Involuntary Without Cause Termination | Termination upon/following Change of Control | Disability(1) | Death(2) | Involuntary Without Cause/ Good Reason Termination | Termination upon/following Change of Control | Disability(1) | Death(2) | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Base Salary ($) | $ | 1,400,000 | $ | 1,400,000 | $ | 192,000 | $ | 500,000 | $ | 800,000 | $ | 1,600,000 | $ | 192,000 | $ | 500,000 | |||||||||
Bonus ($) | $ | 700,000 | (3) | 1,400,000 | (4) | — | — | $ | 800,000 | (3) | $ | 1,600,000 | (4) | — | — | ||||||||||
Accelerated Shares Underlying Outstanding Options ($)(5) | 0 | 0 | — | — | $ | 0 | $ | 0 | — | — | |||||||||||||||
Accelerated Stock Awards ($)(5) | $ | 1,211,739 | $ | 1,211,739 | — | — | $ | 2,525,250 | $ | 2,525,250 | $ | 1,248,750 | $ | 1,248,750 | |||||||||||
Health Care ($) | $ | 11,847 | $ | 11,847 | $ | 11,847 | — | $ | 18,161 | $ | 18,161 | $ | 18,161 | — | |||||||||||
TOTAL: | $ | 3,323,586 | $ | 4,023,586 | $ | 203,847 | $ | 500,000 | $ | 4,143,411 | $ | 5,743,411 | $ | 1,458,911 | $ | 1,748,750 |
Retirement Age, as defined in the long-term disability policy.
Mr. Blackmore's new hire grant of 675,000 shares accelerates in the event of disability.
Mr. Blackmore's new hire grant of 675,000 shares accelerates in the event of death.
Hong Liang Lu
| Involuntary Without Cause/Good Reason Termination | Termination upon/following Change of Control | Disability(1) | Death(2) | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Base Salary ($) | $ | 1,400,000 | $ | 1,400,000 | $ | 192,000 | $ | 500,000 | |||||
Bonus ($) | $ | 700,000 | (3) | $ | 1,400,000 | (4) | — | — | |||||
Accelerated Shares Underlying Outstanding Options ($)(5) | $ | 0 | $ | 0 | — | — | |||||||
Accelerated Stock Awards ($)(5) | $ | 1,480,485 | $ | 1,480,485 | $ | 1,480,485 | $ | 1,480,485 | |||||
Health Care ($) | $ | 12,706 | $ | 12,706 | $ | 12,706 | — | ||||||
TOTAL: | $ | 3,093,191 | $ | 4,693,191 | $ | 1,685,191 | $ | 1,980,485 |
In the event of disability, Mr. Lu would receive accelerated vesting.
$500,000 in the event of death. In the event of death, Mr. Lu would receive accelerated vesting.
Mark Green
| Involuntary Without Cause/Good Reason Termination | Termination upon/following Change of Control | Disability(1) | Death(2) | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Base Salary ($) | $ | 367,500 | $ | 367,500 | $ | 192,000 | $ | 500,000 | |||||
Bonus ($) | $ | 238,875 | (3) | $ | 238,875 | (3) | — | — | |||||
Accelerated Shares Underlying Outstanding Options ($)(5) | $ | 0 | $ | 0 | — | — | |||||||
Accelerated Stock Awards ($)(5) | $ | 624,359 | $ | 624,359 | — | — | |||||||
Health Care ($) | $ | 16,128 | $ | 16,128 | $ | 16,128 | — | ||||||
TOTAL: | $ | 1,246,862 | $ | 1,246,862 | $ | 208,128 | $ | 500,000 |
2008, of $2.75$1.85 multiplied by the number of all stock options that were unvested as of December 31, 2007.2008. For restricted stock awards, it is measured as the fair market value of the stock ($2.75)1.85), less the par value cost basis, multiplied by the number of shares of restricted stock that were unvested as of December 31, 2007.2008. As of December 31, 2007,2008, Mr. LuGreen had no stock options with an exercise price less than $2.75.options.
Francis P. BartonViraj Patel
| Involuntary Without Cause Termination | Termination upon/following Change of Control | Disability(1) | Death(2) | Involuntary Without Cause/Good Reason Termination | Termination upon/following Change of Control | Disability(1) | Death(2) | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Base Salary ($) | $ | 1,500,000 | $ | 1,500,000 | $ | 192,000 | $ | 500,000 | $ | 288,750 | $ | 288,750 | $ | 192,000 | $ | 500,000 | |||||||||
Bonus ($) | $ | 750,000 | (3) | $ | 750,000 | (3) | — | — | $ | 144,375 (3 | ) | $ | 144,375 (4 | ) | — | — | |||||||||
Accelerated Shares Underlying Outstanding Options ($)(4) | 0 | 0 | — | — | |||||||||||||||||||||
Accelerated Stock Awards ($)(4) | $ | 2,011,799 | $ | 2,011,799 | — | — | |||||||||||||||||||
Barton Retention Agreement ($)(5) | $ | 5,912,995 | $ | 5,912,995 | $ | 5,912,995 | $ | 5,912,995 | |||||||||||||||||
Accelerated Shares Underlying Outstanding Options ($)(5) | |||||||||||||||||||||||||
Accelerated Stock Awards ($)(5) | $ | 386,172 | $ | 386,172 | — | — | |||||||||||||||||||
Health Care ($) | $ | 15,642 | $ | 15,642 | $ | 15,642 | — | $ | 12,911 | $ | 12,911 | $ | 12,911 | — | |||||||||||
TOTAL: | $ | 10,190,436 | $ | 10,190,436 | $ | 6,120,637 | $ | 6,412,995 | $ | 832,208 | $ | 832,208 | $ | 204,911 | $ | 500,000 |
Fran Barton
Mr. Barton's employment with the Company and its subsidiaries terminated on August 31, 2008. Please see the section above entitled "Employment Contracts and Severance Agreements with Named Executive Officers" for information regarding payments made to Mr. Barton Change of Control/Involuntary Termination Severance Agreement, or are as a result of death or Disability (as defined in the Retention Agreement).upon his termination.
Peter Blackmore
| Involuntary Without Cause/ Good Reason Termination | Termination upon/following Change of Control | Disability(1) | Death(2) | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Base Salary ($) | $ | 800,000 | $ | 1,600,000 | $ | 192,000 | $ | 500,000 | ||||
Bonus ($) | $ | 800,000 | (3) | $ | 1,600,000 | (4) | — | — | ||||
Accelerated Shares Underlying Outstanding Options ($)(5) | 0 | 0 | — | — | ||||||||
Accelerated Stock Awards ($)(5) | $ | 3,437,500 | $ | 3,437,500 | — | — | ||||||
Health Care ($) | $ | 15,642 | $ | 15,642 | $ | 15,642 | — | |||||
TOTAL: | $ | 5,053,142 | $ | 6,653,142 | $ | 207,642 | $ | 500,000 |
Philip Christopher
| Involuntary Without Cause Termination | Termination upon/following Change of Control | Disability(1) | Death | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Base Salary ($) | — | — | $ | 192,000 | $ | 500,000 | (2) | ||||
Bonus ($) | — | — | — | — | |||||||
Accelerated Shares Underlying Outstanding Options ($) | — | — | — | — | |||||||
Accelerated Stock Awards ($) | — | — | — | — | |||||||
Health Care ($) | — | — | $ | 11,256 | — | ||||||
Insurance Proceeds ($) | — | — | — | $ | 5,000,000 | (3) | |||||
TOTAL: | — | — | $ | 203,256 | $ | 5,500,000 |
Mr. Christopher providing a death benefit in the amount of $5,000,000.
David King
| Involuntary Without Cause Termination | Termination upon/following Change of Control | Disability(1) | Death(2) | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Base Salary ($) | $ | 355,000 | $ | 355,000 | $ | 192,000 | $ | 500,000 | ||||
Bonus ($) | $ | 237,850 | (3) | $ | 237,850 | (3) | — | — | ||||
Accelerated Shares Underlying Outstanding Options ($)(4) | 0 | 0 | — | — | ||||||||
Accelerated Stock Awards ($)(4) | $ | 1,051,355 | $ | 1,051,355 | — | — | ||||||
Health Care ($) | $ | 11,530 | $ | 11,530 | $ | 11,530 | — | |||||
TOTAL: | $ | 1,655,735 | $ | 1,655,735 | $ | 203,550 | $ | 500,000 |
Ying Wu. Mr. Wu'sChristopher's employment with the Company and its subsidiaries terminated on June 1, 2007. In connection30, 2008. Please see the section above entitled "Employment Contracts and Severance Agreements with his termination of employment, Mr. Wu was paid severance benefits for involuntary termination without a change in control in accordance with the terms of the Wu Severance Agreement as described above, in the amount of $998,768.83 (comprised of $550,000 in base salary, $440,000 in bonus, subject to applicable withholding, and $8,768.83 for the balance of his health care premiums).
Indemnification Agreements
During 2007, we were party to indemnification agreements with each of our Named Executive Officers other than Messrs.Officers" for information regarding payments made to Mr. Christopher and King. The form of indemnification agreement is filed as Exhibit 10.1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.upon his termination.
Policies with Respect to Review, Approval or Ratification of Transactions with Related Persons
Our Audit Committee is responsible for review, approval or ratification of "related-person transactions" between us or our subsidiaries and related persons. Under SEC rules, a related person is a director, officer, nominee for director, or 5% stockholder of UTStarcom since the beginning of the last fiscal year, and his or her immediate family members. We have adopted written policies and procedures that apply to any transaction or series of related transactions in which our company or a subsidiary is a participant, the amount involved exceeds $120,000 and a related person has a direct or indirect material interest. Pursuant to our policy, the following transactions will not be deemed to be related person transactions that require Audit Committee approval:
does not exceed the greater of $1,000,000 or two percent of that company's total annual revenues.
Related Party Transactions
During 2007,2008, we were party to the following related party transactions under the relevant standards:
SOFTBANK CORP.
SOFTBANK CORP. is an affiliate of SOFTBANK America, Inc., one of our stockholders holding 10% or more of our Common Stock. Since the beginning of the 2007 fiscal year, we engaged, continue to engage or propose to engage in the following transactions with entities affiliated with SOFTBANK CORP.:
Audiovox
PhilipPrior to the sale of PCD on July 1, 2008, Phillip Christopher, an executive officerone of the Company, also servesour former officers, served as a director offor Audiovox Corporation ("Audiovox"). During 2007, the Company2008, we paid approximately $2.1$0.8 million for information technology services provided by Audiovox.
The Audit Committee reviewed and ratified each of the transactions described above.
Stock Ownership Guidelines
Effective January 1, 2006, by the decision of the Nominating and Governance Committee of the Board, the Company put in place minimum stock ownership guidelines (the "Guidelines") for non-employee directors and certain officers of the Company.
Each officer and non-employee director is expected to acquire the number of shares of Common Stock pursuant to the Guidelines and as described below before the later of four years after (i) January 1, 2006 or (ii) an officer's appointment to such office or a non-employee director's appointment to the Board.
The Company reviews compliance with the Guidelines annually. Failure to comply with the Guidelines may result in a reduction in future long-term incentive grants and/or payment of future annual and/or long-term incentive payouts in the form of Common Stock. The Nominating and Corporate Governance Committee has the discretion to waive the Guidelines if compliance would create severe personal hardship for an officer or non-employee director or prevent an officer or non-employee director from complying with a court order. The Nominating and Governance Committee expects that such instances will be rare.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than 10% of a registered class of our equity securities ("Section 16 Filers"), to file with the SEC initial reports of ownership and reports of changes in ownership of our Common Stock. Such Section 16 Filers are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
To our knowledge, based solely on our review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended December 31, 2007,2008, all Section 16 Filers complied with all Section 16(a) filing requirements.
10b5-1 Trading Plans
Each of our officers and directors may enter into a written plan for the automatic trading of securities in accordance with Exchange Act Rule 10b5-1. The Company may also enter into a written plan for the automatic trading of securities in accordance with Rule 10b5-1 with respect to any stock repurchase plan.
Code of Ethics
We have adopted a Code of Business Conduct and Ethics ("Code of Ethics"), which that applies to all employees including our principal executive officers. The Code of Ethics is designed to promote: (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, (ii) full, fair, accurate, timely and understandable disclosure in reports and documents that we are required to file to the SEC and in other public communications, (iii) compliance with applicable laws, rules and regulations, (iv) the prompt internal
reporting of violations of the Code of Ethics to an appropriate person or entity, and (v) accountability for adherence to the Code of Ethics.
As a supplement to the Code of Ethics, we have also adopted a Code of Ethics for Chief Executive Officer and Senior Financial Officers ("Code of Ethics for Financial Officers"), which is designed to highlight the legal and ethical obligations of the Chief Executive Officer and financial officers. The Code of Ethics for Financial Officers imposes upon applicable officers certain additional internal reporting requirements for acts committed in violation of the Code of Ethics and/or the securities laws.
Copies of the Code of Ethics and the Code of Ethics for Financial Officers are available on our website athttp://investorrelations.utstar.com/governancegovernance.cfm.. Any waiver of the Code of Ethics or Code of Ethics for Financial Officers pertaining to a member of our Board or one of our executive officers will be disclosed on our website athttp://investorrelations.utstar.com/governancegovernance.cfm..
The following is the report of the Audit Committee with respect to the Company's audited financial statements for the fiscal year ended December 31, 2007.2008. The information contained in this report shall not be deemed to be "soliciting material" or to be "filed" with the SEC, or subject to Regulation 14A or 14C or to the liabilities of Section 18 of the Securities Exchange Act of 1934, except to the extent that the Company specifically requests that such information be treated as soliciting material or specifically incorporates the information by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
Established on January 31, 1997, the Audit Committee is currently comprised of fivethree Non-Employee Directors. Mr. Horner, the Chairman of the Audit Committee, and Messrs. Clarke, Lenzmeier and Toy served on the Audit Committee throughout 2007.2008. Mr. Ryan, the current Chairman of the Audit Committee, was appointed to the Audit Committee effective April 25, 2008. Former director Larry Horner served as Chairman of the Audit Committee until April 24, 2008, and remained as a member of the committee throughout the remainder of 2008. The purpose of the Audit Committee is to assist the Board in its general oversight of the Company's financial reporting, internal controls and audit functions. The Audit Committee is directly responsible for the appointment, retention, evaluation, compensation, oversight and termination of the Company's independent registered public accounting firm.
The Audit Committee reviews the results and scope of audit and other services provided by the Company's independent registered public accounting firm and reviews the accounting principles and auditing practices and procedures to be used in the Company's financial reporting process, including its systems of internal control, and in the preparation of consolidated financial statements in accordance with generally accepted accounting principles. The Company's independent registered public accounting firm for the last fiscal year, PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"), is responsible for performing an independent audit of those financial statements. As more fully explained in the Audit Committee's charter, the Audit Committee's responsibility is to provide oversight of and to review those processes.
The Audit Committee has reviewed and discussed the audited financial statements with management of the Company. Management is responsible for maintaining adequate internal control over financial reporting and for assessing the effectiveness of internal control over financial reporting. The Audit Committee was kept apprised of the progress of management's assessment of the Company's internal control over financial reporting and provided oversight to management during the process. In connection with this oversight, the Audit Committee received periodic updates provided by management and PricewaterhouseCoopers at meetings throughout the year. At the conclusion of the process, management provided the Audit Committee with a report on the effectiveness of the Company's internal control over financial reporting. The Audit Committee reviewed this report of management and Item 9A, "Control and Procedures," contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 20072008 filed with the SEC, as well as PricewaterhouseCoopers' report of independent registered public accounting firm (included in the Company's Annual Report on Form 10-K) relating to its audit of the consolidated financial statements and the effectiveness of internal control over financial reporting. The Audit Committee also reviewed with management and PricewaterhouseCoopers (a) the Company's completed, current and planned initiatives to remediate material weaknesses in the Company's internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002 and (b) the procedures performed by the Company to support certifications by the Company's Chief Executive Officer and Chief Financial Officer that are required by the SEC and the Sarbanes-Oxley Act to accompany the Company's periodic filings with the SEC.
In addition, the Audit Committee has reviewed and discussed the audited financial statements with PricewaterhouseCoopers, including such items as Statementrequired to be discussed by the statement on Auditing Standards No. 61, "Communication with Audit Committees," as adopted by the Public Company Accounting Oversight Board. The Audit Committee has received from the independent registered public accounting firm,
PricewaterhouseCoopers, the written disclosures and the letter required by Independence Standards Board Standard No. 1, "Independence Discussions with Audit Committees,"61, as amended (AICPA, Professional Standards, Vol. 1. AU section 380) as adopted by the Public Company Accounting Oversight Board and the(PCAOB) in Rule 3200T. The Audit Committee has received the written disclosures and the letter from PricewaterhouseCoopers required by PCAOB Ethics and Independence Rule 3526 (Rule 3526, Communications with Audit Committees Concerning Independence"), and has discussed with PricewaterhouseCoopers the independence of the independent registered public accounting firm.PwC their independence.
After review of all discussions and all written correspondence described above, as well as such other matters deemed relevant and appropriate by the Audit Committee, the Audit Committee recommended to the Board that the audited financial statements for the fiscal year ended December 31, 20072008 be included in the Company's Annual Report on Form 10-K.
The Audit Committee*
Larry D. Horner,ChairmanJeff ClarkeAllen LenzmeierThomas J. Toy
The Audit Committee | ||
Bruce J. Ryan,Chairman Allen Lenzmeier Thomas J. Toy |
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board has selected PricewaterhouseCoopers LLP, independent registered public accounting firm, to audit the financial statements of the Company for the fiscal year ending December 31, 20082009 and recommends that the stockholders ratify this selection. PricewaterhouseCoopers LLP also audited the Company's financial statements for its fiscal year ended December 31, 2007.2008. The Board expects that representatives of PricewaterhouseCoopers LLP will be present at the Annual Meeting, will be given an opportunity to make a statement at the meeting and will be available to respond to appropriate questions.
Stockholder ratification of this selection of PricewaterhouseCoopers LLP as the Company's Independent Public Accounting Firm is not required by the Company's Bylaws or otherwise. However, the Board has elected to seek such ratification as a matter of good corporate practice. Should the stockholders fail to ratify the selection of PricewaterhouseCoopers LLP as the Company's independent registered public firm, the Audit Committee will consider whether to retain that firm for the year endedending December 31, 2008.2009. Even if the selection is ratified, the Audit Committee, at its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders.
PricewaterhouseCoopers LLP Fees for the Fiscal Years Ended December 31, 20072008 and 20062007
The aggregate fees billed for professional accounting services by PricewaterhouseCoopers LLP for the fiscal years ended December 31, 20072008 and 20062007 are as follows:
| | Fiscal Year Ended December 31, | | Fiscal Year Ended December 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2007 | 2006 | | 2008 | 2007 | |||||||||
Audit Fees(1) | Audit Fees(1) | $ | 11,029,000 | $ | 16,253,000 | Audit Fees(1) | $ | 9,716,000 | $ | 11,029,000 | |||||
Audit-Related Fees(2) | Audit-Related Fees(2) | 274,000 | 0 | Audit-Related Fees(2) | 1,282,000 | 274,000 | |||||||||
Tax Fees(3) | Tax Fees(3) | 22,000 | 26,000 | Tax Fees(3) | 25,000 | 22,000 | |||||||||
All Other Fees(4) | All Other Fees(4) | 3,000 | 3,000 | All Other Fees(4) | 3,000 | 3,000 | |||||||||
Total Fees | $ | 11,328,000 | $ | 16,282,000 | Total Fees | $ | 11,026,000 | $ | 11,328,000 | ||||||
The Audit Committee has determined that the provision to us by PricewaterhouseCoopers LLP of non-audit services as listed above is compatible with PricewaterhouseCoopers LLP maintaining its independence.
Audit Committee Pre-Approval Policies and Procedures
The Audit Committee has direct responsibility for the appointment, retention, evaluation, compensation, oversight and termination of the independent registered public accounting firm employed by us. In October 2003, theThe Audit Committee of the Board established a Non-Audit Services Subcommittee. The Non-Audit Services Subcommittee, consisting ofhas authorized Mr. Horner, is authorizedRyan to preapprove audit and non-audit services to be performed by our independent registered public accounting firm in amounts not to exceed $50,000 per engagement. Non-audit servicesfirm. Such preapproval by Mr. Ryan is to be performed by our independent registered public accounting firm in amounts to exceed $50,000 per engagement will be approvedfollowed up for approval by the Audit Committee.Committee at its quarterly meetings. For the fiscal year 2007,2008, there were no audit-related fees, tax fees, or any other non-audit fees that were approved by the Audit Committee pursuant to the "de minimis" exception under Regulation S-X Rule 2-01(c)(7)(i)(C).
Required Vote
The ratification of the appointment of PricewaterhouseCoopers LLP as the Company's independent registered public accounting firm for the fiscal year ending December 31, 20082009 requires the affirmative vote of the holders of a majority of the shares of the Common Stock that are present in person or by proxy and entitled to vote on the proposal at the Annual Meeting.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
PROPOSAL NO. 3APPROVAL OF A STOCK OPTION EXCHANGE PROGRAM FOR EMPLOYEES(EXCLUDING EXECUTIVE OFFICERS AND DIRECTORS)
The Board of Directors has determined that it would be in the best interests of the Company and our stockholders to implement a one-time stock option exchange program, as described in detail below, subject to stockholder approval. The option exchange program would permit eligible employees to exchange their outstanding options issued under our 1997 Stock Plan with exercise prices equal to or greater than $6.00 per share for a lesser number of new options to be granted under our 2006 Equity Incentive Plan (the "2006 Plan"). The new options would have an exercise price equal to the closing sales price of our common stock as quoted by NASDAQ on the date of the new grant, or "fair market value." Our executive officers and directors would not be eligible to participate in the exchange program and do not stand to gain from the program other than in their general capacity as stockholders.
In order to alleviate possible concerns of stockholders regarding the number of shares of our common stock that may become available for future grants of equity awards under our 2006 Plan as a result of the option exchange program, contingent upon stockholder approval of the program, the Board has approved:
The Board believes the option exchange program would enhance long-term stockholder value by improving our ability to incentivize and retain our non-executive employees, as well as reducing the Company's equity award "overhang" (that is, the number of shares subject to outstanding equity awards relative to the total number of shares of our common stock outstanding) through the cancellation of outstanding options that currently provide no meaningful retention or incentive value to our employees.
Stockholder approval is required for the option exchange program under the listing rules of the NASDAQ Global Select Market. Therefore, the Company is seeking stockholder approval to allow for this one-time option exchange under the 1997 Stock Plan and the 2006 Plan. We would seek stockholder approval for any future option exchange or similar program before implementing it.
Required Vote
We must receive an affirmative vote of a majority of the total number of shares present in person or represented by proxy and entitled to vote on the proposal at the Annual Meeting in order for this proposal to be approved.
Reasons for the Option Exchange Program
Equity awards have been, and continue to be, a key part of our incentive compensation and retention programs and are designed to motivate and reward employees' efforts. We believe that to develop and market our products, we need to maintain competitive employee compensation and incentive programs.
Prior to 2005, over 90% of the Company's revenues and profits were derived from sales in China of a second generation ("2G") wireless technology system. In the latter half of 2004, it was widely believed by companies engaged in the Chinese telecommunications market that the Chinese government would begin issuing licenses for the sale of third generation ("3G") wireless technologies in early 2005. In anticipation of such action by the Chinese government, our operator customers dramatically reduced their 2G capital expenditures. At the same time, with the intention of replacing our 2G revenues, we developed a full suite of 3G products to sell in China and also initiated a capital intensive strategy of global diversification. The Chinese government, however, never issued the expected 3G licenses, thus preventing us from selling any of our 3G products, and our global diversification has yet to yield results sizeable enough to offset the decline in China. We believe our stock price, which has fallen significantly over the past few years, reflects, among other things, the dramatic reduction in our China sales.
As a result of our stock price decline, most of our employees who have been granted stock options are holding options that are substantially "underwater" (meaning the exercise prices of the options are higher than the current market price of our common stock). The weighted average exercise price of options held by our non-executive employees was $14.47 as compared to a $2.69 closing price on March 26, 2008 for our common stock. Consequently, as of March 26, 2008, approximately 99% of the outstanding options held by non-executive employees were underwater. These underwater options do not currently provide meaningful retention or incentive value to our employees, while nevertheless creating an overhang to our stockholders of approximately 10 million shares.
When considering how best to retain and provide incentives to our employees holding underwater options, we considered several alternatives, including increasing cash compensation and/or granting additional equity awards. Increasing cash compensation would substantially increase our compensation expenses and reduce our cash flow from operations. Granting additional stock options at current market prices or restricted stock units would substantially increase our overhang and cause dilution to our stockholders.
We then considered a stock option exchange program. We determined that a program under which non-executive employees could exchange underwater options for a lesser number of options with an exercise price equal to the current fair market value of the shares covered by the options was most attractive for a number of reasons, including the following:
substantially underwater options do not have sufficient impact on employee motivation and retention, and that for our employee stock options to serve their intended purposes, they need to be exercisable at least near the current price of our common stock. The failure to address the underwater option issue in the near to medium term will make it more difficult for us to retain our key employees. If we cannot retain these employees, our business, results of operations and future stock price could be adversely affected.
Furthermore, in connection with the option exchange program we are able to correct certain of our outstanding options that were granted with an exercise price lower than the fair market value of the Company's common stock on the dates the options were granted. These "discount options," if not corrected, possibly could subject some of our U.S. employees to adverse federal tax consequences under Section 409A of the Internal Revenue Code of 1986, as amended ("Section 409A") and possibly other state tax laws. Among the underwater options held by our non-executive employees as of March 26, 2008, options covering approximately 1 million shares had been granted at a discount to fair market value. As part of the option exchange program, non-executive employees with discount options would be permitted to amend their outstanding options to correct the exercise prices (that is, increase the exercise price of the discount option to the fair market value of the underlying shares on the date of grant), thus eliminating the potential Section 409A issue. Corrected discount options would then be eligible to be exchanged for new options.
Description of the Option Exchange Program
Eligible Employees
For purposes of the option exchange program, we refer to all employees of the Company and its subsidiaries (but excluding our executive officers and directors), residing in a country in which the Company has employees holding underwater options covering 100,000 or more shares in the aggregate, as "eligible employees." Participation in the program would be voluntary. As of March 26, 2008, there were approximately 2,470 eligible employees. The Compensation Committee will have the authority to exclude employees in the non-U.S. jurisdictions if it determines that local law or other constraints makes the participation of employees in a certain country infeasible or impractical.
Eligible Options
The only options that eligible employees may exchange in the option exchange program are those outstanding options granted prior to July 15, 2006 and having an exercise price greater than or equal to $6.00 per share. As of March 26, 2008, eligible employees were holding eligible options (including discount options) to purchase approximately 10 million shares of our common stock, with a weighted average exercise price of $14.64 per share and a weighted average remaining term of 6.2 years. Notwithstanding anything to the contrary above, in the event that our 52-week common stock closing price high exceeds $6.00 at the time we commence the tender offer, the Compensation Committee will increase the price threshold for stock options eligible for the option exchange program to exclude
outstanding options with an original exercise price lower than then current 52-week stock price high. In addition, the program will require an employee holding a discount option to first elect to amend the option to correct the exercise of price before then allowing the employee to elect to exchange the amended option pursuant to the terms of the program. All eligible options that are not exchanged will remain outstanding and in effect in accordance with their existing terms.
Exchange Ratio
The option exchange program is not a one-for-one exchange. Participants surrendering outstanding options will receive new options covering a lesser number of shares than are covered by the surrendered options. The number of shares underlying an eligible option that is surrendered in the exchange in order to receive 1 share underlying the new option is referred to as the "exchange ratio." The proposed exchange ratio for a surrendered option, including any discount option, would depend on the original exercise price of the surrendered option, with the result rounded to the nearest whole number.
Shown in the table below are the exchange ratios that we intent to use in the option exchange program based upon assumptions and various calculations, described in more detail below, performed on March 27, 2008, using data available as of March 26, 2008:
For example, if an employee surrenders an eligible option to purchase 5,000 shares with an exercise price of $20.00 per share, that employee would receive a new option to purchase 641 shares (that is, 5,000 divided by 7.8, with the result rounded to the nearest whole number, equals 641).
The exchange ratios shown in the table above were designed to result in the issuance of new options with a fair value for financial accounting purposes approximately equal to the fair value of the options surrendered in the exchange. We calculated the fair value of the eligible options using the Black-Scholes option valuation model. For this purpose, we used the following factors:
(i) original exercise price,
(ii) assumed value of $2.69 per share of our common stock (the closing price as of March 26, 2008),
(iii) expected volatility of our common stock of 62.9%,
(iv) a term equal to the lesser of (A) the remaining contractual life of the stock option and (B) a fixed expected term of 3.5 years,
(v) risk-free rates between 0.37% and 3.34%, and
(vi) no expected dividends.
We then established the five exchange ratios set forth above based on the average Black-Scholes value of the eligible options having exercise prices within a specified range for each ratio, as compared to the Black-Scholes value of one share of our common stock underlying an option to be issued in the option exchange program.
The following table summarizes information regarding the options eligible for exchange in the program, as of March 26, 2008:
Exercise Price of Eligible Options | Number of Shares Underlying Eligible Options | Weighted Average Price of Eligible Options ($) | Weighted Average Remaining Term of Eligible Options (Years) | Exchange Ratio | Maximum Number of New Options that May be Granted Upon Surrender of Eligible Options | |||||
---|---|---|---|---|---|---|---|---|---|---|
Greater than or equal to $6.00 per share, but less than $10.01 per share | 4,304,231 | 6.56 | 7.2 | 2.4-for-1 | 1,793,414 | |||||
Greater than or equal to $10.00 per share, but less than $15.01 per share | 1,568,115 | 12.05 | 5.5 | 5.3-for-1 | 295,891 | |||||
Greater than or equal to $15.01 per share, but less than $20.01 per share | 980,467 | 18.31 | 4.8 | 7.8-for-1 | 125,686 | |||||
Greater than or equal to $20.01 per share, but less than $25.01 per share | 821,306 | 21.16 | 3.5 | 13.0-for-1 | 63,155 | |||||
Greater than or equal to $25.01 | 2,243,931 | 27.95 | 5.4 | 15.0-for-1 | 149,569 | |||||
TOTAL: | 9,918,050 | 14.64 | 6.2 | 2,427,715 |
If the market price of our common stock prior to the commencement of the option exchange program has increased or decreased such that the exchange ratios set forth above would no longer result in the issuance of new options with an aggregate fair value for financial accounting purposes approximately equal to the aggregate fair value of the options eligible for exchange, the Compensation Committee will have the discretion to adjust the exchange ratios accordingly.
Term and Vesting Schedule
The new options will expire on the same dates as the options they replace, subject to a maximum term of 7 years. The new options will have a vesting schedule that depends upon the remaining term of the original eligible option being surrendered as shown in the table below:
Notwithstanding the foregoing, in no event will a new option vest sooner than provided in the vesting schedule of the original eligible option it replaces. As of March 26, 2008, approximately 77% of the shares covered by the eligible options already were vested.
Implementing the Option Exchange Program
We have not commenced the option exchange program and will not do so unless our stockholders approve this proposal. If the Company receives stockholder approval of the program, the program may commence at a time determined by the Company, with terms expected to be materially similar to those described in this proposal. However, even if the stockholders approve the program, the Board may still later determine not to implement the program. It is currently anticipated that the program will commence as promptly as practicable following approval of this proposal by our stockholders; provided, however, that if the program does not commence within six months of stockholder approval, the Company will not commence the program without again seeking and receiving stockholder approval.
Upon the commencement of the option exchange program, employees holding eligible options would receive written materials explaining the precise terms and timing of the program (an "offer to exchange"). Employees would be given at least 20 business days to elect to exchange some or all of their eligible options. Employees with discount options would be required to first elect to have the exercise prices of their outstanding options corrected before being permitted to exchange their current options for new options. Employees would make these elections by filling out an election form which would be distributed to them as part of the offer to exchange and submitting the form to the Company's designated representative within the 20 business day period (or such longer period as we choose to keep the offer open). After the offer to exchange is closed, discount options submitted for the exchange would be amended to correct the original exercise price and then all eligible options that were surrendered for exchange would be cancelled, and the Compensation Committee would approve the grants of the new, replacement options in accordance with the applicable exchange ratio. All new options will be granted under the 2006 Plan, as amended according to this proposal. Regardless of the type of option being surrendered, all new options granted pursuant to the option exchange program will be non-qualified stock options.
At or before commencement of the option exchange program, we would file the offer to exchange with the Securities and Exchange Commission (the "SEC") as part of the tender offer statement on Schedule TO. Employees, as well as stockholders and members of the public, would be able to obtain the offer to exchange and other documents we file with the SEC free of charge from the SEC's website at www.sec.gov.
Amendments to the 2006 Plan
Currently, the 2006 Plan provides that all shares subject to cancelled or surrendered options under the 1997 Stock Plan would become available for future grants under the 2006 Plan. In the event that the stockholders approve the option exchange program, the Board will amend the 2006 Plan to provide that no more than 3.2 million shares of our common stock would return to the 2006 Plan share reserve as a direct result of the surrender of outstanding options pursuant to the option exchange program. This amendment would limit the potential future dilution to the stockholders as a result of shares being returned to the share reserve as a result of the cancellation of surrendered eligible options pursuant to the program.
Also, in the event that the stockholders approve the option exchange program, the Board will amend the 2006 Plan to provide that shares subject to awards granted, after the time of the amendment, with an exercise price less than the fair market value on the date of grant (such as restricted stock unit awards) will count against the share reserve as 1.33 shares for every one share subject to such an award. To the extent that a share that was subject to an award that counted as 1.33 shares against the plan share reserve pursuant to the preceding sentence is returned to the plan, the plan reserve will be credited with 1.33 shares that will thereafter be available for issuance under the plan. Currently, all grant types count against the share reserve as 1 share for every 1 share subject to the award. This amendment would limit the potential future dilution to stockholders as a result of the
Company granting certain awards (such as restricted stock units) as opposed to stock options granted with exercise prices equal to fair market value.
Lastly, the 2006 Plan would be amended to provide that any grant of a stock appreciation right ("SAR") will expire no later than 7 years after the date of grant. Currently, the 2006 Plan places no expiration date limit on the plan's administrator with respect to grants of SARs. There are no SARs currently outstanding under the 2000 Plan.
Burn Rate Policy
In the event that the stockholders approve the option exchange program, the Board will adopt a burn rate policy committing us to limit the number of shares of our common stock that we may use for equity compensation over our next three fiscal years (that is, fiscal 2008, 2009 and 2010). For this three-year period, we would be required to limit the number of shares that we grant subject to equity awards to an average of 4.80% of our outstanding common stock. Thus, while we may exceed the 4.80% burn rate in a given year, the policy would require that our three-year average not exceed 4.80%. Awards that are settled in cash, awards sold under our employee stock purchase plan, awards assumed in acquisitions and any awards granted in connection with our option exchange program will be excluded from our burn rate calculation. For purposes of our calculation, each share subject to a full value award (such as a restricted stock unit, performance share, performance unit and any other award that does not have an exercise price per share equal to the per share fair market value of our common stock on the grant date) will be counted as 1.5 shares.
U.S. Federal Income Tax Consequences
The following is a summary of the anticipated material United States federal income tax consequences of participating in the option exchange program. A more detailed summary of the applicable tax considerations to participants will be provided in the offer to exchange. The tax consequences of the program are not entirely certain, however, and the Internal Revenue Service is not precluded from adopting a contrary position, and the law and regulations themselves are subject to change. All holders of eligible options are urged to consult their own tax advisors regarding the tax treatment of participating in the program under all applicable laws prior to participating in the program. We believe the exchange of eligible options for new options pursuant to the program should be treated as a non-taxable exchange and neither we nor any of our employees should recognize any income for U.S. federal income tax purposes upon the surrender of eligible options and the grant of new options. Additionally, as all new options will be non-qualified stock options, an individual's tax treatment upon exercise of the new options may differ from the treatment otherwise applicable to the surrendered eligible options. The tax consequences for participating non-U.S. employees may differ from the U.S. federal income tax consequences described in the preceding sentences.
Potential Modification to Terms of Option Exchange Program to Comply with Governmental Requirements
The terms of the option exchange program will be described in an offer to exchange that will be filed with the SEC. Although we do not anticipate that the SEC would require us to materially modify the program's terms, it is possible that we will need to alter the terms of the program to comply with comments from the SEC. Changes in the terms of the program may also be required for tax purposes for participants in the United States as the tax treatment of the program is not entirely certain. In addition, we intend to make the program available to our employees who are located in certain countries outside of the U.S. where permitted by local law and where we determine it is feasible and practical to do so. It is possible that we may need to make modifications to the terms offered to employees in countries outside the U.S. to comply with local requirements, or for tax or accounting reasons. The Compensation Committee will retain the discretion to make any such necessary or
desirable changes to the terms of the program for purposes of complying with comments from the SEC or optimizing the U.S. or foreign tax consequences.
Potential Modification to Terms of Option Exchange Program Due to Changing Circumstances
The Board authorized its Compensation Committee to adjust the threshold for options eligible to participate in the option exchange program if there is a significant change in the market price for our common stock preceding the commencement of the program to ensure the intent of the program is realized; however, any changes will preserve the general terms and eligibility requirements of the program discussed in this proposal. Our Compensation Committee will retain the discretion to adjust the exchange ratios if there is a significant change in the market price of our common stock preceding the commencement of the program in comparison to the market price used in determining the exchange ratios set forth in the table in this proposal. If our Compensation Committee does adjust the exchange ratios, it will do so with the intent of causing the offer to exchange to result in the issuance of new options having a fair value approximating the fair value of the stock options surrendered, determined using the same valuation methodologies as were used to determine the exchange ratios set forth in this proposal.
Financial Accounting Consequences
Effective January 1, 2006, we adopted the provisions of Financial Accounting Standards Board Statement No. 123 (Revised), "Share-Based Payment," ("SFAS 123(R)") for our share-based compensation plans. Under SFAS 123(R), to the extent the fair value of each award of stock options granted pursuant to the option exchange program exceeds the fair value of the surrendered options, such excess is considered incremental compensation. This excess, in addition to any remaining unrecognized expense for the eligible options surrendered in exchange for the new options, will be recognized by the Company as an expense for compensation. This expense will be recognized ratably over the vesting period of the new options in accordance with the requirements of SFAS 123(R). In the event that any awards of new options are forfeited prior to their vesting due to termination of an employee's service, the compensation cost related to the forfeited stock options will not be recognized.
Program Participation
Because the decision whether to participate in the option exchange program is completely voluntary, we are not able to predict who or how many eligible employees will elect to participate, how many stock options will be surrendered for exchange or the number of new options that may be issued.
Effect on Stockholders
We are unable to predict the precise impact of the option exchange program on our stockholders because we are unable to predict how many or which eligible employees will exchange their eligible options. The program was designed in aggregate to be substantially value neutral to our stockholders and to reduce the dilution in ownership from outstanding equity awards. The following table
summarizes the effect of the program, assuming all eligible options were exchanged, as of March 26, 2008:
| Prior to the Exchange: | Following the Exchange: | ||
---|---|---|---|---|
Shares of Common Stock Outstanding | 124,799,129 | 124,799,129 | ||
Shares Covered by All Outstanding Options (including options held by all employees, executive officers and directors) | 16,647,643 with a weighted average exercise price of $13.36 and a weighted average remaining term of 6.07 years | 9,157,308 with a weighted average exercise price of $9.20 (assuming an exercise price of $2.69 for the new options granted in the exchange) and a weighted average remaining term of 5.80 years | ||
Shares Covered by All Outstanding Full Value Awards (that is, outstanding restricted stock units and unvested restricted stock awards) | 9,682,018 | 9,682,018 | ||
Shares Available for Future Award Grants Under the 2006 Plan* | 2,441,671 | 5,641,671 |
If you are both a stockholder and an employee holding eligible options, please note that voting to approve the option exchange program does not constitute an election to participate in the program.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE APPROVAL OF THE OPTION EXCHANGE PROGRAM.
To the knowledge of the Company, no action is to be taken on any matter not specifically referred to in this Proxy Statement at the Annual Meeting. If any other matters properly come before the Annual Meeting, it is the intention of the persons named in the enclosed proxy to vote the shares they represent as the Board may recommend.
BY ORDER OF THE BOARD OF DIRECTORS | ||
/s/ Chief Executive | ||
Dated: |
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ICF International |
Proxy—UTSTARCOM, INC.
Dear Stockholder:
Please take note of the important information enclosed with this Proxy. The issues discussed herein, related to the operation of the Company, require your immediate attention.
Your vote counts and you are strongly encouraged to exercise your right to vote your shares.
Please mark the boxes on the proxy card to indicate how your shares will be voted. Then sign the card and return your proxy in the enclosed postage paid envelope.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
UTStarcom, Inc.
UTSTARCOM, INC.
1275 Harbor Bay Parkway
Alameda, California 94502
SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoint(s) Francis P. BartonSusan Marsch, Mark Green and Keith San Felipe,Viraj Patel, or any one of the two,three, with the power to appoint their respective substitutes, and hereby authorize(s) them as proxies to represent and vote as designated on the reverse side, all shares of Common Stock of the UTStarcom, Inc. (the"Company"“Company”) held of record by the undersigned on April 29, 20082009 at the Annual Meeting of Stockholders to be held on June 27, 200825, 2009 and any adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS GIVEN WITH RESPECT TO THE PROPOSAL, THIS PROXY WILL BE VOTED FOR SUCH PROPOSAL.
PLEASE COMPLETE, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
SEE | CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE | SEE | ||
| REVERSE |
Electronic Voting Instructions
You can vote by Internet or telephone!
Available 24 hours a day 7 days a week!
Instead of mailing your proxy, you may choose one of the two voting methods outlined below to vote your proxy.
VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR.
Proxies submitted by the Internet or telephone must be received by 1:00 a.m., Central Time on June 27, 2008.25, 2009.
Vote by Internet | Vote by telephone | |||
· | Log on to the Internet and go to www.investorvote.com. | · | Call toll free 1-800-652-VOTE (8683) within the United States, Canada & Puerto Rico any time on a touch tone telephone. There isNO CHARGE to you for the call. | |
· | Follow the steps outlined on the secured website. | · | Follow the instructions provided by the recorded message. |
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MR A SAMPLE ADD 6 |
o | Mark this box with an X if you have made changes to your name or address details above. |
Annual Meeting Proxy Card | 123456 | C0123456789 | 12345 | |||
Annual Meeting Proxy | 123456 | C0123456789 | 12345 |
The Board of Directors recommends a vote FOR the nominees listed and FOR Proposals 2 and 3.
2.
A. | PROPOSALS | |||||||||||||||||||
1. | ||||||||||||||||||||
Election of Directors | ||||||||||||||||||||
For | Against |
| ||||||||||||||||||
01— | o | o | o | |||||||||||||||||
02—Hong Liang Lu | o | o | o | |||||||||||||||||
For | Against | Abstain | ||||||||||||||||||
2. | ||||||||||||||||||||
Ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. | o | o | o | |||||||||||||||||
In their discretion, the Proxies are authorized to vote upon such other business that may properly come before the meeting. | ||||||||||||||||||||
B. | Nonvoting Items. | |||||||||||||||||||
Change of address.—Please print new address below. | ||||||||||||||||||||
C. | Authorized Signatures—Sign Here—This section must be completed for your vote to be counted. Date and Sign Below. | |||||||||||||||||||
Please sign exactly as your name appears hereon. Joint owners should each sign. Executors, administrators, trustees, guardians or other fiduciaries should give full title as such. If signing for a corporation, please sign in full corporate name by a duly authorized officer. |
Date (mm/dd/yyyy)— below | Signature 1—Please | Signature 2—Please | |||||
/ / |